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, 2003 OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE TRANSITION PERIOD FROM ____ TO ____.

      COMMISSION FILE NUMBER 0-29794

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


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


       620 FIFTH AVENUE, 7TH FLOOR, NEW YORK, NY               10020
        (Address of Principal Executive Offices)             (Zip Code)

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

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

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

           Securities registered pursuant to Section 12(g) of the Act:
                          COMMON STOCK ($.10 PAR VALUE)
                                (Title of Class)
            RIGHTS TO PURCHASE CLASS A PREFERRED STOCK, FIRST SERIES
                                (Title of Class)

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.
Yes X   No
   ---    ---

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

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

As of June 30, 2003, the aggregate  market value of the voting Common Stock held
by non-affiliates of the registrant was approximately $1,580,000.

  Number of shares of Common Stock outstanding as of March 24, 2004: 24,690,902

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None


                                       1
<PAGE>

                                     PART I

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

ITEM 1.  BUSINESS

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

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

      The  consolidated   financial   statements  included  in  this  Form  10-K
contemplate the realization of assets and the satisfaction of liabilities in the
normal  course of  business.  The  Company  has  incurred  operating  losses,  a
substantial  decline in working  capital and negative cash flow from  operations
for a number of years. The Company has also experienced a substantial  reduction
in its cash and short term  investments,  which  declined  from $17.0 million at
December 31, 2000, to $3.6 million at December 31, 2003.  The Company also had a
working capital deficiency of $1.0 million and an accumulated  deficit of $113.6
million at December 31, 2003.

      If the distress  termination of the Company's defined benefit pension plan
for which the  Company  has  applied  is  completed  (see Note 5 to the Notes to
Consolidated  Financial  Statements),   the  Company's  2003  and  2004  funding
requirements to the plan could be eliminated,  in which case management believes
that  existing  cash and short term  investments  may be  sufficient to meet the
Company's operating and capital requirements at the currently anticipated levels
through  December 31,  2004.  However,  additional  capital will be necessary in
order to operate beyond December 2004 and to fund the current  business plan and
other  obligations.  While the Company is actively  considering  various funding
alternatives,  the Company has not secured or entered into any  arrangements  to
obtain  additional  funds.  There  can be no  assurance  that the  Company  will
eliminate the 2003 or 2004 funding  requirements for the defined benefit pension
plan or be able to obtain  additional  funding on acceptable terms or at all. If
the Company  cannot raise  additional  capital to continue its present  level of
operations it may not be able to meet its obligations,  take advantage of future
acquisition  opportunities  or further develop or enhance its product  offering,
any of which could have a material adverse effect on its business and results of
operations  and could lead the  Company  to seek  bankruptcy  protection.  These
conditions raise  substantial doubt about the Company's ability to continue as a
going  concern.  The  consolidated  financial  statements  do  not  include  any
adjustments  that might result from the Company's  failure to obtain  funding or
inability to continue as a going concern.

INDUSTRY

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


                                       2
<PAGE>

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

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

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

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

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

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

STRATEGY

HISTORY OF THE COMPANY'S SMART CARD INITIATIVE

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

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


                                       3
<PAGE>

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

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

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

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

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

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

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

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

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

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

      In September 2001, the Company formed a new minority-owned affiliate, Mako
Technologies LLC ("Mako") to market its smart card reader and chip technologies.
The move was  consistent  with  the  Company's  decision  to  explore  strategic
transactions  that would enable the Company to reduce or  eliminate  its ongoing
cash  funding  requirements  for its smart card reader and chip  business  while
retaining  an  interest  in the upside  potential  for these  technologies.  The
Company  contributed  certain  inventories and equipment valued at $238,000,  in
exchange for a 31% fully diluted  ownership  interest in Mako.  The Company also
granted a license of its  reader and chip  technology  to Mako in  exchange  for
royalties based on sales over the next two years.  After reducing  headcount and
reassessing  business potential,  a decision was made in April 2002 to liquidate
Mako and terminate the license agreement.  The Company subsequently licensed the
technology  to a  third  party  and  does  not  expect  to  receive  significant
royalties.


                                       4
<PAGE>

CURRENT STRATEGY

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

o     GENERATE  CAPITAL.  If the distress  termination of the Company's  defined
      benefit  pension plan for which the Company has applied is completed  (see
      Note 5 to the Notes to Consolidated Financial  Statements),  the Company's
      2003 and 2004 funding  requirements  to the plan could be  eliminated,  in
      which  case  management   believes  that  existing  cash  and  short  term
      investments may be sufficient to meet the Company's  operating and capital
      requirements  at the currently  anticipated  levels  through  December 31,
      2004.  However,  additional  capital will be necessary to fund the current
      business plan and other  obligations  and to operate beyond December 2004.
      While the Company is actively  considering  various funding  alternatives,
      the  Company has not secured or entered  into any  arrangements  to obtain
      additional  funds.  There  can  be no  assurance  that  the  Company  will
      eliminate the 2003 or 2004 funding  requirements  for the defined  benefit
      pension plan or be able to obtain  additional  funding on acceptable terms
      or at all.

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

o     EXPAND INFINEER MARKET REACH. Management believes that Infineer can expand
      the  market  reach  of its  smart  card  solutions  by  forming  strategic
      marketing  and  distribution  relationships  with a number of key industry
      players both in the United  Kingdom and  elsewhere.  Infineer has a strong
      market position in the United Kingdom  educational sector, and to a lesser
      extent in the  corporate  market,  and intends on  leveraging  this market
      position to select markets outside of the United Kingdom.

o    EXPAND INFINEER  PRODUCT  OFFERING.  Management  believes that Infineer can
     expand its total  product  offering,  technologies  and market  position by
     partnering  with  companies  engaged  in  complementary  businesses  or  by
     acquiring or licensing  complementary  technologies and products.  Infineer
     intends to form relationships,  which will provide a "complete" solution to
     the educational and corporate campus market places.

PUBLICARD PRODUCTS AND SOLUTIONS

      PubliCARD designs and develops smart card software and hardware  solutions
for campus environments.  The Company's solutions facilitate  card-based payment
for a wide variety of services  typically  found on both corporate and education
sites.  Infineer's  card-based  solutions  are  currently  installed in over 350
sites,  primarily in educational and corporate sites in the United Kingdom.  The
Company's products and solutions include the following:

o     CHIPNET. The Company provides  transaction  solutions using a single smart
      card that  facilitate  smart card  based  payments  for a wide  variety of
      services   typically  found  on  both  corporate  and  educational  sites.
      Implementing a cashless system has many benefits  including  improved cash
      flow,  enhanced  service  levels  and  superior  management   information.
      Uniquely  adapted to the campus  environment  and users,  ChipNet  enables
      identification,  payment at cafeterias, vending machines, photocopiers and
      printers,  and network access to PCs.  ChipNet also  integrates with third
      party  library  management,  campus  wide  access  control  and  time  and
      attendance tracking.  The ChipNet solution comprises application software,
      hardware and smart cards.


                                       5
<PAGE>

     On   ChipNet   sites,   card   holders   load   money   onto  an   Infineer
     multi-application  smart  card.  The  card  can  then  be  used  to pay for
     cafeteria  and  vending  machine  purchases,  as  well  as for  copier  and
     networked  printer usage.  Each time a transaction takes place, all details
     are recorded, such as the date and time, user and item purchased. These are
     then  processed  by a robust  back  office  software  package,  utilizing a
     powerful  tracking tool that delivers  accurate  management  information on
     sales and card  activity.  As the ChipNet  solution is based around an open
     database  platform,  integration  with third party cards,  applications and
     electronic purses can be facilitated quickly and easily.

o    CHIPNET  QUICKSTART. ChipNet  QuickStart  is  a  user-friendly  smart  card
     payment system aimed at libraries and  Internet cafes,  which will simplify
     administration   and  payment  for   PC  log-on,   networked  printing  and
     photocopying.  ChipNet  QuickStart  has been developed to fill a gap in the
     market   for   an   entry-level    smart   card   solution   providing   an
     administration-free payment  system. Although ChipNet QuickStart offers the
     capacity  to  run  without  being  networked,  it also  contains a built-in
     upgrade path to ChipNet.

o    SMARTPRINT  CENTRAL.  The  SmartPrint  CENTRAL  solution  combines  a print
     release  software  package and a card  reader to provide a dedicated  print
     release  station.  The user logs on at any networked PC and, having created
     or edited their  document,  sends it across the network to the printer.  In
     order to have the print job  printed,  the user must  physically  go to the
     print  release PC,  which would  typically  be located  beside the printer,
     select  their print job from the print queue and insert a card for payment.
     When payment has taken  place,  the job is printed.  SmartPrint  CENTRAL is
     available for the standard card technologies  provided by Infineer,  namely
     smart card, revaluable magnetic card and disposable magnetic card.

o     EASYCARD. The EasyCard product line delivers a complete and cost effective
      solution to the  problem of vending  prints,  copies and faxes.  Operating
      with either low cost disposable  magnetic cards or  rechargeable  cards in
      two formats, slim and ISO standard,  EasyCard is a simple to use solution,
      ideal for schools, colleges, universities, libraries and copy shops. Users
      carry  cards,   featuring  either  a  monetary  or  copy  value,  and  the
      appropriate  amount is deducted each time a service is used. Both analogue
      and digital copiers can now contribute valuable revenue to institutions by
      charging  for their use.  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  vending   machines,   cafeterias,
      self-service card centers and encoding stations. EasyCard delivers a range
      of solutions  from "sell and forget"  disposable  magnetic  card  operated
      formats to combination  solutions accepting  disposable,  rechargeable and
      account cards with full card  personalization  for access control and time
      and attendance tracking.

SALES AND MARKETING

      PubliCARD  sells  and   distributes  its  products   through  a  range  of
distribution channels, including value-added resellers, value-added distributors
and other  distributors.  PubliCARD  also  sells and  distributes  its  products
directly to  end-users  in the United  Kingdom  through its direct  sales force.
PubliCARD  has  approximately  20  employees   directly  engaged  in  the  sale,
distribution  and  support  of  its  products  in  the  United  Kingdom  and  is
represented by 15 independent distributors and resellers.

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

RESEARCH AND DEVELOPMENT

      Research and  development is a key element to  PubliCARD's  future success
and competitive  position.  PubliCARD develops an annual technology  development
plan as an integral part of its business planning process.  This plan identifies
new areas requiring development in support of identified business opportunities,
as well as a program of maintenance and  enhancement  for  PubliCARD's  existing
solutions.

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


                                       6
<PAGE>

COMPETITION

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

      The  market  for  smart  card  technology   solutions  is  new,  intensely
competitive and rapidly evolving.  PubliCARD expects  competition to continue to
increase both from existing  competitors  and new market  entrants.  PubliCARD's
primary  competition  currently  comes  from  or is  anticipated  to  come  from
companies   offering  campus  environment   solutions,   including  small  value
electronic cash systems and database management solutions, such as G2 Integrated
Solutions (Girovend), MARS, Cunninghams, Uniware, Diebold, and Schlumberger.

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

INTELLECTUAL PROPERTY

      PubliCARD's success depends significantly upon its proprietary technology.
PubliCARD relies on a combination of patent, copyright and trademark laws, trade
secrets,  confidentiality  agreements and contractual  provisions to protect its
proprietary rights.  PubliCARD seeks to protect its software,  documentation and
other written materials under trade secret and copyright laws, which afford only
limited  protection.   PubliCARD  generally  enters  into   confidentiality  and
non-disclosure agreements with its employees and with key vendors and suppliers.
Despite  PubliCARD's  efforts to protect its  proprietary  rights,  unauthorized
parties may attempt to copy aspects of PubliCARD's products or to obtain and use
information that PubliCARD 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 PubliCARD's proprietary
technology more likely.  The steps taken by PubliCARD 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 PubliCARD's products.

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

      In the event that  PubliCARD's  technology  or products are  determined to
infringe upon the rights of others,  PubliCARD  could be required to cease using
such technology and stop selling such products, if PubliCARD is unable to obtain
licenses to utilize such  technology.  There can be no assurance  that PubliCARD
would be able to obtain such licenses in a timely manner on acceptable terms and
conditions,  and the  failure to do so could have a material  adverse  effect on
PubliCARD's  financial  condition  and results of  operations.  If  PubliCARD is
unable to obtain such licenses, it could encounter significant delays in product
market  introductions  while it  attempted to design  around the  infringed-upon
patents  or  rights,  or could  find  the  development,  manufacture  or sale of
products requiring such license to be foreclosed.  In addition,  patent disputes
are  common  in the  smart  card and  computer  industries  and  there can be no
assurance that PubliCARD will have the financial  resources to enforce or defend
a patent infringement or proprietary rights action.


                                       7
<PAGE>

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

EMPLOYEES

      As of March 24, 2004,  PubliCARD had approximately 47 employees,  of which
20 are involved in sales, marketing and support, 9 in product development,  9 in
manufacturing  and 9 in  administration.  The  Company  considers  its  employee
relations to be good.

SEGMENT INFORMATION

      The Company's  sole operating  activities  involve the deployment of smart
card solutions for educational and corporate sites. As such, the Company reports
as a single segment. Revenues by geographical areas for the years ended December
31, 2003, 2002 and 2001 are as follows (in thousands):

                                                 2003        2002        2001
                                               --------    --------    --------
     United States                             $    869    $  1,029    $  1,727
     Europe                                       3,467       3,445       3,671
     Rest of world                                  445         131         254
                                               --------    --------    --------
                                               $  4,781    $  4,605      $5,652
                                               ========    ========    ========

      The  Company  has  operations  in the United  States  and United  Kingdom.
Identifiable  tangible  assets by country as of December 31, 2003, 2002 and 2001
are as follows (in thousands):

                                                 2003        2002        2001
                                               --------    --------    --------

     United States                             $  4,542    $  4,842    $ 12,037
     United Kingdom                               2,035       2,235       2,557
                                               --------    --------    --------
                                               $  6,577    $  7,077    $ 14,594
                                               ========    ========    ========

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

ITEM 1A.  EXECUTIVE OFFICERS OF THE REGISTRANT

      The following table sets forth information about the executive officers of
the Company as of March 24, 2004. The business address of each executive officer
is the address of the Company, 620 Fifth Avenue, New York, New York 10020.

       Name               Age      Office and Position
       ----               ---      -------------------

  Harry I. Freund          64      Director, Chairman of the Board
                                   and Chairman

  Jay S. Goldsmith         60      Director, Vice Chairman of the
                                   Board and Vice Chairman

  Antonio L. DeLise        42      Director, President, Chief Executive Officer,
                                   Chief Financial Officer and Secretary


                                       8
<PAGE>

      There is no family  relationship  between any of the executive officers of
the  Company.  Each  officer is elected to serve for a term ending with the next
annual meeting of shareholders.

      Mr.  Freund has been a  Director  of the  Company  since  April 12,  1985,
Chairman  of the Board of  Directors  since  December  1985 and  Chairman  since
October 1998. Since 1975, Mr. Freund has been Chairman of Balfour Investors Inc.
("Balfour"),  a merchant  banking  firm that had  previously  been  engaged in a
general brokerage business.

      Mr.  Goldsmith  has been a Director of the Company  since April 12,  1985,
Vice  Chairman of the Board of Directors  since  December 1985 and Vice Chairman
since October 1998. Since 1975, Mr. Goldsmith has been President of Balfour.

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

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        2004            5,600
New York, NY       Executive offices for PubliCARD        2007            3,600
Bangor, Northern   Office and manufacturing               2008           12,000
 Ireland

      The Company leases office space in New York City under a lease expiring on
May 1, 2004. In February 2004, the Company  entered a new lease for office space
in New York City with a term commencing on May 1, 2004 and expiring on April 30,
2007.

      Balfour  occupies a portion of the office  space  leased by the Company in
New  York  City.  The  Chairman  and Vice  Chairman  of the  Company's  Board of
Directors are the only shareholders of Balfour.  Balfour pays to the Company 50%
of the rent and occupancy  costs paid by the Company under its lease,  including
base rent,  electricity,  water,  real estate tax  escalations and operation and
maintenance  escalations.  The base rent  payable by  Balfour  is  approximately
$11,000 per month.

