**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, 2006**




**OR**





**o 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 001-03315**




**PUBLICARD,
      INC.**


(Exact
      Name of Registrant as Specified in Its Charter)




**Pennsylvania**
            **23-0991870**(State
                or Other Jurisdiction of Incorporation or
                Organization)
            (I.R.S.
                Employer Identification
                No.)**75
                Rockefeller Plaza, 16thFloor, New York, NY**
            **10019******(Address
                of Principal Executive Offices)
            (Zip
                Code)




Registrant's
      telephone number, including area code: (212) 265 7013





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 if the registrant is a well-known seasoned issuer, as defined
      by
      Rule 405 of the Securities Act. Yes o No x




Indicate
      by check mark if the registrant is not required to file reports pursuant Section
      13 or Section 15(d) of the Act. Yes o No x





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
o





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 a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
      (Check one):




Large
      accelerated filer o            
Accelerated filer o          Non-accelerated
      filer  x





Indicate
      by check whether the registrant is a shell company (as defined in Rule 12b-2
      of
      the Exchange Act). Yes o No x





As
      of
      June 30, 2006, the aggregate market value of the voting Common Stock held by
      non-affiliates of the registrant was approximately $748,000.




Number
      of
      shares of Common Stock outstanding as of March 14, 2007: 24,940,902





**DOCUMENTS
      INCORPORATED BY REFERENCE**


None









**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. Forward-looking statements are not guarantees of
      future performance. They involve risks, uncertainties and assumptions. You
      should understand that the possible consequences of “Risk Factors” and
      statements contained 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. Today,
      PubliCARD’s sole operating activities are conducted through its wholly-owned
      Infineer Ltd. (“Infineer”) subsidiary. Infineer designs smart card solutions for
      educational and corporate sites. This market includes institutions such as
      corporate campuses, secondary schools and universities. Infineer’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. Infineer sells its products and solutions to value-added
      resellers and distributors, and directly to end-users.





Infineer
      has continued to incur operating losses and negative cash flow. During 2004
      and
      2005, the Company contributed additional capital to Infineer of $225,000 and
      $150,000, respectively. It is likely that Infineer will require additional
      capital and at the present time the Company does not have the financial
      resources to provide such support. Though Infineer decreased its operating
      losses in 2006, given the Company’s lack of available resources, continued
      operating losses and the bank overdraft (discussed
      in Item 7A: "Qualitative and Quantitative Disclosures About Market Risk" and
      in
      Note 7 to the Company's financial statements) ,
      the
      Company has begun to consider various alternatives. In 2006, with the assistance
      of an investment banker, the Company commenced an assessment of the value of
      Infineer, developed an information memorandum and obtained offers for Infineer’s
      potential for sale. This process concluded without a viable offer for the
      business. The Company’s board of directors (the “Board of Directors”) has not
      decided whether to continue with the disposition effort. It is therefore
      uncertain whether an acceptable offer will materialize or whether any such
      sale
      will ultimately be consummated. Any such determination to dispose of Infineer
      would depend upon, among other things, the amount of potential proceeds of
      any
      such sale and require the approval of the Company’s shareholders.





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 $406,000 at December
      31, 2006. The Company also had a shareholders’ deficiency of $964,000 as of
      December 31, 2006.





Management
      believes that existing cash and short-term investments will not be sufficient
      to
      permit the Company to continue operating past the second quarter of 2007 and
      the
      Company will likely cease operations. However, at the time of filing of this
      Annual Report on Form 10-K no formal plan of liquidation has been discussed
      with
      or approved by the Board of Directors. If a sale of Infineer is consummated,
      the
      Company will not thereafter have any ongoing business operations. In either
      case, the Company does not expect that any funds will be available for
      distribution to its shareholders.





The
      consolidated financial statements included in this **** Annual
      Report on Form
      10-K contemplate the realization of assets and the satisfaction of liabilities
      in the normal course of business. As a result of the factors described above,
      it
      is unlikely that the Company will be able 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, 2006, 2005, 2004, 2003 and 2002 contain emphasis paragraphs concerning
      substantial doubt about the Company’s ability to continue as a going
      concern.





On
      October 13, 2006, the Company entered into an Assignment of Shares and
      Assumption of Obligations agreement (the “Assignment Agreement”) with Sallyport
      Investment Partnership (“Sallyport”), pursuant to which the Company assigned
      60,058 shares of Series A Preferred Stock of TecSec, Incorporated (“TecSec”) to
      Sallyport in exchange for $150,000. In addition, pursuant to the Assignment
      Agreement, Sallyport agreed to use its best efforts to transfer to the Company
      or cause to be issued to the Company shares of common stock of TecSec
      representing 21⁄2% of TecSec’s common stock, calculated on a fully-diluted basis
      and giving effect to shares that may be issued as a result of Sallyport’s
      financing of TecSec during the current year. On October 13, 2006, TecSec
      confirmed its agreement to issue such shares to the Company.





2


**Pension
      Obligations**





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 (“PBGC”) seeking a “distress termination” of that 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. 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.





Under
      the
      terms of the Settlement Agreement, effective September 23, 2004, between the
      PBGC and the Company (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 (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 was
      secured by (a) all presently owned or thereafter 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.





On
      July
      27, 2006, the Company entered into a Payment, Retirement and Release Agreement
      (the “Payment Agreement”) with the PBGC pursuant to which the PBGC and the
      Company provided for the settlement and discharge of the Company’s obligations
      under the Settlement Agreement and the Note. Pursuant to the Payment Agreement
      on July 27, 2006, the Company paid the PBGC $256,000, and agreed that if between
      July 27, 2006 and July 27, 2011 the Company receives Net Proceeds in excess
      of
      $250,000, the Company will pay to the PBGC 50% of the amount of such excess.
      As
      defined in the Payment Agreement, “Net Proceeds” means the amount received by
      the Company in cash or marketable securities, less the amount of reasonable
      transaction costs, expenses and debt paid, retained or assumed, from any of
      (i)
      the sale by the Company of any or all capital stock of Infineer; (ii) the sale
      by Infineer of all or substantially all of its assets and a distribution of
      the
      proceeds of such sale to the Company; (iii) the sale by the Company of any
      or
      all capital stock of TecSec; and (iv) proceeds received by the Company from
      settlements, buyouts or assignments of claims with respect to insurance policies
      covering environmental liabilities for which claims were made prior to July
      27,
      2006. The Payment Agreement further provides that if, on July 27, 2011, the
      Company exists as a going concern and holds capital stock of Infineer (and
      Infineer exists as a going concern) or TecSec (and TecSec exists as a going
      concern), the Company will be deemed to have sold such capital stock for its
      fair market value, which shall be added to Net Proceeds for purposes of
      determining the amount of additional payments to the PBGC, if any.





The
      future payments to the PBGC, based on the Company’s receipt of net insurance
      recoveries of $163,000 as well as the consummation of the sale of the Company’s
      Series A Preferred Stock of TecSec, is anticipated to be $31,000. As
      a
      result of this settlement of the liability to the PBGC, the Company has
      recognized a $7.2 million gain on its Statement of Operations. Given
      the
      Company’s current financial position, it does not believe that any additional
      payments will be due to the PBGC on July 27, 2011.





**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 educational sites. Infineer’s card-based solutions
      are currently installed in over 700 sites, primarily in corporate and educational
      sites in Europe, the United Kingdom and Ireland. Infineer’s products and
      solutions include the following:





·
            **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
                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.





3




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, unattended point-of-sale terminals, vending station
      card readers and add-value or card reload stations.





Infineer
      recently introduced MIDAS, an enhanced version of its ChipNetID product, which
      allows corporate sites the ability to extend the use of their existing
      identification cards to include payment at cafeteria and vending stations.
      MIDAS
      can operate with a range of contactless smart cards issued by Mifare and HID.
      MIDAS was developed to be compatible with new identification technologies such
      as biometrics. Corporate sites can benefit from deploying cashless payments
      in a
      facility without the need to replace existing in-use identification and access
      control cards.





·
            **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.





·
            **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.





·
            **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 10 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.





**Research
      and Development**





Infineer
      maintains a 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
      $600,000, $624,000, and $716,000 in 2006, 2005 and 2004,
      respectively.





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





4


Some
      of
      Infineer’s current and potential competitors have longer operating histories and
      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. 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**





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.





**Employees**





As
      of
      March 14, 2007, the Company had approximately 26 employees. At Infineer, there
      are 10 employees involved in sales, marketing and customer support, seven
      employees in product development, six employees in manufacturing and three
      employees in administration. The Company considers its employee relations to
      be
      good.





**Segment
      Information**





The
      Company’s sole operating activities during the last 5 years have involved the
      deployment of smart card and biometric 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, 2006, 2005 and 2004 are
      as
      follows (in thousands):




**2006**
            
            **2005**
            
            **2004**United
                Kingdom
            
            $
            2,241
            
            $
            2,422
            
            $
            2,948United
                States
            
            
            349
            
            
            398
            
            
            540Europe
                (excluding United Kingdom)
            
            
            537
            
            
            677
            
            
            683Rest
                of world
            
            
            187
            
            
            120
            
            
            224$
            3,314
            
            $
            3,617
            
            $
            4,395





The
      Company has operations in the United States and United Kingdom. Identifiable
      tangible assets by country as of December 31, 2006, 2005 and 2004 are as follows
      (in thousands):


**2006**
              
              **2005**United
                  States
              
              $
              524
              
              $
              1,647United
                  Kingdom
              
              
              864
              
              
              995$
              1,388
              
              $
              2,642




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





5




**Available
      Information**





The
      Securities and Exchange Commission (the “SEC”) maintains an Internet site that
      contains reports, proxy and information statements, and other Company related
      information at http://www.sec.gov. In addition, the public may read and copy
      any
      materials filed by the Company with the SEC at the SEC’s Reference Room, which
      is located at 100 F Street, N.E., Washington, D.C., 20549. Interested parties
      may call (800) SEC-0330 for further information on the Reference
      Room.





**ITEM
      1A. RISK FACTORS**





***We
      do not expect to continue as a going concern.***





****** We
      have
      incurred losses, a substantial decline in working capital and negative cash
      flow
      from operations for a number of years. We have also experienced a substantial
      reduction in our cash and short term investments, which declined from $17.0
      million at December 31, 2000 to $406,000 at December 31, 2006. We also had
      a
      shareholders’ deficiency of $964,000 December 31, 2006.





Infineer
      has continued to incur operating losses and negative cash flow. During 2004
      and
      2005, the Company contributed additional capital to Infineer of $225,000 and
      $150,000, respectively. It is likely that Infineer will require additional
      capital and at the present time the Company does not have the financial
      resources to provide such support. Though Infineer decreased its operating
      losses in 2006, given the Company’s lack of available resources, continued
      operating losses and the bank overdraft, the Company has begun to consider
      various alternatives. In 2006, with the assistance of an investment banker,
      the
      Company commenced an assessment of the value of Infineer, developed an
      information memorandum and obtained offers for Infineer’s potential for sale.
      This process concluded without a viable offer for the business. The Board of
      Directors has not decided whether to continue with the disposition effort. It is
      therefore uncertain whether an acceptable offer will materialize or whether
      any
      such sale will ultimately be consummated. Any such determination to dispose
      of
      Infineer would depend upon, among other things, the amount of potential proceeds
      of any such sale and require the approval of the Company’s
      shareholders.





Management
      believes that existing cash and short-term investments will not be sufficient
      to
      permit the Company to continue operating past the second quarter of 2007 and
      the
      Company will likely cease operations. However, at the time of the issuance
      of
      this Form 10-K no formal plan of liquidation has been discussed with or approved
      by the Board of Directors. If a sale of Infineer is consummated, the Company
      will not thereafter have any ongoing business operations. In either case, the
      Company does not expect that any funds will be available for distribution to
      its
      shareholders.





Accordingly,
      it is unlikely that we will be able to continue as a going concern. Our
      consolidated financial statements do not include any adjustments that might
      result from the outcome of this uncertainty. The independent auditors’ reports
      on the our consolidated financial statements for the years ended December 31,
      2006, 2005, 2004, 2003 and 2002 contain emphasis paragraphs concerning
      substantial doubt about the Company’s ability to continue as a going
      concern.





***Stockholders
      will experience dilution upon the exercise of options.***





On
      July
      21, 2006, in connection with his employment agreement, Joseph Sarachek, the
      Company's President and Chief Executive Officer, was granted options to purchase
      2,837,075 shares of the Company's Common Stock, par value $0.10 per share
      (“Common Stock”) for an exercise price of $0.0279 per share. All of these
      options will vest upon the Company's consummation of a sale, restructuring
      or
      other similar transaction. Additionally, upon the consummation of any such
      transaction, Mr. Sarachek will be granted additional options which (when taken
      together with the 2,837,075 options already granted to Mr. Sarachek) will
      represent the right to acquire 10% of the total outstanding shares of the
      Company's Common Stock, calculated on a fully diluted basis.





If
      Mr.
      Sarachek exercises these options, the Company's stockholders will experience
      dilution in the net tangible book value of the Company's Common Stock, and
      the
      proceeds that stockholders will receive from any sale, restructuring or other
      similar transaction consummated by the Company.





6




***The
      Company has very limited staffing and will continue to be dependent on the
      efforts of a small management team; the loss of any key executives could
      adversely effect the Company.***





The
      Company has a small executive management team consisting of Joseph Sarachek,
      the
      Company's President and Chief Executive Officer, and Stephen Spitzer, the
      Company's acting Principal Financial Officer. The Company has an employment
      arrangement in place with Mr. Sarachek, but neither he nor Mr. Spitzer
      are legally bound to remain employed for any specific term. Given the
      financial condition of the Company, the Company does not anticipate hiring
      additional executive managers, and the Company's Board of Directors does not
      anticipate electing additional executive officers. In the event that the
      services of either of the Company's executive managers were no longer available,
      the Company and its business could be adversely affected. The Company does
      not
      maintain key-man life insurance with respect to its executive management
      team.





**ITEM
      1B. UNRESOLVED STAFF COMMENTS**





None





**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
              
              Month
                  to Month
              
              250Bangor,
                  Northern Ireland
              
              Office
                  and manufacturing for Infineer
              
              2008
              
              12,000




The
      Company currently subleases its space in New York City from Triax Capital
      Advisors, LLC (“Triax”). The CEO is an officer and principal shareholder of
      Triax Capital Advisors. The Company pays 27% of the rent and occupancy costs
      paid by Triax under its lease, including base rent, electricity, water, real
      estate tax escalations and operation and maintenance escalations. The base
      rent
      payable by the Company is approximately $3,000 per month.





The
      Company also leases approximately 12,000 square feet of space in Bangor,
      Northern Ireland to house the manufacturing and administrative operations of
      its
      Infineer Subsidiary. Substantially all of Infineer’s 26 employees are currently
      housed at this facility.





**ITEM
      3. LEGAL PROCEEDINGS**





Various
      legal proceedings are pending against the Company. The Company considers all
      such other proceedings to be ordinary routine litigation incident to the
      character of its business. Certain claims are covered by liability insurance.





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





None




7


**PART
      II**





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





(a)
            PubliCARD’s
                Common Stocktrades
                on the OTC Bulletin Board.The
                following table sets forth the high and low closing sale prices of
                PubliCARD’s Common Stock for the calendar periods indicated (in
                dollars),
                as reported by Nasdaq.com. Such prices reflect inter-dealer prices,
                without retail mark-up, mark-down or commission and may not necessarily
                reflect actual transactions. There is no established trading market
                for
                the Company's Common Stock.





