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

                                    FORM 10-K
                                -----------------

(Mark One)

[X]   ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES  EXCHANGE
      ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004 OR

[ ]   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(D)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____.

      COMMISSION FILE NUMBER 0-29794

                                 PUBLICARD, INC.
             (Exact Name of Registrant as Specified in Its Charter)

          PENNSYLVANIA                                   23-0991870
(State or Other Jurisdiction                (I.R.S. Employer Identification No.)
 of Incorporation or Organization)

ONE ROCKEFELLER PLAZA, 14TH FLOOR, NEW YORK, NY                     10020
(Address of Principal Executive Offices)                          (Zip Code)

       Registrant's telephone number, including area code: (212) 651-3102

           Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class                   Name of Each Exchange on Which Registered
       NONE                                              NONE

           Securities registered pursuant to Section 12(g) of the Act:
                          COMMON STOCK ($.10 PAR VALUE)
                                (Title of Class)

            RIGHTS TO PURCHASE CLASS A PREFERRED STOCK, FIRST SERIES
                                (Title of Class)

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. Yes [X] No [_]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]


Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes [_] No [X]

As of June 30, 2004, the aggregate  market value of the voting Common Stock held
by non-affiliates of the registrant was approximately $1,025,000.

  Number of shares of Common Stock outstanding as of March 24, 2005: 24,690,902

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None

<PAGE>


                                     PART I

      This Form 10-K contains  forward-looking  statements,  including  (without
limitation)   statements  concerning  possible  or  assumed  future  results  of
operations of PubliCARD,  Inc. and  subsidiaries,  ("PubliCARD,"  the "Company,"
"we," "us" and "our," as the context requires)  preceded by, followed by or that
include  forward-looking  words or  phrases,  including  "believes,"  "expects,"
"anticipates,"   "estimates,"  "may,"  "should,"  "would,"  "could,"  "intends,"
"plans" or similar expressions. For those statements, we claim the protection of
the safe harbor for  forward-looking  statements  contained in the U.S.  Private
Securities  Litigation  Reform Act of 1995.  Forward-looking  statements are not
guarantees  of  future  performance.   They  involve  risks,  uncertainties  and
assumptions.  You should  understand  that the possible  consequences  of events
described  under such  statements  made under  "Factors  That May Affect  Future
Results" and  elsewhere  in this  document  could affect our future  results and
could cause those  results to differ  materially  from those  expressed  in such
forward-looking statements.

ITEM 1.     BUSINESS

      PubliCARD  was  originally  incorporated  in 1913 in the  Commonwealth  of
Pennsylvania.  PubliCARD's sole operating  activities are conducted  through its
Infineer  Ltd.  ("Infineer")  subsidiary.  Infineer  is a smart card  technology
company,  which designs and develops smart card software and hardware  solutions
for campus  environments.  This market includes  institutions  such as corporate
campuses,  secondary  schools and  universities.  The Company's ChipNet solution
focuses on  delivering  a  multi-functional  platform  to control  access to and
payment  for a wide  variety of  applications  using a single  smart  card.  The
solution  has been  designed to  accommodate  integration  with a range of third
party  technologies.  The Company believes that the educational,  government and
corporate  sectors all continue to move toward the more  functional  and broader
applications  that a smart card solution can provide over  traditional  methods.
The  Company  sells its  transaction  solutions  to  value-added  resellers  and
distributors, and directly to end-users.

      The Company's future plans revolve around a potential acquisition strategy
that would focus on businesses in areas outside the high technology sector while
continuing  to support the  expansion of the  Infineer  business.  However,  the
Company will not be able to  implement  such plans  unless it is  successful  in
obtaining funding, as to which no assurance can be given.

      The  consolidated   financial   statements  included  in  this  Form  10-K
contemplate the realization of assets and the satisfaction of liabilities in the
normal  course of  business.  The  Company  has  incurred  operating  losses,  a
substantial  decline in working  capital and negative cash flow from  operations
for a number of years. The Company has also experienced a substantial  reduction
in its cash and short term  investments,  which  declined  from $17.0 million at
December 31, 2000 to $1.9  million at December 31, 2004.  The Company also had a
shareholders' deficiency of $118.5 million at December 31, 2004.

      The Company sponsored a defined benefit pension plan (the "Plan") that was
frozen in 1993.  In January  2003,  the Company  filed a notice with the Pension
Benefit Guaranty  Corporation  (the "PBGC") seeking a "distress  termination" of
the Plan. In September  2004,  the PBGC  proceeded to terminate the Plan and was
appointed  as the  Plan's  trustee.  See  Note 5 to the  Notes  to  Consolidated
Financial Statements for further information regarding the Plan termination.  As
a  result  of  the  Plan  termination,  the  Company's  2003  and  2004  funding
requirements  due to the Plan  amounting to $3.4 million  through  September 15,
2004 were eliminated.  As such, management believes that existing cash and short
term  investments may be sufficient to meet the Company's  operating and capital
requirements  at the currently  anticipated  levels  through  December 31, 2005.
However,  additional  capital  will be  necessary  in  order to  operate  beyond
December 31, 2005 and to fund the current  business plan and other  obligations.
While the Company is considering various funding  alternatives,  the Company has
not secured or entered into any arrangements to obtain additional  funds.  There
can be no assurance that the Company will be able to obtain  additional  funding
on acceptable terms or at all. If the Company cannot raise additional capital to
continue its present level of operations it is not likely to be able to meet its
obligations,  take  advantage  of future  acquisition  opportunities  or further
develop or enhance  its  product  offering,  any of which  would have a material
adverse  effect on its business and results of operations  and is likely to lead
the Company to seek bankruptcy  protection.  These conditions raise  substantial
doubt  about  the  Company's  ability  to  continue  as  a  going  concern.  The
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.  The independent  auditors' reports
on the Company's  Consolidated Financial Statements for the years ended December
31, 2004, 2003 and 2002 contain emphasis paragraphs concerning substantial doubt
about the Company's ability to continue as a going concern.


                                       2
<PAGE>

INDUSTRY

      Security and privacy are primary concerns of the ever-growing  information
economy.  The  expected  level of  growth  in  secure  business-to-business  and
consumer-to-business  transactions  will only  occur if  consumers,  businesses,
governments  and other  organizations  are  confident  that  their  network  and
Internet  exchanges and  transactions  are secure from  unauthorized  intrusion,
usage,  sabotage and theft. To effectively  address the growing need for greater
enterprise and on-line  security,  individuals and  organizations are turning to
smart card technology.  Through its central processing and memory  capabilities,
smart card technology enables cryptographic  communications,  authentication and
other  applications  that permit  secure data access,  information  exchange and
electronic transactions within network and Internet environments.

      A smart card is similar in appearance to a  traditional  credit card,  but
unlike a traditional  credit card, stores  information on an integrated  circuit
chip embedded within the card,  rather than on a magnetic stripe on the surface.
While a typical  magnetic  stripe  card can store  information  such as a user's
name, account and personal  identification number, a smart card has the capacity
to store detailed account  information,  health care records,  merchant coupons,
still or video images and cash.  Additionally,  the integrated  circuit within a
smart card serves as a central  processing unit which,  combined with its memory
capacity, facilitates the use of encryption applications,  which secure data and
value  exchanges  within  networks  and the  Internet.  Smart  cards also permit
bi-directional  authentication  in which the  smart  card can  authenticate  the
validity of the intended  party or device  prior to  exchanging  information  or
value.

      The  rollout of smart  card  technology  started in the  telecommunication
sector, specifically to facilitate the use of public payphones (replacing coins)
and mobile phones (Subscriber  Identification  Modules). The deployment of smart
card technology in this sector demonstrates the security and adaptability of the
technology  and evidences the uniqueness of smart cards as a medium for storing,
transporting  and  processing  personal  information,   access  keys  and  other
information.

      Smart  card  technology  is now  being  widely  deployed  in other  market
sectors,  including  the security and  transaction  management  sectors.  In the
security sector,  smart card technology is being used to authenticate and secure
access to physical premises,  PCs, networks,  virtual private networks,  and the
Internet, and through cryptography, facilitate secure email, electronic document
and information exchanges,  e-commerce  transactions/payments and other Internet
and broadband  applications.  In the transaction  management sector,  smart card
technology  is being used within a variety of closed  system  environments.  For
example,  smart card  technology  is being used in the banking  sector to secure
payment  transactions  in physical and virtual worlds and in the  transportation
sector to replace  "tickets,"  thereby  speeding  up the  ticketing  process and
making  it more  efficient.  Other  closed  environments  such as  corporate  or
educational  campuses are using smart card  technology  to resolve a mix of both
security and  transaction  needs  including  purchase and payment  transactions,
identification, authentication and access.

      Demand for smart card solutions is being further driven by governments and
financial institutions. The U.S. Department of Defense began deployment of smart
cards to armed forces  personnel under the Common Access Card personal  identity
program in 2000. The European  Commission ("EC") is also supporting the adoption
of smart card technology in their continuing  efforts to create a more efficient
and  competitive  economy  within the  European  community.  Through the eEurope
program,  the EC is sponsoring programs to standardize smart card infrastructure
devices and  harmonize  system  platforms.  Finally,  smart card  technology  is
rapidly becoming a key facilitator of financial transactions.  The financial and
banking  community in Asia and Europe is using smart card  technology to support
credit,   debit  and   e-purse   cards   (cards   that   store   cash   values),
multi-application  services and services  dealing with coupons  and/or  tickets.
Several  large  U.S.   financial   institutions,   including  American  Express,
MasterCard and Visa International,  have introduced smart cards as part of their
financial card systems.

      The use of smart card  technology is  especially  well suited for managing
transactions  in closed  environment  solutions that restrict  access and manage
payments.  In closed  environments,  smart  cards are used to control  access to
physical premises,  process payments and provide portable network security.  The
Company  believes that the  educational,  government  and corporate  sectors all
continue to provide growth  opportunities as these  institutions move toward the
more functional and broader  applications that a smart card solution can provide
over other  traditional  methods.  Smart card solutions offer a greater level of
flexibility and permit development of customer specific applications that cannot
be offered by traditional  methods of providing closed environment  security and
transaction management such as the magnetic stripe.


                                       3
<PAGE>


      With  the  increased  use  and  acceptance  of  smart  cards  and  related
technologies  worldwide,  there are  numerous  applications  to use  smart  card
technology in a variety of infrastructure  platforms.  PubliCARD has developed a
client-server  based software solution for closed campus proprietary card users,
which  is  focused  on  delivering  multi-functionality  around  a  single  card
supporting a wide range of third party technologies.

STRATEGY

HISTORY OF THE COMPANY'S SMART CARD INITIATIVE

      PubliCARD  established its presence within the smart card industry through
a series of acquisitions:

o     In February 1998, PubliCARD acquired,  through a joint venture arrangement
      in Greenwald Intellicard,  Inc. ("Greenwald Intellicard"),  the assets and
      intellectual  property of Intellicard Systems,  Ltd. Greenwald Intellicard
      provided smart cards, smart card readers,  value transfer  stations,  card
      management  software  and  machine  interface  boards  for the  commercial
      laundry  appliance  industry.  PubliCARD  initially owned 50% of Greenwald
      Intellicard,  and acquired the remaining 50% in February 1999 and February
      2000.

o     In  November  1998,   PubliCARD  acquired  Tritheim   Technologies,   Inc.
      ("Tritheim"), which developed conditional access and security products for
      the software  industry,  computers and the electronic  information and the
      digital video  broadcast  industry.  In May 2000, the Company  changed the
      name of its Tritheim subsidiary to Infineer, Inc. as part of a re-branding
      effort.

o     In February 1999,  PubliCARD  acquired Amazing!  Smart Card  Technologies,
      Inc.  ("Amazing"),  a developer  of consumer  smart card  solutions  and a
      manufacturer of customized smart cards.

o     In  February  1999,   PubliCARD  acquired  Greystone   Peripherals,   Inc.
      ("Greystone"), a developer of hard disk duplicators.

o     In November 1999,  PubliCARD acquired Absec Limited ("Absec"),  a designer
      of closed  environment  solutions,  including small value  electronic cash
      systems and database  management  solutions.  In May of 2000,  the Company
      changed the name of its Absec  subsidiary  to  Infineer  Ltd. as part of a
      re-branding effort.

      While PubliCARD  developed a number of successful  products and solutions,
its  operations  were  fragmented  throughout a variety of markets.  PubliCARD's
Board of Directors,  together with its management team,  determined to integrate
its operations and focus on a single market in which:

o     high growth potential existed;
o     PubliCARD had established relationships;
o     PubliCARD had already deployed products and gained credibility; and
o     PubliCARD possessed core technologies and competencies.

      PubliCARD  believed  that  it  could  leverage  its  existing  smart  card
technology for deployment in the rapidly growing enterprise and on-line security
and  transaction   management  market  sectors,   which  PubliCARD  had  already
penetrated  and  which  it  believed  exhibited  each  of  the   characteristics
identified  above.  To effect this new  business  strategy,  in March 2000,  the
Company's Board of Directors  adopted a plan to dispose of the operations of the
Company's  Greenwald  Industries  Inc.  ("Greenwald"),   Greenwald  Intellicard,
Greystone and Amazing subsidiaries.  These subsidiaries  designed,  manufactured
and  distributed  mechanical  and  smart  card  laundry  solutions,   hard  disk
duplicators and smart cards.

      On June 29, 2000, the Company  completed the sale of substantially  all of
the  assets of  Greenwald  and  Greenwald  Intellicard  to The  Eastern  Company
("Eastern")  for $22.5  million in cash,  less $1.75  million  held in escrow to
secure  the  payment  of  certain  indemnification  obligations.  As part of the
transaction,  Eastern  assumed  certain  liabilities  of Greenwald and Greenwald
Intellicard,  including certain  contractual  liabilities,  accounts payable and
accrued  liabilities.  The Company  completed the wind-down of the operations of
Amazing and Greystone  including the sale of certain assets and the licensing of
certain intellectual property during 2000 and 2001.

      In December 2000, the Company acquired a 3.5% ownership interest in TecSec
Incorporated ("TecSec") for $5.1 million.  TecSec, a Virginia company,  develops
and markets encryption products and solutions,  which are designed to enable the
next  generation  information  security  for  the  enterprise,  multi-enterprise
e-business and other markets.


                                       4
<PAGE>


      In July 2001,  after  evaluating the timing of potential  future revenues,
PubliCARD's  Board decided to shift the  Company's  strategic  focus.  While the
Board remained confident in the long-term  prospects of the smart card business,
the timing of public sector and corporate  initiatives in wide-scale,  broadband
environments  utilizing  the  Company's  smart card reader and chip products had
become more  uncertain.  Given the  lengthened  time horizon,  the Board did not
believe  it would be  prudent  to  continue  to  invest  the  Company's  current
resources  in the  ongoing  development  and  marketing  of these  technologies.
Accordingly,  the Board  determined that  shareholders'  interests would be best
served by pursuing strategic  alliances with one or more companies that have the
resources  to  capitalize  more fully on the  Company's  smart  card  reader and
chip-related  technologies.  In  connection  with  this  shift in the  Company's
strategic  focus,  workforce  reductions and other measures were  implemented to
achieve cost savings.

CURRENT STRATEGY

      At present,  PubliCARD's sole operating  activities are conducted  through
its Infineer subsidiary,  which designs smart card solutions for educational and
corporate   sites.  The  Company's  future  plans  revolve  around  a  potential
acquisition  strategy focused on businesses in areas outside the high technology
sector while  continuing  to support the  expansion  of the  Infineer  business.
However,  the  Company  will not be able to  implement  such plans  unless it is
successful  in obtaining  funding,  as to which no assurance  can be given.  Key
elements of our strategy include the following:

o     GENERATE  CAPITAL.  Management  believes that existing cash and short term
      investments may be sufficient to meet the Company's  operating and capital
      requirements  at the currently  anticipated  levels  through  December 31,
      2005.  However,  additional  capital will be necessary in order to operate
      beyond  December 31, 2005 and to fund the current  business plan and other
      obligations.   While  the   Company   is   considering   various   funding
      alternatives, the Company has not secured or entered into any arrangements
      to obtain  additional  funds.  There can be no assurance  that the Company
      will be able to obtain  additional  funding on acceptable terms or at all.
      If the Company  cannot  raise  additional  capital to continue its present
      level of operations  it is not likely to be able to meet its  obligations,
      take advantage of future  acquisition  opportunities or further develop or
      enhance its product  offering,  any of which would have a material adverse
      effect on its business and results of operations and is likely to lead the
      Company to seek bankruptcy protection.  These conditions raise substantial
      doubt about the Company's ability to continue as a going concern.

o     GROW PUBLICARD BUSINESS THROUGH ACQUISITIONS.  An important element of the
      Company's  strategic plan involves the  acquisition of businesses in areas
      outside the technology  sectors in which the Company is engaged,  so as to
      diversify  its  asset  base.  The  Company  made a  series  of  successful
      acquisitions  in the 1980s and early 1990s and will  endeavor to replicate
      this  success  by  seeking  out  businesses  meeting a  targeted  profile.
      Implementation  of this plan will  require the Company to obtain  funding.
      However, there can be no assurance that the Company will be able to obtain
      funding on acceptable terms or at all.

o     EXPAND INFINEER MARKET REACH. Management believes that Infineer can expand
      the  market  reach  of its  smart  card  solutions  by  forming  strategic
      marketing  and  distribution  relationships  with a number of key industry
      players both in the United  Kingdom and  elsewhere.  Infineer has a strong
      market position in the United Kingdom  educational sector, and to a lesser
      extent in the  corporate  market,  and  intends to  leverage  this  market
      position to select markets outside of the United  Kingdom.  Implementation
      of this initiative  will require the Company to obtain  funding.  However,
      there can be no assurance  that the Company will be able to obtain funding
      on acceptable terms or at all.

o     EXPAND INFINEER PRODUCT  OFFERING.  Management  believes that Infineer can
      expand its total product  offering,  technologies  and market  position by
      partnering  with  companies  engaged  in  complementary  businesses  or by
      acquiring or licensing complementary  technologies and products.  Infineer
      intends to form relationships, which will provide a "complete" solution to
      the educational and corporate campus market places. Implementation of this
      initiative will require the Company to obtain funding.  However, there can
      be no  assurance  that  the  Company  will be able to  obtain  funding  on
      acceptable terms or at all.

PUBLICARD PRODUCTS AND SOLUTIONS

      PubliCARD,  through its Infineer subsidiary,  designs smart card solutions
for campus environments.  Infineer's solutions facilitate card-based payment for
a wide  variety of services  typically  found on both  corporate  and  education
sites.  Infineer's  card-based  solutions  are  currently  installed in over 700
sites,  primarily in educational  and corporate  sites in the United Kingdom and
Ireland. Infineer's products and solutions include the following:

o     CHIPNET3.  Using a single smart card,  ChipNet3  users gain access to, and
      tender  payment  for, a wide variety of services  typically  found on both
      corporate and educational  sites.  ChipNet3 delivers  applications such as
      photo identification,  payment for cafeteria,  vending machine,  photocopy


                                       5
<PAGE>


      and printing purchases, and access control on a single card platform. Each
      time a transaction takes place, all details are recorded, such as the date
      and  time,  user and item  purchased.  The  transaction  details  are then
      processed by a back office  software  package,  utilizing a tracking  tool
      that delivers  accurate  management  information  regarding sales and card
      activity.

      ChipNet3 has the ability to accept a range of both contact and contactless
      smart  cards.  The  solution  is scalable  and can run in a  networked  or
      non-networked  environment.  The ChipNet3  solution has been structured to
      allow integration with existing third party  applications such as payroll,
      stock control,  physical access control, PC log-on and time and attendance
      reporting.

      ChipNet3  solution is comprised of smart cards,  application  software and
      hardware.  Each user has a personalized smart card which may feature photo
      identification,  a bar  code,  magnetic  stripe  or  signature  panel,  if
      required.   The  chip  on  the  card  carries  the  cardholder's  personal
      permission  file and may be loaded and reloaded with a cash value which is
      used for purchasing needs. Hardware includes  point-of-sale  terminals and
      mini-tills,  vending  station  card  readers and  add-value or card reload
      stations.

      Infineer  recently  introduced  ChipNetID which allows corporate sites the
      ability  to  extend  the use of  their  existing  identification  cards to
      include payment at cafeteria and vending  stations.  ChipNetID can operate
      with a range  of  contactless  smart  cards  issued  by  Mifare  and  HID.
      Corporate sites can benefit from deploying cashless payments in a facility
      without  the need to replace  existing  in-use  identification  and access
      control cards.

o     EASYSMART.  EasySmart is designed to deliver a first experience with smart
      cards  for  locations   that  do  not  want  to  pay  or  do  not  need  a
      multi-application card system, and has been developed to fill a gap in the
      market   for   an   entry-level   smart   card   solution   providing   an
      administration-free  payment system.  EasySmart is a stand-alone  solution
      operating  with a low cost  smart  card and is useful  for a wide range of
      locations including colleges,  cafeterias and libraries.  EasySmart offers
      card  acceptance  for PC  log-on,  cafeteria  point-of-sale,  self-service
      centers, networked printing,  photocopying and encoding stations. Although
      EasySmart  offers the  capacity to run without  being  networked,  it also
      contains a built-in upgrade path to ChipNet3.

o     EASYCARD.  The EasyCard  product line delivers a flexible  magnetic stripe
      based  solution  across  a  range  of  applications,   including  copying,
      printing,  point-of-sale,  vending and  Internet  access.  Operating  with
      either disposable or rechargeable thin magnetic stripe cards,  EasyCard is
      a simple to use solution, useful for schools, colleges, libraries and copy
      shops as well as corporate and government  facilities and business  parks.
      Users  carry  cards,  featuring  either  a cash  or  unit  value,  and the
      appropriate  amount is  deducted  each time a service  is used.  For those
      customers not paying in advance for  services,  account cards can be used,
      recording  the  use of a  range  of  services  against  an  individual  or
      department.  A full range of support  products  offer card  acceptance  at
      self-service card centers and encoding stations.

o     PCOUNTER. Pcounter is a scalable network server-based print management and
      accounting  solution  that  provides  a range  of cost  control  and  cost
      recovery  capabilities.  Pcounter  aims to eliminate  waste and misuse and
      help  rationalize  and  reallocate  print  resources  by  providing  usage
      accountability.  Pcounter is marketed to schools,  colleges,  professional
      services firms, the public sector and corporations.

SALES AND MARKETING

      Infineer sells and distributes  its products  directly to end-users in the
United Kingdom  through its direct sales force.  Infineer has  approximately  16
employees directly engaged in the sale, distribution and support of its products
in the United Kingdom. Outside of the United Kingdom, Infineer is represented by
over 30 independent distributors and value-added resellers. Key markets include,
among others, the United States, the Netherlands, France and Australia.

      In support of its sales strategies, Infineer also makes use of direct mail
campaigns to its  customers,  advertising  in targeted  trade media and at trade
shows and  conferences.  Infineer  intends to continue seeking to form strategic
relationships  with key  industry  players to provide it with  access to leading
edge technology,  marketing and sales leverage,  and access to key customers and
accounts.

RESEARCH AND DEVELOPMENT

      Research and development is a key element to the Company's  future success
and competitive  position.  Infineer develops an annual  technology  development
plan as an integral part of its business planning process.  This plan identifies
new areas requiring development in support of identified business opportunities,
as well as a program of  maintenance  and  enhancement  for existing  solutions.
Development  expenses  were  $716,000,  $584,000 and $605,000 in 2004,  2003 and
2002, respectively.


                                       6
<PAGE>


      Infineer's product development is organized to quickly bring products from
concept to product  introduction.  The Company's future success will depend upon
its ability to enhance  existing  products and to develop and to  introduce  new
products on a timely basis that keep pace with  technological  developments  and
emerging industry standards and address the increasingly  sophisticated needs of
its customers.  See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Factors That May Affect Future Results -- Our future
success  depends on our  ability  to keep pace with  technological  changes  and
introduce new products in a timely manner."

COMPETITION

      Competition  in the markets in which  Infineer  operates is intense and is
characterized by rapidly changing  technologies,  evolving  industry  standards,
frequent new product  introductions and rapid changes in customer  requirements.
To maintain and improve its  competitive  position,  Infineer  must  continue to
develop and introduce,  on a timely and  cost-effective  basis, new products and
product  features that keep pace with  technological  developments  and emerging
industry  standards  and address  the  increasingly  sophisticated  needs of its
customers. The principal competitive factors affecting the market for Infineer's
technology  products  are the  product's  technical  characteristics  and price,
customer  service  and  competitor  reputation,   as  well  as  positioning  and
resources.  See "Management's Discussion and Analysis of Financial Condition and
Results of  Operations  - Factors That May Affect  Future  Results -- The highly
competitive  markets in which we operate could have a material adverse effect on
our business and  operating  results."  Infineer will be required to continue to
respond promptly and effectively to the challenges of technological  changes and
its competitors' innovations.

      The  market  for  smart  card  technology   solutions  is  new,  intensely
competitive and rapidly evolving. The Company expects competition to continue to
increase  both from existing  competitors  and new market  entrants.  Infineer's
primary  competition  currently  comes  from  or is  anticipated  to  come  from
companies   offering  campus  environment   solutions,   including  small  value
electronic  cash systems and  database  management  solutions,  such as Moneybox
(Girovend),  Counter  Solutions,  Uniware,  Cunninghams,  Plastic Card Services,
MARS, Diebold and Schlumberger.

      Many of Infineer's current and potential competitors have longer operating
histories  and  significantly  greater  financial,  technical,  sales,  customer
support,  marketing and other resources, as well as greater name recognition and
a larger installed base of their products and technologies  than Infineer.  Many
of these companies have broader customer  relationships that could be leveraged,
including relationships with many of Infineer's customers.  These companies also
have more established customer support and professional  services  organizations
than  Infineer  does.  In  addition,  a number of companies  with  significantly
greater  resources than Infineer could attempt to increase their presence in the
marketplace  by acquiring or forming  strategic  alliances  with  competitors of
Infineer, resulting in increased competition.

