<PAGE>
                       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, 2002

                                       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 of         (I.R.S. Employer Identification No.)
 incorporation or organization)

   620 FIFTH AVENUE, 7TH FLOOR, NEW YORK, NY             10020
   (Address of principal executive offices)            (Zip code)

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

           Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class                  Name of each exchange on which registered
-------------------                  -----------------------------------------
       NONE                                           NONE

           Securities Registered Pursuant To Section 12(g) of the Act
                          COMMON STOCK ($.10 PAR VALUE)
            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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes | | No |X|.

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 JUNE 28, 2002, THE AGGREGATE MARKET VALUE OF THE VOTING COMMON STOCK HELD
BY NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $3,890,000.

  NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 24, 2003: 24,440,902

                       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 2003 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. and subsidiaries, ("PubliCARD" or the "Company")
preceded by, followed by or that include the words "believes," "expects,"
"anticipates," "estimates," "intends," "plans" or similar expressions. For those
statements, we claim the protection of the safe harbor for forward-looking
statements contained in the U.S. Private Securities Litigation Reform Act of
1995. Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions. You should understand that such
statements made under "Factors That May Affect Future Results" and elsewhere in
this document could affect our future results and could cause those results to
differ materially from those expressed in such forward-looking statements.

ITEM 1.  BUSINESS

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

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

      The consolidated financial statements included in this Form 10-K
contemplate the realization of assets and the satisfaction of liabilities in the
normal course of business. The Company has incurred operating losses, a
substantial decline in working capital and negative cash flow from operations
for the years 2002, 2001 and 2000. The Company has also experienced a
substantial reduction in its cash and short term investments, which declined
from $17.0 million at December 31, 2000, to $4.5 million at December 31, 2001
and to $1.3 million at December 31, 2002. The Company also had a working capital
deficiency of $548,000 and an accumulated deficit of $112.0 million at December
31, 2002.

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


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INDUSTRY

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

      A smart card is similar in appearance to a traditional credit card, but
unlike a traditional credit card, stores information on an integrated circuit
chip embedded within the card, rather than on a magnetic stripe on the surface.
While a typical magnetic stripe card 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 and the Internet. Smart cards also permit bi-directional authentication
in which the smart card can authenticate the validity of the intended party or
device prior to exchanging information or value.

      The rollout of smart card technology started in the telecommunication
sector, specifically to facilitate the use of public payphones (replacing coins)
and mobile phones (Subscriber Identification Modules). Of the 2 billion smart
cards issued in 2000, half of them were issued in this sector. The deployment 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 and process personal information, access keys and other information.

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

      Demand for smart card solutions are being further driven by governments
and financial institutions. The U.S. Government Paperwork Elimination Act of
1995 requires that all federal agencies offer electronic exchange of mandatory
data by October 2003. The European Commission ("EC") is also supporting the
adoption of smart card technology in their continuing efforts to create a more
efficient and competitive economy within the European community. Through the
eEurope program, the EC is sponsoring programs to standardize smart card
infrastructure devices and harmonize system platforms. Finally, smart card
technology is rapidly becoming a key facilitator of financial transactions. The
financial and banking community in Asia and Europe is using smart card
technology to support credit, debit and e-purse cards (cards that store cash
values), multi-application services and services dealing with coupons and/or
tickets. Several large U.S. financial institutions, including American Express,
MasterCard and Visa International, have introduced smart cards as part of their
financial card systems.

      The use of smart card technology is especially well suited for managing
transactions in closed environment solutions that restrict access and manage
payments. In closed environments, smart cards are


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

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

STRATEGY

HISTORY OF THE COMPANY'S SMART CARD INITIATIVE

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

-     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.

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

-     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.

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

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

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

-     high growth potential existed;

-     PubliCARD had established relationships;

-     PubliCARD had already deployed products and gained credibility; and

-     PubliCARD possessed core technologies and competencies.

      PubliCARD believed that it could leverage its existing smart card
technology for deployment in the rapidly growing enterprise and on-line security
and transaction management market sectors, which


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PubliCARD had already penetrated and which it believed exhibited each of the
characteristics identified above. To effect this new business strategy, in March
2000, the Company's Board of Directors adopted a plan to dispose of the
operations of the Company's Greenwald Industries Inc. ("Greenwald"), Greenwald
Intellicard, Greystone and Amazing subsidiaries. These subsidiaries designed,
manufactured and distributed mechanical and smart card laundry solutions, hard
disk duplicators and smart cards.

      On June 29, 2000, the Company completed the sale of substantially all of
the assets of Greenwald and Greenwald Intellicard to The Eastern Company
("Eastern") for $22.5 million in cash, less $1.75 million held in escrow to
secure the payment of certain indemnification obligations. As part of the
transaction, Eastern assumed certain liabilities of Greenwald and Greenwald
Intellicard, including certain contractual liabilities, accounts payable and
accrued liabilities. The Company has 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
Incorporated ("TecSec") for $5.1 million. TecSec, a Virginia company, develops
and markets encryption products and solutions, which are designed to enable the
next generation information security for the enterprise, multi-enterprise
e-business and other markets.

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

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

CURRENT STRATEGY

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

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

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

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

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

PUBLICARD PRODUCTS AND SOLUTIONS

      PubliCARD designs and develops smart card software and hardware solutions
for campus environments. The Company's solutions facilitate card-based payment
for a wide variety of services typically found on both corporate and education
sites. The Company's products and solutions include the following:

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

      On ChipNet sites, card holders load money onto an Infineer
      multi-application smart card. The card can then be used to pay for
      cafeteria and vending machine purchases, as well as for copier and
      networked printer usage. Each time a transaction takes place, all details
      are recorded, such as the date and time, user and item purchased. These
      are then processed by a robust back office software package, utilizing a
      powerful tracking tool that delivers accurate management information on
      sales and card activity. As the ChipNet solution is based around an open
      database platform, integration with third party cards, applications and
      electronic purses can be facilitated quickly and easily. ChipNet is
      currently installed in over 110 educational and corporate sites, primarily
      in the United Kingdom.

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


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      to ChipNet.

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

-     EASYCARD. The EasyCard product line delivers a complete and cost effective
      solution to the problem of vending prints, copies and faxes. Operating
      with either low cost disposable magnetic cards or rechargeable cards in
      two formats, slim and ISO standard, EasyCard is a simple to use solution,
      ideal for schools, colleges, universities, libraries and copy shops. Users
      carry cards, featuring either a monetary or copy value, and the
      appropriate amount is deducted each time a service is used. Both analogue
      and digital copiers can now contribute valuable revenue to institutions by
      charging for their use. For those customers not paying in advance for
      services, account cards can be used, recording the use of a range of
      services against an individual or department. A full range of support
      products offer card acceptance at vending machines, cafeterias,
      self-service card centers and encoding stations. EasyCard delivers a range
      of solutions from "sell and forget" disposable magnetic card operated
      formats to combination solutions accepting disposable, rechargeable and
      account cards with full card personalization for access control and time
      and attendance tracking.

-     LICENSED TECHNOLOGY. PubliCARD licenses smart card reader and chip
      technology to an independent third party. The Company does not expect the
      revenue stream from the license agreement, which will expire in March
      2004, to be significant in the future. PubliCARD developed a line of chips
      that provide solutions for adding smart card support to a variety of OEM
      products such as cable set-top boxes, Internet appliances, personal
      computers and keyboards. These solutions drive the smart card reader in
      any smart card accepting device, enabling any smart card application and
      payment transactions to take place. PubliCARD's chips were designed to
      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 also developed intelligent smart card readers designed for
      electronic commerce, financial services, access control, security, and a
      variety of other applications. The reader line included a laptop reader as
      well as desktop solutions with either a serial or USB interface.

SALES AND MARKETING

      PubliCARD sells and distributes its products through a range of
distribution channels, including value-added resellers, value-added distributors
and other distributors. PubliCARD also sells and distributes its products
directly to end-users in the United Kingdom through its direct sales force.
PubliCARD has approximately 19 employees directly engaged in the sale,
distribution and support of its products in the UK and is represented by 15
independent distributors and resellers.

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

RESEARCH AND DEVELOPMENT

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


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

COMPETITION

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

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

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

INTELLECTUAL PROPERTY

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

      PubliCARD currently has various trademarks and trademark applications
registered and pending in the


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

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

      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 14, 2003, PubliCARD had approximately 50 employees, of which
19 are involved in sales, marketing and support, 9 in product development, and
11 in manufacturing. The Company considers its employee relations to be good.

SEGMENT INFORMATION

      As a result of the disposition of certain operations and because the
Company operates in one industry, that being the deployment of smart card
solutions for educational and corporate sites, the Company reports as a single
segment. Sales by geographical areas for the years ended December 31, 2002,
2001 and 2000 are as follows (in thousands):

<TABLE>
<CAPTION>
                                             2002        2001       2000
                                             ----        ----       ----
<S>                                         <C>        <C>        <C>
     United States                          $ 1,029    $ 1,727    $ 1,160
     Europe                                   3,445      3,671      4,029
     Rest of world                              131        254        354
                                            -------    -------    -------
                                            $ 4,605    $ 5,652    $ 5,543
                                            =======    =======    =======
</TABLE>


                                       8
<PAGE>

      The Company has operations in the United States and United Kingdom.
Identifiable assets by country as of December 31, 2002, 2001 and 2000 are as
follows (in thousands):

<TABLE>
<CAPTION>
                                             2002        2001      2000
                                             ----        ----      ----
<S>                                         <C>        <C>        <C>
      United States                         $ 4,842    $12,037    $25,547
      United Kingdom                          2,235      2,557      2,866
                                            -------    -------    -------
                                            $ 7,077    $14,594    $28,413
                                            =======    =======    =======
</TABLE>

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

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 15, 2003. 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                   63                Director, Chairman of the Board
                                                            and Chairman

        Jay S. Goldsmith                  59                Director, Vice Chairman of the
                                                            Board and Vice Chairman

        Antonio L. DeLise                 41                Director,   President,   Chief  Executive  Officer,  Chief
                                                            Financial Officer and Secretary
</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. DeLise, joined the Company in April 1995 as Vice President, Chief
Financial Officer and Secretary. He was appointed to the Board of Directors in
July 2001 and was elected to the additional posts of President in February 2002
and Chief Executive Officer in August 2002.