ITEM 3.  LEGAL PROCEEDINGS

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

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


                                       9
<PAGE>

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

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

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

      On December 8, 2003, an annual meeting of  shareholders of the Company was
held at which directors were elected to serve until their  successors shall have
been elected and shall have qualified.  The appointment of Deloitte & Touche LLP
as the Company's outside auditors for the year ending December 31, 2003 was also
ratified. The voting results were as follows:

 Election of directors           For            Against        Abstain
 ---------------------           ---            -------        -------
 Harry I. Freund              20,764,787              -        979,861
 Jay S. Goldsmith             20,763,887              -        980,761
 Clifford B. Cohn             20,772,437              -        972,211
 L.G. Schafran                21,382,612              -        362,036
 Emil Vogel                   21,381,712              -        362,936
 Antonio L. DeLise            21,374,162              -        370,486

 Ratification of auditors     21,653,833         71,369         19,446


                                       10
<PAGE>

                                     PART II

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

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

                                     2003                      2002
                                     ----                      ----
                               HIGH       LOW            HIGH        LOW
       First Quarter            .16       .06            .27         .09
       Second Quarter           .09       .042           .52         .11
       Third Quarter            .09       .045           .26         .10
       Fourth Quarter           .12       .04            .31         .08

(b)   There  were  approximately  2,300  registered  holders of record of common
      stock of the Company as of March 24, 2004.

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


                                       11
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

      The selected  financial data of the Company  presented  below for the five
year period ended  December  31, 2003 have been  derived  from the  consolidated
financial  statements of the Company.  The information set forth below should be
read in  conjunction  with  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations"  and the Company's  Consolidated  Financial
Statements and the Notes thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>

                                                                YEAR ENDED DECEMBER 31
                                              ---------------------------------------------------------
                                                2003        2002         2001       2000        1999
                                              ---------   ---------   ---------   ---------   ---------
                                                      (in thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
<S>                                           <C>         <C>         <C>         <C>         <C>
Revenues                                      $   4,781   $   4,605   $   5,652   $   5,543   $   1,930
Cost of sales                                     2,316       2,455       2,875       2,913         978
Inventory adjustment                                  -           -       1,661           -           -
                                              ---------   ---------   ---------   ---------   ---------
Gross margin                                      2,465       2,150       1,116       2,630         952
                                              ---------   ---------   ---------   ---------   ---------
Operating expenses:
     General and administrative                   2,708       3,235       4,625       6,664       5,713
     Sales and marketing                          1,844       1,877       3,413       7,562       2,862
     Product development                            584         605       2,442       4,364       1,318
     Stock compensation expense                       -           -          86       1,116       2,759
     Amortization of goodwill and intangibles        40         576       1,824       2,638       1,749
     Impairment of goodwill and intangibles           -       1,365           -           -           -
     Repositioning and other special charges          -           -       5,656           -       1,895
                                              ---------   ---------   ---------   ---------   ---------
                                                  5,176       7,658      18,046      22,344      16,296
                                              ---------   ---------   ---------   ---------   ---------
     Loss from operations                        (2,711)     (5,508)    (16,930)    (19,714)    (15,344)
                                              ---------   ---------   ---------   ---------   ---------
Other income (expenses):
     Interest income                                 15          71         476         936         561
     Interest expense                               (12)        (39)        (65)       (100)       (158)
     Cost of retirement benefits - non-operating   (903)       (795)       (788)       (812)     (1,028)
     Write-down of minority investment           (3,000)     (2,068)          -           -           -
     Gain on insurance recoveries                 4,590           -           -           -           -
     Other income (expense)                         428          80         136          15        (751)
                                              ---------   ---------   ---------   ---------   ---------
                                                  1,118      (2,751)       (241)         39      (1,376)
                                              ---------   ---------   ---------   ---------   ---------
Loss from continuing operations                  (1,593)     (8,259)    (17,171)    (19,675)    (16,720)
                                              ---------   ---------   ---------   ---------   ---------


Discontinued operations:
     Income (loss) from discontinued operations       -           -           -           -     (13,999)
     Gain (loss) on disposition of discontinued
         operations                                   -       1,066       2,350       4,275      (5,000)
                                              ---------   ---------   ---------   ---------   ---------
Net loss                                      $  (1,593)  $  (7,193)  $ (14,821)  $ (15,400)  $ (35,719)
                                              =========   =========   =========   =========   =========

Basic and diluted earnings (loss) per common share:
     Continuing operations                    $    (.07)  $    (.34)  $    (.71)  $    (.84)  $    (.88)
     Discontinued operations                          -         .04         .10         .18       (1.00)
                                              ---------   ---------   ---------   ---------   ---------
                                              $    (.07)  $    (.30)  $    (.61)  $    (.66)  $   (1.88)
                                              =========   =========   =========   =========   =========
</TABLE>


                                       12
<PAGE>

<TABLE>
<CAPTION>

                                                               AS OF DECEMBER 31
                                               --------------------------------------------------------
                                                 2003        2002        2001        2000        1999
                                               --------    --------    --------    --------    --------
                                                        (in thousands)
BALANCE SHEET DATA:
<S>                                            <C>         <C>         <C>         <C>         <C>
 Working capital (deficiency)                  $   (987)   $   (548)   $  2,631    $ 13,168    $ 23,889
 Total assets                                     7,399       7,939      17,397      37,179      45,488
 Other non-current liabilities                    3,552       4,990       5,328       6,010       6,674
 Shareholders' equity (deficit)                  (2,928)     (1,002)      7,484      23,578      30,399

</TABLE>

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


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

OVERVIEW

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

      In July 2001,  after  evaluating the timing of potential  future revenues,
PubliCARD's  Board decided to shift the  Company's  strategic  focus.  While the
Board remained confident in the long-term  prospects of the smart card business,
the timing of public sector and corporate  initiatives in wide-scale,  broadband
environments  utilizing  the  Company's  smart card reader and chip products had
become more  uncertain.  Given the  lengthened  time horizon,  the Board did not
believe  it would be  prudent  to  continue  to  invest  the  Company's  current
resources  in the  ongoing  development  and  marketing  of these  technologies.
Accordingly,  the Board  determined  that  shareholders'  interests will be best
served by pursuing strategic  alliances with one or more companies that have the
resources  to  capitalize  more fully on the  Company's  smart  card  reader and
chip-related  technologies.  In  connection  with  this  shift in the  Company's
strategic  focus,  workforce  reductions and other measures were  implemented to
achieve cost savings. See Note 10 to the Consolidated Financial Statements for a
discussion on the repositioning charge associated with this action.

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

      PubliCARD's  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
Consolidated  Financial  Statements,  the Company has incurred operating losses,
has a working  capital  deficiency and requires  additional  capital to meet its
obligations and accomplish the Company's business plan, which raises substantial
doubt about its ability to continue as a going concern. The financial statements
do not include any adjustments  that might result from the Company's  failure to
obtain funding or inability to continue as a going concern.

RESULTS OF OPERATIONS

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

      REVENUES.  Revenues are  generated  from  product  sales,  technology  and
software  license fees,  installation  and maintenance  contracts.  Consolidated
revenues  increased  to $4.8  million in 2003  compared to $4.6 million for 2002
driven by a 6% increase from foreign currency  changes.  Excluding the impact of
foreign currency changes, sales in 2003 decreased by 2%.

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


                                       13
<PAGE>

      SALES  AND  MARKETING  EXPENSES.  Sales  and  marketing  expenses  consist
primarily of  personnel  and travel  costs,  public  relations,  trade shows and
marketing  materials.  Sales and  marketing  expenses  were $1.8 million in 2003
compared to $1.9 million in 2002.

      PRODUCT  DEVELOPMENT   EXPENSES.   Product  development  expenses  consist
primarily of personnel and travel costs,  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 $584,000 in 2003 compared to $605,000
in 2002.

      GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative expenses
consist   primarily  of  personnel  and  related  costs  for  general  corporate
functions,  including finance and accounting,  human resources,  risk management
and legal.  General and administrative  expenses for the year ended December 31,
2003  decreased  to $2.7  million  from $3.2  million for 2002.  The decrease in
expense is mainly due to a $400,000  decline in salary  costs due to a headcount
reduction of three employees.

      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"),  no
amortization  expense  for  goodwill  will be  recorded  in  current  and future
periods.  Goodwill and other intangibles will be subject to an annual review for
impairment or earlier if  circumstances  or events  indicate that impairment has
occurred. This may result in future write-downs or the write-off of such assets.
Amortization expense in 2003 and 2002 relates to the continuing  amortization of
definite lived intangibles. Amortization expense decreased from $576,000 in 2002
to $40,000 in 2003 as a result of an impairment  charge recorded in 2002,  which
significantly reduced the carrying value of intangibles.

      OTHER  INCOME AND  EXPENSE.  Interest  income  decreased  to $15,000  from
$71,000 in the prior year principally due to lower interest rates and investment
balances.  Cost of retirement  benefits,  which  represents  amounts  related to
discontinued   product  lines  and  related  plant   closings  in  prior  years,
principally  relates to pension  expense  associated  with the Company's  frozen
defined benefit pension plan.

      During 2003,  the Company  entered  into three  binding  settlements  with
various  historical  insurers that resolved  certain claims  (including  certain
future  claims)  under  policies  of  insurance  issued to the  Company by those
insurers.  As a  result  of the  settlements,  after  allowance  for  associated
expenses,  offsetting  adjustments  and  amounts  held in  escrow,  the  Company
received net proceeds of approximately $4.1 million in 2003.  Pursuant to one of
the settlements, an additional net amount of approximately $470,000 will be held
in  escrow for  up to  three years.  The  Company  recognized a  gain from these
settlements of approximately $4.6 million in 2003.

      In 2003 and 2002,  other expense includes charges for an impairment of the
Company's  minority  investment  in TecSec  of $3.0  million  and $2.1  million,
respectively. In addition, for 2002, other expense includes a $200,000 charge in
connection with the defense of a shareholder lawsuit.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

      REVENUES. Consolidated revenues decreased to $4.6 million in 2002 compared
to $5.7  million  for 2001. The  2001  figure  included $1.0 million of revenues
associated  with the smart card  reader  and chip  business,  which the  Company
exited in July 2001.  Sales related to smart card solutions for  educational and
corporate sites were comparable between years.

      GROSS MARGIN. Cost of sales in 2001 included an adjustment of $1.7 million
for the write-off of  inventories  associated  with the July 2001  repositioning
action.  Excluding  the  inventory  adjustment,  gross margin as a percentage of
sales decreased to 47% in 2002 from 49% in 2001.

      SALES AND  MARKETING  EXPENSES.  Sales and  marketing  expenses  were $1.9
million in 2002  compared to $3.4  million in 2001.  The  decrease in expense is
attributed to the July 2001 repositioning action.

      PRODUCT DEVELOPMENT  EXPENSES.  Product  development  expenses amounted to
$605,000 in 2002  compared to $2.4  million in 2001.  The decrease in expense is
attributed to the July 2001 repositioning action.

      GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative expenses
for the year ended December 31, 2002 decreased to $3.2 million from $4.6 million
for 2001.  The  decrease in expense is mainly due to an  aggregate  reduction in
corporate  expenses of approximately  $1.6 million  associated with various cost
containment  initiatives.  The initiatives resulted in a decline in salaries and
benefits of $1.0 million,  professional  fees of $176,000 and employee  business
expense of $162,000.


                                       14
<PAGE>

      STOCK  COMPENSATION  EXPENSE.  Stock-based  compensation  recorded in 2001
principally  relates to the  issuance of stock  awards and a below  market stock
option grant to an executive hired in late 1999.

      AMORTIZATION OF GOODWILL AND INTANGIBLES.  Amortization expense in 2002 of
$576,000 related to the continuing  amortization of definite lived  intangibles.
Amortization  expense in 2001 of $1.8 million included goodwill  amortization of
$1.1 million.  Pursuant to SFAS No. 142,  amortization  of goodwill ceased after
2001.

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

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

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

      OTHER  INCOME AND  EXPENSE.  Interest  income  decreased  to $71,000  from
$476,000 in the prior year principally due to lower investment balances. Cost of
retirement  benefits  relates to pension  expense  associated with the Company's
frozen  defined  benefit  pension  plan.  In  addition,  in 2002 other  expenses
included a $2.1  million  charge for an  impairment  of the  Company's  minority
investment in TecSec and a $200,000  charge in connection  with the defense of a
shareholder lawsuit.

LIQUIDITY

      The  Company has  financed  its  operations  over the last  several  years
primarily  through funds  received from the sale of of a non-core  businesses in
2000 and insurance  recoveries in 2003. During the year ended December 31, 2003,
cash,  including  short-term  investments,  increased  by $2.3  million  to $3.6
million as of December 31, 2003.

     Operating  activities utilized cash of $2.2 million in 2003 and principally
consisted of the net loss of $1.6 million plus a gain on insurance recoveries of
$4.6 million offset by depreciation and amortization of $193,000,  a decrease in
net  assets  and  liabilities  of  $1.1  million  and a  $3.0  million  minority
investment  impairment  charge.  The decrease in net assets and  liabilities  is
largely   attributable  to  the   non-payment  of  the  2003  minimum   required
contributions   to  the  Company's   frozen  defined  benefit  pension  plan  of
approximately $1.4 million.

    Investing  activities  provided  cash of $4.5 million in 2003 and  consisted
principally of $4.1 million of proceeds received from insurance recoveries.

    The Company has experienced  negative cash flow from operating activities in
the past and expects to  experience  negative  cash flow in 2004 and beyond.  In
addition to funding operating and capital  requirements and corporate  overhead,
future uses of cash include the following:


                                       15
<PAGE>

o     The Company  sponsors a defined benefit pension plan,  which was frozen in
      1993.  As of December 31, 2003,  the  actuarial  present  value of accrued
      liabilities  exceeded  the  plan  assets  by  approximately  $6.9  million
      (determined on an ongoing basis).  If the plan is continued,  the required
      contribution  to the plan is  approximately  $3.9 million in 2004.  Absent
      some action by the Company,  the annual  contribution  requirements beyond
      2004 would continue to be significant. In view of its financial condition,
      in January  2003,  the Company  filed a notice  with the  Pension  Benefit
      Guaranty  Corporation  ("PBGC")  seeking a "distress  termination"  of the
      Plan. If the PBGC  determines  that the Company meets one of the tests for
      such a  termination,  the Plan will  terminate  and the PBGC  will  become
      responsible  for meeting future  retirement  obligations  to  participants
      (within certain limitations).  The Company would be liable to the PBGC for
      the amount of the  unfunded  guaranteed  benefit  obligation.  The Company
      believes that on a termination  basis, the Plan's liabilities could exceed
      the value of its assets by in excess of $7.0  million.  In  addition,  the
      Company did not make the required  contributions that were due to the Plan
      in 2003 which  aggregate  approximately  $1.4  million.  The  Company  has
      initiated discussions with the PBGC concerning the termination of the Plan
      and  its  repayment  obligation  to the  PBGC if the  Plan  is  terminated
      (including the timing of its repayment obligation).  It is not possible to
      predict the outcome of such discussions.

o     The Company and certain  current and former  officers are  defendants in a
      lawsuit  alleging,  among other things,  misrepresentation  and securities
      fraud.  The  Company  believes  that it has  meritorious  defenses  to the
      allegations and intends to defend itself vigorously. The cost of defending
      against  this  action  could be  significant,  and if the  Company  is not
      successful  in  defending  itself,  the Company may be required to pay the
      plaintiff's  damages,  which could have a material  adverse  effect on the
      Company's business and operations.

o     The Company  leases certain  office space,  vehicles and office  equipment
      under  operating  leases that  expire  over the next five  years.  Minimum
      future   payments  for  operating   leases  having  initial  or  remaining
      non-cancelable terms in excess of one year aggregates $1.2 million.

      The  Company  will  need  to  raise  additional  capital  that  may not be
available to it. If the distress  termination of the Company's  defined  benefit
pension plan for which the Company has applied is  completed  (see Note 5 to the
Notes to Consolidated Financial Statements), the Company's 2003 and 2004 funding
requirements to the plan could be eliminated,  in which case management believes
that  existing  cash and  short-term  investments  may be sufficient to meet the
Company's operating and capital requirements at the currently anticipated levels
through  December 31,  2004.  However,  additional  capital will be necessary in
order to operate beyond December 2004 and to fund the current  business plan and
other  obligations.  While the Company is actively  considering  various funding
alternatives,  it has not  secured or entered  into any  arrangements  to obtain
additional  capital.  There can be no assurance that the Company will be able to
eliminate the 2003 or 2004 funding  requirements for the defined benefit pension
plan or be able to obtain  additional  funding on acceptable terms or at all. If
the Company  cannot raise  additional  capital to continue its present  level of
operations, it may not be able to meet its obligations, take advantage of future
acquisition  opportunities  or further develop or enhance its product  offering,
any of which could have a material adverse effect on its business and results of
operations.

