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                       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, 2000

                                       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
     of incorporation or organization)                     Identification No.)

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:

<TABLE>
<CAPTION>
Title of each class                  Name of each exchange on which registered
-------------------                  -----------------------------------------
<S>                                  <C>
        NONE                                           NONE
</TABLE>

           Securities Registered Pursuant To Section 12(g) of the Act
                          COMMON STOCK ($.10 PAR VALUE)
            RIGHTS TO PURCHASE CLASS A PREFERRED STOCK, FIRST SERIES

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.

AS OF MARCH 1, 2001, THE AGGREGATE MARKET VALUE OF THE VOTING COMMON STOCK HELD
BY NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $35,225,000.

  NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 1, 2001: 24,237,402

                       Documents Incorporated By Reference

PART III, ITEMS 10, 11, 12 AND 13, ARE INCORPORATED BY REFERENCE FROM THE
REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED PURSUANT TO REGULATION 14A
FOR THE 2001 ANNUAL MEETING OF SHAREHOLDERS.

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                                     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., ("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, through its Infineer subsidiaries, is a smart card
technology company which provides infrastructure products and solutions to
facilitate secure access and transactions. The Company's products and solutions
include integrated circuits, smart card readers and software systems. PubliCARD
sells its products and solutions to customers for deployment in enterprise and
on-line security, and transactions management applications.

         For enterprise and on-line security customers, PubliCARD designs and
develops smart card readers and the integrated circuits within readers. The
readers facilitate access control to PCs, networks and the Internet, as well as,
secure Internet transactions by enabling the use of cryptographic and other
security applications. PubliCARD sells smart card readers directly to solution
providers and distributors and integrated circuits directly to original
equipment manufacturers ("OEMs") of smart card enabled keyboards, cable set-top
boxes, and Internet appliances. The integrated circuits sold directly to OEMs
drive the embedded reader within their product and serve as the interface
between smart cards and the applications within the OEM's product.

         For transaction management customers, PubliCARD designs and develops
smart card software and hardware solutions for closed environments. This market
includes institutions such as corporate campuses, secondary schools and
universities. PubliCARD'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
educational, government and corporate sectors all continue to move toward the
more functional and broader applications that a smart card solution can provide
over the traditional methods. PubliCARD sells its transaction solutions to
value-added resellers and distributors, and directly to end-users.

         In addition to designing and integrating smart card technology that
enables electronic transactions for closed environments, PubliCARD also develops
integrated circuits and smart card readers that enable Internet purchases and
payments, value transfers and other transactions in an open environment. As
smart card payment, transfer and storage standards become more unified and
widely embraced, the growth in electronic transactions within an open
environment is expected to present significant opportunities.

         In May of 2000, PubliCARD unveiled its new corporate brand of
Infineer(TM) bringing together its subsidiaries located in Northern Ireland and
the United States under a single focus in an effort to capitalize on its core
competencies and growth opportunities in smart card technology. In addition to
branding the Company's products and solutions under the Infineer brand, the
Company's operating companies are also conducting business under the Infineer
name.

INDUSTRY

         Security and privacy are primary concerns of the ever growing
information economy. International Data Corporation estimates the daily number
of messages carried on the Internet will increase to 6.6 billion by 2001. The
Gartner Group forecasts that the value of Internet business-to-business
transactions will grow from $145 billion in 1999 to over $7 trillion by 2004.
This level of growth will only occur as long as consumers, businesses,
governments and other organizations are confident that their network, Internet
and broadband information exchanges and transactions are secure from
unauthorized intrusion, usage,


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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, Internet and broadband environments.

         A smart card is similar in appearance to a traditional credit card, but
unlike a traditional credit card, stores information on an integrated circuit
chip embedded within the card, rather than on a magnetic stripe on the surface.
While a typical magnetic stripe card stores approximately 212 bytes of
information, generally consisting of a user's name, account and personal
identification number, a smart card can store 64 kilobytes or more of
information, which is 300 times that of a traditional magnetic stripe credit
card. 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, the Internet and broadband. 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). Out of the 2 billion
smart cards issued in 2000, half of them were issued in this sector. The success
of smart card technology in this sector demonstrates the security and
adaptability of the technology and evidences that smart cards are a unique media
to store, transport, process personal information, access keys and other
information.

         Building on this success, 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 ("VPNs"), 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 (debit, credit,
e-purse) 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
transactions needs including purchase and payment transactions, virtual tickets,
identification, authentication and access.

         Demand for smart card solutions are being further driven by
governments, financial institutions and Microsoft's .Net initiative. The U.S.
Government Paperwork Elimination Act of 1995 requires that all federal agencies
offer electronic exchange of mandatory data by October 2003. At the end of this
period, the government must have the infrastructure in place to process up to 61
billion annual electronic filings by citizens and the business sector. These
filings do not include state and local governments electronic filing
requirements, or government-to-government information and value exchanges.

         The United States Postal Service ("USPS") has assumed the lead role on
behalf of the Federal government in designing, developing and implementing a
standard infrastructure to achieve the requirements of the Paperwork Elimination
Act. In this role, the USPS has developed the NetPost.Certified ("NPC") program
which will serve as the primary electronic channel utilized by Federal agencies
and other governmental units to effect electronic reporting, filing, information
exchange and transactions.

         The NPC program utilizes the Cryptographic Key Management(TM) ("CKM")
system developed by TecSec, Incorporated ("TecSec"). This system complements the
public key infrastructure ("PKI") and provides client-based object-level
encryption while enabling a role-based access environment. Combined with PKI
technology, the CKM system effects heightened security by adding additional key
management levels. CKM also permits the customization of access and a
"one-to-many" multi-casting environment based upon a person's role in an
organization. CKM operates in conjunction with a smart card


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infrastructure. PubliCARD is providing smart card readers for the NPC and other
CKM initiatives of TecSec.

         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. Such programs support new smart card
initiatives such as national identity cards in Finland and automation of mass
transportation systems in Rome, Berlin and London.

         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 US financial institutions, including
American Express, MasterCard and Visa International, have introduced smart cards
as part of their financial cards systems. The American Express Blue Card
currently offers two applications: extra security when shopping online using a
PC smart card reader, and a ticketing application that verifies a Cardmember's
ticket order. American Express uses a multi-application operating system and
plans to add other applications to the card. Visa's multiple application
strategy provides applications that add value to Visa's core credit and debit
payment products. A key component to this strategy is Visa's use of Open
Platform technology. This technology permits downloading new applications to the
chip without having to reissue the card.

         Microsoft's ".Net" initiative seeks to significantly, but securely,
enhance the availability of information regardless of a user's location, device
type or operating system. This initiative is expected to have a pervasive impact
on how users will utilize the Internet in the future. For purposes of fostering
secured Internet usage, the .Net initiative is designed to utilize smart card
technology.

ENTERPRISE AND ON-LINE SECURITY

         According to the Computer Security Institute, in the year 2000, network
attacks on U.S. companies, government agencies, banks, and universities were up
41% over 1999. It is estimated that losses associated with the "I love you"
virus exceeded $6 billion. Further, the Federal Bureau of Investigation
estimates losses from e-crime at $10 billion per year.

         For the purpose of securing computer networks, Frost & Sullivan
predicts that 100 million smart cards will be in circulation by 2004. Smart card
technology permits access to information via the Internet or private networks
but restricts access to only authorized users. Smart card technology facilitates
a secure and restricted access that can identify the authorized user while
retrieving, storing and sending encrypted data. Smart cards have significant
advantages over the traditional security methods as the smart card itself is
portable or detachable from the personal computer or network, further ensuring
the security of such information. Therefore, in the time period of detachment
the smart card and/or the computer network is not subject to unauthorized
access. The portability and encryption features of smart cards make the value,
password or sensitive information stored on the card less susceptible to
unauthorized intrusion and theft. This portability also permits the user to
securely access a network from any remote location, thereby, combining greater
flexibility with high levels of security.

         The Company, through a strategic relationship with TecSec, provides the
smart card reader infrastructure solution to the USPS new NPC service. The NPC
service, announced in January 2001 by the USPS, represents the smart card based
electronic equivalent of certified mail. The NPC service offers significant
advantages in terms of security, delivery speed and cost relative to traditional
certified mail. NPC, through TecSec's CKM system, uses smart cards as a method
of authenticating the sender and the agency receiver of files. With many
billions of filings each year for which secure handling is legally mandated,
U.S. government agencies represent a very large opportunity for the NPC service.
PubliCARD developed its smart card reader solutions to meet the specific demand
for secure communications in large distributed network
environments.

         In February 2001, the Health Care Financing Administration announced
that it will be using NPC in a pilot project for the secure electronic filing of
patient information for its Medicare filings. The initial pilot is expected to
involve over 4,000 facilities. Upon a successful implementation
of this pilot, a broad distribution of NPC is anticipated. This pilot will
incorporate PubliCARD's smart card readers.

         In 2001, PubliCARD will ship its smart card readers for VPN's developed
by SafeNet Incorporated ("SafeNet"). The Company's smart card technology will
provide a portable method of authenticating the sender and receiver as well as
encrypting messages so that private communications can be sent via the Internet
and other shared networks. SafeNet, a provider of VPN technology for secure
business communications over the Internet, develops, deploys and manages network
security systems for financial institutions and government organizations.

         The Federal Communications Commission has adopted rules to implement
digital television with the intended effect of promoting rapid conversion to and
implementation of digital television. With the advent of digital television,
content providers and multi-system operators ("MSOs") will now be able to


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offer and deliver high resolution, high quality video images and also provide a
broad range of private content and ancillary services, including web browsing,
video on demand and interactive television.

         As these ancillary services are being offered, security and privacy
will be critical issues to all parties involved including the content provider,
the MSO and the consumer. Content providers want their content protected, MSOs
want access to the content controlled, and consumers want easy access to the
services, as well as privacy to how their usage will be monitored.

         PubliCARD currently supplies application specific integrated circuits
("ASICs") to Motorola's General Instruments, an OEM of television set-top boxes.
These ASICs permit General Instruments to incorporate smart card readers into
its set-top boxes. PubliCARD's ASICs drive and manage these smart card readers
by reading the chip embedded in the card and permitting the stored data to
access the proper application.

         Smart card readers for desk-top computers traditionally have been
supplied as a peripheral device connected to either a PC or keyboard. The trend
is rapidly shifting to eliminate desktop clutter and security risks by placing
the reader within the keyboard. The fully integrated smart card reader keyboard
provides an efficient and secure platform from which to enact smart card
transactions. PubliCARD is capitalizing on this emerging trend through its
recent development of an integrated circuit that combines the keyboard
controller, smart card interface, and universal serial bus ("USB") hub into a
single chip. PubliCARD will begin shipments of its smart card keyboard
integrated circuit to Dallant Bank/KDE in conjunction with a smart card project
in Korea.

TRANSACTION MANAGEMENT

         The use of smart card technology is especially well suited for managing
transactions in closed environment solutions that restrict access and manage
payments through the use of smart cards. In closed environments, smart cards
are used to control access to physical premises, process payments and provide
portable network security in addition to supporting other e-commerce
applications such as the purchasing of tickets electronically. 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 method of
providing closed environment security such as the magnetic stripe.

         With the increase use and acceptance of smart cards and the related
technologies world wide, there are numerous applications to use smart card
technology in a variety of e-commerce infrastructure platforms. PubliCARD's
product technology includes integrated circuits, which facilitate integration
with a range of smart card chip set platforms. PubliCARD has developed a
client-server based software solution for closed campus proprietary card users
worldwide in the form of its ChipNet smart card driven campus card solution.
Focused on delivering multi-functionality around a single card supporting a wide
range of third party technologies, ChipNet is now installed in over 250
locations worldwide on a range of educational, government, commercial and
corporate environments.

         Smart card technology is also facilitating transaction management in
open environments through open-standards-based infrastructure. Europay,
Mastercard, and Visa, known collectively as EMV, have developed a certification
process to ensure an open-standards-based infrastructure in the deployment of
smart cards for secure financial transactions. The EMV infrastructure is based
on a common set of technical specifications derived from standards set by the
International Organization for Standardization for integrated circuit cards and
related devices for the payment industry. Visa, in conjunction with Europay and
MasterCard, formed EMV, working jointly to develop industry-wide chip card
specifications to ensure that all chip cards would operate in all chip-reading
terminals, regardless of location, financial institution or manufacturer.

         PubliCARD's smart card technology is designed to be compliant with EMV.
The smart card reader line is fully compliant with EMV and can be used for
transaction solutions. The Integrated circuit devices (such as the USB hub,
keyboard controller and smart card chip) are fully compliant with EMV, and can
be used for financial transactions as well. PubliCARD has also developed
software solutions including applications and middleware, which can be utilized
in the development of transaction solutions including financial transactions,
multi-applications on a single card, and interfacing of PC based applications to
multiple cards.


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STRATEGY

BACKGROUND

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

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

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

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

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

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

o        PubliCARD has established relationships;

o        PubliCARD has already deployed products and gained credibility; and

o        PubliCARD possesses core technologies and competencies.

         PubliCARD determined 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 design, manufacture and
distribute 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 has substantially completed the wind-down of
the operations of Amazing and Greystone including the sale of certain assets and
the licensing of certain intellectual property.


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         In December 2000, the Company acquired a 3.5% ownership interest in
TecSec for $5.0 million. TecSec, a Virginia company, develops and markets smart
card-based encryption products and solutions, which will enable the next
generation information security for the enterprise, multi-enterprise e-business
and other markets.