ITEM 2.  PROPERTIES

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

<TABLE>
<CAPTION>
                                                                            YEAR OF LEASE       SQUARE
    PREMISES                           PURPOSE                                EXPIRATION        FOOTAGE
    --------                           -------                                ---------         -------

<S>                           <C>                                           <C>                 <C>
New York, NY                  Executive offices for PubliCARD                    2004             4,500
Bangor, Northern              Office and manufacturing                           2008            12,000
 Ireland
</TABLE>



                                       9
<PAGE>

      The Company and Balfour are parties to an 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 are the only
shareholders of Balfour. The term of the agreement commenced on January 1, 1995
and will expire on June 30, 2004, unless sooner terminated pursuant to law or
the terms of the agreement. The 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. Effective March 1, 2002, Balfour's share of rent and
other costs was 50% of the total costs incurred. The base rent payable by
Balfour under the agreement is approximately $11,000 per month.

ITEM 3.  LEGAL PROCEEDINGS

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

      Notice of the commencement of this action has been given to the Company's
directors and officers liability insurance carriers. The Company believes it has
meritorious defenses to the allegations and intends to defend vigorously. In
November 2002, the Company and the individual defendants served with the action
filed a demurrer seeking the dismissal of six of the plaintiffs' nine purported
causes of action. In January 2003, the court ruled in favor of the demurrer and
dismissed the entire complaint. The plaintiffs were granted the right to replead
and subsequently filed an amended complaint in February 2003. The Company and
individual defendants filed a second demurrer in March 2003. The lawsuit is in
the early stages. There has been no discovery and no trial date has been set.
Consequently, at this time it is not reasonably possible to estimate the damage,
or range of damages, if any, that the Company might incur in connection with
this action. However, if the outcome of this lawsuit is unfavorable to the
Company, it could have a material adverse effect on the Company's operations,
cash flow and financial position. Through December 31, 2002, the Company has
incurred approximately $200,000 in defense costs.

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

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
      On December 17, 2002, an annual meeting of shareholders of the Company was
held at which directors were elected to serve until their successors shall have
been elected and shall have qualified. The appointment of Deloitte & Touche LLP
as the Company's outside auditors for the year ending December 31, 2002 was also
ratified. The voting results were as follows:

<TABLE>
<CAPTION>
          Election of directors           For         Against         Abstain
          ---------------------           ---         -------         -------
<S>                                    <C>            <C>            <C>
          Harry I. Freund              15,766,314          --        1,142,252
          Jay S. Goldsmith             15,766,014          --        1,142,552
          Clifford B. Cohn             15,733,564          --        1,135,002
          L.G. Schafran                15,773,864          --        1,134,702
          Emil Vogel                   15,733,664          --        1,134,902
          Antonio L. DeLise            15,733,864          --        1,134,702

         Ratification of auditors      16,713,264     184,816           10,504
</TABLE>


                                       10
<PAGE>

                                     PART II

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

(a)   PubliCARD's common stock was listed on the Nasdaq National Market from
      December 22, 1998 to May 1, 2002. Effective May 2, 2002, the listing of
      PubliCARD common stock was transferred to the Nasdaq SmallCap Market. The
      following table sets forth the high and low closing sale prices of
      PubliCARD's common stock, as reported by the Nasdaq System, for the
      calendar periods indicated (in dollars):

<TABLE>
<CAPTION>
                                 2002                  2001
                                 ----                  ----
                            HIGH       LOW        HIGH       LOW
<S>                         <C>        <C>        <C>       <C>
      First Quarter          .27       .09        2.875     1.437
      Second Quarter         .52       .11        1.63       .85
      Third Quarter          .26       .10         .88       .25
      Fourth Quarter         .31       .08         .45       .24
</TABLE>

      On March 19, 2003, the Company received a Nasdaq Staff Determination
      letter indicating that the Company failed to comply with the minimum bid
      price requirement for continued listing on the Nasdaq SmallCap Market and
      that the Company's common stock is therefore subject to delisting. The
      board of directors of the Company decided not to appeal the delisting
      determination. Effective March 28, 2003, the Company's common stock will
      no longer be traded on the Nasdaq SmallCap Market. The Company expects
      that on March 28, 2003 its common stock will begin trading on the OTC
      Bulletin Board. See "Management's Discussion and Analysis of Financial
      Condition and Results of Operations - Factors That May Affect Future
      Results - Our stock is being delisted from the Nasdaq System."

(b)   There were approximately 2,400 registered holders of record of common
      stock of the Company as of March 17, 2003.

(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.

      In December 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 pursuant to Regulations D and S under the Securities Act
of 1933, as amended (the "Securities Act"). Each share of Class A Preferred
Stock is convertible into 2,500 shares of common stock. Therefore, the shares of
common stock issued plus the shares of common stock issuable upon conversion of
the Class A Preferred Stock aggregate 2.5 million common shares. The proceeds
from the private placement were used to acquire 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 pursuant to
Regulations D and S under the Securities Act. 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 2 to the Company's Consolidated Financial
Statements for details regarding the Company's investment in TecSec.


                                       11
<PAGE>

      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 Regulations D and S under the Securities Act
in respect of a $365,000 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 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.



                                       12
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

      The selected financial data of the Company presented below for the five
year period ended December 31, 2002 have been derived from the consolidated
financial statements of the Company. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements and the Notes thereto included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                                        Year Ended December 31
                                       -------------------------------------------------------
                                         2002        2001        2000        1999        1998
                                         ----        ----        ----        ----        ----
                                                  (in thousands, except per share amounts)
<S>                                    <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA:
Net sales                              $  4,605    $  5,652    $  5,543    $  1,930    $     3
Cost of sales                             2,455       2,875       2,913         978          7
Inventory adjustment                         --       1,661          --          --         --
                                       --------    --------    --------    --------    -------
     Gross margin                         2,150       1,116       2,630         952         (4)
                                       --------    --------    --------    --------    -------

Operating expenses:
     General and administrative           3,235       4,625       6,664       5,713      3,694
     Sales and marketing                  1,877       3,413       7,562       2,862         21
     Product development                    605       2,442       4,364       1,318         53
     In-process research and
         development                         --          --          --          --      2,800
     Stock compensation expense              --          86       1,116       2,759        145
     Amortization of goodwill and
          intangibles                       576       1,824       2,638       1,749        128
     Impairment of goodwill
         and intangibles                  1,365          --          --          --         --
     Repositioning and other special
         charges                             --       5,656          --       1,895         --
                                       --------    --------    --------    --------    -------
                                          7,658      18,046      22,344      16,296      6,841
                                       --------    --------    --------    --------    -------
     Loss from operations                (5,508)    (16,930)    (19,714)    (15,344)    (6,845)
                                       --------    --------    --------    --------    -------

Other income (expenses):
     Interest income                         71         476         936         561        528
     Interest expense                       (39)        (65)       (100)       (158)      (191)
     Cost of retirement benefits -
         non-operating                     (795)       (788)       (812)     (1,028)      (846)
     Write-down of minority
          investment                     (2,068)         --          --          --         --
     Other (expense) income                  80         136          15        (751)    (1,023)
                                       --------    --------    --------    --------    -------
                                         (2,751)       (241)         39      (1,376)    (1,532)
                                       --------    --------    --------    --------    -------
Loss from continuing operations          (8,259)    (17,171)    (19,675)    (16,720)    (8,377)
                                       --------    --------    --------    --------    -------

Discontinued operations:
     Income (loss) from
         discontinued operations             --          --          --     (13,999)     2,302
     Gain (loss) on disposition of
         discontinued operations          1,066       2,350       4,275      (5,000)        --
                                       --------    --------    --------    --------    -------
     Net loss                          $ (7,193)   $(14,821)   $(15,400)   $(35,719)   $(6,075)
                                       ========    ========    ========    ========    =======

Basic and diluted earnings (loss)
 per common share:
   Continuing operations               $   (.34)   $   (.71)   $   (.84)   $    .88)   $  (.61)
   Discontinued operations                  .04         .10         .18       (1.00)       .17
                                       --------    --------    --------    --------    -------
                                           (.30)   $   (.61)   $   (.66)   $  (1.88)   $  (.44)
                                       ========    ========    ========    ========    =======
</TABLE>


                                       13
<PAGE>

<TABLE>
<CAPTION>
                                                         As of December 31
                                       -------------------------------------------------------
                                         2002        2001        2000        1999        1998
                                         ----        ----        ----        ----        ----
                                                            (in thousands)
<S>                                    <C>         <C>         <C>         <C>         <C>
BALANCE SHEET DATA:
Working capital (deficiency)           $  (548)    $ 2,631     $13,168     $23,889     $23,420
Total assets                             7,939      17,397      37,179      45,488      36,875
Other non-current liabilities            4,990       5,328       6,010       6,674       7,689
Shareholders' equity                    (1,002)      7,484      23,578      30,399      21,917
</TABLE>

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangibles". In accordance with the
guidelines of this statement, goodwill and definite lived intangible assets are
no longer amortized but will be assessed for impairment on at least an annual
basis.

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

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

OVERVIEW

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

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

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

      PubliCARD's financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
Consolidated Financial Statements, the Company has incurred operating losses,
has a working capital deficiency and requires additional capital to meet its
obligations and


                                       14
<PAGE>

accomplish the Company's business plan, which raises substantial
doubt about its ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the Company's failure to
obtain funding or inability to continue as a going concern.

RESULTS OF OPERATIONS

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

      SALES. Revenues are generated from product sales, technology and software
license fees, installation and maintenance contracts. Consolidated sales
decreased to $4.6 million in 2002 compared to $5.7 for 2001. The 2001 figure
included $1.0 million of revenues associated with the smart card reader and
chip business, which the Company exited in July 2001. Sales related to smart
card solutions for educational and corporate sites were comparable between
years.