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

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

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


                                       16
<PAGE>

CONTRACTUAL OBLIGATIONS

      The following is a summary of the Company's commitments as of December 31,
2003 (in thousands):

<TABLE>
<CAPTION>
                                                                 PAYMENTS DUE BY PERIOD
                                                                 ----------------------
                                                          LESS THAN 1   1 TO 3     3 TO 5     MORE THAN 5
                                                 TOTAL       YEAR        YEARS       YEARS       YEARS
                                                -------     -------     -------     -------     -------
<S>                                             <C>           <C>         <C>         <C>         <C>
Operating lease obligations                     $ 1,164       $ 356       $ 631       $ 177       $   -
Other long-term liabilities:
 Pension liability and other retiree benefits     7,122       3,896       3,136          60          30
 Other long-term obligations                        296           -         296           -           -
                                                -------     -------     -------     -------     -------
  Total                                         $ 8,582     $ 4,252     $ 4,063       $ 237       $  30
                                                =======     =======     =======     =======     =======
</TABLE>

CRITICAL ACCOUNTING POLICIES

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

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

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

      INVENTORIES.  Inventories are stated at lower of cost (first-in, first-out
method)  or  market.  The  Company  periodically  evaluates  the need to  record
adjustments  for  impairment of inventory.  Inventory in excess of the Company's
estimated  usage  requirements  is written down to its estimated net  realizable
value.  Inherent  in the  estimates  of net  realizable  value are  management's
estimates  related  to the  Company's  production  schedules,  customer  demand,
possible  alternative  uses and the ultimate  realization of potentially  excess
inventory.  During  2001,  the  decision  to exit the smart card reader and chip
business resulted in a significant  inventory  realizability  adjustment.  While
management  deems this  adjustment  to be  non-recurring,  a decrease  in future
demand for current  products could result in an increase in the amount of excess
inventories on hand.

      VALUATION OF INVESTMENTS.  The Company periodically  assesses the carrying
value of its minority-owned investments for impairment. This assessment is based
upon a review of operations  and  indications  of continued  viability,  such as
subsequent  rounds of  financing.  As  discussed  in Note 2 to the  Consolidated
Financial Statements, during 2003 and 2002 the Company made a determination that
its  minority-owned  investments  in  TecSec  and Mako  were  impaired  and both
investments have been written-off.  Future recoveries,  if any, will be recorded
as income upon receipt.

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


                                       17
<PAGE>

      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.

      PENSION  OBLIGATIONS.  The  determination  of obligations  and expense for
pension  benefits is dependent on the selection of certain  assumptions  used by
actuaries in calculating such amounts.  These assumptions include, among others,
the discount rate and the expected rate of return on plan assets. Actual results
that differ from  assumptions  are accumulated and amortized over future periods
and therefore,  generally affect the recognized expense and recorded  obligation
in such future  periods.  While  management  believes that the  assumptions  are
appropriate,   differences  in  actual  experience  or  significant  changes  in
assumptions may materially affect the pension obligation and future expense.

RECENT ACCOUNTING PRONOUNCEMENTS

      In November  2002,  the FASB issued  Interpretation  No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of  Others".  The  interpretation   addresses  the
disclosures  to be made by a guarantor  in its  financial  statements  about its
obligations  under  guarantee.  In addition,  it also clarifies the requirements
related to the  recognition  of a liability by a guarantor at the inception of a
guarantee  for the  obligations  the  guarantor  has  undertaken in issuing that
guarantee.   The  initial   recognition  and  measurement   provisions  of  this
interpretation  are  applicable on a prospective  basis to guarantees  issued or
modified after December 31, 2002. The  disclosure  provisions  became  effective
December 15, 2002. The adoption of the recognition  and  measurement  provisions
did  not  have  a  material  impact  on  the  Company's  Consolidated  Financial
Statements.

      In  December  2002,  the  FASB  issued  SFAS  No.  148,   "Accounting  for
Stock-Based  Compensation-Transition  and Disclosure".  SFAS No. 148 amends SFAS
No. 123,  "Accounting  for  Stock-Based  Compensation",  to provide  alternative
methods of transition  for a voluntary  change to the fair value based method of
accounting for  stock-based  employee  compensation.  In addition,  SFAS No. 148
amends  the  disclosure  requirements  of  SFAS  No.  123 to  require  prominent
disclosures in both annual and interim financial  statements about the method of
accounting  for stock based employee  compensation  and the effect of the method
used on reported  results.  The  provisions  of SFAS No. 148 are  effective  for
financial  statements for fiscal years and interim periods ending after December
15, 2002.  The  disclosure  provisions  of SFAS No. 148 have been adopted by the
Company.  SFAS No. 148 did not  require  the Company to change to the fair value
based method of accounting for stock-based compensation.

      In January  2003,  the FASB  issued  FASB  Interpretation  ("FIN") No. 46,
"Consolidation of Variable Interest Entities". In December 2003, the FASB issued
FIN No. 46  (Revised)  ("FIN  46-R") to address  certain  FIN 46  implementation
issues.  This  interpretation  clarifies the application of Accounting  Research
Bulletin ("ARB") No. 51, "Consolidated  Financial Statements" for companies that
have interests in entities that are Variable  Interest Entities (VIE) as defined
under FIN 46. According to this interpretation,  if a company has an interest in
a VIE and is at risk for a majority of the VIE's  expected  losses or receives a
majority of the VIE's expected gains it shall consolidate the VIE. FIN 46-R also
requires additional  disclosures by primary  beneficiaries and other significant
variable interest  holders.  For entities acquired or created before February 1,
2003,  this  interpretation  is  effective  no later  than the end of the  first
interim or reporting period ending after March 15, 2004,  except for those VIE's
that are considered to be special purpose entities, for which the effective date
is no later than the end of the first interim or annual  reporting period ending
after  December 15, 2003.  For all entities  that were  acquired  subsequent  to
January 31, 2003,  this  interpretation  is effective as of the first interim or
annual period ending after  December 31, 2003. The adoption of the provisions of
this interpretation did not have a material effect on the Company's Consolidated
Financial Statements.

      In April 2003,  the FASB issued SFAS No. 149,  "Amendment of Statement 133
on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No. 149
clarifies  under what  circumstances  a contract with an initial net  investment
meets  the  characteristic  of a  derivative  as  discussed  in  SFAS  No.  133,
"Accounting for Derivative Instruments and Hedging Activities".  In addition, it
clarifies when a derivative contains a financing component that warrants special
reporting in the  statement  of cash flows.  SFAS No. 149 amends  certain  other
existing  pronouncements.  SFAS No. 149 is effective on a prospective  basis for
contracts  entered  into or  modified  after  June  30,  2003,  and for  hedging
relationships designated after June 30, 2003. The adoption of this statement did
not have a material impact on the Company's Consolidated Financial Statements.


                                       18
<PAGE>

      In May  2003,  the FASB  issued  SFAS No.  150,  "Accounting  for  Certain
Financial  Instruments  with  Characteristics  of both  Liabilities  and Equity"
("SFAS  No.  150").  SFAS  No.  150  establishes  standards  for  how an  issuer
classifies and measures certain financial  instruments with  characteristics  of
both  liabilities  and equity.  It requires that an issuer  classify a financial
instrument  that is  within  its  scope  as a  liability  (or an  asset  in some
circumstances).  Many of those instruments were previously classified as equity.
This statement will become effective for financial  instruments  entered into or
modified after May 31, 2003,  and otherwise  shall be effective at the beginning
of the first interim period  beginning after June 15, 2003. The adoption of this
statement did not have a material impact on the Company's Consolidated Financial
Statements.

      In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures  about Pensions and Other  Postretirement  Benefits"  ("SFAS No. 132
revised") that improves  financial  statement  disclosures  for defined  benefit
plans.  The change replaces  existing SFAS No. 132 disclosure  requirements  for
pensions and other  postretirement  benefits and revises employers'  disclosures
about pension plans and other  postretirement  benefit plans. It does not change
the  measurement  of  recognition  of  those  plans  required  by SFAS  No.  87,
"Employers'  Accounting for Pensions" or SFAS No. 88, "Employers' Accounting for
Settlements   and   Curtailments  of  Defined  Benefit  Pension  Plans  and  for
Termination Benefits." SFAS No. 132 revised retains the disclosure  requirements
contained in the original  SFAS No. 132,  but  requires  additional  disclosures
about the plan assets, obligations, cash flows, and net periodic benefit cost of
defined benefit pension plans and other defined  benefit  postretirement  plans.
SFAS No. 132 revised is  effective  for annual and interim  periods  with fiscal
years ending after December 15, 2003. The Company adopted the revised disclosure
provisions.

      In December  2003, the  Securities  and Exchange  Commission  issued Staff
Accounting Bulletin ("SAB") No. 104, Revenue  Recognition,  which supersedes SAB
No. 101,  Revenue  Recognition  in  Financial  Statements.  SAB No. 104 rescinds
accounting guidance in SAB No. 101 related to  multiple-element  arrangements as
this  guidance  has been  superseded  as a result of the issuance of EITF 00-21,
"Accounting for Revenue  Arrangements with Multiple  Deliverables." The adoption
of SAB No.  104 did not have a  material  impact on the  Company's  Consolidated
Financial Statements.


FACTORS THAT MAY AFFECT FUTURE RESULTS

      WE HAVE A HISTORY OF  OPERATING  LOSSES AND  NEGATIVE  CASH FLOW,  WE HAVE
ONGOING FUNDING OBLIGATIONS AND WE NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT
BE AVAILABLE TO US, ALL OF WHICH COULD LEAD US TO SEEK BANKRUPTCY PROTECTION. We
have  incurred  losses  and  experienced   negative  cash  flow  from  operating
activities in the past,  and we expect to incur losses and  experience  negative
cash flow from  operating  activities  in the  foreseeable  future.  We incurred
losses from continuing  operations in 2001, 2002 and 2003 of approximately $17.2
million,  $8.3  million  and  $1.6  million,   respectively.   In  addition,  we
experienced negative cash flow from operating activities of $12.7 million,  $5.1
million  and $2.2  million  in 2001,  2002 and  2003,  respectively,  and have a
working capital deficiency of $1.0 million as of December 31, 2003.

      We sponsor a defined benefit pension plan (the "Plan") which was frozen in
1993. As of December 31, 2003,  the present value of the accrued  liabilities of
our plan exceeded its assets by  approximately  $6.9 million.  (determined on an
ongoing basis). If the Plan is continued,  the required contribution to the Plan
is  approximately  $3.9  million  for  2004  and we  will be  obligated  to make
continued  contributions  in future  years  which,  absent some action by us, we
expect that the annual contribution requirements beyond 2004 will continue to be
significant. Future contribution levels depend in large measure on the mortality
rate of plan participants,  the discount rate required,  and the expected return
on the plan  assets.  In April 2002,  we failed to make the  required  quarterly
contribution to the Plan due April 15, 2002, in the amount of $253,000.  We made
this contribution on June 11, 2002 and quarterly  contributions of $253,000 were
made on a timely basis in July 2002 and October  2002.  In view of our financial
condition,  in January 2003, we filed a notice with the PBGC seeking a "distress
termination"  of the Plan and did not  make  the  contributions  due to the Plan
during 2003 which aggregate  approximately $1.4 million.  If the PBGC determines
that we meet one of the tests for such termination,  the Plan will terminate and
the PBGC will become  responsible for meeting future  retirement  obligations to
participants  (within certain  limitations).  We would be liable to the PBGC for
the amount of the unfunded benefit obligation. We believe that, on a termination
basis, the Plan's  liabilities could exceed the value of its assets by in excess
of $7.0 million.  We have  initiated  discussions  with the PBGC  concerning the
termination of the Plan and our repayment  obligation to the PBGC if the Plan is
terminated  (including  the  timing  of  our  repayment  obligation).  It is not
possible to predict the outcome of such discussions.


                                       19
<PAGE>

      We and certain  current and former  officers are  defendants  in a lawsuit
alleging, among other things, misrepresentation and securities fraud. We believe
that we have  meritorious  defenses  to the  allegations  and  intend  to defend
ourselves  vigorously.  The  cost of  defending  against  this  action  could be
significant,  and if the Company is not  successful  in  defending  itself,  the
Company  may be  required  to pay the  plaintiff's  damages,  which could have a
material  adverse effect on the Company's  business and operations.  See "We are
unable to predict the extent to which the resolution of lawsuits pending against
us  could  adversely  affect  our  business".   In  addition,   we  have  future
non-cancelable operating lease obligations for office space, vehicles and office
equipment aggregating $1.2 million.

      We will need to raise additional  capital that may not be available to us.
If the distress  termination of the Plan for which we have applied is completed,
our 2003 and 2004 funding requirements  discussed above could be eliminated,  in
which case,  we believe that  existing  cash and short term  investments  may be
sufficient  to meet our  operating  and capital  requirements  at the  currently
anticipated level through December 31, 2004. However, additional capital will be
necessary  in order to  operate  beyond  December  2004 and to fund the  current
business plan and other obligations.  While we are actively  considering various
funding  alternatives,  no  arrangement  to obtain  additional  funding has been
secured or entered into.  There can be no assurance  that we will  eliminate the
past  due  and  2004  funding  requirements  for the  Plan or be able to  obtain
additional funding, on acceptable terms or at all. If we cannot raise additional
capital to  continue at our present  level of  operations  we may not be able to
meet our  obligations,  take advantage of future  acquisition  opportunities  or
further  develop or enhance  our  product  offering,  any of which  could have a
material adverse effect on our business and results of operations and could lead
us to  seek  bankruptcy  protection.  The  auditors'  reports  on the  Company's
Consolidated  Financial  Statements for the years ended December 31, 2001,  2002
and 2003 contained an emphasis paragraph concerning  substantial doubt about the
Company's ability to continue as a going concern.

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

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

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

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

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

      WE ARE UNABLE TO PREDICT  THE EXTENT TO WHICH THE  RESOLUTION  OF LAWSUITS
PENDING  AGAINST US COULD  ADVERSELY  AFFECT OUR  BUSINESS.  On May 28,  2002, a
lawsuit was filed against us in the Superior  Court of the State of  California,


                                       20
<PAGE>

in the  County  of Los  Angeles  by  Leonard  M.  Ross and  affiliated  entities
alleging, among other things misrepresentation and securities fraud. The lawsuit
names four of our current and former executive  officers and directors and us as
the defendants.  The plaintiffs  seek monetary and punitive  damages for alleged
actions  made by the  defendants  in order to induce the  plaintiff to purchase,
hold or refrain from selling our common stock.  The  plaintiffs  allege that the
defendants made a series of material misrepresentations,  misleading statements,
omissions  and  concealments,   specifically  and  directly  to  the  plaintiffs
concerning   the  nature,   existence  and  status  of  contracts  with  certain
purchasers,  the nature and existence of investments in us by third parties, the
nature and existence of business relationships and investments by us. We believe
we have meritorious defenses to the allegations and intend to defend vigorously.

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

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

      WE FACE RISKS ASSOCIATED WITH  ACQUISITIONS.  An important  element of our
strategic  plan  involves the  acquisition  of  businesses  in areas outside the
technology  sectors in which we have recently  been engaged,  so as to diversify
our asset base.  However,  we will only be able to engage in future acquisitions
if we are successful in obtaining  additional  funding, as to which no assurance
can be given.  Acquisitions  would require us to invest financial  resources and
may have a  dilutive  effect on our  earnings  or book value per share of common
stock.  We cannot assure you that we will  consummate  any  acquisitions  in the
future,  that any financing  required for such acquisitions will be available on
acceptable  terms or at all,  or that any past or future  acquisitions  will not
materially adversely affect our results of operations and financial condition.

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

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

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

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

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

      WE DEPEND ON A RELATIVELY  SMALL NUMBER OF CUSTOMERS FOR A MAJORITY OF OUR
REVENUES. We rely on a limited number of customers in our business. We expect to
continue to depend upon a relatively small number of customers for a majority of
the revenues in our  business.  For the year ended  December  31,  2003,  no one
customer  accounted  for more than 10% of our  revenues.  Amounts due from a one
customer represented  approximately 11% of the accounts receivable balance as of
December 31, 2003.


                                       21
<PAGE>

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

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

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

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

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

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

     We believe that the principal competitive factors affecting us are:

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

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

      Our primary  competition  currently  comes from companies  offering closed
environment  solutions,  including  small  value  electronic  cash  systems  and
database management solutions, such as G2 Integrated Solutions (Girovend), MARS,
Cunninghams, Uniware, Diebold and Schlumberger.

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

                                       22
<PAGE>

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

      WE  MAY  BE  LIMITED  IN  OUR  USE  OF  OUR  FEDERAL  NET  OPERATING  LOSS
CARRYFORWARDS.  As of December  31,  2003,  we had federal  net  operating  loss
carryforwards,  subject  to review by the  Internal  Revenue  Service,  totaling
approximately  $66.8 million for federal  income tax  purposes.  The federal net
operating loss  carryforwards  begin to expire in 2005. We do not expect to earn
any  significant  taxable  income in the next several  years,  and may not do so
until much later, if ever. A federal net operating loss can generally be carried
back  two,  three or five  years  and  then  forward  fifteen  or  twenty  years
(depending  on the year in which  the loss  was  incurred),  and used to  offset
taxable income earned by a company (and thus reduce its income tax liability).