CURRENT STRATEGY

         PubliCARD's objective is to utilize our core competency in smart card
technology, as well as our wide-ranging expertise in interfacing and
connectivity such as USB, Personal Computer Memory Card Interface Association
("PCMCIA"), and Institute of Electrical Engineers Standards Body ("IEEE1394"),
to meet the growing demand for secure access to digital information and
networks. We believe we are well positioned to capitalize on the growth in
enterprise and on-line security, and transaction management. Key elements of our
strategy include the following:

o        LEVERAGE TECHNOLOGY BASE. We have developed extensive expertise and
         intellectual property in smart card technologies, interfacing and
         connectivity technologies (USB, PCMCIA, and IEEE1394), enterprise and
         on-line security, and electronic transaction management. We intend to
         leverage this expertise to provide products that can be utilized to
         develop the infrastructure to expand smart card usage, while
         incorporating complete product solutions to achieve increased market
         share. We intend to continue to provide products that can operate
         across a variety of hardware and software environments, while expanding
         into new product applications and integrating new technologies as they
         become available.

o        EXPAND STRATEGIC INDUSTRY RELATIONSHIPS. We have formed strategic
         relationships with a number of key industry players such as TecSec,
         SafeNet and Atmel. These relationships provide us with access to
         leading edge technology, marketing and sales leverage and access to key
         customers and accounts. We intend to continue to leverage these
         relationships and to identify additional key industry players with
         which to form strategic relationships.

o        SUPPORT STANDARDS SETTING ORGANIZATIONS. We intend to continue to
         participate in the standards setting activities for the industries we
         address. We are members of industries associated with smart card
         technology, PCMCIA, USB, OpenCable, and DVB. Our smart card reader
         products are compliant with the RSA public key cryptographic system
         number 11, or PKCS #11 standard (a commonly used standard for
         encrypting and decrypting digital information). We intend to maintain
         an active role in standards setting groups in our market segments to
         continue to have our technologies adopted as standards where
         appropriate and to keep apprised of technological advancements as they
         are developed.

o        LEVERAGE COMPLEMENTARY TECHNOLOGIES, PRODUCTS AND COMPANIES. We believe
         we can expand our total product offering, technologies and market
         position by acquiring or licensing complementary technologies and
         products and by partnering with companies engaged in complementary
         businesses. We intend to continue to form relationships, which will
         provide a "complete" solution to the marketplace.

PUBLICARD PRODUCTS AND SOLUTIONS

         PubliCARD's smart card solutions provide a portable security system
that can reliably identify users in order to prevent unauthorized access to
information and resources. PubliCARD has developed a number of smart card
solutions to provide conditional access and security for a variety of markets.
PubliCARD believes that its existing smart card technology, together with its
products under development, provide an easy, flexible and cost-effective way to
achieve the key benefits of highly secure, authenticated transactions.
PubliCARD's conditional access, security and payment system products include the
following:

o        INTEGRATED CIRCUITS. PubliCARD's chip line provides solutions for
         adding smart card support to a variety of OEM products such as cable
         set-top boxes, Internet appliances, personal computers, keyboards, and
         ATMs. PubliCARD's chips are manufactured by contract manufacturers.


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         PubliCARD's TSB2598 solutions drive the smart card reader in any smart
         card accepting device, enabling any smart card application (Microsoft
         PC/SC) and payment transactions (EMV standard) to take place. Such
         devices include smart card readers, either stand-alone or embedded into
         other devices. An example of an embedded reader is the interactive
         smart card slot in set-top boxes. PubliCARD currently is supplying
         chips to Motorola's General Instruments, the leading OEM of television
         set-top boxes, which permit General Instruments to incorporate smart
         card readers into its set-top boxes. PubliCARD's chips drive and manage
         these smart card readers by reading the chip embedded in the card and
         permitting the stored data to access the proper application.

         PubliCARD's keyboard chip incorporates multiple chip set functionality
         into a single integrated circuit board. PubliCARD's technology allows
         for a smart card integrated circuit to interface with a keyboard
         controller and a USB hub. The new TSB2750 chip allows for significant
         cost savings and broad functionality while meeting the interoperability
         standards developed by EMV.

o        SMART CARD READER SOLUTIONS. PubliCARD develops intelligent smart card
         readers designed for electronic commerce, financial services, access
         control, security, and a variety of other applications. PubliCARD
         offers a PCMCIA reader as well as desktop solutions with either a
         serial or USB interface. The Company's smart card readers maintain full
         certification with Microsoft PC/SC standards and with Windows operating
         systems. In addition, the smart card readers are compliant with most
         banking and regulatory standards.

o        CHIPNET. PubliCARD provides transaction solutions to facilitate smart
         card based payment for a wide variety of services typically found on
         both corporate and education sites. Implementing a cashless system has
         many benefits including improved cash flow, enhanced service levels and
         superior management information. The ChipNet solution comprises
         hardware and software which defines user specific access rights to a
         variety of applications typically provided in closed campus
         environments and facilitates smart card based payment for them. The
         solution is based upon a robust database management platform that
         provides site administrators with up-to-date detailed information on
         card and equipment usage. ChipNet has been designed to accommodate easy
         integration with third party technologies where required.

o        SMARTCOMMERCE. This software solution supports the bi-directional
         transport of value. The application was designed originally to manage
         payment transactions using major credit cards that use chip technology.
         PubliCARD is currently developing SmartCOMMERCE for the broadband
         market to enable electronic commerce transactions and deployment of
         smart card applications through set-top boxes and other interactive
         devices. Examples of potential smart card applications beneficial to
         subscribers include receiving valuable coupon offerings and loyalty
         points, securing online payments, or purchasing tickets -- all from
         their set-top box. PubliCARD intends to market SmartCOMMERCE to set-top
         box and personal computer OEMs as well as cable operators.

SALES AND MARKETING

         PubliCARD sells and distributes its products through a broad range of
distribution channels, including value-added resellers, value-added distributors
and other distributors. PubliCARD also sells and distributes its products
directly to OEMs and end-users through its direct sales force and independent
sales representatives.

         PubliCARD uses a combination of full-time employee sales personnel and
sales representatives to optimize market potential and geographic coverage.
PubliCARD has approximately 17 employees directly engaged in the sale and
distribution of its products in the United States and 23 employees in Europe.
PubliCARD is also represented by independent sales representative agencies.

         In support of its sales strategies, PubliCARD also makes use of direct
mail campaigns to its customer databases, advertising in targeted trade media
and at trade shows and conferences.

         PubliCARD intends to continue to form strategic relationships with a
number of key industry players to provide it with access to leading edge
technology, marketing and sales leverage and access to key customers and
accounts.


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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 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, and has developed partnerships to design,
develop and manufacture quality product while bringing the product to market in
a greatly reduced development life cycle. PubliCARD's future success will depend
upon its ability to develop and to introduce new products on a timely basis that
keep pace with technological developments and emerging industry standards and
address the increasingly sophisticated needs of its customers. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Factors That May Affect Future Results -- Our future success depends on our
ability to keep pace with technological changes and introduce new products in a
timely manner."

COMPETITION

         Competition in the markets in which 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:

         o        companies offering payment solutions, including Trintech and
                  VeriFone;

         o        companies offering smart card technology solutions, including
                  Gemplus, Philips and SCM Microsystems; and

         o        companies offering closed environment solutions, including
                  small value electronic cash systems and database management
                  solutions, such as Girovend, MARS, Diebold, CyberMark 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.


                                       8
<PAGE>   10

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 and certain other jurisdictions.
PubliCARD will continue to evaluate the registration of additional trademarks as
it deems appropriate. PubliCARD currently has a number of patents issued, and
various patent applications pending. 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 were 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.

         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 1, 2001, PubliCARD had approximately 105 employees, of which 40
are involved in sales and marketing, 22 in product development, 18 in
manufacturing and 25 in administration.


                                       9
<PAGE>   11

SEGMENT INFORMATION

         As a result of the disposition of certain operations and because the
Company predominantly operates in one industry, that being the deployment of
smart card solutions to facilitate secure access and transactions, the Company
reports as a single segment. Sales by geographical areas for the years ended
December 31, 2000, 1999 and 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                         2000             1999             1998
                                       --------         --------         --------
<S>                                     <C>              <C>              <C>
United States                          $  1,160         $  1,245         $      3
Europe                                    4,029              614               --
Far East                                    126               37               --
Rest of World                               228               34               --
                                       --------         --------         --------
                                       $  5,543         $  1,930         $      3
                                       ========         ========         ========
</TABLE>

         The Company has operations in the United States and United Kingdom.
Identifiable assets by country as of December 31, 2000 and 1999 are as follows
(in thousands):

<TABLE>
<CAPTION>
                                         2000             1999
                                        ------           ------
<S>                                     <C>              <C>
United States                           $ 25,547         $ 30,804
United Kingdom                             2,866            3,176
                                        --------         --------
                                        $ 28,413         $ 33,980
                                        ========         ========
</TABLE>

ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT (SEE ITEM 10 HEREIN)

         The following table sets forth information about the executive officers
of the Company as of March 1, 2001. The business address of each executive
officer is the address of the Company, 620 Fifth Avenue, New York, New York
10020.

<TABLE>
<CAPTION>
        Name                              Age              Office and Position
        ----                              ---              -------------------
<S>                                       <C>              <C>
        Harry I. Freund                   61               Director, Chairman of the Board
                                                           and Chairman

        Jay S. Goldsmith                  57               Director, Vice Chairman of the
                                                           Board and Vice Chairman

        Jan-Erik Rottinghuis              53               President, Chief Executive
                                                           Officer and Director

        Antonio L. DeLise                 39               Vice President, Chief Financial
                                                           Officer and Secretary

        William Volmuth                   37               Vice President, Chief
                                                           Technology Officer
</TABLE>

         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. Rottinghuis was appointed President and Chief Executive Officer of
PubliCARD effective in early 2000. Prior to joining PubliCARD, since 1993, Mr.
Rottinghuis had been employed by VeriFone,


                                       10
<PAGE>   12

Inc., a subsidiary and part of the Internet Business Unit of Hewlett Packard
Company, most recently as Vice President, Worldwide Sales. Prior to joining
VeriFone, he was responsible for sales, marketing and business development with
Polaroid Europe, acting as General Manager of Polaroid France and as Director of
European Sales and Marketing. Prior to that, Mr. Rottinghuis held various
positions in international marketing and business development for Wang
Laboratories in Boston and France, and provided strategic management consultancy
to the diverse clientele of Bain & Company, also in Boston.

         Mr. DeLise, a Certified Public Accountant, joined the Company in April
1995 as Vice President, Chief Financial Officer and Secretary. Prior to joining
the Company, Mr. DeLise was employed as a Senior Manager with the firm of Arthur
Andersen LLP and had been with such firm from July 1983 through March 1995.

         Mr. Volmuth joined the Company in September 1999 and assumed the role
of Chief Technology Officer in August 2000. Prior to joining the Company, from
August 1996 to September 1999, Mr. Volmuth was vice president of sales and
marketing at TeCom, a subsidiary of TECO energy, specializing in the development
and distribution of software systems for the energy information sector. Prior to
TeCom, Mr. Volmuth held various engineering and product management positions
with Westinghouse Electric Corporation.

ITEM 2. PROPERTIES

         The Company leases the following facilities used in connection with its
business operations:

<TABLE>
<CAPTION>
                                                                     LEASE            SQUARE
    PREMISES                          PURPOSE                     EXPIRATION         FOOTAGE
    --------                          -------                     ----------         -------
<S>                       <C>                                     <C>                <C>
New York, NY              Executive offices for PubliCARD            2004             4,500

Tarpon Springs, FL        Office space                               2002            10,000

Tarpon Springs, FL        Storage space                              2001             2,500

Bangor, Northern          Office and manufacturing                   2008            12,000
Ireland
</TABLE>

      We believe our existing facilities are adequate for our needs.

ITEM 3. LEGAL PROCEEDINGS

         Various legal proceedings are pending against the Company. The Company
considers all such 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.

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

None.


                                       11
<PAGE>   13

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
        MATTERS


(a) PubliCARD's common stock has been traded on the Nasdaq National Market under
the symbol "CARD" since December 22, 1998. The following table sets forth the
high and low closing sale prices of PubliCARD's common stock, as reported by the
Nasdaq National Market, for the calendar periods indicated (in dollars):

<TABLE>
<CAPTION>
2000                                                HIGH            LOW
                                                    ----            ---
<S>                                                <C>             <C>
First Quarter                                      14 3/4            5

Second Quarter                                      9 1/8          2 5/8

Third Quarter                                       3 5/8          1 3/4

Fourth Quarter                                      4 1/4          1 1/8

1999

First Quarter                                        14            9 1/4

Second Quarter                                     15 1/2          8 7/8

Third Quarter                                      9 11/16         6 1/4

Fourth Quarter                                        9           5 11/16
</TABLE>

(b)      There were approximately 2,500 registered holders of record of common
         stock of the Company as of March 1, 2001.

(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.

RECENT SALES OF UNREGISTERED SECURITIES.

         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 shares. The proceeds from the
private placement were used to acquire a 3.5% ownership interest in TecSec. The
Company registered the shares of common stock issued and the shares of common
stock underlying the Class A Preferred Stock for resale under the Securities Act
through a registration statement on Form S-3, which became effective on January
22, 2001.

         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. See Note 3 to the Company's
Consolidated Financial Statements for details regarding the Company's investment
in TecSec.

         On July 17, 2000 and October 16, 2000, the Company issued 60,000 and
55,000 shares of common stock, respectively, to the Publicker Industries Inc.
Retirement Income Plan pursuant to Regulation D under the Securities Act of
1933, as amended (the "Securities Act") in respect of a $365,000 required
contribution


                                       12
<PAGE>   14

to that Plan. The Company registered the shares issued to such Plan for resale
under the Securities Act through a registration statement on Form S-3, which
became effective on January 22, 2001.

         On February 29, 2000, the Company issued 66,333 shares of common stock
for the remaining 35% interest in Greenwald Intellicard not already owned by the
Company. The Company registered the shares issued for resale under the
Securities Act through a registration statement on Form S-3, which became
effective on April 12, 2000.

         On January 4, 2000, the Company issued 32,500 shares of common stock to
a former employee as part of the separation agreement dated December 3, 1999.
The Company registered the shares issued for resale under the Securities Act
through a registration statement on Form S-3, which became effective on April
12, 2000.

         On December 6, 1999, the Company issued 200,000 shares of common stock
to Jan-Erik Rottinghuis, its President and Chief Executive Officer, pursuant to
the Employment Agreement, dated as of November 2, 1999, between the Company and
Jan-Erik Rottinghuis. These shares were issued pursuant to Regulation D under
the Securities Act.

         On November 16, 1999, the Company issued 388,209 shares of common stock
to the shareholders of Absec in connection with the acquisition of Absec by the
Company. In addition, the Company issued options to purchase 300,000 shares of
its common stock to certain employees of Absec. These options have an exercise
price of $6.19 per share and will be exercisable from November 17, 2002 through
November 17, 2004.