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

      SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of personnel and travel costs, public relations, trade shows and
marketing materials. Sales and marketing expenses were $1.9 million in 2002
compared to $3.4 million in 2001. The decrease in expense is attributed to the
July 2001 repositioning action.

      PRODUCT DEVELOPMENT EXPENSES. Product development expenses consist
primarily of personnel and travel costs, independent consultants and contract
engineering services. Product development expenses include expenses associated
with the development of new products and enhancements to existing products.
Product development expenses amounted to $605,000 in 2002 compared to $2.4
million in 2001. The decrease in expense is attributed to the July 2001
repositioning action.

      GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of personnel and related costs for general corporate
functions, including finance and accounting, human resources, risk management
and legal. General and administrative expenses for the year ended December 31,
2002 decreased to $3.2 million from $4.6 million for 2001. The decrease in
expense is mainly due to corporate cost containment initiatives.

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

      AMORTIZATION OF GOODWILL AND INTANGIBLES. In accordance Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), no
amortization expense for goodwill will be recorded in current and future
periods. Goodwill and other intangibles will be subject to an annual review for
impairment or earlier if circumstances or events indicate that impairment has
occurred. This may result in future write-downs or the write-off of such assets.
Amortization expense in 2002 relates to the continuing amortization of definite
lived intangibles. As such, amortization expense decreased from $1.8 million in
2001 to $576,000 in 2002.

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

      The Company performed its annual impairment test in the fourth quarter of
2002 and determined that


                                       15
<PAGE>

goodwill had been impaired. The Company determined the fair value primarily
using two approaches: a market approach technique and a discounted cash flow
valuation technique. The market approach relied primarily on the implied fair
value using a multiple of revenues for an entity with comparable operations and
economic characteristics. Significant assumptions used in the discounted cash
valuation included estimates of future cash flows, future short-term and
long-term growth rates and estimated cost of capital for purposes of arriving at
a discount factor. Based on comparing the values derived from the two techniques
to the carrying value of the reporting unit, the Company recorded a goodwill
impairment loss of $364,000 in the fourth quarter of 2002. The Company
attributes the impairment loss to the value of the comparable entity that was
sold in late 2002, the significant 2002 operating loss for the reporting unit
and lower forecasted revenue growth due to the continued overall decline in
technology spending and a shortage of capital available to invest in the
reporting unit. On an ongoing basis, the Company expects to perform its annual
impairment test during the fourth quarter absent any interim impairment
indicators.

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

      OTHER INCOME AND EXPENSE. Interest income decreased to $71,000 from
$476,000 in the prior year principally due to lower investment balances. Cost of
pensions, which represents amounts related to discontinued product lines and
related plant closings in prior years, principally relates to pension expense
associated with the Company's frozen defined benefit pension plan. In addition,
in 2002 other expenses included a $2.1 million charge for an impairment of the
Company's minority investment in TecSec. The Company attributes the impairment
to a general decline in valuations of technology entities, the difficulties in
raising capital and TecSec's recurring operating losses.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

      SALES. Consolidated sales increased to $5.7 million in 2001 compared to
$5.5 million for 2000. The increase is primarily attributed to sales of smart
card readers for security applications.

      GROSS MARGIN. Gross margin as a percentage of sales was 20% for 2001 (49%
excluding the inventory adjustment discussed below) compared to 47% for 2000.
Excluding the inventory adjustment, the gross margin percentage increase is
principally due to improved margins on smart card reader sales.

      SALES AND MARKETING EXPENSES. Sales and marketing expenses were $3.4
million in 2001 compared to $7.6 million in 2000. The decrease is attributed to
the July 2001 repositioning action, additional headcount reductions throughout
2000 and 2001 and lower consulting expenses for market research and corporate
branding.

      PRODUCT DEVELOPMENT EXPENSES. Product development expenses amounted to
$2.4 million in 2001 compared to $4.4 million in 2000. The decrease in expense
is attributed to the July 2001 repositioning action, headcount reductions
throughout 2000 and 2001 and lower contract engineering services costs.

      GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the year ended December 31, 2001 decreased to $4.6 million from $6.7 million
for 2000. The decrease in expense is attributed to the July 2001 repositioning
action, headcount reductions and lower corporate expenditures, which consisted
primarily of legal, consulting and professional fees.

      STOCK COMPENSATION EXPENSE. Stock-based compensation recorded in 2001 and
2000 principally relates to the issuance of stock awards and below market stock
option grants to two executives hired in 2000 and 1999.

      AMORTIZATION OF GOODWILL AND INTANGIBLES. Goodwill and intangibles are
amortized on a straight-line basis over five years. Amortization decreased to
$1.8 million in 2001 from $2.6 million in 2000 due to the write-off of the
remaining goodwill and intangibles associated with the smart card reader and
chip business in the second quarter of 2001.

      REPOSITIONING CHARGE. As discussed above in July 2001, after evaluating
the timing of potential future revenues, PubliCARD's Board decided to shift the
Company's strategic focus. The Company recorded a


                                       16
<PAGE>

charge aggregating $7.3 million in the second and third quarters of 2001
associated with the departure from the smart card reader and chip business. The
charge consisted of write-offs of goodwill and intangibles of $4.1 million and
fixed assets of $554,000, an inventory realizability adjustment of $1.7 million
(included in cost of sales) as a result of the business closure, and severance
and other costs of $1.0 million principally related to the termination of 36
employees. The repositioning activities were substantially completed by December
31, 2001.

      OTHER INCOME AND EXPENSE. Interest income decreased to $476,000 from
$936,000 in the prior year due to lower interest rates and investment balances.
Interest expense principally relates to interest on the remaining environmental
obligation and decreased to $65,000 in 2001 from $100,000 in 2000. Cost of
pensions principally relates to pension expense associated with the Company's
frozen defined benefit pension plan.

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, 2002, cash, including short-term investments,
decreased by $3.2 million to $1.3 million as of December 31, 2002.

      Operating activities utilized cash of $5.1 million in 2002 and principally
consisted of the net loss of $7.2 million plus a non-cash gain on discontinued
operations of $1.1 million offset by $2.1 million minority investment
impairment, a decrease in assets and liabilities of $1.0 million, an impairment
of goodwill and intangibles of $1.4 million and depreciation and amortization of
$781,000.

      Investing activities provided cash of $1.9 million in 2002 and consisted
principally of the release of escrowed funds in connection with previously
discontinued operations offset in part by capital expenditures.

      The Company has experienced negative cash flow from operating activities
in the past and expects to experience negative cash flow in 2003 and beyond. In
addition to funding operating and capital requirements and corporate overhead,
future uses of cash include the following:

      -     The Company sponsors a defined benefit pension plan, which was
            frozen in 1993. As of December 31, 2002, the actuarial present value
            of accrued liabilities exceeded the plan assets by approximately
            $6.1 million. The annual required contribution to the plan is
            expected to be approximately $1.5 million in 2003. Since the plan is
            significantly underfunded, absent some action by the Company, the
            annual contribution requirements beyond 2003 would continue to be
            significant. In view of its financial condition, in January 2003,
            the Company filed a notice with the Pension Benefit Guaranty
            Corporation ("PBGC") seeking a "distress termination" of the Plan.
            If the PBGC determines that the Company meets one of the tests for
            such a termination, the Plan will terminate and the PBGC will become
            responsible for meeting future retirement obligations to
            participants (within certain limitations). The Company would be
            liable to the PBGC for the amount of the unfunded guaranteed benefit
            obligation. The Company believes that on a termination basis, the
            Plan's liabilities could exceed the value of its assets by in excess
            of $7.0 million. In addition, the Company did not make the required
            quarterly contribution of approximately $253,000 that was due on
            January 15, 2003. The Company has initiated discussions with the
            PBGC concerning the termination of the Plan and its repayment
            obligation to the PBGC if the Plan is terminated (including the
            timing of its repayment obligation). It is not possible to predict
            the outcome of such discussions.

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


                                       17
<PAGE>

      -     The Company leases certain office space, vehicles and office
            equipment under operating leases that expire over the next six
            years. Minimum payments for operating leases having initial or
            remaining non-cancelable terms in excess of one year are $422,000 in
            2003, $210,000 in 2004, $64,000 in 2005, $55,000 in 2006, $55,000 in
            2007 and $40,000 thereafter.

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

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

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

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

CRITICAL ACCOUNTING POLICIES

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


                                       18
<PAGE>

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

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

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

      VALUATION OF INVESTMENTS. The Company periodically assesses the carrying
value of its minority-owned investments for impairment. This assessment is based
upon a review of operations and indications of continued viability, such as
subsequent rounds of financing. As discussed in Note 2 to the Consolidated
Financial Statements, during 2002 the Company made a determination that its
minority-owned investments in TecSec and Mako were impaired. While management
believes that the adjusted carrying value of its investment in TecSec is fairly
stated, future circumstances could affect the valuation.

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

      The Company performed its annual goodwill impairment test in the fourth
quarter of 2002 and determined that goodwill had been impaired. The Company
determined the fair value primarily using two approaches: a market approach
technique and a discounted cash flow valuation technique. The market approach
relied primarily on the implied fair value using a multiple of revenues for an
entity with comparable operations and economic characteristics. Significant
assumptions used in the discounted cash valuation included estimates of future
cash flows, future short-term and long-term growth rates and estimated cost of
capital for purposes of arriving at a discount factor. Based on comparing the
values derived from the two techniques to the carrying value of the reporting
unit, the Company recorded a goodwill impairment loss of $364,000 in the fourth
quarter of 2002. The Company attributes the impairment loss to the value of a
comparable entity that was sold in a transaction in late 2002, the


                                       19
<PAGE>

significant 2002 operating loss for the reporting unit and lower forecasted
revenue growth due to a continued overall decline in technology spending and a
shortage of capital available to invest in the reporting unit. On an ongoing
basis, the Company expects to perform its annual impairment test during the
fourth quarter absent any interim impairment indicators.