INTELLECTUAL PROPERTY

      PubliCARD's  success depends  significantly  upon  Infineer's  proprietary
technology.  Infineer  relies on a combination of copyright and trademark  laws,
trade secrets,  confidentiality agreements and contractual provisions to protect
its proprietary  rights.  Infineer seeks to protect its software,  documentation
and other written  materials under trade secret and copyright laws, which afford
only limited  protection.  Infineer  generally enters into  confidentiality  and
non-disclosure agreements with its employees and with key vendors and suppliers.
Despite  Infineer's  efforts to protect  its  proprietary  rights,  unauthorized
parties may attempt to copy aspects of Infineer's  products or to obtain and use
information that Infineer regards as proprietary.  Moreover, effective copyright
and trade secret  protection may be  unavailable  or limited in certain  foreign
countries,  making the possibility of misappropriation of Infineer's proprietary
technology  more likely.  The steps taken by Infineer to protect its proprietary
technology  might not  prevent  misappropriation  of such  technology,  and such
protections  may  not  preclude   competitors  from  developing   products  with
functionality or features similar to Infineer's products.

      PubliCARD  currently has several  trademarks  and  trademark  applications
registered  and  pending in the  United  States.  PubliCARD  and  Infineer  will
continue to evaluate  the  registration  of  additional  trademarks  as it deems
appropriate.  There can be no assurance  that Infineer will develop  proprietary
products  or  technologies  that are  patentable,  that any issued  patent  will
provide  Infineer with any  competitive  advantages or will not be challenged by
third  parties or that the  patents of others  will not have a material  adverse
effect on Infineer's business and operating results.

      In the event that  Infineer's  technology  or products are  determined  to
infringe  upon the rights of others,  Infineer  could be required to cease using
such technology and stop selling such products,  if Infineer is unable to obtain
licenses to utilize such  technology.  There can be no assurance  that  Infineer
would be able to obtain such licenses in a timely manner on acceptable terms and
conditions,  and the  failure to do so could have a material  adverse  effect on
PubliCARD's  and Infineer's  financial  condition and results of operations.  If


                                       7
<PAGE>


Infineer  is unable to obtain  such  licenses,  it could  encounter  significant
delays in product market  introductions  while it attempted to design around the
infringed-upon patents or rights, or could find the development,  manufacture or
sale of products  requiring such license to be foreclosed.  In addition,  patent
disputes are common in the smart card and computer  industries  and there can be
no assurance  that  PubliCARD and Infineer will have the financial  resources to
enforce or defend a patent infringement or proprietary rights action.

      PubliCARD  expects that software  product  developers will be increasingly
subject to infringement  claims as the number of products and competitors in the
smart card  market  grows.  Any such  claims,  with or without  merit,  could be
time-consuming,  result in costly  litigation  and  diversion of  technical  and
management  personnel,  cause  product  shipment  delays or require  Infineer to
develop non-infringing technology or enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable or at all. In the event of a successful claim of product infringement
against Infineer and failure or inability to develop  non-infringing  technology
or license the  infringed  or similar  technology,  PubliCARD's  and  Infineer's
business,  financial  condition  and results of  operations  could be materially
adversely  affected.  See  "Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations -- Factors That May Affect Future Results --
Our  proprietary  technology  is  difficult  to protect and may  infringe on the
intellectual proprietary rights of third parties."

EMPLOYEES

      As of March 24, 2005, the Company had approximately 38 employees, of which
36 are employed by Infineer.  At  Infineer,  there are 16 employees  involved in
sales,  marketing and customer support,  9 employees in product  development,  7
employees  in  manufacturing  and 4  employees  in  administration.  The Company
considers its employee relations to be good.

SEGMENT INFORMATION

      The Company's  sole operating  activities  involve the deployment of smart
card solutions for educational and corporate sites. As such, the Company reports
as a single segment. Revenues by geographical areas for the years ended December
31, 2004, 2003 and 2002 are as follows (in thousands):

                                           2004            2003            2002
                                          ------          ------          ------
United States                             $  540          $  869          $1,029
Europe                                     3,631           3,467           3,445
Rest of world                                224             445             131
                                          ------          ------          ------
                                          $4,395          $4,781          $4,605
                                          ======          ======          ======

      The  Company  has  operations  in the United  States  and United  Kingdom.
Identifiable  tangible assets by country as of December 31, 2004 and 2003 are as
follows (in thousands):

                                           2004            2003
                                          ------          ------
United States                             $2,770          $4,542
United Kingdom                             1,521           2,035
                                          ------          ------
                                          $4,291          $6,577
                                          ======          ======

      See also the Company's Financial Statements beginning on page F-1.

AVAILABLE INFORMATION

The SEC maintains an Internet site that contains reports,  proxy and information
statements, and other Company related information at http://www.sec.gov.


                                       8
<PAGE>


ITEM 1A.    EXECUTIVE OFFICERS OF THE REGISTRANT

      The  following  table  sets  forth  information  about the only  executive
officer  of the  Company  as of March 24,  2005.  The  business  address  of the
executive  officer is the address of the Company,  One  Rockefeller  Plaza,  New
York, New York 10020.

Name                       Age          Office and Position
-----------------          ---          ------------------------------------
Antonio L. DeLise          43           Director, President, Chief Executive
                                        Officer, Chief Financial Officer and
                                        Secretary

      Officers  are  elected  to serve for a term  ending  with the next  annual
meeting of shareholders.

      Mr.  DeLise  joined the  Company in April  1995 as Vice  President,  Chief
Financial  Officer and Secretary.  He was appointed to the Board of Directors in
July 2001 and was elected to the additional  posts of President in February 2002
and Chief Executive Officer in August 2002.

      Effective  January 1, 2005, Harry I. Freund and Jay S. Goldsmith  resigned
their officer positions as Chairman and Vice Chairman,  respectively. Mr. Freund
and Mr.  Goldsmith  remain Chairman and Vice Chairman of the Board of Directors,
respectively.

ITEM 2.     PROPERTIES

      The Company  leases the  following  facilities,  which are  believed to be
adequate for its present needs.

                                                    YEAR OF LEASE      SQUARE
PREMISES                      PURPOSE                EXPIRATION        FOOTAGE
----------------   -------------------------------  -------------      -------
New York, NY       Executive offices for PubliCARD      2007             3,600
Bangor, Northern   Office and manufacturing             2008            12,000
 Ireland

      Balfour Investors Inc.  ("Balfour") occupies a portion of the office space
leased by the Company in New York City.  The Chairman  and Vice  Chairman of the
Company's Board of Directors are the only shareholders of Balfour.  Balfour pays
to the Company 50% of the rent and occupancy costs paid by the Company under its
lease, including base rent, electricity,  water, real estate tax escalations and
operation  and  maintenance  escalations.  The base rent  payable  by Balfour is
approximately $9,500 per month.

ITEM 3.     LEGAL PROCEEDINGS

      On May 28, 2002,  a lawsuit was filed  against the Company in the Superior
Court of the State of  California,  in the  County of Los  Angeles by Leonard M.
Ross and affiliated entities alleging, among other things, misrepresentation and
securities  fraud.  The  lawsuit  names the  Company and four of its current and
former executive  officers and directors as the defendants.  The plaintiffs seek
monetary and punitive  damages for alleged  actions  made by the  defendants  in
order to induce  the  plaintiffs  to  purchase,  hold or  refrain  from  selling
PubliCARD common stock. The plaintiffs  allege that the defendants made a series
of   material   misrepresentations,   misleading   statements,   omissions   and
concealments, specifically and directly to the plaintiffs concerning the nature,
existence  and  status of  contracts  with  certain  purchasers,  the nature and
existence  of  investments  in the  Company  by third  parties,  the  nature and
existence of business  relationships and investments by the Company. The Company
believes it has  meritorious  defenses to the  allegations and intends to defend
vigorously.

      In November 2002, the Company and the  individual  defendants  served with
the action filed a demurrer seeking the dismissal of six of the plaintiffs' nine
purported  causes of action.  In January  2003,  the court ruled in favor of the
demurrer and dismissed the entire  complaint.  The  plaintiffs  were granted the
right to replead and subsequently  filed an amended  complaint in February 2003.


                                       9
<PAGE>


The Company and individual  defendants filed a second demurrer in March 2003. In
June 2003, the court ruled in favor of the demurrer and dismissed, without leave
to amend, six of the eleven purported causes of action in the amended complaint.
Discovery has commenced  and no trial date has been set.  Consequently,  at this
time it is not reasonably possible to estimate the damages, or range of damages,
if any, that the Company might incur in connection with this action. However, if
the  outcome of this  lawsuit is  unfavorable  to the  Company,  it could have a
material  adverse  effect on the Company's  operations,  cash flow and financial
position.

      The Company incurred  approximately  $200,000 in defense costs in 2002. No
additional costs have been incurred in 2004 and 2003. Notice of the commencement
of this action has been given to the Company's  directors and officers liability
insurance  carriers.  The Company's  directors and officers liability  insurance
carriers are funding the additional  costs of defending this action,  subject to
the carriers' reservation of rights.

      Various  other legal  proceedings  are pending  against the  Company.  The
Company considers all such other proceedings to be ordinary  litigation incident
to the  character  of its  business.  Certain  claims are  covered by  liability
insurance.  The Company  believes  that the  resolution  of these  claims to the
extent not covered by insurance will not, individually or in the aggregate, have
a material adverse effect on the consolidated financial position or consolidated
results of operations of the Company.

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

None


                                       10
<PAGE>

PART II

ITEM 5.     MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY,  RELATED  STOCKHOLDER
            MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a)   PubliCARD's  common  stock was listed on the Nasdaq  National  Market from
      December 22, 1998 to May 1, 2002.  Effective  May 2, 2002,  the listing of
      PubliCARD common stock was transferred to the Nasdaq SmallCap  Market.  On
      March 19, 2003, the Company received a Nasdaq Staff  Determination  letter
      indicating  that the  Company  failed to comply with the minimum bid price
      requirement  for continued  listing on the Nasdaq SmallCap Market and that
      the Company's common stock was therefore  subject to delisting.  The board
      of  directors  of  the  Company   decided  not  to  appeal  the  delisting
      determination.  Effective March 28, 2003, the Company's common stock began
      trading  on the OTC  Bulletin  Board.  See  "Management's  Discussion  and
      Analysis of Financial  Condition  and Results of Operations - Factors That
      May  Affect  Future  Results  - Our  stock was  delisted  from the  Nasdaq
      System."  The  following  table sets forth the high and low  closing  sale
      prices of PubliCARD's  common stock for the calendar periods indicated (in
      dollars):

                                       2004                    2003
                                 ----------------        ----------------
                                 HIGH        LOW         HIGH         LOW
                                 ----        ----        ----         ---
       First Quarter              .09        .05         .16          .06
       Second Quarter             .10        .05         .09         .042
       Third Quarter              .06        .03         .09         .045
       Fourth Quarter             .06        .02         .12          .04

(b)   There  were  approximately  2,300  registered  holders of record of common
      stock of the Company as of March 24, 2005.

(c)   The Company did not pay  dividends  on its common  stock  during the prior
      five  fiscal  years  and  does  not  anticipate  paying  dividends  in the
      foreseeable future.


                                       11
<PAGE>

ITEM 6.     SELECTED FINANCIAL DATA

      The selected  financial data of the Company  presented  below for the five
year period ended  December  31, 2004 have been  derived  from the  consolidated
financial  statements of the Company.  The information set forth below should be
read in  conjunction  with  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations"  and the Company's  Consolidated  Financial
Statements and the Notes thereto included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31
                                                      --------------------------------------------------------
                                                        2004        2003        2002        2001        2000
                                                      --------    --------    --------    --------    --------
<S>                                                   <C>         <C>         <C>         <C>         <C>
                                                                (in thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
Revenues                                              $  4,395    $  4,781    $  4,605    $  5,652    $  5,543
Cost of revenues                                         2,010       2,316       2,455       2,875       2,913
Inventory adjustment                                        --          --          --       1,661          --
                                                      --------    --------    --------    --------    --------
Gross margin                                             2,385       2,465       2,150       1,116       2,630
                                                      --------    --------    --------    --------    --------

Operating expenses:
General and administrative                               2,330       2,708       3,235       4,625       6,664
Sales and marketing                                      1,671       1,844       1,877       3,413       7,562
Product development                                        716         584         605       2,442       4,364
Stock compensation expense                                  --          --          --          86       1,116
Amortization of goodwill and intangibles                    40          40         576       1,824       2,638
Impairment of goodwill and intangibles                      --          --       1,365          --          --
Repositioning and other special charges                     --          --          --       5,656          --
                                                      --------    --------    --------    --------    --------
                                                         4,757       5,176       7,658      18,046      22,344
                                                      --------    --------    --------    --------    --------
Loss from operations                                    (2,372)     (2,711)     (5,508)    (16,930)    (19,714)
                                                      --------    --------    --------    --------    --------

Other income (expenses):
Interest income                                             27          15          71         476         936
Interest expense                                           (22)        (12)        (39)        (65)       (100)
Cost of retirement benefits - non-operating               (405)       (903)       (795)       (788)       (812)
Loss on pension settlement                              (2,739)         --          --          --          --
Write-down of minority investment                           --      (3,000)     (2,068)         --          --
Gain on insurance recoveries                               647       4,590          --          --          --
Other income                                                 5         428          80         136          15
                                                      --------    --------    --------    --------    --------
                                                        (2,487)      1,118      (2,751)       (241)         39
                                                      --------    --------    --------    --------    --------
Loss from continuing operations                         (4,859)     (1,593)     (8,259)    (17,171)    (19,675)
                                                      --------    --------    --------    --------    --------
Gain on disposition of discontinued operations              --          --       1,066       2,350       4,275
                                                      --------    --------    --------    --------    --------
Net loss                                              $ (4,859)   $ (1,593)   $ (7,193)   $(14,821)   $(15,400)
                                                      ========    ========    ========    ========    ========

Basic and diluted earnings (loss) per common share:
Continuing operations                                 $   (.20)   $   (.07)   $   (.34)   $   (.71)   $   (.84)
Discontinued operations                                     --          --         .04         .10         .18
                                                      --------    --------    --------    --------    --------
                                                      $   (.20)   $   (.07)   $   (.30)   $   (.61)   $   (.66)
                                                      ========    ========    ========    ========    ========


                                                                        AS OF DECEMBER DECEMBER 31
                                                      --------------------------------------------------------
                                                        2004        2003        2002        2001        2000
                                                      --------    --------    --------    --------    --------
BALANCE SHEET DATA:
Working capital (deficiency)                          $  1,405    $   (987)   $   (548)   $  2,631    $ 13,168
Total assets                                             5,073       7,399       7,939      17,397      37,179
Other non-current liabilities                            7,869       3,552       4,990       5,328       6,010
Shareholders' equity (deficiency)                       (5,159)     (2,928)     (1,002)      7,484      12,578
</TABLE>


No dividends on common shares have been declared or paid during the last five
years.


                                       12
<PAGE>


ITEM 7.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND
            RESULTS OF OPERATIONS

OVERVIEW

      PubliCARD was  incorporated  in the  Commonwealth of Pennsylvania in 1913.
PubliCARD  entered the smart card  industry in early 1998,  and began to develop
solutions for the conditional access, security,  payment system and data storage
needs of  industries  utilizing  smart card  technology.  In 1998 and 1999,  the
Company made a series of  acquisitions to enhance its position in the smart card
industry. In March 2000, PubliCARD's Board of Directors (the "Board"),  together
with its  management  team,  determined to integrate its operations and focus on
deploying smart card solutions, which facilitate secure access and transactions.
To effect this new business strategy, in March 2000, the Board adopted a plan of
disposition pursuant to which the Company divested its non-core operations.  See
Note  9 to  the  Consolidated  Financial  Statements  for a  discussion  on  the
disposition plan.

      In July 2001,  after  evaluating the timing of potential  future revenues,
PubliCARD's  Board decided to shift the  Company's  strategic  focus.  While the
Board remained confident in the long-term  prospects of the smart card business,
the timing of public sector and corporate  initiatives in wide-scale,  broadband
environments  utilizing  the  Company's  smart card reader and chip products had
become more  uncertain.  Given the  lengthened  time horizon,  the Board did not
believe  it would be  prudent  to  continue  to  invest  the  Company's  current
resources  in the  ongoing  development  and  marketing  of these  technologies.
Accordingly,  the Board  determined  that  shareholders'  interests will be best
served by pursuing strategic  alliances with one or more companies that have the
resources  to  capitalize  more fully on the  Company's  smart  card  reader and
chip-related  technologies.  In  connection  with  this  shift in the  Company's
strategic  focus,  workforce  reductions and other measures were  implemented to
achieve cost savings.

      At present,  PubliCARD's sole operating  activities are conducted  through
its Infineer subsidiary,  which designs smart card solutions for educational and
corporate   sites.  The  Company's  future  plans  revolve  around  a  potential
acquisition  strategy  that would focus on  businesses in areas outside the high
technology  sector  while  continuing  to support the  expansion of the Infineer
business.  However,  the Company will not be able to implement such plans unless
it is successful in obtaining  additional  funding, as to which no assurance can
be given.

      PubliCARD's  consolidated financial statements contemplate the realization
of assets and the  satisfaction of liabilities in the normal course of business.
The Company has incurred  operating  losses,  a  substantial  decline in working
capital  and  negative  cash flow  from  operations  for a number of years.  The
Company has also experienced a substantial  reduction in its cash and short term
investments,  which  declined  from $17.0  million at December  31, 2000 to $1.9
million at December 31, 2004.  The Company also had a  shareholders'  deficit of
$5.2 million at December 31, 2004.

      The Company's  defined benefit pension plan was frozen in 1993. In January
2003, the Company filed a notice with the PBGC seeking a "distress  termination"
of the Plan. In September 2004, the PBGC proceeded to terminate the Plan and was
appointed  as the  Plan's  trustee.  See  Note 5 to the  Notes  to  Consolidated
Financial  Statements  for further  information  on the Plan  termination.  As a
result of the Plan termination, the Company's 2003 and 2004 funding requirements
due to the Plan  amounting  to $3.4  million  through  September  15,  2004 were
eliminated.  As such,  management  believes  that  existing  cash and short term
investments  may be  sufficient  to meet the  Company's  operating  and  capital
requirements  at the currently  anticipated  levels  through  December 31, 2005.
However,  additional  capital  will be  necessary  in  order to  operate  beyond
December 31, 2005 and to fund the current  business plan and other  obligations.
While the Company is considering various funding  alternatives,  the Company has
not secured or entered into any arrangements to obtain additional  funds.  There
can be no assurance that the Company will be able to obtain  additional  funding
on acceptable terms or at all. If the Company cannot raise additional capital to
continue its present level of operations it is not likely to be able to meet its
obligations,  take  advantage  of future  acquisition  opportunities  or further
develop or enhance  its  product  offering,  any of which  would have a material
adverse  effect on its business and results of operations  and is likely to lead
the Company to seek bankruptcy  protection.  These conditions raise  substantial
doubt  about  the  Company's  ability  to  continue  as  a  going  concern.  The
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.  The independent  auditors' reports
on the Company's  Consolidated Financial Statements for the years ended December
31, 2004, 2003 and 2002 contain emphasis paragraphs concerning substantial doubt
about the Company's ability to continue as a going concern.


                                       13
<PAGE>


RESULTS OF OPERATIONS

      The following table is derived from the Consolidated  Financial Statements
and sets forth the Company's  consolidated  results of operations  for the years
ended December 31, 2004, 2003 and 2002 (in thousands).

<TABLE>
<CAPTION>
                                                    2004        2003        2002
                                                   -------     -------     -------
<S>                                                <C>         <C>         <C>
Revenues                                           $ 4,395     $ 4,781     $ 4,605
Cost of revenues                                     2,010       2,316       2,455
                                                   -------     -------     -------
     Gross margin                                    2,385       2,465       2,150
                                                   -------     -------     -------
     Gross margin percentage                            54%         52%         47%
Operating expenses:
     General and administrative                      2,330       2,708       3,235
     Sales and marketing                             1,671       1,844       1,877
     Product development                               716         584         605
     Amortization of intangibles                        40          40         576
     Impairment of goodwill and intangibles             --          --       1,365
                                                   -------     -------     -------
                                                     4,757       5,176       7,658
                                                   -------     -------     -------
Loss from operations                                (2,372)     (2,711)     (5,508)
                                                   -------     -------     -------
Other income (expenses):
     Interest income                                    27          15          71
     Interest expense                                  (22)        (12)        (39)
     Cost of retirement benefits - non-operating      (405)       (903)       (795)
     Loss on pension settlement                     (2,739)         --          --
     Write-down of minority investment                  --      (3,000)     (2,068)
     Gain on insurance recoveries                      647       4,590          --
     Other income                                        5         428          80
                                                   -------     -------     -------
                                                    (2,487)      1,118      (2,751)
                                                   -------     -------     -------
Loss  from continuing operations                    (4,859)     (1,593)     (8,259)
Income from discontinued operations                     --          --       1,066
                                                   -------     -------     -------
Net loss                                           $(4,859)    $(1,593)    $(7,193)
                                                   =======     =======     =======
</TABLE>

YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003

      REVENUES.  Revenues are  generated  from  product  sales,  technology  and
software  license fees,  installation  and maintenance  contracts.  Consolidated
revenues  decreased to $4.4  million in 2004  compared to $4.8 million for 2003.
Foreign  currency  changes  had the  effect  of  increasing  revenues  by a 10%.
Excluding the impact of foreign currency changes,  revenues in 2004 decreased by
18%  driven  principally  by a decline in  shipments  to  distribution  partners
located in the United States and elsewhere outside of Europe.

      GROSS MARGIN.  Cost of revenues consists primarily of material,  personnel
costs and overhead.  Gross margin as a percentage  of sales  increased to 54% in
2004  from 52% in 2003.  The gross  margin  improvement  resulted  from a higher
percentage of revenues derived from direct sales in the United Kingdom.

      SALES  AND  MARKETING  EXPENSES.  Sales  and  marketing  expenses  consist
primarily of  personnel  and travel  costs,  public  relations,  trade shows and
marketing  materials.  Sales and  marketing  expenses  were $1.7 million in 2004
compared to $1.8 million in 2003.  The decrease is primarily  attributable  to a
reduction  in  employee  business  expense  and  employee   termination  expense
resulting from headcount  reductions in 2003.  Also, the 2004 expenses reflect a
reimbursement  of $47,000 of  marketing  costs  under a grant with a  government
agency in Northern Ireland.

      PRODUCT  DEVELOPMENT   EXPENSES.   Product  development  expenses  consist
primarily  of  personnel,   independent  consultants  and  contract  engineering
services.  Product  development  expenses include  expenses  associated with the
development  of new  products and  enhancements  to existing  products.  Product
development  expenses amounted to $716,000 in 2004 compared to $584,000 in 2003.
The 2003 expenses included a $75,000  reimbursement of certain development costs
under a grant with a government agency in Northern Ireland.  This reimbursement,
coupled  with a $73,000  increase  in wages and third party  engineering  costs,
primarily accounted for the increase in product development expense.


                                       14
<PAGE>


      GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative expenses
consist   primarily  of  personnel  and  related  costs  for  general  corporate
functions,  including finance and accounting,  human resources,  risk management
and legal.  General and administrative  expenses for the year ended December 31,
2004  decreased  to $2.3  million  from $2.7  million for 2003.  The decrease in
expenses is mainly attributable to a $196,000 decline in corporate legal, public
reporting  costs and other  corporate  costs as well as a $43,000  favorable bad
debt allowance adjustment.

      AMORTIZATION  OF  INTANGIBLES.  In accordance  with  Financial  Accounting
Standards Board ("FASB")  Statement of Financial  Accounting  Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), goodwill is no
longer  amortized.  Goodwill and other  intangibles will be subject to an annual
review for  impairment  or  earlier if  circumstances  or events  indicate  that
impairment has occurred.  This may result in future write-downs or the write-off
of such assets.  Amortization expense in 2004 and 2003 relates to the continuing
amortization of definite lived intangibles.  Amortization expense was $40,000 in
both 2004 and 2003.

      COST OF  PENSIONS -  NON-OPERATING.  Cost of  pensions,  which  represents
amounts  related to  discontinued  product lines and related  plant  closings in
prior  years,  principally  relates  to  pension  expense  associated  with  the
Company's  frozen  defined  benefit  pension  plan.  As a result of the  pension
settlement  (see  below),   cost  of  pensions  -  non-operating  will  be  zero
prospectively.  Cost of pensions  declined  from $903,000 in 2003 to $405,000 in
2004.

      LOSS ON  PENSION  SETTLEMENT.  The  Company  sponsored  a defined  benefit
pension  plan that was frozen in 1993.  In January  2003,  the  Company  filed a
notice with the PBGC seeking a "distress  termination" of the Plan.  Pursuant to
the Agreement for  Appointment  of Trustee and  Termination  of Plan between the
PBGC and the  Company  effective  September  30,  2004,  the PBGC  proceeded  to
terminate the Plan and was  appointed as the Plan's  trustee.  As a result,  the
PBGC has assumed responsibility for paying the obligations to Plan participants.
Under the terms of the Settlement Agreement,  the Company was liable to the PBGC
for the unfunded  guaranteed benefit payable by the PBGC to Plan participants in
the amount of $7.5 million.  The Company  satisfied  this liability by issuing a
non-interest bearing note payable to the PBGC with a face amount of $7.5 million
(the "Note"). A loss on the termination of the Plan of $2.7 million was recorded
in the third quarter of 2004.

      Pursuant  to the  Security  Agreement  and  Pledge  Agreement,  both dated
September 23, 2004,  between the Company and the PBGC (the "Security  Agreement"
and the "Pledge  Agreement")  the Note is secured by (a) all presently  owned or
hereafter  acquired  real or  personal  property  and rights to  property of the
Company and (b) the common and  preferred  stock of Infineer and TecSec owned by
the Company.  Infineer is a wholly-owned  subsidiary of the Company. The Company
has an approximately 5% ownership interest in TecSec, on a fully diluted basis.