         On October 14, 1999, the Company issued 18,000 shares of common stock
to the Publicker Industries Inc. Retirement Income Plan pursuant to Regulation D
under the Securities Act in respect of a $144,000 required contribution to that
Plan. The Company registered the shares issued to such Plan for resale under the
Securities Act through a registration statement on Form S-3, which became
effective on November 10, 1999.

         On October 6, 1999, the Company completed the offer and sale of
3,269,500 shares of its common stock at a price of $5.91 per share in cash, for
aggregate cash consideration of $19.2 million. Of the shares issued and sold in
this private placement, 2,300,000 shares of common stock were sold for aggregate
consideration of approximately $13.5 million to non-U.S. persons in offshore
transactions pursuant to Regulation S under the Securities Act. Such non-U.S.
persons made certain representations to the Company regarding their status and
actions necessary to comply with Regulation S. The remaining 969,500 shares of
common stock were issued and sold in this private placement for aggregate
consideration of approximately $5.7 million pursuant to Regulation D under the
Securities Act. The proceeds of this private placement are being used to finance
the development and marketing of the Company's products. The Company registered
the shares issued and sold pursuant to this private placement under the
Securities Act through a registration statement on Form S-3, which became
effective October 5, 1999.

         In June 1999, the Company issued 25,000 shares of common stock plus
$75,000 to acquire certain intellectual property rights from Passky LLC. The
Company registered the shares issued for resale under the Securities Act through
a registration statement on Form S-1, which became effective on July 21, 1999,
and was subsequently amended by a registration statement on Form S-3, which
became effective on August 24, 1999.

         On February 22, 1999, the Company issued 746,401 shares of common stock
for 100% of the common stock of Greystone. The Company also issued 132,388
options to purchase common stock to certain employees of Greystone. These
options have exercise prices between $2.50 and $10.75 per share. The Company
registered the shares issued for resale under the Securities Act through a
registration statement on Form S-1, which became effective on July 21, 1999, and
was subsequently amended by a registration statement on Form S-3, which became
effective on August 24, 1999.

         On February 11, 1999, the Company issued 350,000 shares of common stock
for 100% of the common stock of Amazing. In addition, the Company issued 457,503
options to purchase common stock to certain employees of Amazing. These options
have exercise prices between $1.12 and $10.10 per share. The Company registered
the shares issued for resale under the Securities Act through a registration
statement on


                                       13
<PAGE>   15

Form S-1, which became effective on July 21, 1999, and was subsequently amended
by a registration statement on Form S-3, which became effective on August 24,
1999.

         On November 23, 1998, the Company completed the offer and sale of
2,059,000 shares of its common stock at a price of $5.00 per share in cash, for
aggregate cash consideration of $10,295,000. Of the shares issued and sole in
this private placement, 560,000 shares of common stock were sold for aggregate
consideration of $2,800,000 to non-U.S. persons in offshore transactions
pursuant to Regulation S under the Securities Act. Such non-U.S. persons made
certain representations to the Company regarding their status and actions
necessary to comply with Regulation S. The remaining 1,499,000 shares of common
stock were issued and sold in this private placement for aggregate consideration
of $7,495,000 pursuant to Regulation D under the Securities Act. The Company
registered the shares issued in such private placement for resale under the
Securities Act through a registration statement on Form S-1, which became
effective on July 21, 1999, and was subsequently amended by a registration
statement on Form S-3, which became effective on August 24, 1999.

         On November 24, 1998, the Company issued 1,495,037 shares of common
stock for 100% of the common stock of Tritheim. In addition, options to purchase
354,616 shares of Tritheim common stock outstanding immediately prior to the
closing of the acquisition were converted to options to purchase 83,270 shares
of common stock of the Company with an exercise price of $2.00 per share. These
options are exercisable for five years beginning on November 24, 1998.
Furthermore, the Company issued options to purchase 250,000 shares of its common
stock to all of the Tritheim salaried employees. These options have an exercise
price of $2.00 per share and will be exercisable from November 24, 2001 through
November 24, 2006. The Company registered the shares issued for resale under the
Securities Act through a registration statement on Form S-1, which became
effective on July 21, 1999, and was subsequently amended by a registration
statement on Form S-3, which became effective on August 24, 1999.



                                       14
<PAGE>   16

ITEM 6.  SELECTED FINANCIAL DATA

         The selected financial data of the Company presented below for the five
year period ended December 31, 2000 have been derived from the consolidated
financial statements of the Company, which have been audited by Arthur Andersen
LLP. 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 Annual Report.

<TABLE>
<CAPTION>
                                                            Year Ended December 31
                                       ----------------------------------------------------------------
                                         2000          1999          1998          1997          1996
                                       --------      --------      --------      --------      --------
                                                   (in thousands, except per share amounts)
<S>                                    <C>           <C>           <C>           <C>           <C>
STATEMENT OF INCOME DATA:
Net sales                              $  5,543      $  1,930      $      3      $     --      $     --
Cost of sales                             2,913           978             7            --            --
                                       --------      --------      --------      --------      --------
     Gross margin                         2,630           952            (4)           --            --
                                       --------      --------      --------      --------      --------
Operating expenses:
     General and administrative           6,664         5,713         3,694         3,570         4,866
     Sales and marketing                  7,562         2,862            21            --            --
     Product development                  4,364         1,318            53            --            --
     In-process research and
         development                         --            --         2,800            --            --
     Stock compensation expense           1,116         2,759           145            --            --
     Goodwill amortization                2,638         1,749           128            --            --
     Severance and other special
         charges                             --         1,895            --           768            --
                                       --------      --------      --------      --------      --------
                                         22,344        16,296         6,841         4,338         4,866
                                       --------      --------      --------      --------      --------
     Loss from operations               (19,714)      (15,344)       (6,845)       (4,338)       (4,866)
                                       --------      --------      --------      --------      --------
Other income (expenses):
     Interest income                        936           561           528           667           476
     Interest expense                      (100)         (158)         (191)         (234)         (594)
     Cost of retirement benefits-
         non-operating                     (812)       (1,028)         (846)         (768)         (769)
     Other (expense) income                  15          (751)       (1,023)           31             9
                                       --------      --------      --------      --------      --------
                                             39        (1,376)       (1,532)         (304)         (878)
Loss from continuing operations
     before taxes                       (19,675)      (16,720)       (8,377)       (4,642)       (5,744)
Income tax benefit                           --            --            --            --         2,412
                                       --------      --------      --------      --------      --------
Loss from continuing
     operations                         (19,675)      (16,720)       (8,377)       (4,642)       (3,332)
Discontinued operations:
     Income (loss) from
         discontinued operations             --       (13,999)        2,302         2,954         1,544
     Gain (loss) on disposition of
         discontinued operations          4,275        (5,000)           --           609        12,783
                                       --------      --------      --------      --------      --------
Net income (loss)                      $(15,400)     $(35,719)     $ (6,075)     $ (1,079)     $ 10,995
                                       ========      ========      ========      ========      ========
Per common share:
     Continuing operations             $   (.84)     $   (.88)     $   (.61)     $   (.33)     $   (.22)
     Discontinued operations                .18         (1.00)          .17           .25           .94
                                       --------      --------      --------      --------      --------
                                       $   (.66)     $  (1.88)     $   (.44)     $   (.08)     $    .72
                                       ========      ========      ========      ========      ========
</TABLE>


                                       15
<PAGE>   17

<TABLE>
<CAPTION>
                                                            Year Ended December 31
                                       ----------------------------------------------------------------
                                         2000          1999          1998          1997          1996
                                       --------      --------      --------      --------      --------
                                                                (in thousands)
<S>                                    <C>           <C>           <C>           <C>           <C>
BALANCE SHEET DATA:
Working capital                        $ 13,168      $ 23,889      $ 23,420      $ 18,219      $ 22,071
Total assets                             37,179        45,488        36,875        23,130        27,544
Other non-current liabilities             6,010         6,674         7,689         9,043        10,057
Shareholders' equity                     23,578        30,399        21,917        10,873        13,996
</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

         Management's Discussion and Analysis of Financial Condition and Results
of Operations and other sections of this Form 10-K contains forward-looking
statements, including (without limitation) statements concerning possible or
assumed future results of operations of PubliCARD 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.

OVERVIEW

         PubliCARD, through its Infineer subsidiaries, is a smart card
technology company, which provides infrastructure products and solutions to
facilitate secure access and transactions. The Company's products and solutions
include integrated circuits, smart card readers and software systems. PubliCARD
sells its products and solutions to customers for deployment in enterprise and
on-line security and transactions management applications. In May of 2000,
PubliCARD unveiled its new corporate brand of Infineer bringing together its
subsidiaries located in Northern Ireland and the United States under a single
focus in an effort to capitalize on its core competencies and growth
opportunities in smart card technology.

         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, the assets and intellectual
         property of Intellicard Systems, Ltd. Greenwald Intellicard provides
         smart cards, smart card readers, value transfer stations, card
         management software and machine interface boards for the commercial
         laundry appliance industry. PubliCARD initially owned 50% of Greenwald
         Intellicard, and acquired the remaining 50% in February 1999 and
         February 2000.

o        In November 1998, PubliCARD acquired Tritheim which develops
         conditional access and security products for the software industry,
         computers and the electronic information and digital video broadcast,
         also known as DVB, industry.

o        In February 1999, PubliCARD acquired Amazing a developer of consumer
         smart card solutions and a manufacturer of customized smart cards.

o        In February 1999, PubliCARD acquired Greystone a developer of hard disk
         duplicators.

o        In November 1999, PubliCARD acquired Absec a designer of closed
         environment solutions,


                                       16
<PAGE>   18

         including small value electronic cash systems and database management
         solutions. Through Absec, PubliCARD provides systems for closed
         populations to allow individual user access, unique rights and
         monitoring.

         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 exists;

o        PubliCARD has established relationships;

o        PubliCARD has already deployed products and gained credibility; and

o        PubliCARD possesses core technologies and competencies.

         PubliCARD determined 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, Greenwald Intellicard, Greystone and Amazing subsidiaries.
These subsidiaries design, manufacture and distribute 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 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
has substantially completed the wind-down of the operations of Amazing and
Greystone including the sale of certain assets and the licensing of certain
intellectual property.

         In December 2000, the Company acquired a 3.5% ownership interest in
TecSec for $5.0 million. TecSec, a Virginia company, develops and markets smart
card-based encryption products and solutions, which will enable the next
generation information security for the enterprise, multi-enterprise e-business
and other markets.

         Presentation

         The results of operations for the three years ended December 31, 2000
reflect Greenwald, Greenwald Intellicard, Amazing and Greystone as discontinued
operations. In addition, the results of operations for Tritheim and Absec have
been reflected in the financial statements from their respective acquisition
dates.

         Sales

         Revenues are generated from infrastructure product sales, licenses of
software products, maintenance contracts and software development services.
Revenue from product sales is recorded upon shipment of the product. Provisions
are recorded for estimated warranty repairs, returns and bad debts at the time
the product is shipped. Software license fees are recognized upon shipment if a
signed contract exists, the fee is fixed and determinable and the collection of
the resulting receivable is probable. Revenue from maintenance and support fees
are recognized ratably over the contract period.

         Cost of sales and operating expenses

         Cost of sales consists primarily of third-party contract manufacturing
costs, material, personnel costs and overhead.

         Sales and marketing expenses consist primarily of personnel and travel
costs, public relations, trade shows and marketing materials.


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<PAGE>   19


         Product development expenses consist primarily of personnel and travel
costs, independent consultants and contract engineering services. The Company
believes that a significant level of development expenditures are required to
enable it to quickly introduce new solutions that incorporate the latest
technological advances and to develop and maintain close relationships with key
suppliers of components and technologies. The Company's future success will
depend upon its ability to develop and to introduce new solutions on a timely
basis that keep pace with technological developments and emerging industry
standards and address the increasingly sophisticated needs of its customers.

         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.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

         SALES. Consolidated sales increased to $5.5 million in 2000 compared to
$1.9 for 1999. The increase in sales for 2000 is primarily attributable to the
Company's acquisition of Absec in late 1999 offset by lower ASIC sales.

         GROSS MARGIN. Gross margin as a percentage of sales was 47% for 2000
compared to 49% for 1999. The decrease in gross margin is attributed to lower
ASIC sales, which carry a higher gross margin, in 2000 compared to 1999.

         SALES AND MARKETING EXPENSES. Sales and marketing expenses were $7.6
million in 2000 compared to $2.9 million in 1999. The increase was due to the
expenses associated with Absec operations acquired in late 1999 and additional
headcount increases throughout 1999 and 2000.

         PRODUCT DEVELOPMENT EXPENSES. Product development expenses include
expenses associated with the development of new products and enhancements to
existing products. Product development expenses amounted to $4.4 million in 2000
compared to $1.3 million in 1999. Expenses increased in 2000 primarily due to
the Absec operations acquired in late 1999 and ongoing ASIC, reader and other
development efforts.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the year ended December 31, 2000 increased by approximately 17% to
$6.7 million from $5.7 million for 1999. The increase was primarily due to
$737,000 of expenses, mainly salaries and benefits, associated with the Absec
operations acquired in late 1999.

         STOCK COMPENSATION EXPENSE. Stock-based compensation recorded in 2000
principally relates to the change in terms of stock options awarded to two
former employees of the Company, the issuance of stock awards and below market
stock option grants to executives hired in 1999 and 2000 and the issuance of
stock options for consulting services. Stock-based compensation for 1999
principally relates to the issuance stock awards and below market stock option
grants to two company executives hired in 1999.

         GOODWILL AMORTIZATION. Goodwill associated with the Tritheim and Absec
acquisitions are being amortized over a five year period. Amortization amounted
to $2.6 million and $1.7 million in 2000 and 1999, respectively.

         OTHER INCOME AND EXPENSE. Interest income increased to $936,000 from
$561,000 in the prior year due to higher cash balances resulting from proceeds
from the sale of discontinued operations. Interest expense principally relates
to interest on the remaining environmental obligation (see below) and decreased
to $100,000 in 2000 from $158,000 in 1999. Other expense in 1999 includes
$357,000 associated with a stock sale price guarantee.


YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

         SALES. Consolidated sales increased to $1.9 million in 1999 compared to
$3,000 for 1998. Sales in 1999 principally related to the initial shipments of
ASICs to Motorola's General Instruments and closed environment solution sales.