      Section 382 of the  Internal  Revenue  Code  provides  that when a company
undergoes an "ownership  change," that company's use of its net operating losses
is limited in each subsequent year. An "ownership change" occurs when, as of any
testing  date,  the sum of the increases in ownership of each  shareholder  that
owns five percent or more of the value of a company's  stock as compared to that
shareholder's lowest percentage ownership during the preceding three-year period
exceeds fifty percentage points. For purposes of this rule, certain shareholders
who own less than five percent of a company's  stock are  aggregated and treated
as a single  five-percent  shareholder.  We may  issue a  substantial  number of
shares  of  our  stock  in  connection   with  public  and  private   offerings,
acquisitions and other transactions in the future,  although no assurance can be
given that any such offering, acquisition or other transaction will be effected.
In  addition,  the  exercise of  outstanding  options to purchase  shares of our
common stock may require us to issue additional  shares of our common stock. The
issuance  of a  significant  number  of  shares  of  stock  could  result  in an
"ownership  change." If we were to  experience  such an  "ownership  change," we
estimate  that  virtually  all of  our  available  federal  net  operating  loss
carryforwards would be effectively unavailable to reduce our taxable income.

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

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

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

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


                                       23
<PAGE>

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

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

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

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

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

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

      o     tariffs and other trade barriers;
      o     difficulties in staffing and managing foreign operations;
      o     currency exchange risks;
      o     export controls related to encryption technology;
      o     unexpected changes in regulatory requirements;
      o     changes in economic and political conditions;
      o     potentially adverse tax consequences; and
      o     burdens of complying with a variety of foreign laws.


                                       24
<PAGE>

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

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

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

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

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

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

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

      The change of control  agreements  provide  that,  if the  services of any
person party to a change of control  agreement are terminated within three years
following a change of control, that individual will be entitled to receive, in a
lump sum within 10 days of the  termination  date, a payment equal to 2.99 times
that individual's  average annual compensation for the shorter of the five years
preceding  the  change  of  control  and  the  period  the  individual  received
compensation from us for personal services. Assuming a change of control were to
occur at the present time,  payments would be made of approximately  $738,000 to
each of Mr.  Harry I.  Freund and Mr.  Jay S.  Goldsmith.  If any such  payment,
either alone or together  with others made in connection  with the  individual's
termination,  is considered to be an excess parachute payment under the Internal
Revenue Code, the individual  will be entitled to receive an additional  payment
in an amount  which,  when added to the initial  payment,  would result in a net
benefit  to the  individual,  after  giving  effect to excise  taxes  imposed by
Section  4999 of the Internal  Revenue Code and income taxes on such  additional
payment,  equal to the initial  payment  before such  additional  payment and we
would not be able to deduct these initial or additional  payments for income tax
purposes.

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


                                       25
<PAGE>

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

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

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

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Market Risk
      We are exposed to market risk primarily through short-term investments and
an overdraft facility. Our investment policy calls for investment in short-term,
low  risk  instruments.   As  of  December  31,  2003,  short-term   investments
(principally  U.S.  Treasury  bills) were $3.5 million and  borrowing  under the
overdraft facility amounted to $271,000.  Due to the nature of these investments
and the amount of the overdraft  facility,  any change in rates would not have a
material impact on our financial condition or results of operations.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The Company's consolidated financial statements, the report of independent
public  accountants  thereon and related schedules 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

      With the  participation  of  management,  the  Company's  chief  executive
officer and chief  financial  officer has  evaluated  the  effectiveness  of the
Company's disclosure controls and procedures as of the end of the period covered
by this report.  Based upon this  evaluation,  the chief  executive  officer and
chief financial  officer has concluded  that, as of the end of such period,  the
Company's disclosure controls and procedures are effective.

      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.


                                       26
<PAGE>

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

      Set  forth  below  as to  each  director  of the  Company  is  information
regarding  age (as of March 24,  2004),  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 64;  Director of  PubliCARD  since April 12,  1985,
Chairman of the Board of Directors since December 1985 and Chairman of PubliCARD
since October 1998.  Mr. Freund has been Chairman of Balfour  Investors  Inc., a
merchant-banking  firm that had previously  been engaged in a general  brokerage
business ("Balfour"), since 1975. Mr. Freund is also Vice Chairman of Glasstech,
Inc.

      JAY S. GOLDSMITH: Age 60; Director of PubliCARD since April 12, 1985, Vice
Chairman of the Board of  Directors  since  December  1985 and Vice  Chairman of
PubliCARD since October 1998. Mr.  Goldsmith has been President of Balfour since
1975. Mr. Goldsmith is also Chairman of Glasstech, Inc.

      ANTONIO L. DELISE:  Age 42;  Director of PubliCARD since July 9, 2001. Mr.
DeLise  joined  the  Company in April 1995 as Vice  President,  Chief  Financial
Officer and  Secretary.  He was appointed to the Board of Directors in July 2001
and was elected to the additional  posts of President in February 2002 and Chief
Executive  Officer in August 2002. Prior to joining the Company,  Mr. DeLise was
employed as a senior manager with the firm of Arthur Andersen LLP from July 1983
through March 1995.

      CLIFFORD B. COHN: Age 52;  Director of PubliCARD  since July 31, 1980, and
was Vice  President of  Government  Affairs of  PubliCARD  from April 1, 1982 to
November 20, 1984. Mr. Cohn is the principal of Cohn & Associates, a law firm in
Philadelphia,  Pennsylvania. Mr. Cohn was an attorney for Grayson & Goldin P.C.,
a law firm in Philadelphia, Pennsylvania, during 2002.

      L. G. SCHAFRAN:  Age 65; Director of PubliCARD since December 3, 1986. Mr.
Schafran is the  Managing  General  Partner of L.G.  Schafran &  Associates,  an
investment and development  firm established in 1984. Mr. Schafran is a Director
of Tarragon Realty Investors, Inc., Chairman of the Board and Co-Chief Executive
Officer of Delta-Omega Technologies,  Inc., Co-Liquidating Trustee of the Banyan
Strategic Realty Trust and Director of Worldspace, Inc.

      EMIL VOGEL: Age 60; Director of PubliCARD since October 5, 2001. Mr. Vogel
has been the Senior Partner and founder of Tarnow  Associates  ("Tarnow")  since
1982.  Prior to founding  Tarnow,  Mr.  Vogel spent nine years with an executive
search  firm in the New York City  metropolitan  area  conducting  senior  level
search assignments. Mr. Vogel is also a director of Q.E.P. Co., Inc.

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

      AUDIT COMMITTEE

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

      CODE OF ETHICS

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


                                       27
<PAGE>

      SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended (the
"Exchange Act"),  requires the Company's  directors and officers and persons who
own  more  than  10  percent  of a  registered  class  of the  Company's  equity
securities,  to file  reports of  ownership  and changes in  ownership  with the
Securities and Exchange Commission (the "SEC"). Officers,  directors and greater
than 10%  shareholders  are required by SEC  regulations  to furnish the Company
with copies of all Section 16(a) forms they file.  To the  Company's  knowledge,
based solely upon the Company's  review of the copies of such forms  received by
it during the fiscal year ended  December 31, 2003 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.

<TABLE>
<CAPTION>

SUMMARY COMPENSATION TABLE

                                                                                    LONG-TERM
NAME AND PRINCIPAL POSITION            YEAR    ANNUAL COMPENSATION                COMPENSATION
---------------------------            ----    -------------------           SECURITIES UNDERLYING      ALL OTHER
                                               SALARY ($)   BONUS ($) (1)   OPTIONS/ SARS (#) (2)     COMPENSATION ($)
                                               ----------   -------------   ----------------------    ----------------

<S>                  <C>                 <C>       <C>           <C>                <C>                     <C>
   Antonio L. DeLise (3)............     2003      275,000       84,832                   -                  8,706(5)
   President, Chief Executive
   Officer, Chief Financial Officer
   and Secretary
                                         2002      262,500       40,000                   -                  8,380(5)
                                         2001      250,000       50,750             270,000(6)               7,159(5)

   Harry I. Freund...................    2003      150,000            -                   -                      -
   Chairman of the Board of
   Directors and Chairman
                                         2002      170,833            -                   -                      -
                                         2001      275,000            -             800,000(6)              15,000(4)

   Jay S. Goldsmith..................    2003      150,000            -                   -                      -
   Vice Chairman of the Board of
   Directors and Vice Chairman
                                         2002      170,833            -                   -                      -
                                         2001      275,000            -             800,000(6)              22,966(4)
</TABLE>

(1)   Reflects bonus earned during the fiscal year. In some instances,  all or a
      portion of the bonus was paid during the following fiscal year.
(2)   Options to acquire shares of Common Stock.
(3)   Mr. DeLise has served as Chief Financial  Officer since April 1995 and was
      appointed to the additional  posts of President in February 2002 and Chief
      Executive Officer in August 2002.
(4)   Represents  life  insurance  premiums paid on behalf of Mr. Freund and Mr.
      Goldsmith.
(5)   Consists  of $5,250,  $5,500 and $6,000 in  contributions  to  PubliCARD's
      401(k) plan for 2001, 2002 and 2003, respectively,  and $1,909, $2,880 and
      $2,706 for term life and disability  insurance  payments paid on behalf of
      Mr. DeLise for 2001, 2002 and 2003, respectively.
(6)   Includes   stock  options   granted   pursuant  to  a  2001  stock  option
      cancellation and re-pricing program (See "Stock Option Agreements") in the
      amount of 500,000 to Mr. Freund,  500,000 to Mr. Goldsmith,  and 95,000 to
      Mr. DeLise.

OPTION GRANTS IN LAST FISCAL YEAR

      During the fiscal  year ended  December  31,  2003,  there were no options
granted to the named executive officers.


                                       28
<PAGE>






AGGREGATE STOCK OPTION EXERCISES IN FISCAL YEAR 2003 AND FISCAL YEAR-END OPTION
VALUES

    The following  table sets forth certain  information as of December 31, 2003
concerning  exercisable  and  unexercisable  stock options held by the following
persons:

<TABLE>
<CAPTION>

                                                           NUMBER OF SECURITIES
                                                          UNDERLYING UNEXERCISED               VALUE OF UNEXERCISED
                                                            OPTIONS AT FISCAL                IN-THE-MONEY OPTIONS AT
                           SHARES                               YEAR END                        FISCAL YEAR END (1)
                           ACQUIRED ON     VALUE       -----------------------------        ----------------------------
         NAME              EXERCISE       REALIZED     EXERCISABLE     UNEXERCISABLE        EXERCISABLE    UNEXERCISABLE
         ----              --------       --------     -----------     -------------        -----------    -------------

<S>                             <C>            <C>       <C>               <C>                    <C>               <C>
Antonio L. DeLise                -              -         239,167           43,333                  -                -

Harry I. Freund                  -              -         416,667           83,333                  -                -

Jay S. Goldsmith                 -              -         416,667           83,333                  -                -
</TABLE>

(1)  These  values  are  based  on the  December  31,  2003  closing  price  for
PubliCARD's  common stock on the  Over-the-counter  Bulletin  Board of $.055 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, 2003, a total of 2,018,025  shares of Common Stock in
the aggregate were available for grant under the stock option plans.

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

STOCK OPTION AGREEMENTS

      In February 2001, the Company concluded a stock option re-pricing  program
whereby a total of  approximately  3.3 million  stock  options  were  cancelled.
Pursuant to the program,  employees and directors  voluntarily elected to cancel
stock  options held with an exercise  price that  exceeded  $4.81 per share.  In
return,  the Company granted a total of  approximately  3.1 million  replacement
stock options on August 20, 2001.  The  replacement  stock  options,  which were
granted under the Company's stock option plans, generally contain the same terms
and conditions of the cancelled stock options and have an exercise price of $.39
per share, the closing price of the Company's Common Stock on August 20, 2001.

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

EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS

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

                                       29
<PAGE>

      In the event one of the  above-named  individuals  (a) is terminated as an
employee of the Company for any reason other than  conviction of a felony or any
act of fraud or  embezzlement,  (b) is disabled  for six  consecutive  months or
dies, (c) is not elected and maintained in the office which he now occupies, (d)
is not included by the board of directors in the slate of directors  recommended
to shareholders,  (e) receives a reduction in his salary or fringe benefits, (f)
experiences  a change  in his  place of  employment  or is  required  to  travel
excessively or (g) experiences other  substantial,  material and adverse changes
in conditions under which the individual's  services are to be rendered,  within
three years  following a change of control,  the individual  will be entitled to
receive  in a lump sum within 10 days of the date of  discontinuance,  a payment
equal to 2.99 times the individual's average annual compensation for the shorter
of (a) the five years  preceding  the change of  control,  or (b) the period the
individual received compensation from PubliCARD for personal services.  Assuming
a change of control of the Company  and the  discontinuance  of an  individual's
services  were to occur at the present time,  payments in the amounts,  assuming
there are no "excess parachute payments" as defined in the Internal Revenue Code
of 1986 (the "Code"), would be made pursuant to the change of control agreements
of approximately $738,000 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, 2003 but have
been and will continue to be automatically  extended for a period of one year on
each  December 1, unless  terminated by either party prior to any December 1. In
the event a change of control occurs while the change of control  agreements are
in effect,  the term of such agreements will  automatically be extended to three
years from the date of the change of control and the  foregoing  renewal  option
will become inapplicable.

INFORMATION CONCERNING THE BOARD OF DIRECTORS

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

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

      Balfour  occupies a portion of the office  space  leased by the Company in
New  York  City.  The  Chairman  and Vice  Chairman  of the  Company's  Board of
Directors are the only shareholders of Balfour.  Balfour pays to the Company 50%
of the rent and occupancy  costs paid by the Company under its lease,  including
base rent,  electricity,  water,  real estate tax  escalations and operation and
maintenance  escalations.  The base rent  payable by  Balfour  is  approximately
$11,000 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 and qualified.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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


                                       30
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following  information  is furnished as of March 24, 2004 with respect
to each class of equity  securities  of the Company  beneficially  owned by each
person who owns of record or is known by the  Company to own  beneficially  more
than 5% of the common  stock of the Company and by all  directors,  nominees and
officers and by all directors, nominees and officers as a group. All information
with respect to beneficial  ownership  has been  furnished to the Company by the
respective shareholders of the Company and the directors, nominees and officers.

<TABLE>
<CAPTION>

                                                             BENEFICIAL OWNERSHIP OF SHARES
                                                                 OF COMMON STOCK AS OF          PERCENT OF
     NAME                           POSITION                       MARCH 24, 2004 (1)            CLASS (1)
     ----                           --------                       ------------------           ----------

Taube Hodson Stonex                 N/A                                2,735,500(2)               11.1%
Partners Limited
27 St. James Place
London SW1A INR
United Kingdom

<S>                                 <C>                              <C>                     <C>
Harry I. Freund                     Director, Chairman of the            969,401(3)                3.9%
                                    Board and Chairman

Jay S. Goldsmith                    Director, Vice Chairman of         1,180,997(4)                4.7%
                                    the Board and Vice Chairman

Antonio L. DeLise                   Director, President, Chief           280,611(5)                1.1%
                                    Executive Officer, Chief
                                    Financial Officer and
                                    Secretary

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

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

Emil Vogel                          Director                             138,800(8)            Less than 1%

All directors, nominees and                                            3,131,173(9)               11.9%
officers as a group (6 persons)
</TABLE>


(1)   Calculated  in  accordance  with Rule  13d-3  adopted by the SEC under the
      Exchange Act.
(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  444,444  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.


                                       31
<PAGE>

(4)   Includes  444,444  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 253,611 shares which may be acquired by Mr. DeLise within 60 days
      through the exercise of stock options.

(6)   Includes  210,000  shares which may be acquired by Mr. Cohn within 60 days
      through the exercise of stock options.

(7)   Includes  250,000 shares which may be acquired by Mr.  Schafran  within 60
      days through the exercise of stock options.  Also includes  114,050 shares
      of Common  Stock held by Mr.  Schafran's  spouse as to which Mr.  Schafran
      disclaims any beneficial interest.

(8)   Includes  80,000  shares which may be acquired by Mr. Vogel within 60 days
      through the exercise of stock options.

(9)   Includes  1,682,499  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, 2003.