      The Note matures on September 23, 2011. The first payment will be equal to
$1.0  million and will become due 30 days after the Company has received a total
of $4.0  million in Net  Recoveries  (as  defined  below).  Thereafter,  on each
anniversary  of the first  payment,  the  Company is required to pay the PBGC an
amount equal to 25% of the Net  Recoveries  in excess of $4.0 million  (less the
sum of all prior payments made in accordance with this sentence in prior years).
"Net  Recoveries",  as  defined  in the  Settlement  Agreement,  is the net cash
proceeds received by the Company with respect to transactions  consummated after
March 31,  2003 from (a) the sale of the  Company's  interest  in  Infineer  and
TecSec,  real  property in  Louisiana  and any other real or  personal  property
assets and (b) any recoveries from the Company's historic insurance program.  As
of December 31, 2004, Net Recoveries was approximately $3.4 million.

      In the event of default by the Company under the Settlement Agreement, the
PBGC may declare the  outstanding  amount of the Note to be immediately  due and
payable,  proceed with foreclosure of the liens granted in favor of the PBGC and
exercise any other rights available under applicable law.

      GAIN ON INSURANCE RECOVERIES. In February 2004, the Company entered into a
binding  agreement to assign to a third party certain insurance claims against a
group of historic  insurers.  In July 2004, the assignment was  supplemented  to
include several additional insurers. The claims involve several historic general
liability  policies  of  insurance  issued  to the  Company.  As a result of the
assignment,  after allowance for associated expenses and offsetting adjustments,
the Company received net proceeds of  approximately  $477,000 in May 2004 and an
additional  $170,000 in October 2004. The Company  recognized a gain of $477,000
in the first  quarter of 2004 and an  additional  gain of  $170,000 in the third
quarter of 2004.

      INTEREST  INCOME AND EXPENSE.  Interest  income  increased to $27,000 from
$15,000  in the  prior  year  principally  due to  higher  investment  balances.
Interest  expense  increased  from  $12,000  to  $22,000  due to higher  average
borrowings under the overdraft facility.


                                       15
<PAGE>


YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002

      REVENUES. Consolidated revenues increased to $4.8 million in 2003 compared
to $4.6 million for 2002 driven by a 6% increase from foreign currency  changes.
Excluding the impact of foreign currency changes,  revenues in 2003 decreased by
2%.

      GROSS MARGIN.  Gross margin as a percentage  of sales  increased to 52% in
2003 from 47% in 2002. The gross margin improvement resulted from higher margins
generated from certain custom development projects and increased service revenue
in the United Kingdom.

      SALES AND  MARKETING  EXPENSES.  Sales and  marketing  expenses  were $1.8
million in 2003 compared to $1.9 million in 2002.

      PRODUCT DEVELOPMENT  EXPENSES.  Product  development  expenses amounted to
$584,000 in 2003 compared to $605,000 in 2002.

      GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative expenses
for the year ended December 31, 2003 decreased to $2.7 million from $3.2 million
for 2002. The decrease in expense is mainly due to a $400,000  decline in salary
costs due to a headcount reduction of three employees.

      IMPAIRMENT OF GOODWILL AND INTANGIBLES.  The Company  performed an initial
review for impairment of goodwill as of January 1, 2002 and  determined  that no
impairment  existed at that date.  The Company  determined the fair value of its
sole reporting unit primarily using two approaches:  a market approach technique
and a discounted  cash flow  valuation  technique.  The market  approach  relied
primarily  on the implied  fair value  using a multiple of revenues  for several
entities with comparable  operations and economic  characteristics.  Significant
assumptions used in the discounted cash valuation  included  estimates of future
cash flows,  future  short-term and long-term growth rates and estimated cost of
capital for purposes of arriving at a discount factor.

      In performing its annual goodwill impairment test at the end of the fourth
quarter of 2002, the Company  determined that goodwill had been impaired.  Based
on comparing the values derived from the two techniques  described  above to the
carrying value of the reporting unit, the Company recorded a goodwill impairment
loss of  $364,000 in the fourth  quarter of 2002.  The  Company  attributed  the
impairment  loss  to the  value  of a  comparable  entity  that  was  sold  in a
transaction in late 2002, the significant  2002 operating loss for the reporting
unit and lower forecasted  revenue growth due to a continued  overall decline in
technology  spending  and a  shortage  of  capital  available  to  invest in the
reporting unit.

      In the fourth quarter of 2002, the Company  determined that its intangible
assets had been  impaired and recorded an impairment  loss of $1.0 million.  The
Company  attributes the impairment loss to the  significant  2002 operating loss
for the reporting  unit and lower  forecasted  revenue growth due to a continued
overall  decline in technology  spending and a shortage of capital  available to
invest in the reporting unit.

      AMORTIZATION OF INTANGIBLES.  Amortization expense decreased from $576,000
in 2002 to $40,000 in 2003 as a result of an impairment charge recorded in 2002,
which significantly reduced the carrying value of intangibles.

      COST OF PENSIONS - NON-OPERATING. Cost of pensions increased from $795,000
in 2002 to $903,000 in 2003. The net periodic pension cost increased by $112,000
principally as a result of amortization of unrecognized net losses.

      GAIN ON INSURANCE RECOVERIES.  During 2003, the Company entered into three
binding  settlements  with various  historical  insurers that  resolved  certain
claims  (including  certain future claims) under policies of insurance issued to
the Company by those insurers.  As a result of the settlements,  after allowance
for associated expenses,  offsetting adjustments and amounts held in escrow, the
Company received net proceeds of approximately $4.1 million in 2003. Pursuant to
one of the settlements,  an additional net amount of approximately  $470,000 was
placed in escrow to secure the payment of certain  indemnification  obligations.
Absent any  indemnity  claims,  amounts will be released  from escrow  beginning
September 30, 2004 and ending June 30, 2006. The Company  recognized a gain from
these settlements of approximately $4.6 million in 2003.

      WRITE-DOWN  OF  MINORITY  INVESTMENT.  In 2003  and  2002,  other  expense
includes  charges for an  impairment  of the  Company's  minority  investment in
TecSec of $3.0 million and $2.1 million, respectively.

      OTHER  INCOME AND  EXPENSE.  In 2002,  other  expense  includes a $200,000
charge in connection with the defense of a shareholder lawsuit.


                                       16
<PAGE>


      INTEREST  INCOME AND EXPENSE.  Interest  income  decreased to $15,000 from
$71,000 in the prior year principally due to lower interest rates and investment
balances.

LIQUIDITY

      The  Company has  financed  its  operations  over the last  several  years
primarily through funds received from the sale of a non-core  businesses in 2000
and insurance  recoveries in 2003 and 2004.  During the year ended  December 31,
2004, cash, including short-term investments,  decreased by $1.6 million to $1.9
million as of December 31, 2004.

      Operating activities utilized cash of $2.3 million in 2004 and principally
consisted of the net loss of $4.9 million plus a gain on insurance recoveries of
$647,000  offset  by  a  loss  on  the  pension   settlement  of  $2.7  million,
depreciation  and  amortization  of  $156,000  and a  reduction  in  assets  and
liabilities of $286,000.

      Investing  activities  provided  cash of $686,000 in 2004 and  principally
consisted of cash  received  from  insurance  recoveries  of $727,000  offset by
capital expenditures of $48,000.

      The Company has experienced  negative cash flow from operating  activities
in the past and expects to experience  negative cash flow in 2005 and beyond. In
addition to funding operating and capital  requirements and corporate  overhead,
future uses of cash include the following:

      o     The Company  sponsored a defined  benefit  pension  plan,  which was
            frozen in 1993. In January 2003, the Company filed a notice with the
            PBGC seeking a "distress  termination" of the Plan.  Pursuant to the
            Agreement for Appointment of Trustee and Termination of Plan between
            the PBGC and the Company  effective  September  30,  2004,  the PBGC
            proceeded  to  terminate  the Plan and was  appointed  as the Plan's
            trustee. As a result, the PBGC has assumed responsibility for paying
            the  obligations  to  Plan  participants.  Under  the  terms  of the
            Settlement  Agreement  effective September 23, 2004 between the PBGC
            and the Company, the Company was liable to the PBGC for the unfunded
            guaranteed  benefit payable by the PBGC to Plan  participants in the
            amount of $7.5  million.  The Company  satisfied  this  liability by
            issuing the Note dated September 23, 2004 payable to the PBGC with a
            face amount of $7.5 million.

            Pursuant to the Security Agreement and Pledge Agreement,  both dated
            September 23, 2004,  the Note is secured by (a) all presently  owned
            or  hereafter  acquired  real or  personal  property  and  rights to
            property of the Company  and (b) the common and  preferred  stock of
            Infineer and TecSec owned by the Company. Infineer is a wholly-owned
            subsidiary  of the  Company.  The  Company has an  approximately  5%
            ownership interest in TecSec, on a fully diluted basis.

            The Note matures on September  23, 2011.  The first  payment will be
            equal to $1.0  million and will become due 30 days after the Company
            has received a total of $4.0 million in Net Recoveries.  Thereafter,
            on each anniversary of the first payment, the Company is required to
            pay the PBGC an amount equal to 25% of the Net  Recoveries in excess
            of  $4.0  million  (less  the  sum of all  prior  payments  made  in
            accordance  with this sentence in prior  years).  As of December 31,
            2004, Net Recoveries was approximately $3.4 million.

            In  the  event  of  default  by the  Company  under  the  Settlement
            Agreement,  the PBGC may declare the outstanding  amount of the Note
            to be immediately due and payable,  proceed with  foreclosure of the
            liens  granted in favor of the PBGC and  exercise  any other  rights
            available under applicable law.

      o     On May 28,  2002,  a lawsuit  was filed  against  the Company in the
            Superior  Court of the  State of  California,  in the  County of Los
            Angeles by Leonard M. Ross and affiliated  entities alleging,  among
            other things,  misrepresentation  and securities  fraud. The lawsuit
            names the  Company  and four of its  current  and  former  executive
            officers  and  directors  as the  defendants.  The  plaintiffs  seek
            monetary  and  punitive  damages  for  alleged  actions  made by the
            defendants  in order to induce the  plaintiff to  purchase,  hold or
            refrain from selling  PubliCARD common stock. The plaintiffs  allege
            that the  defendants  made a series of material  misrepresentations,
            misleading statements, omissions and concealments,  specifically and
            directly to the  plaintiffs  concerning  the nature,  existence  and
            status  of  contracts  with  certain  purchasers,   the  nature  and
            existence of investments in the Company by third parties, the nature
            and  existence  of business  relationships  and  investments  by the
            Company.  The Company  believes it has  meritorious  defenses to the
            allegations and intends to defend vigorously.


                                       17
<PAGE>


            In November 2002, the Company and the individual  defendants  served
            with the action filed a demurrer seeking the dismissal of six of the
            plaintiffs'  nine purported  causes of action.  In January 2003, the
            court  ruled in favor  of the  demurrer  and  dismissed  the  entire
            complaint.  The  plaintiffs  were  granted  the right to replead and
            subsequently  filed an  amended  complaint  in  February  2003.  The
            Company and individual  defendants  filed a second demurrer in March
            2003.  In June 2003,  the court ruled in favor of the  demurrer  and
            dismissed,  without  leave to  amend,  six of the  eleven  purported
            causes of action in the amended  complaint.  Discovery has commenced
            and no trial date has been set. Consequently, at this time it is not
            reasonably possible to estimate the damages, or range of damages, if
            any, that the Company  might incur in  connection  with this action.
            However,  if the  outcome  of this  lawsuit  is  unfavorable  to the
            Company,  it could have a material  adverse  effect on the Company's
            operations, cash flow and financial position.

      o     The  Company  leases  certain  office  space,  vehicles  and  office
            equipment  under  operating  leases  that  expire over the next four
            years.  Minimum future payments for operating  leases having initial
            or remaining  non-cancelable  terms in excess of one year aggregates
            approximately $861,000.

      The  Company  will  need  to  raise  additional  capital  that  may not be
available  to it.  As a result  of the Plan  termination  discussed  above,  the
Company's 2003 and 2004 funding  requirements  due to the Plan amounting to $3.4
million through September 15, 2004 were eliminated. As such, management believes
that  existing  cash and short term  investments  may be  sufficient to meet the
Company's operating and capital requirements at the currently anticipated levels
through  December 31,  2005.  However,  additional  capital will be necessary in
order to operate beyond December 31, 2005 and to fund the current  business plan
and  other  obligations.  While  the  Company  is  considering  various  funding
alternatives,  the Company has not secured or entered into any  arrangements  to
obtain additional funds. There can be no assurance that the Company will be able
to obtain  additional  funding on  acceptable  terms or at all.  If the  Company
cannot raise  additional  capital to continue its present level of operations it
is not  likely  to be able to meet its  obligations,  take  advantage  of future
acquisition  opportunities  or further develop or enhance its product  offering,
any of which would have a material adverse effect on its business and results of
operations.

      The Company  currently  has no capacity  for  commercial  debt  financing.
Should such capacity become available it may be adversely affected in the future
by  factors  such  as  higher  interest  rates,   inability  to  borrow  without
collateral,   and  continued  operating  losses.  Borrowings  may  also  involve
covenants limiting or restricting its operations or future opportunities.

      As a result of a failure to meet certain continuing  listing  requirements
of the Nasdaq National Market, the Company transferred the listing of its common
stock to the Nasdaq  SmallCap  Market  effective May 2, 2002. On March 19, 2003,
the Company  received a Nasdaq Staff  Determination  letter  indicating that the
Company  failed to comply with the minimum bid price  requirement  for continued
listing on the Nasdaq  SmallCap  Market and that the Company's  common stock was
therefore  subject to delisting.  The Board of the Company decided not to appeal
the delisting  determination.  Effective  March 28, 2003,  the Company's  common
stock no longer  traded on the Nasdaq  SmallCap  Market.  On March 28,  2003 the
Company's  common stock began trading on the OTC Bulletin  Board. As a result of
the delisting, the liquidity of the common stock may be adversely affected. This
could impair the Company's ability to raise capital in the future. If additional
capital is raised  through the  issuance  of equity  securities,  the  Company's
stockholders'  percentage  ownership  of the common  stock  will be reduced  and
stockholders  may  experience  dilution in net book value per share,  or the new
equity securities may have rights,  preferences or privileges senior to those of
its common stockholders.

      If the Company's  liquidity does not improve, it may be unable to continue
as a going concern and is likely to seek  bankruptcy  protection.  Such an event
may result in the Company's common and preferred stock being negatively affected
or becoming  worthless.  The  auditors'  reports on the  Company's  Consolidated
Financial  Statements  for the years  ended  December  31,  2004,  2003 and 2002
contained an emphasis paragraph concerning substantial doubt about the Company's
ability to continue as a going concern.


                                       18
<PAGE>

CONTRACTUAL OBLIGATIONS

     The following is a summary of the Company's commitments as of December 31,
2004 (in thousands):

                                             PAYMENTS DUE BY PERIOD
                                  ------------------------------------------
                                           LESS                       MORE
                                           THAN 1   1 TO 3   3 TO 5  THAN 5
                                  TOTAL    1 YEAR   YEARS    YEARS    YEARS
                                  ------   ------   ------   ------   ------
Operating lease obligations       $  861   $  350   $  463   $   48   $   --
Other long-term liabilities:
    Note payable to PBGC           7,501       --       --       --    7,501
    Other long-term obligations      368       20      273       40       35
                                  ------   ------   ------   ------   ------
      Total                       $8,730   $  370   $  736   $   88   $7,536
                                  ======   ======   ======   ======   ======

CRITICAL ACCOUNTING POLICIES

      The Company's significant  accounting policies are more fully described in
the Notes to the Company's Consolidated Financial Statements. Certain accounting
policies  require the  application  of  significant  judgment by  management  in
selecting the appropriate  assumptions for calculating  financial estimates.  By
their nature,  these judgments are subject to an inherent degree of uncertainty.
The  Company   considers   certain   accounting   policies  related  to  revenue
recognition,   estimates  of  reserves  for  receivables  and  inventories,  and
valuation of goodwill to be critical  policies due to the  estimation  processes
involved.

      REVENUE  RECOGNITION AND ACCOUNTS  RECEIVABLE.  Revenue from product sales
and technology  and software  license fees is recorded upon shipment if a signed
contract  exists,  the fee is fixed  and  determinable,  the  collection  of the
resulting  receivable  is probable and the Company has no  obligation to install
the product or solution. If the Company is responsible for installation, revenue
from  product  sales and license  fees is deferred  and  recognized  upon client
acceptance  or "go live" date.  Maintenance  and support  fees are  deferred and
recognized as revenue ratably over the contract period.  Provisions are recorded
for estimated warranty repairs and returns at the time the products are shipped.
In the event changes in conditions  cause  management to determine  that revenue
recognition  criteria  are not  met for  certain  future  transactions,  revenue
recognized for any reporting period could be adversely affected.

      The Company  performs  ongoing  credit  evaluations  of its  customers and
adjusts  credit  limits based upon  payment  history and the  customer's  credit
worthiness.  The Company continually  monitors collections and payments from its
customers  and  maintains a provision  for  estimated  credit  losses based upon
historical  experience and any specific  customer  collection issues that it has
identified.  While such credit losses have historically been within management's
expectations  and the  provisions  established,  there is no assurance  that the
Company will continue to experience the same credit loss rates as in the past.

      INVENTORIES.  Inventories are stated at lower of cost (first-in, first-out
method)  or  market.  The  Company  periodically  evaluates  the need to  record
adjustments  for  impairment of inventory.  Inventory in excess of the Company's
estimated  usage  requirements  is written down to its estimated net  realizable
value.  Inherent  in the  estimates  of net  realizable  value are  management's
estimates  related  to the  Company's  production  schedules,  customer  demand,
possible  alternative  uses and the ultimate  realization of potentially  excess
inventory.  A decrease in future demand for current  products could result in an
increase in the amount of excess inventories on hand.

      IMPAIRMENT OF GOODWILL AND  INTANGIBLES.  Effective  January 1, 2002,  the
Company  adopted  SFAS  No.  142.  In  accordance  with the  guidelines  of this
statement,  goodwill  and  indefinite  lived  intangible  assets  are no  longer
amortized but will be assessed for impairment on at least an annual basis.  SFAS
No. 142 also  requires that  intangible  assets with  estimable  useful lives be
amortized  over  their  respective  estimated  useful  lives  and  reviewed  for
impairment.  The Company  determines  the fair value of its sole  reporting unit
primarily  using two approaches:  a market  approach  technique and a discounted
cash flow  valuation  technique.  The market  approach  relies  primarily on the
implied  fair value  using a multiple  of revenues  for  several  entities  with
comparable operations and economic characteristics. Significant assumptions used
in the discounted cash valuation include estimates of future cash flows,  future
short-term and long-term growth rates and estimated cost of capital for purposes
of arriving at a discount factor.

      Long-lived  assets and certain  identifiable  intangible assets to be held
and used are reviewed for impairment whenever events or changes in circumstances
indicate  that  the  carrying  amount  of such  assets  may not be  recoverable.
Determination of recoverability  is based on an estimate of undiscounted  future
cash flows  resulting  from the use of the asset and its  eventual  disposition.
Measurement   of  any  impairment   loss  for  long-lived   assets  and  certain
identifiable  intangible assets that management expects to hold and use is based
on the net realizable of the asset.


                                       19
<PAGE>


RECENT ACCOUNTING PRONOUNCEMENTS
      In  December  2004,  the  FASB  issued  SFAS  No.  123R  (revised   2004),
"Share-Based Payment". This  statement  requires  compensation  costs related to
share-based  payment  transactions  to be  recognized  in financial  statements.
Generally, compensation cost will be measured based on the grant-date fair value
of the equity or liability  instruments  issued.  In addition,  liability awards
will be remeasured each reporting  period.  Compensation cost will be recognized
over the requisite  service  period,  generally as the award vests.  The Company
will adopt SFAS No. 123R in the third quarter of 2005.  SFAS No. 123R applies to
all awards granted after June 30, 2005 and to previously-granted awards unvested
as of the adoption date. The adoption of the statement is not expected to have a
material  impact on  Company's  consolidated  financial  positions,  results  of
operations and cash flows.

      In  November  2004,  the FASB issued SFAS No.  151,  "Inventory  Cost,  an
amendment of ARB No. 43, Chapter 4." This statement amends  Accounting  Research
Bulletin No. 43 to clarify the accounting for abnormal  amounts of idle facility
expense, freight,  handling costs and wasted material (spoilage).  The provision
of the statement is effective for inventory  costs incurred  during fiscal years
beginning  after June 15, 2005. The adoption of the statement is not expected to
have a  material  effect  on the  Company's  consolidated  financial  positions,
results of operations and cash flows.

      In December 2004, the FASB issued SFAS No. 153,  "Exchanges of Nonmonetary
Assets,  an amendment of APB Opinion No. 29." This statement  amends APB No. 29,
"Accounting  for  Nonmonetary  Transactions,"  to eliminate  the  exception  for
nonmonetary exchanges of similar productive assets under APB No. 29 and replaces
it with a general exception for exchanges of nonmonetary assets that do not have
commercial  substance.  The statement is effective for financial  statements for
fiscal years beginning after June 15, 2005. The adoption of the statement is not
expected  to have a  material  effect on the  Company's  consolidated  financial
positions, results of operations and cash flows.

FACTORS THAT MAY AFFECT FUTURE RESULTS

      WE HAVE A HISTORY OF  OPERATING  LOSSES AND  NEGATIVE  CASH FLOW,  WE HAVE
ONGOING FUNDING OBLIGATIONS AND WE NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT
BE AVAILABLE TO US, ALL OF WHICH COULD LEAD US TO SEEK BANKRUPTCY PROTECTION. We
have  incurred  losses  and  experienced   negative  cash  flow  from  operating
activities in the past,  and we expect to incur losses and  experience  negative
cash flow from  operating  activities  in the  foreseeable  future.  We incurred
losses from continuing  operations in 2002, 2003 and 2004 of approximately  $8.3
million,  $1.6  million  and  $4.9  million,   respectively.   In  addition,  we
experienced negative cash flow from operating  activities of $5.1 million,  $2.2
million  and $2.3  million  in 2002,  2003  and  2004  respectively,  and have a
shareholders' deficiency of $5.2 million as of December 31, 2004.

      We sponsor a defined  benefit  pension  plan which was frozen in 1993.  In
January 2003,  we filed a notice with the PBGC seeking a "distress  termination"
of  the  Plan.  Pursuant  to  the  Agreement  for  Appointment  of  Trustee  and
Termination  of Plan between the PBGC and us effective  September 30, 2004,  the
PBGC proceeded to terminate the Plan and was appointed as the Plan's trustee. As
a result, the PBGC has assumed responsibility for paying the obligations to Plan
participants.  Under the terms of the Settlement  Agreement  effective September
23, 2004  between  the PBGC and us, we were liable to the PBGC for the  unfunded
guaranteed  benefit  payable by the PBGC to Plan  participants  in the amount of
$7.5 million.  We satisfied this  liability by issuing the Note dated  September
23, 2004 payable to the PBGC with a face amount of $7.5 million.

      Pursuant  to the  Security  Agreement  and  Pledge  Agreement,  both dated
September  23, 2004,  the Note is secured by (a) all of our  presently  owned or
hereafter  acquired real or personal property and rights to property and (b) the
common  and  preferred  stock of  Infineer  and  TecSec  we own.  Infineer  is a
wholly-owned  subsidiary of ours. We have an approximately 5% ownership interest
in TecSec, on a fully diluted basis.

      The Note matures on September 23, 2011. The first payment will be equal to
$1.0 million and will become due 30 days after we have  received a total of $4.0
million in Net Recoveries. Thereafter, on each anniversary of the first payment,
we are required to pay the PBGC an amount equal to 25% of the Net  Recoveries in
excess of $4.0 million  (less the sum of all prior  payments  made in accordance
with this sentence in prior years).  As of December 31, 2004, Net Recoveries was
approximately $3.4 million.

      In the event of our default under the Settlement  Agreement,  the PBGC may
declare the  outstanding  amount of the Note to be immediately  due and payable,
proceed with  foreclosure of the liens granted in favor of the PBGC and exercise
any other rights available under applicable law.


                                       20
<PAGE>


      We and certain  current and former  officers are  defendants  in a lawsuit
alleging, among other things, misrepresentation and securities fraud. We believe
that we have  meritorious  defenses  to the  allegations  and  intend  to defend
ourselves  vigorously.  The  cost of  defending  against  this  action  could be
significant,  and if the Company is not  successful  in  defending  itself,  the
Company  may be  required  to pay the  plaintiff's  damages,  which could have a
material  adverse effect on the Company's  business and operations.  See "We are
unable to predict the extent to which the resolution of lawsuits pending against
us  could  adversely  affect  our  business".   In  addition,   we  have  future
non-cancelable operating lease obligations for office space, vehicles and office
equipment aggregating $861,000.

      We will need to raise additional  capital that may not be available to us.
As a result of the Plan  termination  discussed above, our 2003 and 2004 funding
requirements  due to the Plan  amounting to $3.4 million  through  September 15,
2004 were  eliminated.  As such,  we believe that  existing  cash and short term
investments may be sufficient to meet our operating and capital  requirements at
the currently anticipated levels through December 31, 2005. However,  additional
capital will be necessary  in order to operate  beyond  December 31, 2005 and to
fund the current  business  plan and other  obligations.  While we are  actively
considering  various funding  alternatives,  no arrangement to obtain additional
funding has been secured or entered into. There can be no assurance that we will
be able to obtain  additional  funding,  on  acceptable  terms or at all.  If we
cannot raise  additional  capital to continue at our present level of operations
we may not be able to meet our obligations, take advantage of future acquisition
opportunities or further develop or enhance our product  offering,  any of which
could have a material  adverse  effect on our business and results of operations
and could lead us to seek bankruptcy  protection.  The auditors'  reports on the
Company's  Consolidated  Financial  Statements  for the years ended December 31,
2002, 2003 and 2004 contained an emphasis paragraph concerning substantial doubt
about the Company's ability to continue as a going concern.