                                       18
<PAGE>   20

         SALES AND MARKETING EXPENSES. Sales and marketing expenses were $2.9
million in 1999 compared to $21,000 in 1998. The increase was due to the
Tritheim operations acquired in late 1998 and additional headcount added
throughout 1999. At year-end 1999, the Company had approximately 35 sales and
marketing personnel versus two at year-end 1998.

         PRODUCT DEVELOPMENT EXPENSES. Product development expenses amounted to
$1.3 million in 1999 compared to $53,000 in 1998. Expenses increased in 1999
primarily due to the Tritheim operations acquired in late 1998 and ongoing ASIC,
reader and software solution development efforts.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the year ended December 31, 1999 increased by approximately 55% to
$5.7 million from $3.7 million for 1998. The increase was due to higher
corporate expenditures, primarily legal, consulting and professional fees, and
$829,000 of expenses, mainly salaries and benefits, associated with the
operations of businesses acquired in late 1998 and 1999.

         STOCK COMPENSATION EXPENSE. Stock-based compensation recorded in 1999
principally relates to stock awards and below market stock option grants to two
executives hired in 1999. A total of 250,000 shares of common stock and options
to purchase 1,000,000 shares of common stock were awarded to these executives.

         GOODWILL AMORTIZATION. Goodwill associated with the Tritheim and Absec
acquisitions are being amortized over a five year period. Amortization amounted
to $1.7 million and $128,000 in 1999 and 1998, respectively.

         SEVERANCE AND OTHER SPECIAL CHARGES. Severance and other special
charges in 1999 is principally composed of a $1.7 million charge associated with
the termination of the Company's former president and chief executive officer.
Of this amount $1.0 million related to the non-cash impact of a stock award and
a change in the stock option terms.

         OTHER INCOME AND EXPENSE. Interest income increased slightly to
$561,000 for 1999 from $528,000 for 1998. Interest expense principally relates
to interest on the remaining environmental obligation (see below) and decreased
to $158,000 in 1999 from $191,000 in 1998. Other expense in 1999 includes
$357,000 associated with a stock sale price guarantee. Other expense in 1998
includes a $954,000 charge associated with the termination of a letter of intent
to purchase five businesses.

LIQUIDITY

         The Company has financed its operations over the last three years
primarily through the sale of capital stock and the sale of non-core businesses.
During the year ended December 31, 2000, cash, including short-term investments,
decreased by $1.2 million to $17.0 million as of December 31, 2000.

         Operating activities from continuing operations utilized cash of $18.7
million in 2000 and principally consisted of the loss from continuing operations
of $19.7 million and an increase in net operating assets and liabilities of $3.1
million offset by non-cash charges of $4.1 million for goodwill amortization,
stock compensation expense and depreciation. Operating activities from
discontinued operations utilized cash of $3.2 million.

         Investing activities generated cash of $15.7 million in 2000 and
consisted principally of net proceeds from the sale of substantially all of the
assets of the Company's Greenwald and Greenwald Intellicard subsidiaries. This
was offset by the Company's investment in TecSec of $5.0 million and capital
expenditures from continuing and discontinuing operations of $874,000 and
$168,000, respectively.

         Financing activities provided cash of $5.0 million in 2000 and
consisted of proceeds from the issuance of Class A Preferred Stock and common
stock of $5.0 million and the exercise of options to purchase common stock of
$1.0 million offset by the repayment of notes payable from discontinued
operations of $940,000.

         During 2000, the Company's capital expenditures from continuing
operations totaled $874,000. The Company anticipates that its level of capital
expenditures for 2001 will appoximate 2000 as the Company


                                       19
<PAGE>   21

continues to expand its global efforts to provide smart card solutions and
products worldwide. The Company has not entered into any material commitments
for acquisitions or capital expenditures and has the ability to increase or
decrease capital expenditure levels as required. The Company anticipates that it
will be able to fund its capital expenditures during 2001 with its available
cash resources as well as through capital equipment financing.

         The Company has experienced negative cash flow from operating
activities in the past and expects to experience negative cash flow in 2001 and
2002. Future uses of cash include the following:

         o        The Company will incur expenditures to support the expansion
                  of sales and marketing efforts, new product development,
                  working capital growth and capital expenditures. Also, there
                  will be a need to fund new initiatives in the smart card
                  market before there is a reasonable expectation to derive any
                  significant revenues from this market.

         o        In April 1996, a consent decree (the "Consent Decree") among
                  the Company, the United States Environmental Protection Agency
                  and the Pennsylvania Department of Environmental Protection
                  ("PADEP") was entered by the court which resolved all of the
                  United States' and PADEP's claims against the Company for
                  recovery of costs incurred in responding to releases of
                  hazardous substances at a facility previously owned and
                  operated by the Company. Pursuant to the Consent Decree, the
                  Company will pay a total of $14.4 million plus interest to the
                  United States and Commonwealth of Pennsylvania. Through
                  December 31, 2000, the Company has made principal payments
                  aggregating $12.8 million. Further payments totaling $1.7
                  million, including interest, will be made to the United States
                  Environmental Protection Agency in the amounts of $862,000 due
                  April 2001 and $823,000 due April 2002.

         o        The Company sponsors a defined benefit pension plan, which was
                  frozen in 1993. As of December 31, 2000, the actuarial present
                  value of accrued liabilities exceeded the plan assets by
                  approximately $5.4 million. The annual contribution to the
                  plan is expected to be approximately $1.0 million in 2001 and
                  beyond.

         The Company believes that its current cash balance will satisfy working
capital, new product development, sales and marketing expansion and capital
expenditures for at least the next 12 months. Although the Company has generated
funds to meet its cash requirements in the past and expects to be able to
generate funds to meet its obligations and other needs enumerated above, there
can be no assurance that such funds will be available when required.

         As of December 31, 2000, approximately $96 million of U.S. tax loss
carryforwards (subject to review by the Internal Revenue Service), expiring from
2001 through 2020, were available to offset future taxable income. 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.

FACTORS THAT MAY AFFECT FUTURE RESULTS

         WE HAVE A HISTORY OF OPERATING LOSSES AND NEGATIVE CASH FLOW, AND WE
HAVE ONGOING FUNDING OBLIGATIONS. 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 1998, 1999
and 2000, of approximately $8.4 million, $16.7 million and $19.6 million,
respectively. In addition, we experienced negative cash flow from continuing
operating activities of $5.6 million, $8.5 million and $18.7 million in 1998,
1999 and 2000, respectively.

         We expect that our business will require on-going funding to support
the expansion of sales and marketing efforts, new product development, working
capital growth and capital expenditures. Also, we will need to fund our new
initiatives in the smart card market before we can reasonably expect to derive
any significant revenues from this market.

         We also have continuing obligations to fund payments due under the
Consent Decree and an underfunded pension plan. As of December 31, 2000, we were
required to make future aggregate payments of


                                       20
<PAGE>   22

$1.7 million through April 2002 in connection with the Consent Decree.
Consistent with the general practices of environmental enforcement agencies, the
Consent Decree does not eliminate our potential liability for remediation of
contamination that had not been known at the time of the settlement. We sponsor
a defined benefit pension plan, which was frozen in 1993. As of December 31,
2000, the present value of the accrued benefit liabilities of our pension plan
exceeded the plan's assets by approximately $5.4 million. In addition to the
$1.0 million we expect to contribute to the plan in 2001, we are obligated to
make continued contributions to the plan in accordance with the rules and
regulations prescribed by the Employee Retirement Income Security Act of 1974.
Future contribution levels depend in large measure on the mortality rate of plan
participants and the investment return on the plan assets.

         WE HAVE LIMITED EXPERIENCE IN THE SMART CARD MARKET. We have only
recently begun to provide smart card infrastructure products and solutions which
facilitate secure access and transactions. We are therefore subject to the risks
inherent in establishing a new business enterprise.

         Our business model is new and unproven and may not generate sufficient
revenue for us to be successful. The volume of products and services distributed
using our technology may be too small to support or grow our business.

         OUR FUTURE PROFITABILITY DEPENDS LARGELY UPON PRODUCTS AND FUTURE
PRODUCTS THAT HAVE NOT YET PRODUCED ANY REVENUES OR ARE NOT YET COMMERCIALLY
VIABLE. We believe that certain of our products are viable, but have not yet
generated any material sales. Our future revenues and earnings depend in large
part on the success of these products. Our business is also based on products
not yet developed. There are no assurances that these products will be developed
into working products or that a market will develop for these products in the
future.

         THE MARKET'S ACCEPTANCE OF OUR PRODUCTS IS UNCERTAIN. Demand for, and
market acceptance of, our smart card reader, ASIC and software solutions 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 also 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 solutions are designed to provide secure electronic commerce,
access control and security for various digital platforms. The markets for
secure access and transaction management applications are still emerging and if
the benefits are not perceived sufficient or if alternative technologies are
more widely accepted then the demand for our solutions may not grow and our
business and operating results would be materially and adversely effected.

         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. The
ASICs we provide to Motorola's General Instruments for inclusion in its set-top
boxes accounted for 56% of our total revenue in 1999. We expect to continue to
depend upon a relatively small number of customers for a majority of the
revenues in our business. Approximately, 28% of the Company's accounts
receivable balance as of December 31, 1999 was represented by a single
customer. For the year ended December 31, 2000, no customer represented more
than 10% of the Company's sales and one customer represented approximately 16%
of the accounts receivable balance as of December 31, 2000.

         We generally do not enter into long-term supply commitments with our
customers. Instead, we bid on a project basis and have supply contracts in place
for each project. 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.

         WE DEPEND ON THIRD PARTY MANUFACTURERS WHO ARE OUTSIDE OF OUR CONTROL.
We outsource manufacturing needs of a significant portion of our products to
third party contract manufacturers. Outsourcing of manufacturing involves risks
with respect to quality assurance, cost and the absence of engineering support.
In addition, financial, operational or supply problems encountered by the third
party manufacturers we use or may use in the future, their subcontractors or
their suppliers could result in our inability to obtain


                                       21
<PAGE>   23

timely delivery, if at all, of finished products. Any such difficulties would
adversely affect our financial results.

         WE HAVE A LIMITED NUMBER OF SUPPLIERS OF KEY COMPONENTS. We rely on a
limited number of suppliers for key components for our products. For example, we
purchase embedded chips for ASICs exclusively from the Atmel Corporation. Our
reliance on one supplier could impose several risks, including an inadequate
supply of chips, price increases, long lead times, late deliveries and poor
quality. Disruption or termination of the supply of these chips could delay the
delivery of our products, which could have a material adverse effect on business
and operating results. These delays could damage our relationship with current
and prospective customers.

         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. Our research and development expenditures
for the year ended December 31, 2000 were $4.4 million and we may need to devote
substantially more resources to our research and development efforts in the
future. We cannot assure you that these expenditures 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


                                       22
<PAGE>   24

         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 would have a material adverse effect on our business
and operating results.

         The market for smart card products and solutions is new, intensely
competitive and rapidly evolving. We expect competition to continue to increase
with both our existing competitors and new market entrants. Our primary
competition currently comes from or is anticipated to come from:

         o        companies offering payment solutions, including Trintech and
                  VeriFone;

         o        companies offering smart card technology solutions, including
                  Gemplus, Philips and SCM Microsystems; and

         o        companies offering closed environment solutions, including
                  small value electronic cash systems and database management
                  solutions, such as Girovend, MARS, Diebold, CyberMark and
                  Schlumberger.

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

         OUR LONG PRODUCT SALES CYCLES SUBJECT US TO RISK. Our products fall
into two categories, those that are standardized and ready to install and use
and those that require significant development efforts to implement within the
purchasers' own systems. Those products requiring significant development
efforts tend to be newly developed technologies and software applications that
can represent major investments for customers. We rely on 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 for
production volumes, 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, 2000, we had federal net operating loss
carryforwards, subject to review by the Internal Revenue Service, totaling
approximately $96.0 million for federal income tax purposes, approximately $9.0
million of which will expire at the end of 2001 and $25.0 million of which will
expire at the end of 2002. We do not expect to earn any significant taxable
income prior to 2003, and may not do so until later. A federal net operating
loss can generally be carried back two or three 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," the corporation'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 intend to issue a
substantial number of shares of our common stock in connection with public and
private offerings in the future. In addition, the exercise of outstanding
warrants and 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 common stock could


                                       23
<PAGE>   25

result in an "ownership change." If we were to experience such an "ownership
change," we estimate that we would not be able to use a substantial amount of
our available federal net operating loss carryforwards 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 currently have a number
of patent applications pending. 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 require
us to 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 to as great an extent 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.

         IF THIRD PARTIES DO NOT DEPLOY OUR TECHNOLOGY AND CREATE A MARKET FOR
DIGITAL COMMERCE, OUR BUSINESS WILL BE HARMED. Relationships with leading
content, technology and commerce service providers are critical to our success.
Our business and operating results would be harmed to the extent our strategic
partnerships fail, in whole or in part, too:

         o        deploy our technology;

         o        develop an infrastructure to conduct business through
                  e-commerce; and

         o        develop and deploy new applications.

         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, computer
networks, DVB 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


                                       24
<PAGE>   26

is attributable to our products. This could result in a decline in demand for
our products, which would 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. There
is a shortage of qualified marketing and technical personnel in our industry,
and the competition for such personnel is intense. Accordingly, 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 programmers, creative
designers and application developers, 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.
There is currently a shortage of qualified senior technical personnel in the
software development field, and this shortage is likely to continue.
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.
International sales represented approximately 79% of total sales for the year
ended December 31, 2000. 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.

         Any of the foregoing could adversely impact the success of our
international operations. We cannot assure you that such factors will not have a
material adverse effect on our future international 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.

         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


                                       25
<PAGE>   27

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 in the following amounts would be required:
Mr. Harry I. Freund -- $964,000; and Mr. Jay S. Goldsmith -- $964,000. 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.
We would not be able to deduct these payments for income tax purposes.

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

         OUR STOCK 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        variations in our annual or quarterly financial results or
                  those of our competitors;

         o        general economic conditions, in particular, the technology
                  service sector;

         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;

         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.


                                       26
<PAGE>   28

         WE ARE SUBJECT TO GOVERNMENT REGULATION. The telecommunications, media,
broadcast and cable television industries are subject to extensive regulation by
governmental agencies. These governmental agencies continue to oversee and adopt
legislation and regulation over these industries, which may affect our business,
market participants with which we have relationships or the acceptance of
interactive television in general. In addition, future legislation or regulatory
requirements regarding privacy issues could be enacted to require notification
to users that captured data may be used by marketing entities to target product
promotion and advertising to that user. Any of these developments may materially
adversely affect our business.