******2006**
            
            ******2005****High**
            
            **Low**
            
            **High**
            
            **Low**First
                Quarter
            
            $
            .07
            
            $
            .03
            
            $
            .04
            
            $
            .03Second
                Quarter
            
            
            .07
            
            
            .03
            
            
            .03
            
            
            .02Third
                Quarter
            
            
            .04
            
            
            .02
            
            
            .05
            
            
            .02Fourth
                Quarter
            
            
            .02
            
            
            .01
            
            
            .05
            
            
            .02





(b)
            There
                were approximately 2,185 registered holders of record of Common Stock
                of
                the Company as of March 14 , 2007.





(c)
            The
                Company did not pay dividends on its Common Stock during the prior
                five
                fiscal years and does not anticipate paying
                dividends.





(d)
            See
                “Item 12. Security Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters”forinformation
                regarding securities authorized for issuance underequity compensationplans.





8


**ITEM
      6. SELECTED FINANCIAL DATA**





The
      selected financial data of the Company presented below for the five year period
      ended December 31, 2006 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.


**Year
                  Ended December 31****2006**
              
              **2005**
              
              **2004**
              
              **2003**
              
              **2002**(in
                  thousands, except per share amounts)**Statement
                  of Operations Data**Revenues
              
              $
              3,314
              
              $
              3,617
              
              $
              4,395
              
              $
              4,781
              
              $
              4,605Cost
                  of revenues
              
              
              1,489
              
              
              1,661
              
              
              2,010
              
              
              2,316
              
              
              2,455Gross
                  margin
              
              
              1,825
              
              
              1,956
              
              
              2,385
              
              
              2,465
              
              
              2,150Operating
                  expenses:General
                  and administrative
              
              
              1,685
              
              
              2,017
              
              
              2,330
              
              
              2,708
              
              
              3,235Sales
                  and marketing
              
              
              1,034
              
              
              1,173
              
              
              1,671
              
              
              1,844
              
              
              1,877Product
                  development
              
              
              599
              
              
              624
              
              
              716
              
              
              584
              
              
              605Stock
                  compensation expense
              
              
              58
              
              
              -
              
              
              -
              
              
              -
              
              
              -Amortization
                  of goodwill and intangibles
              
              
              -
              
              
              -
              
              
              40
              
              
              40
              
              
              576Impairment
                  of goodwill and intangibles
              
              
              -
              
              
              782
              
              
              -
              
              
              -
              
              
              1,3653,376
              
              
              4,596
              
              
              4,757
              
              
              5,176
              
              
              7,658Loss
                  from operations
              
              
              (1,551
              )
              
              (2,640
              )
              
              (2,372
              )
              
              (2,711
              )
              
              (5,508
              )Other
                  income (expense):Interest
                  income
              
              
              17
              
              
              27
              
              
              27
              
              
              15
              
              
              71Interest
                  expense
              
              
              (34
              )
              
              (26
              )
              
              (22
              )
              
              (12
              )
              
              (39
              )Cost
                  of retirement benefits - non-operating
              
              
              -
              
              
              -
              
              
              (405
              )
              
              (903
              )
              
              (795
              )Loss
                  on pension settlement
              
              
              -
              
              
              -
              
              
              (2,739
              )
              
              -
              
              
              -Gain/(loss)
                  on investment
              
              
              150
              
              
              -
              
              
              -
              
              
              (3,000
              )
              
              (2,068
              )Gain
                  on insurance recoveries
              
              
              337
              
              
              -
              
              
              647
              
              
              4,590
              
              
              -Other
                  income/(loss), net
              
              
              (5
              )
              
              350
              
              
              5
              
              
              428
              
              
              80465
              
              
              351
              
              
              (2,487
              )
              
              1,118
              
              
              (2,751
              )Loss
                  from continuing operations
              
              
              (1,086
              )
              
              (2,289
              )
              
              (4,859
              )
              
              (1,593
              )
              
              (8,259
              )Extraordinary
                  gain on settlement with the PBGC
              
              
              7,214
              
              
              -
              
              
              -
              
              
              -
              
              
              -Income/(loss)
                  on discontinued operations
              
              
              139
              
              
              258
              
              
              -
              
              
              -
              
              
              1,066Net
                  income/ (loss)
              
              $
              6,267
              
              $
              (2,031
              )
              $
              (4,859
              )
              $
              (1,593
              )
              $
              (7,193
              )Basic
                  and diluted earnings (loss) per common share:Continuing
                  operations
              
              $
              (.05
              )
              $
              (.09
              )
              $
              (.20
              )
              $
              (.07
              )
              $
              (.34
              )Extraordinary
                  Gain on settlementwith
                  the PBGC
              
              $
              .29
              
              
              -
              
              
              -
              
              
              -
              
              
              -Discontinued
                  operations
              
              
              .01
              
              
              .01
              
              
              -
              
              
              -
              
              
              .04$
              .25
              
              $
              (.08
              )
              $
              (.20
              )
              $
              (.07
              )
              $
              (.30
              )Weighted
                  average common shares outstanding
              
              
              24,940,902
              
              
              24,767,825
              
              
              24,690,902
              
              
              24,469,748
              
              
              24,179,364


**As
                  of December 31****2006**
              
              **2005**
              
              **2004**
              
              **2003**
              
              **2002**(in
                  thousands)**Balance
                  Sheet Data:**Working
                  capital (deficiency)
              
              $
              759
              
              $
              530
              
              $
              1,405
              
              $
              (987
              )
              $
              (548
              )Total
                  assets
              
              
              1,388
              
              
              2,642
              
              
              5,073
              
              
              7,399
              
              
              7,939Other
                  non-current liabilities
              
              
              247
              
              
              7,728
              
              
              7,869
              
              
              3,552
              
              
              4,990Shareholders'
                  equity (deficiency)
              
              
              (964
              )
              
              (7,151
              )
              
              (5,159
              )
              
              (2,928
              )
              
              (1,002
              )





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




9


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





**Overview**




PubliCARD’s
      sole operating activities are conducted through its wholly-owned Infineer Ltd.
      subsidiary. Infineer designs smart card solutions for educational and corporate
      sites.





Infineer
      has continued to incur operating losses and negative cash flow. During 2004
      and
      2005, the Company contributed additional capital to Infineer of $225,000 and
      $150,000, respectively. It is likely that Infineer will require additional
      capital and at the present time the Company does not have the financial
      resources to provide such support. Though Infineer decreased its operating
      losses in 2006, given the Company’s lack of available resources, continued
      operating losses and the bank overdraft, the Company has begun to consider
      various alternatives. In 2006, with the assistance of an investment banker,
      the
      Company commenced an assessment of the value of Infineer, developed an
      information memorandum and obtained offers for Infineer’s potential for sale.
      This process concluded without a viable offer for the business. The Board of
      Directors has not decided whether to continue with the disposition effort.
      It is
      therefore uncertain whether an acceptable offer will materialize or whether
      any
      such sale will ultimately be consummated. Any such determination to dispose
      of
      Infineer would depend upon, among other things, the amount of potential proceeds
      of any such sale and require the approval of the Company’s
      shareholders.





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 that 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. 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.





Under
      the
      terms of the Settlement Agreement, effective September 23, 2004, 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 was secured by (a)
      all
      presently owned or thereafter 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.





On
      July
      27, 2006, the Company entered into the Payment Agreement with the PBGC pursuant
      to which the PBGC and the Company provided for the settlement and discharge
      of
      the Company’s obligations under the Settlement Agreement and the Note. Pursuant
      to the Payment Agreement, the Company paid the PBGC $256,000 on July 27, 2006,
      and agreed that if, between July 27, 2006 and July 27, 2011, the Company
      receives Net Proceeds in excess of $250,000, the Company will pay to the PBGC
      50% of the amount of such excess. As defined in the Payment Agreement, “Net
      Proceeds” means the amount received by the Company in cash or marketable
      securities, less the amount of reasonable transaction costs and expenses and
      debt paid, retained or assumed, from any of (i) the sale by the Company of
      any
      or all capital stock of Infineer; (ii) the sale by Infineer of all or
      substantially all of its assets and a distribution of the proceeds of such
      sale
      to the Company; (iii) the sale by the Company of any or all capital stock of
      TecSec; and (iv) proceeds received by the Company from settlements, buyouts
      or
      assignments of claims with respect to insurance policies covering environmental
      liabilities for which claims were made prior to July 27, 2006. The Payment
      Agreement further provides that if, on July 27, 2011, the Company exists as
      a
      going concern and holds capital stock of Infineer (and Infineer exists as a
      going concern) or TecSec (and TecSec exists as a going concern), the Company
      will be deemed to have sold such capital stock for its fair market value, which
      shall be added to Net Proceeds for purposes of determining the amount of
      additional payments to the PBGC, if any.





On
      October 13, 2006, the Company entered into the Assignment Agreement with
      Sallyport, pursuant to which the Company assigned 60,058 shares of Series A
      Preferred Stock of TecSec to Sallyport in exchange for $150,000. In addition,
      pursuant to the Assignment Agreement, Sallyport agreed to use its best efforts
      to transfer to the Company or cause to be issued to the Company shares of Common
      Stock of TecSec representing 21⁄2% of TecSec’s Common Stock, calculated on a
      fully-diluted basis and giving effect to shares that may be issued as a result
      of Sallyport’s financing of TecSec during the current year. On October 13, 2006,
      TecSec confirmed its agreement to issue such shares to the Company.





The
      future payments to the PBGC, based on the Company’s receipt of net insurance
      recoveries of $163,000 as well as the consummation of the sale of the Company’s
      Series A Preferred Stock of TecSec, is anticipated to be $31,000 and is included
      in Note Payable. As
      a
      result of this settlement of the liability to the PBGC, the Company has
      recognized a $7.2 million gain on its Statement of Operations. Given
      the
      Company’s current financial position, it does not believe that any additional
      payments will be due to the PBGC on July 27, 2011.





10


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 $406,000 at December
      31, 2006. The Company also had a shareholders’ deficiency of $964,000 as of
      December 31, 2006.





Management
      believes that existing cash and short-term investments will not be sufficient
      to
      permit the Company to continue operating past the second quarter of 2007 and
      the
      Company will likely cease operations. However, at the time of filing this Annual
      Report on Form 10-K no formal plan of liquidation has been discussed with or
      approved by the Board of Directors. If a sale of Infineer is consummated, the
      Company will not thereafter have any ongoing business operations. In either
      case, the Company does not expect that any funds will be available for
      distribution to its shareholders.





The
      consolidated financial statements included in this Annual Report on Form 10-K
      contemplate the realization of assets and the satisfaction of liabilities in
      the
      normal course of business. As a result of the factors described above, it is
      unlikely that the Company will be able 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, 2006, 2005, 2004, 2003 and 2002 contain emphasis paragraphs concerning
      substantial doubt about the Company’s ability to continue as a going
      concern.





**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, 2006, 2005 and 2004 (in thousands).


******2006**
              
              **2005**
              
              **2004**Revenues
              
              $
              3,314
              
              $
              3,617
              
              $
              4,395Cost
                  of revenues
              
              
              1,489
              
              
              1,661
              
              
              2,010Gross
                  margin
              
              
              1,825
              
              
              1,956
              
              
              2,385Gross
                  margin percentage
              
              
              55
              %
              
              54
              %
              
              54
              %Operating
                  expenses:General
                  and administrative
              
              
              1,743
              
              
              2,017
              
              
              2,330Sales
                  and marketing
              
              
              1,034
              
              
              1,173
              
              
              1,671Product
                  development
              
              
              599
              
              
              624
              
              
              716Impairment
                  of goodwill
              
              
              -
              
              
              782
              
              
              -Amortization
                  of intangibles
              
              
              -
              
              
              -
              
              
              403,376
              
              
              4,596
              
              
              4,757Loss
                  from operations
              
              
              (1,551
              )
              
              (2,640
              )
              
              (2,372
              )Other
                  income (expenses):Interest
                  income
              
              
              17
              
              
              27
              
              
              27Interest
                  expense
              
              
              (34
              )
              
              (26
              )
              
              (22
              )Cost
                  of retirement benefits - non-operating
              
              
              -
              
              
              -
              
              
              (405
              )Loss
                  on pension settlement
              
              
              -
              
              
              -
              
              
              (2,739
              )Gain
                  on investment
              
              
              150
              
              
              -
              
              
              -Gain
                  on insurance recoveries
              
              
              337
              
              
              -
              
              
              647Other
                  income/(loss)
              
              
              (5
              )
              
              350
              
              
              5465
              
              
              351
              
              
              (2,487
              )Loss
                  from continuing operations
              
              
              (1,086
              )
              
              (2,289
              )
              
              (4,859
              )Income
                  from discontinued operations
              
              
              139
              
              
              258
              
              
              -Extraordinary
                  gain on settlement with the PBGC
              
              
              7,214
              
              
              -
              
              
              -Net
                  income/(loss)
              
              $
              6,267
              
              $
              (2,031
              )
              $
              (4,859
              )


11


**Year
      Ended December 31, 2006 Compared to Year Ended December 31,
      2005**





**Revenues.** Revenues
      are generated from product sales, technology and software license fees,
      installation and maintenance contracts. Consolidated revenues decreased to
      $3.3
      million in 2006 compared to $3.6 million for 2005 driven by a decline of
      $180,000 in direct sales to customers located in Europe as well as a $74,000
      decline in shipments to distribution partners located outside the United
      Kingdom, in Europe, and a $49,000 decline in shipments to distribution partners
      located in the United States.





**Gross
      margin.** Cost of
      revenues consists primarily of material, personnel costs and overhead. Gross
      margin as a percentage of revenues was 55% in 2006 compared to 54% in 2005.




**Sales
      and marketing expenses.** Sales
      and
      marketing expenses consist primarily of personnel and travel costs, trade shows
      and marketing materials. Sales and marketing expenses were $1.0 million in
      2006
      compared to $1.2 million in 2005. The decrease is primarily attributable to
      a
      $153,000 reduction in wages, benefits and employee business expenses resulting
      from headcount reductions and a revised commission structure.




**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 $600,000 in 2006 compared
      to
      $624,000 in 2004. The decrease in expenses is mainly attributable to a $14,000
      decline in wages, benefits and employee business expenses associated with
      headcount reductions and a $10,000 reduction in depreciation
      expense.




**General
      and administrative expenses.** General
      and administrative expenses consist primarily of personnel and related costs
      for
      general corporate functions, including finance and accounting, risk management
      and legal. General and administrative expenses for the year ended December
      31,
      2006 decreased to $1.7 million from $2.0 million for 2005. The decrease in
      expenses is mainly attributable to a decline of $121,000 in corporate wages
      and
      benefits, $91,000 in reduced director fees and expenses, $116,000 in reduced
      external services (primarily legal, insurance and shareholder reporting) and
      $68,000 of decreased professional fees at Infineer, offset by an increase in
      stock based compensation expense of $58,000, increased consulting expenses
      at
      corporate of $77,000, the write off of fixed assets at the Company’s 1
      Rockefeller Plaza Offices, and higher auditing and tax related services of
      $17,000.





**Impairment
      of goodwill and 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 are subject to an annual review for impairment or earlier if
      circumstances or events indicate that impairment has occurred. In performing
      its
      annual goodwill impairment test at the end of the fourth quarter of 2005, the
      Company determined that goodwill had been impaired based on Infineer’s
      continued operational losses. Infineer has continued to incur operating losses
      and revenues declined substantially to $3,617,000 in 2005 from $4,395,000 in
      2004. In addition, in 2005 PubliCARD contributed an additional $150,000 in
      capital to Infineer. Without such contributions, Infineer would not have been
      able to fund its operations. As a result of these factors, the Company recorded
      an impairment loss of $782,000 in the fourth quarter of 2005. The Company
      has no goodwill asset value on its balance sheet as of December 31, 2006
      and 2005.