<TABLE>
<CAPTION>
                                                                                     NUMBER OF SECURITIES REMAINING
                              NUMBER OF SECURITIES TO       WEIGHTED-AVERAGE          AVAILABLE FOR FUTURE ISSUANCE
                              BE ISSUED UPON EXERCISE       EXERCISE PRICE OF        UNDER EQUITY COMPENSATION PLANS
                              OF OUTSTANDING OPTIONS,     OUTSTANDING OPTIONS,     (EXCLUDING SECURITIES REFLECTED IN
                                WARRANTS AND RIGHTS        WARRANTS AND RIGHTS                 COLUMN (A))
PLAN CATEGORY                          (A)                        (B)                            (C)
-------------                   -------------------        -------------------           -------------------

<S>                                 <C>                            <C>                     <C>
Equity compensation plans
approved by security
holders                              2,292,975                       $.79                    2,018,025

Equity compensation plans
not approved by security
holders                                352,000                      $6.45                            -
                                     ---------                                               ---------

Total                                2,644,975                      $1.54                    2,018,025
                                     =========                                               =========
</TABLE>

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

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

                                                      2003         2002
                                                    --------      -------

     Audit fees                                     $179,758      $164,761
     Audit-related fees                               11,038        16,480
     Tax fees                                              -           -
     All other fees                                        -           -

      Audit-related  fees  consist  of  retirement  plan audit  fees.  The Audit
Committee  requires  that all  services  performed  by Deloitte & Touche LLP are
pre-approved   prior  to  the  services  being  performed.   All  services  were
pre-approved  by the Audit  Committee in 2003 and 2002. The Audit  Committee has
considered  whether  the  provision  of  non-audit  services  by  the  Company's
principal auditor are compatible with maintaining auditor independence. Deloitte
& Touche LLP did not perform any non-audit  services for the Company during 2003
and 2002.


                                       32
<PAGE>

                                     PART IV

ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


(a)   Financial Statements, Financial Statement Schedules and Exhibits.

      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.

      3)    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.

      21.1  Subsidiaries of PubliCARD. Filed herewith.

      23.1  Consent letter from Independent Auditors. Filed herewith.

      31.1  Rule 13a-14(a)/15d-14(a) certification. Filed herewith.

      32.1  Section 1350 certification. Filed herewith.


                                       33
<PAGE>

      (b)   Reports on Form 8-K

      Form 8-K dated November 10, 2003,  reporting the  Registrant's  results of
operations for the third quarter of 2003.


                                       34
<PAGE>

                                   SIGNATURES

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


                                               PUBLICARD,  INC.
                                               ----------------
                                               (Registrant)


    Date   March 29, 2004               By:    /s/ ANTONIO L. DELISE
        ------------------                     ----------------------
                                               Antonio L. DeLise, President,
                                               Chief Executive Officer, Chief
                                               Financial Officer and Director


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


    Date   March 29, 2004               By:    /s/ ANTONIO L. DELISE
        ------------------                     ----------------------
                                               Antonio L. DeLise, President,
                                               Chief Executive Officer, Chief
                                               Financial Officer and Director

    Date   March 29, 2004               By:    /s/ CLIFFORD B. COHN
        ------------------                     ----------------------
                                               Clifford B. Cohn, Director

    Date   March 29, 2004               By:    /s/ HARRY I. FREUND
        ------------------                     ----------------------
                                               Harry I. Freund, Chairman and
                                               Director

    Date   March 29, 2004               By:    /s/ JAY S. GOLDSMITH
        ------------------                     ----------------------
                                               Jay S. Goldsmith, Vice Chairman
                                               and Director

    Date   March 29, 2004               By:    /s/ L. G. SCHAFRAN
        ------------------                     ----------------------
                                               L. G. Schafran, Director

    Date   March 29, 2004               By:    /s/ EMIL VOGEL
        ------------------                     ----------------------
                                               Emil Vogel, Director



                                       35

<PAGE>

<TABLE>
<CAPTION>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

Financial Statements
--------------------

<S>                                                                                           <C>
Independent auditors' report--Deloitte & Touche LLP                                                F-2

Report of independent public accountants--Arthur Andersen LLP                                      F-3

Consolidated balance sheets as of December 31, 2003 and 2002                                       F-4

Consolidated statements of operations for the years ended December 31, 2003,
   2002 and 2001                                                                                   F-5

Consolidated statements of shareholders' equity (deficit) for the years ended
   December 31, 2003, 2002 and 2001                                                                F-6

Consolidated statements of cash flows for the years ended
   December 31, 2003, 2002 and 2001                                                                F-7

Notes to consolidated financial statements                                                     F-8 through F-26


Schedule
--------

Independent auditors' report on schedule--Deloitte & Touche LLP                                   F-27

Report of independent public accountants on schedule--Arthur Andersen LLP                         F-28

Schedule II - Valuation and qualifying accounts                                                   F-29

</TABLE>

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


                                      F-1
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                          INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying  consolidated balance sheets of PubliCARD, Inc.
and subsidiary  companies (the  "Company") as of December 31, 2003 and 2002, and
the  related  consolidated   statements  of  operations,   shareholders'  equity
(deficit),  and cash flows for the years then ended. These financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express  an opinion  on these  financial  statements  based on our  audits.  The
financial  statements  of the Company as of  December  31, 2001 and for the year
then ended,  before the inclusion of the  transitional  disclosures  relating to
Goodwill  and  Intangible  Assets,  as  described  in Note 1 of the notes to the
consolidated  financial  statements,  were  audited by other  auditors  who have
ceased  operations.  Those auditors  expressed an  unqualified  opinion on those
financial statements in their report dated March 20, 2002.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes 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,  the 2003 and 2002  consolidated  financial  statements  present
fairly, in all material respects, the financial position of PubliCARD,  Inc. and
subsidiary  companies as of December  31, 2003 and 2002,  and the results of its
operations  and its cash  flows  for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States of America.

As discussed above, the consolidated financial statements of PubliCARD, Inc. and
subsidiary  companies as of December 31, 2001, and for the year then ended, were
audited by other  auditors who have ceased  operations.  As described in Note 1,
these  consolidated  financial  statements  have been  revised  to  include  the
transitional  disclosures required by SFAS 142, which was adopted by the Company
as of January 1, 2002. Our audit  procedures  with respect to the disclosures in
Note 1 with respect to 2001 included (1) comparing the  previously  reported net
loss to the  previously  issued  financial  statements  and the  adjustments  to
reported net loss representing  amortization expense recognized in those periods
related  to  goodwill,  to  the  Company's  underlying  analysis  obtained  from
management,  and (2) testing the mathematical  accuracy of the reconciliation of
adjusted net loss to reported net loss and the related  loss-per-share  amounts.
In our opinion, the disclosures for 2001 in Note 1 are appropriate.  However, we
were  not  engaged  to  audit,  review,  or  apply  any  procedures  to the 2001
consolidated financial statements of the Company other than with respect to such
disclosures and, accordingly,  we do not express an opinion or any other form of
assurance on the 2001 consolidated financial statements taken as a whole.

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

/s/ DELOITTE & TOUCHE LLP

New York, New York
March 22, 2004


                                       F-2
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

PubliCARD,  Inc. dismissed Arthur Andersen LLP on June 5, 2002, and subsequently
engaged  Deloitte  & Touche LLP as its  independent  auditors.  The  predecessor
auditors'  report  appearing below is a copy of Arthur Andersen LLP's previously
issued opinion dated March 20, 2002. Since PubliCARD, Inc. is unable to obtain a
manually  signed audit  report,  a copy of Arthur  Andersen  LLP's most recently
signed and dated report has been included below to satisfy filing  requirements,
as permitted under Rule 2-02(e) of Regulation S-X.

To the Shareholders of PubliCARD, Inc.:

We have audited the accompanying  consolidated balance sheets of PubliCARD, Inc.
(a Pennsylvania  corporation)  and subsidiary  companies as of December 31, 2001
and  2000,   and  the  related   consolidated   statements  of  income   (loss),
shareholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 2001. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the 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. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes 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,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of PubliCARD,  Inc. and subsidiary
companies as of December 31, 2001 and 2000, and the results of their  operations
and their cash flows for each of the three  years in the period  ended  December
31, 2001, in conformity with  accounting  principles  generally  accepted in the
United States.

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 incurred  operating  losses and requires
additional capital to meet its obligations and accomplish the Company's business
plan,  which raises  substantial  doubt about its ability to continue as a going
concern.  The  financial  statements do not include any  adjustments  that might
result from the outcome of this uncertainty.

/s/ Arthur Andersen LLP

Stamford, Connecticut
March 20, 2002



                                       F-3
<PAGE>

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

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2003 AND 2002


                      ASSETS                                                      2003           2002
                                                                                --------      --------
                                                                           (in thousands, except share data)
Current assets:
    <S>                                                                         <C>           <C>
     Cash, including short-term investments of $3,501 and
      $1,138 in 2003 and 2002, respectively                                     $  3,580      $  1,290
     Trade receivables, less allowance for doubtful
      accounts of $115 and $103 in 2003 and 2002, respectively                     1,133           853
     Inventories                                                                     635           885
     Prepaid insurance and other                                                     440           375
                                                                                --------      --------

          Total current assets                                                     5,788         3,403

Equipment and leasehold improvements, net                                            191           379
Goodwill and intangibles                                                             822           862
Other assets                                                                         598         3,295
                                                                                --------      --------
                                                                                $  7,399      $  7,939
                                                                                ========      ========

                          LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
     Trade accounts payable and overdraft                                       $  1,569      $  1,269
     Accrued liabilities                                                           5,206         2,682
                                                                                --------      --------
          Total current liabilities                                                6,775         3,951

Other non-current liabilities                                                      3,552         4,990
                                                                                --------      --------

          Total liabilities                                                       10,327          8,941
                                                                                --------      --------
Commitments and contingencies (Note 7)

Shareholders' equity (deficit):
     Class A Preferred Stock, Second Series, no par value:
      1,000 shares authorized; 565 and 765 issued and
      outstanding as of December 31, 2003 and 2002, respectively                   2,825         3,825


     Common shares, $0.10 par value: 40,000,000 shares authorized;
      24,690,902 and 24,190,902 shares issued and outstanding as
      of December 31, 2003 and 2002, respectively                                  2,469         2,419
     Additional paid-in capital                                                  108,119       107,169
     Accumulated deficit                                                        (113,617)     (112,024)
     Other comprehensive loss                                                     (2,724)       (2,391)
                                                                                --------      --------
          Total shareholders' equity (deficit)                                    (2,928)       (1,002)
                                                                                --------      --------
                                                                                $  7,399      $  7,939
                                                                                ========      ========
</TABLE>

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


                                      F-4
<PAGE>

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

                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

                                                                                2003          2002            2001
                                                                             -----------   -----------     -----------
                                                                               (in thousands, except share data)

<S>                                                                           <C>           <C>             <C>
Revenues                                                                      $    4,781    $    4,605      $    5,652
                                                                             -----------   -----------     -----------

Cost of sales                                                                      2,316         2,455           2,875
Inventory adjustment                                                                   -             -           1,661
                                                                             -----------   -----------     -----------
     Gross margin                                                                  2,465         2,150           1,116
                                                                             -----------   -----------     -----------

Operating expenses:
     General and administrative                                                    2,708         3,235           4,625
     Sales and marketing                                                           1,844         1,877           3,413
     Product development                                                             584           605           2,442
     Stock compensation expense                                                        -             -              86
     Amortization of goodwill and intangibles                                         40           576           1,824
     Impairment of goodwill and intangibles                                            -         1,365               -
     Repositioning charge                                                              -             -           5,656
                                                                             -----------   -----------     -----------
                                                                                   5,176         7,658          18,046
                                                                             -----------   -----------     -----------
Loss from operations                                                              (2,711)       (5,508)        (16,930)
                                                                             -----------   -----------     -----------

Other income (expenses):
     Interest income                                                                  15            71             476
     Interest expense                                                                (12)          (39)            (65)
     Cost of retirement benefits - non-operating                                    (903)         (795)           (788)
     Write-down of minority investment                                            (3,000)       (2,068)              -
     Gain on insurance recoveries                                                  4,590             -               -
     Other income                                                                    428            80             136
                                                                             -----------   -----------     -----------
                                                                                   1,118        (2,751)           (241)
                                                                             -----------   -----------     -----------
Loss from continuing operations                                                   (1,593)        (8,259)       (17,171)
Income from discontinued operations                                                    -         1,066           2,350
                                                                             -----------   -----------     -----------
Net loss                                                                      $   (1,593)   $   (7,193)    $   (14,821)
                                                                             ===========   ===========     ===========

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

Weighted average common shares outstanding                                    24,469,748    24,179,364      24,188,325
                                                                             ===========   ===========     ===========
</TABLE>

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


                                      F-5
<PAGE>

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

            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

                                                       Class A
                                                   Preferred Stock         Common Shares
                                                   ---------------         -------------      Additional
                                                  Shares                 Shares                Paid-in     Accumulated
                                                  Issued     Amount      Issued      Amount    Capital       Deficit
                                                  ------     ------      ------      ------    -------       -------
                                                              (in thousands, except share data)


<S>                                                  <C>     <C>       <C>           <C>    <C>             <C>
Balance - January 1, 2001                            790     $3,950    24,237,402    $2,424 $  107,300      $  (90,010)
                                              ---------- ----------    ---------- --------- ----------      ----------

Conversion of preferred stock                        (10)       (50)       25,000         2         48               -
                                                                                                                     -
Private placement costs                                -          -             -         -        (43)              -
Repurchase of common shares                            -          -     (109,000)       (11)      (207)              -
Amortization of unearned compensation                  -          -             -         -          -               -

Comprehensive loss:
    Net loss                                           -          -             -         -          -         (14,821)
    Foreign currency
     translation adjustment                            -          -             -         -          -               -
    Minimum pension liability                          -          -             -         -          -               -
                                              ---------- ----------    ---------- --------- ----------      ----------
     Total comprehensive loss

Balance - December 31, 2001                          780      3,900    24,153,402     2,415    107,098        (104,831)
                                              ---------- ----------    ---------- --------- ----------      ----------

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

Comprehensive loss:
    Net loss                                           -          -             -         -          -          (7,193)
    Foreign currency
     translation adjustment                            -          -             -         -          -               -
    Minimum pension liability                          -          -             -         -          -               -
                                              ---------- ----------    ---------- --------- ----------      ----------
       Total comprehensive loss


Balance - December 31, 2002                          765      3,825    24,190,902     2,419    107,169        (112,024)
                                              ---------- ----------    ---------- --------- ----------      ----------

Conversion of preferred stock                       (200)    (1,000)      500,000        50        950               -

Comprehensive loss:
    Net loss                                           -          -             -         -          -          (1,593)
    Foreign currency translation adjustment            -          -             -         -          -               -
    Minimum pension liability                          -          -             -         -          -               -
                                              ---------- ----------    ---------- --------- ----------      ----------

       Total comprehensive loss

Balance - December 31, 2003                          565     $2,825    24,690,902   $ 2,469  $ 108,119      $ (113,617)
                                              ========== ==========    ========== ========= ==========      ==========


<CAPTION>

                                                                          Share-
                                                 Other        Unearned    holders'
                                             Comprehensive   Compensa-    Equity
                                                 Loss          tion      (Deficit)
                                                 ----          ----      ---------

<S>                                               <C>         <C>        <C>
Balance - January 1, 2001                         $    -      $  (86)    $ 23,578


Conversion of preferred stock                          -          -             -

Private placement costs                                -          -           (43)
Repurchase of common shares                            -          -          (218)
Amortization of unearned compensation                  -         86            86

Comprehensive loss:
    Net loss                                           -          -       (14,821)
    Foreign currency
     translation adjustment                         (197)         -          (197)
    Minimum pension liability                       (901)         -          (901)
                                              ---------- ----------    ----------
     Total comprehensive loss                                             (15,919)
                                                                       ----------

Balance - December 31, 2001                       (1,098)         -         7,484
                                              ---------- ----------    ----------

Conversion of preferred stock                          -          -             -

Comprehensive loss:
    Net loss                                           -          -        (7,193)
    Foreign currency
     translation adjustment                          112          -           112
    Minimum pension liability                     (1,405)         -        (1,405)
                                              ---------- ----------    ----------
       Total comprehensive loss                                            (8,486)
                                                                       ----------

Balance - December 31, 2002                       (2,391)         -        (1,002)
                                              ---------- ----------    ----------

Conversion of preferred stock                          -          -             -

Comprehensive loss:
    Net loss                                           -          -        (1,593)
    Foreign currency translation adjustment           10          -            10
    Minimum pension liability                       (343)         -          (343)
                                              ---------- ----------    ----------

       Total comprehensive loss                                            (1,926)
                                                                       ----------

Balance - December 31, 2003                     $ (2,724)     $   -      $ (2,928)
                                              ========== ==========    ==========
</TABLE>