     Federal, state and local regulations impose various environmental controls
on the discharge of chemicals and gases, which may be used in our present or
future assembly 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 our Company to comply with
environmental rules and regulations, including the discharge of hazardous
substances, would subject us to liabilities and would materially adversely
affect our operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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.

         We are exposed to market risk primarily through short-term investments.
Our investment policy calls for investment in short-term, low risk instruments.
As of December 31, 2000, short-term investments (principally U.S. Treasury
bills) were $16.8 million. Due to the nature of these investments, any decrease
in rates would not have a material impact on the 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.


                                       27

<PAGE>   29

                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information called for by this item is hereby incorporated by
reference from the Company's definitive proxy statement to be filed pursuant to
Regulation 14A for the 2001 Annual Meeting of Shareholders.

         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.

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, 2000 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
except for three late Form 4 transactions: (i) Hatim A. Tyabji filed a Form 4 on
March 8, 2001 relating to an August 4, 2000 transaction, (ii) Larry G. Schafran
filed a Form 4 on March 2, 2001 relating to an August 4, 2000 transaction and
(iii) Clifford B. Cohn filed a Form 4 on March 2, 2001 relating to an August 4,
2000 transaction.

ITEM 11. EXECUTIVE COMPENSATION

         The information called for by this item is hereby incorporated by
reference from the Company's definitive proxy statement to be filed pursuant to
Regulation 14A for the 2001 Annual Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information called for by this item is hereby incorporated by
reference from the Company's definitive proxy statement to be filed pursuant to
Regulation 14A for the 2001 Annual Meeting of Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information called for by this item is hereby incorporated by
reference from the Company's definitive proxy statement to be filed pursuant to
Regulation 14A for the 2001 Annual Meeting of Shareholders.


                                       28
<PAGE>   30

                                     PART IV


ITEM 14. 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      Form of option to purchase common stock of PubliCARD issued in
                  connection with the Stock Purchase Agreement, dated April 12,
                  1985, among PubliCARD, Balfour Securities Corporation and the
                  Purchasers. Incorporated by reference from PubliCARD's Annual
                  Report on Form 10-K for the year ended December 31, 1994,
                  dated March 31, 1995.

         4.3      Form of Warrant Agreement, dated 1986, between PubliCARD and
                  J. Henry Schroder Bank & Trust Company, as Warrant Agent.
                  Incorporated by reference from PubliCARD's Registration
                  Statement on Form S-1, dated October 8, 1986.

         4.4      Form of Amendment No. 1 to Warrant Agreement, dated August 13,
                  1997, between PubliCARD and Publicker Industries Inc.,
                  successor to J. Henry Schroder Bank & Trust Company, as
                  Warrant Agent. Incorporated by reference from PubliCARD's
                  Current Report on Form 8-K, filed on August 15, 1997.

         4.5      Form of Warrant Agreement, dated 1986, between PubliCARD and
                  Drexel Burnham Lambert Incorporated. Incorporated by reference
                  from PubliCARD's Registration Statement on Form S-1, dated
                  October 8, 1986.

         4.6      Form of Amendment No.1 to Warrant Agreement, dated August 13,
                  1997, between PubliCARD and Harry I. Freund and Jay S.
                  Goldsmith. Incorporated by reference from PubliCARD's Current
                  Report on Form 8-K, filed on August 15, 1997.

         4.7      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.

         4.8      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.


                                       29
<PAGE>   31

         4.9      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     Termination, Severance and Release Agreement, dated as of
                  December 3, 1999, between PubliCARD and James J. Weis.
                  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     Employment Agreement, dated as of November 2, 1999, between
                  PubliCARD and Jan-Erik Rottinghuis. Incorporated by reference
                  from PubliCARD's Annual Report on Form 10-K for the year ended
                  December 31, 1999, dated March 30, 2000.

         10.6     Asset Purchase Agreement, dated June 29, 2000, among Greenwald
                  Industries, Inc., Greenwald Intellicard, Inc., The Eastern
                  Company, and PubliCARD, Inc. Incorporated by reference from
                  PubliCARD's Current Report on Form 8-K, filed on July 10,
                  2000.

         10.7     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.

         10.8     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 Registrant. Filed herewith.

         23.1     Consent letter from Independent Public Accountants. Filed
                  herewith.

         (b)  Reports on Form 8-K

              Form 8-K dated December 18, 2000 containing the exhibits related
              to the December 6, 2000 private placement of shares of common
              stock and Class A Preferred Stock resulting in aggregate proceeds
              of $5.0 million to PubliCARD.




                                       30
<PAGE>   32

                                   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 20, 2001                By: /s/ JAN-ERIK ROTTINGHUIS
        ---------------------------         -----------------------------------
                                            Jan-Erik Rottinghuis, President,
                                            Chief Executive Officer and
                                            Director

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

    Date  March 20, 2001                 By: /s/ JAN-ERIK ROTTINGHUIS
        ---------------------------         -----------------------------------
                                            Jan-Erik Rottinghuis, President,
                                            Chief Executive Officer and
                                            Director

    Date   March 20, 2001                By: /s/ ANTONIO L. DELISE
        ---------------------------         -----------------------------------
                                            Antonio L. DeLise, Vice President,
                                            Chief Financial Officer, Secretary
                                            and  Principal Accounting Officer

    Date   March 20, 2001                By: /s/ CLIFFORD B. COHN
        ---------------------------         -----------------------------------
                                            Clifford B. Cohn, Director

    Date   March 20, 2001                By: /s/ HARRY I. FREUND
        ---------------------------         -----------------------------------
                                            Harry I. Freund, Director

    Date   March 20, 2001                By: /s/ JAY S. GOLDSMITH
        ---------------------------         -----------------------------------
                                            Jay S. Goldsmith, Director

    Date   March 20, 2001                By: /s/ L. G. SCHAFRAN
        ---------------------------         -----------------------------------
                                            L. G. Schafran, Director

    Date   March 20, 2001                By: /s/ HATIM A. TYABJI
        ---------------------------         -----------------------------------
                                            Hatim A. Tyabji, Director



                                       31
<PAGE>   33

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE


<TABLE>
<S>                                                                                        <C>
Financial Statements

Report of independent public accountants                                                         F-2

Consolidated balance sheets as of December 31, 2000 and 1999                                     F-3

Consolidated statements of income (loss) for the years ended December 31, 2000,
   1999 and 1998                                                                                 F-4

Consolidated statements of shareholders' equity for the years ended
   December 31, 2000, 1999 and 1998                                                          F-5 and F-6

Consolidated statements of cash flows for the years ended
   December 31, 2000, 1999 and 1998                                                              F-7

Notes to consolidated financial statements                                                   F-8 through F-21

Schedule

Report of independent public accountants on schedule                                             F-22

Schedule II - Valuation and qualifying accounts                                                  F-23
</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>   34

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS





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, 2000
and 1999, 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, 2000. 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, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000, in conformity with accounting principles generally accepted in the
United States.



                                          /s/ Arthur Andersen LLP


Stamford, Connecticut
March 20, 2001


                                      F-2
<PAGE>   35



                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                        CONSOLIDATED BALANCE SHEETS AS OF
                           DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                                    2000             1999
                                                                                                  ---------        ---------
                                                                                               (in thousands except share data)
                                     ASSETS

<S>                                                                                               <C>              <C>
Current assets:
    Cash, including short-term investments of $16,820 in 2000 and $17,541 in 1999                 $  17,049        $  18,236
    Trade receivables, less allowance for doubtful accounts (2000 - $89, 1999 - $92)                  1,632            1,720
    Inventories                                                                                       1,617              903
    Net assets of discontinued operations                                                                --           10,832
    Other                                                                                               461              613
                                                                                                  ---------        ---------
        Total current assets                                                                         20,759           32,304
                                                                                                  ---------        ---------

Equipment and leasehold improvements, net                                                             1,623            1,063
Goodwill                                                                                              8,766           11,508
Other assets                                                                                          6,031              613
                                                                                                  ---------        ---------
                                                                                                  $  37,179        $  45,488
                                                                                                  =========        =========
                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Trade accounts payable                                                                        $   1,080        $   2,413
    Accrued liabilities                                                                               6,511            6,002
                                                                                                  ---------        ---------
        Total current liabilities                                                                     7,591            8,415

Other non-current liabilities                                                                         6,010            6,674
                                                                                                  ---------        ---------
        Total liabilities                                                                            13,601           15,089
                                                                                                  ---------        ---------


Shareholders' equity:
    Class A Preferred Stock, Second Series, no par value; 1,000 shares authorized;
        790 issued and outstanding                                                                    3,950               --
    Common shares, $0.10 par value: 40,000,000 shares authorized; 24,237,402 and 26,191,189
        shares issued as of December 31, 2000 and 1999, respectively                                  2,424            2,619
    Additional paid-in capital                                                                      107,300          111,476
    Accumulated deficit                                                                             (90,010)         (74,610)
    Common shares held in treasury, at cost                                                              --           (8,649)
    Unearned compensation                                                                               (86)            (437)
                                                                                                  ---------        ---------
        Total shareholders' equity                                                                   23,578           30,399
                                                                                                  ---------        ---------
                                                                                                  $  37,179        $  45,488
                                                                                                  =========        =========
</TABLE>



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




                                      F-3
<PAGE>   36




                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


<TABLE>
<CAPTION>
                                                                   2000            1999            1998
                                                                 --------        --------        --------
                                                                   (in thousands except per share data)

<S>                                                              <C>             <C>             <C>
Net sales                                                        $  5,543        $  1,930        $      3

Cost of sales                                                       2,913             978               7
                                                                 --------        --------        --------

     Gross margin                                                   2,630             952              (4)
                                                                 --------        --------        --------

Operating expenses:
     General and administrative                                     6,664           5,713           3,694
     Sales and marketing                                            7,562           2,862              21
     Product development                                            4,364           1,318              53
     In-process research and development                               --              --           2,800
     Stock compensation expense                                     1,116           2,759             145
     Goodwill amortization                                          2,638           1,749             128
     Severance and other special charges                               --           1,895              --
                                                                 --------        --------        --------
                                                                   22,344          16,296           6,841
                                                                 --------        --------        --------
Loss from operations                                              (19,714)        (15,344)         (6,845)
                                                                 --------        --------        --------
Other income (expenses):
     Interest income                                                  936             561             528
     Interest expense                                                (100)           (158)           (191)
     Cost of retirement benefits - non-operating                     (812)         (1,028)           (846)
     Other (expense) income                                            15            (751)         (1,023)
                                                                 --------        --------        --------
                                                                       39          (1,376)         (1,532)
                                                                 --------        --------        --------

Loss from continuing operations                                   (19,675)        (16,720)         (8,377)

Discontinued operations:
     Income (loss) from discontinued operations                        --         (13,999)          2,302
     Gain (loss) on disposition of discontinued operations          4,275          (5,000)             --
                                                                 --------        --------        --------
Net loss                                                         $(15,400)       $(35,719)       $ (6,075)
                                                                 ========        ========        ========

Basic earnings (loss) per common share:
     Continuing operations                                       $   (.84)       $   (.88)       $   (.61)
     Discontinued operations                                          .18           (1.00)            .17
                                                                 --------        --------        --------
                                                                 $   (.66)       $  (1.88)       $   (.44)
                                                                 ========        ========        ========
</TABLE>

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



                                      F-4
<PAGE>   37



                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


<TABLE>
<CAPTION>
                                                Class A
                                            Preferred Stock          Common Shares
                                            ---------------   ----------------------------      Additional
                                            Shares               Shares          Deficit        Paid-in
                                            Issued   Amount      Issued          Amount         Capital
                                            ------   ------   ------------    ------------    ------------
                                                            (in thousands except share data)

<S>                                         <C>      <C>        <C>           <C>             <C>
Balance - December 31, 1997                     --   $   --     16,551,849    $      1,655    $     49,915

Common shares issued
     Stock option plans                         --       --        433,000              43             606
     Private placement                          --       --      2,059,000             206          10,079
     Business acquisition                       --       --      1,253,771             126           8,261
     Restricted shares and grant of             --       --             --              --              --
        stock options to consultants            --       --          3,334              --             251
Amortization of unearned compensation           --       --             --              --              --
Market adjustment to redeemable shares          --       --             --              --          (2,021)
Purchase of common shares                       --       --             --              --              --
Net loss                                        --       --             --              --              --
                                            ------   ------   ------------    ------------    ------------
Balance - December 31, 1998                     --       --     20,300,954           2,030          67,091

Common shares issued
     Stock option exercises                     --       --        685,655              68           1,822
     Private placement                          --       --      3,269,500             327          18,859
     Business acquisitions                      --       --      1,509,610             151          17,635
     Pension plan contribution                  --       --         18,000               2             142
     Restricted shares and below market
       stock options                            --       --        208,333              21           3,072
Amortization of unearned compensation           --       --             --              --              --
Market adjustment to redeemable shares          --       --             --              --             846
Reclassification of redeemable shares           --       --        199,137              20           2,009
Net loss                                        --       --             --              --              --
                                            ------   ------   ------------    ------------    ------------
Balance - December 31, 1999                     --   $   --     26,191,189    $      2,619    $    111,476
                                            ------   ------   ------------    ------------    ------------


<CAPTION>
                                                               Common          Unearned          Share-
                                             Accumulated       Treasury        Compensa-        holders'
                                               Deficit         Shares(1)         tion            Equity
                                             ------------    ------------    ------------    ------------
                                                          (in thousands except share data)

<S>                                          <C>             <C>             <C>             <C>
Balance - December 31, 1997                  $    (32,816)   $     (7,881)   $         --    $     10,873

Common shares issued
     Stock option plans                                --              --              --             649
     Private placement                                 --              --              --          10,285
     Business acquisition                              --              --              --           8,387
     Restricted shares and grant of                    --              --              --              --
        stock options to consultants                   --              --            (251)             --
Amortization of unearned compensation                  --              --             145             145
Market adjustment to redeemable shares                 --              --              --          (2,021)
Purchase of common shares                              --            (326)             --            (326)
Net loss                                           (6,075)             --              --          (6,075)
                                             ------------    ------------    ------------    ------------
Balance - December 31, 1998                       (38,891)         (8,207)           (106)         21,917