**Interest
      income and expense.** Interest
      income was $17,000 for 2006 and $27,000 for 2005. This difference is primarily
      due to lower cash balances in a money market account, and no interest being
      generated from an escrow account. Interest expense increase to $34,000 in 2006
      from $26,000 in 2005 due to higher average borrowings during 2006.





**Gain
      on insurance recoveries.** During
      2006, the Company received funds from a number of insurance recoveries. The
      insurance recoveries in 2006 include a settlement from the Principle Mutual
      demutualization of $70,000, $111,000 of net proceeds from a refund for
      overpayment of oil expenses from the Department of Energy and $162,000 of net
      proceeds relating to a settlement with Equitas regarding the cleanup of
      hazardous materials in the Company’s Pennsylvania Facility. No insurance
      recoveries were received in 2005.





**Other
      income.** **** In
      November 2005, the Company recovered previously unclaimed property in the amount
      of $350,000. The receipt was recognized as income in 2005. There were no
      significant receipts in 2006.





**Discontinued
      operations.** In
      October 1996, the Company sold substantially all of the assets of its Masterview
      Window Company, Inc. (“Masterview”) subsidiary. At closing, a portion of the
      sales proceeds amounting to $476,000 were deposited into escrow to cover certain
      environmental remediation activities relating to a leaking underground storage
      tank at the former Masterview site in Arizona. The disposition of Masterview
      was
      accounted for as a discontinued operations in 1996 and a reserve of $476,000
      was
      established against the gain on the disposition recorded at that time. In 2005,
      the remedial activities at the site were satisfied and funds held in escrow
      amounting to $289,000 were released to the Company. A gain of $258,000 was
      recorded in 2005 and reported as “Income from discontinued operations”.





12


I n
      June
      2006, the remaining $31,000 of funds held in escrow for Masterview were released
      to the Company. In November 2006 the Company received an initial disbursement
      from the State Assurance Fund of Arizona for $108,000 as reimbursement for
      its
      approved remediation expenses relating to a leaking underground storage tank
      at
      the former Masterview site in Arizona. The Company recorded the combined gain
      of
      $139,000 in 2006 and reported it as “Income from discontinued
      operations”.




**Gain
      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 the Note 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.





On
      July
      27, 2006, the Company entered into a Payment, Retirement and Release Agreement
      (the “Payment Agreement”) with the PBGC pursuant to which the PBGC and the
      Company provided for the settlement and discharge of the Company’s obligations
      under the Settlement Agreement and the Note. Pursuant to the Payment Agreement,
      the Company paid the PBGC $256,000 on July 27, 2006, and agreed that if, between
      July 27, 2006 and July 27, 2011, the Company receives Net Proceeds in excess
      of
      $250,000, the Company will pay to the PBGC 50% of the amount of such excess.
      As
      defined in the Payment Agreement, “Net Proceeds” means the amount received by
      the Company in cash or marketable securities, less the amount of reasonable
      transaction costs and expenses and debt paid, retained or assumed, from any
      of
      (i) the sale by the Company of any or all capital stock of Infineer; (ii) the
      sale by Infineer of all or substantially all of its assets and a distribution
      of
      the proceeds of such sale to the Company; (iii) the sale by the Company of
      any
      or all capital stock of TecSec; and (iv) proceeds received by the Company from
      settlements, buyouts or assignments of claims with respect to insurance policies
      covering environmental liabilities for which claims were made prior to July
      27,
      2006. The Payment Agreement further provides that if, on July 27, 2011, the
      Company exists as a going concern and holds capital stock of Infineer (and
      Infineer exists as a going concern) or TecSec (and TecSec exists as a going
      concern), the Company will be deemed to have sold such capital stock for its
      fair market value, which shall be added to Net Proceeds for purposes of
      determining the amount of additional payments to the PBGC, if any. As a result
      of this agreement, the Company recorded a net gain of $7,214,000 in 2006.





**Year
      Ended December 31, 2005 Compared to Year Ended December 31,
      2004**





**Revenues.** Revenues
      are generated from product sales, technology and software license fees,
      installation and maintenance contracts. Consolidated revenues decreased to
      $3.6
      million in 2005 compared to $4.4 million for 2004 driven by a decline of
      $526,000 in direct sales to customers located in the United Kingdom as well
      as a
      $142,000 decline in shipments to distribution partners located in the United
      States. In the first several months of 2005, Infineer reduced sales and customer
      support headcount by a total of eight people to reduce operating expenses and
      reflect lower revenue expectations.





**Gross
      margin.** Cost of
      revenues consists primarily of material, personnel costs and overhead. Gross
      margin as a percentage of revenues was 54% in both 2005 and 2004.





**Sales
      and marketing expenses.** Sales
      and
      marketing expenses consist primarily of personnel and travel costs, trade shows
      and marketing materials. Sales and marketing expenses were $1.2 million in
      2005
      compared to $1.7 million in 2004. The decrease is primarily attributable to
      a
      $434,000 reduction in wages, benefits and employee business expense resulting
      from headcount reductions.





**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 $624,000 in 2005 compared
      to
      $716,000 in 2004. The decrease in expenses is mainly attributable to a $62,000
      decline in wages, benefits and employee business expense associated with
      headcount reductions.




**General
      and administrative expenses.** General
      and administrative expenses consist primarily of personnel and related costs
      for
      general corporate functions, including finance and accounting, risk management
      and legal. General and administrative expenses for the year ended December
      31,
      2005 decreased to $2.0 million from $2.3 million for 2004. The decrease in
      expenses is mainly attributable to a decline of $409,000 in corporate wages
      and
      benefits and $87,000 in corporate outside services (including insurance, legal
      and shareholder reporting) offset by a $239,000 increase in directors
      fees.





13


**Impairment
      of goodwill and 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 are subject to an annual review for impairment or earlier if
      circumstances or events indicate that impairment has occurred. In performing
      its
      annual goodwill impairment test at the end of the fourth quarter of 2005, the
      Company determined that goodwill had been impaired. Infineer has continued
      to
      incur operating losses and revenues declined substantially in 2005. In addition,
      in 2005 PubliCARD contributed an additional $150,000 in capital to Infineer.
      Without such contributions, Infineer would not have been able to fund its
      operations. Also, the Company recently concluded the process of
      soliciting third party offers for the sale of the Infineer business. The
      value placed on the bussiness by third parties participating in the
      process indicated to the Company that goodwill had been impaired. As a
      result of these factors, the Company recorded an impairment loss of $782,000
      in
      the fourth quarter of 2005. Amortization of intangibles of $40,000 in 2004
      related to the continuing amortization of definite life intangibles, which
      have
      been fully amortized as of December 31, 2004.





**Interest
      income and expense.** Interest
      income was $27,000 in both 2005 and 2004. Interest expense increased slightly
      from $22,000 in 2004 to $26,000 in 2005 due to higher average borrowings under
      the overdraft facility.





**Cost
      of pensions - non-operating.** Cost
      of
      pensions in 2004 of $405,000 principally relates to pension expense associated
      with the Company’s frozen defined benefit pension plan. As a result of the
      pension settlement in September 2004, cost of pensions - non-operating
      subsequent to September 2004 will be zero.





**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 the Note to the PBGC with a face amount
      of
      $7.5 million. This note was satisfied under the terms of the Payment Agreement
      (see “Liquidity”). A loss on the termination of the Plan of $2.7
      million was recorded in the third quarter of 2004.





**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.





**Other
      income.** **** In
      November 2005, the Company recovered previously unclaimed property in the amount
      of $350,000. The receipt was recognized as income in 2005.





**Discontinued
      operations.** In
      October 1996, the Company sold substantially all of the assets of its Masterview
      Window Company, Inc. (“Masterview”) subsidiary. At closing, a portion of the
      sales proceeds amounting to $476,000 were deposited into escrow to cover certain
      environmental remediation activities relating to a leaking underground storage
      tank at the former Masterview site in Arizona. The disposition of Masterview
      was
      accounted for as a discontinued operation in 1996 and a reserve of $476,000
      was
      established against the gain on the disposition recorded at that time. In 2005,
      the remedial activities at the site were satisfied and funds held in escrow
      amounting to $289,000 were released to the Company. A gain of $258,000 was
      recorded in 2005 and reported as “Income from discontinued operations”.





14




**Liquidity**





The
      consolidated financial statements included in this Annual Report Form 10-K
      contemplate the realization of assets and the satisfaction of liabilities in
      the
      normal course of business. As a result of the factors described above, it is
      unlikely that the Company will be able 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, 2006, 2005, 2004 2003, and 2002 contain emphasis paragraphs concerning
      substantial doubt about the Company’s ability to continue as a going
      concern.





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 and other recoveries in 2003, 2004 and 2005. For the year ended
      December 31, 2006, cash, including short-term investments, decreased by $666,000
      to $406,000.





Operating
      activities utilized cash of $1.0 million in 2006 and principally consisted
      of
      the net income of $6.3 million plus gains in working capital of $223,000 due
      to
      moneys release from escrow and favorable receivable collections, offset by
      $7.2
      million in non-cash gain from the PBGC settlement, $150,000 gain on minority
      investments, depreciation of $34,000, non-cash compensation expense of $58,000
      and $139,000 gain from discontinued operations.





Investing
      activities generated cash of $583,000 for the year ended December 31, 2006
      and
      consisted principally of receipts from insurance settlements of $445,000 and
      a
      gain on the sale of a minority investment of $143,000. This was offset by
      capital expenditures of $5,000.





Financing
      activities utilized cash of $277,000 for the year ended December 31, 2006,
      primarily due to the payment of $256,000 to the PBGC as part of the settlement
      agreement, and an unfavorable change in the overdraft payable of $26,000.





The
      Company has experienced negative cash flow from operating activities in the
      past
      and expects to experience negative cash flow in 2007 and beyond.





Infineer
      has continued to incur operating losses and negative cash flow. During 2004
      and
      2005, the Company contributed additional capital to Infineer of $225,000 and
      $150,000, respectively. It is likely that Infineer will require additional
      capital and at the present time the Company does not have the financial
      resources to provide such support. Though Infineer decreased its operating
      losses in 2006, given the Company’s lack of available resources, continued
      operating losses and the bank overdraft, the Company has begun to consider
      various alternatives. In 2006, with the assistance of an investment banker,
      the
      Company commenced an assessment of the value of Infineer, developed an
      information memorandum and obtained offers for Infineer’s potential for sale.
      This process concluded without a viable offer for the business. The Board of
      Directors has not decided whether to continue with the disposition effort.
      It is
      therefore uncertain whether an acceptable offer will materialize or whether
      any
      such sale will ultimately be consummated. Any such determination to dispose
      of
      Infineer would depend upon, among other things, the amount of potential proceeds
      of any such sale and require the approval of the Company’s
      shareholders.





The
      Company sponsored the Plan that was frozen in 1993. In January 2003, the Company
      filed a notice with the PBGC seeking a “distress termination” of that 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. 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.





Under
      the
      terms of the Settlement Agreement, effective September 23, 2004,, 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, 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 was
      secured by (a) all presently owned or thereafter 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.





On
      July
      27, 2006, the Company entered into the Payment Agreement with the PBGC pursuant
      to which the PBGC and the Company provided for the settlement and discharge
      of
      the Company’s obligations under the Settlement Agreement and the Note. Pursuant
      to the Payment Agreement, the Company paid the PBGC $256,000 on July 27, 2006,
      and agreed that if, between July 27, 2006 and July 27, 2011, the Company
      receives Net Proceeds in excess of $250,000, the Company will pay to the PBGC
      50% of the amount of such excess. As defined in the Payment Agreement, “Net
      Proceeds” means the amount received by the Company in cash or marketable
      securities, less the amount of reasonable transaction costs and expenses and
      debt paid, retained or assumed, from any of (i) the sale by the Company of
      any
      or all capital stock of Infineer; (ii) the sale by Infineer of all or
      substantially all of its assets and a distribution of the proceeds of such
      sale
      to the Company; (iii) the sale by the Company of any or all capital stock of
      TecSec; and (iv) proceeds received by the Company from settlements, buyouts
      or
      assignments of claims with respect to insurance policies covering environmental
      liabilities for which claims were made prior to July 27, 2006. The Payment
      Agreement further provides that if, on July 27, 2011, the Company exists as
      a
      going concern and holds capital stock of Infineer (and Infineer exists as a
      going concern) or TecSec (and TecSec exists as a going concern), the Company
      will be deemed to have sold such capital stock for its fair market value, which
      shall be added to Net Proceeds for purposes of determining the amount of
      additional payments to the PBGC, if any.





15


On
      October 13, 2006, the Company entered into the Assignment Agreement with
      Sallyport pursuant to which the Company assigned 60,058 shares of Series A
      Preferred Stock of TecSec to Sallyport in exchange for $150,000, which the
      Company recorded as a gain on the sale of a minority investment in the
      accompanying income statements. In addition, pursuant to the Assignment
      Agreement, Sallyport agreed to use its best efforts to transfer to the Company
      or cause to be issued to the Company shares of Common Stock of TecSec
      representing 21⁄2% of TecSec’s Common Stock, calculated on a fully-diluted basis
      and giving effect to shares that may be issued as a result of Sallyport’s
      financing of TecSec during the current year. On October 13, 2006, TecSec
      confirmed its agreement to issue such shares to the Company.





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 $406,000 at December
      31, 2006. The Company also had a shareholders’ deficiency of $964,000 as of
      December 31, 2006.





Management
      believes that existing cash and short-term investments will not be sufficient
      to
      permit the Company to continue operating past the second quarter of 2007 and
      the
      Company will likely cease operations. However, at the time of the issuance
      of
      this Form 10-K no formal plan of liquidation has been discussed with or approved
      by the Board of Directors. If a sale of Infineer is consummated, the Company
      will not thereafter have any ongoing business operations. In either case, the
      Company does not expect that any funds will be available for distribution to
      its
      shareholders.





**Off-Balance
      Sheet Arrangements**





The
      Company had no off-balance sheet arrangements in any of the prior 5 fiscal
      years.





**Contractual
      Obligations**





The
      following is a summary of the Company’s commitments as of December 31, 2006 (in
      thousands):





******Payments
                Due by Period****Total**
            
            **Less
                than**
              **1
                year**
            
            **1
                to 3****years**
            
            **3
                to 5****years**
            
            **More
                than**
              **5
                years**Operating
                lease obligations
            
            $
            178
            
            $
            103
            
            $
            75
            
            $
            -
            
            $
            -Other
                long-term liabilities:Note
                payable to PBGC
            
            
            31
            
            
            31
            
            
            -
            
            
            -
            
            
            -Other
                long-term obligations
            
            
            216
            
            
            6
            
            
            58
            
            
            58
            
            
            94Total
            
            $
            425
            
            $
            140
            
            $
            133
            
            $
            58
            
            $
            94





**Critical
      Accounting Policies**





The
      Company’s significant accounting policies are more fully described in the Notes
      to the Consolidated Financial Statements included this Annual Report on Form
      10-K for the year ended December 31, 2006. 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.





16


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.





**Share-Based
      Compensation.** Prior to
      January 1, 2006, **** the
      Company accounted 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 applied 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* .





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 adopted SFAS No.
      123R
      in the first quarter of 2006. SFAS No. 123R applies to all awards granted after
      the effective date and to previously-granted awards unvested as of the adoption
      date. The adoption of the statement did not have an impact on Company’s
      consolidated financial position, results of operations and cash flows.





**Recent
      Accounting Pronouncements**





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 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 did not have a material effect
      on the Company’s consolidated financial position, results of operations and cash
      flows.