      We currently have no capacity for commercial debt  financing.  Should such
capacity become  available to us, we may be adversely  affected in the future by
factors such as higher interest rates,  inability to borrow without  collateral,
and continued  operating losses.  Borrowings may also involve covenants limiting
or restricting our operations or future opportunities.

      WE CANNOT  ASSURE YOU THAT  INFINEER  WILL BE ABLE TO CONTINUE TO OPERATE.
During 2002, 2003 and 2004, PubliCARD contributed additional capital to Infineer
of $44,000,  $70,000 and  $225,000,  respectively.  Without such  contributions,
Infineer  may not have been able to fund its  operations.  We cannot  assure you
that additional capital contributions will not be required in the future, or, if
required,  that PubliCARD  will be in a position to make any additional  capital
contributions.

      WE ARE UNABLE TO PREDICT  THE EXTENT TO WHICH THE  RESOLUTION  OF LAWSUITS
PENDING  AGAINST US COULD  ADVERSELY  AFFECT OUR  BUSINESS.  On May 28,  2002, a
lawsuit was filed against us in the Superior  Court of the State of  California,
in the  County  of Los  Angeles  by  Leonard  M.  Ross and  affiliated  entities
alleging, among other things misrepresentation and securities fraud. The lawsuit
names four of our current and former executive  officers and directors and us as
the defendants.  The plaintiffs  seek monetary and punitive  damages for alleged
actions  made by the  defendants  in order to induce the  plaintiff to purchase,
hold or refrain from selling our common stock.  The  plaintiffs  allege that the
defendants made a series of material misrepresentations,  misleading statements,
omissions  and  concealments,   specifically  and  directly  to  the  plaintiffs
concerning   the  nature,   existence  and  status  of  contracts  with  certain
purchasers,  the nature and existence of investments in us by third parties, the
nature and existence of business relationships and investments by us. We believe
we have meritorious defenses to the allegations and intend to defend vigorously.

      In November 2002, we and the individual  defendants served with the action
filed a demurrer  seeking the dismissal of six of the plaintiffs' nine purported
causes of action.  In January 2003, the court ruled in favor of the demurrer and
dismissed the entire complaint. The plaintiffs were granted the right to replead
and  subsequently  filed an  amended  complaint  in  February  2003.  We and the
individual  defendants  filed a second demurrer in March 2003. In June 2003, the
court ruled in favor of the demurrer and dismissed,  without leave to amend, six
of the eleven purported causes of action in the amended complaint. Discovery has
commenced and no trial date has been set.  Consequently,  at this time it is not
reasonably  possible to estimate the damages,  or range of damages, if any, that
we might incur in connection with this action.  However,  if the outcome of this
lawsuit is  unfavorable  to us, it could have a material  adverse  effect on our
operations, cash flow and financial position.

      We incurred approximately $200,000 in defense costs in 2002. No additional
costs have been incurred in 2004 and 2003.  Notice of the  commencement  of this
action  has  been  given  to our  directors  and  officers  liability  insurance
carriers.  Our directors and officers  liability  insurance carriers are funding
the  additional  costs  of  defending  this  action,  subject  to the  carriers'
reservation of rights.

      WE FACE RISKS ASSOCIATED WITH  ACQUISITIONS.  An important  element of our
strategic  plan  involves the  acquisition  of  businesses  in areas outside the
technology  sectors in which we have recently  been engaged,  so as to diversify
our asset base.  However,  we will only be able to engage in future acquisitions
if we are successful in obtaining  additional  funding, as to which no assurance


                                       21
<PAGE>

can be given.  Acquisitions  would require us to invest financial  resources and
may have a  dilutive  effect on our  earnings  or book value per share of common
stock.  We cannot assure you that we will  consummate  any  acquisitions  in the
future,  that any financing  required for such acquisitions will be available on
acceptable  terms or at all,  or that any past or future  acquisitions  will not
materially adversely affect our results of operations and financial condition.

      Our acquisition  strategy generally presents a number of significant risks
and uncertainties, including the risks that:

      o     we  will  not  be  able  to  retain  the   employees   or   business
            relationships of the acquired company;
      o     we will  fail to  realize  any  synergies  or other  cost  reduction
            objectives expected from the acquisition;
      o     we will not be able to integrate the operations, products, personnel
            and facilities of acquired companies;
      o     management's  attention  will be diverted  to  pursuing  acquisition
            opportunities  and integrating  acquired  products,  technologies or
            companies  and  will  be  distracted  from  performing  its  regular
            responsibilities;
      o     we will incur or assume liabilities,  including liabilities that are
            unknown or not fully known to us at the time of the acquisition; and
      o     we will enter markets in which we have no direct prior experience.

      We cannot assure you that any of the foregoing will not materialize, which
could  have an  adverse  effect  on our  results  of  operations  and  financial
condition.

      THE  MARKET'S  ACCEPTANCE  OF OUR PRODUCTS IS  UNCERTAIN.  Demand for, and
market acceptance of, our software  solutions and products are subject to a high
level  of  uncertainty  due  to  rapidly   changing   technology,   new  product
introductions and changes in customer requirements and preferences.  The success
of our products or any future  products  depends upon our ability to enhance our
existing  products and to develop and introduce new products and technologies to
meet  customer  requirements.  We face the  risk  that our  current  and  future
products will not achieve market acceptance.

      Our future  revenues and  earnings  depend in large part on the success of
these  products,  and  if  the  benefits  are  not  perceived  sufficient  or if
alternative  technologies are more widely accepted, the demand for our solutions
may not grow and our business and  operating  results  would be  materially  and
adversely affected.

      WE DEPEND ON A RELATIVELY  SMALL NUMBER OF CUSTOMERS FOR A MAJORITY OF OUR
REVENUES. We rely on a limited number of customers in our business. We expect to
continue to depend upon a relatively small number of customers for a majority of
the revenues in our business. For the years ended December 31, 2003 and 2004, no
one customer  accounted for more than 10% of our revenues.  Amounts due from two
customers represented  approximately 21% and 13%, respectively,  of the accounts
receivable balance as of December 31, 2004.

      We  generally  do not enter into  long-term  supply  commitments  with our
customers.  Instead, we bid on a project basis.  Significant reductions in sales
to any of our  largest  customers  would have a material  adverse  effect on our
business. In addition, we generate significant accounts receivable and inventory
balances in connection  with providing  products to our customers.  A customer's
inability to pay for our products  could have a material  adverse  effect on our
results of operations.

      OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO KEEP PACE WITH  TECHNOLOGICAL
CHANGES AND INTRODUCE NEW PRODUCTS IN A TIMELY MANNER. The rate of technological
change currently  affecting the smart card market is particularly rapid compared
to other  industries.  Our ability to  anticipate  these trends and adapt to new
technologies  is  critical  to our  success.  Because  new  product  development
commitments must be made well in advance of actual sales, new product  decisions
must   anticipate   future  demand  as  well  as  the  speed  and  direction  of
technological  change.  Our ability to remain  competitive  will depend upon our
ability  to  develop in a timely  and cost  effective  manner  new and  enhanced
products at competitive prices. New product introductions or enhancements by our
competitors  could cause a decline in sales or loss of market  acceptance of our
existing products and lower profit margins.

      Our  success in  developing,  introducing  and  selling  new and  enhanced
products depends upon a variety of factors, including:

      o     product selections;
      o     timely and efficient completion of product design and development;
      o     timely and efficient implementation of manufacturing processes;
      o     effective sales, service and marketing;
      o     price; and
      o     product performance in the field.


                                       22
<PAGE>

      Our ability to develop new  products  also depends upon the success of our
research and development  efforts. We may need to devote additional resources to
our research and  development  efforts in the future.  We cannot assure you that
funds will be available for these  expenditures or that these funds will lead to
the development of viable products.

      THE HIGHLY  COMPETITIVE  MARKETS IN WHICH WE OPERATE COULD HAVE A MATERIAL
ADVERSE  EFFECT ON OUR BUSINESS AND OPERATING  RESULTS.  The markets in which we
operate  are  intensely   competitive  and  characterized  by  rapidly  changing
technology.  We compete against numerous  companies,  many of which have greater
resources than we do, and we believe that competition is likely to intensify.

      We believe that the principal competitive factors affecting us are:

      o     the extent to which  products  support  industry  standards  and are
            capable of being operated or integrated with other products;
      o     technical features and level of security;
      o     strength of distribution channels;
      o     price;
      o     product reputation,  reliability,  quality, performance and customer
            support;
      o     product  features such as  adaptability,  functionality  and ease of
            use; and
      o     competitor reputation, positioning and resources.

      We cannot assure you that  competitive  pressures will not have a material
adverse  effect on our business and operating  results.  Many of our current and
potential  competitors have longer operating histories and significantly greater
financial, technical, sales, customer support, marketing and other resources, as
well as greater name  recognition and a larger  installed base of their products
and technologies than our company. Additionally,  there can be no assurance that
new competitors will not enter our markets.  Increased  competition would likely
result in price  reductions,  reduced  margins and loss of market share,  any of
which  could  have a  material  adverse  effect on our  business  and  operating
results.

      Our primary  competition  currently  comes from companies  offering closed
environment  solutions,  including  small  value  electronic  cash  systems  and
database management solutions,  such as Moneybox (Girovend),  Counter Solutions,
Uniware, Cunninghams, Plastic Card Services, MARS, Diebold and Schlumberger.

      Many of our  current  and  potential  competitors  have  broader  customer
relationships that could be leveraged,  including relationships with many of our
customers.  These  companies  also have more  established  customer  support and
professional  services  organizations  than we do.  In  addition,  a  number  of
companies  with  significantly  greater  resources than we have could attempt to
increase  their  presence by acquiring or forming  strategic  alliances with our
competitors, resulting in increased competition.

      OUR LONG PRODUCT SALES CYCLES  SUBJECT US TO RISK.  Our products fall into
two  categories;  those that are  standardized  and ready to install and use and
those that  require  significant  development  efforts to  implement  within the
purchasers'  own  systems.  Those  products  requiring  significant  development
efforts tend to be newly developed  technologies and software  applications that
can  represent  major  investments  for  customers.  We are subject to potential
customers'   internal   review   processes   and   systems   requirements.   The
implementation of some of our products  involves  deliveries of small quantities
for pilot programs and significant  testing by the customers  before firm orders
are  received,  or lengthy  beta testing of software  solutions.  For these more
complex  products,  the sales process may take one year or longer,  during which
time we may expend significant  financial,  technical and management  resources,
without any certainty of a sale.

      WE  MAY  BE  LIMITED  IN  OUR  USE  OF  OUR  FEDERAL  NET  OPERATING  LOSS
CARRYFORWARDS.  As of December  31,  2004,  we had federal  net  operating  loss
carryforwards,  subject  to review by the  Internal  Revenue  Service,  totaling
approximately  $67.6 million for federal  income tax  purposes.  The federal net
operating loss  carryforwards  begin to expire in 2005. We do not expect to earn
any  significant  taxable  income in the next several  years,  and may not do so
until much later, if ever. A federal net operating loss can generally be carried
back  two,  three or five  years  and  then  forward  fifteen  or  twenty  years
(depending  on the year in which  the loss  was  incurred),  and used to  offset
taxable income earned by a company (and thus reduce its income tax liability).

      Section 382 of the  Internal  Revenue  Code  provides  that when a company
undergoes an "ownership  change," that company's use of its net operating losses
is limited in each subsequent year. An "ownership change" occurs when, as of any
testing  date,  the sum of the increases in ownership of each  shareholder  that
owns five percent or more of the value of a company's  stock as compared to that
shareholder's lowest percentage ownership during the preceding three-year period
exceeds fifty percentage points. For purposes of this rule, certain shareholders
who own less than five percent of a company's  stock are  aggregated and treated


                                       23
<PAGE>


as a single  five-percent  shareholder.  We may  issue a  substantial  number of
shares  of  our  stock  in  connection   with  public  and  private   offerings,
acquisitions and other transactions in the future,  although no assurance can be
given that any such offering, acquisition or other transaction will be effected.
In  addition,  the  exercise of  outstanding  options to purchase  shares of our
common stock may require us to issue additional  shares of our common stock. The
issuance  of a  significant  number  of  shares  of  stock  could  result  in an
"ownership  change." If we were to  experience  such an  "ownership  change," we
estimate  that  virtually  all of  our  available  federal  net  operating  loss
carryforwards would be effectively unavailable to reduce our taxable income.

      The extent of the actual  future use of our  federal  net  operating  loss
carryforwards  is  subject  to  inherent  uncertainty  because it depends on the
amount of otherwise  taxable  income we may earn.  We cannot give any  assurance
that we will have  sufficient  taxable  income in future years to use any of our
federal net operating loss carryforwards before they would otherwise expire.

      OUR PROPRIETARY TECHNOLOGY IS DIFFICULT TO PROTECT AND MAY INFRINGE ON THE
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES. Our success depends significantly
upon our  proprietary  technology.  We rely on a  combination  of copyright  and
trademark  laws,  trade  secrets,  confidentiality  agreements  and  contractual
provisions to protect our proprietary  rights.  We seek to protect our software,
documentation and other written materials under trade secret and copyright laws,
which  afford  only  limited  protection.  We cannot  assure you that any of our
applications will be approved, that any new patents will be issued, that we will
develop  proprietary  products or  technologies  that are  patentable,  that any
issued  patent will provide us with any  competitive  advantages  or will not be
challenged by third parties.  Furthermore, we cannot assure you that the patents
of others will not have a material  adverse effect on our business and operating
results.

      If our technology or products is determined to infringe upon the rights of
others, and we were unable to obtain licenses to use the technology, we could be
required to cease using the technology and stop selling the products. We may not
be able to obtain a license in a timely  manner on  acceptable  terms or at all.
Any of these  events  would  have a  material  adverse  effect on our  financial
condition and results of operations.

      Patent  disputes are common in technology  related  industries.  We cannot
assure  you that we will have the  financial  resources  to  enforce or defend a
patent  infringement or proprietary rights action. As the number of products and
competitors  in the smart card market  grows,  the  likelihood  of  infringement
claims also increases. Any claim or litigation may be time consuming and costly,
cause  product  shipment  delays or require us to redesign our products or enter
into royalty or licensing agreements.  Any of these events would have a material
adverse  effect on our business and  operating  results.  Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects
of our products or to use our proprietary information and software. In addition,
the laws of some foreign  countries do not protect  proprietary and intellectual
property rights as effectively as do the laws of the United States. Our means of
protecting our proprietary and intellectual property rights may not be adequate.
There  is a  risk  that  our  competitors  will  independently  develop  similar
technology,   duplicate  our  products  or  design   around   patents  or  other
intellectual property rights.

      We believe that establishing, maintaining and enhancing the Infineer brand
name is essential to our business.  We filed an application  for a United States
trademark  registration and an application for service mark  registration of our
name and  logo.  We are  aware of third  parties  that use  marks or names  that
contain similar sounding words or variations of the "infi" prefix. In July 2002,
we received a claim from a third party challenging the use of the Infineer name.
Upon reaching an agreement  with this third party in 2004 to amend our trademark
application,  we believe that this claim has been resolved.  As a result of this
claim  and  other  challenges  which  may  occur  in the  future,  we may  incur
significant  expenses,  pay substantial  damages and be prevented from using the
Infineer name.  Use of a similar name by third parties may also cause  confusion
to our clients and  confusion in the market,  which could  decrease the value of
our brand and harm our reputation.  We cannot assure you that our business would
not be adversely  affected if we are required to change our name or if confusion
in the market did occur.

      THE NATURE OF OUR PRODUCTS  SUBJECTS US TO PRODUCT  LIABILITY  RISKS.  Our
customers  may  rely  on  certain  of  our  current  products  and  products  in
development  to prevent  unauthorized  access to digital  content for  financial
transactions,  computer networks,  and real property. A malfunction of or design
defect in certain  of our  products  could  result in tort or  warranty  claims.
Although  we attempt to reduce the risk of  exposure  from such  claims  through
warranty  disclaimers and liability  limitation  clauses in our sales agreements
and by maintaining product liability insurance,  we cannot assure you that these
measures  will be  effective  in limiting our  liability  for any  damages.  Any
liability for damages  resulting from security breaches could be substantial and
could have a material adverse effect on our business and operating  results.  In
addition,  a well-publicized  actual or perceived  security breach involving our
conditional  access or security  products  could  adversely  affect the market's
perception  of our  products  in  general,  regardless  of whether any breach is
attributable  to our products.  This could result in a decline in demand for our
products,  which  could  have a  material  adverse  effect on our  business  and
operating results.


                                       24
<PAGE>


      WE MAY HAVE  DIFFICULTY  RETAINING  OR  RECRUITING  PROFESSIONALS  FOR OUR
BUSINESS.  Our future  success and  performance  is dependent  on the  continued
services and performance of our senior management and other key personnel. If we
fail to meet  our  operating  and  financial  objectives  this  may make it more
difficult to retain and reward our senior management and key personnel. The loss
of the services of any of our executive  officers or other key  employees  could
materially adversely affect our business.

      Our business requires experienced software and hardware engineers, and our
success depends on identifying, hiring, training and retaining such experienced,
knowledgeable professionals. If a significant number of our current employees or
any of our senior technical personnel resign, or for other reasons are no longer
employed by us, we may be unable to complete or retain existing  projects or bid
for new projects of similar scope and revenues.  In addition,  former  employees
may compete with us in the future.

      Even if we retain our current  employees,  our management must continually
recruit talented  professionals in order for our business to grow.  Furthermore,
there is  significant  competition  for  employees  with the skills  required to
perform  the  services  we offer.  We cannot  assure you that we will be able to
attract a sufficient number of qualified  employees in the future to sustain and
grow our business, or that we will be successful in motivating and retaining the
employees  we are able to attract.  If we cannot  attract,  motivate  and retain
qualified  professionals,  our  business,  financial  condition  and  results of
operations will suffer.

      OUR INTERNATIONAL OPERATIONS SUBJECT US TO RISKS ASSOCIATED WITH OPERATING
IN FOREIGN MARKETS,  INCLUDING  FLUCTUATIONS IN CURRENCY  EXCHANGE RATES,  WHICH
COULD ADVERSELY  AFFECT OUR OPERATIONS AND FINANCIAL  CONDITION.  Our operations
are  located in the  United  Kingdom  and sales to  customers  outside  the U.S.
represented  approximately  82% and 88% of  total  sales  for  the  years  ended
December  31,  2003 and 2004,  respectively.  Because  we  derive a  substantial
portion of our  business  outside the United  States,  we are subject to certain
risks associated with operating in foreign markets including the following:

      o     tariffs and other trade barriers;
      o     difficulties in staffing and managing foreign operations;
      o     currency exchange risks;
      o     export controls related to encryption technology;
      o     unexpected changes in regulatory requirements;
      o     changes in economic and political conditions;
      o     seasonal  reductions in business  activities in the countries  where
            our customers are located;
      o     longer payment cycles and greater difficulty in accounts  receivable
            collection;
      o     potentially adverse tax consequences; and
      o     burdens of complying with a variety of foreign laws.

      Any of the foregoing could adversely impact the success of our operations.
We cannot assure you that such factors will not have a material  adverse  effect
on our future sales and,  consequently,  on our business,  operating results and
financial  condition.  In addition,  fluctuations in exchange rates could have a
material  adverse  effect  on our  business,  operating  results  and  financial
condition. To date, we have not engaged in currency hedging.

      CHANGES WE MAY NEED OR BE REQUIRED TO MAKE IN OUR  INSURANCE  COVERAGE MAY
EXPOSE US TO INCREASED  LIABILITIES AND MAY INTERFERE WITH OUR ABILITY TO RETAIN
OR  ATTRACT  QUALIFIED  OFFICERS  AND  DIRECTORS.  We renew or  replace  various
insurance policies on an annual basis,  including those that cover directors and
officers  liability.  Given the current climate of rapidly increasing  insurance
premiums  and  erosions  of  coverage,  we may need or be required to reduce our
coverage and increase our  deductibles  in order to afford the premiums.  To the
extent we reduce our coverage and increase our deductibles, our exposure and the
exposure of our  directors  and  officers  for  liabilities  that either  become
excluded from coverage or underinsured  will increase.  As a result, we may lose
or may experience difficulty in attracting qualified directors and officers.

      WE  ARE  SUBJECT  TO  GOVERNMENT  REGULATION.  Federal,  state  and  local
regulations impose various environmental  controls on the discharge of chemicals
and gases,  which have been used in our past assembly  processes and may be used
in  future  processes.   Moreover,  changes  in  such  environmental  rules  and
regulations  may  require  us to  invest  in  capital  equipment  and  implement
compliance   programs  in  the  future.   Any  failure  by  us  to  comply  with
environmental  rules and  regulations,  including  the  discharge  of  hazardous
substances,  could  subject us to  liabilities  and could  materially  adversely
affect our operations.


                                       25
<PAGE>


      RECENTLY  ENACTED AND PROPOSED  REGULATORY  CHANGES WILL CAUSE US TO INCUR
INCREASED  COSTS.  Recently  enacted  and  proposed  changes  in  the  laws  and
regulations  affecting  public  companies,   including  the  provisions  of  the
Sarbanes-Oxley  Act of 2002,  will  increase  our  expenses as we  evaluate  the
implications  of  new  rules  and  devote   resources  to  respond  to  the  new
requirements.   In  particular,   we  expect  to  incur  significant  additional
administrative  expense as we implement Section 404 of the  Sarbanes-Oxley  Act,
which requires  management to report on, and our independent  registered  public
accounting firm to attest to, our internal controls. The compliance of these new
rules  could  also  result  in  continued  diversion  of  management's  time and
attention,  which could prove to be disruptive to business operations.  Further,
we may lose or may experience  difficulty in attracting  qualified directors and
officers.

      There can be no  assurance  that we will timely  complete  the  management
certification   and  auditor   attestation   requirements   of  Section  404  of
Sarbanes-Oxley  Act.  Possible  consequences of failure to complete such actions
include  sanction  or  investigation  by  regulatory  authorities,  such  as the
Securities and Exchange  Commission.  Any such action could harm our stock price
and also have a material adverse effect on our cash flow and financial position.

      OUR  ARTICLES OF  INCORPORATION  AND  BY-LAWS,  CERTAIN  CHANGE OF CONTROL
AGREEMENTS,  OUR RIGHTS  PLAN AND  PROVISIONS  OF  PENNSYLVANIA  LAW COULD DETER
TAKEOVER ATTEMPTS.

      Blank check preferred  stock.  Our board of directors has the authority to
issue  preferred  stock  and to fix  the  rights,  preferences,  privileges  and
restrictions,  including voting rights, of these shares without any further vote
or action by the holders of our common  stock.  The rights of the holders of any
preferred stock that may be issued in the future may adversely affect the rights
of the holders of our common stock.  The issuance of preferred  stock could make
it more  difficult  for a third party to acquire a majority  of our  outstanding
voting  stock,  thereby  delaying,  deferring or preventing a change of control.
Such preferred stock may have other rights, including economic rights, senior to
our common stock,  and as a result,  the issuance of the  preferred  stock could
limit the price that investors  might be willing to pay in the future for shares
of our common stock and could have a material adverse effect on the market value
of our common stock.

      Rights plan. Our rights plan entitles the registered  holders of rights to
purchase  shares of our class A preferred  stock upon the  occurrence of certain
events, and may have the effect of delaying, deferring or preventing a change of
control.

      Change  of  control  agreements.  We are a  party  to  change  of  control
agreements, which provide for payments to certain of our directors under certain
circumstances  following  a change  of  control.  Since the  change  of  control
agreements  require  large cash  payments  to be made by any person  effecting a
change of control, these agreements may discourage takeover attempts.

      The change of control  agreements  provide  that,  if the  services of any
person party to a change of control  agreement are terminated within three years
following a change of control, that individual will be entitled to receive, in a
lump sum within 10 days of the  termination  date, a payment equal to 2.99 times
that individual's  average annual compensation for the shorter of the five years
preceding  the  change  of  control  and  the  period  the  individual  received
compensation from us for personal services. Assuming a change of control were to
occur at the present time,  payments would be made of approximately  $633,000 to
each of Mr.  Harry I.  Freund and Mr.  Jay S.  Goldsmith.  If any such  payment,
either alone or together  with others made in connection  with the  individual's
termination,  is considered to be an excess parachute payment under the Internal
Revenue Code, the individual  will be entitled to receive an additional  payment
in an amount  which,  when added to the initial  payment,  would result in a net
benefit  to the  individual,  after  giving  effect to excise  taxes  imposed by
Section  4999 of the Internal  Revenue Code and income taxes on such  additional
payment,  equal to the initial  payment  before such  additional  payment and we
would not be able to deduct these initial or additional  payments for income tax
purposes.

      Pennsylvania  law.  We  are  a  Pennsylvania  corporation.   Anti-takeover
provisions  of  Pennsylvania  law could make it  difficult  for a third party to
acquire control of us, even if such change of control would be beneficial to our
shareholders.

      OUR STOCK WAS DELISTED  FROM THE NASDAQ  SYSTEM.  On February 14, 2002, we
received a notice from The Nasdaq  Stock Market that our common stock had failed
to maintain a minimum  closing  bid price of $1.00 over the last 30  consecutive
trading  days as required by the Nasdaq  National  Market  rules.  We received a
second  notice on  February  27,  2002,  that our common  stock  also  failed to
maintain a market value of public float of $5 million.

      In accordance with the Nasdaq rules, we were required to regain compliance
with the National Market minimum bid price requirement and with the market value
of public float  requirement  by May 2002.  Since our common stock  continued to
trade  significantly  below $1.00,  in April 2002,  we filed an  application  to
transfer the listing of our common stock to the SmallCap Market. The application
was approved and our common stock listing was transferred to the SmallCap Market
effective  May 2,  2002.  The  SmallCap  Market  also has a  minimum  bid  price
requirement  of $1.00.  We qualified for an extended grace period to comply with
the SmallCap  Market's $1.00 minimum bid price  requirement,  which extended the
delisting determination by Nasdaq until February 10, 2003.