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

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

RECENT ACCOUNTING PRONOUNCEMENTS

      In June 2001, the FASB issued SFAS No. 141, "Business Combinations". SFAS
No. 141 addresses financial accounting and reporting for business combinations.
This new statement requires that all business combinations be accounted for
using one method (the purchase method), intangible assets be recognized apart
from goodwill if they meet certain criteria and disclosure of the primary
reasons for a business combination and the allocation of the purchase price paid
to the assets acquired and liabilities assumed by major balance sheet caption.
The provisions of this statement apply to all business combinations initiated
after June 30, 2001.

      In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets. Under this new statement, goodwill and
intangible assets that have indefinite useful lives will not be amortized, but
rather will be tested at least annually for impairment, or earlier if
circumstances or events indicate that impairment may have occurred, based on the
specific guidance of this statement. This may result in future write-downs or
the write-off of such assets. In addition, this statement requires disclosure of
information about goodwill and other intangible assets in the years subsequent
to their acquisition that was not previously required. The provisions of this
statement are required to be applied starting with fiscal years beginning after
December 15, 2001. However, goodwill and intangible assets acquired after June
30, 2001 were subject immediately to the non-amortization and amortization
provisions of this statement. The Company adopted this statement on January 1,
2002. The Company completed the initial impairment test in the first quarter of
2002, which did not result in an impairment of goodwill. The provisions of SFAS
No. 142 are effective for periods after adoption and retroactive application is
not permitted. Therefore, the historical results of periods prior to 2002 in the
Company's Consolidated Statements of Operations do not reflect the effect of
SFAS No. 142 and, accordingly, 2001 and 2000 included goodwill amortization
expense of $1.1 million and $1.7 million, respectively. Excluding goodwill
amortization, the pro forma net loss for 2001 and 2000 was $13.7 million and
$13.7 million or $.57 and $.59 per share, respectively.

      In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supercedes FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed of", and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of


                                       20
<PAGE>

Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions", for the disposal of a segment of a business.
This statement also amends ARB No. 51, "Consolidated Financial Statements", to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. The provisions of this statement are required to be
applied starting with fiscal years beginning after December 15, 2001. The
Company adopted SFAS No. 144 in the first quarter of fiscal 2002, which did not
have an effect on the Company's results of operations or financial position.

      In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 will supersede
Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)". SFAS No. 146 requires that costs
associated with an exit or disposal plan be recognized when incurred rather than
at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002. The Company does not believe that the adoption of SFAS No. 146 will
have a material effect on its Consolidated Financial Statements.

      In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure". SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation", to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock based employee compensation and the effect of the method
used on reported results. The provisions of SFAS No. 148 are effective for
financial statements for fiscal years and interim periods ending after December
15, 2002. The disclosure provisions of SFAS No. 148 have been adopted by the
Company. See Note 1 to the Consolidated Financial Statements. SFAS No. 148 did
not require the Company to change to the fair value based method of accounting
for stock-based compensation.

FACTORS THAT MAY AFFECT FUTURE RESULTS

      WE HAVE A HISTORY OF OPERATING LOSSES AND NEGATIVE CASH FLOW, WE HAVE
ONGOING FUNDING OBLIGATIONS AND WE NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT
BE AVAILABLE TO US, ALL OF WHICH COULD LEAD US TO SEEK BANKRUPTCY PROTECTION. We
have incurred losses and experienced negative cash flow from operating
activities in the past, and we expect to incur losses and experience negative
cash flow from operating activities in the foreseeable future. We incurred
losses from continuing operations in 2000, 2001 and 2002 of approximately $19.7
million, $17.2 million and $8.3 million, respectively. In addition, we
experienced negative cash flow from continuing operating activities of $18.7
million, $12.2 million and $5.1 million in 2000, 2001 and 2002, respectively,
and have a working capital deficiency of $548,000 as of December 31, 2002.

      We sponsor a defined benefit pension plan (the "Plan"), which was frozen
in 1993. As of December 31, 2002, the present value of the accrued benefit
liabilities of our pension plan exceeded the Plan's assets by approximately $6.1
million. The annual required contribution to the Plan is expected to be $1.5
million for 2003 and if the Plan is continued, we will be obligated to make
continued contributions in accordance with the Employee Retirement Income
Security Act of 1974. Since the Plan is significantly underfunded, absent some
action by us, we expect that the annual contribution requirements beyond 2003
will continue to be significant. Future contribution levels depend in large
measure on the mortality rate of plan participants, discount rate and the
expected return on the plan assets. In April 2002, we failed to make the
required quarterly contribution to the Plan due April 15, 2002, in the amount of
$253,000. We paid this required contribution on June 11, 2002. Quarterly
contributions of $253,000 each were made on a timely basis in July 2002 and
October 2002. In view of our financial condition, in January 2003, we filed a
notice with the Pension Benefit Guaranty Corporation ("PBGC") seeking a
"distress termination" of the Plan and did not make the quarterly contribution
of approximately $253,000 due on January 15, 2003. If the PBGC determines that
we meet one of the tests for such termination, the Plan will terminate and the
PBGC will become responsible for meeting future retirement obligations to
participants (within certain limitations). We would be liable to the PBGC for
the amount of the unfunded benefit obligation. We believe that, on a


                                       21
<PAGE>

termination basis, the Plan's liabilities could exceed the value of its assets
by in excess of $7.0 million. We have initiated discussions with the PBGC
concerning the termination of the Plan and our repayment obligation to the PBGC
if the Plan is terminated (including the timing of our repayment obligation). It
is not possible to predict the outcome of such discussions.

      We and certain current and former officers are defendants in a lawsuit
alleging, among other things, misrepresentation and securities fraud. We believe
that we have meritorious defenses to the allegations and intend to defend
ourselves vigorously. The cost of defending against this action could be
significant, and if the Company is not successful in defending itself, the
Company may be required to pay the plaintiff's damages, which could have a
material adverse effect on the Company's business and operations. See "We are
unable to predict the extent to which the resolution of lawsuits pending against
us could adversely affect our business". In addition, we have future
non-cancelable operating lease obligations for office space, vehicles and office
equipment aggregating $846,000.

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

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

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

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

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


                                       22
<PAGE>

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

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

      Notice of the commencement of this action has been given to our directors
and officers liability insurance carriers. We believe we have meritorious
defenses to the allegations and we intend to defend ourselves vigorously. In
November 2002, we and the individual defendants served with the action filed a
demurrer seeking the dismissal of six of the plaintiffs' nine purported causes
of action. In January 2003, the court ruled in favor of the demurrer and
dismissed the entire complaint. The plaintiff has the right to replead and
subsequently filed an amended complaint in February 2003. We and individual
defendants filed a second demurrer in March 2003. The lawsuit is in the early
stages. There has been no discovery and no trial date has been set.
Consequently, at this time it is not reasonably possible to estimate the damage,
or range of damages, if any, that we might incur in connection with this action.
However, if the outcome of this lawsuit is unfavorable to us, it could have a
material adverse effect on our operations, cash flow and financial position.
Through December 31, 2002, the Company has incurred approximately $200,000 in
defense costs.

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

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

      -     we will not be able to retain the employees or business
            relationships of the acquired company;
      -     we will fail to realize any synergies or other cost reduction
            objectives expected from the acquisition;
      -     we will not be able to integrate the operations, products, personnel
            and facilities of acquired companies;
      -     management's attention will be diverted to pursuing acquisition
            opportunities and integrating acquired products, technologies or
            companies and will be distracted from performing its regular
            responsibilities;


                                       23
<PAGE>

      -     we will incur or assume liabilities, including liabilities that are
            unknown or not fully known to us at the time of the acquisition; and
      -     we will enter markets in which we have no direct prior experience.

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

      OUR TECSEC INVESTMENT MAY BE IMPAIRED OR SUBJECT TO A SIGNIFICANT
WRITE-DOWN IN THE FUTURE. As of December 31, 2002, after recording an impairment
charge of $2.1 million in the third quarter of 2002, the carrying value of our
investment in TecSec, a privately held company, was $3.0 million. This
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 permanently impaired
and not recoverable. TecSec is currently evaluating alternative sources of
financing to meet ongoing capital and operating needs. If TecSec is not
successful in executing its business plan or in obtaining sufficient capital on
acceptable terms or at all, our investment in TecSec could be further impaired
and subject to an additional significant write-down.

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

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

      WE DEPEND ON A RELATIVELY SMALL NUMBER OF CUSTOMERS FOR A MAJORITY OF OUR
REVENUES. We rely on a limited number of customers in our business. We expect to
continue to depend upon a relatively small number of customers for a majority of
the revenues in our business. For the year ended December 31, 2002, one customer
represented approximately 10% of our sales. Amounts due from a second customer
represented approximately 12% of the accounts receivable balance as of December
31, 2002.

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

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

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

            -     product selections;
            -     timely and efficient completion of product design and
                  development;
            -     timely and efficient implementation of manufacturing
                  processes;
            -     effective sales, service and marketing;


                                       24
<PAGE>

            -     price; and
            -     product performance in the field.

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

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

      We believe that the principal competitive factors affecting us are:

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

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

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

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

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

      WE MAY BE LIMITED IN OUR USE OF OUR FEDERAL NET OPERATING LOSS
CARRYFORWARDS. As of December 31, 2002, we had federal net operating loss
carryforwards, subject to review by the Internal Revenue Service, totaling
approximately $65.0 million for federal income tax purposes. The federal net
operating loss carryforwards begin to expire in 2005. We do not expect to earn
any significant taxable income in the next


                                       25
<PAGE>

several years, and may not do so until much later, if ever. A federal net
operating loss can generally be carried back two, three or five years and then
forward fifteen or twenty years (depending on the year in which the loss was
incurred), and used to offset taxable income earned by a company (and thus
reduce its income tax liability).