In
      May
      2005, the FASB issued SFAS No. 154, *Accounting
      Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB
      Statement No. 3* .
      This
      statement provides guidance on the accounting for and reporting of accounting
      changes and error corrections. It establishes, unless impracticable,
      retrospective application as the required method for reporting a change in
      accounting principle in the absence of explicit transition requirements specific
      to the newly adopted accounting principle. This statement also provides guidance
      for determining whether retrospective application of a change in accounting
      principle is impracticable and for reporting a change when retrospective
      application is impracticable. SFAS No. 154 is effective for accounting changes
      and correction of errors made in fiscal years beginning after December 15,
      2005. The
      adoption of the statement did not have an effect on the Company’s consolidated
      financial position, results of operations and cash flows.





17




In
      June
      2006, the FASB issued FASB Interpretation (FIN) No. 48, *Accounting
      for Uncertainty in Income Taxes — an interpretation of FASB Statement
      No. 109.* Interpretation No. 48 clarifies the accounting for uncertainty in income
      taxes recognized in an enterprise’s financial statements in accordance with FASB
      Statement No. 109, *Accounting
      for Income Taxes.* FIN
      No.
      48 prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN No. 48 also provides guidance on
      de-recognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. This Interpretation is effective for fiscal
      years beginning after November 15, 2006, and Publicard will adopt it in the
      first quarter of 2007. Publicard does not expect the adoption of FIN No. 48
      to have an impact on its financial statements and related
      disclosures.




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements.* SFAS 157
      defines fair value, establishes a framework for measuring fair value, and
      expands disclosures about fair value measurements. The provisions of SFAS 157
      are effective for the Company beginning after January 1, 2008. The Company
      has not completed its assessment of the impact of SFAS 157 on its financial
      statements following adoption.




In
      September 2006, the Securities and Exchange Commission (“the SEC”) released
      Staff Accounting Bulletin No. 108, ** *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* (“SAB
      108”). SAB 108 provides guidance on the SEC’s views regarding quantifying the
      materiality of financial statement misstatements, including misstatements that
      were not material to prior years’ financial statements. SAB 108 is effective for
      the Company’s fiscal years ended after November 15, 2006.  The
      application of SAB 108 requires the Company to quantify the impact of
      correcting all misstatements, including both the carryover and reversing effects
      of prior year misstatements, on the current year financial statements. The
      initial application of SAB 108 had no impact on the Company’s financial
      statements.




In
      February 2007, the FASB issued SFAS No. 159, ** *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* ,
      providing companies with an option to report selected financial assets and
      liabilities at fair value. SFAS 159’s objective is to reduce both
      complexity in accounting for financial instruments and the volatility in
      earnings caused by measuring related assets and liabilities differently.
      Accounting principles generally accepted in the United States has required
      different measurement attributes for different assets and liabilities that
      can
      create artificial volatility in earnings. SFAS 159 helps to mitigate this type
      of accounting-induced volatility by enabling companies to report related assets
      and liabilities at fair value, which would likely reduce the need for companies
      to comply with detailed rules for hedge accounting. SFAS 159 also establishes
      presentation and disclosure requirements designed to facilitate comparisons
      between companies that choose different measurement attributes for similar
      types
      of asset and liabilities. SFAS 159 requires companies to provide additional
      information that will help investors and other users of financial statements
      to
      more easily The Company is currently evaluating the impact of the adoption
      of
      SFAS 159 on its financial statements.





**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, 2006, short-term investments were $383,000
      and
      borrowing under the overdraft facility amounted to $478,000. 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.





18




**ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**





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





**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 acting principal 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 (the “Exchange Act”)) as of the end of the
      period covered by this report. Based upon this evaluation, the chief executive
      officer and acting prinicipal financial officer have 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
      Exchange Act. 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 2006, the Company reported all required disclosures in reports
      on Form 8-K.





19


**PART
      III**





**ITEM
      10. DIRECTORS, EXECUTIVE OFFICERS AND GOVERNANCE**





The
      Company currently has six directors, all of whom, with the exception of Joseph
      E. Sarachek were elected at the Annual Meeting of Shareholders held on December
      8, 2003. Mr. Sarachek was appointed as a Director on July 21, 2006 and as CEO
      on
      July 31, 2006 by the Board of Directors. All directors serve until the next
      election of directors or until their successors have been elected and have
      qualified. There are no family relationships among 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 14, 2007), 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 67; 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
      Incorporated (“Balfour”), a merchant-banking firm that had previously been
      engaged in a general brokerage business, since 1975. Mr. Freund is also Vice
      Chairman of Glasstech, Inc.





JAY
      S.
      GOLDSMITH: Age 63; 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.





JOSEPH
      E.SARACHEK: Age 45; Director of PubliCARD since July 21, 2006 and Chief
      Executive Officer since July 31, 2006. Mr. Sarachek is also a Managing Partner
      of Triax Capital Advisors, LLC., a restructuring advisory firm. In that
      capacity, he provides restructuring advisory services to companies in various
      industries and may hold interim management roles. Prior to Triax, Mr. Sarachek
      was a Partner at Balfour Capital Advisors.





STEPHEN
      A. SPITZER: Age 34; Acting Principal Financial Officer since July 31, 2006.
      Mr.
      Spitzer is also a Principal of Triax Capital Advisors, LLC., a restructuring
      advisory firm. In that capacity, he provides restructuring advisory services
      to
      companies in various industries and may hold interim management roles. Prior
      to
      joiningTriax, Mr. Spitzer was Director of Finance for Vanguarde Media,
      Inc.





CLIFFORD
      B. COHN: Age 55; 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 has been the principal of Cohn &
Associates, a law firm in Philadelphia, Pennsylvania since 2003. Mr. Cohn was
      an
      attorney for Grayson & Goldin P.C., a law firm in Philadelphia,
      Pennsylvania, during 2002.




L.
      G.
      SCHAFRAN: Age 68; 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., Co-Liquidating Trustee of the Banyan Strategic
      Realty Trust and Director of Worldspace, Inc. and was Chairman of the Board
      and
      Co-Chief Executive Officer of Delta-Omega Technologies, Inc.





EMIL
      VOGEL: Age 63; 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.





Joseph
      Sarachek is the sole executive officer of the Company appointed by the Board
      of
      Directors. Stephen Spitzer servers in the capacity of Principal Financial
      Officer of the Company, but has not been elected by the Board of Directors
      to
      that position. Effective January 1, 2005, Harry I. Freund and Jay S. Goldsmith
      resigned their officer positions with Publicard, but retained the title of
      Chairman and Vice Chairman respectively. Mr. Freund and Mr. Goldsmith remain
      Chairman and Vice Chairman of the Board of Directors, respectively.




On
      January 11, 2006, the National Association of Securities Dealers, Inc. (the
      “NASD”) found that, in their capacities as principals of Balfour, a
      broker-dealer registered with the SEC and a member of the NASD, Messrs. Freund
      and Goldsmith caused Balfour to violate certain books and records and net
      capital requirements applicable to Balfour. As a result, Balfour and Messrs.
      Freund and Goldsmith were jointly and severally fined $10,000.




20


**Audit
      Committee**





The
      present members of the Audit Committee are Mr. Schafran (Chairman) 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 financial expert” as defined by the SEC, and is
“independent,” as that term is used in Item 7(d)(3)(iv) of Schedule 14A under
      the Exchange Act.





**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 SEC will
      be
      posted to the Company’s website.





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Section
      16(a) of 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 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, 2006 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**


**Annual
                  Compensation**
              
              
              
              
              ****
              **All
                  Other****Name
                  and Principal Position**
              
              **Year**
              
              **Salary
                  ($)**
              
              **Bonus
                  ($) (1)**
              
              **Option
                  Awards ($)(2)**
              
              **Compensation
                  ($)**Joseph
                  E. Sarchek(3)
              
              
              2006
              
              
              75,000
              
              
              -
              
              
              60,958
              
              
              -President,
                  Chief Executive
              
              
              2005
              
              
              -
              
              
              -
              
              
              -
              
              
              -Officer
                  and Secretary
              
              
              2004
              
              
              -
              
              
              -
              
              
              -
              
              
              -Antonio
                  L. DeLise (4)
              
              
              2006
              
              
              184,000
              
              
              50,000Former
                  President, Chief
              
              
              2005
              
              
              275,000
              
              
              115,168
              
              
              -
              
              
              8,559
                  (5
              )Executive
                  Officer, Chief
              
              
              2004
              
              
              275,000
              
              
              84,832
              
              
              -
              
              
              9,059
                  (5
              )Financial
                  Officer and SecretaryStephen
                  A. Spitzer
              
              
              2006
              
              
              19,500
              
              
              
              
              
              -
              
              
              -Principal
                  Financial Officer
              
              
              2005
              
              
              -
              
              
              -
              
              
              -
              
              
              -2004
              
              
              --
              
              
              -
              
              
              -
              
              
              -







(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 2,837,075 shares of Common Stock. Value of options was
                calculated pursuant to FAS123R using a Black Scholes methodology.
                See Note
                6 of the accompanying financial statements for details.


(3)
            Mr.
                Sarachek was appointed a director of the Company on July 21, 2006
                and CEO
                of the Company on July 31, 2006. In conjunction with his employment
                areement, he was granted 2,837,075 options at a price of $0.0279
                per
                share.




21




(4)
            Mr.
                DeLise served as Chief Financial Officer commencing April 1995 and
                was
                appointed to the additional posts of President in February 2002 and
                Chief
                Executive Officer in August 2002. Mr. DeLise resigned both positions
                effective July 31, 2006.


(5)
            Consists
                of $6,500 and $7,000 in contributions to PubliCARD’s 401(k) plan for 2004
                and 2005, respectively, and $2,706 and $2,559 for term life and disability
                insurance payments paid on behalf of Mr. DeLise for 2004, 2005 and
                2006,
                respectively.




**Compensation
      Discussion and Analysis**





On
      July
      21, 2006, the
      Company entered into an Engagement Agreement (as
      amended, the “Engagement Agreement”) with
      Joseph Sarachek .
      Pursuant to
      the Engagement Agreement, Mr. Sarachek was appointed to the Company’s Board of
      Directors on July 21, 2006. Also pursuant to the Agreement, Mr. Sarachek was
      appointed as the Company’s Chief
      Executive Officer ,
      effective July 31, 2006. In return for his services, Mr. Sarachek was given
      an
      annual salary $180,000 per year for a one year period and was granted options
      to
      purchase Company stock as described below.





Pursuant
      to the
      Engagement Agreement, Mr. Sarachek was
      granted options (the “Initial Options”) to purchase 2,837,075 shares of the
      Company’s Common Stock at an exercise price of $0.0279 per share, the fair value
      of the Company’s stock on the date of the grant. 1,793,650 of
      the
      Initial Options were granted under
      the Company’s 1999 Long Term Incentive Plan ( the “ Long
      Term
      Incentive Plan ”), and 1,043,425
      of the Initial
      Options were granted pursuant to a Non-Plan Stock Option
      Agreement between
      Mr. Sarachek and the
      Company ,
      dated
      as of July 21, 2006. All of the Initial Options will vest
      upon the consummation of a sale
      of
      the Company or other restructuring or similar transaction involving the
      Company ,
      as
      defined in the Engagement Agreement.





Following
      the consummation of any such transaction, Mr. Sarachek will be granted
      additional options to purchase shares of the Company’s Common Stock, which
      options will be exercisable into shares of the Company’s Common Stock
      representing (when taken together with the Initial Options) 10% of the Company’s
      outstanding Common Stock, calculated on a fully-diluted basis. Such options
      will
      be exercisable when granted. The Agreement also provides that, upon consummation
      of any such transaction, Mr. Sarachek will be entitled to receive a cash
      transaction fee in an amount equal to a percentage of the aggregate value of
      such transaction received by the Company or its shareholders ranging from 4%
      to
      7%.





On
      July
      31, 2006 Stephen Spitzer assumed the role of Principal Financial Officer. Mr.
      Spitzer is an at-will employee of the Company and does not have an employment
      agreement. Mr. Spitzer also does not hold any stock options in the Company.
      Mr.
      Spitzer receives an annual salary of $52,000 as compensation for his
      services .





**Option
      Grants in Last Fiscal Year**





The
      following table sets forth certain information as of December 31, 2006
      concerning plan based awards for the following individuals:





Estimated
                Future Payouts Under Equity Incentive Plan AwardsName
            
            Grant
                Date
            
            Threshold(#)
            
            Target
                (#)(1)
            
            Maximum
                (#)
            
            All
                Other Stock Awards: Number of Shares of Stock or Units (#)
            
            All
                Other Option Awards: Number of Securities Under- lying Options
                (#)(2)
            
            Exercise
                or Base Price of Option Awards ($/Sh)
            
            Grant
                Date Fair Value of Stock and Option Awards(3)Joseph E.
                Sarachek
            
            
            7/21/06
            
            
            -
            
            
            1,793,650
            
            
            -
            
            
            
            
            
            1,043,425
            
            $
            0.0279
            
            $
            60,958





(1)
            Mr.
                Sarachek received 1,793,650 of options granted under the Company’s 1999
                Long Term Incentive Plan. The price of these options at the time
                of the
                grant was $0.0279. Mr. Sarachek’s options will only vest in the event of a
                transaction, as described in his Engagement
                Agreement


(2)
            Mr.
                Sarachek received 1,043,425 of options granted underaNon-PlanStockOption
                Agreement between Mr. Sarachek and the Company. The price of these
                options
                at the time of the grant was $0.0279. These options shall only vest
                in the
                event of a transaction as described in the Engagement
                Agreement.


(3)
            The
                fair value of the options granted to Mr. Sarachek on July 21, 2006
                is
                $60,958. The values was derived in accordance with SFAS 123R using
                a Black
                Scholes methodology. See Note 6 of the accompanying Financial Statements
                for further details.




22




As
      of
      December 31, 2006, there were no options granted to Mr. DeLise, the former
      President, Chief Executive Officer, Chief Financial Officer and Secretary of
      the
      Company or Stephen Spitzer, the current Principal Financial Officer of the
      Company  Common
      Stock





The
      following table sets forth the exercisable and unexercisable options for
      executives or 2006:





Options
                AwardsName
            
            Number
                of Securities Underlying Unexercised Options (#)
                Exercisable
            
            Number
                of Securities Underlying Unexercised Options (#)
                Unexercisable
            
            Equity
                Incentive Plan Awards: Number of Securities Underlying Unexercised
                Unearned Options (#)(1)
            
            Option
                Exercise Price ($)
            
            Option
                Expiration DateJoseph
                E. Sarachek
            
            
            
            
            
            2,837,075
            
            
            2,837,075
            
            $
            0.0279
            
            
            7/21/16





(1)
            Mr.
                Sarachek’s options vest and become immediately exercisable in the event of
                a sale of the Company, other restructuring or similar transaction
                as
                defined in the Engagement
                Agreement.




**Aggregate
      Stock Option Exercises in Fiscal Year 2006 and Fiscal Year-End Option
      Values**





The
      following table sets forth certain information as of December 31, 2006
      concerning exercisable and unexercisable stock options held by the following
      persons:


**Shares**
              **Acquired
                on**
            
            **Value**
            
            **Number
                of Securities Underlying Unexercised**
              **Options
                at Fiscal**
              **Year
                End**
            
            **Value
                of Unexercised In-the-Money Options at Fiscal**
              **Year
                End (1)********Name**
            
            **Exercise**
            
            **Realized**
            
            **Exercisable**
            
            **Unexercisable**
            
            **Exercisable**
            
            **Unexercisable**Joseph
                E. Sarachek
            
            
            -
            
            
            -
            
            
            -
            
            
            2,837,075
            
            
            -
            
            
            -Harry
                I. Freund
            
            
            -
            
            
            -
            
            
            335,000
            
            
            -
            
            
            
            
            
            -Jay
                S. Goldsmith
            
            
            -
            
            
            -
            
            
            335,000
            
            
            -
            
            
            
            
            
            -





(1)  These
      values are based on the December 31, 2006 closing price for PubliCARD’s
      Common Stock on the Over-the-counter Bulletin Board of
      $.015
      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, 2006, a total of 1,215,500 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.