                                       26
<PAGE>


      On March  19,  2003,  we  received  a Nasdaq  Staff  Determination  letter
indicating  that we failed to comply with the minimum bid price  requirement for
continued listing on the SmallCap Market and that our common stock was therefore
subject to delisting. Our board of directors decided not to appeal the delisting
determination.  Effective  March 28, 2003,  our common stock no longer traded on
the SmallCap  Market.  On March 28, 2003,  our common stock began trading on the
OTC Bulletin Board.

      As a result of the  delisting,  the  liquidity  of our common stock may be
materially adversely affected. This could impair our ability to raise capital in
the future.  There can be no assurance that we will be able to obtain additional
funding, on acceptable terms or at all. If we cannot raise additional capital to
continue  at our  present  level  of  operations  we may not be able to meet our
obligations,  take  advantage  of future  acquisition  opportunities  or further
develop or enhance  our  product  offering,  any of which  could have a material
adverse  effect on our business and results of  operations  and could lead us to
seek bankruptcy protection.

      OUR STOCK  PRICE IS  EXTREMELY  VOLATILE.  The stock  market has  recently
experienced significant price and volume fluctuations unrelated to the operating
performance  of particular  companies.  The market price of our common stock has
been  highly  volatile  and is likely to  continue  to be  volatile.  The future
trading  price  for our  common  stock  will  depend  on a  number  of  factors,
including:

      o     delisting  of our  common  stock  from the  Nasdaq  SmallCap  Market
            effective  March 28, 2003 (see "Our stock has been delisted from the
            Nasdaq System" above);
      o     the volume of activity for our common stock is minimal and therefore
            a large number of shares placed for sale or purchase  could increase
            its volatility;
      o     our  ability to  effectively  manage  our  business,  including  our
            ability to raise capital;
      o     variations in our annual or quarterly  financial results or those of
            our competitors;
      o     general economic conditions,  in particular,  the technology service
            sector;
      o     expected or announced relationships with other companies;
      o     announcements of technological  advances innovations or new products
            by us or our competitors;
      o     patents or other proprietary rights or patent litigation; and
      o     product liability or warranty litigation.

      We cannot be certain  that the market  price of our common  stock will not
experience significant  fluctuations in the future,  including fluctuations that
are adverse and unrelated to our performance.


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign currency exchange rate risk
      We conduct  operations in the United  Kingdom and sell products in several
different  countries.  Therefore,  our operating  results may be impacted by the
fluctuating exchange rates of foreign currencies,  especially the British pound,
in relation to the U.S. dollar. We do not currently engage in hedging activities
with  respect to our  foreign  currency  exposure.  We  continually  monitor our
exposure to currency  fluctuations and may use financial hedging techniques when
appropriate to minimize the effect of these fluctuations. Even so, exchange rate
fluctuations  may still  have a  material  adverse  effect on our  business  and
operating results.

Market Risk
      We are exposed to market risk primarily through short-term investments and
an overdraft facility. Our investment policy calls for investment in short-term,
low  risk  instruments.   As  of  December  31,  2004,  short-term   investments
(principally  U.S.  Treasury  bills) were $1.8 million and  borrowing  under the
overdraft facility amounted to $347,000.  Due to the nature of these investments
and the amount of the overdraft  facility,  any change in rates would not have a
material impact on our financial condition or results of operations.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The Company's consolidated financial statements, the report of independent
registered public accounting firm thereon and related schedules appear beginning
on page F-2. See Index to Consolidated Financial Statements on page F-1.


                                       27
<PAGE>


ITEM 9.     CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON ACCOUNTING  AND
FINANCIAL DISCLOSURE

     None.

ITEM 9A.    CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

      The Company  maintains  disclosure  controls  and  procedures  designed to
ensure that the  information  the Company must  disclose in its filings with the
SEC is recorded, processed,  summarized and reported on a timely basis. With the
participation  of management,  the Company's chief  executive  officer and chief
financial  officer has evaluated the  effectiveness of the Company's  disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the
Securities Exchange Act of 1934, as amended) as of the end of the period covered
by this report.  Based upon this  evaluation,  the chief  executive  officer and
chief financial  officer has concluded  that, as of the end of such period,  the
Company's disclosure controls and procedures are effective.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

      There has not been any  change in the  Company's  internal  controls  over
financial reporting during the fiscal year to which this report relates that has
materially affected, or is reasonably likely to materially affect, the Company's
internal controls over financial reporting.

INTERNAL CONTROL OVER FINANCIAL REPORTING

      The Company is not an  "accelerated  filer" as defined in Rule 12b-2 under
the Securities  Exchange Act of 1934.  Accordingly,  pursuant to SEC Release No.
33-8545,  the Company is not  required to include in this Annual  Report on Form
10-K a management  report on internal  control over  financial  reporting or the
related registered public accounting firm attestation  imposed by Section 404 of
the Sarbanes-Oxley Act of 2002.

ITEM 9B.    OTHER INFORMATION

      In  the  fourth  quarter  of  2004,  the  Company  reported  all  required
disclosures on Form 8-K.



                                       28
<PAGE>

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The Company  currently has six directors,  all of whom were elected at the
Annual Meeting of  Shareholders  held on December 8, 2003.  All directors  serve
until the next election of directors or until their successors have been elected
and have qualified. There is no family relationship between any of the directors
and executive officers of the Company.

      Set  forth  below  as to  each  director  of the  Company  is  information
regarding  age (as of March 24,  2005),  position  with the  Company,  principal
occupation,  business experience, period of service as a director of the Company
and directorships currently held.

      HARRY I.  FREUND:  Age 65;  Director of  PubliCARD  since April 12,  1985,
Chairman of the Board of Directors since December 1985 and Chairman of PubliCARD
from October 1998 to January 1, 2005.  Mr.  Freund has been  Chairman of Balfour
Investors  Inc., a  merchant-banking  firm that had previously been engaged in a
general  brokerage  business  ("Balfour"),  since 1975.  Mr. Freund is also Vice
Chairman of Glasstech, Inc.

      JAY S. GOLDSMITH: Age 61; Director of PubliCARD since April 12, 1985, Vice
Chairman of the Board of  Directors  since  December  1985 and Vice  Chairman of
PubliCARD from October 1998 to January 1, 2005. Mr. Goldsmith has been President
of Balfour since 1975. Mr. Goldsmith is also Chairman of Glasstech, Inc.

      ANTONIO L. DELISE:  Age 43;  Director of PubliCARD since July 9, 2001. Mr.
DeLise  joined  the  Company in April 1995 as Vice  President,  Chief  Financial
Officer and  Secretary.  He was appointed to the Board of Directors in July 2001
and was elected to the additional  posts of President in February 2002 and Chief
Executive  Officer in August 2002. Prior to joining the Company,  Mr. DeLise was
employed as a senior manager with the firm of Arthur Andersen LLP from July 1983
through March 1995.

      CLIFFORD B. COHN: Age 53;  Director of PubliCARD  since July 31, 1980, and
was Vice  President of  Government  Affairs of  PubliCARD  from April 1, 1982 to
November 20, 1984. Mr. Cohn is the principal of Cohn & Associates, a law firm in
Philadelphia,  Pennsylvania. Mr. Cohn was an attorney for Grayson & Goldin P.C.,
a law firm in Philadelphia, Pennsylvania, during 2002.

      L. G. SCHAFRAN:  Age 66; Director of PubliCARD since December 3, 1986. Mr.
Schafran is the  Managing  General  Partner of L.G.  Schafran &  Associates,  an
investment and development  firm established in 1984. Mr. Schafran is a Director
of Tarragon Realty Investors, Inc., Chairman of the Board and Co-Chief Executive
Officer of Delta-Omega Technologies,  Inc., Co-Liquidating Trustee of the Banyan
Strategic Realty Trust and Director of Worldspace, Inc.

      EMIL VOGEL: Age 61; Director of PubliCARD since October 5, 2001. Mr. Vogel
has been the Senior Partner and founder of Tarnow  Associates  ("Tarnow")  since
1982.  Prior to founding  Tarnow,  Mr.  Vogel spent nine years with an executive
search  firm in the New York City  metropolitan  area  conducting  senior  level
search assignments. Mr. Vogel is also a director of Q.E.P. Co., Inc.

      The  information  with  respect to the  executive  officers of the Company
required by this item is set forth in Item 1A of this Form 10-K.

      AUDIT COMMITTEE

      The present members of the Audit  Committee are Mr.  Schafran  (Chairman),
Mr. Cohn and Mr. Vogel.  The Company's  Board of Directors has adopted a written
charter for the Audit Committee,  which can be found on the Corporate Governance
section of the Company's website at www.publicard.com. The Board of Directors of
the Company has determined  that Mr. Schafran  qualifies as an "audit  committee
expert" as defined by the Securities and Exchange Commission.

      CODE OF ETHICS

      The  Company  has  adopted  a Code of  Ethics  that  applies  to the chief
executive officer and senior financial officers. The Code of Ethics can be found
on  the   Corporate   Governance   section   of   the   Company's   website   at
www.publicard.com.  Changes to and waivers  granted  with respect to the Code of
Ethics that are required to be disclosed  pursuant to the  applicable  rules and
regulations  of the  Securities  and Exchange  Commission  will be posted to the
Company's website.


                                       29
<PAGE>


SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended (the
"Exchange Act"),  requires the Company's  directors and officers and persons who
own  more  than  10  percent  of a  registered  class  of the  Company's  equity
securities,  to file  reports of  ownership  and changes in  ownership  with the
Securities and Exchange Commission (the "SEC"). Officers,  directors and greater
than 10%  shareholders  are required by SEC  regulations  to furnish the Company
with copies of all Section 16(a) forms they file.  To the  Company's  knowledge,
based solely upon the Company's  review of the copies of such forms  received by
it during the fiscal year ended  December 31, 2004 and  representations  that no
other reports were required,  the Company  believes that each person who, at any
time during  such fiscal  year,  was a  director,  officer or, to the  Company's
knowledge,  beneficial  owner of more  than 10% of the  Company's  common  stock
complied with all Section 16(a) filing requirements during such fiscal year.

ITEM 11.    EXECUTIVE COMPENSATION

      The  following   tables  set  forth   information   concerning   the  cash
compensation,  stock options and retirement  benefits  provided to the Company's
executive officers.  The notes to these tables provide more specific information
concerning compensation.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>


                                                                                  LONG-TERM
                                                                                COMPENSATION
                                               ANNUAL COMPENSATION          ---------------------
                                               --------------------------   SECURITIES UNDERLYING       ALL OTHER
NAME AND PRINCIPAL POSITION            YEAR    SALARY ($)   BONUS ($) (1)   OPTIONS/ SARS (#) (2)    COMPENSATION ($)
----------------------------------    -----    ----------   -------------   ---------------------    ---------------
<S>                                   <C>      <C>          <C>             <C>                      <C>
Antonio L. DeLise (3)............      2004       275,000         115,168              --                   9,059 (4)
President, Chief Executive             2003       275,000          84,832              --                   8,706 (4)
Officer, Chief Financial Officer       2002       262,500          40,000              --                   8,380 (4)
and Secretary



Harry I. Freund (5)................    2004       150,000        --                    --                    --
Chairman of the Board of               2003       150,000        --                    --                    --
Directors and Chairman                 2002       170,833        --                    --                    --



Jay S. Goldsmith (5)...............    2004       150,000        --                    --                    --
Vice Chairman of the Board of          2003       150,000        --                    --                    --
Directors and Vice Chairman            2002       170,833        --                    --                    --
</TABLE>


----------
(1)   Reflects bonus earned during the fiscal year. In some instances,  all or a
      portion of the bonus was paid during the following fiscal year.
(2)   Options to acquire shares of Common Stock.
(3)   Mr. DeLise has served as Chief Financial  Officer since April 1995 and was
      appointed to the additional  posts of President in February 2002 and Chief
      Executive Officer in August 2002.
(4)   Consists  of $5,500,  $6,000 and $6,500 in  contributions  to  PubliCARD's
      401(k) plan for 2002, 2003 and 2004, respectively,  and $2,880, $2,706 and
      $2,559 for term life and disability  insurance  payments paid on behalf of
      Mr. DeLise for 2002, 2003 and 2004, respectively.
(5)   Effective  January 1, 2005,  Mr. Freund and Mr.  Goldsmith  resigned their
      officer positions as Chairman and Vice Chairman,  respectively. Mr. Freund
      and Mr.  Goldsmith  remain as Chairman  and Vice  Chairman of the Board of
      Directors.  Beginning  January 1, 2005, Mr. Freund and Mr.  Goldsmith will
      each  receive  compensation  of  $100,000  per year in their  capacity  as
      Chairman and Vice Chairman of the Board of Directors.

OPTION GRANTS IN LAST FISCAL YEAR

      During the fiscal  year ended  December  31,  2004,  there were no options
granted to the named executive officers.


                                       30
<PAGE>


AGGREGATE STOCK OPTION  EXERCISES IN FISCAL YEAR 2004 AND FISCAL YEAR-END OPTION
VALUES

      The following table sets forth certain information as of December 31, 2004
concerning  exercisable  and  unexercisable  stock options held by the following
persons:

<TABLE>
<CAPTION>
                                                          NUMBER OF SECURITIES
                                                          UNDERLYING UNEXERCISED           VALUE OF UNEXERCISED IN-THE-
                                                             OPTIONS AT FISCAL                MONEY OPTIONS AT FISCAL
                                                                 YEAR END                          YEAR END (1)
                         ACQUIRES ON       VALUE      -----------------------------        ----------------------------
         NAME              EXERCISE       REALIZED    EXERCISABLE     UNEXERCISABLE        EXERCISABLE    UNEXERCISABLE
--------------------       --------       --------    -----------     -------------        -----------    -------------
<S>                        <C>            <C>         <C>             <C>                  <C>            <C>
Antonio L. DeLise                --             --        282,500                --                 --               --

Harry I. Freund                  --             --        500,000                --                 --               --

Jay S. Goldsmith                 --             --        500,000                --                 --               --
</TABLE>

----------
(1)   These  values  are  based on the  December  31,  2004  closing  price  for
      PubliCARD's  common stock on the  Over-the-counter  Bulletin Board of $.04
      per share.

STOCK OPTION PLANS

      Under the 1993 Long-Term Incentive Plan and the 1993 Non-employee Director
Stock  Option Plan adopted by  shareholders  of the Company in 1994 and the 1999
Long-Term  Incentive Plan and 1999 Stock Option Plan for Non-employee  Directors
adopted by  shareholders  of the  Company in 1999,  the  Company may grant stock
options, restricted stock options, stock appreciation rights, performance awards
and other  stock-based  awards  equivalent  to up to 7,300,000  shares of common
stock.  As of December 31, 2004, a total of 2,041,525  shares of Common Stock in
the aggregate were available for grant under the stock option plans.

      The  plans  are   administered  by  the  Board  of  Directors  and/or  the
Compensation Committee of the Board of Directors of the Company.  Subject to the
express  provisions  of the plans,  the  Compensation  Committee or the Board of
Directors, as applicable, has full and final authority to determine the terms of
all awards  granted  under the plans  including  (a) the  purchase  price of the
shares  covered by each award,  (b) whether  any payment  will be required  upon
grant of the award,  (c) the individuals to whom, and the time at which,  awards
shall be granted, (d) the number of shares to be subject to each award, (e) when
an award can be exercised and whether in whole or in  installments,  (f) whether
the  exercisability  of the  awards is subject  to risk of  forfeiture  or other
condition  and (g) whether the stock issued upon exercise of an award is subject
to repurchase by the Company, and the terms of such repurchase.

STOCK OPTION AGREEMENTS

      In January 1996,  PubliCARD issued options to Messrs. Cohn and Schafran to
buy a total of 200,000 shares of  PubliCARD's  Common Stock at an exercise price
of $2.50 per share for five years.  In 2000,  a total of 40,000 of such  options
were exercised.  The expiration date on the remaining  options was  subsequently
extended by five years to January 2006.

EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS

      In August 1987, the Company entered into change of control agreements with
each of Messrs.  Freund and Goldsmith,  which provide for payments to them under
certain  circumstances  following  a change of  control  of the  Company.  These
agreements were not adopted in response to any specific acquisition of shares of
PubliCARD or any other event  threatening  to bring about a change of control of
the Company.  For purposes of the agreements,  a change of control is defined as
any of the following: (a) the Company ceasing to be a publicly owned corporation
having at least 2,000 shareholders,  (b) any person or group acquiring in excess
of 30% of the voting  power of the  Company's  securities,  (c) Messrs.  Freund,
Goldsmith, Cohn, DeLise, Schafran and Vogel and any other director designated as
a "Continuing Director" prior to his election as a director by a majority of the
foregoing  persons  (the  "Continuing  Directors")  ceasing  for any  reason  to
constitute  at least a  majority  of the  board of  directors,  (d) the  Company
merging or consolidating  with any entity,  unless approved by a majority of the
Continuing  Directors  or (e) the sale or transfer of a  substantial  portion of
PubliCARD's  assets to another  entity,  unless  approved  by a majority  of the
Continuing Directors.


                                       31
<PAGE>


      In the event one of the  above-named  individuals  (a) is terminated as an
employee of the Company for any reason other than  conviction of a felony or any
act of fraud or  embezzlement,  (b) is disabled  for six  consecutive  months or
dies, (c) is not elected and maintained in the office which he now occupies, (d)
is not included by the board of directors in the slate of directors  recommended
to shareholders,  (e) receives a reduction in his salary or fringe benefits, (f)
experiences  a change  in his  place of  employment  or is  required  to  travel
excessively or (g) experiences other  substantial,  material and adverse changes
in conditions under which the individual's  services are to be rendered,  within
three years  following a change of control,  the individual  will be entitled to
receive  in a lump sum within 10 days of the date of  discontinuance,  a payment
equal to 2.99 times the individual's average annual compensation for the shorter
of (a) the five years  preceding  the change of  control,  or (b) the period the
individual received compensation from PubliCARD for personal services.  Assuming
a change of control of the Company  and the  discontinuance  of an  individual's
services  were to occur at the present time,  payments in the amounts,  assuming
there are no "excess parachute payments" as defined in the Internal Revenue Code
of 1986 (the "Code"), would be made pursuant to the change of control agreements
of approximately $633,000 to each of Mr. Freund and Mr. Goldsmith.  In the event
any such payment,  either alone or together with others made in connection  with
the  individual's  discontinuance,  is  considered  to  be an  excess  parachute
payment,  the  individual  is  entitled to receive an  additional  payment in an
amount which, when added to the initial payment, results in a net benefit to the
individual,  after giving  effect to excise taxes imposed by Section 4999 of the
Code and income taxes on such additional  payment,  equal to the initial payment
before such additional  payment.  Since the change of control  agreements  would
require large cash payments to be made by any person or group effecting a change
of control of  PubliCARD,  absent  the  assent of a majority  of the  Continuing
Directors,   these  agreements  may  discourage  hostile  takeover  attempts  of
PubliCARD.

      The change of control  agreements  would have  expired on December 1, 2004
but have been and will continue to be automatically extended for a period of one
year on each December 1, unless terminated by either party prior to any December
1. In the  event a  change  of  control  occurs  while  the  change  of  control
agreements are in effect,  the term of such  agreements  will  automatically  be
extended to three years from the date of the change of control and the foregoing
renewal option will become inapplicable.

INFORMATION CONCERNING THE BOARD OF DIRECTORS

      Through September 30, 2000, directors who were not officers of the Company
were paid $2,500 per month for services as directors and, in addition,  $750 per
day for each meeting of the board or of  shareholders  that they attend  without
regard to the number of meetings  attended each day.  Effective October 1, 2000,
the  monthly  retainer  and per diem fees were  suspended.  Pursuant to the 1999
Stock Option Plan for  Non-employee  Directors  adopted by  shareholders  of the
Company in 1999,  non-employee  directors  receive  30,000  options to  purchase
common stock of the Company in August of each year.

      From October 1998 through  December  2004,  Mr.  Freund and Mr.  Goldsmith
received compensation as Chairman and Vice Chairman of the Company. For the year
ended December 31, 2004, annual compensation in such capacity was $150,000 each.
On  January  1,  2005,  Mr.  Freund and Mr.  Goldsmith  resigned  their  officer
positions.  Mr. Freund and Mr. Goldsmith remain as Chairman and Vice Chairman of
the Board of Directors, respectively. Pursuant to informal arrangements with the
Company,  effective  January 1, 2005, Mr. Freund and Mr.  Goldsmith each receive
annual  compensation  at the  rate of  $100,000  per year as  Chairman  and Vice
Chairman  of  the  Board,  respectively,  and  for  providing  certain  services
described below.  The  arrangements  have indefinite terms and are terminable at
any time by either  party.  The  compensation  received by them is approved from
time to time by the Directors Compensation Committee of the Board of Directors.

      Mr. Freund and Mr. Goldsmith  provide advice and counsel to the Company on
a variety of strategic and financial matters,  including  business  acquisitions
and divestitures,  raising capital and shareholder relations. Mr. Freund and Mr.
Goldsmith  do  not  render  any  services  in  connection  with  the  day-to-day
operations of the Company. Services are provided on a less than full time basis,
with the amount of time varying depending on the activities in which the Company
is engaged from time to time. The  arrangements  with the Company do not provide
for a minimum amount of time to be spent on Company matters.

      Mr.  Freund  and Mr.  Goldsmith  are each party to an  agreement  with the
Company providing for payments to them under certain  circumstances  following a
change in  control  of the  Company.  See  "Employment  and  Change  in  Control
Agreements."

      Balfour  occupies a portion of the office  space  leased by the Company in
New  York  City.  The  Chairman  and Vice  Chairman  of the  Company's  Board of
Directors are the only shareholders of Balfour.  Balfour pays to the Company 50%
of the rent and occupancy  costs paid by the Company under its lease,  including
base rent,  electricity,  water,  real estate tax  escalations and operation and
maintenance  escalations.  The base rent  payable by  Balfour  is  approximately
$9,500 per month.


                                       32
<PAGE>


      Directors   of  the  Company  are  elected  at  each  annual   meeting  of
shareholders  to hold office until the next annual meeting of  shareholders  and
until their  respective  successors  are duly elected and  qualified.  Executive
officers  are  elected  to hold  office  until the first  meeting  of  directors
following the next annual meeting of shareholders or until their  successors are
sooner elected by the Board and qualified.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

      The  Compensation  Committee  of the Board of  Directors,  which  consists
entirely of outside directors,  reviews the compensation of key employees of the
Company. The present members of the Compensation  Committee are Clifford B. Cohn
(Chairman) and L.G.  Schafran.  See Item 13-"Certain  Relationships  and Related
Transactions".

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following  information  is furnished as of March 24, 2005 with respect
to each class of equity  securities  of the Company  beneficially  owned by each
person who owns of record or is known by the  Company to own  beneficially  more
than 5% of the common  stock of the Company and by all  directors,  nominees and
officers and by all directors, nominees and officers as a group. All information
with respect to beneficial  ownership  has been  furnished to the Company by the
respective shareholders of the Company and the directors, nominees and officers.

<TABLE>
<CAPTION>
                                                          BENEFICIAL OWNERSHIP OF SHARES
                                                              OF COMMON STOCK AS OF        PERCENT OF
       NAME                         POSITION                      MARCH 24, 2005 (1)        CLASS (1)
--------------------        --------------------------    -------------------------------  -----------
<S>                         <C>                           <C>                              <C>
Taube Hodson Stonex         N/A                                        2,735,500 (2)         11.1%
Partners Limited
27 St. James Place
London SW1A INR
United Kingdom

Harry I. Freund             Director, Chairman of the                  1,024,957 (3)          4.1%
                            Board of Directors

Jay S. Goldsmith            Director, Vice Chairman of                 1,236,553 (4)          4.9%
                            the Board of Directors

Antonio L. DeLise           Director, President, Chief                   309,500 (5)          1.2%
                            Executive Officer, Chief
                            Financial Officer and
                            Secretary

Clifford B. Cohn            Director                                     210,314 (6)       Less than 1%

L.G. Schafran               Director                                     364,050 (7)          1.5%

Emil Vogel                  Director                                     168,800 (8)       Less than 1%

All directors, nominees
and officers as a group (6 persons)                                    3,301,174  (9)        12.4%
</TABLE>


----------
(1)   Calculated  in  accordance  with Rule  13d-3  adopted by the SEC under the
      Exchange Act.


                                       33
<PAGE>


(2)   Based on statements on Schedule 13G filed with the SEC on October 11, 1999
      and on Form 4  Amendment  No. 2 filed  with the SEC on January  15,  2004.
      Taube Hodson Stonex Partners Limited is a discretionary investment advisor
      to J. Rothschild  Assurance Life Fund, St. James Place  International Unit
      Trust, J. Rothschild  Assurance Pension Fund, J. Rothschild  International
      Assurance Managed Fund, J. Rothschild  International Assurance US$ Managed
      Fund, TDG Funds Limited,  GAM Worldwide Fund and The Partners Fund.  Taube
      Hodson Stonex  Partners  Limited has power to vote and direct the vote and
      power to dispose and direct the disposition of shares held by such funds.
(3)   Includes  500,000  shares of Common  Stock  which may be  acquired  by Mr.
      Freund within 60 days.  Also includes 5,454 shares of Common Stock held by
      Mr. Freund's spouse over which Mr. Freund has shared voting and investment
      power but as to which he disclaims any beneficial interest.  Also includes
      13,000  shares that may be deemed to be owned  beneficially  by Mr. Freund
      which are held by the Balfour  Defined  Benefit Pension Plan (the "Plan"),
      for which Mr. Freund is a Trustee and Plan  Administrator  and in which he
      participates.  Mr.  Freund  disclaims  ownership  of 5,850  shares of such
      13,000 shares.
(4)   Includes  500,000  shares of Common  Stock  which may be  acquired  by Mr.
      Goldsmith  within 60 days.  Also includes 13,000 shares that may be deemed
      to be owned  beneficially by Mr.  Goldsmith which are held by the Plan, of
      which Mr.  Goldsmith is a Trustee and Plan  Administrator  and in which he
      participates.  Mr. Goldsmith disclaims ownership of 7,280 shares of Common
      Stock held by the Plan.
(5)   Includes 282,500 shares which may be acquired by Mr. DeLise within 60 days
      through the exercise of stock options.
(6)   Includes  210,000  shares which may be acquired by Mr. Cohn within 60 days
      through the exercise of stock options.
(7)   Includes  250,000 shares which may be acquired by Mr.  Schafran  within 60
      days through the exercise of stock options.  Also includes  114,050 shares
      of Common  Stock held by Mr.  Schafran's  spouse as to which Mr.  Schafran
      disclaims any beneficial interest.
(8)   Includes  110,000 shares which may be acquired by Mr. Vogel within 60 days
      through the exercise of stock options.
(9)   Includes  1,852,500  shares of Common  Stock which may be acquired by such
      persons within 60 days.