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


                                      F-6
<PAGE>

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

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                                                                            2003      2002       2001
                                                                            ----      ----       ----
                                                                                  (in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                        <C>      <C>       <C>
     Net loss                                                             $(1,593)  $(7,193)  $(14,821)
     Adjustments to reconcile net loss to net cash
            used in operating activities:
          Gain from discontinued operations                                     -    (1,066)    (2,350)
          Insurance recoveries                                             (4,590)        -          -
          Write-down of minority investment                                 3,000     2,068          -
          Amortization of goodwill and intangibles                             40       576      1,824
          Impairment of goodwill and intangibles                                -     1,365          -
          Stock compensation expense                                            -         -         86
          Depreciation and amortization                                       153       205        308
          Gain on disposal of property and fixed assets                      (286)        -          -
          Repositioning charge and inventory adjustment                         -         -      7,317
          Changes in assets and liabilities:
             Trade receivables                                               (239)      686        122
             Inventories                                                      281      (248)      (830)
             Prepaid insurance and other current assets                        37       404       (450)
             Other assets                                                     293       533        340
             Trade accounts payable                                           258       (27)        15
             Accrued liabilities                                            2,455      (135)    (2,227)
             Other non-current liabilities                                 (1,999)   (2,253)    (2,004)
                                                                         --------  --------   --------
              Net cash used in operating activities                        (2,190)   (5,085)   (12,670)
                                                                         --------  --------   --------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures                                                     (11)      (28)       (83)
     Proceeds from insurance recoveries, net of funds held in escrow        4,118         -          -
     Proceeds from discontinued operations and sale of
       property and fixed assets                                              371     1,865        223
     Other                                                                     (3)       47          6
                                                                         --------  --------   --------
               Net cash provided by investing activities                    4,475     1,884        146
                                                                         --------  --------   --------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Private placement of Class A Preferred Stock expenses                      -         -        (43)
                                                                         --------  --------   --------
               Net cash used in financing activities                            -         -        (43)
                                                                         --------  --------   --------

Effect of exchange rate changes on cash and cash equivalents                    5        12         (3)
                                                                         --------  --------   --------

Net increase (decrease) in cash                                             2,290    (3,189)   (12,570)
Cash - beginning of period                                                  1,290     4,479     17,049
                                                                         --------  --------   --------

Cash - end of period                                                      $ 3,580   $ 1,290    $ 4,479
                                                                         ========  ========   ========

 Cash paid for interest                                                    $   12    $   81     $   79
                                                                         ========  ========   ========
</TABLE>

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


                                      F-7
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

      In July 2001,  after  evaluating the timing of potential  future revenues,
PubliCARD's  Board decided to shift the  Company's  strategic  focus.  While the
Board remained confident in the long-term  prospects of the smart card business,
the timing of public sector and corporate  initiatives in wide-scale,  broadband
environments  utilizing  the  Company's  smart card reader and chip products had
become more  uncertain.  Given the  lengthened  time horizon,  the Board did not
believe  it would be  prudent  to  continue  to  invest  the  Company's  current
resources  in the  ongoing  development  and  marketing  of these  technologies.
Accordingly,  the Board  determined that  shareholders'  interests would be best
served by pursuing strategic  alliances with one or more companies that have the
resources  to  capitalize  more fully on the  Company's  smart  card  reader and
chip-related  technologies.  In  connection  with  this  shift in the  Company's
strategic  focus,  workforce  reductions and other measures were  implemented to
achieve cost savings.  See Note 10 for a discussion on the repositioning  charge
associated with this action.

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

LIQUIDITY AND GOING CONCERN CONSIDERATIONS
      These  consolidated  financial  statements  contemplate the realization of
assets and the satisfaction of liabilities in the normal course of business. The
Company has incurred operating losses, a substantial  decline in working capital
and negative cash flow from  operations  for a number of years.  The Company has
also experienced a substantial reduction in its cash and short term investments,
which  declined  from $17.0  million at  December  31,  2000 to $3.6  million at
December 31, 2003.  The Company also had a working  capital  deficiency  of $1.0
million and an accumulated deficit of $113.6 million at December 31, 2003.

      If the distress  termination of the Company's defined benefit pension plan
for which the Company has applied is completed  (see Note 5), the Company's 2003
and 2004 funding  requirements  to the plan could be  eliminated,  in which case
management  believes  that  existing  cash and  short  term  investments  may be
sufficient  to meet the  Company's  operating  and capital  requirements  at the
currently  anticipated  levels through  December 31, 2004.  However,  additional
capital will be necessary in order to operate  beyond  December 2004 and to fund
the current business plan and other  obligations.  While the Company is actively
considering various funding alternatives, the Company has not secured or entered
into any arrangements to obtain additional funds. There can be no assurance that
the Company will eliminate the 2003 or 2004 funding requirements for the defined
benefit pension plan or be able to obtain additional funding on acceptable terms
or at all. If the  Company  cannot  raise  additional  capital to  continue  its
present  level of operations  it may not be able to meet its  obligations,  take
advantage of future acquisition  opportunities or further develop or enhance its
product  offering,  any of which  could  have a material  adverse  effect on its
business and results of operations and could lead the Company to seek bankruptcy
protection. These conditions raise substantial doubt about the Company's ability
to continue as a going concern.  The  consolidated  financial  statements do not
include any adjustments that might result from the outcome of this uncertainty.


                                      F-8
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

INVENTORIES
      Inventories  are stated at lower of cost (first-in,  first-out  method) or
market.  The Company  periodically  evaluates the need to record adjustments for
impairment of inventory.  Inventory in excess of the Company's  estimated  usage
requirements is written down to its estimated net realizable value.  Inherent in
the estimates of net realizable value are management's  estimates related to the
Company's production schedules,  customer demand,  possible alternative uses and
the  ultimate  realization  of  potentially  excess  inventory.  Inventories  at
December 31, 2003 and 2002 consisted of the following (in thousands):

                                                   2003       2002
                                                   -----      -----

           Raw materials and supplies              $ 444      $ 154
           Work-in-process                            42         21
           Finished goods                            149        710
                                                   -----      -----
                                                   $ 635      $ 885
                                                   =====      =====

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, 2003 and 2002  consisted  of the  following  (in
thousands):

                                                   2003       2002
                                                   ----       ----

           Equipment, furniture and fixtures     $ 1,093      $ 899
           Leasehold improvements                    224        224
           Accumulated depreciation
            and amortization                      (1,126)      (744)
                                                 -------    -------
                                                  $  191     $  379
                                                 =======    =======

      Depreciation and amortization expense was $153,000,  $205,000 and $308,000
in 2003, 2002 and 2001, respectively.

GOODWILL AND INTANGIBLES
      Goodwill is the excess of the  purchase  price and related  costs over the
value  assigned  to the net  tangible  and  intangible  assets  relating  to the
November 1999 acquisition of Infineer.  Through December 31, 2001,  goodwill had
been  amortized  over a five year life.  Effective  January 1, 2002, the Company
adopted  Financial  Accounting  Standards Board ("FASB")  Statement of Financial
Accounting  Standards  ("SFAS") No. 142,  "Goodwill and Other Intangible Assets"
("SFAS No. 142"). In accordance with the guidelines of this statement,  goodwill
and  indefinite  lived  intangible  assets are no longer  amortized  but will be
assessed for impairment on at least an annual basis.  SFAS No. 142 also requires
that  intangible  assets with  estimable  useful lives be  amortized  over their
respective  estimated  useful lives and reviewed for impairment.  The historical
results of periods  prior to 2002 in the  Company's  Consolidated  Statements of
Operations do not reflect the effect of SFAS No. 142 and, accordingly,  the 2001
results  included  goodwill  amortization  expense  of $1.1  million.  Excluding
goodwill amortization, the pro forma net loss for 2001 was $13.7 million or $.57
per share.


                                      F-9
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

    In performing its annual  goodwill  impairment test at the end of the fourth
quarter of 2002, the Company  determined that goodwill had been impaired.  Based
on comparing the values derived from the two techniques  described  above to the
carrying value of the reporting unit, the Company recorded a goodwill impairment
loss of  $364,000 in the fourth  quarter of 2002.  The  Company  attributed  the
impairment  loss  to the  value  of a  comparable  entity  that  was  sold  in a
transaction in late 2002, the significant  2002 operating loss for the reporting
unit and lower forecasted  revenue growth due to a continued  overall decline in
technology  spending  and a  shortage  of  capital  available  to  invest in the
reporting unit. The Company performed its annual goodwill impairment test at the
end of the fourth  quarter of 2003 and  determined  that  goodwill  had not been
impaired.  On an ongoing  basis,  the  Company  expects  to  perform  its annual
impairment  test at the end of the fourth quarter absent any interim  impairment
indicators.

    The changes in the carrying  value of goodwill  for the year ended  December
31, 2003 and 2002 was as follows (in thousands):
                                                   2003       2002
                                                   ----       ----

           Balance, beginning of year             $  782     $1,146
           Impairment loss                             -       (364)
                                                  ------     ------
           Balance, end of year                   $  782     $  782
                                                  ======     ======

      Amortization  of goodwill for 2001 was $1.1 million.  In 2001, the Company
wrote-off $3.3 million of goodwill  associated with the July 2001  repositioning
action. See Note 10.

      Intangible  assets  consist of completed  technology  identified as of the
Infineer  acquisition  date and are amortized over a five year life.  Long-lived
assets  and  certain  identifiable  intangible  assets  to be held  and used are
reviewed for impairment  whenever  events or changes in  circumstances  indicate
that the carrying amount of such assets may not be recoverable. Determination of
recoverability  is  based on an  estimate  of  undiscounted  future  cash  flows
resulting from the use of the asset and its eventual disposition. Measurement of
any impairment loss for long-lived  assets and certain  identifiable  intangible
assets that management expects to hold and use is based on the net realizable of
the  asset.  In the fourth  quarter of 2002,  the  Company  determined  that its
intangible  assets had been  impaired  and recorded an  impairment  loss of $1.0
million.  The Company  attributes the impairment  loss to the  significant  2002
operating loss for the reporting unit and lower forecasted revenue growth due to
a continued  overall  decline in  technology  spending and a shortage of capital
available  to invest in the  reporting  unit.  In 2001,  the  Company  wrote-off
$822,000 of intangibles  associated with the July 2001 repositioning action. See
Note 10.


                                      F-10
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    The gross carrying amount and accumulated  amortization of intangible assets
at December 31, 2003 and 2002 consisted of the following (in thousands):

                                                   2003       2002
                                                   ----       ----

           Gross carrying amount                 $ 1,881    $ 1,881
           Accumulated amortization               (1,841)    (1,801)
                                                 -------    -------
                                                 $    40    $    80
                                                 =======    =======

      Amortization of intangibles for 2003, 2002 and 2001 was $40,000,  $576,000
and  $746,000  respectively.  The  estimated  annual  amortization  expense  for
intangibles is $40,000 for 2004.

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

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

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

STOCK-BASED COMPENSATION
      SFAS No. 123, "Accounting for Stock-Based  Compensation" ("SFAS No. 123"),
requires that an entity account for employee  stock-based  compensation  under a
fair value based method. However, SFAS No. 123 also allows an entity to continue
to measure  compensation  cost using the  intrinsic  value method of  accounting
prescribed by Accounting  Principles Board Opinion No. 25, "Accounting for Stock
Issued to  Employees  ("APB No.  25").  The  Company  continues  to account  for
employee stock-based  compensation using the intrinsic value based method and is
required  to make pro forma  disclosures  of net income  (loss) and  related per
share amounts as if the fair value based method of accounting under SFAS No. 123
had been applied.  Restricted stock or stock awards are recorded as compensation
expense over the vesting  period,  if any, based on the market value on the date
of grant.

    In December 2002, the FASB issued SFAS No. 148,  "Accounting for Stock-Based
Compensation-Transition  and  Disclosure".  SFAS No.  148 amends  SFAS No.  123,
"Accounting for Stock-Based  Compensation",  to provide  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for  stock-based  employee  compensation.  In addition,  SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for stock
based  employee  compensation  and the  effect of the  method  used on  reported
results.  The provisions of SFAS No. 148 are effective for financial  statements
for fiscal  years and interim  periods  ending  after  December  15,  2002.


                                      F-11
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The disclosure  provisions of SFAS No. 148 have been adopted by the Company (see
below).  SFAS No. 148 did not  require  the  Company to change to the fair value
based method of accounting for stock-based compensation.

      At December 31, 2003, the Company had four fixed stock-based  compensation
plans,  which are  described  more fully in Note 6. The  exercise  price of each
option  granted  pursuant  to these  plans is equal to the  market  price of the
Company's  common  stock  on the date of  grant.  Accordingly,  pursuant  to APB
Opinion No. 25, no compensation  cost has been  recognized for such grants.  Had
compensation cost been determined based on the fair value at the grant dates for
such awards consistent with the method prescribed by SFAS No. 123, the Company's
net loss and loss per share would have been as follows (in thousands, except per
share data):

                                                  2003       2002       2001
                                                  ----       ----       ----

     Net loss, as reported                      $ (1,593)  $ (7,193)  $ (14,821)
     Deduct stock-based compensation expense
       determined under fair value based method     (490)      (172)     (1,301)
                                                --------   --------   ---------
     Pro forma net loss                         $ (2,083)  $ (7,365)  $ (16,122)
                                                ========   ========   =========

     Basic and diluted loss per share:
       As reported                              $   (.07)  $   (.30)   $   (.61)
                                                ========   ========    ========
       Pro forma                                $   (.09)  $   (.30)   $   (.67)
                                                ========   ========    ========

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

                                                     2003      2002        2001
                                                     ----      ----        ----

     Expected option term (years)                    5.0        5.0        7.85
     Expected volatility                            93.0%      75.0%       85.0%
     Risk-free interest rate                         3.4%       3.5%        6.2%
     Weighted average fair value per option         $.05       $.16        $.31

USE OF ESTIMATES
      The preparation of these financial  statements required the use of certain
estimates by  management  in  determining  the  Company's  assets,  liabilities,
revenues  and  expenses.   Certain  of  our  accounting   policies  require  the
application of significant  judgment by management in selecting the  appropriate
assumptions  for  calculating  financial  estimates.   By  their  nature,  these
judgments  are  subject  to an  inherent  degree  of  uncertainty.  The  Company
considers certain accounting policies related to revenue recognition,  estimates
of reserves for receivables and inventories,  valuation of investments, goodwill
and  intangibles  and  pension  accounting  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
2003, 2002 and 2001 since the effect of stock options,  warrants and convertible
preferred stock were anti-dilutive.


                                      F-12
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 stockholders' equity.

CONCENTRATION OF CREDIT RISK
      The carrying amount of financial instruments including cash and short-term
investments, accounts receivable and accounts payable approximated fair value as
of  December  31,  2003,  because  of the  relatively  short  maturity  of these
instruments.  The Company  maintains all of its cash and short-term  investments
with high-credit quality financial institutions. For the year ended December 31,
2003, no one customer accounted for more than 10% of revenues.  Amounts due from
a second  customer  represented  approximately  11% of the  accounts  receivable
balance as of December 31, 2003.

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, 2003, such costs eligible
for capitalization  were  insignificant.  Accordingly,  all such costs have been
charged to product development expenses.

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

RECENT ACCOUNTING PRONOUNCEMENTS
      In November  2002,  the FASB issued  Interpretation  No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of  Others".  The  interpretation   addresses  the
disclosures  to be made by a guarantor  in its  financial  statements  about its
obligations  under  guarantee.  In addition,  it also clarifies the requirements
related to the  recognition  of a liability by a guarantor at the inception of a
guarantee  for the  obligations  the  guarantor  has  undertaken in issuing that
guarantee.   The  initial   recognition  and  measurement   provisions  of  this
interpretation  are  applicable on a prospective  basis to guarantees  issued or
modified after December 31, 2002. The  disclosure  provisions  became  effective
December 15, 2002. The adoption of the recognition  and  measurement  provisions
did  not  have  a  material  impact  on  the  Company's  Consolidated  Financial
Statements.

      In January  2003,  the FASB  issued  FASB  Interpretation  ("FIN") No. 46,
"Consolidation of Variable Interest Entities". In December 2003, the FASB issued
FIN No. 46  (Revised)  ("FIN  46-R") to address  certain  FIN 46  implementation
issues.  This  interpretation  clarifies the application of Accounting  Research
Bulletin ("ARB") No. 51, "Consolidated  Financial Statements" for companies that
have interests in entities that are Variable  Interest Entities (VIE) as defined
under FIN 46. According to this interpretation,  if a company has an interest in
a VIE and is at risk for a majority of the VIE's  expected  losses or receives a
majority of the VIE's expected gains it shall consolidate the VIE. FIN 46-R also
requires additional  disclosures by primary  beneficiaries and other significant
variable interest  holders.  For entities acquired or created before February 1,
2003,  this  interpretation  is  effective  no later  than the end of the  first
interim or reporting period ending after March 15, 2004,  except for those VIE's
that are considered to be special purpose entities, for which the effective date
is no later than the end of the first interim or annual  reporting period ending
after  December 15, 2003.  For all entities  that were  acquired  subsequent  to
January 31, 2003,  this  interpretation  is effective as of the first interim or
annual period ending after  December 31, 2003. The adoption of the provisions of
this interpretation did not have a material effect on the Company's Consolidated
Financial Statements.