23


**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. The remaining options expired in January
      2006.





Pursuant
      to the
      Engagement Agreement, Joseph Sarachek was
      granted options (the “Initial Options”) to purchase 2,837,075 shares of the
      Company’s Common Stock at an exercise price of $0.0279 per share, the fair value
      of the Company’s stock on the date of the grant.  1,043,425
      of the Initial
      Options were granted pursuant to a Non-Plan Stock Option
      Agreement between
      Mr. Sarachek and the
      Company ,
      dated
      as of July 21, 2006. The Initial Options will vest
      upon the consummation of a sale
      of
      the Company or other restructuring or similar transaction involving the
      Company ,
      as
      defined in the Engagement Agreement.





**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.





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 (x) the five years preceding the change of
      control, or (y) 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 $267,000 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, 2006 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.




24





**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 of Directors or of shareholders that they attended
      without regard to the number of meetings attended each day. Effective October
      1,
      2000, the monthly retainer and per diem fees were suspended. Effective May
      1,
      2005, the Company reinstituted compensation for non-employee directors,
      excluding the Chairman and Vice Chairman of the Board of Directors, at the
      rate
      of $2,000 per month, which amount will be reduced by 33% to $1,333 per month
      effective April 1, 2006. 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.





On
      January 1, 2005, Mr. Freund, Chairman of the Company, and Mr. Goldsmith, Vice
      Chairman of the Company, resigned their officer positions with the Company.
      Mr.
      Freund and Mr. Goldsmith remain as Chairman and Vice Chairman of the Board
      of
      Directors of the Company, respectively. From October 1998 through December
      2004,
      Mr. Freund and Mr. Goldsmith received compensation in respect of their officer
      positions as Chairman and Vice Chairman of the Company, respectively. For the
      year ended December 31, 2004, annual compensation in such capacity was $150,000
      each. Effective January 1, 2005, Mr. Freund and Mr. Goldsmith each began to
      receive annual compensation at the rate of $100,000 per year as Chairman and
      Vice Chairman of the Board of Directors, respectively, and for providing certain
      services as described below. The Board of Directors approved a 33% reduction
      in
      compensation to all non-employee directors effective April 1, 2006, such that
      the annual retainer for Mr. Freund and Mr. Goldsmith was reduced to $66,667.
      As
      of July 31, 2006, Mr. Freund and Mr. Goldsmith agreed to terminate the annual
      retainer payments. Each was paid $47,000 during 2006.





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 by Messrs. Freund
      and Goldsmith.




On
      May
      17, 2005, the Directors Compensation Committee recommended, and the Board of
      Directors approved, the compensation for non-employee directors, including
      such
      amounts received by Mr. Freund and Mr. Goldsmith.





During
      2006, certain Directors received compensation in the form of cash. All Directors
      received equity in return for the services provided in 2006. The following
      table
      sets forth the director compensation for 2006.





Name
            
            Fees
                Earned of Paid in Cash ($) (1)(2)
            
            Stock
                Awards ($)
            
            Option
                Awards ($) (3)
            
            Total
                ($)Jay
                Goldsmith
            
            
            47,000
            
            
            -
            
            
            688
            
            
            47,688Harry
                Fruend
            
            
            47,000
            
            
            -
            
            
            688
            
            
            47,688Clifford
                Cohn
            
            
            10,000
            
            
            -
            
            
            688
            
            
            10,688Emil
                Vogel
            
            
            10,000
            
            
            -
            
            
            688
            
            
            10,688Larry
                Schafran
            
            
            10,000
            
            
            -
            
            
            688
            
            
            10,688





(1)
            Beginning
                January 1, 2005, Mr. Freund and Mr. Goldsmith each received compensation
                of $100,000 per year in their capacity as Chairman and Vice Chairman
                of
                the Board of Directors. The annual retainer was reduced to $66,667
                effective April 1, 2006. The retainer was terminated effective July
                31,
                2006. Each received $47,000 of non-executive compensation during
                2006.  (2)
            Messrs
                Cohn, VogelandSchafran
                each received $2,000 per month as non-employee directors between
                January
                1, 2006 and March 31, 2006. On April 1, 2006 this amount was reduced
                to
                $1,333 per month. This compensation arrangement was terminated July
                1,
                2006.




(3)
            Each
                of the Directors listed above was issued the option on August 4,
                2006 to
                purchase 30,000 shares of the Company’s Common Stock at a price of $0.03.
                These shares immediately rested upon issuance and expire August 4,
                2010.
                The Company used a Black Scholes methodology to calculate the fair
                value
                of the options, pursuant to FAS 123R.See
                Note 6 of the accompanying Financial Statements for further
                details.





25





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."





The
      Company currently subleases its space in New York City from Triax Capital
      Advisors. The Mr. Sarachek is an officer and principal shareholder of Triax
      Capital Advisors. The Company pays 27% of the rent and occupancy costs paid
      by
      Triax Capital Advisors under its lease, including base rent, electricity, water,
      real estate tax escalations and operation and maintenance escalations. The
      base
      rent payable by the Company is approximately $3,000 per month.





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 of Directors 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 ”Information Concerning the Board of Directors”
above.





**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**




The
      following information is furnished as of March 14, 2007 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. ****  Unless
      otherwise specified, the address of each director and executive officer in
      the
      following table is the Company's address at 75 Rockefeller Plaza, 16 th Floor,
      New York, New York 10019.





**Name**
            
            **Position**
            
            **Beneficial
                Ownership of Shares of Common Stock as of**
              **March
                , 2006 (1)**
            
            **Percent
                of****Class (1)**Taube
                Hodson Stonex
              Partners
                Limited
              27
                St. James Place
              London
                SW1A INR
              United
                Kingdom
            
            
            N/A
            
            
            2,735,500
                (2
            )
            
            11.0
            %Harry
                I. Freund
            
            
            Director,
                Chairman of the Board of Directors
            
            
            859,957
                (3
            )
            
            4.1
            %Jay
                S. Goldsmith
            
            
            Director,
                Vice Chairman of the Board of Directors
            
            
            1,071,553
                (4
            )
            
            5.0
            %Clifford
                B. Cohn
            
            
            Director
            
            
            150,314
                (5
            )
            
            Less
                than 1
            %L.G.
                Schafran
            
            
            Director
            
            
            264,050
                (6
            )
            
            1.1
            %Emil
                Vogel
            
            
            Director
            
            
            208,800
                (7
            )
            
            Less
                than 1
            %All
                directors, nominees and officers as a group (6 persons)
            
            
            
            
            
            2,554,674
                (8
            )
            
            10.3
            %





(1)
              Calculated
                  in accordance with Rule 13d-3 adopted by the SEC under the Exchange
                  Act.
  26
  (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
                  335,000 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
                  335,000 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
                  150,000 shares which may be acquired by Mr. Cohn within 60 days
                  through
                  the exercise of stock options.
  (6)
              Includes
                  150,000 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.
  (7)
              Includes
                  150,000 shares which may be acquired by Mr. Vogel within 60 days
                  through the exercise of stock options.
  (8)
              Includes
                  1,120,000 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, 2006.





**Plan
                category**
            
            **Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
              **(a)**
            
            **Weighted-average
                exercise price of outstanding options, warrants and
                rights**
              ******(b)**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))**
              **(c)**Equity
                compensation plans approved by security holders
            
            
            3,094,500
            
            $
            0.12
            
            
            1,216,500Equity
                compensation plans not approved by security holders
            
            
            1,043,425
            
            $
            0.03
            
            
            -Total
            
            
            4,137,925
            
            $
            0.10
            
            
            1,216,5000





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.





**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 registered public accounting firm:




**2006**
            
            **2005**Audit
                fees
            
            $
            200,000
            
            $
            185,107Audit-related
                fees
            
            
            -Tax
                fees
            
            
            -
            
            
            -All
                other fees
            
            
            -
            
            
            -




27




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 2006 and 2005. The Audit Committee has
      considered whether the provision of non-audit services by the Company’s
      independent registered public accounting firm are compatible with maintaining
      auditor independence. Deloitte & Touche LLP did not perform any non-audit
      services for the Company during 2006 and 2005.




28


**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.




29


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.





10.10
            Description
                of the registrant’s compensation and reimbursement practices for its
                directors. Incorporated by reference from PubliCARD’s Current Reports on
                Form 8-K, dated November 14, 2005 and March 20,
                2006.





10.11
            Engagement
                Agreement, dated as of July 21, 2006, between PubliCARD, Inc. and
                Joseph
                Sarachek. Incorporated by reference from PubliCARD, Inc.’s Current Report
                on Form 8-K filed on July 27, 2006.





10.12
            Addendum
                to Engagement Agreement, dated as of July 26, 2006, between PubliCARD,
                Inc. and Joseph E. Sarachek. Incorporated by reference from PubliCARD,
                Inc.’s Current Report on Form 8-K filed on July 27,
                2006.





10.13
            Indemnification
                Agreement, dated as of July 21, 2006, between PubliCARD, Inc. and
                Joseph
                E. Sarachek. Incorporated by reference from PubliCARD, Inc.’s Current
                Report on Form 8-K filed on July 27,
                2006.





10.14
            Stock
                Option Agreement, dated as of July 21, 2006, between PubliCARD, Inc.
                and
                Joseph E. Sarachek. Incorporated by reference from PubliCARD, Inc.’s
                Current Report on Form 8-K filed on July 27,
                2006.





10.15
            Non-Plan
                Stock Option Agreement, dated as of July 21, 2006, between PubliCARD,
                Inc.
                and Joseph E. Sarachek. Incorporated by reference from PubliCARD,
                Inc.’s
                Current Report on Form 8-K filed on July 27,
                2006.





10.16
            Payment,
                Retirement and Release Agreement dated as of July 27, 2006 by and
                between
                the Pension Benefit Guaranty Corporation and PubliCARD, Inc. Incorporated
                by reference from PubliCARD, Inc.’s Quarterly Report on Form 10-Q filed on
                July 28, 2006





10.17
            Sallyport
                Assignment of Shares and Assumption of Obligations Agreement dated
                as of
                October 13, 2006 between Sallyport Investment Partnership and PubliCARD,
                Inc. Incorporated by reference from PubliCARD’s Current Report on Form 8-K
                filed on October 27, 2006





10.18
            Letter
                from TecSec, Incorporated to PubliCARD, Inc., dated as of October
                13,
                2006. Incorporated by reference from PubliCARD, Inc.’s Current Report 8-K
                filed on October 27, 2006.




21.1
            Subsidiaries
                of PubliCARD. Filed herewith.





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





31.1
            Rule
                13a-14(a)/15d-14(a) certificationof
                the Chief Executive Officer.
                Filed herewith.





31.2
            Rule
                13a-14(a)/15d-14(a) certification of the acting Principal Financial
                Officer. Filed herewith.





32.1
            
            Section
                1350 certificationof
                the Chief Executive Officer. Filed
                herewith.





32.2
            
            Section
                1350 certification of the acting Principal Financial Officer.
                Filed
                herewith.




30





**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)DateApril 13, 2007
            By:
            /s/
              JOSEPH E. SARACHEKJoseph
                E. Sarachek, President,
              Chief
                Executive 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.


DateApril 13, 2007
            By:
            /s/
              JOSEPH E. SARACHEKJoseph
                E. Sarachek, President,
              Chief
                Executive Officer, and Director




DateApril 13, 2007
                  By:
                  /s/
                    STEPHEN A. SPITZERStephen
                          A. Spitzer, Acting Principal
                        Financial
                          Officer


DateApril 13, 2007
                  By:
                  /s/
                    CLIFFORD B. COHNClifford
                          B. Cohn,
                          Director
 DateApril 13, 2007
                    By:
                    /s/
                      HARRY I. FREUNDHarry
                            I. Freund, Chairman of the Board and
                            Director
 DateApril 13, 2007
                        By:
                        /s/
                          JAY
                          S. GOLDSMITHJay
                                S. Goldsmith, Vice Chairman of the Board and
                                Director


DateApril 13, 2007
                      By:
                      /s/
                        L.
                        G. SCHAFRANL.
                              G. Schafran,
                              Director


DateApril 13, 2007
                        By:
                        /s/
                          EMIL
                          VOGELEmil
                                Vogel,
                                Director





31




**PUBLICARD,
      INC.**


**AND
      SUBSIDIARY COMPANIES**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES**





Financial
                StatementsReport
                of Independent Registered Public Accounting Firm
            
            F-2Consolidated
                balance sheets as of December 31, 2006 and 2005
            
            F-3Consolidated
                statements of operations for the years ended December 31,
                2006,2005
                and 2004
            
            F-4Consolidated
                statements of shareholders' deficiency for the years endedDecember
                31, 2006, 2005 and 2004
            
            F-5Consolidated
                statements of cash flows for the years endedDecember
                31, 2006, 2005 and 2004
            
            F-6Notes
                to consolidated financial statements
            
            F-7
                through F-23Supplemental
                ScheduleSchedule
                II - Valuation and qualifying accounts
            
            F-24





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





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Stockholders of


PubliCARD,
      Inc. and Subsidiaries


New
      York,
      New York





We
      have
      audited the accompanying consolidated balance sheets of PubliCARD, Inc. and
      subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related
      consolidated statements of operations, shareholders' deficiency, and cash flows
      for each of the three years in the period ended December 31, 2006. Our audits
      also included the financial statement schedule listed in the Index at Item
      15.
      These financial statements and financial statement schedule are the
      responsibility of the Company's management. Our responsibility is to express
      an
      opinion on the financial statements and financial statement schedule 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 control over
      financial reporting. Our audits included 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 presents fairly, in all material
      respects, the financial position of PubliCARD, Inc. and subsidiaries as of
      December 31, 2006 and 2005, and the results of their operations and their cash
      flows for each of the three years in the period ended December 31, 2006, in
      conformity with accounting principles generally accepted in the United States
      of
      America. Also, in our opinion, such financial statement schedule, when
      considered in relation to the basic consolidated financial statements taken
      as a
      whole, presents fairly in all material respects the information set forth
      therein.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 1 to the 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 financial
      statements do not include any adjustments that might result from the outcome
      of
      these uncertainties.