      The  following   table  sets  forth  certain  equity   compensation   plan
information for the Company as of December 31, 2004.

<TABLE>
<CAPTION>
                                                                                     NUMBER OF SECURITIES REMAINING
                              NUMBER OF SECURITIES TO       WEIGHTED-AVERAGE          AVAILABLE FOR FUTURE ISSUANCE
                              BE ISSUED UPON EXERCISE       EXERCISE PRICE OF        UNDER EQUITY COMPENSATION PLANS
                              OF OUTSTANDING OPTIONS,     OUTSTANDING OPTIONS,     (EXCLUDING SECURITIES REFLECTED IN
                                WARRANTS AND RIGHTS        WARRANTS AND RIGHTS                 COLUMN (A))
PLAN CATEGORY                           (a)                        (b)                            (c)
--------------------------    -----------------------     --------------------     ----------------------------------
<S>                           <C>                         <C>                      <C>
Equity compensation plans
approved by security
holders                                     2,269,475                    $ .51                              2,041,525

Equity compensation plans
not approved by security
holders                                       160,000                   $ 2.50                                     --
                                           ----------                                                      ----------
Total                                       2,429,475                    $ .64                              2,041,525
                                           ==========                                                      ==========
</TABLE>

      See Item  11-"Executive  Compensation"  for a description of the Company's
equity compensation plans.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      See  "Employment  and  Change  in  Control  Agreements"  and  "Information
Concerning  the Board of  Directors" in Item 11 and the notes to the table under
Security  Ownership of Certain Beneficial Owners in Item 12 for information with
respect to information required by this Item.


                                       34
<PAGE>


ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The following table summarizes the aggregate fees billed to the Company by
Deloitte & Touche LLP, the Company's independent auditor:

                                              2004         2003
                                           ----------    ---------
     Audit fees                            $  177,041    $ 179,758
     Audit-related fees                        15,645       11,038
     Tax fees                                      --           --
     All other fees                                --           --

      Audit-related  fees  consist  of  retirement  plan audit  fees.  The Audit
Committee  requires  that all  services  performed  by Deloitte & Touche LLP are
pre-approved   prior  to  the  services  being  performed.   All  services  were
pre-approved  by the Audit  Committee in 2004 and 2003. The Audit  Committee has
considered  whether  the  provision  of  non-audit  services  by  the  Company's
principal auditor are compatible with maintaining auditor independence. Deloitte
& Touche LLP did not perform any non-audit  services for the Company during 2004
and 2003.


                                       35
<PAGE>


                                     PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES


(a)   Financial Statements and Financial Statement Schedules.

      1)    Financial  Statements  -  See  accompanying  Index  to  Consolidated
            Financial Statements, Page F-1.

      2)    Financial   Statement   Schedules  -  See   accompanying   Index  to
            Consolidated Financial Statements, Page F-1.

(b)   Exhibits:

      3.1   Amended and Restated Articles of Incorporation, amended and restated
            through November 2, 1998, of PubliCARD. Incorporated by reference to
            PubliCARD's  Quarterly  Report on Form 10-Q for the quarterly period
            ended September 30, 1998, dated November 9, 1998.

      3.2   By-laws of  PubliCARD.  Incorporated  by  reference  to  PubliCARD's
            Annual  Report on Form 10-K for the fiscal year ended  December  31,
            1990, dated March 28, 1991.

      4.1   Certificate  of  Designation,  Preferences  and  Rights  of  Class A
            Preferred  Stock,  First  Series.  Incorporated  by  reference  from
            PubliCARD's  Registration Statement on Form 8-A, dated September 26,
            1988.

      4.2   Amended and Restated Rights  Agreement,  dated as of August 7, 1998,
            between PubliCARD and Continental Stock Transfer & Trust Company, as
            Rights Agent.  Incorporated  by reference from  PubliCARD's  Current
            Report on Form 8-K, filed on September 17, 1998.

      4.3   Certificate  of  Designation,  Preferences  and  Rights  of  Class A
            Preferred Stock, Second Series as filed with the Department of State
            of  the   Commonwealth   of   Pennsylvania  on  November  29,  2000.
            Incorporated  by reference from  PubliCARD's  Current Report on Form
            8-K filed on December 18, 2000.

      4.4   Rights Plan,  adopted  November 1, 2000.  Incorporated  by reference
            from  PubliCARD's  Current  Report on Form 8-K filed on December 18,
            2000.

      10.1  Agreements,  dated as of August 1987,  between PubliCARD and each of
            Harry I. Freund and Jay S. Goldsmith  concerning a change of control
            of PubliCARD.  Incorporated  by reference  from  PubliCARD's  Form 8
            Amendment  to  PubliCARD's  Quarterly  Report  on Form  10-Q for the
            quarter ended September 30, 1987, filed on December 18, 1987.

      10.2  PubliCARD's 1993 Long Term Incentive Plan. Incorporated by reference
            from  PubliCARD's  Annual  Report  on Form  10-K for the year  ended
            December 31, 1993, dated March 29, 1994.

      10.3  PubliCARD's Non-employee Director Stock Option Plan. Incorporated by
            reference from  PubliCARD's  Annual Report on Form 10-K for the year
            ended December 31, 1993, dated March 29, 1994.

      10.4  PubliCARD's  1999  Stock  Option  Plan for  Non-Employee  Directors.
            Incorporated  by reference  from  PubliCARD's  Annual Report on Form
            10-K for the year ended December 31, 1999, dated March 30, 2000.

      10.5  PubliCARD's 1999 Long-Term Incentive Plan. Incorporated by reference
            from  PubliCARD's  Annual  Report  on Form  10-K for the year  ended
            December 31, 1999, dated March 30, 2000.

      10.6  Settlement Agreement, dated as of September 23, 2004, by and between
            the  Pension  Benefit  Guaranty  Corporation  and  PubliCARD,   Inc.
            Incorporated  by reference from  PubliCARD's  Current Report on Form
            8-K filed on October 14, 2004.


                                       36
<PAGE>


      10.7  Promissory  Note,  dated as of September 23, 2004 made by PubliCARD,
            Inc. to the Pension Benefit  Guaranty  Corporation.  Incorporated by
            reference  from  PubliCARD's  Current  Report  on Form 8-K  filed on
            October 14, 2004.

      10.8  Security  Agreement,  dated  as  of  September  23,  2004,  made  by
            PubliCARD,   Inc.  to  the  Pension  Benefit  Guaranty  Corporation.
            Incorporated  by reference from  PubliCARD's  Current Report on Form
            8-K filed on October 14, 2004.

      10.9  Pledge Agreement, dated as of September 23, 2004, made by PubliCARD,
            Inc.  in  favor  of  the  Pension  Benefit   Guaranty   Corporation.
            Incorporated  by reference from  PubliCARD's  Current Report on Form
            8-K filed on October 14, 2004.

      21.1  Subsidiaries of PubliCARD. Filed herewith.

      23.1  Consent letter from Independent  Registered  Public Accounting Firm.
            Filed herewith.

      31(i).1 Rule 13a-14(a)/15d-14(a) certification. Filed herewith.

      32.1  Section 1350 certification. Filed herewith.


                                       37
<PAGE>


                                   SIGNATURES

      Pursuant  to the  requirements  of Section 13 or 15 (d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                               PUBLICARD,  INC.
                                               (Registrant)

Date: March 30, 2005                           By: /s/ ANTONIO L. DELISE
                                                 -------------------------------
                                                 Antonio L. DeLise, President,
                                                 Chief Executive Officer, Chief
                                                 Financial Officer and Director

      Pursuant 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 capacities and on the dates indicated.


Date: March 30, 2005                           By:  /s/ ANTONIO L. DELISE
                                                 -------------------------------
                                                 Antonio L. DeLise, President,
                                                 Chief Executive Officer, Chief
                                                 Financial Officer and Director


Date: March 30, 2005                           By:  /s/ CLIFFORD B. COHN
                                                 -------------------------------
                                                 Clifford B. Cohn, Director


Date: March 30, 2005                           By:  /s/ HARRY I. FREUND
                                                 -------------------------------
                                                 Harry I. Freund, Chairman and
                                                 Director


Date: March 30, 2005                           By:  /s/ JAY S. GOLDSMITH
                                                 -------------------------------
                                                 Jay S. Goldsmith, Vice Chairman
                                                 and Director


Date: March 30, 2005                           By:  /s/ L. G. SCHAFRAN
                                                 -------------------------------
                                                 L. G. Schafran, Director


Date: March 30, 2005                           By:  /s/ EMIL VOGEL
                                                 -------------------------------
                                                 Emil Vogel, Director



                                       38

<PAGE>


                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

Financial Statements

Report of Independent Registered Public Accounting Firm......................F-2

Consolidated balance sheets as of December 31, 2004 and 2003.................F-3

Consolidated statements of operations for the years ended
  December 31, 2004, 2003 and 2002...........................................F-4

Consolidated statements of shareholders' equity (deficiency) for the
  years ended December 31, 2004, 2003 and 2002...............................F-5

Consolidated statements of cash flows for the years ended
  December 31, 2004, 2003 and 2002...........................................F-6

Notes to consolidated financial statements......................F-7 through F-23


Schedule

Report of Independent Registered Public Accounting Firm on schedule.........F-24

Schedule II - Valuation and qualifying accounts.............................F-25


      All other schedules required by Regulation S-X have been omitted because
they are not applicable or because the required information is included in the
financial statements or notes thereto.


                                      F-1
<PAGE>


                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
PubliCARD, Inc.
New York, New York

We have audited the accompanying  consolidated balance sheets of PubliCARD, Inc.
and subsidiary  companies (the  "Company") as of December 31, 2004 and 2003, and
the  related  consolidated   statements  of  operations,   shareholders'  equity
(deficiency),  and cash flows for the three years ended December 31, 2004. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its internal  controls  over
financial reporting.  Our audit includes  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial  position of PubliCARD,  Inc. and  subsidiary
companies  as of December 31, 2004 and 2003,  and the results of its  operations
and its cash flows for each of the three years in the period ended  December 31,
2004, in conformity with accounting  principles generally accepted in the United
States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements,  the Company has experienced recurring losses
from  operations,  a  substantial  decline in working  capital and negative cash
flows from operations,  and requires additional capital to meet its obligations,
which raises substantial doubt about its ability to continue as a going concern.
Management's  plans  concerning  these matters are also described in Note 1. The
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.

/s/ DELOITTE & TOUCHE LLP

New York, New York
March 24, 2005


                                      F-2
<PAGE>


                                                 PUBLICARD, INC.
                                            AND SUBSIDIARY COMPANIES

                                           CONSOLIDATED BALANCE SHEETS
                                           DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                                            2004         2003
                                                                                          ---------    ---------
<S>                                                                                       <C>          <C>
                                                                                    (in thousands, except share data)
                                          ASSETS
Current assets:
     Cash, including short-term investments of $1,837 and $3,501 in 2004 and
          2003, respectively                                                              $   1,943    $   3,580
     Trade receivables, less allowance for doubtful accounts of $48 and $115 in 2004
          and 2003, respectively                                                                827        1,133
     Inventories                                                                                558          635
     Prepaid insurance and other                                                                440          440
                                                                                          ---------    ---------
          Total current assets                                                                3,768        5,788

Equipment and leasehold improvements, net                                                       127          191
Goodwill and intangibles                                                                        782          822
Other assets                                                                                    396          598
                                                                                          ---------    ---------
                                                                                          $   5,073    $   7,399
                                                                                          =========    =========

                         LIABILITIES AND SHAREHOLDERS' DEFICIENCY

Current liabilities:
     Trade accounts payable and overdraft                                                 $   1,358    $   1,569
     Accrued liabilities                                                                      1,005        5,206
                                                                                          ---------    ---------
          Total current liabilities                                                           2,363        6,775

Note payable                                                                                  7,501           --
Other non-current liabilities                                                                   368        3,552
                                                                                          ---------    ---------
          Total liabilities                                                                  10,232       10,327
                                                                                          ---------    ---------

Commitments and contingencies (Note 7)

Shareholders' deficiency:
     Class A Preferred Stock, Second Series, no par value: 1,000 shares authorized; 565
          shares issued and outstanding as of December 31, 2004 and 2003, respectively        2,825        2,825
     Common shares, $0.10 par value: 40,000,000 shares authorized; 24,690,902
          shares issued and outstanding as of December 31, 2004 and 2003, respectively        2,469        2,469
     Additional paid-in capital                                                             108,119      108,119
     Accumulated deficit                                                                   (118,476)    (113,617)
     Other comprehensive loss                                                                   (96)      (2,724)
                                                                                          ---------    ---------
          Total shareholders' deficiency                                                     (5,159)      (2,928)
                                                                                          ---------    ---------
                                                                                          $   5,073    $   7,399
                                                                                          =========    =========


The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>


                                                      F-3
<PAGE>




                                          PUBLICARD, INC.
                                     AND SUBSIDIARY COMPANIES

                               CONSOLIDATED STATEMENTS OF OPERATIONS
                       FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

<TABLE>
<CAPTION>
                                                          2004            2003            2002
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>
                                                           (in thousands, except share data)

Revenues                                              $      4,395    $      4,781    $      4,605

Cost of revenues                                             2,010           2,316           2,455
                                                      ------------    ------------    ------------
     Gross margin                                            2,385           2,465           2,150
                                                      ------------    ------------    ------------
Operating expenses:
     General and administrative                              2,330           2,708           3,235
     Sales and marketing                                     1,671           1,844           1,877
     Product development                                       716             584             605
     Amortization of intangibles                                40              40             576
     Impairment of goodwill and intangibles                     --              --           1,365
                                                      ------------    ------------    ------------
                                                             4,757           5,176           7,658
                                                      ------------    ------------    ------------
Loss from operations                                        (2,372)         (2,711)         (5,508)
                                                      ------------    ------------    ------------
Other income (expenses):
     Interest income                                            27              15              71
     Interest expense                                          (22)            (12)            (39)
     Cost of retirement benefits - non-operating              (405)           (903)           (795)
     Loss on pension settlement                             (2,739)             --              --
     Write-down of minority investment                          --          (3,000)         (2,068)
     Gain on insurance recoveries                              647           4,590              --
     Other income                                                5             428              80
                                                      ------------    ------------    ------------
                                                            (2,487)          1,118          (2,751)
                                                      ------------    ------------    ------------
Loss  from continuing operations                            (4,859)         (1,593)         (8,259)
Income from discontinued operations                             --              --           1,066
                                                      ------------    ------------    ------------
Net loss                                              $     (4,859)   $     (1,593)   $     (7,193)
                                                      ============    ============    ============

Basic and diluted earnings (loss) per common share:
     Continuing operations                            $       (.20)   $       (.07)   $       (.34)
     Discontinued operations                                    --                             .04
                                                      ------------    ------------    ------------
                                                      $       (.20)   $       (.07)   $       (.30)
                                                      ============    ============    ============
Weighted average common shares outstanding              24,690,902      24,469,748      24,179,364
                                                      ============    ============    ============

The accompanying notes to consolidated financial statements are an integral part of these
statements.
</TABLE>


                                               F-4
<PAGE>


<TABLE>
<CAPTION>
                                                          PUBLICARD, INC.
                                                     AND SUBSIDIARY COMPANIES

                                   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
                                       FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002


                                 Class A
                             Preferred Stock               Common Shares                                                  Share-
                         ------------------------    -----------------------   Additional                    Other       holders'
                           Shares                      Shares                   Paid-in    Accumulated   Comprehensive    Equity
                           Issued        Amount        Issued       Amount      Capital      Deficit         Loss      (Deficiency)
                         ----------    ----------    ----------   ----------   ----------   ----------    ----------    ----------
<S>                      <C>           <C>           <C>          <C>          <C>          <C>           <C>           <C>
                                                 (in thousands, except share data)

Balance -
  January 1, 2002               780    $    3,900    24,153,402   $    2,415   $  107,098   $ (104,831)   $   (1,098)   $    7,484

Conversion of
  preferred
  stock                         (15)          (75)       37,500            4           71           --            --            --

Comprehensive loss:
    Net loss                     --            --            --           --           --       (7,193)           --        (7,193)
    Foreign currency
     translation
     adjustment                  --            --            --           --           --           --           112           112
    Minimum
     pension
     liability                   --            --            --           --           --           --        (1,405)       (1,405)
                         ----------    ----------    ----------   ----------   ----------   ----------    ----------    ----------
       Total
        comprehensive
        loss                                                                                                                (8,486)
                                                                                                                        ----------
Balance -
  December 31, 2002             765         3,825    24,190,902        2,419      107,169     (112,024)       (2,391)       (1,002)
                         ----------    ----------    ----------   ----------   ----------   ----------    ----------    ----------
Conversion of
  preferred stock              (200)       (1,000)      500,000           50          950           --            --            --

Comprehensive loss:
    Net loss                     --            --            --           --           --       (1,593)           --        (1,593)
    Foreign currency
     translation
       adjustment                --            --            --           --           --           --            10            10
    Minimum
     pension
     liability                   --            --            --           --           --           --          (343)         (343)
                         ----------    ----------    ----------   ----------   ----------   ----------    ----------    ----------
       Total
        comprehensive
        loss                                                                                                                (1,926)
                                                                                                                        ----------
Balance -
  December 31, 2003             565         2,825    24,690,902        2,469      108,119     (113,617)       (2,724)       (2,928)
                         ----------    ----------    ----------   ----------   ----------   ----------    ----------    ----------
Comprehensive loss:
    Net loss                     --            --            --           --           --       (4,859)           --        (4,859)
    Foreign currency
     translation
     adjustment                  --            --            --           --           --           --           (21)          (21)
    Pension settlement           --            --            --           --           --           --         2,649         2,649
                         ----------    ----------    ----------   ----------   ----------   ----------    ----------    ----------
     Total
      comprehensive
      loss                                                                                                                  (2,231)
                                                                                                                        ----------
Balance -
  December 31, 2004             565    $    2,825    24,690,902   $    2,469   $  108,119   $ (118,476)   $      (96)   $   (5,159)
                         ==========    ==========    ==========   ==========   ==========   ==========    ==========    ==========


The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
</TABLE>


                                                               F-5
<PAGE>



                                           PUBLICARD, INC.
                                      AND SUBSIDIARY COMPANIES

                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                        2004       2003       2002
                                                                       -------    -------    -------
<S>                                                                    <C>        <C>        <C>
                                                                               (in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                          $(4,859)   $(1,593)   $(7,193)
     Adjustments to reconcile net loss to net cash used
              in operating activities:
          Loss on pension settlement                                     2,739         --         --
          Gain from discontinued operations                                 --         --     (1,066)
          Gain on insurance recoveries                                    (647)    (4,590)        --
          Write-down of minority investment                                 --      3,000      2,068
          Amortization of intangibles                                       40         40        576
          Impairment of goodwill and intangibles                            --         --      1,365
          Depreciation and amortization                                    116        153        205
          Gain on disposal of property and fixed assets                     --       (286)        --
          Changes in assets and liabilities:
             Trade receivables                                             397       (239)       686
             Inventories                                                   132        281       (248)
             Prepaid insurance and other current assets                    102         37        404
             Other assets                                                   --        293        533
             Trade accounts payable and overdraft                         (185)       258        (27)
             Accrued liabilities                                           541      2,455       (135)
             Other non-current liabilities                                (701)    (1,999)    (2,253)
                                                                       -------    -------    -------
              Net cash used in operating activities                     (2,325)    (2,190)    (5,085)
                                                                       -------    -------    -------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures                                                  (48)       (11)       (28)
     Proceeds from insurance recoveries, net of funds held in escrow       727      4,118         --
     Proceeds from discontinued operations and sale of  property
              and fixed assets                                               5        371      1,865
     Other                                                                   2         (3)        47
                                                                       -------    -------    -------
               Net cash provided by investing activities                   686      4,475      1,884
                                                                       -------    -------    -------
CASH FLOWS FROM FINANCING ACTIVITIES                                        --         --         --
                                                                       -------    -------    -------
Effect of exchange rate changes on cash and cash equivalents                 2          5         12
                                                                       -------    -------    -------

Net increase (decrease) in cash                                         (1,637)     2,290     (3,189)
Cash - beginning of period                                               3,580      1,290      4,479
                                                                       -------    -------    -------
Cash - end of period                                                   $ 1,943    $ 3,580    $ 1,290
                                                                       =======    =======    =======
Cash paid for interest                                                 $    22    $    12    $    81
                                                                       =======    =======    =======


The accompanying notes to the consolidated financial statements are an integral part of these
financial statements.
</TABLE>



                                                F-6
<PAGE>


                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF THE BUSINESS
      PubliCARD,  Inc.  ("PubliCARD"  or the "Company") was  incorporated in the
Commonwealth of Pennsylvania in 1913.  PubliCARD entered the smart card industry
in early  1998,  and began to  develop  solutions  for the  conditional  access,
security,  payment system and data storage needs of industries  utilizing  smart
card technology.  In 1998 and 1999, the Company made a series of acquisitions to
enhance its  position  in the smart card  industry.  In March 2000,  PubliCARD's
Board of Directors (the "Board"),  together with its management team, determined
to integrate its operations and focus on deploying smart card  solutions,  which
facilitate secure access and transactions. To effect this new business strategy,
in March 2000,  the Board  adopted a plan of  disposition  pursuant to which the
Company  divested its non-core  operations.  See Note 9 for a discussion  on the
disposition plan.

      In July 2001,  after  evaluating the timing of potential  future revenues,
PubliCARD's  Board decided to shift the  Company's  strategic  focus.  While the
Board remained confident in the long-term  prospects of the smart card business,
the timing of public sector and corporate  initiatives in wide-scale,  broadband
environments  utilizing  the  Company's  smart card reader and chip products had
become more  uncertain.  Given the  lengthened  time horizon,  the Board did not
believe  it would be  prudent  to  continue  to  invest  the  Company's  current
resources  in the  ongoing  development  and  marketing  of these  technologies.
Accordingly,  the Board  determined that  shareholders'  interests would be best
served by pursuing strategic  alliances with one or more companies that have the
resources  to  capitalize  more fully on the  Company's  smart  card  reader and
chip-related  technologies.  In  connection  with  this  shift in the  Company's
strategic  focus,  workforce  reductions and other measures were  implemented to
achieve cost savings.

      At present,  PubliCARD's sole operating  activities are conducted  through
its Infineer Ltd.  subsidiary  ("Infineer"),  which designs smart card solutions
for educational and corporate sites. The Company's future plans revolve around a
potential  acquisition  strategy that would focus on businesses in areas outside
the high  technology  sector while  continuing  to support the  expansion of the
Infineer business. However, the Company will not be able to implement such plans
unless it is  successful in obtaining  funding,  as to which no assurance can be
given.

LIQUIDITY AND GOING CONCERN CONSIDERATIONS
      These  consolidated  financial  statements  contemplate the realization of
assets and the satisfaction of liabilities in the normal course of business. The
Company has incurred operating losses, a substantial  decline in working capital
and negative cash flow from  operations  for a number of years.  The Company has
also experienced a substantial reduction in its cash and short term investments,
which  declined  from $17.0  million at  December  31,  2000 to $1.9  million at
December  31,  2004.  The Company also had a  shareholders'  deficiency  of $5.2
million December 31, 2004.

      The Company sponsored a defined benefit pension plan (the "Plan") that was
frozen in 1993.  In January  2003,  the Company  filed a notice with the Pension
Benefit Guaranty  Corporation  (the "PBGC") seeking a "distress  termination" of
the Plan. In September  2004,  the PBGC  proceeded to terminate the Plan and was
appointed as the Plan's trustee.  See Note 5 for further information on the Plan
termination.  As a result of the Plan  termination,  the Company's 2003 and 2004
funding requirements due to the Plan amounting to $3.4 million through September
15, 2004 were eliminated.  As such,  management  believes that existing cash and
short term  investments  may be sufficient  to meet the Company's  operating and
capital  requirements at the currently  anticipated  levels through December 31,
2005.  However,  additional capital will be necessary in order to operate beyond
December 31, 2005 and to fund the current  business plan and other  obligations.
While the Company is considering various funding  alternatives,  the Company has
not secured or entered into any arrangements to obtain additional  funds.  There
can be no assurance that the Company will be able to obtain  additional  funding
on acceptable terms or at all. If the Company cannot raise additional capital to
continue its present level of operations it is not likely to be able to meet its
obligations,  take  advantage  of future  acquisition  opportunities  or further
develop or enhance  its  product  offering,  any of which  would have a material


                                      F-7
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

adverse  effect on its business and results of operations  and is likely to lead
the Company to seek bankruptcy  protection.  These conditions raise  substantial
doubt  about  the  Company's  ability  to  continue  as  a  going  concern.  The
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.

PRINCIPLES OF CONSOLIDATION
      The consolidated  financial  statements  include the accounts of PubliCARD
and its wholly-owned subsidiaries.  All intercompany transactions are eliminated
in consolidation.

SHORT-TERM INVESTMENTS
      Short-term investments consist of certain liquid instruments with original
maturities of three months or less including U.S. Treasury obligations and money
market funds.