                                      F-13
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      In April 2003,  the FASB issued SFAS No. 149,  "Amendment of Statement 133
on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No. 149
clarifies  under what  circumstances  a contract with an initial net  investment
meets  the  characteristic  of a  derivative  as  discussed  in  SFAS  No.  133,
"Accounting for Derivative Instruments and Hedging Activities".  In addition, it
clarifies when a derivative contains a financing component that warrants special
reporting in the  statement  of cash flows.  SFAS No. 149 amends  certain  other
existing  pronouncements.  SFAS No. 149 is effective on a prospective  basis for
contracts  entered  into or  modified  after  June  30,  2003,  and for  hedging
relationships designated after June 30, 2003. The adoption of this statement did
not have a material impact on the Company's Consolidated Financial Statements.

      In May  2003,  the FASB  issued  SFAS No.  150,  "Accounting  for  Certain
Financial  Instruments  with  Characteristics  of both  Liabilities  and Equity"
("SFAS  No.  150").  SFAS  No.  150  establishes  standards  for  how an  issuer
classifies and measures certain financial  instruments with  characteristics  of
both  liabilities  and equity.  It requires that an issuer  classify a financial
instrument  that is  within  its  scope  as a  liability  (or an  asset  in some
circumstances).  Many of those instruments were previously classified as equity.
This statement will become effective for financial  instruments  entered into or
modified after May 31, 2003,  and otherwise  shall be effective at the beginning
of the first interim period  beginning after June 15, 2003. The adoption of this
statement did not have a material impact on the Company's Consolidated Financial
Statements.

      In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures  about Pensions and Other  Postretirement  Benefits"  ("SFAS No. 132
revised") that improves  financial  statement  disclosures  for defined  benefit
plans.  The change replaces  existing SFAS No. 132 disclosure  requirements  for
pensions and other  postretirement  benefits and revises employers'  disclosures
about pension plans and other  postretirement  benefit plans. It does not change
the  measurement  of  recognition  of  those  plans  required  by SFAS  No.  87,
"Employers'  Accounting for Pensions" or SFAS No. 88, "Employers' Accounting for
Settlements   and   Curtailments  of  Defined  Benefit  Pension  Plans  and  for
Termination Benefits." SFAS No. 132 revised retains the disclosure  requirements
contained in the original  SFAS No. 132,  but  requires  additional  disclosures
about the plan assets, obligations, cash flows, and net periodic benefit cost of
defined benefit pension plans and other defined  benefit  postretirement  plans.
SFAS No. 132 revised is  effective  for annual and interim  periods  with fiscal
years ending after December 15, 2003. The Company adopted the revised disclosure
provisions.

      In December  2003, the  Securities  and Exchange  Commission  issued Staff
Accounting Bulletin ("SAB") No. 104, Revenue  Recognition,  which supersedes SAB
No. 101,  Revenue  Recognition  in  Financial  Statements.  SAB No. 104 rescinds
accounting guidance in SAB No. 101 related to  multiple-element  arrangements as
this  guidance  has been  superseded  as a result of the issuance of EITF 00-21,
"Accounting for Revenue  Arrangements with Multiple  Deliverables." The adoption
of SAB No.  104 did not have a  material  impact on the  Company's  Consolidated
Financial Statements.

NOTE 2 - INVESTMENTS

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


                                      F-14
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    In  conjunction  with the  decision  to exit the smart card  reader and chip
business, in September 2001, the Company formed a new minority-owned  affiliate,
Mako  Technologies  LLC  ("Mako"),  to market  its smart  card  reader  and chip
technologies.  The Company  contributed certain inventories and equipment valued
at $238,000, in exchange for a 31% fully diluted ownership interest in Mako. The
Company  also  granted a license of its reader  and chip  technology  to Mako in
exchange for royalties  based on sales over the next two years.  After  reducing
headcount and reassessing business potential,  a decision was made in April 2002
to  liquidate  Mako and  terminate  the  license  agreement.  Pending  the final
wind-down of this venture,  the Company  wrote-off the entire investment in Mako
in 2002.  During 2002,  the Company also realized  proceeds of $224,000 from the
sale of  smart  card  reader  and chip  inventory,  which  had  been  previously
written-off.  The Mako write-off and inventory  proceeds are reflected in "Other
(expense) income".

NOTE 3 - SHAREHOLDERS' EQUITY

      On  December 6, 2000,  the Company  completed  the  private  placement  of
525,000 shares of common stock and 790 shares of Class A Preferred Stock, Second
Series ("Class A Preferred  Stock"),  a newly  designated  series of convertible
preferred stock,  resulting in aggregate  proceeds of $5.0 million to PubliCARD.
The  securities  were  sold to  institutional  investors  and  other  accredited
investors  in the U.S.  and  Europe.  Each share of Class A  Preferred  Stock is
convertible into 2,500 shares of common stock.  Therefore,  the shares of common
stock issued plus the shares of common stock  issuable  upon  conversion  of the
Class A Preferred Stock  aggregate 2.5 million common shares.  The proceeds from
the private placement were used to acquire the ownership  interest in TecSec. In
2001,  2002 and 2003,  10 shares,  15 shares and 200 shares of Class A Preferred
Stock were  converted  into 25,000  shares,  37,500  shares and 500,000  shares,
respectively, of PubliCARD's common stock.

      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.

      In June 2001,  the  Company  repurchased  109,000  shares of common  stock
pursuant to an incentive award  agreement  related to the disposition of certain
assets.

      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.


                                      F-15
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - INCOME TAXES

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

                                                   2003       2002        2001
                                                   ----       ----        ----

     United States                               $  (508)   $(4,686)   $(14,477)
     Foreign                                      (1,085)    (3,573)     (2,694)
                                                 -------    -------    --------
                                                 $(1,593)   $(8,259)   $(17,171)
                                                 =======    =======    ========

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


                                                   2003      2002        2001
                                                   ----      ----        ----

     Federal taxes, at statutory rate            $  (558)   $(2,890)   $ (6,010)
     Effect of domestic and foreign losses
       with no tax benefit                           543      2,204       4,235
     Amortization of goodwill and
       intangibles and other
       non-deductible expenses                        15        686       1,775
                                                 -------    -------    --------
     Income tax expense                          $     -    $     -    $      -
                                                 =======    =======    ========

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

                                                              2003        2002
                                                              ----        ----

                   Net operating loss carryforward          $24,583     $23,495
                   Pension expense                            1,417       1,155
                   TecSec investment                              -         724
                   Other, net                                   (26)        161
                                                            -------     -------
                                                             25,974      25,535
                   Less valuation allowance                 (25,974)    (25,535)
                                                            -------     -------
                   Net deferred taxes                       $     -     $     -
                                                            =======     =======

      As of December  31,  2003,  approximately  $66.8  million of U.S. tax loss
carryforwards (subject to review by the Internal Revenue Service), expiring from
2005  through  2023,  were  available  to  offset  future  taxable  income.  The
carryforwards expire as follows (in thousands):

              YEAR ENDING
              DECEMBER 31,                                           AMOUNT

              2005                                                $   6,700
              2006                                                    2,400
              2007                                                    4,300
              2008                                                    5,000
              2009                                                    2,300
              2010 - 2023                                            46,100
                                                                   --------
                                                                   $ 66,800
                                                                   ========


                                      F-16
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

      At December 31, 2003, the Company's foreign subsidiary had a net operating
loss  carryforward  for income tax purposes of approximately  $4.0 million.  The
operating loss carryforward has no expiration  period.  For financial  reporting
purposes,  a valuation  allowance of $1.2 million has been  recognized to offset
the deferred tax asset relating to this carryforward.

NOTE 5 - EMPLOYEE BENEFITS

      The Company maintains a 401(k) plan for its U.S. employees.  The assets of
the  Company's  401(k) plan are held by an outside fund manager and are invested
in accordance with the  instructions of the individual  plan  participants.  The
Company's matching  contributions  totaled $9,000,  $14,000 and $68,000 in 2003,
2002 and 2001, respectively.

      The  Company  sponsors  a  defined  benefit  pension  plan  (the  "Plan").
Participants  ceased  accruing  benefits under the Plan  effective  December 31,
1993. Information regarding the Plan, measured as of December 31, 2003 and 2002,
is as follows (in thousands):

                                                            2003        2002
                                                            ----        ----
      Change in benefit obligation:
      Benefit obligation at beginning of year            $    9,354  $    9,063
      Interest cost                                             531         611
      Benefit payments                                         (916)       (953)
      Actuarial (gain) or loss                                  778         633
                                                         ----------  ----------
      Benefit obligation at end of year                       9,747       9,354
                                                         ----------  ----------

      Change in plan assets:
      Fair value of plan assets at beginning of year          3,210       3,601
      Actual return on plan assets                              542        (502)
      Employer contributions                                      -       1,064
      Benefit payments and plan expenses                       (947)       (953)
                                                         ----------  ----------
      Fair value of plan assets at end of year                2,805       3,210
                                                         ----------  ----------

      Funded status                                          (6,942)     (6,144)
      Unrecognized transition obligation                          -         293
      Unrecognized prior service cost                             2           2
      Unrecognized net loss                                   2,649       2,306
                                                         ----------  ----------
                                                         $   (4,291) $   (3,543)
                                                         ==========  ==========

      Amounts recognized in statement of financial position consist of:

      Accrued benefit liability                          $   (6,942) $   (6,144)
      Intangible asset                                            2         295
      Accumulated comprehensive loss                          2,649       2,306
                                                         ----------  ----------
      Net amount recognized                              $   (4,291) $   (3,543)
                                                         ==========  ==========

                                      F-17
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Cost of  retirement  benefits -  non-operating  of $903,000,  $795,000 and
$788,000 in 2003, 2002 and 2001, respectively, includes the net periodic pension
cost and other Plan related expenses. The components of the net periodic pension
cost were as follows (in thousands):

                                                  2003      2002        2001
                                               ---------  ---------   ---------
      Interest cost                            $     531  $     611   $     648
      Expected return on plan assets                (162)      (268)       (317)
      Amortization of transition obligation          293        293         293
      Amortization of net (gain) loss                 86          -           -
                                               ---------  ---------   ---------
      Net periodic pension cost                $     748  $     636   $    624
                                               =========  =========   =========

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

                                                  2003      2002        2001
                                               ---------  ---------   ---------

      Other comprehensive income               $     343  $   1,405   $     901

      The  assumptions  used to determine the net periodic  pension cost for the
years ending December 31, 2003,  2002 and 2001 and the benefit  obligation as of
December 31, 2003 and 2002 were are follows:

<TABLE>
<CAPTION>

                                                     NET PERIODIC PENSION COST     BENEFIT OBLIGATION
                                                    ---------------------------    ------------------
                                                    2003       2002        2001      2003     2002
                                                    ----       ----        ----      ----     ----

<S>                                                  <C>       <C>          <C>      <C>       <C>
      Discount rate                                  6.0%      7.25%        7.5%     5.0%      6.0%
      Long-term rate of return                       6.0%       8.0%        8.0%     N/A       N/A
</TABLE>

      As  discussed  below,  Company  filed a notice  with the  Pension  Benefit
Guaranty Corporation ("PBGC") seeking a "distress  termination" of the Plan. The
discount rate and long-term rate of return assumptions were decreased in 2003 to
reflect the Plan's short time horizon due to the pending termination request.

      The Plan's  asset  allocation  at  December  31,  2003 and 2002,  by asset
category was as follows:

                                                    2003       2002
                                                    ----       ----

      Equity securities                               64%        60%
      Government bonds                                23%        23%
      Corporate bonds                                  4%         7%
      Money market and accrued income                  9%        10%
                                                    ----       ----
                                                     100%       100%
                                                    ====       ====

      The investment  objectives of the Plan is to diversify  assets in order to
reduce the risk of wide  swings in market  value from  year-to-year,  to provide
asset  growth  at a rate in  excess of the rate of  inflation  and to  achieve a
positive  rate of return over the long term that  significantly  contributes  to
meeting the Plan's obligations. The target asset mix guidelines are as follows:

      ASSET CLASS                                 MINIMUM     TARGET    MAXIMUM
      -----------                                 -------     ------    -------
      Equity securities                               40%        60%         80%
      Investment grade debt securities                30%        40%         50%
      Cash and cash equivalents                        0%         0%         10%


                                      F-18
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Equity  securities  include  PubliCARD  common  stock  in  the  amount  of
approximately  $9,000 and  $26,000 at December  31, 2003 and 2002,  respectively
(less than 1% of total plan assets).

      Prior to 2003, the Company's funding policy had been to contribute amounts
sufficient  to meet the minimum  funding  requirements  as set forth in employee
benefit and tax laws.  Contributions  to the Plan were $1.1 million in each year
for 2002 and 2001.

      In  January  2003,  the  Company  filed a notice  with the PBGC  seeking a
"distress  termination"  of the Plan.  If the PBGC  determines  that the Company
meets one of the tests for such a  termination,  the Plan will terminate and the
PBGC will  become  responsible  for meeting  future  retirement  obligations  of
participants  (within certain  limitations).  The Company would be liable to the
PBGC for the amount of the unfunded guaranteed benefit  obligation.  The Company
believes that on a termination  basis, the Plan's  liabilities  could exceed the
value of its assets by in excess of $7.0 million.  In addition,  the Company did
not make the required  quarterly  contributions  during 2003 which  aggregate to
approximately $1.4 million. The Company has initiated  discussions with the PBGC
concerning  the  termination  of the Plan and its  obligation to the PBGC if the
Plan is terminated  (including the timing of its repayment  obligation).  If the
Plan  is not  terminated,  the  Company  would  be  obligated  to  make  minimum
contributions  of  approximately  $3.9 million in 2004,  which includes the 2003
funding  deficiency.  It  is  not  possible  to  predict  the  outcome  of  such
discussions.

NOTE 6 - STOCK OPTIONS AND WARRANTS

      The Company has issued stock  options  pursuant to four fixed  stock-based
compensation  plans,  made  special  stock option  awards to certain  directors,
consultants  and  employees and also issued  common stock  purchase  warrants in
connection with certain subordinated notes. A summary of shares purchasable upon
the exercise of stock options and common stock purchase  warrants as of December
31, 2003, 2002 and 2001 are as follows:

                                                  2003      2002         2001
                                               ---------  ---------   ---------

     Fixed stock-based compensation plans      2,292,975  2,939,175   4,608,450
     Special stock options                       352,000    363,960     535,011
     Common stock purchase warrants                    -          -   1,523,573
                                               ---------  ---------   ---------
                                               2,644,975  3,303,135   6,667,034
                                               =========  =========   ==========

      In February 2001, the Company concluded a stock option re-pricing  program
whereby a total of  approximately  3.3 million  stock  options  were  cancelled.
Pursuant to the program,  employees and directors  voluntarily elected to cancel
stock  options held with an exercise  price that  exceeded  $4.81 per share.  In
return,  the Company granted a total of  approximately  3.1 million  replacement
stock options on August 20, 2001.  The  replacement  stock  options,  which were
granted under the Company's  fixed  stock-based  compensation  plans,  generally
contain the same terms and conditions of the cancelled stock options and have an
exercise  price of $.39 per share,  the closing  price of the  Company's  common
stock on August 20, 2001.

FIXED STOCK-BASED COMPENSATION PLANS
      The Company has four stock-based  compensation  plans that provide for the
granting of incentive and non-qualified  stock options,  restricted stock, stock
appreciation  rights,   performance  awards  and  other  stock-based  awards  to
employees,  non-employee directors and consultants. Under these plans adopted by
shareholders  of the Company,  the Company may grant up to  7,300,000  shares of
common stock. The plans are administered by either the Board of Directors of the
Company or the  Compensation  Committee of the Board of Directors.  The exercise
price of each  option  granted  was equal to the market  price of the  Company's
common  stock  on the date of  grant.  Stock  options  granted  to  non-employee
directors expire five years from the date of grant and vest  immediately.  Stock
options granted to employees generally expire five or ten years from the date of
grant.  Prior to 1999,  stock options granted to employees  vested  immediately.
Grants  subsequent  to 1998  generally  vest  over  three or four  years.  As of
December 31, 2003,  there were  2,018,025  shares  available for grant under the
fixed stock-based compensation plans.