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

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

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

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

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

      We believe that establishing, maintaining and enhancing the Infineer brand
name is essential to our business. We filed an application for a United States
trademark registration and an application for service mark registration of our
name and logo. We are aware of third parties that use marks or names that
contain similar sounding words or variations of the "infi" prefix. In July 2002,
we received a claim from a third


                                       26
<PAGE>

party challenging the use of the Infineer name. We have reached an agreement in
principle with this third party, subject to negotiation of definitive
documentation, and believe this particular challenge should be resolved. As a
result of this claim and other challenges which may occur in the future, we may
incur significant expenses, pay substantial damages and be prevented from using
the Infineer name. Use of a similar name by third parties may also cause
confusion to our clients and confusion in the market, which could decrease the
value of our brand and harm our reputation. We cannot assure you that our
business would not be adversely affected if we are required to change our name
or if confusion in the market did occur.

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

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

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

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

      OUR INTERNATIONAL OPERATIONS SUBJECT US TO RISK ASSOCIATED WITH OPERATING
IN FOREIGN MARKETS, INCLUDING FLUCTUATIONS IN CURRENCY EXCHANGE RATES, WHICH
COULD ADVERSELY AFFECT OUR OPERATIONS AND FINANCIAL CONDITION. Sales outside the
U.S. represented approximately 78% of total sales for the year ended December
31, 2002. 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:

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


                                       27
<PAGE>

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

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

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

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

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

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

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

      The change of control agreements provide that, if the services of any
person party to a change of control agreement are terminated within three years
following a change of control, that individual will be entitled to receive, in a
lump sum within 10 days of the termination date, a payment equal to 2.99 times
that individual's average annual compensation for the shorter of the five years
preceding the change of control and the period the individual received
compensation from us for personal services. Assuming a change of control were to
occur at the present time, payments in the following amounts would be required:
Mr. Harry I. Freund of $842,000 and Mr. Jay S. Goldsmith of $842,000. 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


                                       28
<PAGE>

such additional payment, equal to the initial payment before such additional
payment and we would not be able to deduct these initial or additional payments
for income tax purposes.

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

      OUR STOCK 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:

            -     delisting of our common stock from the Nasdaq SmallCap Market
                  effective March 28, 2003 (see "Our stock is being delisted
                  from the Nasdaq System" above);

            -     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;

            -     our ability to effectively manage our business, including our
                  ability to raise capital;

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

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

            -     expected or announced relationships with other companies;

            -     announcements of technological advances innovations or new
                  products by us or our competitors;

            -     patents or other proprietary rights or patent litigation; and

            -     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.


                                       29
<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Market Risk

      We are exposed to market risk primarily through short-term investments and
an overdraft facility. Our investment policy calls for investment in short-term,
low risk instruments. As of December 31, 2002, short-term investments
(principally U.S. Treasury bills) were $1.1 million. Due to the nature of these
investments and amount of the overdraft facility ($138,000 at December 31,
2002), any decrease in rates would not have a material impact on our financial
condition or results of operations.

Investment Risk
      As of December 31, 2002, the carrying value of our investment in TecSec, a
privately held company, was $3.0 million after recording an impairment change of
$2.1 million in the third quarter of 2002. This investment has been accounted
for at cost and could be subject to write-downs in future periods if it is
determined that the investment is permanently impaired and is not recoverable.
TecSec is currently evaluating alternative sources of financing to meet ongoing
capital and operating needs. If TecSec is not successful in executing its
business plan or in obtaining sufficient capital on acceptable terms or at all,
our investment could be further impaired and subject to a significant additional
write-down.

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

On June 5, 2002, the Board of Directors of the Company, upon the recommendation
of its Audit Committee, decided that effective June 5, 2002 the Company would no
longer engage Arthur Andersen LLP ("Arthur Andersen") as the Company's
independent public accountants and that as of June 6, 2002 Deloitte & Touche LLP
("Deloitte & Touche"), certified public accountants, would be appointed as the
Company's independent public accountants for 2002, subject to ratification by
stockholders.

The report of Arthur Andersen on the Company's consolidated financial statements
for the fiscal year ended December 31, 2001 contained an unqualified opinion
with an emphasis paragraph concerning substantial doubt about the Company's
ability to continue as a going concern. The report did not contain any
disclaimer or any qualification as to audit scope or accounting principles. The
report of Arthur Andersen on the Company's consolidated financials statements
for the year ended December 31, 2000 did not contain an adverse opinion or
disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit
scope or accounting principles.

During the Company's two most recent fiscal years and through June 5, 2002,
there were no disagreements with Arthur Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Arthur Andersen's satisfaction, would have
caused it to make reference thereto in connection with its report on the
Company's consolidated financial statements for such years; and there were no
reportable events as such term is defined in Item 304(a) (1) (v) of Regulation
S-K.


                                       30
<PAGE>

During 2002, there were no disagreements with Deloitte & Touche on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures which, if not resolved to Deloitte & Touche's satisfaction,
would have caused them to make reference to the subject matter in connection
with their report on the Company's consolidated financial statements for 2002
and there were no reportable events, as such term is defined in Item
304(a)(1)(v) of Regulation S-K.


                                       31
<PAGE>

                                    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 2003 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, 2002 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 one late Form 4 report for Clifford Cohn filed on December 31, 2002
relating to several December 2002 transactions.

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 2003 Annual Meeting of Shareholders.

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

      The following table sets forth certain equity compensation plan
information for the Company as of December 31, 2002.

<TABLE>
<CAPTION>
---------------------------- -------------------------- -------------------------- --------------------------
                                                                                     Number of securities
                                                                                    remaining available for
                                                                                     future issuance under
                              Number of securities to       Weighted-average          equity compensation
                              be issued upon exercise       exercise price of          plans (excluding
                              of outstanding options,     outstanding options,      securities reflected in
                                warrants and rights        warrants and rights            column (a))
Plan category                           (a)                        (b)                        (c)
---------------------------- -------------------------- -------------------------- --------------------------
<S>                          <C>                        <C>                        <C>
Equity compensation plans
approved by security
holders                                      2,939,175                      $1.01                  2,244,325
---------------------------- -------------------------- -------------------------- --------------------------
Equity compensation plans
not approved by security
holders                                        363,960                       6.31                          -
                                             ---------                       ----                  ---------
---------------------------- -------------------------- -------------------------- --------------------------
Total                                        3,303,135                      $1.59                  2,244,325
                                             =========                                             =========
---------------------------- -------------------------- -------------------------- --------------------------
</TABLE>

      See Note 6 to the Notes to Consolidated Financial Statements for a
description of the Company's equity compensation plans.


                                       32
<PAGE>

      The additional 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 2003 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 2003 Annual Meeting of Shareholders.

ITEM 14.  CONTROLS AND PROCEDURES

      With the participation of management, the Company's chief executive
officer and chief financial officer evaluated the effectiveness of the Company's
disclosure controls and procedures within 90 days of the filing of this report.
Based upon this evaluation, the chief executive officer and chief financial
officer concluded that the Company's disclosure controls and procedures are
effective in timely alerting him to material information relating to the Company
(including its consolidated subsidiaries) required to be included in the reports
that the Company files with the Securities and Exchange Commission.

      There were no significant changes in the Company's internal controls or,
to the knowledge of the Company's management, in other factors that could
significantly affect these controls subsequent to the evaluation date.


                                       33
<PAGE>

                                     PART IV


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


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

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

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

      3)    Exhibits:

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

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

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

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

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

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

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

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

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

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

      10.5  PubliCARD's 1999 Long-Term Incentive Plan. Incorporated by reference

                                       34
<PAGE>

            from PubliCARD's Annual Report on Form 10-K for the year ended
            December 31, 1999, dated March 30, 2000.

      21.1  Subsidiaries of PubliCARD. Filed herewith.

      23.1  Consent letter from Independent Auditors. Filed herewith.

      99.1  Certification of periodic report dated
            March 28, 2003. Filed herewith.

      (b)   Reports on Form 8-K

            None.


                                       35
<PAGE>

                                   SIGNATURES

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

<TABLE>
<CAPTION>
                                                                 PUBLICARD,  INC.
                                                                 (Registrant)

<S>                                                       <C>    <C>
    Date   March 24, 2003                                 By:    /s/ ANTONIO L. DELISE
        -----------------------------------------------          ----------------------
                                                                 Antonio L. DeLise, President,
                                                                 Chief Executive Officer, Chief Financial
                                                                 Officer and Director
</TABLE>

      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.

<TABLE>
<CAPTION>
<S>                                                       <C>    <C>
    Date  March 24, 2003                                  By:    /s/ ANTONIO L. DELISE
        -----------------------------------------------          ----------------------
                                                                 Antonio L. DeLise, President,
                                                                 Chief Executive Officer, Chief Financial
                                                                 Officer and Director

    Date   March 24, 2003                                 By:    /s/ CLIFFORD B. COHN
        ------------------------------------------------         ---------------------
                                                                 Clifford B. Cohn, Director

    Date   March 24, 2003                                 By:    /s/ HARRY I. FREUND
        ------------------------------------------------         -----------------------
                                                                 Harry I. Freund, Chairman and Director

    Date   March 24, 2003                                 By:    /s/ JAY S. GOLDSMITH
        ------------------------------------------------         ---------------------
                                                                 Jay S. Goldsmith, Vice Chairman and Director

    Date   March 24, 2003                                 By:    /s/ L. G. SCHAFRAN
        ------------------------------------------------         -------------------
                                                                 L. G. Schafran, Director

    Date   March 24, 2003                                 By:    /s/ EMIL VOGEL
        ------------------------------------------------         ---------------
                                                                 Emil Vogel, Director
</TABLE>


                                       36
<PAGE>

                                  CERTIFICATION

I, Antonio L. DeLise, as the President, Chief Executive Officer and Chief
Financial Officer of PubliCARD, Inc., certify that:

1.    I have reviewed this annual report on Form 10-K of PubliCARD, Inc.;

2.    Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.    Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.    I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:

      (a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to me by others within those entities, particularly
during the period in which this annual report is being prepared;

      (b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

      (c) Presented in this annual report my conclusions about the effectiveness
of the disclosure controls and procedures based on my evaluation as of the
Evaluation Date;

5.    I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent function):

      (a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

      (b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6.    I have indicated in this annual report whether there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of my most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