INVENTORIES
      Inventories  are stated at lower of cost (first-in,  first-out  method) or
market.  The Company  periodically  evaluates the need to record adjustments for
impairment of inventory.  Inventory in excess of the Company's  estimated  usage
requirements is written down to its estimated net realizable value.  Inherent in
the estimates of net realizable value are management's  estimates related to the
Company's production schedules,  customer demand,  possible alternative uses and
the  ultimate  realization  of  potentially  excess  inventory.  Inventories  at
December 31, 2004 and 2003 consisted of the following (in thousands):

                                               2004       2003
                                               ----       ----
Raw materials and work-in-process              $468       $486
Finished goods                                   90        149
                                               ----       ----
                                               $558       $635
                                               ====       ====

DEPRECIATION AND AMORTIZATION
      Equipment and leasehold improvements are stated at cost.  Improvements and
replacements are capitalized, while expenditures for maintenance and repairs are
charged to expense as incurred. Depreciation for equipment is computed using the
straight-line  method  over  estimated  useful  lives of  three  to five  years.
Amortization  for  leasehold  improvements  is computed  using the lesser of the
estimated  useful  life  or the  life  of the  lease.  Equipment  and  leasehold
improvements  at  December  31, 2004 and 2003  consisted  of the  following  (in
thousands):

                                              2004       2003
                                            -------    -------
Equipment, furniture and fixtures           $ 1,123    $ 1,093
Leasehold improvements                           58        224
Accumulated depreciation and amortization    (1,054)    (1,126)
                                            -------    -------
                                            $   127    $   191
                                            =======    =======

      Depreciation and amortization expense was $116,000,  $153,000 and $205,000
in 2004, 2003 and 2002, respectively.

GOODWILL AND INTANGIBLES
      Goodwill is the excess of the  purchase  price and related  costs over the
value  assigned  to the net  tangible  and  intangible  assets  relating  to the
November 1999 acquisition of Infineer.  Through December 31, 2001,  goodwill had
been  amortized  over a five year life.  Effective  January 1, 2002, the Company
adopted  Financial  Accounting  Standards Board ("FASB")  Statement of Financial
Accounting  Standards  ("SFAS") No. 142,  "Goodwill and Other Intangible Assets"
("SFAS No. 142"). In accordance with the guidelines of this statement,  goodwill
and  indefinite  lived  intangible  assets are no longer  amortized  but will be
assessed for impairment on at least an annual basis.  SFAS No. 142 also requires
that  intangible  assets with  estimable  useful lives be  amortized  over their
respective estimated useful lives and reviewed for impairment.


                                      F-8
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The Company determines the fair value of its sole reporting unit primarily
using two  approaches:  a market  approach  technique and a discounted cash flow
valuation  technique.  The market approach relies  primarily on the implied fair
value  using a  multiple  of  revenues  for  several  entities  with  comparable
operations and economic  characteristics.  Significant  assumptions  used in the
discounted  cash  valuation  included  estimates  of future cash  flows,  future
short-term and long-term growth rates and estimated cost of capital for purposes
of  arriving at a discount  factor.  The Company  performs  its annual  goodwill
impairment  test  during  the  fourth  quarter  absent  any  interim  impairment
indicators.  The carrying value of goodwill as of December 31, 2004 and 2003 was
$782,000.

      In performing its annual goodwill impairment test at the end of the fourth
quarter of 2002, the Company  determined that goodwill had been impaired.  Based
on comparing the values derived from the two techniques  described  above to the
carrying value of the reporting unit, the Company recorded a goodwill impairment
loss of  $364,000 in the fourth  quarter of 2002.  The  Company  attributed  the
impairment  loss  to the  value  of a  comparable  entity  that  was  sold  in a
transaction in late 2002, the significant  2002 operating loss for the reporting
unit and lower forecasted  revenue growth due to a continued  overall decline in
technology  spending  and a  shortage  of  capital  available  to  invest in the
reporting unit.

      Intangible  assets  consist of completed  technology  identified as of the
Infineer  acquisition  date and are amortized over a five year life.  Long-lived
assets  and  certain  identifiable  intangible  assets  to be held  and used are
reviewed for impairment  whenever  events or changes in  circumstances  indicate
that the carrying amount of such assets may not be recoverable. Determination of
recoverability  is  based on an  estimate  of  undiscounted  future  cash  flows
resulting from the use of the asset and its eventual disposition. Measurement of
any impairment loss for long-lived  assets and certain  identifiable  intangible
assets that management expects to hold and use is based on the net realizable of
the  asset.  In the fourth  quarter of 2002,  the  Company  determined  that its
intangible  assets had been  impaired  and recorded an  impairment  loss of $1.0
million.  The Company  attributes the impairment  loss to the  significant  2002
operating loss for the reporting unit and lower forecasted revenue growth due to
a continued  overall  decline in  technology  spending and a shortage of capital
available to invest in the reporting unit.

      The gross  carrying  amount and  accumulated  amortization  of  intangible
assets at December 31, 2004 and 2003 consisted of the following (in thousands):

                                              2004       2003
                                            -------    -------

Gross carrying amount                       $ 1,881    $ 1,881
Accumulated amortization                     (1,881)    (1,841)
                                            -------    -------
                                            $    --    $    40
                                            =======    =======

      Amortization of intangibles  for 2004, 2003 and 2002 was $40,000,  $40,000
and $576,000, respectively.

VALUATION OF INVESTMENTS
      The Company periodically assesses the carrying value of its minority-owned
investments for impairment. This assessment is based upon a review of operations
and indications of continued viability, such as subsequent rounds of financing.

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
      Revenue from product  sales and  technology  and software  license fees is
recorded  upon  shipment  if a signed  contract  exists,  the fee is  fixed  and
determinable,  the  collection of the  resulting  receivable is probable and the
Company has no obligation to install the product or solution.  If the Company is
responsible  for  installation,  revenue from product  sales and license fees is
deferred and recognized  upon client  acceptance or "go live" date.  Maintenance
and  support  fees are  deferred  and  recognized  as revenue  ratably  over the
contract  period.  Provisions  are recorded for estimated  warranty  repairs and
returns at the time the products are shipped. Should changes in conditions cause
management  to  determine  that  revenue  recognition  criteria  are not met for
certain future  transactions,  revenue recognized for any reporting period could
be adversely affected.


                                      F-9
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    The Company performs ongoing credit evaluations of its customers and adjusts
credit limits based upon payment history and the customer's  credit  worthiness.
The Company continually monitors collections and payments from its customers and
maintains  a  provision  for  estimated  credit  losses  based  upon  historical
experience and any specific  customer  collection issues that it has identified.
While such credit losses have historically been within management's expectations
and the  provisions  established,  there is no  assurance  that the Company will
continue to experience the same credit loss rates as in the past.

STOCK-BASED COMPENSATION
      The Company accounts for employee stock-based  compensation cost using the
intrinsic value method of accounting  prescribed by Accounting  Principles Board
Opinion  ("APB") No. 25,  "Accounting  for Stock Issued to Employees"  ("APB No.
25").  The Company has adopted the  disclosure-only  provisions of SFAS No. 123,
"Accounting  for  Stock-Based  Compensation"  ("SFAS No. 123") and SFAS No. 148,
"Accounting for Stock-Based Compensation--Transition and Disclosure".

      At December 31, 2004, the Company had four fixed stock-based  compensation
plans,  which are  described  more fully in Note 6. The  exercise  price of each
option  granted  pursuant  to these  plans is equal to the  market  price of the
Company's  common stock on the date of grant.  Accordingly,  pursuant to APB No.
25, no compensation  cost has been recognized for such grants.  Had compensation
cost been determined  based on the fair value at the grant dates for such awards
consistent  with the method  prescribed  by SFAS No. 123, the Company's net loss
and loss per share  would have been as follows (in  thousands,  except per share
data):

                                                   2004       2003       2002
                                                 -------    -------    -------

Net loss, as reported                            $(4,859)   $(1,593)   $(7,193)
Deduct: Total stock-based compensation
 expense determined under fair value based
 method                                             (126)      (490)      (172)
                                                 -------    -------    -------
Pro forma net loss                               $(4,985)   $(2,083)   $(7,365)
                                                 =======    =======    =======
Basic and diluted loss per share:
  As reported                                    $  (.20)   $  (.07)   $  (.30)
                                                 =======    =======    =======
  Pro forma                                      $  (.20)   $  (.09)   $  (.30)
                                                 =======    =======    =======

      For  purposes of the pro forma  disclosure,  the fair value of each option
grant is estimated on the date of grant using the  Black-Scholes  option pricing
model.  The  weighted  average  assumptions  used to  estimate  the value of the
options  included in the pro forma  amounts and the weighted  average  estimated
fair value of an option granted are as follows:

                                             2004        2003        2002
                                         --------    --------    --------

Expected option term (years)                  5.0         5.0         5.0
Expected volatility                         353.0%       93.0%       75.0%
Risk-free interest rate                       3.7%        3.4%        3.5%
Weighted average fair value per option   $    .06    $    .05    $    .16

USE OF ESTIMATES
      The preparation of these financial  statements required the use of certain
estimates by  management  in  determining  the  Company's  assets,  liabilities,
revenues  and  expenses.   Certain  of  our  accounting   policies  require  the
application of significant  judgment by management in selecting the  appropriate
assumptions  for  calculating  financial  estimates.   By  their  nature,  these
judgments  are  subject  to an  inherent  degree  of  uncertainty.  The  Company
considers certain accounting policies related to revenue recognition,  estimates
of reserves  for  receivables  and  inventories  and  valuation  of goodwill and
intangibles to be critical  policies due to the estimation  processes  involved.
While all available information has been considered, actual amounts could differ
from those reported.


                                      F-10
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EARNINGS (LOSS) PER COMMON SHARE
      Basic net income (loss) per common share is based on net income divided by
the  weighted  average  number of common  shares  outstanding  during each year.
Diluted  net  income  (loss)  per  common  share  assumes  issuance  of the  net
incremental shares from stock options,  warrants and convertible preferred stock
at the  later of the  beginning  of the year or date of  issuance.  Diluted  net
income  (loss)  per share was the same as basic net  income  (loss) per share in
2004, 2003 and 2002 since the effect of stock options and convertible  preferred
stock  were  anti-dilutive.  Shares  issuable  pursuant  to  stock  options  and
convertible  preferred  stock were  3,841,975,  4,057,475  and  5,215,635  as of
December 31, 2004, 2003 and 2002, respectively.

FOREIGN CURRENCY TRANSLATION
      The local currency of the Company's foreign (United Kingdom) subsidiary is
its  functional  currency.  Assets  and  liabilities  of the  Company's  foreign
subsidiary  are  translated  into U.S.  dollars at the  current  exchange  rate.
Statement of operations  accounts are translated at the average rate of exchange
prevailing  during the year.  Translation  adjustments  arising  from the use of
differing  exchange  rates from period to period are a component of  accumulated
comprehensive loss included in shareholders' equity.


FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
      The  carrying  amount  of  financial   instruments,   including  cash  and
short-term  investments,  accounts  receivable,  accounts  payable  and  accrued
liabilities,  approximates  fair  value.  The fair  value of  long-term  debt is
estimated  based on current rates which could be offered to the Company for debt
of the same remaining  maturity.  The estimated fair value of the Company's long
term debt as of December 31, 2004 was as follows (in thousands):

                                         CARRYING     FAIR
                                          AMOUNT      VALUE
                                         --------    --------
    Long-term debt                       $  7,501      $1,860

      Financial instruments that subject the Company to concentrations of credit
risk  consist  primarily  of  cash  and  short-term   investments  and  accounts
receivable.  The Company  maintains all of its cash and  short-term  investments
with high-credit  quality financial  institutions.  The Company's  customer base
consists of businesses principally in Europe (with a concentration in the United
Kingdom) and the United States.  For the years ended December 31, 2004 and 2003,
no one customer  accounted  for more than 10% of revenues.  Amounts due from two
customers represented  approximately 21% and 13%, respectively,  of the accounts
receivable balance as of December 31, 2004.

RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
      Research and  development  costs are expensed as incurred.  In  accordance
with SFAS No. 86,  "Accounting  for the Costs of  Computer  Software to be Sold,
Leased  or  Otherwise  Marketed",  the  Company  capitalizes  eligible  computer
software costs upon  achievement  of  technological  feasibility  subject to net
realizable value considerations.  Through December 31, 2004, such costs eligible
for capitalization  were  insignificant.  Accordingly,  all such costs have been
charged to product development expenses.

INCOME TAXES
      The Company follows SFAS No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). Under the asset and liability method of SFAS No. 109, deferred tax assets
and liabilities are recognized for the future tax  consequences  attributable to
differences  between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases.  Since the Company has no recent
history of profits,  management  cannot  assess the  likelihood  that the future
benefit of these losses will be recognized. Thus, a full valuation allowance has
been recorded.


                                      F-11
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RECENT ACCOUNTING PRONOUNCEMENTS
      In  December  2004,  the  FASB  issued  SFAS  No.  123R  (revised   2004),
"Share-Based  Payment" This  statement  requires  compensation  costs related to
share-based  payment  transactions  to be  recognized  in financial  statements.
Generally, compensation cost will be measured based on the grant-date fair value
of the equity or liability  instruments  issued.  In addition,  liability awards
will be remeasured each reporting  period.  Compensation cost will be recognized
over the requisite  service  period,  generally as the award vests.  The Company
will adopt SFAS No. 123R in the third quarter of 2005.  SFAS No. 123R applies to
all awards granted after June 30, 2005 and to previously-granted awards unvested
as of the adoption date. The adoption of the statement is not expected to have a
material  impact on  Company's  consolidated  financial  positions,  results  of
operations and cash flows.

      In  November  2004,  the FASB issued SFAS No.  151,  "Inventory  Cost,  an
amendment of ARB No. 43, Chapter 4." This statement amends  Accounting  Research
Bulletin No. 43 to clarify the accounting for abnormal  amounts of idle facility
expense, freight,  handling costs and wasted material (spoilage).  The provision
of the statement is effective for inventory  costs incurred  during fiscal years
beginning  after June 15, 2005. The adoption of the statement is not expected to
have a  material  effect  on the  Company's  consolidated  financial  positions,
results of operations and cash flows.

      In December 2004, the FASB issued SFAS No. 153,  "Exchanges of Nonmonetary
Assets,  an amendment of APB Opinion No. 29." This statement  amends APB No. 29,
"Accounting  for  Nonmonetary  Transactions,"  to eliminate  the  exception  for
nonmonetary exchanges of similar productive assets under APB No. 29 and replaces
it with a general exception for exchanges of nonmonetary assets that do not have
commercial  substance.  The statement is effective for financial  statements for
fiscal years beginning after June 15, 2005. The adoption of the statement is not
expected  to have a  material  effect on the  Company's  consolidated  financial
positions, results of operations and cash flows.

NOTE 2 - INVESTMENTS

      In December  2000, the Company  acquired an ownership  interest in TecSec,
Incorporated,  a  Virginia  corporation  ("TecSec"),  for $5.1  million.  TecSec
develops and markets  encryption  products and solutions,  which are designed to
enable  the  next   generation   information   security   for  the   enterprise,
multi-enterprise e-business and other markets. The TecSec investment,  amounting
to a 5% ownership  interest on a fully diluted basis,  has been accounted for at
cost.  The Company  has  certain  anti-dilutive  rights  whereby  its  ownership
interest may be increased  following  contributions  of  additional  third-party
capital.  In the  third  quarter  of  2002,  the  Company  determined  that  the
investment  in TecSec had been  impaired and recorded a charge of $2.1  million.
The Company  attributed  the  impairment  to a general  decline in valuations of
technology entities,  the difficulties in raising capital and TecSec's recurring
operating losses. In the fourth quarter of 2003, the Company determined that the
investment had been further impaired and recorded a charge of $3.0 million.  The
Company   attributed  this  further  impairment  to  the  delay  in  anticipated
government sector awards involving  information security technology and TecSec's
ongoing  operating  losses and  liquidity  issues.  The  impairment  charges are
included  in  "Other  income   (expenses)".   TecSec  is  currently   evaluating
alternative  sources of financing to meet ongoing  capital and operating  needs,
although  there is no  assurance  that it will be able to  obtain  financing  or
continue in operations.  Future recoveries, if any, from the Company's ownership
interest in TecSec will be recorded as income upon receipt.

      In  conjunction  with the  decision to exit the smart card reader and chip
business, in September 2001, the Company formed a new minority-owned  affiliate,
Mako  Technologies  LLC  ("Mako"),  to market  its smart  card  reader  and chip
technologies.  The Company  contributed certain inventories and equipment valued
at $238,000, in exchange for a 31% fully diluted ownership interest in Mako. The
Company  also  granted a license of its reader  and chip  technology  to Mako in
exchange for royalties  based on sales over the next two years.  After  reducing
headcount and reassessing business potential,  a decision was made in April 2002
to  liquidate  Mako and  terminate  the  license  agreement.  Pending  the final


                                      F-12
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

wind-down of this venture,  the Company  wrote-off the entire investment in Mako
in 2002.  During 2002,  the Company also realized  proceeds of $224,000 from the
sale of  smart  card  reader  and chip  inventory,  which  had  been  previously
written-off.  The Mako write-off and inventory  proceeds are reflected in "Other
income (expenses)".

NOTE 3 - SHAREHOLDERS' EQUITY

      On  December 6, 2000,  the Company  completed  the  private  placement  of
525,000 shares of common stock and 790 shares of Class A Preferred Stock, Second
Series ("Class A Preferred  Stock"),  a newly  designated  series of convertible
preferred stock,  resulting in aggregate  proceeds of $5.0 million to PubliCARD.
The  securities  were  sold to  institutional  investors  and  other  accredited
investors  in the U.S.  and  Europe.  Each share of Class A  Preferred  Stock is
convertible into 2,500 shares of common stock.  Therefore,  the shares of common
stock issued plus the shares of common stock  issuable  upon  conversion  of the
Class A Preferred Stock  aggregate 2.5 million common shares.  The proceeds from
the private placement were used to acquire the ownership  interest in TecSec. In
2003 and  2002,  200  shares  and 15  shares  of Class A  Preferred  Stock  were
converted into 500,000 shares and 37,500  shares,  respectively,  of PubliCARD's
common stock.  As of December 31, 2004 and 2003 there were 565 shares of Class A
Preferred  Stock  outstanding.  The Class A  Preferred  Stock has a  liquidation
preference of $5,000 per share.

      In connection with the December 2000 private placement, the Company issued
100 rights equally to the  participants in the private  placement.  These rights
entitle the participating holders of common stock and Class A Preferred Stock to
receive  an  aggregate  of ten  percent of any  increase  in value of the TecSec
investment realized by the Company.  The Company performed an internal valuation
of the participation rights and concluded their value on the issuance date to be
de minimus.

      On August 9, 1988, the Company  declared a dividend of one right ("Right")
for each outstanding  share of its common stock.  Each Right entitles the holder
to purchase  one  one-hundredth  of a share of a new series of Class A Preferred
Stock,  First Series,  at an exercise  price of $7.50,  subject to adjustment to
prevent dilution.  The Rights become exercisable 10 days after a person or group
acquires  20% or more of the  Company's  common  stock or  announces a tender or
exchange  offer for 30% or more of the  Company's  common  stock.  If, after the
Rights become exercisable,  the Company is party to a merger or similar business
combination transaction,  each Right not held by a party to such transaction may
be used to purchase common stock having a market value of two times the exercise
price. The Rights, which have no voting power, may be redeemed by the Company at
$.01 per Right.  In July 1998,  the  Company's  Board of Directors  approved the
extension of the rights plan to August 8, 2008.

NOTE 4 - INCOME TAXES

      The  loss  from  continuing  operations  consisted  of the  following  (in
thousands):

                                           2004        2003        2002
                                         --------    --------    --------

United States                            $ (3,927)   $   (508)   $ (4,686)
Foreign                                      (932)     (1,085)     (3,573)
                                         --------    --------    --------
                                         $ (4,859)   $ (1,593)   $ (8,259)
                                         ========    ========    ========


                                      F-13
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     A reconciliation  of taxes computed at the U.S. Federal  statutory tax rate
to income tax expense for continuing operations follows (in thousands):

                                                 2004       2003       2002
                                                -------    -------    -------

Federal taxes, at statutory rate                $(1,701)   $  (558)   $(2,890)
Effect of domestic and foreign losses with no
   tax benefit                                    1,686        543      2,204
Amortization of goodwill and other
  non-deductible expenses                            15         15        686
                                                -------    -------    -------
Income tax expense                              $    --    $    --    $    --
                                                =======    =======    =======

      The components of net deferred taxes are as follows (in thousands):

                                                 2004       2003
                                               --------   --------

Net operating loss carryforward                $ 23,671   $ 24,583
Pension expense                                   2,540      1,417
Other, net                                          (51)       (26)
                                               --------   --------
                                                 26,160     25,974
Less valuation allowance                        (26,160)   (25,974)
                                               --------   --------
Net deferred taxes                             $     --   $     --
                                               ========   ========

      As of December  31,  2004,  approximately  $67.6  million of U.S. tax loss
carryforwards (subject to review by the Internal Revenue Service), expiring from
2005  through  2024,  were  available  to  offset  future  taxable  income.  The
carryforwards expire as follows (in thousands):

              YEAR ENDING
              DECEMBER 31,                                 AMOUNT
              ------------                               ---------
              2005                                       $   6,700
              2006                                           2,400
              2007                                           4,300
              2008                                           5,000
              2009                                           2,300
              2010 - 2024                                   46,900
                                                         ---------
                                                         $  67,600
                                                         =========

      Due to the "change of ownership"  provisions of the Internal  Revenue Code
of 1986, the availability of net operating loss  carryforwards to offset federal
taxable income in future  periods could be subject to an annual  limitation if a
change in ownership for income tax purposes occurs.  If such change in ownership
were to occur,  management  estimates  that  virtually  all of the available net
operating  loss  carryforwards  would be  unavailable  to reduce  its income tax
liability. Furthermore, the extent of the actual future use of the net operating
loss carryforwards is subject to inherent uncertainty, because it depends on the
amount of otherwise  taxable  income the Company may earn.  No assurance  can be
given that the Company will have  sufficient  taxable income in future years, if
any, to use the net operating losses before they would otherwise expire.

      At December 31, 2004, the Company's foreign subsidiary had a net operating
loss  carryforward  for income tax purposes of approximately  $4.6 million.  The
operating loss carryforward has no expiration  period.  For financial  reporting
purposes,  a valuation  allowance of $1.4 million has been  recognized to offset
the deferred tax asset relating to this carryforward.


                                      F-14
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - EMPLOYEE BENEFITS

DEFINED CONTRIBUTION PLAN
      The Company maintains a 401(k) plan for its U.S. employees.  The assets of
the  Company's  401(k) plan are held by an outside fund manager and are invested
in accordance with the  instructions of the individual  plan  participants.  The
Company's matching  contributions  totaled $10,000,  $9,000 and $14,000 in 2004,
2003 and 2002, respectively.

DEFINED BENEFIT PLAN
      The Company  sponsored a defined  benefit  pension plan that was frozen in
1993.  In January  2003,  the  Company  filed a notice  with the PBGC  seeking a
"distress termination" of the Plan. Pursuant to the Agreement for Appointment of
Trustee and  Termination  of Plan  between the PBGC and the  Company,  effective
September 30, 2004,  the PBGC  proceeded to terminate the Plan and was appointed
as the Plan's  trustee.  As a result,  the PBGC has assumed  responsibility  for
paying the obligations to Plan  participants.  Under the terms of the Settlement
Agreement,  effective  September 23, 2004, between the PBGC and the Company (the
"Settlement  Agreement"),  the  Company  is liable to the PBGC for the  unfunded
guaranteed  benefit  payable by the PBGC to Plan  participants  in the amount of
$7.5 million.  The Company  satisfied  this  liability by issuing a non-interest
bearing note (the "Note"),  dated September 23, 2004, payable to the PBGC with a
face  amount  of $7.5  million.  A loss on the  termination  of the Plan of $2.7
million was recorded in the third quarter of 2004.

      Pursuant  to the  Security  Agreement  and  Pledge  Agreement,  both dated
September 23, 2004, the Note is secured by (a) all presently  owned or hereafter
acquired real or personal property and rights to property of the Company and (b)
the common and preferred stock of Infineer and TecSec owned by the Company.

      The Note matures on September 23, 2011. The first payment will be equal to
$1.0  million and will become due 30 days after the Company has received a total
of $4.0  million in Net  Recoveries  (as  defined  below).  Thereafter,  on each
anniversary  of the first  payment,  the  Company is required to pay the PBGC an
amount equal to 25% of the Net  Recoveries  in excess of $4.0 million  (less the
sum of all prior payments made in accordance with this sentence in prior years).
Net Recoveries, as defined in the Settlement Agreement, is the net cash proceeds
received by the Company with respect to transactions consummated after March 31,
2003 from (a) the sale of the  Company's  interest in Infineer and TecSec,  real
property in Louisiana and any other real or personal property assets and (b) any
recoveries from the Company's  historic  insurance  program.  As of December 31,
2004, Net Recoveries was approximately $3.4 million.

      In the event of default by the Company under the Settlement Agreement, the
PBGC may declare the  outstanding  amount of the Note to be immediately  due and
payable,  proceed with foreclosure of the liens granted in favor of the PBGC and
exercise any other rights available under applicable law.

      Information  regarding the Plan,  measured as of December 31, 2003, was as
follows (in thousands):

      Change in benefit obligation:
      Benefit obligation at beginning of year            $   9,354
      Interest cost                                            531
      Benefit payments                                        (916)
      Actuarial (gain) or loss                                 778
                                                         ---------
      Benefit obligation at end of year                      9,747
                                                         ---------


                                      F-15
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 Change in plan assets:
 Fair value of plan assets at beginning of year     3,210
 Actual return on plan assets                         542
 Employer contributions                                --
 Benefit payments and plan expenses                  (947)
                                                  -------
 Fair value of plan assets at end of year           2,805
                                                  -------

 Funded status                                     (6,942)
 Unrecognized transition obligation                    --
 Unrecognized prior service cost                        2
 Unrecognized net loss                              2,649
                                                  -------
                                                  $(4,291)
                                                  =======

      Amounts recognized in statement of financial position consist of:

Accrued benefit liability                         $(6,942)
Intangible asset                                        2
Accumulated comprehensive loss                      2,649
                                                  -------
Net amount recognized                             $(4,291)
                                                  =======

     Cost of  retirement  benefits -  non-operating  of  $405,000,  $903,000 and
$795,000 in 2004, 2003 and 2002, respectively, includes the net periodic pension
cost and other Plan related expenses. The components of the net periodic pension
cost were as follows (in thousands):

                                         2004     2003     2002
                                        -----    -----    -----
Interest cost                           $ 348    $ 531    $ 611
Expected return on plan assets            (87)    (162)    (268)
Amortization of transition obligation      --      293      293
Amortization of net (gain) loss            83       86       --
                                        -----    -----    -----
Net periodic pension cost               $ 344    $ 748    $ 636
                                        =====    =====    =====

      The unrecognized  transition obligation was zero at December 31, 2003 and,
accordingly, there was no further amortization expense related to this component
of net periodic  pension  cost in 2004.  As a result of the  termination  of the
Plan, net periodic pension cost will be zero prospectively.