                                      F-19
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     A summary of the stock  options  issued  pursuant to the fixed  stock-based
compensation plans as of December 31, 2003, 2002 and 2001 and changes during the
years then ended is presented below:

<TABLE>
<CAPTION>

                                     2003                       2002                        2001
                               --------------------     ----------------------      ----------------------
                                          WEIGHTED                    WEIGHTED                    WEIGHTED
                                          AVERAGE                     AVERAGE                     AVERAGE
                                          EXERCISE                    EXERCISE                    EXERCISE
                               SHARES      PRICE         SHARES        PRICE          SHARES       PRICE
                               ------     --------       ------       --------        ------      --------

<S>                <C>       <C>           <C>         <C>            <C>           <C>            <C>
Balance at January 1         2,939,175     $1.01       4,608,450      $1.07         3,543,750      $4.63
Granted                         90,000       .07          90,000        .25         4,171,400        .69
Exercised                            -         -               -          -                 -          -
Canceled                      (736,200)     1.58      (1,759,275)      1.13        (3,106,700)      4.63
                             ---------                 ---------                    ---------
Balance at December 31       2,292,975       .79       2,939,175       1.01         4,608,450       1.07
                             =========                 =========                    =========
</TABLE>

      A summary of the  Company's  stock  options  outstanding  and  exercisable
issued pursuant to the fixed stock-based  compensation  plans as of December 31,
2003, is as follows:

<TABLE>
<CAPTION>
                                                     OUTSTANDING                        EXERCISABLE
                                      -----------------------------------------    -----------------------
                                                                      WEIGHTED                    WEIGHTED
                                                                      AVERAGE                     AVERAGE
RANGE OF                                                CONTRACTUAL   EXERCISE                    EXERCISE
EXERCISE PRICE                          SHARES             LIFE        PRICE          SHARES       PRICE
--------------                        ----------        ----------- -----------    ----------     --------
<C>                                       <C>              <C>         <C>             <C>          <C>
$.07                                      90,000           4.6         $.07            90,000       $.07
$.25 to $.40                           1,970,600           5.4          .38         1,735,500        .38
$2.06 to $4.00                           142,375           1.6         2.99           129,344       3.06
$6.875                                    90,000            .6         6.88            90,000       6.88
                                      ----------                                   ----------
$.07 to $6.875 (all options)           2,292,975           4.9          .79         2,044,844        .82
                                      ==========                                   ==========
</TABLE>

SPECIAL STOCK OPTIONS AND STOCK AWARDS
      The Company has issued  special stock  options  outside of the fixed stock
option  plans.  As of December  31, 2003,  there are a total of 352,000  special
stock options  outstanding.  All of such options are currently  exercisable.  No
special stock options were granted or exercised in 2003, 2002 or 2001.

      In connection with the Company's  business  acquisitions in 1998 and 1999,
the  Company  granted  options  to  purchase  shares of common  stock to certain
employees  and owners of the  acquired  businesses.  As of December  31, 2003, a
total of  192,000  options  granted  outside  of the fixed  stock  option  plans
remained  outstanding  with an exercise price of $9.75 per share.  These options
expire in February 2004.

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

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


                                      F-20
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - COMMITMENTS AND CONTINGENCIES

LEASES
      The Company  leases certain  office space,  vehicles and office  equipment
under  operating  leases that expire over the next five 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  $241,000 in 2003,  $221,000 in
2002 and $481,000 in 2001.

     Minimum   payments  for  operating   leases  having  initial  or  remaining
non-cancelable terms in excess of one year are as follows (in thousands):
                                                             MINIMUM
      YEAR ENDING                                 LEASE     SUBLEASE
      DECEMBER 31,                               PAYMENTS    INCOME       NET
      ------------                               --------   --------    -------
      2004                                       $   356     $  116     $   240
      2005                                           332        114         218
      2006                                           299        114         185
      2007                                           137         37         100
      2008                                            40          -          40
      Remainder                                        -          -           -
                                                 -------    -------     -------
               Total minimum lease payments      $ 1,164     $  381     $   783
                                                 =======    =======     =======

      Balfour Investors Inc.  ("Balfour") occupies a portion of the office space
leased by the Company in New York City.  The Chairman  and Vice  Chairman of the
Company's Board of Directors are the only shareholders of Balfour.  Balfour pays
to the Company 50% of the rent and occupancy costs paid by the Company under its
lease, including base rent, electricity,  water, real estate tax escalations and
operation  and  maintenance  escalations.  The base rent  payable  by Balfour is
approximately $11,000 per month.

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

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

GRANTS AND BANK FINANCING
      The Company has received  grants from several  government  agencies in the
United  Kingdom.  These  grants  have  been  used for  marketing,  research  and
development  and  other  governmental   business   incentives  such  as  general
employment.  Such  grants  require the  Company to  maintain  certain  levels of
operations  and  employment in Northern  Ireland.  As of December 31, 2003,  the
Company has a contingent  liability to repay, in whole or part,  grants received
of  approximately  $535,000  in the  event  the  Company  becomes  insolvent  or
otherwise  violates  the terms of such  grants.  As of December  31,  2003,  the
Company is in compliance with the terms of the grants.


                                      F-21
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Infineer has an overdraft facility with a bank in Northern Ireland,  which
allows for the maximum  borrowing of 240,000  British  pounds.  This facility is
secured by all of  Infineer's  assets and bears an  interest  rate at the bank's
base rate plus 2% (approximately 5.75% at December 31, 2003). As of December 31,
2003,  Infineer had borrowings  outstanding under this facility totaling 153,000
British pounds (or the equivalent of $271,000).

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

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

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

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

CHANGE OF CONTROL AGREEMENTS
      The Company is a party to change of control agreements,  which provide for
payments to certain directors and executive officers under certain circumstances
following a change of control.  Since the change of control  agreements  require
large cash  payments  to be made by any person  effecting  a change of  control,
these  agreements  may  discourage  takeover  attempts.  The  change of  control
agreements  provide  that,  if the  services of any person  party to a change of
control  agreement  are  terminated  within  three  years  following a change of
control,  that individual  will be entitled to receive,  in a lump sum within 10
days of the  termination  date, a payment equal to 2.99 times that  individual's
average  annual  compensation  for the shorter of the five years  preceding  the
change of control and the period the individual  received  compensation  from us
for personal services. Assuming a change of control were to occur at the present
time, payments of $738,000 each would be made to the Company's Chairman and Vice
Chairman.  If any such  payment,  either  alone or together  with others made in
connection  with the  individual's  termination,  is  considered to be an excess
parachute  payment  under the Internal  Revenue  Code,  the  individual  will be
entitled to receive an additional  payment in an amount which, when added to the
initial payment,  would result in a net benefit to the individual,  after giving
effect to excise taxes imposed by Section 4999 of the Internal  Revenue Code and
income taxes on such  additional  payment,  equal to the initial  payment before
such  additional  payment  and the  Company  would not be able to  deduct  these
initial or additional payments for income tax purposes.


                                      F-22
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INSURANCE AND OTHER RECOVERIES
      During 2003,  the Company  entered  into three  binding  settlements  with
various  historical  insurers that resolved  certain claims  (including  certain
future  claims)  under  policies  of  insurance  issued to the  Company by those
insurers.  As a  result  of the  settlements,  after  allowance  for  associated
expenses,  offsetting  adjustments  and  amounts  held in  escrow,  the  Company
received net proceeds of approximately $4.1 million in 2003.  Pursuant to one of
the settlements, an additional net amount of approximately $470,000 will be held
in escrow  for up to three  years.  The  Company  recognized  a gain from  these
settlements of approximately  $4.6 million in 2003. See Note 13 for a discussion
regarding an  additional  insurance  recovery  agreement  reached  subsequent to
December 31, 2003.

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

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

NOTE 8 - SEGMENT DATA

      The Company's  sole operating  activities  involve the deployment of smart
card solutions for educational and corporate sites. As such, the Company reports
as a single segment. Revenues by geographical areas for the years ended December
31, 2003, 2002 and 2001 are as follows (in thousands):

                                                   2003       2002        2001
                                                   ----       ----        ----

       United States                              $  869     $1,029      $1,727
       Europe                                      3,467      3,445       3,671
       Rest of world                                 445        131         254
                                                  ------     ------      ------
                                                  $4,781     $4,605      $5,652
                                                  ======     ======      ======

      The  Company  has  operations  in the United  States  and United  Kingdom.
Identifiable  tangible assets by country as of December 31, 2003 and 2002 are as
follows (in thousands):

                                                   2003       2002
                                                   ----       ----

       United States                              $4,542     $4,842
       United Kingdom                              2,035      2,235
                                                  ------     ------
                                                  $6,577     $7,077
                                                  ======     ======

NOTE 9 - DISCONTINUED OPERATIONS

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


                                      F-23
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

NOTE 10 - REPOSITIONING CHARGE

      As  discussed  in Note 1, in July  2001,  after  evaluating  the timing of
potential  future  revenues,  PubliCARD's  Board  decided to shift the Company's
strategic focus.  The Company recorded a charge  aggregating $7.3 million in the
second and third quarters of 2001  associated  with the departure from the smart
card reader and chip  business.  The charge  consisted of write-offs of goodwill
and  intangibles  of $4.1  million and fixed  assets of  $554,000,  an inventory
realizability adjustment of $1.7 million (included in cost of sales) as a result
of the  business  closure,  and  severance  and  other  costs  of  $1.0  million
principally  related  to the  termination  of 36  employees.  The  repositioning
activities were substantially completed by December 31, 2001.

NOTE 11 - SUPPLEMENTAL INFORMATION

      Other assets as of December 31, 2003 and 2002  consisted of the  following
(in thousands):

                                                   2003       2002
                                                   ----        ----

     Investment in minority owned affiliates      $    -    $ 3,000
     Escrow deposit - non current                    596          -
     Intangible pension asset                          2        295
                                                  ------    -------
                                                  $  598    $ 3,295
                                                  ======    =======

    Accrued  liabilities as of December 31, 2003 and 2002 consisted of the
    following (in thousands):

                                                   2003      2002
                                                   ----      ----

    Pension liability                            $ 3,866    $ 1,505
    Payroll and other employee benefits              260        292
    Deferred revenue                                 585        402
    Other                                            495        483
                                                 -------    -------
                                                 $ 5,206    $ 2,682
                                                 =======    =======


                                      F-24
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Other  non-current  liabilities as of December 31, 2003 and 2002 consisted
of the following (in thousands):

                                                   2003       2002
                                                   ----       ----

    Pension liability and other retiree benefits $ 3,256    $ 4,872
    Other                                            296        118
                                                 -------    -------
                                                 $ 3,552    $ 4,990
                                                 =======    =======

      The  components  of other  comprehensive  loss as of December 31, 2003 and
2002 consisted of the following (in thousands):

                                                   2003       2002
                                                   ----       ----

    Foreign currency translation adjustment      $    75    $    85
    Minimum pension liability                      2,649      2,306
                                                 -------    -------
                                                 $ 2,724    $ 2,391
                                                 =======    =======

      Comprehensive  loss for the Company includes foreign currency  translation
adjustments and minimum pension  liability,  as well as net loss reported in the
Company's Statements of Operations.  Comprehensive loss for years ended December
31, 2003, 2002 and 2001 was as follows (in thousands):

                                                   2003       2002       2001
                                                   ----       ----       ----

  Net loss                                       $(1,593)   $(7,193)   $(14,821)
  Minimum pension liability                         (343)    (1,405)       (901)
  Foreign currency translation adjustments            10        112        (197)
                                                 -------    -------    --------

  Comprehensive loss                             $(1,926)   $(8,486)   $(15,919)
                                                 =======    =======    ========

NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

      The unaudited  consolidated financial statements for each of the quarterly
periods  in the  years  ended  December  31,  2003 and 2002 are as  follows  (in
thousands, except per share data):

<TABLE>
<CAPTION>

                                                 MAR. 31    JUN. 30     SEP. 30    DEC. 31
                                                 -------    -------     -------    -------
2003
<S>                                             <C>         <C>         <C>        <C>
Net sales                                       $  1,413    $ 1,193     $ 1,417    $   758
Gross margin                                         794        581         772        318
Net income (loss)                                  1,000       (929)       (749)      (915)
Basic and diluted earnings (loss) per share     $    .04    $  (.04)    $  (.03)   $  (.04)

2002
Net sales                                       $  1,199    $ 1,016     $ 1,298    $ 1,092
Gross margin                                         563        496         650        441
Loss from continuing operations                   (1,269)    (1,227)     (3,409)    (2,354)
Income from discontinued operations                    -          -       1,066          -
Net loss                                          (1,269)    (1,227)     (2,343)    (2,354)
Basic and diluted earnings (loss) per share
    Continuing operations                       $   (.05)   $  (.05)    $  (.14)   $  (.10)
    Discontinued operations                            -          -         .04          -
                                                --------    -------     -------    -------
                                                $   (.05)   $  (.05)    $  (.10)   $  (.10)
                                                ========    =======     =======    =======
</TABLE>


                                      F-25
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - SUBSEQUENT EVENT

      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.
The claims involve  several  historic  general  liability  policies of insurance
issued  to the  Company.  As a result of the  settlement,  after  allowance  for
associated expenses and offsetting  adjustments,  the Company expects to receive
net proceeds of approximately $475,000 by April 19, 2004.


                                      F-26
<PAGE>



<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   INDEPENDENT AUDITORS' REPORT ON SCHEDULE II


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

We have audited the  consolidated  financial  statements of PubliCARD,  Inc. and
subsidiary  companies (the "Company") as of and for the years ended December 31,
2003 and 2002,  and have issued our report  thereon  dated March 22, 2004 (which
report  expresses an  unqualified  opinion and includes  explanatory  paragraphs
relating  to the  Company's  ability  to  continue  as a going  concern  and the
application  of procedures  performed in regards to certain  disclosures  in the
2001  financial  statements  that were audited by other auditors who have ceased
operations and for which we have expressed no opinion or other form of assurance
other than with  respect to such  disclosures).  Our audits  also  included  the
consolidated financial statement schedule of the Company as of and for the years
ended December 31, 2003 and 2002 listed in Item 15. This consolidated  financial
statement  schedule  is the  responsibility  of the  Company's  management.  Our
responsibility  is to express an opinion  based on our audits.  In our  opinion,
such consolidated  financial statement schedule,  when considered in relation to
the basic  2003  consolidated  financial  statements  taken as a whole,  present
fairly  in  all  material  respects  the  information  set  forth  therein.  The
consolidated  financial statements and consolidated financial statement schedule
of the Company as of December 31, 2001 and for the year ended  December 31, 2001
were audited by other auditors who have ceased operations.  Those other auditors
expressed an unqualified opinion on those consolidated  financial statements and
consolidated financial statement schedule in their report dated March 20, 2002.

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

/s/ DELOITTE & TOUCHE LLP

New York, New York
March 22, 2004


                                      F-27
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

PubliCARD,  Inc. dismissed Arthur Andersen LLP on June 5, 2002, and subsequently
engaged  Deloitte  & Touche LLP as its  independent  auditors.  The  predecessor
auditors'  report  appearing below is a copy of Arthur Andersen LLP's previously
issued opinion dated March 20, 2002. Since PubliCARD, Inc. is unable to obtain a
manually  signed audit  report,  a copy of Arthur  Andersen  LLP's most recently
signed and dated report has been included below to satisfy filing  requirements,
as permitted under Rule 2-02(e) of Regulation S-X.

To the Shareholders of  PubliCARD, Inc.:

We have audited in accordance with generally  accepted auditing  standards,  the
consolidated  financial  statements of PubliCARD,  Inc. and subsidiary companies
included  in this Form 10-K and have issued our report  thereon  dated March 20,
2002.  Our  audits  were made for the  purpose  of  forming  an opinion on those
statements  taken as a whole.  The schedule  listed in the index to consolidated
financial  statements  and  schedule  is the  responsibility  of  the  Company's
management  and is presented for purposes of complying  with the  Securities and
Exchange Commission's rules and is not part of the basic consolidated  financial
statements.  This schedule has been subjected to the auditing procedures applied
in the audits of basic consolidated financial statements and, in our opinion, is
fairly  stated in all  material  respects in relation to the basic  consolidated
financial statements taken as a whole.

The  aforementioned  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 incurred  operating  losses and requires
additional capital to meet its obligations and accomplish the Company's business
plan,  which raises  substantial  doubt about its ability to continue as a going
concern.  The  financial  statements do not include any  adjustments  that might
result from the outcome of this uncertainty.

/s/ Arthur Andersen LLP

Stamford, Connecticut
March 20, 2002


                                      F-28
<PAGE>

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

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

                                                                 Additions
                                                          ---------------------
                                                          Charged to
                                              Balance      Costs and                                  Balance
                                             January 1     Expenses      Other(1)    Deductions (2)    December 31
                                             ---------     --------      --------    --------------    -----------
                                                                     (in thousand of dollars)
<S>                                             <C>             <C>           <C>         <C>           <C>
Year ended December 31, 2003:
     Allowance for doubtful accounts            103             5             7              -           115

     Reserve for discontinued operations        429             -             -            (23)          406


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

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


Year ended December 31, 2001:
     Allowance for doubtful accounts             89            31           158            (62)          216

     Reserve for discontinued operations      3,913        (2,350)            -           (318)        1,245

</TABLE>

(1) Other  changes for the allowance  for doubtful  accounts in 2001  represents
reclassifications  of  previous  year  receivable  reserves  included  in  other
operating accounts.

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


                                      F-29