Common shares issued
     Stock option exercises                            --            (442)             --           1,448
     Private placement                                 --              --              --          19,186
     Business acquisitions                             --              --              --          17,786
     Pension plan contribution                         --              --              --             144
     Restricted shares and below market
       stock options                                   --              --          (1,614)          1,479
Amortization of unearned compensation                  --              --           1,283           1,283
Market adjustment to redeemable shares                 --              --              --             846
Reclassification of redeemable shares                  --              --              --           2,029
Net loss                                          (35,719)             --              --         (35,719)
                                             ------------    ------------    ------------    ------------
Balance - December 31, 1999                  $    (74,610)   $     (8,649)   $       (437)   $     30,399
                                             ------------    ------------    ------------    ------------
</TABLE>




                            (continued on next page)



                                      F-5
<PAGE>   38



                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


<TABLE>
<CAPTION>
                                                Class A
                                            Preferred Stock          Common Shares
                                            ---------------   ----------------------------      Additional
                                            Shares               Shares          Deficit        Paid-in
                                            Issued   Amount      Issued          Amount         Capital
                                            ------   ------   ------------    ------------    ------------
                                                           (in thousands except share data)



<S>                                         <C>      <C>        <C>           <C>             <C>
Balance - December 31, 1999                     --   $   --     26,191,189    $      2,619    $    111,476

Shares issued
     Stock option plans                         --       --      1,177,501             118           2,824
     Private placement                         790    3,950        525,000              53             945
     Business acquisitions                      --       --         66,333               7             689
     Pension plan contribution                  --       --        115,000              11             352
     Shares issued pursuant to employment
       and separation agreements                --       --        251,500              25           1,177
Amortization of unearned compensation           --       --             --              --              --
Cancellation of treasury shares                 --       --     (4,089,121)           (409)        (10,163)
Net loss                                        --       --             --              --              --
                                            ------   ------   ------------    ------------    ------------
Balance - December 31, 2000                    790   $3,950     24,237,402    $      2,424    $    107,300
                                            ======   ======   ============    ============    ============








<CAPTION>
                                                               Common          Unearned          Share-
                                             Accumulated       Treasury        Compensa-        holders'
                                               Deficit         Shares(1)         tion            Equity
                                             ------------    ------------    ------------    ------------
                                                       (in thousands except share data)



<S>                                          <C>             <C>             <C>             <C>
Balance - December 31, 1999                  $    (74,610)   $     (8,649)   $       (437)   $     30,399

Shares issued
     Stock option plans                                --          (1,923)             --           1,019
     Private placement                                 --              --              --           4,948
     Business acquisitions                             --              --              --             696
     Pension plan contribution                         --              --              --             363
     Shares issued pursuant to employment
       and separation agreements                       --              --              --           1,202
Amortization of unearned compensation                  --              --             351             351
Cancellation of treasury shares                        --          10,572              --              --
Net loss                                          (15,400)             --              --         (15,400)
                                             ------------    ------------    ------------    ------------
Balance - December 31, 2000                  $    (90,010)   $         --    $        (86)   $     23,578
                                             ============    ============    ============    ============
</TABLE>



         (1)      Represents common shares held in treasury of 3,725,024 at
                  December 31, 1999 and 3,660,252 at December 31, 1998.


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



                                      F-6
<PAGE>   39




                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                                 2000          1999          1998
                                                                               --------      --------      --------
                                                                                          (in thousands)
<S>                                                                            <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Loss from continuing operations                                            $(19,675)     $(16,720)     $ (8,377)
    Adjustments to reconcile loss to net cash
       used in continuing operations:
       In-process research and development                                           --            --         2,800
       Goodwill amortization                                                      2,638         1,749           128
       Stock compensation expense                                                 1,116         3,763           146
       Depreciation                                                                 314           185            83
       Changes in operating assets and liabilities                               (3,088)        2,563          (426)
                                                                               --------      --------      --------
          Net cash used in continuing operations                                (18,695)       (8,460)       (5,646)

    Income (loss) from discontinued operations                                    4,275       (18,999)        2,302
       Loss (gain) on disposition of discontinued operations                     (4,275)        5,000            --
       Non-cash charges                                                              --        12,042           398
       Change in net assets of discontinued operations                           (3,260)       (1,211)         (379)
                                                                               --------      --------      --------
          Net cash provided by (used in) discontinued operations                 (3,260)       (3,168)        2,321
                                                                               --------      --------      --------
              Net cash used in operating activities                             (21,955)      (11,628)       (3,325)
                                                                               --------      --------      --------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of businesses, net of cash acquired                                  --        (3,689)       (1,145)
    Investment in TecSec, Incorporated                                           (5,044)           --            --
    Capital expenditures                                                           (874)         (480)         (108)
                                                                               --------      --------      --------
          Net cash used in continuing operations                                 (5,918)       (4,169)       (1,253)

    Acquisition of businesses, net of cash acquired                                  --        (2,442)         (312)
    Proceeds from sale of discontinued operations                                21,835           107            31
    Capital expenditures                                                           (168)       (1,465)         (210)
                                                                               --------      --------      --------
          Net cash provided by (used in) discontinued operations                 21,667        (3,800)         (491)
                                                                               --------      --------      --------
              Net cash provided by (used in) investing activities                15,749        (7,969)       (1,744)
                                                                               --------      --------      --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from private placement of Class A Preferred Stock                    3,950            --            --
    Proceeds from private placements of common shares                               998        19,186        10,285
    Issuance of common shares pursuant to stock option exercises                  1,011           815           649
    Purchase of treasury shares                                                      --            --          (326)
    Purchase of redeemable shares                                                    --          (503)           --
    Repayment of term loans and notes payable from discontinued operations         (940)         (147)         (134)
                                                                               --------      --------      --------
              Net cash provided by financing activities                           5,019        19,351        10,474
                                                                               --------      --------      --------

NET INCREASE (DECREASE) IN CASH                                                  (1,187)         (246)        5,405
CASH - BEGINNING OF PERIOD                                                       18,236        18,482        13,077
                                                                               --------      --------      --------
CASH - END OF PERIOD                                                           $ 17,049      $ 18,236      $ 18,482
                                                                               ========      ========      ========
</TABLE>



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








                                      F-7
<PAGE>   40
                                 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, 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 of Directors 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.

         PubliCARD, through its Infineer subsidiaries, is a smart card
technology company, which provides infrastructure products and solutions to
facilitate secure access and transactions. The Company's products and solutions
include integrated circuits, smart card readers and software systems. PubliCARD
sells its products and solutions to customers for deployment in enterprise and
on-line security and transactions management applications. In May of 2000,
PubliCARD unveiled its new corporate brand of Infineer bringing together its
subsidiaries located in Northern Ireland and the United States under a single
focus in an effort to capitalize on its core competencies and growth
opportunities in smart card technology.

PRINCIPLES OF CONSOLIDATION

      The consolidated financial statements include the accounts of PubliCARD
and its majority-owned subsidiaries. All significant 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,
repurchase agreements and money market funds.

INVENTORIES

      Inventories are stated at lower of cost (first-in, first-out method) or
market. The Company evaluates the need to record adjustments for impairment of
inventory on a quarterly basis. 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 managements 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, 2000 and 1999 consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                2000          1999
                                              --------      --------

<S>                                           <C>           <C>
Raw materials and supplies                    $    750      $    599
Work-in-process                                     --            48
Finished good                                      867           256
                                              --------      --------
                                              $  1,617      $    903
                                              ========      ========
</TABLE>

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 3 to 7 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, 2000 and 1999 consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                2000          1999
                                              --------      --------

<S>                                           <C>           <C>
Equipment                                     $  2,144      $  1,307
Leasehold improvements                             237           218
Accumulated depreciation and amortization         (758)         (462)
                                              --------      --------
                                              $  1,623      $  1,063
                                              ========      ========
</TABLE>


                                      F-8
<PAGE>   41


                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



    Goodwill is the excess of the purchase price and related costs over the
value assigned to the net tangible assets of the businesses acquired. Goodwill
is amortized on a straight-line basis over five years. Accumulated amortization
was $4.5 million and $1.9 million as of December 31, 2000 and 1999,
respectively. At each balance sheet date, the Company evaluates the
realizability of goodwill based upon expectations of non-discounted cash flows
and operating income for each subsidiary having a goodwill balance. Based upon
its most recent analysis, the Company believes that no impairment of goodwill
existed at December 31, 2000.

REVENUE RECOGNITION

    Revenue from product sales are recorded upon shipment of the product.
Provisions are recorded for estimated warranty repairs, returns and bad debts at
the time the products are shipped. Software license fees are recognized upon
shipment if a signed contract exists, the fee is fixed and determinable and the
collection of the resulting receivable is probable. Revenue from maintenance and
support fees are recognized ratably over the contract period.

STOCK-BASED COMPENSATION

    The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method. Compensation cost for stock
options, if any, is measured as the excess of the quoted market price of the
Company's common stock at the date of grant over the exercise price. 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. The Company has
provided in Note 6 the pro forma disclosures of the effect on net income (loss)
and earnings (loss) per common share as if the fair value-based method had been
applied in measuring compensation expense.

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. While all available information has been considered,
actual amounts could differ from those reported.

RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging activities", subsequently
amended by SFAS Nos. 137 and 138. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. To date, the
Company has had no investments in derivative financial instruments and has not
engaged in hedging activities. Accordingly, the Company has determined the
adoption of SFAS No. 133 is not expected to have a material impact on its
financial position, results of operations or cash flows.

    In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue recognition in financial statements"
("SAB 101"), which provides guidance in applying generally accepted accounting
principles related to revenue recognition based upon interpretations and
practices followed by the SEC. SAB 101, as amended, is not required to be
implemented until 2001. The Company believes that the impact of SAB 101 will not
have a material impact on its financial position, results of operations or cash
flows.

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
(23,295,121 in 2000; 18,978,519 in 1999; and 13,716,243 in 1998). 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 not computed for 2000, 1999 and 1998 as the effect of stock options,
warrants and convertible preferred stock were antidilutive.

FOREIGN CURRENCY TRANSLATION

    Assets and liabilities of the Company's foreign affiliate are translated at
current exchange rates, while revenue and expenses are translated at average
rates prevailing during the year. The translation adjustment recorded for 2000
and 1999 did not have a material effect on the Company's financial statements.




                                      F-9
<PAGE>   42

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2000, 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. Approximately 28% of the
Company's accounts receivable balance as of December 31, 1999 and 56% of the
Company's sales for the year ended December 31, 1999 was represented by a single
customer. For the year ended December 31, 2000, no customer represented more
than 10% of the Company's sales and one customer represented approximately 16%
of the accounts receivable balance as of December 31, 2000.

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, 2000, such costs eligible for
capitalization were insignificant. Accordingly, all such costs have been charged
to product development expenses.

NOTE 2 - ACQUISITIONS

     In December 2000, the Company acquired a 3.5% ownership interest in TecSec,
Incorporated ("TecSec") for $5.0 million. TecSec, a Virginia company, develops
and markets smart card-based encryption products and solutions, which will
enable the next generation information security for the enterprise,
multi-enterprise e-business and other markets. The TecSec investment has been
accounted for at cost and could be subject to write-down in future periods if it
is determined that the investment is impaired and not recoverable. See also Note
3.

     On November 16, 1999, the Company acquired 100% of the common stock of
Absec Ltd. ("Absec"), a Northern Ireland company that designs, manufactures and
distributes cost recovery and cashless payment and control systems. The
aggregate purchase price was approximately $5.4 million and included the
issuance of 388,209 shares of common stock and options to purchase a total of
300,000 shares of common stock at an exercise price of $6.19 per share.

     On November 24, 1998, the Company acquired 100% of the common stock of
Tritheim Technologies, Inc. ("Tritheim"), a Florida company that designs,
develops, and sells technologies used in conditional access systems and secure
electronic commerce over the Internet. The aggregate purchase price was
approximately $10.4 million and included the issuance of 1,495,037 shares of
common stock and options to purchase a total of 333,270 shares of common stock
at an exercise price of $2.00 per share.

     The amount and components of the purchase price along with the allocation
of the purchase price are as follows (in thousands):

<TABLE>
<CAPTION>
                                              ABSEC         TRITHEIM
                                            ----------     ----------
<S>                                         <C>            <C>
Purchase price:
Value of common stock and stock options     $    3,455     $    9,743
Cash paid                                        1,561             --
Acquisition expenses                               423            694
                                            ----------     ----------
                                            $    5,439     $   10,437
                                            ==========     ==========
 Allocation of purchase price:
 Net assets (liabilities)                   $      498     $     (713)
 In-process research and development                --          2,800
 Goodwill                                        4,941          8,350
                                            ----------     ----------
                                            $    5,439     $   10,437
                                            ==========     ==========
</TABLE>

     The assets and liabilities of Absec and Tritheim were recorded at their
estimated fair values as of the respective acquisition dates. The aggregate fair
value of Tritheim's research and development efforts that had not reached
technological feasibility and had no alternative future uses was determined by
appraisal to be $2.8 million, and was expensed at the date of the acquisition. A
similar appraisal was performed in connection with the Absec acquisition, which
resulted in no such charge. Goodwill represents the excess of the purchase price







                                      F-10
<PAGE>   43


                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


over the fair value of identifiable tangible and intangible assets acquired and
is amortized using the straight-line method over its estimated life of five
years.

     The acquisitions have been accounted for as purchases and, accordingly, the
results are included in the consolidated financial statements of the Company
since the dates of acquisition. The following summarized unaudited pro forma
financial information assumes that the acquisitions had occurred as of January 1
of each period (in thousands except per share data):

<TABLE>
<CAPTION>
                                                    1999          1998
                                                  --------      --------

<S>                                               <C>           <C>
Net sales                                         $  6,144      $  4,516
Net loss from continuing operations                (17,563)       (8,731)
Net loss per share from continuing operations         (.91)         (.57)
</TABLE>

     The pro forma information is not necessarily indicative of the results that
would have been reported had such acquisitions actually occurred on the dates
specified, nor is it intended to project the Company's results of operations or
financial position for any future period or date.

     During 1999, the Company acquired Amazing! Smart Card Technologies, Inc.
("Amazing") and Greystone Peripherals, Inc. ("Greystone") and increased its
ownership interest in Greenwald Intellicard, Inc. ("Greenwald Intellicard"). In
March 2000, the Company's Board of Directors adopted a plan to dispose of these
businesses. See Note 9.