Date: March 28, 2003                   /s/ Antonio L. DeLise
                                       ----------------------------------------
                                       Antonio L. DeLise
                                       President, Chief Executive Officer,
                                       Chief Financial Officer and Secretary


                                       37
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

<TABLE>
<CAPTION>
Financial Statements
<S>                                                                                   <C>
Independent auditors' report-- Deloitte & Touche LLP                                   F-2

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

Consolidated balance sheets as of December 31, 2002 and 2001                           F-4

Consolidated statements of operations for the years ended December 31, 2002,
2001 and 2000                                                                          F-5

Consolidated statements of shareholders' equity  (deficit) for the years ended
December 31, 2002, 2001 and 2000                                                  F-6 and F-7

Consolidated statements of cash flows for the years ended
December 31, 2002, 2001 and 2000                                                       F-8

Notes to consolidated financial statements                                    F-9 through F-26

Schedule
--------

Indepdent auditors' report on schedule--Deloitte Touche LLP                            F-27

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

Schedule II - Valuation and qualifying accounts                                        F-29
</TABLE>

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


                                      F-1
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                          INDEPENDENT AUDITORS' REPORT

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

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

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the 2002 consolidated financial statements present fairly, in
all material respects, the financial position of PubliCARD, Inc. and subsidiary
companies as of December 31, 2002, and the results of its operations and its
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 1 of the notes to the consolidated financial statements,
the Company changed its method of accounting for goodwill and other intangible
assets to conform to Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets ("SFAS 142").

As discussed above, the consolidated financial statements of PubliCARD, Inc. and
subsidiary companies as of December 31, 2001, and for each of the years in the
two-year period then ended, were audited by other auditors who have ceased
operations. As described in Note 1, these consolidated financial statements have
been revised to include the transitional disclosures required by SFAS 142, which
was adopted by the Company as of January 1, 2002. Our audit procedures with
respect to the disclosures in Note 1 with respect to 2001 and 2000 included (1)
comparing the previously reported net loss to the previously issued financial
statements and the adjustments to reported net loss representing amortization
expense recognized in those periods related to goodwill, to the Company's
underlying analysis obtained from management, and (2) testing the mathematical
accuracy of the reconciliation of adjusted net loss to reported net loss and
the related loss-per-share amounts. In our opinion, the disclosures for 2001
and 2000 in Note 1 are appropriate. However, we were not engaged to audit,
review, or apply any procedures to the 2001 and 2000 consolidated financial
statements of the Company other than with respect to such disclosures and,
accordingly, we do not express an opinion or any other form of assurance on the
2001 and 2000 consolidated financial statements taken as a whole.

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

/s/ DELOITTE & TOUCHE LLP

New York, New York
March 24, 2003


                                       F-2
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

To the Shareholders of PubliCARD, Inc.:

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

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PubliCARD, Inc. and subsidiary
companies as of December 31, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001, in conformity with accounting principles generally accepted in the
United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred operating losses and requires
additional capital to meet its obligations and accomplish the Company's business
plan, which raises substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

/s/ Arthur Andersen LLP

Stamford, Connecticut
March 20, 2002


                                      F-3
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                        2002           2001
                                                                        ----           ----
                                                                  (in thousands except share data)
<S>                                                                  <C>            <C>
                                              ASSETS

Current assets:
     Cash, including short-term investments of $1,138 and $4,199
        in 2002 and 2001, respectively                               $   1,290      $   4,479
     Trade receivables, less allowance for doubtful accounts
        of $103 and $216 in 2002 and 2001, respectively                    853          1,410
     Inventories                                                           885            557
     Prepaid insurance and other                                           375            770
                                                                     ---------      ---------
          Total current assets                                           3,403          7,216
                                                                     ---------      ---------

Equipment and leasehold improvements, net                                  379            596
Goodwill and intangibles                                                   862          2,803
Other assets                                                             3,295          6,782
                                                                     ---------      ---------
                                                                     $   7,939      $  17,397
                                                                     =========      =========

                  LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
     Trade accounts payable and overdraft                            $   1,269      $   1,206
     Accrued liabilities                                                 2,682          3,379
                                                                     ---------      ---------
          Total current liabilities                                      3,951          4,585

Other non-current liabilities                                            4,990          5,328
                                                                     ---------      ---------

          Total liabilities                                              8,941          9,913
                                                                     ---------      ---------

Commitments and contingencies (Note 7)

Shareholders' equity (deficit):
     Class A Preferred Stock, Second Series, no par value:
           1,000 shares authorized; 765 and 780 issued and
           outstanding as of December 31, 2002 and 2001,
           respectively                                                  3,825          3,900
     Common shares, $0.10 par value: 40,000,000 shares
           authorized; 24,190,902 and 24,153,402 shares
           issued and outstanding as of December 31, 2002
           and 2001, respectively                                        2,419          2,415
     Additional paid-in capital                                        107,169        107,098
     Accumulated deficit                                              (112,024)      (104,831)
     Other comprehensive loss                                           (2,391)        (1,098)
                                                                     ---------      ---------
          Total shareholders' equity (deficit)                          (1,002)         7,484
                                                                     ---------      ---------
                                                                     $   7,939      $  17,397
                                                                     ==========     =========
</TABLE>

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


                                      F-4
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                         2002             2001            2000
                                                         ----             ----            ----
                                                          (in thousands except share data)

<S>                                                   <C>             <C>             <C>
Net sales                                             $      4,605    $      5,652    $      5,543
                                                      ------------    ------------    ------------

Cost of sales                                                2,455           2,875           2,913
Inventory adjustment                                            --           1,661              --
                                                      ------------    ------------    ------------
     Gross margin                                            2,150           1,116           2,630
                                                      ------------    ------------    ------------

Operating expenses:
     General and administrative                              3,235           4,625           6,664
     Sales and marketing                                     1,877           3,413           7,562
     Product development                                       605           2,442           4,364
     Stock compensation expense                                 --              86           1,116
     Amortization of goodwill and intangibles                  576           1,824           2,638
     Impairment of goodwill and intangibles                  1,365              --              --
     Repositioning charge                                       --           5,656              --
                                                      ------------    ------------    ------------
                                                             7,658          18,046          22,344
                                                      ------------    ------------    ------------
Loss from operations                                        (5,508)        (16,930)        (19,714)
                                                      ------------    ------------    ------------
Other income (expenses):
     Interest income                                            71             476             936
     Interest expense                                          (39)            (65)           (100)
     Cost of retirement benefits - non-operating              (795)           (788)           (812)
     Write-down of minority investment                      (2,068)             --              --
     Other income                                               80             136              15
                                                      ------------    ------------    ------------
                                                            (2,751)           (241)             39
                                                      ------------    ------------    ------------
Loss from continuing operations                             (8,259)        (17,171)        (19,675)

Income from discontinued operations                          1,066           2,350           4,275

Net loss                                              $     (7,193)   $    (14,821)   $    (15,400)
                                                      ============    ============    ============

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

Weighted average common shares outstanding              24,179,364      24,188,325      23,295,121
                                                      ============    ============    ============
</TABLE>

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


                                      F-5
<PAGE>


                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                    Class A
                                                Preferred Stock          Common Shares
                                                ---------------          -------------        Additional
                                                Shares                 Shares                   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
     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

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

Comprehensive loss:
    Net loss                                       --         --              --         --           --
    Foreign currency translation adjustment        --         --              --         --           --
    Minimum pension liability                      --         --              --         --           --
                                              -------    -------    ------------    -------    ---------
       Total comprehensive loss


Balance - December 31, 2001                       780    $ 3,900      24,153,402    $ 2,415    $ 107,098
                                              =======    =======    ============    =======    =========
</TABLE>

<TABLE>
<CAPTION>
                                                                Other                    Unearned      Share-
                                               Accumulated   Comprehensive   Treasury    Compensa-     holders'
                                                 Deficit         Loss        Shares(1)     tion        Equity (deficit)
                                                 -------         ----        ---------     ----        ------
                                                               (in thousands except share data)

<S>                                            <C>           <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
     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

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

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

Balance - December 31, 2001                       $(104,831)   $(1,098)       $     --    $  --       $  7,484
                                                  =========    =======        ========    =====       ========
</TABLE>

                            (continued on next page)


                                      F-6
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

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

<S>                                           <C>       <C>         <C>             <C>       <C>

Balance - December 31, 2001                      780    $ 3,900     24,153,402      $2,415    $107,098

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

Comprehensive loss:
    Net loss                                      --         --             --          --          --
    Foreign currency translation adjustment       --         --             --          --          --
    Minimum pension liability                     --         --             --          --          --
                                              ------    -------     ----------      ------    --------
       Total comprehensive loss


Balance - December 31, 2002                      765    $ 3,825     24,190,902      $2,419    $107,169
                                              ======    =======     ==========      ======    ========
</TABLE>

<TABLE>
                                                                Other                    Unearned      Share-
                                               Accumulated   Comprehensive   Treasury    Compensa-     holders'
                                                 Deficit         Loss        Shares(1)     tion        Equity (deficit)
                                                 -------         ----        ---------     ----        ------
                                                               (in thousands except share data)

<S>                                            <C>           <C>             <C>          <C>         <C>
Balance - December 31, 2001                   $(104,831)     $(1,098)        $   --       $   --      $ 7,484

Conversion of preferred stock                        --           --             --           --           --

Comprehensive loss:
    Net loss                                     (7,193)          --             --           --       (7,193)
    Foreign currency translation adjustment          --          112             --           --          112
    Minimum pension liability                        --       (1,405)            --           --       (1,405)
                                              ---------      -------         ------       ------      -------
       Total comprehensive loss                                                                        (8,486)
                                                                                                      -------
Balance - December 31, 2002                   $(112,024)     $(2,391)        $   --       $   --      $(1,002)
                                              =========      =======         ======       ======      =======
</TABLE>

(1)   Represents common shares held in treasury of 3,725,024 at December 31,
      1999