/s/
      DELOITTE & TOUCHE LLP


New
      York,
      New York


April
      2,
      2007


F-2





**PUBLICARD,
      INC.**


**AND
      SUBSIDIARY COMPANIES**





**CONSOLIDATED
      BALANCE SHEETS**


**DECEMBER
      31, 2006 AND 2005**




**2006**
            
            **2005**(in
                thousands, except share data)**ASSETS**Current
                assets:Cash,
                including short-term investments of $383 and $989 in 2006
                and2005,
                respectively
            
            $
            406
            
            $
            1,072Trade
                receivables, less allowance for doubtful accounts of $17 and $16
                in
                2006and
                2005, respectively
            
            
            600
            
            
            647Inventories
            
            
            279
            
            
            303Other
                current assets
            
            
            92
            
            
            573Total
                current assets
            
            
            1,377
            
            
            2,595Equipment
                and leasehold improvements, net
            
            
            11
            
            
            47$
            1,388
            
            $
            2,642**LIABILITIES
                AND SHAREHOLDERS’ DEFICIENCY**Current
                liabilities:Overdraft
                payable
            
            $
            478
            
            $
            406Trade
                accounts payable
            
            
            686
            
            
            592Accrued
                liabilities
            
            
            941
            
            
            1,067Payable
                to the PBGC
            
            
            31
            
            
            -Total
                current liabilities
            
            
            2,136
            
            
            2,065Note
                payable
            
            
            -
            
            
            7,501Other
                non-current liabilities
            
            
            216
            
            
            227Total
                liabilities
            
            
            2,352
            
            
            9,793Commitments
                and contingencies (Note 7)Shareholders’
                deficiency:Class
                A Preferred Stock, Second Series, no par value: 1,000 shares authorized;
                465shares
                issued and outstanding as of December 31, 2006 and 2005
            
            
            2,325
            
            
            2,325Common
                shares, $0.10 par value: 40,000,000 shares authorized; 24,940,902shares
                issued and outstanding as of December 31, 2006 and 2005
            
            
            2,494
            
            
            2,494Additional
                paid-in capital
            
            
            108,625
            
            
            108,594Accumulated
                deficit
            
            
            (114,211
            )
            
            (120,507
            )Other
                accumulated comprehensive loss
            
            
            (197
            )
            
            (57
            )Total
                shareholders’ deficiency
            
            
            (964
            )
            
            (7,151
            )$
            1,388
            
            $
            2,642


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


F-3





**PUBLICARD,
      INC.**


**AND
      SUBSIDIARY COMPANIES**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004**





**2006**
            
            **2005**
            
            **2004**(in
                thousands, except share data)Revenues
            
            $
            3,314
            
            $
            3,617
            
            $
            4,395Cost
                of revenues
            
            
            1,489
            
            
            1,661
            
            
            2,010Gross
                margin
            
            
            1,825
            
            
            1,956
            
            
            2,385Operating
                expenses:General
                and administrative
            
            
            1,743
            
            
            2,017
            
            
            2,330Sales
                and marketing
            
            
            1,034
            
            
            1,173
            
            
            1,671Product
                development
            
            
            599
            
            
            624
            
            
            716Impairment
                of goodwill
            
            
            -
            
            
            782
            
            
            -Amortization
                of intangibles
            
            
            -
            
            
            -
            
            
            403,376
            
            
            4,596
            
            
            4,757Loss
                from operations
            
            
            (1,551
            )
            
            (2,640
            )
            
            (2,372
            )Other
                income (expense):Interest
                income
            
            
            17
            
            
            27
            
            
            27Interest
                expense
            
            
            (34
            )
            
            (26
            )
            
            (22
            )Cost
                of retirement benefits - non-operating
            
            
            -
            
            
            -
            
            
            (405
            )Loss
                on pension settlement
            
            
            -
            
            
            -
            
            
            (2,739
            )Gain
                on sale of investment
            
            
            150
            
            
            -
            
            
            -Gain
                on insurance recoveries and other
            
            
            337
            
            
            350
            
            
            647Other
                income/(expense)
            
            
            (5
            )
            
            -
            
            
            5465
            
            
            351
            
            
            (2,487
            )Loss
                from continuing operations
            
            
            (1,086
            )
            
            (2,289
            )
            
            (4,859
            )Extraordinary
                gain on settlement with the PBGC
            
            
            7,214
            
            
            -
            
            
            -Income
                from discontinued operations
            
            
            139
            
            
            258
            
            
            -Net
                income/(loss)
            
            $
            6,267
            
            $
            (2,031
            )
            $
            (4,859
            )Basic
                and diluted earnings (loss) per common share:Continuing
                operations
            
            $
            (.05
            )
            $
            (.09
            )
            $
            (.20
            )Extraordinary
                gain on settlement with the PBGC
            
            
            .29
            
            
            -
            
            
            -Discontinued
                operations
            
            
            .01
            
            
            .01
            
            
            -$
            .25
            
            $
            (.08
            )
            $
            (.20
            )Weighted
                average common shares outstanding
            
            
            24,940,902
            
            
            24,767,825
            
            
            24,690,902





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


F-4


**PUBLICARD,
      INC.**


**AND
      SUBSIDIARY COMPANIES**





**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' DEFICIENCY**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004**





Class
                A
              Preferred
                Stock
            
            Common
                Shares
            
            Additional
            
            
            
            Other
              Accumulated
            
            Share-SharesIssued
            
            Amount
            
            SharesIssued
            
            Amount
            
            Paid-inCapital
            
            AccumulatedDeficit
            
            ComprehensiveLoss
            
            holders
                Deficiency(in
                thousands, except share data)Balance
                - January 1, 2004
            
            
            565
            
            $
            2,825
            
            
            24,690,902
            
            $
            2,469
            
            $
            108,119
            
            $
            (113,617
            )
            $
            (2,724
            )
            $
            (2,928
            )Conversion
                of preferred stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            -
            
            
            -Comprehensive
                loss:Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (4,859
            )
            
            -
            
            
            (4,859
            )Foreign
                currency translationAdjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (21
            )
            
            (21
            )Minimum
                pension liability
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,649
            
            
            2,649Total
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,231
            )Balance
                - December 31, 2004
            
            
            565
            
            
            2,825
            
            
            24,690,902
            
            
            2,469
            
            
            108,119
            
            
            (118,476
            )
            
            (96
            )
            
            (5,159
            )Conversion
                of preferred stock
            
            
            (100
            )
            
            (500
            )
            
            250,000
            
            
            25
            
            
            475
            
            
            -Comprehensive
                loss:Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,031
            )
            
            -
            
            
            (2,031
            )Foreign
                currency translationAdjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            39
            
            
            39Total
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,992
            )Balance
                - December 31, 2005
            
            
            465
            
            
            2,325
            
            
            24,940,902
            
            
            2,494
            
            
            108,594
            
            
            (120,507
            )
            
            (57
            )
            
            (7,151
            )Share
                based compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            56
            
            
            -
            
            
            -
            
            
            56Comprehensive
                loss:Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            6,267
            
            
            -
            
            
            6,267Foreign
                currency translationAdjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (140
            )
            
            (140
            )Total
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            6,127Balance
                - December 31, 2006
            
            
            465
            
            $
            2,325
            
            
            24,940,902
            
            $
            2,494
            
            $
            108,652
            
            $
            (114,240
            )
            $
            (197
            )
            $
            (964
            )





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


F-5


**PUBLICARD,
      INC.**


**AND
      SUBSIDIARY COMPANIES**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004**




**2006**
            
            **2005**
            
            **2004**(in
                thousands)**Cash
                flows from operating activities:**Net
                income/(loss)
            
            $
            6,267
            
            $
            (2,031
            )
            $
            (4,859
            )Adjustments
                to reconcile net income/(loss) to net cash usedin
                operating activities:Impairment
                of goodwill
            
            
            -
            
            
            782
            
            
            -Gain/(loss)
                on pension settlement
            
            
            (7,214
            )
            
            -
            
            
            2,739Gain
                from discontinued operations
            
            
            (139
            )
            
            (258
            )
            
            -Gain
                on insurance and other recoveries
            
            
            (337
            )
            
            (350
            )
            
            (647
            )Gain
                on sale of investment
            
            
            (150
            )
            
            -
            
            
            -Amortization
                of intangibles
            
            
            -
            
            
            -
            
            
            40Depreciation
                and amortization
            
            
            34
            
            
            77
            
            
            116Loss
                on disposal of property and fixed assets
            
            
            8
            
            
            -
            
            
            -Share
                based compensation
            
            
            58
            
            
            -
            
            
            -Changes
                in assets and liabilities:Trade
                receivables
            
            
            176
            
            
            112
            
            
            397Inventories
            
            
            89
            
            
            215
            
            
            132Other
                current assets
            
            
            485
            
            
            62
            
            
            102Other
                assets
            
            
            -
            
            
            -
            
            
            -Trade
                accounts payable
            
            
            (2
            )
            
            (382
            )
            
            (233
            )Accrued
                liabilities
            
            
            (275
            )
            
            63
            
            
            541Other
                non-current liabilities
            
            
            (10
            )
            
            (28
            )
            
            (701
            )Net
                cash used in operating activities
            
            
            (1,010
            )
            
            (1,738
            )
            
            (2,373
            )**Cash
                flows from investing activities:**Capital
                expenditures
            
            
            (5
            )
            
            (3
            )
            
            (48
            )Proceeds
                from insurance and other recoveries, net of funds held inEscrow
            
            
            337
            
            
            486
            
            
            732Proceeds
                from discontinued operations
            
            
            139
            
            
            289
            
            
            -Proceeds
                from sale of investment
            
            
            150
            
            
            -
            
            
            -Other
            
            
            -
            
            
            1
            
            
            2Net
                cash provided by investing activities
            
            
            621
            
            
            773
            
            
            686**Cash
                flows from financing activities:**Repayment
                of long term debt
            
            
            (256
            )****Increase
                in overdraft payable
            
            
            (26
            )
            
            95
            
            
            48Net
                cash used in/(provided by) financing activities
            
            
            (282
            )
            
            95
            
            
            48Effect
                of exchange rate changes on cash and cash equivalents
            
            
            5
            
            
            (1
            )
            
            2Net
                decrease in cash
            
            
            (666
            )
            
            (871
            )
            
            (1,637
            )Cash
                - beginning of period
            
            
            1,072
            
            
            1,943
            
            
            3,580Cash
                - end of period
            
            $
            406
            
            $
            1,072
            
            $
            1,943Cash
              paid for interest
            
            $
            28
            
            $
            26
            
            $
            22Cash
              paid for taxes
            
            $
            5
            
            $
            8
            
            $
            -




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


F-6




**PUBLICARD,
        INC.**
 **AND
        SUBSIDIARY COMPANIES**




NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS




**Note
      1 - LIQUIDITY AND GOING CONCERN CONSIDERATIONS AND 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.
      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.





**Liquidity
      and Going Concern Considerations**




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. As a result of the factors described below, it is unlikely that
      the
      Company will be able 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 registered public accounting firm’s reports on
      the Company’s Consolidated Financial Statements for the years ended December 31,
      2006, 2005, 2004 and 2003 contain emphasis paragraphs concerning substantial
      doubt about the Company’s ability to continue as a going concern.





Infineer
      has continued to incur operating losses and negative cash flow. During 2004
      and
      2005, the Company contributed additional capital to Infineer of $225,000 and
      $150,000, respectively. It is likely that Infineer will require additional
      capital and at the present time the Company does not have the financial
      resources to provide such support. Though Infineer decreased its operating
      losses in 2006, given the Company’s lack of available resources, continued
      operating losses and the bank overdraft, the Company has begun to consider
      various alternatives. In 2006, with the assistance of an investment banker,
      the
      Company commenced an assessment of the value of Infineer, developed an
      information memorandum and obtained offers for Infineer’s potential for sale.
      This process concluded without a viable offer for the business. The Board of
      Directors has not decided whether to continue with the disposition effort.
      It is
      therefore uncertain whether an acceptable offer will materialize or whether
      any
      such sale will ultimately be consummated. Any such determination to dispose
      of
      Infineer would depend upon, among other things, the amount of potential proceeds
      of any such sale and require the approval of the Company’s
      shareholders.





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 (“PBGC”) seeking a “distress termination” of that 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. 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.





Under
      the
      terms of the Settlement Agreement, effective September 23, 2004, between the
      PBGC and the Company (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 (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 was
      secured by (a) all presently owned or thereafter acquired real or personal
      property and rights to property of the Company and (b) the common and preferred
      stock of Infineer and TecSec, Incorporated (“TecSec”) owned by the
      Company.





On
      July
      27, 2006, the Company entered into a Payment, Retirement and Release Agreement
      (the “Payment Agreement”) with the PBGC pursuant to which the PBGC and the
      Company provided for the settlement and discharge of the Company’s obligations
      under the Settlement Agreement and the Note. Pursuant to the Payment Agreement,
      the Company paid the PBGC $256,000 on July 27, 2006, and agreed that if, between
      July 27, 2006 and July 27, 2011, the Company receives Net Proceeds in excess
      of
      $250,000, the Company will pay to the PBGC 50% of the amount of such excess.
      As
      defined in the Payment Agreement, “Net Proceeds” means the amount received by
      the Company in cash or marketable securities, less the amount of reasonable
      transaction costs and expenses and debt paid, retained or assumed, from any
      of
      (i) the sale by the Company of any or all capital stock of Infineer; (ii) the
      sale by Infineer of all or substantially all of its assets and a distribution
      of
      the proceeds of such sale to the Company; (iii) the sale by the Company of
      any
      or all capital stock of Tecsec; and (iv) proceeds received by the Company from
      settlements, buyouts or assignments of claims with respect to insurance policies
      covering environmental liabilities for which claims were made prior to July
      27,
      2006. The Payment Agreement further provides that if, on July 27, 2011, the
      Company exists as a going concern and holds capital stock of Infineer (and
      Infineer exists as a going concern) or Tecsec (and Tecsec exists as a going
      concern), the Company will be deemed to have sold such capital stock for its
      fair market value, which shall be added to Net Proceeds for purposes of
      determining the amount of additional payments to the PBGC, if any.




F-7


**PUBLICARD,
          INC.**
 **AND
          SUBSIDIARY COMPANIES**
  NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
  On
        October 13, 2006, the Company entered into an Assignment of Shares and
        Assumption of Obligations agreement (the “Assignment Agreement”) with Sallyport
        Investment Partnership (“Sallyport”), pursuant to which the Company assigned
        60,058 shares of Series A Preferred Stock of Tecsec to Sallyport in exchange
        for
        $150,000. In addition, pursuant to the Assignment Agreement, Sallyport agreed
        to
        use its best efforts to transfer to the Company or cause to be issued to
        the
        Company shares of common stock of Tecsec representing 21⁄2% of Tecsec’s common
        stock, calculated on a fully-diluted basis and giving effect to shares that
        may
        be issued as a result of Sallyport’s financing of Tecsec during the current
        year. On October 13, 2006, Tecsec confirmed its agreement to issue such shares
        to the Company.





The
      future payments to the PBGC, based on the Company’s receipt of net insurance
      recoveries of $163,000 as well as the consummation of the sale of the Company’s
      Series A Preferred Stock of Tecsec, is anticipated to be $31,000 and is included
      in Note Payable. As
      a
      result of this settlement of the liability to the PBGC, the Company has
      recognized a $7.2 million gain on its Statement of Operations. Given
      the
      Company’s current financial position, it does not believe that any additional
      payments will be due to the PBGC on July 27, 2011.





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 $406,000 at December
      31, 2006. The Company also had a shareholders’ deficiency of $964,000 as of
      December 31, 2006.





Management
      believes that existing cash and short-term investments will not be sufficient
      to
      permit the Company to continue operating past the second quarter of 2007 and
      the
      Company will likely cease operations. However, at the time of filing of this
      Annual Report on Form 10-K no formal plan of liquidation has been discussed
      with
      or approved by the Board of Directors. If a sale of Infineer is consummated,
      the
      Company will not thereafter have any ongoing business operations. In either
      case, the Company does not expect that any funds will be available for
      distribution to its shareholders.





**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.




F-8




**PUBLICARD,
          INC.**
 **AND
          SUBSIDIARY COMPANIES**
  NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
  **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, 2006 and 2005 consisted of the following (in thousands):


**2006**
              
              **2005**Raw
                  materials and work-in-process
              
              $
              263
              
              $
              262Finished
                  goods
              
              
              79
              
              
              97342
              
              
              359Inventory
                  reserve
              
              
              (63
              )
              
              (56
              )$
              279
              
              $
              303


**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, 2006 and 2005 consisted of the following (in
      thousands):





**2006**
            
            **2005**Equipment,
                furniture and fixtures
            
            $
            905
            
            $
            975Leasehold
                improvements
            
            
            -
            
            
            58Accumulated
                depreciation and amortization
            
            
            (894
            )
            
            (986
            )$
            11
            
            $
            47





Depreciation
      and amortization expense was $34,000, $77,000, and $116,000 in 2006, 2005 and
      2004, respectively.