     On February 11, 1999, the Company acquired 100% of the common stock of
Amazing, a California company that develops smart card solutions and
manufactures smart cards. The aggregate purchase price was approximately $5.9
million and included the issuance of 350,000 shares of common stock and options
to purchase a total of 457,503 shares of common stock. On February 22, 1999, the
Company acquired 100% of the common stock of Greystone, a California company
that principally develops and distributes hard disk duplicators. The aggregate
purchase price was approximately $9.1 million and included the issuance of
746,401 shares of common stock and options to purchase a total of 132,388 shares
of common stock. The amount and components of the purchase price along with the
allocation of the purchase price are as follows (in thousands):

<TABLE>
<CAPTION>
                                                      AMAZING        GREYSTONE
                                                    ----------      ----------
<S>                                                 <C>             <C>
Purchase price:
Value of common stock and stock options             $    5,327      $    8,729
Acquisition expenses                                       597             414
                                                    ----------      ----------
                                                    $    5,924      $    9,143
                                                    ==========      ==========
Allocation of purchase price:
Net assets (liabilities) of acquired businesses     $   (1,371)     $      306
In-process research and development                      1,509           1,410
Goodwill                                                 5,786           7,427
                                                    ----------      ----------
                                                    $    5,924      $    9,143
                                                    ==========      ==========
</TABLE>

     The assets and liabilities of Amazing and Greystone were recorded at their
fair values as of the respective acquisition dates. The aggregate fair value of
research and development efforts that had not reached technological feasibility
and had no alternative future uses was determined by appraisal to be $1.5
million and $1.4 million for Amazing and Greystone, respectively, and was
expensed at the respective acquisition dates. Goodwill represents the excess of
the purchase price over the fair value of identifiable tangible assets acquired
and is amortized using the straight-line method over its estimated life of five
years. The acquisitions of Amazing and Greystone have been accounted for under
the purchase method of accounting and, accordingly, their results are included
in the consolidated financial statements of the Company since the respective
acquisition dates.

    In February 1998, the Company purchased, through a joint venture arrangement
in Greenwald Intellicard, the assets and intellectual property of Intellicard
Systems, Ltd. Greenwald Intellicard develops, manufactures and markets smart
card systems for the commercial laundry appliance industry. The initial cash
investment in Greenwald Intellicard, all of which was provided by the Company,
was $314,000. The Company had two fixed price options aggregating $150,000 plus
66,333 shares of common stock to increase its ownership to 100%. The Company
exercised these options in February 1999 and February 2000.



                                      F-11
<PAGE>   44

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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 shares. The proceeds from the
private placement were used to acquire a 3.5% ownership interest in TecSec.

     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 has performed an internal
valuation of the participation rights and have concluded their value on the
issuance date to be de minimus.

     In October 1999, the Company completed the issuance of 3,269,500 shares of
common stock through a private placement. The shares were sold at $5.91 per
share for net proceeds of $19.2 million. In November 1998, the Company completed
the issuance of 2,059,000 shares of common stock through a private placement.
The shares were sold at $5.00 per share for net proceeds of $10.3 million.

     The Company was required to register 241,266 shares of Company common stock
issued as a portion of the merger consideration in the Tritheim acquisition
under a shelf registration statement under the Securities Act of 1933, as
amended. If the shelf registration statement was not effective by May 24, 1999,
the holders of these shares were entitled, for a specified period of time, to
cause the Company to repurchase their shares for a cash purchase price equal to
the fair market value of the shares on the date of repurchase. As such, these
shares were reflected in the consolidated balance sheet as of December 31, 1998,
under the caption "Redeemable shares" and subsequent adjustments to the value of
the redemption obligation were charged or credited to additional paid-in
capital. On July 21, 1999, a registration statement covering the registration of
these shares, to the extent not previously redeemed, was declared effective by
the Securities and Exchange Commission. Prior to that date, holders caused the
Company to repurchase 42,129 shares for $503,000. The repurchase right
terminated upon registration of the shares.

     On August 9, 1988, the Company declared a dividend of one 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.

     In December 2000, the Company returned 4.1 million shares of treasury stock
to the status of unissued shares of commons stock. An amount was charged to
common shares at par value with the remainder being charged to additional
paid-in capital.






                                      F-12
<PAGE>   45


                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 4 - INCOME TAXES

     As of December 31, 2000, approximately $96 million of U.S. tax loss
carryforwards (subject to review by the Internal Revenue Service), expiring from
2001 through 2020, were available to offset future taxable income. The
carryforwards expire as follows (in thousands):

<TABLE>
<CAPTION>
              YEAR                                                  AMOUNT
              ----                                                ---------
<S>                                                               <C>
              2001                                                $   9,000
              2002                                                   25,000
              2005                                                    7,000
              2006                                                    2,000
              2007                                                    4,000
              2008 - 2020                                            49,000
                                                                  ---------
                                                                  $  96,000
</TABLE>                                                          =========

     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 the Company would not be able to use a
substantial amount of the available net operating loss carryforwards 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 to use the net operating losses before they would otherwise expire.

     No income tax provision or benefit was recognized in 2000, 1999 and 1998
because the tax benefit associated with the Company's operating losses were
offset in full by an increase in the valuation allowance.

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

<TABLE>
<CAPTION>
                                      2000          1999
                                    --------      --------

<S>                                 <C>           <C>
Net operating loss carryforward     $ 33,453      $ 30,767
Pension expense                        1,467         1,640
Discontinued operations                  529         1,246
Other, net                               464         1,196
                                    --------      --------
                                      35,913        34,849
Less valuation allowance             (35,913)      (34,849)
                                    --------      --------
Net deferred taxes                  $     --      $     --
                                    ========      ========
</TABLE>


NOTE 5 - EMPLOYEE BENEFITS

     The Company and its subsidiaries maintain a 401(k) plan for substantially
all of the Company's 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 401(k)
contributions totaled $86,000, $189,000 and $197,000 in 2000, 1999 and 1998,
respectively.





                                      F-13
<PAGE>   46




                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





     The Company sponsors a defined benefit pension plan that was frozen in
1993. The assets of the defined benefit pension plan are managed by an outside
trustee and invested primarily in equity and fixed income funds. Cost of
retirement benefits - non-operating includes amounts related to discontinued
product lines and related plant closings totaling $812,000, $1.0 million and
$846,000 in 2000, 1999 and 1998, respectively. Information regarding the defined
benefit pension plan is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                        2000          1999
                                                                      --------      --------
<S>                                                                   <C>           <C>
Change in benefit obligation:
Benefit obligation at beginning of year                               $  9,800      $ 10,901
       Interest cost                                                       695           689
       Benefit payments                                                 (1,152)       (1,120)
       Actuarial (gain) or loss                                            (23)         (670)
                                                                      --------      --------
Benefit obligation at end of year                                        9,320         9,800
                                                                      --------      --------

Change in plan assets:
Fair value of plan assets at beginning of year                           4,256         4,883
       Actual return on plan assets                                       (345)         (127)
       Employer contributions                                            1,155           620
       Benefit payments                                                 (1,152)       (1,120)
                                                                      --------      --------
Fair value of plan assets at end of year                                 3,914         4,256
                                                                      --------      --------

Funded status                                                           (5,406)       (5,544)
       Unrecognized transition obligation                                  882         1,175
       Unrecognized net loss (gain)                                         89          (572)
                                                                      --------      --------
                                                                      $ (4,435)     $ (4,941)
                                                                      ========      ========
Amounts recognized in statement of financial position consist of:
Accrued benefit liability                                             $ (5,406)     $ (5,544)
Intangible asset                                                           971           603
                                                                      --------      --------
Net amount recognized                                                 $ (4,435)     $ (4,941)
                                                                      ========      ========
</TABLE>

     Discount rates of 7.50% and 7.75% were used as of December 31, 2000 and
1999, respectively. The expected return on plan assets was 8%.

     The components of the net periodic pension cost were as follows (in
thousands):

<TABLE>
<CAPTION>
                                            2000          1999          1998
                                          --------      --------      --------

<S>                                       <C>           <C>           <C>
Interest cost                             $    695      $    689      $    749
Expected return on plan assets                (341)         (384)         (331)
Amortization of transition obligation          294           294           306
                                          --------      --------      --------
Net periodic pension cost                 $    648      $    599      $    724
                                          ========      ========      ========
</TABLE>


NOTE 6 - STOCK OPTIONS AND WARRANTS

     The Company has issued stock options pursuant to several fixed stock option
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, 2000, 1999
and 1998 are as follows:

<TABLE>
<CAPTION>
                                      2000           1999           1998
                                   ----------     ----------     ----------

<S>                                <C>            <C>            <C>
Fixed stock option plans            3,543,750      2,771,167      2,232,500
Special stock options               1,824,031      2,676,218        983,270
Common stock purchase warrants      1,523,573      1,523,573      1,472,422
                                   ----------     ----------     ----------
                                    6,891,354      6,970,958      4,688,192
                                   ==========     ==========     ==========
</TABLE>




                                      F-14
<PAGE>   47


                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     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. In return, the
Company will grant an equal number of replacement stock options on August 20,
2001. The replacement stock options will generally contain the same terms and
conditions of the cancelled stock options and will have an exercise price equal
to the closing price of the Company's common stock on August 20, 2001.

FIXED STOCK OPTION PLANS

     The Company has several stock option 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 the stock option 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. Stock options
granted through December 31, 2000 generally expire five years from the date of
grant. The exercise price of each option granted was equal to the market price
of the Company's common stock on the date of grant. Prior to 1999, stock options
granted pursuant to the fixed stock option plans vested immediately. Grants
subsequent to 1998 generally vest over three or four years. As of December 31,
2000, there were 1,639,750 shares available for grant under the fixed stock
option plans.

     A summary of the stock options issued pursuant to the fixed stock option
plans as of December 31, 2000, 1999 and 1998 and changes during the years then
ending is presented below:

<TABLE>
<CAPTION>
                                      2000                          1999                            1998
                           --------------------------     --------------------------     --------------------------
                                             Average                       Average                        Average
                                            exercise                      exercise                       exercise
                             Shares           price         Shares          price          Shares          price
                           ----------      ----------     ----------      ----------     ----------      ----------
<S>                        <C>             <C>            <C>             <C>            <C>             <C>
Balance at January 1        2,771,167      $     4.15      2,232,500      $     1.80      2,130,500      $     1.65
Granted                     2,322,375            5.31      1,232,000            7.35        565,000            2.10
Exercised                    (594,167)           1.81       (631,333)           1.59       (433,000)           1.50
Canceled                     (955,625)           6.60        (62,000)           9.50        (30,000)           1.50
                           ----------                     ----------                     ----------
Balance at December 31      3,543,750            4.63      2,771,167            4.15      2,232,500            1.80
                           ==========                     ==========                     ==========
</TABLE>

     A summary of the Company's stock options outstanding and exercisable issued
pursuant to the fixed stock option plans as of December 31, 2000, is as follows:

<TABLE>
<CAPTION>
                             OUTSTANDING                          EXERCISABLE
                 -------------------------------------     -----------------------
                                              Average                     Average
Range of                      Contractual    exercise                     exercise
exercise price    Shares          life         price         Shares        price
                 ---------    -----------    ---------     ---------     ---------
<S>              <C>          <C>            <C>           <C>           <C>
$1.31-$2.00        987,000           1.9     $    1.72       927,000     $    1.73
$2.06-$4.00        945,375           4.5          3.14       110,000          2.78
$4.81-$7.38        984,375           3.9          6.20       313,667          6.44
$8.00-$12.50       627,000           4.1          9.04        49,000          9.81
                 ---------     ---------     ---------     ---------     ---------
$1.31-$12.50     3,543,750           3.5          4.63     1,399,667          3.15
                 =========                                 =========
</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, 2000, there are a total of 1,824,031 special
stock options outstanding. These options have exercise prices ranging from $2.00
to $9.75 per share and 872,793 of such options are currently exercisable. In
2000, a total of 583,334 special stock options were exercised with an average
exercise price of $3.22.

     In 2000, pursuant to various employment and separation agreements, the
Company issued 50,000 shares of common stock and changed the terms of certain
stock options. The fair value of the stock award and the change in terms of the
stock options was $758,000 and was charged to earnings in 2000.




                                      F-15
<PAGE>   48


                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     In November 1999, pursuant to an employment agreement with the appointment
of a new President and Chief Executive Officer, the Company issued 200,000
shares of common stock and options to purchase 400,000 shares of common stock at
an exercise price of $6.75 per share. The stock options vest over three years
and expire after five years. Options to purchase an additional 400,000 shares of
common stock were also issued which will become exercisable upon the achievement
of certain performance-based goals. The options were granted at an exercise
price below fair market value on the date of grant. The fair value of the stock
award and stock options was $1.7 million and is being charged to earnings over
the vesting period, if any.

     In January 1999, the Company issued 50,000 restricted shares and options to
purchase 200,000 shares of common stock at an exercise price of $5.50 per shares
to a newly hired executive. The Company also awarded 5,000 shares and options to
purchase a total of 4,000 shares of common stock at an exercise price of $5.50
per share to several employees. The restricted stock vests over a one-year
period and the stock options generally vest over a two year period and expire
five years from the grant date. The options were granted at exercise prices
below fair market value on the date of grants. The fair value of the stock
awards and stock options was $1.4 million and was charged to earnings over the
vesting period, if any.

     In connection with the acquisition of Tritheim in 1998 and Amazing,
Greystone and Absec in 1999, the Company granted options to purchase an
aggregate of 1,223,161 shares of common stock to certain employees and owners of
the acquired businesses. These options have exercise prices ranging from $2.00
to $10.75 per share, generally vest over three years and expire five years from
the date of grant. Of these options, 410,000 were granted pursuant to the
Company's fixed stock option plans. The fair value of stock options granted
amounting to $5.0 million, was included in the acquisition purchase price.

     In 1998, a consultant received options to purchase 25,000 shares of common
stock at an exercise price of $7.75 per share. These options are immediately
exercisable. The Company also granted in 1998 to another consultant options to
purchase 25,000 shares of common stock at an exercise price of $8.25 per share
and a stock award of 10,000 shares of common stock. The options and stock award
vest over a two year period. The fair value of the awards to the two consultants
at the date of grant was $251,000 and was charged to earnings over the vesting
period, if any.