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


                                      F-7
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                        2002        2001       2000
                                                                        ----        ----       ----
                                                                              (in thousands)
<S>                                                                   <C>        <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                         $(7,193)   $(14,821)   $(15,400)
     Adjustments to reconcile net loss to net
        cash used in operating activities:
          Gain from discontinued operations                            (1,066)     (2,350)     (4,275)
          Write-down of minority investment                             2,068          --          --
          Amortization of goodwill and intangibles                        576       1,824       2,638
          Impairment of goodwill and intangibles                        1,365          --          --
          Stock compensation expense                                       --          86       1,116
          Depreciation                                                    205         308         314
          Repositioning charge and inventory adjustment                    --       7,317          --
          Changes in assets and liabilities                            (1,040)     (5,034)     (6,348)
                                                                      -------    --------    --------
              Net cash used in operating activities                    (5,085)    (12,670)    (21,955)
                                                                      -------    --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Investment in minority owned affiliates                               --          (5)     (5,044)
     Capital expenditures                                                 (28)        (83)     (1,054)
     Proceeds from discontinued operations and sale of fixed assets     1,865         223      21,835
     Other                                                                 47          11          12
                                                                      -------    --------    --------
               Net cash provided by investing activities                1,884         146      15,749
                                                                      -------    --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from private placement of Class A Preferred Stock            --         (43)      3,950
     Proceeds from private placement of common shares                      --          --         998
     Issuance of common shares pursuant to stock option exercises          --          --       1,011
     Repayment of notes payable from discontinued operations               --          --        (940)
                                                                      -------    --------    --------
               Net cash (used in) provided by financing activities         --         (43)      5,019
                                                                      -------    --------    --------

Effect of exchange rate changes on cash and cash equivalents               12          (3)         --
                                                                      -------    --------    --------
Net decrease in cash                                                   (3,189)    (12,570)     (1,187)
Cash - beginning of period                                              4,479      17,049      18,236
                                                                      -------    --------    --------
Cash - end of period                                                  $ 1,290    $  4,479    $ 17,049
                                                                      =======    ========    ========
</TABLE>

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


                                      F-8
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

LIQUIDITY AND GOING CONCERN CONSIDERATIONS
      These consolidated financial statements contemplate the realization of
assets and the satisfaction of liabilities in the normal course of business. The
Company has incurred operating losses, a substantial decline in working capital
and negative cash flow from operations for the years 2002, 2001 and 2000. The
Company has also experienced a substantial reduction in its cash and short term
investments, which declined from $17.0 million at December 31, 2000, to $4.5
million at December 31, 2001 and to $1.3 million at December 31, 2002. The
Company also had a working capital deficiency of $548,000 and an accumulated
deficit of $112.0 million at December 31, 2002.

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


                                      F-9
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

its present level of operations it may not be able to meet its obligations, take
advantage of future acquisition opportunities or further develop or enhance its
product offering, any of which could have a material adverse effect on its
business and results of operations and could lead the Company to seek bankruptcy
protection. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

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

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

INVENTORIES
      Inventories are stated at lower of cost (first-in, first-out method) or
market. The Company periodically evaluates the need to record adjustments for
impairment of inventory. Inventory in excess of the Company's estimated usage
requirements is written down to its estimated net realizable value. Inherent in
the estimates of net realizable value are management's estimates related to the
Company's production schedules, customer demand, possible alternative uses and
the ultimate realization of potentially excess inventory. Inventories at
December 31, 2002 and 2001 consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                 2002      2001
                                                 ----      ----

<S>                                              <C>       <C>
         Raw materials and supplies              $154      $389
         Work-in-process                           21        37
         Finished goods                           710       131
                                                 ----      ----
                                                 $885      $557
                                                 ====      ====
</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 three to five years.
Amortization for leasehold improvements is computed using the lesser of the
estimated useful life or the life of the lease. Equipment and leasehold
improvements at December 31, 2002 and 2001 consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                         2002      2001
                                                         ----      ----

<S>                                                      <C>       <C>
         Equipment, furniture and fixtures               $ 899     $931
         Leasehold improvements                            224      237
         Accumulated depreciation and amortization        (744)    (572)
                                                         -----     -----
                                                         $  379    $596
                                                         ======    ====
</TABLE>

      Depreciation and amortization expense was $205,000, $308,000 and $314,000
in 2002, 2001 and 2000, respectively.

GOODWILL AND INTANGIBLES

      Goodwill is the excess of the purchase price and related costs over the
value assigned to the net tangible and intangible assets relating to the
November 1999 acquisition of Infineer. Through December 31, 2001, goodwill had
been amortized over a five year life. Effective January 1, 2002, the Company
adopted Financial Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets"
("SFAS No. 142"). In accordance with the guidelines of this statement, goodwill
and


                                      F-10
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

      The Company performed its annual goodwill impairment test in the fourth
quarter of 2002 and determined that goodwill had been impaired. The Company
determined the fair value primarily using two approaches: a market approach
technique and a discounted cash flow valuation technique. The market approach
relied primarily on the implied fair value using a multiple of revenues for an
entity with comparable operations and economic characteristics. Significant
assumptions used in the discounted cash valuation included estimates of future
cash flows, future short-term and long-term growth rates and estimated cost of
capital for purposes of arriving at a discount factor. Based on comparing the
values derived from the two techniques to the carrying value of the reporting
unit, the Company recorded a goodwill impairment loss of $364,000 in the fourth
quarter of 2002. The Company attributes the impairment loss to the value of a
comparable entity that was sold in a transaction in late 2002, the significant
2002 operating loss for the reporting unit and lower forecasted revenue growth
due to a continued overall decline in technology spending and a shortage of
capital available to invest in the reporting unit. On an ongoing basis, the
Company expects to perform its annual impairment test during the fourth quarter
absent any interim impairment indicators.

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

<TABLE>
<CAPTION>
                                                   2002
                                                   ----

<S>                                              <C>
           Balance, December 31, 2001            $ 1,146
           Impairment loss                          (364)
                                                 -------
           Balance, December 31, 2002            $   782
                                                 =======
</TABLE>

      Amortization of goodwill for 2001 and 2000 was $1.1 million and $1.7
million, respectively. In 2001, the Company wrote-off $3.3 million of goodwill
associated with the July 2001 repositioning action. See Note 10.

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


                                      F-11
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The gross carrying amount and accumulated amortization of intangible
assets at December 31, 2002 and 2001 consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                           2002      2001
                                                           ----      ----

<S>                                                      <C>       <C>
           Gross carrying amount                         $ 2,882   $ 2,882
           Impairment loss                                (1,001)       --
                                                         -------   -------
           Adjusted carrying amount                        1,881     2,882
           Accumulated amortization                       (1,801)   (1,225)
                                                         -------   -------
                                                         $    80   $ 1,657
                                                         =======   =======
</TABLE>

      Amortization of intangibles for 2002, 2001 and 2000 was $576,000, $746,000
and $916,000, respectively. In 2001, the Company wrote-off $822,000 of
intangibles associated with the July 2001 repositioning action. See Note 10. The
estimated annual amortization expense for intangibles is $40,000 for each of
the years 2003 and 2004.

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE

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

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

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

      At December 31, 2002, the Company had four fixed stock-based compensation
plans, which are described more fully in Note 6. The exercise price of each
option granted pursuant to these plans is equal to the market price of the
Company's common stock on the date of grant. Accordingly, pursuant to APB
Opinion No. 25, no compensation cost has been recognized for such grants. Had
compensation cost been determined based on the fair value at the grant dates for
such awards consistent with the method prescribed by SFAS No. 123, the


                                      F-12
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company's net income and earnings per share would have been as follows (in
thousands except per share data):

<TABLE>
<CAPTION>
                                                      2002        2001         2000
                                                      ----        ----         ----

<S>                                                 <C>        <C>         <C>
             Net loss, as reported                  $(7,193)   $(14,821)   $(15,400)
             Deduct: Total stock-based
                compensation expense
                determined under fair
                value based method                     (172)     (1,301)     (5,711)
                                                    --------   ---------    --------

             Pro forma net loss                     $(7,365)   $(16,122)   $(21,111)
                                                    ========   =========   =========

             Loss per share:
                As reported                         $  (.30)   $   (.61)   $   (.66)
                                                    ========   =========   =========

                Pro forma                           $  (.30)   $   (.67)   $   (.91)
                                                    ========   =========   =========
</TABLE>

      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>
                                                   2002      2001      2000
                                                   ----      ----      ----

<S>                                              <C>       <C>       <C>
     Expected option term (years)                   5.0       7.85      5.0
     Expected volatility                           75.0%     85.0%     82.2%
     Risk-free interest rate                        3.5%      6.2%      5.8%
      Weighted average fair value per option     $   .16   $   .31   $  3.60
</TABLE>

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

EARNINGS (LOSS) PER COMMON SHARE
      Basic net income (loss) per common share is based on net income divided by
the weighted average number of common shares outstanding during each year.
Diluted net income (loss) per common share assumes issuance of the net
incremental shares from stock options, warrants and convertible preferred stock
at the later of the beginning of the year or date of issuance. Diluted net
income (loss) per share was the same as basic net income (loss) per share since
the effect of stock options, warrants and convertible preferred stock were
anti-dilutive.

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
did not have a material effect on the Company's financial statements.


                                      F-13
<PAGE>

                                 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, 2002, because of the relatively short maturity of these
instruments. The Company maintains all of its cash and short-term investments
with high-credit quality financial institutions. For the year ended December 31,
2002, one customer represented approximately 10% of sales. Amounts due from a
second customer represented approximately 12% of the accounts receivable balance
as of December 31, 2002.

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, 2002, such costs eligible
for capitalization were insignificant. Accordingly, all such costs have been
charged to product development expenses.

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

RECENT ACCOUNTING PRONOUNCEMENTS
      In June 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS
No. 141"). SFAS No. 141 addresses financial accounting and reporting for
business combinations. This new statement requires that all business
combinations be accounted for using one method (the purchase method), intangible
assets be recognized apart from goodwill if they meet certain criteria and
disclosure of the primary reasons for a business combination and the allocation
of the purchase price paid to the assets acquired and liabilities assumed by
major balance sheet caption. The provisions of this statement apply to all
business combinations initiated after June 30, 2001.