As
      a
      result of its relocation to 75 Rockefeller Plaza, the Company wrote down the
      value of its furniture and fixtures located at 1 Rockefeller Plaza. The net
      impact of this write-off was $8,000.





**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.





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.




F-9


**PUBLICARD,
            INC.**
 **AND
            SUBSIDIARY COMPANIES**
  NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
  In
          performing its annual goodwill impairment test at the end of the fourth
          quarter
          of 2005, the Company determined that goodwill had been impaired. Infineer
          has
          continued to incur operating losses and revenues declined substantially
          in 2005.
          In addition, in 2005 PubliCARD contributed an additional $150,000 in capital
          to
          Infineer. Without such contributions, Infineer would not have been able
          to fund
          its operations. As a result of these factors, the Company recorded an impairment
          loss of $782,000 in the fourth quarter of 2005.





The
      changes in the carrying value of goodwill for the year ended December 31, 2006
      and 2005 was as follows (in thousands):




**2006**
            
            **2005**Balance,
                beginning of year
            
            $
            -
            
            $
            782Impairment
                loss
            
            
            -
            
            
            (782
            )Balance,
                end of year
            
            $
            -
            
            $
            -





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. Intangible assets were fully amortized as of December 31, 2004.
      Amortization of intangibles was $40,000 for 2004.





**Valuation
      of investments**




The
      Company periodically asse sses
      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.





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.





**Share-Based
      Compensation**




Prior
      to
      January 1, 2006, the Company accounted 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 previously applied 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*.





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 adopted
      SFAS
      No. 123R in the first quarter of 2006. SFAS No. 123R applies to all awards
      granted after the effective date and to previously-granted awards unvested
      as of
      the adoption date. The adoption of the statement did not have an impact on Company’s
      consolidated financial position, results of operations and cash flows.




F-10




**PUBLICARD,
            INC.**
 **AND
            SUBSIDIARY COMPANIES**
  NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
  At
          December 31, 2006, the Company had four fixed stock-based compensation
          plans,
          which are described more fully in Note 6.




**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 the Company’s 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. While all available information has
      been considered, actual amounts could differ from those reported.





**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 2005 and 2004 since the
      effect of stock options and convertible preferred stock were anti-dilutive.
      Shares issuable pursuant to stock options and convertible preferred stock were
      5,300,425, 3,589,850 and 3,841,975 as of December 31, 2006, 2005 and 2004,
      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, payable to the PBGC and
      accrued liabilities, approximates fair value.





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, 2006 and 2005, no one
      customer accounted for more than 10% of revenues. No one customer accounted
      for
      more then 10% of the outstanding receivable balance as of December 31,
      2006.





**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, 2006, such costs eligible for
      capitalization were insignificant. Accordingly, all such costs have been charged
      to product development expenses. ****




F-11


**PUBLICARD,
            INC.**
 **AND
            SUBSIDIARY COMPANIES**
  NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
  **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, it is unlikely that the future benefit of these losses
      will
      be recognized. Thus, a full valuation allowance has been recorded.


**Recent
        Accounting Pronouncements** **


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 did not have a material effect
      on the Company’s consolidated financial position, results of operations and cash
      flows.





In
      May
      2005, the FASB issued SFAS No. 154, *Accounting
      Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB
      Statement No. 3* .
      This
      statement provides guidance on the accounting for and reporting of accounting
      changes and error corrections. It establishes, unless impracticable,
      retrospective application as the required method for reporting a change in
      accounting principle in the absence of explicit transition requirements specific
      to the newly adopted accounting principle. This statement also provides guidance
      for determining whether retrospective application of a change in accounting
      principle is impracticable and for reporting a change when retrospective
      application is impracticable. SFAS No. 154 is effective for accounting changes
      and correction of errors made in fiscal years beginning after December 15,
      2005. The
      adoption of the statement did not have a material effect on the Company’s
      consolidated financial position, results of operations and cash flows.




In
      June
      2006, the FASB issued FIN No. 48, *Accounting
      for Uncertainty in Income Taxes — an interpretation of FASB Statement
      No. 109.* FIN
      No. 48 clarifies the accounting for uncertainty in income taxes recognized
      in an enterprise’s financial statements in accordance with FASB Statement
      No. 109, *Accounting
      for Income Taxes.* FIN
      No.
      48 prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN No. 48 also provides guidance on
      de-recognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. This Interpretation is effective for fiscal
      years beginning after November 15, 2006, and Publicard will adopt it in the
      first quarter of 2007. Publicard does not expect the adoption of FIN No. 48
      to have an impact on its financial statements and related
      disclosures.




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements.* SFAS 157
      defines fair value, establishes a framework for measuring fair value, and
      expands disclosures about fair value measurements. The provisions of SFAS 157
      are effective for the Company beginning after January 1, 2008. The Company
      has not completed its assessment of the impact of SFAS 157 on its financial
      statements following adoption.




In
      September 2006, the Securities and Exchange Commission (“SEC”) released Staff
      Accounting Bulletin No. 108, ** *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* (“SAB
      108”). SAB 108 provides guidance on the SEC’s views regarding quantifying the
      materiality of financial statement misstatements, including misstatements that
      were not material to prior years’ financial statements. SAB 108 is effective for
      the Company’s fiscal years ended after November 15, 2006.  The
      application of SAB 108 requires the Company to quantify the impact of
      correcting all misstatements, including both the carryover and reversing effects
      of prior year misstatements, on the current year financial statements. The
      initial application of SAB 108 had no impact on the Company’s financial
      statements.




F-12


**PUBLICARD,
            INC.**
 **AND
            SUBSIDIARY COMPANIES**
  NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
  In
          February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), ** *The
          Fair Value Option for Financial Assets and Financial
          Liabilities* ,
          providing companies with an option to report selected financial assets
          and
          liabilities at fair value. SFAS 159’s objective is to reduce both
          complexity in accounting for financial instruments and the volatility in
          earnings caused by measuring related assets and liabilities differently.
          Accounting principles generally accepted in the United States has required
          different measurement attributes for different assets and liabilities that
          can
          create artificial volatility in earnings. SFAS 159 helps to mitigate this
          type
          of accounting-induced volatility by enabling companies to report related
          assets
          and liabilities at fair value, which would likely reduce the need for companies
          to comply with detailed rules for hedge accounting. SFAS 159 also establishes
          presentation and disclosure requirements designed to facilitate comparisons
          between companies that choose different measurement attributes for similar
          types
          of asset and liabilities. SFAS 159 requires companies to provide additional
          information that will help investors and other users of financial statements
          to
          more easily The Company is currently evaluating the impact of the adoption
          of
          SFAS 159 on its financial statements.





**Reclassifications**




For
      the
      year ended December 31, 2004, the Company reported the change in the overdraft
      facility as a component of operating activities in the Consolidated Statement
      of
      Cash Flows. In order to conform to the current period presentation, the Company
      has reclassified the increase in the overdraft for the year ended December
      31,
      2004 of $48,000 to a component of financing activities. This was a correction
      of
      an error which management believes was not material to the Company’s
      Consolidated Statement of Cash Flows.





**Note
      2 - INVESTMENTS**





In
      December 2000, the Company acquired an ownership interest in 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,
      had
      been accounted for at cost. The Company had 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)”.





On
      October 13, 2006, the Company entered into Assignment Agreement with Sallyport
      ,
      pursuant to which the Company assigned 60,058 shares of Series A Preferred
      Stock
      of TecSec to Sallyport in exchange for $150,000. In addition, pursuant to the
      Assignment Agreement, Sallyport agreed to use its best efforts to transfer
      to
      the Company or cause to be issued to the Company shares of common stock of
      TecSec representing 2 1⁄2% of TecSec’s common stock, calculated on a fully-diluted
      basis and giving effect to shares that may be issued as a result of Sallyport’s
      financing of TecSec during the current year. On October 13, 2006, TecSec
      confirmed its agreement to issue such shares to the Company. No value has been
      ascribed to these common shares by the Company. The Company recorded a gain
      of
      $150,000 in its net income in 2006 as a result of this transaction.





**Note
      3 - SHAREHOLDERS’ EQUITY**





On
      December 6, 2000, the Company completed the private placement of 525,000 shares
      of Common Stockand 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 2005 and 2003, 100
      shares and 200 shares of Class A Preferred Stock were converted at the stated
      rate into 250,000 shares and 500,000 shares, respectively, of PubliCARD’s Common
      Stock. As of December 31, 2006 and 2005 there were 465 shares of Class A
      Preferred Stock outstanding. The Class A Preferred Stock has a liquidation
      preference of $5,000 per share.




F-13


**PUBLICARD,
            INC.**
 **AND
            SUBSIDIARY COMPANIES**
  NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
  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
      income/(loss) from continuing operations, excluding the extraordinary gain
      from
      the settlement with the PGBC, before income taxes consisted of the following
      (in
      thousands):





**2006**
            
            **2005**
            
            **2004**United
                States
            
            $
            (638
            )
            $
            (928
            )
            $
            (3,927
            )Foreign
            
            
            (448
            )
            
            (1,361
            )
            
            (932
            )Loss
                from continuing operations
            
            $
            (1,086
            )
            $
            (2,289
            )
            $
            (4,859
            )





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




**2006**
            
            **2005**
            
            **2004**Federal
                taxes, at statutory rate of 35%
            
            $
            (380
            )
            $
            (801
            )
            $
            (1,701
            )Effect
                of domestic and foreign losses with notax
                benefit
            
            
            378
            
            
            526
            
            
            1,686Impairment
                of goodwill
            
            
            
            
            
            274
            
            
            -Amortization
                of intangibles and othernon-deductible
                expenses
            
            
            2
            
            
            1
            
            
            15Income
                tax expense
            
            $
            -
            
            $
            -
            
            $
            -




F-14


**PUBLICARD,
        INC.**
 **AND
        SUBSIDIARY COMPANIES**
  NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
  The
        Company al so
        had a
        $7.2 million extraordinary Gain from the settlement with PBGC (see Note 1).
        No
        tax provision has been recorded against this gain as a result of certain
        insolvency provisions continued in the Internal Revenue Code.


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


**2006**
              
              **2005**Net
                  operating loss carryforward
              
              $
              22,297
              
              $
              22,937Pension
                  expense
              
              
              15
              
              
              2,540Other,
                  net
              
              
              96
              
              
              (139
              )22,408
              
              
              25,338Less
                  valuation allowance
              
              
              (22,408
              )
              
              (25,338
              )Net
                  deferred taxes
              
              $
              -
              
              $
              -





As
      of
      December 31, 2006, approximately $59.5 million of U.S. tax loss carryforwards
      expiring from 2007 through 2026, were available to offset future taxable income.
      The carryforwards expire as follows (in thousands):


**Year
                  ending****December
                  31,**
              
              **Amount**2007
              
              $
              4,3002008
              
              
              5,0002009
              
              
              2,3002010
              
              
              1,5002011
              
              
              6092012
                  - 2026
              
              
              45,741$
              59,450




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. It is unlikely 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, 2006, the Company’s foreign subsidiary had a net operating loss
      carryforward for income tax purposes of approximately $5.3 million. The
      operating loss carryforward has no expiration period. For financial reporting
      purposes, a valuation allowance of $1.6 million has been recognized to offset
      the deferred tax asset relating to this carryforward.





In
      assessing the realizability of the Company’s $22.4 million and $25.3 million of
      deferred tax assets as of December 31, 2006 and 2005 respectively, management
      considers whether it is more likely than not that some portion or all of the
      deferred tax assets will not be realized. The ultimate realization of deferred
      tax assets is dependent on the generation of future taxable income during the
      periods in which temporary differences become deductible. Management considers
      the scheduled reversal of deferred tax liabilities, projected future taxable
      income, and tax planning strategies in making this assessment. Although
      realization is not assured, based upon projections for the Company’s future
      taxable income over the periods during which the deferred tax assets are
      deductible, management believes it is not more likely than not that the Company
      will realize all of the benefits of its deductible differences.




F-15




**PUBLICARD,
      INC.**


**AND
      SUBSIDIARY COMPANIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**Note
        5 - EMPLOYEE BENEFITS**
 
 **Defined
        contribution plan**
  The
        Company maintained a 401(k) plan for its U.S. employees until June 15, 2006.
        The
        assets of the Company's 401(k) plan were held by an outside fund manager
        and
        were invested in accordance with the instructions of the individual plan
        participants. Effective June 15, 2006 the Company terminated all further
        contributions to the 401(k) plan and all participants in the plan became
        fully
        vested. Subsequent to the termination of the plan, all of the assets were
        distributed to the participants.
 
 The
        Company made matching contributions which totaled $11,000 and $10,000 in
        2005
        and 2004 respectively. The Company did not make any matching contributions
        in
        2006.
 
 **Defined
        benefit plan**
  As
        discussed in Note 1, 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 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,
        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. As described in Note 1, the Company extinguished
        the
        Note to the PBGC in July 2006, and recorded an extraordinary gain of $7.2
        million.
  Cost
        of
        retirement benefits - non-operating of $405,000 in 2004, 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**Interest
                    cost
                
                $
                348Expected
                    return on plan assets
                
                
                (87
                )Amortization
                    of transition obligation
                
                
                -Amortization
                    of net (gain) loss
                
                
                83Net
                    periodic pension cost
                
                $
                344
 
 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 subsequent to September 2004 will be
        zero.
 
 The
        change in the minimum liability included in other comprehensive income was
        as
        follows (in thousands):
 **2004**Other
                    comprehensive income
                
                $
                (2,649
                )
 
 The
        assumptions used to determine the net periodic pension cost for the year
        ended
        December 31, 2004 was are follows:
  **Net
                  periodic**
                **pension
                  cost****2004**Discount
                  rate
              
              
              5.0
              %Long-term
                  rate of return
              
              
              5.0
              %
  F-16
 **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 to reflect the Plan’s short time
        horizon due to the pending termination request.
 
 **Note
        6 - STOCK OPTIONS**
 
 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, 2006, 2005 and 2004 are as follows:
 **2006**
                
                **2005**
                
                **2004**Fixed
                    stock-based compensation plans
                
                
                3,094,500
                
                
                2,267,350
                
                
                2,269,475Special
                    stock options
                
                
                1,043,425
                
                
                160,000
                
                
                160,0004,137,925
                
                
                2,427,350
                
                
                2,429,475
 
 **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 and vest over three or four years. As of December 31, 2006, there were
        1,216,500 shares available for grant under the fixed stock-based compensation
        plans.
 
 A
        summary
        of the stock options issued pursuant to the fixed stock-based compensation
        plans
        as of December 31, 2006, 2005 and 2004 and changes during the years then
        ended
        is presented below:
 **2006**
                
                **2005**
                
                **2004****Weighted**
                
                
                
                **Weighted**
                
                
                
                **Weighted****average**
                
                
                
                **average**
                
                
                
                **average****exercise**
                
                
                
                **exercise**
                
                
                
                **exercise****Shares**
                
                **price**
                
                **Shares**
                
                **price**
                
                **Shares**
                
                **price**Balance
                    at January 1
                
                
                2,267,350
                
                $
                .33
                
                
                2,269,475
                
                $
                .51
                
                
                2,292,975
                
                $
                .79Granted
                
                
                1,943,650
                
                
                .027
                
                
                150,000
                
                
                .025
                
                
                90,000
                
                
                .05Exercised
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Canceled
                
                
                (1,116,500
                )
                
                .39
                
                
                (152,125
                )
                
                2.72
                
                
                (113,500
                )
                
                5.67Balance
                    at December 31
                
                
                3,094,500
                
                
                .12
                
                
                2,267,350
                
                
                .33
                
                
                2,269,475
                
                
                .51
  F-17
 **PUBLICARD,
          INC.**
 **AND
          SUBSIDIARY COMPANIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 A
        summary
        of the Company's stock options outstanding and exercisable issued pursuant
        to
        the fixed stock-based compensation plans as of December 31, 2006, is as
        follows:
 **Outstanding**
                
                **Exercisable****Weighted**
                
                
                
                **Weighted****average**
                
                
                
                **average****Range
                    of**
                
                
                
                **Contractual**
                
                **exercise**
                
                
                
                **exercise****exercise
                    price**
                
                **Shares**
                
                **life**
                
                **price**
                
                **Shares**
                
                **price**$.025
                    to $.07
                
                
                2,273,650
                
                
                8.24
                
                $
                .03
                
                
                480,000
                
                $
                .04$.25
                
                
                90,000
                
                
                0.59
                
                
                .25
                
                
                90,000
                
                
                .25$.35
                    to $.40
                
                
                730,850
                
                
                4.64
                
                
                .39
                
                
                730,850
                
                
                .39$.025
                    to $.40 (all options)
                
                
                3,094,500
                
                
                7.17
                
                
                .12
                
                
                1,300,850
                
                
                .25
 
 **Special
        stock options**
  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. The remaining options expired in
        January
        2006.
 