     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 was subsequently extended by five years to
January 2006. In March 1999, the Company issued options to a newly appointed
member of the Board of Directors to purchase 250,000 shares of the Company's
common stock at a price of $9.75 per share. These options vest over a two year
period and expire five years from the grant date. None of these options have
been exercised as of December 31, 2000.

PRO FORMA DISCLOSURE

     The Company applies APB Opinion 25 "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its plans. The exercise
price of each option granted pursuant to the fixed stock option plans is
typically equal to the market price of the Company's common stock on the date of
grant. Accordingly, 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 of SFAS No. 123 "Accounting for
Stock-Based Compensation", the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below (in thousands except
per share data):

<TABLE>
<CAPTION>
                                      2000            1999            1998
                                   ----------      ----------      ----------

<S>                                <C>             <C>             <C>
Net loss           As reported     $  (15,400)     $  (35,719)     $   (6,075)
                   Pro forma       $  (21,111)     $  (38,293)     $   (6,684)

Loss per share     As reported     $     (.66)     $    (1.88)     $     (.44)
                   Pro forma       $     (.91)     $    (2.02)     $     (.49)
</TABLE>



                                      F-16
<PAGE>   49


                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




     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:

<TABLE>
<CAPTION>
                                             2000          1999          1998
                                           --------      --------      --------

<S>                                        <C>           <C>           <C>
Expected option term (years)                      5             5             5
Expected volatility                            82.2%         60.4%         52.7%
Risk-free interest rate                         5.8%          5.9%          4.9%
Weighted average fair value per option     $   3.60      $   4.69      $   1.08
</TABLE>

COMMON STOCK PURCHASE WARRANTS

     In December 1986, the Company issued $30 million of 13% Subordinated Notes
together with detachable warrants ("Warrants") to purchase 3,600,000 shares of
the Company's common stock for five years, which period was subsequently
extended by five years. In addition, the Company issued 1,200,000 Underwriter's
Warrants to purchase the Company's common stock for five years, which period was
subsequently extended by five years. Unexercised warrants were to expire on
December 15, 1996 (December 17, 1996, in the case of the Underwriter's
Warrants).

     In November 1996, the Company's Board of Directors, acting upon the
recommendation of a special committee of disinterested directors, determined it
would be in the Company's best interests to modify the Warrants and
Underwriter's Warrants owned by any holder who exercises, at the current
exercise price of $1.95 per share of common stock, 25% of the warrants owned on
December 15, 1996 (December 17, 1996, in the case of the Underwriter's
Warrants). Shareholders of the Company subsequently approved the modification on
July 2, 1997 (the "Approval Date"). As of July 2, 1997, a total of 2,257,050
warrants were outstanding entitling the warrant holders to purchase an aggregate
of 2,311,220 shares of common stock.

     The modification resulted in the following changes to the holder's
unexercised Warrants and Underwriter's Warrants (i.e., the 75% balance of the
warrants owned on December 15, 1996 or December 17, 1996, as the case may be)
(the "Remaining Modified Warrants"):

             (a)    Five-Year Extension The expiration date of the holder's
                    Remaining Modified Warrants was extended to July 2, 2002.

             (b)    Increased Exercise Price The exercise price of the holder's
                    Remaining Modified Warrants was increased from $1.95 per
                    share to (i) $2.00 per share, during the year ending on the
                    first anniversary of the Approval Date, (ii) $2.10 per
                    share, during the year ending on the second anniversary of
                    the Approval Date, (iii) $2.20 per share, during the year
                    ending on the third anniversary of the Approval Date, (iv)
                    $2.30 per share, during the year ending on the fourth
                    anniversary of the Approval Date, and (v) $2.40 per share,
                    during the year ending on the fifth anniversary of the
                    Approval Date.

         In 1999, pursuant to the terms of the Warrant and Underwriter Warrant
agreements, the number of shares of common stock purchasable upon the exercise
of each warrant increased to 1.068 and the exercise price per share decreased
from $2.20 to $2.11. As of December 31, 2000, there are 1,426,500 Remaining
Modified Warrants entitling the warrant holders to purchase 1,523,573 shares of
common stock at an exercise price of $2.20 per share. Members of the Company's
Board of Directors hold 1,380,000 of the Remaining Modified Warrants.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

     The Company leases certain office space, vehicles and office equipment
under operating leases that expire over the next eight 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 $490,000 in 2000, $381,000 in
1999 and $280,000 in 1998.




                                      F-17
<PAGE>   50



                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

<TABLE>
<CAPTION>
      YEAR
      ----
<S>                                                            <C>
      2001                                                     $    616
      2002                                                          417
      2003                                                          400
      2004                                                          201
      2005                                                           60
      Remainder                                                     160
                                                               --------
           Total minimum lease payments                           1,854
           Less sub-rental income                                  (363)
                                                               --------
           Net minimum lease payments                          $  1,491
                                                               ========
</TABLE>

     The Company and Balfour Investors Inc. ("Balfour") are parties to a License
Agreement, dated as of October 26, 1994, with respect to 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. The term
of the License Agreement commenced on January 1, 1995 and will expire on June
30, 2004, unless sooner terminated pursuant to law or the terms of the License
Agreement. The License Agreement provides for Balfour to pay to the Company a
portion of the rent paid by the Company under its lease, including base rent,
electricity, water, real estate tax escalations and operation and maintenance
escalations. As of December 31, 2000, Balfour's share of rent and other costs
was 12.5%. The base rent payable by Balfour under the License Agreement is
approximately $2,000 per month.

     The Company leases a 12,000 square foot facility in Bangor, Northern
Ireland from the former owner of Absec. The lease agreement expires in August,
2008. Annual lease payments amount to $60,000.

     In April 1996, a Consent Decree among the Company, the United States
Environmental Protection Agency and the Pennsylvania Department of Environmental
Protection ("PADEP") was entered by the court which resolved all of the United
States' and PADEP's claims against the Company for recovery of costs incurred in
responding to releases of hazardous substances at a facility previously owned
and operated by the Company. Pursuant to the Consent Decree, the Company will
pay a total of $14.4 million plus interest to the United States and the
Commonwealth of Pennsylvania. Through December 31, 2000, the Company has made
principal payments aggregating $12.8 million. Further payments totaling $1.7
million, including interest, will be made to the United States Environmental
Protection Agency over the next two years. The remaining annual payments are
$862,000 in 2001 and $823,000 in 2002.

     Various legal proceedings are pending against the Company. The Company
considers all such 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.

NOTE 8 - SEGMENT DATA

     As a result of the disposition of certain operations (See Note 9) and
because the Company predominantly operates in one industry, that being the
deployment of smart card solutions which facilitate secure access and
transactions, the Company reports as a single segment. Sales by geographical
areas for the years ended December 31, 2000, 1999 and 1998 are as follows (in
thousands):

<TABLE>
<CAPTION>
                    2000         1999         1998
                  --------     --------     --------
<S>               <C>          <C>          <C>
United States     $  1,160     $  1,245     $      3
Europe               4,029          614           --
Far East               126           37           --
Rest of world          228           34           --
                  --------     --------     --------
                  $  5,543     $  1,930     $      3
                  ========     ========     ========
</TABLE>





                                      F-18
<PAGE>   51




                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






     The Company has operations in the United States and United Kingdom.
Identifiable assets by country as of December 31, 2000 and 1999 are as follows
(in thousands):

<TABLE>
<CAPTION>
                                2000         1999
                              --------     --------
<S>                           <C>          <C>
United States                 $ 25,547     $ 30,804
United Kingdom                   2,866        3,176
                              --------     --------
                              $ 28,413     $ 33,980
                              ========     ========
</TABLE>


NOTE 9 - DISCONTINUED OPERATIONS

     In March 1999, the Company's Board of Directors adopted a plan to dispose
of its engineering services subsidiary, Orr-Schelen-Mayeron & Associates
("OSM"). During 1999, the Company revised its estimates of expected operating
results and wind-down costs and recorded a loss provision of $3.0 million.
Approximately $1.2 million related to the write-off of OSM's goodwill. The
wind-down of OSM has been substantially completed.

     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
design, manufacture and distribute 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.

     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 has substantially completed the wind-down of
the operations of Amazing and Greystone including the sale of certain assets and
the licensing of certain intellectual property.

     Following the substantial completion of the disposition plans, the Company
revised its estimates of proceeds and expenses and recognized a gain of $4.3
million in the third quarter of 2000 primarily related to the sale of Greenwald
and Greenwald Intellicard. 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,
Greystone and OSM have been reflected as discontinued operations. Certain
operating information with respect to discontinued operations for the year ended
December 31, 2000, are summarized as follows (in thousands):

<TABLE>
<S>                                                           <C>
     Net sales                                                $  13,330
     Cost of sales                                                8,349
     Operating expenses                                           5,850
     Goodwill amortization                                          695
     Interest expense, net                                            7
     Loss from discontinued operations                           (1,571)
</TABLE>

     The loss from discontinued operations for the year ended December 31, 2000
of $1.6 million was charged against the disposition reserve for the disposal of
these operations.





                                      F-19
<PAGE>   52
                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Summarized balance sheet information with respect to the discontinued
operations as of December 31, 2000 is as follows (in thousands):

<TABLE>
<S>                                                           <C>
     Current assets                                           $     243
     Non-current assets                                           2,223
     Current liabilities and disposition reserves                (3,913)
                                                              ----------
     Net liabilities of discontinued operations               $  (1,447)
                                                              ==========
</TABLE>


NOTE 10 - SPECIAL CHARGES AND OTHER EXPENSES

     In December 1999, the Company entered into a separation and termination
agreement with its former President and Chief Executive Officer. Pursuant to the
agreement, the former executive will receive salary and benefit continuation
through June 2001. In certain circumstances, the salary payment by the Company
may be in the form of common stock instead of cash. In addition, the former
executive received 32,500 shares of common stock and the exercise period of
certain stock options, which otherwise would have accelerated in connection with
his termination, was extended. A charge of $1.7 million was recorded in 1999 to
reflect the costs associated with this agreement, of which $1.0 million related
to the non-cash impact of the stock award and change in the stock option terms.

     In April 1998, the Company executed a letter of intent to purchase
substantially all of the assets of a group of five businesses from Katy
Industries, Inc. On August 5, 1998, the Company announced that the letter of
intent terminated due to the inability of the parties to reach agreement on
certain aspects of the transaction. Included in "Other (expense) income" is a
charge of $954,000 relating to legal, environmental and financing related fees.

NOTE 11 - SUPPLEMENTAL INFORMATION

     Changes in operating assets and liabilities reflected in the Consolidated
Statements of Cash Flows are net of acquisitions of businesses and consisted of
the following for the years ended December 31, 2000, 1999 and 1998 (in
thousands):

<TABLE>
<CAPTION>
                                    2000          1999          1998
                                  --------      --------      --------

<S>                               <C>           <C>           <C>
Trade receivables                 $     88      $   (387)     $     17
Inventories                           (714)          (84)           (3)
Other current assets                   152           (32)          219
Other assets                          (374)          649           131
Trade accounts payable              (1,333)        1,175           424
Accrued liabilities                   (607)        2,307           139
Other non-current liabilities         (300)       (1,065)       (1,353)
                                  --------      --------      --------
                                  $ (3,088)     $  2,563      $   (426)
                                  ========      ========      ========
</TABLE>

Acquisition of businesses in the Consolidated Statements of Cash Flows is net of
cash acquired and includes debt assumed and immediately repaid. Cash paid for
interest during 2000, 1999 and 1998 was $137,000, $191,000 and $224,000,
respectively. No income taxes were paid in 2000, 1999 and 1998. Non-cash
investing activities include the acquisitions of Tritheim, Amazing, Greystone,
Absec and Greenwald Intellicard for shares of common stock and options valued at
$696,000, $17.8 million and $9.7 million in 2000, 1999 and 1998, respectively,
as described in Note 2.

Other assets as of December 31, 2000 and 1999 consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                               2000         1999
                             --------     --------

<S>                          <C>          <C>
Investment in TecSec         $  5,044     $     --
Intangible pension asset          971          603
Deposits                           16           10
                             --------     --------
                             $  6,031     $    613
                             ========     ========
</TABLE>


                                      F-20
<PAGE>   53



                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Other current liabilities as of December 31, 2000 and 1999 consisted of the
following (in thousands):

<TABLE>
<CAPTION>
                                                 2000         1999
                                               --------     --------

<S>                                            <C>          <C>
Pension liability                              $  1,032     $  1,032
Payroll and other employee benefits               1,302          890
Net liabilities of discontinued operations        1,447           --
Environmental obligation                            783          946
Accrued severance and other                       1,947        3,134
                                               --------     --------
                                               $  6,511     $  6,002
                                               ========     ========
</TABLE>

Other non-current liabilities as of December 31, 2000 and 1999 consisted of the
following (in thousands):

<TABLE>
<CAPTION>
                                                   2000         1999
                                                 --------     --------

<S>                                              <C>          <C>
Pension liability and other retiree benefits     $  5,074     $  4,883
Environmental obligation                              783        1,567
Other                                                 153          224
                                                 --------     --------
                                                 $  6,010     $  6,674
                                                 ========     ========
</TABLE>




                                      F-21
<PAGE>   54



                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE


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,
2001. 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.



                                       /s/ Arthur Andersen LLP


Stamford, Connecticut
March 20, 2001





                                      F-22
<PAGE>   55




                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


<TABLE>
<CAPTION>
                                                                     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, 2000:
     Allowance for doubtful accounts                 92             28              12            (43)             89

     Reserve for discontinued operations          4,141         (4,275)             --          4,047           3,913


Year ended December 31, 1999:
     Allowance for doubtful accounts                 38             53               9             (8)             92

     Reserve for discontinued operations          1,218          5,000              --         (2,077)          4,141


Year ended December 31, 1998:
     Allowance for doubtful accounts                 --             --              39             (1)             38

     Reserve for discontinued operations          1,376             --              --           (158)          1,218
</TABLE>




(1) Other changes for the allowance for doubtful accounts represents reserves
established against receivables of certain acquired businesses at the date of
acquisition in 1998 and 1999 and a reclass of reserve balances from other
accounts in 2000.

(2) Deductions for allowance for doubtful accounts represent the write-offs of
account receivable. Deductions for discontinued operations represent charges and
payments to reserves offset by net gains credited to reserves for asset
dispositions in 2000.





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