      The change in the minimum liability included in other comprehensive income
was as follows (in thousands):

                                                  2004        2003       2002
                                               ---------    --------   --------
Other comprehensive income                     $  (2,649)   $    343   $  1,405


      The  assumptions  used to determine the net periodic  pension cost for the
years ending December 31, 2004,  2003 and 2002 and the benefit  obligation as of
December 31, 2003 were are follows:

                                       NET PERIODIC           BENEFIT
                                       PENSION COST          OBLIGATION
                                 ----------------------      ----------
                                 2004     2003     2002         2003
                                 ----     ----    -----         ----
Discount rate                     5.0%    6.0%    7.25%         5.0%
Long-term rate of return          5.0%    6.0%     8.0%         N/A


                                      F-16
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      As discussed  above,  in January 2003 the Company  filed a notice with the
PBGC seeking a distress termination of the Plan. The discount rate and long-term
rate of return assumptions were decreased in 2004 and 2003 to reflect the Plan's
short time horizon due to the pending termination request.

      The Plan's asset allocation at December 31, 2003, by asset category was as
follows:

                                                            2003
                                                         ---------
      Equity securities                                         64%
      Government bonds                                          23%
      Corporate bonds                                            4%
      Money market and accrued income                            9%
                                                         ---------
                                                               100%
                                                         =========

      The investment  objectives of the Plan was to diversify assets in order to
reduce the risk of wide  swings in market  value from  year-to-year,  to provide
asset  growth  at a rate in  excess of the rate of  inflation  and to  achieve a
positive  rate of return over the long term that  significantly  contributes  to
meeting the Plan's obligations.  The target asset mix guidelines were 60% equity
securities and 40% investment grade debt securities.  Equity securities included
PubliCARD  common  stock in the amount of  approximately  $9,000 at December 31,
2003 (less than 1% of total plan assets).

      Prior to 2003, the Company's funding policy had been to contribute amounts
sufficient  to meet the minimum  funding  requirements  as set forth in employee
benefit and tax laws. Contributions to the Plan were $1.1 million in 2002.

NOTE 6 - STOCK OPTIONS AND WARRANTS

      The Company has issued stock  options  pursuant to four fixed  stock-based
compensation  plans and made special stock option  awards to certain  directors,
consultants and employees.  A summary of shares purchasable upon the exercise of
stock options as of December 31, 2004, 2003 and 2002 are as follows:

                                          2004        2003        2002
                                       ---------   ---------   ---------
Fixed stock-based compensation plans   2,269,475   2,292,975   2,939,175
Special stock options                    160,000     352,000     363,960
                                       ---------   ---------   ---------
                                       2,429,475   2,644,975   3,303,135
                                       =========   =========   =========

FIXED STOCK-BASED COMPENSATION PLANS
      The Company has four stock-based  compensation  plans that provide for the
granting of incentive and non-qualified  stock options,  restricted stock, stock
appreciation  rights,   performance  awards  and  other  stock-based  awards  to
employees,  non-employee directors and consultants. Under these plans adopted by
shareholders  of the Company,  the Company may grant up to  7,300,000  shares of
common stock. The plans are administered by either the Board of Directors of the
Company or the  Compensation  Committee of the Board of Directors.  The exercise
price of each  option  granted  was equal to the market  price of the  Company's
common  stock  on the date of  grant.  Stock  options  granted  to  non-employee
directors expire five years from the date of grant and vest  immediately.  Stock
options granted to employees generally expire five or ten years from the date of
grant.  Prior to 1999,  stock options granted to employees  vested  immediately.
Grants  subsequent  to 1998  generally  vest  over  three or four  years.  As of
December 31, 2004,  there were  2,041,525  shares  available for grant under the
fixed stock-based compensation plans.


                                      F-17
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      A summary of the stock options  issued  pursuant to the fixed  stock-based
compensation plans as of December 31, 2004, 2003 and 2002 and changes during the
years then ended is presented below:

<TABLE>
<CAPTION>
                                    2004                       2003                     2002
                             -------------------       --------------------     --------------------
                                        AVERAGE                    AVERAGE                  AVERAGE
                                        EXERCISE                   EXERCISE                 EXERCISE
                               SHARES    PRICE          SHARES      PRICE         SHARES     PRICE
                             ---------  --------       ---------   --------     ---------   --------
<S>                          <C>        <C>            <C>         <C>          <C>         <C>
Balance at January 1         2,292,975  $    .79       2,939,175   $   1.01     4,608,450   $   1.07
Granted                         90,000       .05          90,000        .07        90,000        .25
Exercised                           --        --              --         --            --         --
Canceled                      (113,500)     5.67        (736,200)      1.58    (1,759,275)      1.13
                             ---------                 ---------               ----------
Balance at December 31       2,269,475       .51       2,292,975        .79     2,939,175       1.01
                             =========                 =========               ==========
</TABLE>

A summary of the Company's  stock options  outstanding  and  exercisable  issued
pursuant to the fixed stock-based compensation plans as of December 31, 2004, is
as follows:

<TABLE>
<CAPTION>
                                          OUTSTANDING                      EXERCISABLE
                             -----------------------------------     ----------------------
                                                       WEIGHTED                    WEIGHTED
                                                       AVERAGE                     AVERAGE
RANGE OF                                  CONTRACTUAL  EXERCISE                    EXERCISE
EXERCISE PRICE                SHARES         LIFE       PRICE          SHARES        PRICE
--------------               ---------       ----    -----------      ---------      ------
<S>                          <C>             <C>     <C>              <C>            <C>
$.05 to $.07                   180,000       4.1         $.06           180,000       $.06
$.25 to $.40                 1,952,350       4.4          .38         1,952,350        .38
$2.06 to $4.00                 137,125        .6         2.98           137,125       2.98
                             ---------                                ---------
$.05 to $4.00 (all options)  2,269,475       4.1          .51         2,269,475        .51
                             =========                                =========
</TABLE>

SPECIAL STOCK OPTIONS AND STOCK AWARDS
      The Company has issued  special stock  options  outside of the fixed stock
option  plans.  As of December  31, 2004,  there are a total of 160,000  special
stock options  outstanding.  All of such options are currently  exercisable.  No
special stock options were granted or exercised in 2004, 2003 or 2002.

      In  January  1996,  the  Company  issued  options  to two  members  of the
Company's Board of Directors to purchase  200,000 shares of the Company's common
stock at a price of $2.50 per share for five years.  In 2000,  a total of 40,000
options were exercised. The expiration date of the remaining 160,000 options was
subsequently extended by five years to January 2006.

COMMON STOCK PURCHASE WARRANTS
      In December 1986, the Company issued $30 million of 13% Subordinated Notes
together with detachable warrants and underwriter's warrants to purchase a total
of 4,800,000 shares of the Company's  common stock for five years,  which period
was  subsequently  extended  by five years.  In 1997,  the  shareholders  of the
Company approved an additional five-year extension and certain  modifications to
the warrants.  On July 2, 2002,  the remaining  warrants,  entitling the warrant
holders to purchase 1,523,573 shares of common stock, expired.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

LEASES
      The Company  leases certain  office space,  vehicles and office  equipment
under  operating  leases that expire over the next four years.  Certain of these
operating  leases  provide the Company with the option,  after the initial lease
term, to either purchase the property or renew the lease. Total rent expense for
all operating  leases amounted to  approximately  $254,000 in 2004,  $241,000 in
2003 and $221,000 in 2002.


                                      F-18
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Minimum   payments  for  operating  leases  having  initial  or  remaining
non-cancelable terms in excess of one year are as follows (in thousands):

                                        MINIMUM
      YEAR ENDING                        LEASE        SUBLEASE
      DECEMBER 31,                      PAYMENTS        INCOME          NET
      ------------                      --------       --------       --------
      2005                              $    350       $    114       $    236
      2006                                   315            114            201
      2007                                   148             38            110
      2008                                    48             --             48
      Remainder                               --             --             --
                                        --------       --------       --------
        Total minimum lease payments    $    861       $    266       $    595
                                        ========       ========       ========

      Balfour Investors Inc.  ("Balfour") occupies a portion of the office space
leased by the Company in New York City.  The Chairman  and Vice  Chairman of the
Company's Board of Directors are the only shareholders of Balfour.  Balfour pays
to the Company 50% of the rent and occupancy costs paid by the Company under its
lease, including base rent, electricity,  water, real estate tax escalations and
operation  and  maintenance  escalations.  The base rent  payable  by Balfour is
approximately $9,500 per month.

ENVIRONMENTAL
      In April 1996, a consent decree (the "Consent  Decree") among the Company,
the United States  Environmental  Protection Agency ("EPA") and the Pennsylvania
Department of Environmental  Protection ("PADEP") was entered by the court which
resolved all of the United  States' and PADEP's  claims  against the Company for
recovery of costs incurred in responding to releases of hazardous  substances at
a  facility  in  Philadelphia  previously  owned and  operated  by the  Company.
Pursuant to the Consent  Decree,  the  Company was  obligated  to pay a total of
$14.4  million  plus  interest  to the  United  States and the  Commonwealth  of
Pennsylvania.  In January 2002,  the Company and the EPA reached an agreement to
extend the due date on the  remaining  unpaid  balance  through  April 2004.  In
return, the EPA was granted a security interest in certain assets held in escrow
("Greenwald Escrow").

      As  discussed  in  Note 9, in  September  2002,  the  Company  reached  an
agreement pursuant to which the Greenwald Escrow was terminated and net proceeds
of approximately $1.3 million were disbursed to the Company. Upon termination of
the  Greenwald  Escrow in October  2002,  the Company  satisfied  the  remaining
obligation to the EPA amounting to $806,000, which included accrued interest.

GRANTS AND BANK FINANCING
      The Company has received  grants from several  government  agencies in the
United  Kingdom.  These  grants  have  been  used for  marketing,  research  and
development  and  other  governmental   business   incentives  such  as  general
employment.  Such  grants  require the  Company to  maintain  certain  levels of
operations  and  employment in Northern  Ireland.  As of December 31, 2004,  the
Company has a contingent  liability to repay, in whole or part,  grants received
of  approximately  $510,000  in the  event  the  Company  becomes  insolvent  or
otherwise  violates  the terms of such  grants.  As of December  31,  2004,  the
Company is in compliance with the terms of the grants.

      Infineer has an overdraft facility with a bank in Northern Ireland,  which
allows for the maximum  borrowing of 240,000  British  pounds.  This facility is
secured by all of  Infineer's  assets and bears an  interest  rate at the bank's
base rate plus 2% (approximately 6.75% at December 31, 2004). As of December 31,
2004,  Infineer had borrowings  outstanding under this facility totaling 181,000
British pounds (or the equivalent of $347,000).

LEGAL
      On May 28, 2002,  a lawsuit was filed  against the Company in the Superior
Court of the State of  California,  in the  County of Los  Angeles by Leonard M.
Ross and affiliated entities alleging, among other things, misrepresentation and
securities  fraud.  The  lawsuit  names the  Company and four of its current and
former executive  officers and directors as the defendants.  The plaintiffs seek
monetary and punitive  damages for alleged  actions  made by the  defendants  in


                                      F-19
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

order to  induce  the  plaintiff  to  purchase,  hold or  refrain  from  selling
PubliCARD common stock. The plaintiffs  allege that the defendants made a series
of   material   misrepresentations,   misleading   statements,   omissions   and
concealments, specifically and directly to the plaintiffs concerning the nature,
existence  and  status of  contracts  with  certain  purchasers,  the nature and
existence  of  investments  in the  Company  by third  parties,  the  nature and
existence of business  relationships and investments by the Company. The Company
believes it has  meritorious  defenses to the  allegations and intends to defend
vigorously.

      In November 2002, the Company and the  individual  defendants  served with
the action filed a demurrer seeking the dismissal of six of the plaintiffs' nine
purported  causes of action.  In January  2003,  the court ruled in favor of the
demurrer and dismissed the entire  complaint.  The  plaintiffs  were granted the
right to replead and subsequently  filed an amended  complaint in February 2003.
The Company and individual  defendants filed a second demurrer in March 2003. In
June 2003, the court ruled in favor of the demurrer and dismissed, without leave
to amend, six of the eleven purported causes of action in the amended complaint.
Discovery has commenced  and no trial date has been set.  Consequently,  at this
time it is not reasonably possible to estimate the damages, or range of damages,
if any, that the Company might incur in connection with this action. However, if
the  outcome of this  lawsuit is  unfavorable  to the  Company,  it could have a
material  adverse  effect on the Company's  operations,  cash flow and financial
position.

      The Company incurred  approximately  $200,000 in defense costs in 2002. No
additional costs have been incurred in 2003 and 2004. Notice of the commencement
of this action has been given to the Company's  directors and officers liability
insurance  carriers.  The Company's  directors and officers liability  insurance
carriers are funding the additional  costs of defending this action,  subject to
the carriers' reservation of rights.

      Various  other legal  proceedings  are pending  against the  Company.  The
Company considers all such other proceedings to be ordinary  litigation incident
to the  character  of its  businesses.  Certain  claims are covered by liability
insurance.  The Company  believes that the  resolution  of those claims,  to the
extent not covered by insurance,  will not,  individually  or in the  aggregate,
have a  material  adverse  effect  on  the  financial  position  or  results  of
operations of the Company.

CHANGE OF CONTROL AGREEMENTS
      The Company is a party to change of control agreements,  which provide for
payments to certain directors under certain circumstances  following a change of
control.  Since the change of control  agreements require large cash payments to
be made by any  person  effecting  a change of  control,  these  agreements  may
discourage takeover attempts.  The change of control agreements provide that, if
the services of any person party to a change of control agreement are terminated
within  three  years  following  a change of control,  that  individual  will be
entitled to receive,  in a lump sum within 10 days of the  termination  date,  a
payment equal to 2.99 times that  individual's  average annual  compensation for
the shorter of the five years preceding the change of control and the period the
individual  received  compensation  from us for  personal  services.  Assuming a
change of control was to occur at the present  time,  payments of $633,000  each
would be made to the Company's Chairman and Vice Chairman.  If any such payment,
either alone or together  with others made in connection  with the  individual's
termination,  is considered to be an excess parachute payment under the Internal
Revenue Code, the individual  will be entitled to receive an additional  payment
in an amount  which,  when added to the initial  payment,  would result in a net
benefit  to the  individual,  after  giving  effect to excise  taxes  imposed by
Section  4999 of the Internal  Revenue Code and income taxes on such  additional
payment,  equal to the initial  payment before such  additional  payment and the
Company  would not be able to deduct these  initial or  additional  payments for
income tax purposes.

INSURANCE AND OTHER RECOVERIES
      During 2003,  the Company  entered  into three  binding  settlements  with
various  historical  insurers that resolved  certain claims  (including  certain
future  claims)  under  policies  of  insurance  issued to the  Company by those
insurers.  As a  result  of the  settlements,  after  allowance  for  associated
expenses,  offsetting  adjustments  and  amounts  held in  escrow,  the  Company
received net proceeds of approximately $4.1 million in 2003.  Pursuant to one of
the settlements,  an additional net amount of approximately  $470,000 was placed
in escrow to secure the payment of certain indemnification  obligations.  Absent


                                      F-20
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

any indemnity claims,  amounts will be released from escrow beginning  September
30, 2004 and ending June 30, 2006.  During 2004,  net cash  released from escrow
amounted to  approximately  $84,000.  The Company  recognized  a gain from these
settlements of approximately $4.6 million in 2003.

      In February 2004, the Company  entered into a binding  agreement to assign
to a third party certain insurance claims against a group of historic  insurers.
In July 2004, the  assignment was  supplemented  to include  several  additional
insurers.  The claims involve several  historic  general  liability  policies of
insurance issued to the Company. As a result of the assignment,  after allowance
for associated  expenses and offsetting  adjustments,  the Company  received net
proceeds of approximately  $647,000 in 2004. The Company  recognized a gain from
this assignment of $647,000 in 2004.

      The Company is also in discussions with other insurance  markets regarding
the status of certain policies of insurance. It cannot be determined whether any
additional amounts may be recovered from these other insurers nor can the timing
of any such additional recoveries be determined.

      In October 2003, the Company sold a parcel of land in Louisiana  resulting
in net  proceeds of  approximately  $370,000.  The Company  recognized a gain of
approximately  $330,000  in 2003  relating to the land sale which is included in
"Other income (expenses)".

NOTE 8 - SEGMENT DATA

      The Company's  sole operating  activities  involve the deployment of smart
card solutions for educational and corporate sites. As such, the Company reports
as a single segment. Revenues by geographical areas for the years ended December
31, 2004, 2003 and 2002 are as follows (in thousands):

                                        2004     2003     2002
                                       ------   ------   ------

United States                          $  540   $  869   $1,029
Europe                                  3,631    3,467    3,445
Rest of world                             224      445      131
                                       ------   ------   ------
                                       $4,395   $4,781   $4,605
                                       ======   ======   ======

      The  Company  has  operations  in the United  States  and United  Kingdom.
Identifiable  tangible assets by country as of December 31, 2004 and 2003 are as
follows (in thousands):

                                        2004     2003
                                       ------   ------

United States                          $2,770   $4,542
United Kingdom                          1,521    2,035
                                       ------   ------
                                       $4,291   $6,577
                                       ======   ======

NOTE 9 - DISCONTINUED OPERATIONS

      In March  2000,  the  Company's  Board  adopted a plan to  dispose  of the
operations of the Company's Greenwald Industries Inc.  ("Greenwald"),  Greenwald
Intellicard,   Inc.  ("Greenwald  Intellicard"),   Greystone  Peripherals,  Inc.
("Greystone")   and   Amazing   Smart  Card   Technologies,   Inc.   ("Amazing")
subsidiaries.   These  subsidiaries   designed,   manufactured  and  distributed
mechanical and smart card laundry  solutions,  hard disk  duplicators  and smart
cards.  In the  fourth  quarter  of 1999,  the  Company  recorded a loss of $2.0
million  related  to the  disposition  plan,  net of the  expected  gain  on the
disposition  of these  businesses.  The loss provision was based on estimates of
the  proceeds  expected to be realized  on the  dispositions  and the results of
operations through the disposition or wind-down dates.


                                      F-21
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      On June 29, 2000, the Company  completed the sale of substantially  all of
the  assets of  Greenwald  and  Greenwald  Intellicard  to The  Eastern  Company
("Eastern")  for  $22.5  million  in cash,  less  $1.75  million  held in escrow
("Greenwald   Escrow")  to  secure  the   payment  of  certain   indemnification
obligations. As part of the transaction,  Eastern assumed certain liabilities of
Greenwald and Greenwald Intellicard,  including certain contractual liabilities,
accounts  payable and accrued  liabilities.  In the third  quarter of 2000,  the
Company  recognized  a gain of $4.3 million  principally  related to the sale of
Greenwald and Greenwald Intellicard.

      In the second  quarter of 2001,  the  Company  revised  its  estimates  of
proceeds and expenses associated with the wind-down of Amazing and Greystone and
recognized a gain of $2.4 million,  which had been previously  deferred  pending
resolution of certain contingencies.

      On  September  30,  2002,  the  Company  reached  an  agreement   ("Escrow
Termination  Agreement")  pursuant to which the Greenwald  Escrow was terminated
and net proceeds of  approximately  $1.3 million were  disbursed to the Company.
Pursuant to the Escrow Termination  Agreement,  Eastern  acknowledged that there
were no  indemnification  claims outstanding under the applicable asset purchase
agreement.  A gain of $1.1 million was  recognized in the third quarter of 2002,
principally  relating  to the  release of reserves  upon the  resolution  of the
Greenwald  Escrow.  The amounts the Company  will  ultimately  realize  from its
discontinued  operations  could  differ  from the  amounts  estimated  and could
therefore result in additional charges or gains in future periods.

NOTE 10 - SUPPLEMENTAL INFORMATION

      Other assets as of December 31, 2004 and 2003  consisted of the  following
(in thousands):

                                         2004     2003
                                         ----     ----

Escrow deposit - non current             $396     $596
Intangible pension asset                   --        2
                                         ----     ----
                                         $396     $598
                                         ====     ====

      Accrued  liabilities  as of December  31, 2004 and 2003  consisted  of the
following (in thousands):

                                        2004     2003
                                       ------   ------

Pension liability                      $   --   $3,866
Payroll and other employee benefits       259      260
Deferred revenue                          363      585
Other                                     383      495
                                       ------   ------
                                       $1,005   $5,206
                                       ======   ======

      Other  non-current  liabilities as of December 31, 2004 and 2003 consisted
of the following (in thousands):

                                        2004     2003
                                       ------   ------
Pension liability                      $   --   $3,076
Other retiree benefits                    135      180
Other                                     233      296
                                       ------   ------
                                       $  368   $3,552
                                       ======   ======

                                      F-22
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The  components  of other  comprehensive  loss as of December 31, 2004 and
2003 consisted of the following (in thousands):

                                        2004     2003
                                       ------   ------

Foreign currency translation
  adjustment                           $   96   $   75
Minimum pension liability                  --    2,649
                                       ------   ------
                                       $   96   $2,724
                                       ======   ======

      Comprehensive  loss for the Company includes foreign currency  translation
adjustments and minimum pension  liability,  as well as net loss reported in the
Company's Statements of Operations.  Comprehensive loss for years ended December
31, 2004, 2003 and 2002 was as follows (in thousands):

                                              2004       2003       2002
                                           -------    -------    -------

Net loss                                   $(4,859)   $(1,593)   $(7,193)
Minimum pension liability                    2,649       (343)    (1,405)
Foreign currency translation adjustments       (21)        10        112
                                           -------    -------    -------
Comprehensive loss                         $(2,231)   $(1,926)   $(8,486)
                                           =======    =======    =======

NOTE 11 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

      The unaudited  consolidated financial statements for each of the quarterly
periods  in the  years  ended  December  31,  2004 and 2003 are as  follows  (in
thousands, except per share data):

                             MAR. 31    JUN. 30    SEP. 30    DEC. 31
                             -------    -------    -------    -------

2004
Net sales                    $   828    $ 1,028    $ 1,260    $ 1,279
Gross margin                     422        548        730        685
Net income (loss)               (503)      (783)    (3,082)      (491)
Basic and diluted earnings
   (loss) per share          $  (.02)   $  (.03)   $  (.12)   $  (.02)

2003
Net sales                    $ 1,413    $ 1,193    $ 1,417    $   758
Gross margin                     794        581        772        318
Net income (loss)              1,000       (929)      (749)      (915)
Basic and diluted earnings
   (loss) per share          $   .04    $  (.04)   $  (.03)   $  (.04)


                                      F-23
<PAGE>


                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULE II


To the Board of Directors and Shareholders of
PubliCARD, Inc.
New York, New York

We have audited the  consolidated  financial  statements of PubliCARD,  Inc. and
subsidiary  companies  (the  "Company") as of December 31, 2004 and 2003 and for
each of the three  years ended  December  31,  2004,  and have issued our report
thereon dated March 24, 2005 (which report expresses an unqualified  opinion and
includes an explanatory  paragraph relating to the Company's ability to continue
as a going  concern).  Our  audits  also  included  the  consolidated  financial
statement  schedule  listed  in Index at Item 15.  This  consolidated  financial
statement  schedule  is the  responsibility  of the  Company's  management.  Our
responsibility  is to express an opinion  based on our audits.  In our  opinion,
such consolidated  financial statement schedule,  when considered in relation to
the basic consolidated  financial statements taken as a whole, present fairly in
all material respects the information set forth therein.

The  aforementioned  financial  statements have been prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
consolidated financial statements,  the Company has experienced recurring losses
from  operations,  a  substantial  decline in working  capital and negative cash
flows from operations,  and requires additional capital to meet its obligations,
which raises substantial doubt about its ability to continue as a going concern.
The consolidated  financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


/s/ DELOITTE & TOUCHE LLP

New York, New York
March 24, 2005


                                      F-24
<PAGE>


<TABLE>
<CAPTION>
                                                PUBLICARD, INC.
                                            AND SUBSIDIARY COMPANIES

                                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                              FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

                                                                 ADDITIONS
                                                           -------------------
                                                           CHARGED TO
                                              BALANCE      COSTS AND                                  BALANCE
                                             JANUARY 1      EXPENSES     OTHER    DEDUCTIONS (1)    DECEMBER 31
                                             ---------     ---------    ------    --------------    -----------
<S>                                          <C>           <C>          <C>       <C>               <C>
                                                                 (in thousand of dollars)
Year ended December 31, 2004:
     Allowance for doubtful accounts               115           (43)        2            (26)               48

     Reserve for discontinued operations           406            --        --            (29)              377


Year ended December 31, 2003:
     Allowance for doubtful accounts               103             5         7             --               115

     Reserve for discontinued operations           429            --        --            (23)              406


Year ended December 31, 2002:
     Allowance for doubtful accounts               216            --        --           (113)              103

     Reserve for discontinued operations         1,245          (457)       --           (359)              429


----------
(1)   Deductions for allowance for doubtful accounts represent the write-offs of account receivable. Deductions
      for discontinued operations represent charges and payments to reserves net of gains and receipts credited
      to reserves.
</TABLE>


                                                      F-25