 Pursuant
        to the Engagement Agreement, Joseph
        Sarachek ,
        Chief
        Executive Officer, was
        granted options (the “Initial Options”) to purchase 2,837,075 shares of the
        Company’s Common Stock at an exercise price of $0.0279 per share, the fair value
        of the Company’s stock on the date of the grant. 1,793,650 of
        the
        Initial Options were granted under
        the Company’s 1999 Long Term Incentive Plan ( the “ Long
        Term
        Incentive Plan ”), and 1,043,425
        of the Initial
        Options were granted pursuant to a Non-Plan Stock Option
        Agreement between
        Mr. Sarachek and the
        Company ,
        dated
        as of July 21, 2006. All of the Initial Options will vest
        upon the consummation of a sale
        of
        the Company or other restructuring or similar transaction involving the
        Company ,
        as
        defined in the Engagement Agreement. The
        Company will recognize the value of the options over the expected period
        of
        benefit, or 9 months. The Company has recognized compensation expense for
        these
        options under the guidelines set forth in SFAS No. 123(R), amounting to
        $53,000 for the twelve months ended December 31, 2006.
 
 On
        August
        24, 2006, the Company issued 150,000 options to its Directors under the
        Non-Employee Director Stock Option Plan. The Company issued these options
        to
        each of its directors at an exercise price of $0.03 per share, which represents
        the fair value per share at the date of the grant. These options vested
        immediately upon issuance, and have an expiration date of August 4, 2011.
        The
        Company recognized $3,000 of compensation expense associated with the issuance
        of these options during the year ended December 31, 2006.
 
 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:
 **2006**
                
                **2005**
                
                **2004**Expected
                    option term (years)
                
                
                5.0-10.0
                
                
                5.0
                
                
                5.0Expected
                    volatility
                
                
                475.0
                %
                
                165
                %
                
                353.0
                %Risk-free
                    interest rate
                
                
                5.0
                %
                
                4.1
                %
                
                3.7
                %Weighted
                    average fair value per option
                
                $
                .03
                
                $
                .02
                
                $
                .06
 
 **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 $209,000 in 2006 , $231,000
        in
        2005 and $254,000 in 2004.
  F-18
 **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):
 **Year
                    ending****December
                    31,**2007
                
                $
                1022008
                
                
                702009
                
                
                5Total
                    minimum lease payments
                
                $
                177
 
 The
        Company currently subleases its space in New York City from Triax Capital
        Advisors on a month-to-month basis. The CEO is an officer and principal
        shareholder of Triax Capital Advisors. The Company pays 27% of the rent and
        occupancy costs paid by Triax Capital Advisors under its lease, including
        base
        rent, electricity, water, real estate tax escalations and operation and
        maintenance escalations. The base rent payable by the Company to Triax is
        approximately $3,000 per month.
 
 **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, 2006, the Company has a contingent
        liability to repay, in whole or part, grants received of approximately $232,000
        in the event the Company becomes insolvent or otherwise violates the terms
        of
        such grants. As of December 31, 2006, 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 320,000 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, 2006). As of December 31, 2006, Infineer
        had borrowings outstanding under this facility totaling approximately 244,000
        British pounds (or the equivalent of $478,000).
 
 **Legal**
 
 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.
 
 **Employment
        and change of control agreements**
  On
        July
        21, 2006, the
        Company entered into an Engagement Agreement (as
        amended, the “Engagement Agreement”) with
        Joseph Sarachek .
        Pursuant to the Engagement Agreement, Mr. Sarachek was appointed to the Company’s Board of
        Directors on July 21, 2006. Also pursuant to the Agreement, Mr. Sarachek
        was
        appointed as the Company’s Chief
        Executive Officer ,
        effective July 31, 2006.
 
 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 $267,000
        each
        would be made to the Chairman and Vice Chairman of the Company’s Board of
        Directors. 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.
  F-19
 **PUBLICARD,
          INC.**
 **AND
          SUBSIDIARY COMPANIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
  **Note
          8 - OTHER INCOME AND DISCONTINUED OPERATIONS**
 
 **Insurance
        recoveries**
 
 In
        April
        1996, a 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 previously owned
        and operated by the Company. Pursuant to the Consent Decree, the Company
        paid
        $15.3 million, including interest, to the United States and the Commonwealth
        of
        Pennsylvania. In addition to the payments required under the Consent Decree,
        the
        Company has incurred further expenses totaling approximately $3.6 million
        to
        defend against this action.
 
 Pursuant
        to the Consent Decree, in January 2002, the Company engaged Zevnik Horton
        LLP to
        represent the Company in the insurance recovery effort. The Company has entered
        into binding agreements with Wausau, AIG and ACE as well as an assignment
        of
        claims against certain London Market participants. In November of 2006 the
        Company settled with Equitas AG and received net funds of $163,000 after
        legal
        and professional fees.
 
 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.
 
 In
        June
        2004, the Company was contacted by Baker and McKenzie regarding a final refund
        due from the Department of Energy in the Crude Oil Refund Proceedings (the
        “Proceedings”). The Proceedings involved the collection of monies from unlawful
        crude oil overcharges during the period of price controls between 1973 and
        1981.
        Publicker filed a claim as part of the original proceedings. Publicard was
        entitled to a final settlement under the Proceedings. In September 2006
        Publicard received $111,000 of net proceeds after legal expenses.
 
 In
        May
        2005, the Company was contacted by Georgeson Shareholders Securities regarding
        unclaimed property as a result of the Principal Mutual demutualization. The
        Company processed a claim with Georgeson Securities for $80,000 as a result
        of
        the demutualization. The Company received net proceeds of $72,000 from this
        claim.
 
 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.
 
 **Other
        recoveries**
  In
        November 2005, the Company recovered previously unclaimed property in the
        amount
        of $350,000. The receipt was recognized as income in 2005 and included within
        “Other income” in the Consolidated Statements of Operations.
  F-20
 **PUBLICARD,
          INC.**
 **AND
          SUBSIDIARY COMPANIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
  **Discontinued
        operations**
  In
        October 1996, the Company sold substantially all of the assets of its Masterview
        Window Company, Inc. (“Masterview”) subsidiary. At closing, a portion of the
        sales proceeds amounting to $476,000 were deposited into escrow to cover
        certain
        environmental remediation activities relating to a leaking underground storage
        tank at the former Masterview site in Arizona. The disposition of Masterview
        was
        accounted for as a discontinued operation in 1996 and a reserve of $476,000
        was
        established against the gain on the disposition recorded at that time. In
        2005,
        the remedial activities at the site were satisfied and funds held in escrow
        amounting to $289,000 were released to the Company. A gain of $258,000 was
        recorded in 2005 and reported as “Income from discontinued operations”.
 
 In
        June
        2006, the remaining $31,000 of funds held in escrow for Masterview were released
        to the Company. In November 2006 the Company received an initial disbursement
        from the State Assurance Fund of Arizona for $108,000 as reimbursement for
        its
        approved remediation expenses relating to a leaking underground storage tank
        at
        the former Masterview site in Arizona. The Company recorded the combined
        gain of
        $139,000 in 2006 and reported it as “Income from discontinued
        operations”.
 
 **Note
        9 - 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,
        2006, 2005 and 2004 are as follows (in thousands):
  **2006**
              
              **2005**
              
              **2004**United
                  Kingdom
              
              $
              2,241
              
              $
              2,422
              
              $
              2,948United
                  States
              
              
              349
              
              
              398
              
              
              540Europe
                  (excluding United Kingdom)
              
              
              537
              
              
              677
              
              
              683Rest
                  of world
              
              
              187
              
              
              120
              
              
              224$
              3,314
              
              $
              3,617
              
              $
              4,395
 
 The
        Company has operations in the United States and United Kingdom. Identifiable
        tangible assets by country as of December 31, 2006 and 2005 are as follows
        (in
        thousands):
  **2006**
              
              **2005**United
                  States
              
              $
              524
              
              $
              1,647United
                  Kingdom
              
              
              864
              
              
              995$
              1,388
              
              $
              2,642
 
 **Note
        10 - SUPPLEMENTAL INFORMATION**
 
 Other
        current assets as of December 31, 2006 and 2005 consisted of the following
        (in
        thousands):
 **2006**
                
                **2005**Prepaid
                    insurance
                
                $
                76
                
                $
                111Escrow
                    deposit- current
                
                
                -
                
                
                397Other
                
                
                16
                
                
                65$
                92
                
                $
                573
  F-21
 **PUBLICARD,
          INC.**
 **AND
          SUBSIDIARY COMPANIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 Accrued
        liabilities as of December 31, 2006 and 2005 consisted of the following (in
        thousands):
 **2006**
                
                **2005**Payroll
                    and other employee benefits
                
                $
                205
                
                $
                197Deferred
                    revenue
                
                
                372
                
                
                334Professional
                    fees
                
                
                156
                
                
                185Other
                
                
                208
                
                
                351$
                941
                
                $
                1,067
 
 Other
        non-current liabilities as of December 31, 2006 and 2005 consisted of the
        following (in thousands):
 **2006**
                
                **2005**Retiree
                    life insurance
                
                $
                133
                
                $
                133Other
                
                
                83
                
                
                94$
                216
                
                $
                227
 
 Other
        comprehensive loss reported in the Company’s Consolidated Balance Sheet as of
        December 31, 2006 and 2005 of $197,000 and $57,000, respectively, consisted
        of
        the foreign currency translation adjustment.
 
 Comprehensive
        loss for the years ended December 31, 2006, 2005 and 2004 was composed of
        the
        following (in thousands):
 
 **2006**
              
              **2005**
              
              **2004**Net
                  income/(loss)
              
              $
              6,294
              
              $
              (2,031
              )
              $
              (4,859
              )Minimum
                  pension liability
              
              
              -
              
              
              -
              
              
              2,649Foreign
                  currency translation adjustments
              
              
              (140
              )
              
              39
              
              
              (21
              )Comprehensive
                  loss
              
              $
              6,154
              
              $
              (1,992
              )
              $
              (2,231
              )
  F-22
 **PUBLICARD,
          INC.**
 **AND
          SUBSIDIARY COMPANIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
  **Note
        11 - SELECTED QUARTERLY FINANCIAL DATA (unaudited)**
 
 The
        unaudited consolidated financial statements for each of the quarterly periods
        in
        the years ended December 31, 2006 and 2005 are as follows (in thousands,
        except
        per share data):
 **Mar.
                      31**
                  
                  **Jun.
                      30**
                  
                  **Sep.
                      30**
                  
                  **Dec.
                      31****2006**Revenues
                  
                  $
                  749
                  
                  $
                  799
                  
                  $
                  887
                  
                  $
                  879Gross
                      margin
                  
                  
                  422
                  
                  
                  395
                  
                  
                  475
                  
                  
                  533Loss
                      from continuing operations
                  
                  
                  (449
                  )
                  
                  (449
                  )
                  
                  (139
                  )
                  
                  (49
                  )Income
                      from discontinued operations
                  
                  
                  -
                  
                  
                  -
                  
                  
                  30
                  
                  
                  109Net
                      income (loss)
                  
                  
                  (449
                  )
                  
                  (433
                  )
                  
                  7,081
                  
                  
                  68Basic
                      and diluted earnings (loss) per share:Continuing
                      operations
                  
                  $
                  (.02
                  )
                  $
                  (.02
                  )
                  $
                  (.01
                  )
                  $
                  .01Extraordinary
                      gain from the PBGC Settlement
                  
                  
                  
                  
                  
                  
                  
                  $
                  .29Discontinued
                      operations
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  .$
                  (.02
                  )
                  $
                  (.02
                  )
                  $
                  .28
                  
                  $
                  .01**2005**Revenues
                  
                  $
                  751
                  
                  $
                  909
                  
                  $
                  1,029
                  
                  $
                  928Gross
                      margin
                  
                  
                  383
                  
                  
                  485
                  
                  
                  601
                  
                  
                  487Income/(loss)
                      from continuing operations
                  
                  
                  (719
                  )
                  
                  (454
                  )
                  
                  (312
                  )
                  
                  (805
                  )Income
                      from discontinued operations
                  
                  
                  -
                  
                  
                  -
                  
                  
                  
                  
                  
                  258Net
                      income (loss)
                  
                  
                  (719
                  )
                  
                  (454
                  )
                  
                  (312
                  )
                  
                  (547
                  )Basic
                      and diluted earnings (loss) per share:Continuing
                      operations
                  
                  $
                  (.02
                  )
                  $
                  (.02
                  )
                  $
                  (.01
                  )
                  $
                  (.03
                  )Extraordinary
                      gain from the PBGC Settlement
                  
                  
                  
                  
                  
                  -
                  
                  $
                  -
                  
                  
                  -Discontinued
                      operations
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  ..01$
                  (.02
                  )
                  $
                  (.02
                  )
                  $
                  .(.01
                  )
                  $
                  (.02
                  )
 F-23
 
 **PUBLICARD,
        INC.**
 **AND
        SUBSIDIARY COMPANIES**
 
 **SCHEDULE
        II - VALUATION AND QUALIFYING ACCOUNTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004**
 AdditionsBalance
                    January
                      1
                
                Charged
                        (Credited)
                          to
                        Costs
                          and
                        Expenses
                          (1)
                
                Other
                
                Deductions
                    (2)
                
                Balance
                    December
                      31(in
                    thousand of dollars)Year
                    ended December 31, 2006:Allowance
                    for doubtful accounts
                
                
                16
                
                
                1
                
                
                -
                
                
                
                
                
                17Reserve
                    for discontinued operations
                
                
                94
                
                
                (11
                )
                
                -
                
                
                
                
                
                83Year
                    ended December 31, 2005:Allowance
                    for doubtful accounts
                
                
                48
                
                
                -
                
                
                -
                
                
                (32
                )
                
                16Reserve
                    for discontinued operations
                
                
                377
                
                
                (258
                )
                
                -
                
                
                (25
                )
                
                94Year
                    ended December 31, 2004:Allowance
                    for doubtful accounts
                
                
                115
                
                
                (43
                )
                
                2
                
                
                (26
                )
                
                48Reserve
                    for discontinued operations
                
                
                406
                
                
                -
                
                
                -
                
                
                (29
                )
                
                377
  (1)
        Credit to cost and expenses for discontinued operations represents the reversal
        to income of the remaining discontinued operations reserve subsequent to
        the
        final resolution of an environmental matter.
 
 (2)
        Deductions for allowance for doubtful accounts represent the write-offs of
        account receivable. Deductions for discontinued operations represent charges
        for
        payments net of receipts credited to reserves.
 
 F-24