      In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"). SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets. Under this new
statement, goodwill and intangible assets that have indefinite useful lives will
not be amortized, but rather will be tested at least annually for impairment, or
earlier if circumstances or events indicate that impairment may have occurred,
based on the specific guidance of this statement. This may result in future
write-downs or the write-off of such assets. In addition, this statement
requires disclosure of information about goodwill and other intangible assets in
the years subsequent to their acquisition that was not previously required. The
provisions of this statement are required to be applied starting with fiscal
years beginning after December 15, 2001. However, goodwill and intangible assets
acquired after June 30, 2001 were subject immediately to the non-amortization
and amortization provisions of this statement. The Company adopted this
statement on January 1, 2002. The Company completed the initial impairment test
in the first quarter of 2002 which did not result in an impairment of goodwill.
The provisions of SFAS No. 142 are effective for periods after adoption and
retroactive application is not permitted. Therefore, the historical results of
periods prior to 2002 in the Company's Consolidated Statements of Operations do
not reflect the effect of SFAS No. 142 and, accordingly, the 2001 and 2000
results included goodwill amortization expense of $1.1 million and $1.7 million,
respectively. Excluding goodwill amortization, the pro forma net loss for 2001
and 2000 was $13.7 million and $13.7 million or $.57 and $.59 per share,
respectively.


                                      F-14
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS No. 144 supercedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of", and
the accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a segment of a business. This statement also
amends ARB No. 51, "Consolidated Financial Statements", to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. The provisions of this statement are required to be applied starting
with fiscal years beginning after December 15, 2001. The Company adopted SFAS
No. 144 in the first quarter of fiscal 2002, which did not have an effect on the
Company's results of operations or financial position.

      In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146 will
supersede Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". SFAS No. 146 requires
that costs associated with an exit or disposal plan be recognized when incurred
rather than at the date of a commitment to an exit or disposal plan. SFAS No.
146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The Company does not believe that the adoption of SFAS
No. 146 will have a material effect on its Consolidated Financial Statements.

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

NOTE 2 - INVESTMENTS

      In December 2000, the Company acquired an ownership interest in TecSec,
Incorporated, a Virginia corporation ("TecSec"), for $5.1 million. TecSec
develops and markets encryption products and solutions, which are designed to
enable the next generation information security for the enterprise,
multi-enterprise e-business and other markets. The TecSec investment, amounting
to a 5% ownership interest on a fully diluted basis, has been accounted for at
cost. The Company has certain anti-dilutive rights whereby its ownership
interest may be increased following contributions of additional third-party
capital. For the year ended December 31, 2002, TecSec reported unaudited
revenues of approximately $1.4 million, a net loss of $6.6 million and a
decrease in cash of $5.2 million. TecSec also reported an unaudited deficit in
shareholders equity of $1.9 million and cash of $64,000 at December 31, 2002.
The Company believes that the investment in TecSec has been impaired and a
charge of $2.1 million, which is included in "Other expense (income)", was
recorded in the third quarter of 2002. The Company attributes the impairment to
a general decline in valuations of technology entities, the difficulties in
raising capital and TecSec's recurring operating losses. TecSec is currently
evaluating alternative sources of financing to meet ongoing capital and
operating needs. If TecSec is not successful in executing its business plan or
in obtaining sufficient capital on acceptable terms or at all, the Company's
investment in TecSec could be further impaired and subject to an additional
significant write-down.


                                      F-15
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 - SHAREHOLDERS' EQUITY

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

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

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

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

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


                                      F-16
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - INCOME TAXES

      As of December 31, 2002, approximately $65 million of U.S. tax loss
carryforwards (subject to review by the Internal Revenue Service), expiring from
2005 through 2022, were available to offset future taxable income. The
carryforwards expire as follows (in thousands):

<TABLE>
<CAPTION>
              YEAR ENDING
              DECEMBER 31,                    AMOUNT
              ------------                   --------
<S>                                          <C>
              2005                           $  7,000
              2006                              2,000
              2007                              4,000
              2008                              5,000
              2009                              2,000
              2010 - 2022                      45,000
                                             --------
                                             $ 65,000
                                             ========
</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 virtually all of the available net
operating loss carryforwards would be unavailable to reduce its income tax
liability. Furthermore, the extent of the actual future use of the net operating
loss carryforwards is subject to inherent uncertainty, because it depends on the
amount of otherwise taxable income the Company may earn. No assurance can be
given that the Company will have sufficient taxable income in future years, if
any, to use the net operating losses before they would otherwise expire.

      No income tax provision or benefit was recognized in 2002, 2001 and 2000
because the tax benefit associated with the Company's operating losses (35%
federal tax rate and 7% state tax rate) were offset in full by an increase in
the valuation allowance.

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

<TABLE>
<CAPTION>
                                              2002           2001
                                              ----           ----
<S>                                         <C>            <C>
    Net operating loss carryforward         $ 22,594       $ 29,985
    Pension expense                            1,155          1,305
    TecSec investment                            724             --
    Discontinued operations                       35            303
    Other, net                                   126            243
                                            --------       --------
                                              24,634         31,836
    Less valuation allowance                 (24,634)       (31,836)
                                            --------       --------
    Net deferred taxes                      $     --       $     --
                                            ========       ========
</TABLE>

NOTE 5 - EMPLOYEE BENEFITS

      The Company maintains a 401(k) plan for 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 matching contributions totaled $14,000, $68,000
and $86,000 in 2002, 2001 and 2000, respectively.


                                      F-17
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The Company sponsors a defined benefit pension plan (the "Plan") that was
frozen in 1993. The assets of the Plan are managed by an outside trustee and
invested primarily in equity and fixed income securities. PubliCARD common stock
represented less than 1% of plan assets as of December 31, 2002. The Company's
present funding policy is to contribute amounts sufficient to meet the minimum
funding requirements as set forth in employee benefit and tax laws.
Contributions to the Plan were $1.1 million, $1.1 million and $1.2 million in
fiscal 2002, 2001 and 2000, respectively. For 2003, the minimum required
contributions are expected to be $1.5 million. Cost of retirement benefits -
non-operating includes amounts related to discontinued product lines and related
plant closings totaling $831,000, $788,000 and $812,000 in 2002, 2001 and 2000,
respectively. Information regarding the Plan is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  2002      2001
                                                                  ----      ----
<S>                                                             <C>       <C>
      Change in benefit obligation:
      Benefit obligation at beginning of year                    $ 9,063   $ 9,320
             Interest cost                                           611       648
             Benefit payments                                       (953)     (993)
             Actuarial (gain) or loss                                633        88
                                                                 -------   -------
      Benefit obligation at end of year                            9,354     9,063
                                                                 -------   -------

      Change in plan assets:
      Fair value of plan assets at beginning of year               3,601     3,914
      Actual return on plan assets                                  (502)     (407)
      Employer contributions                                       1,064     1,087
      Benefit payments                                              (953)     (993)
                                                                 -------   -------
      Fair value of plan assets at end of year                     3,210     3,601
                                                                 -------   -------

      Funded status                                               (6,144)   (5,462)
      Unrecognized transition obligation                             295       589
      Unrecognized net loss                                        2,306       901
                                                                 -------   -------
                                                                 $(3,543)  $(3,972)
                                                                 =======   =======

      Amounts recognized in statement of financial position consist of:

      Accrued benefit liability                                  $(6,144)  $(5,462)
      Intangible asset                                               295       589
      Accumulated comprehensive loss                               2,306       901
                                                                 -------   -------
      Net amount recognized                                      $(3,543)  $(3,972)
                                                                 =======   =======
</TABLE>

      A discount rate of 6.0% and 7.25% was used for December 31, 2002 and 2001,
respectively. The expected return on plan assets was 8%.

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

                                                         2002                 2001              2000
                                                         ----                 ----              ----

<S>                                                    <C>                 <C>               <C>
      Interest cost                                    $     611           $     648         $    695
      Expected return on plan assets                        (268)               (317)            (341)
      Amortization of transition obligation                  293                 293              294
                                                       ---------           ---------         --------
      Net periodic pension cost                        $     636           $     624         $    648
                                                       =========           =========         ========
</TABLE>


                                      F-18
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      In January 2003, the Company filed a notice with the Pension Benefit
Guaranty Corporation ("PBGC") seeking a "distress termination" of the Plan. If
the PBGC determines that the Company meets one of the tests for such a
termination, the Plan will terminate and the PBGC will become responsible for
meeting future retirement obligations of participants (within certain
limitations). The Company would be liable to the PBGC for the amount of the
unfunded guaranteed benefit obligation. The Company believes that on a
termination basis, the Plan's liabilities could exceed the value of its assets
by in excess of $7.0 million. In addition, the Company did not make the required
quarterly contribution of approximately $253,000 that was due on January 15,
2003. The Company has initiated discussions with the PBGC concerning the
termination of the Plan and its obligation to the PBGC if the Plan is terminated
(including the timing of its repayment obligation). It is not possible to
predict the outcome of such discussions.

NOTE 6 - STOCK OPTIONS AND WARRANTS

      The Company has issued stock options pursuant to four fixed stock-based
compensation plans, made special stock option awards to certain directors,
consultants and employees and also issued common stock purchase warrants in
connection with certain subordinated notes. A summary of shares purchasable upon
the exercise of stock options and common stock purchase warrants as of December
31, 2002, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                               2002         2001        2000
                                               ----         ----        ----

<S>                                         <C>          <C>         <C>
     Fixed stock-based compensation plans   2,939,175    4,608,450   3,543,750
     Special stock options                    363,960      535,011   1,824,031
     Common stock purchase warrants                --    1,523,573   1,523,573
                                            ---------    ---------   ---------
                                            3,303,135    6,667,034   6,891,354
                                            =========    =========   =========
</TABLE>

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

FIXED STOCK-BASED COMPENSATION PLANS
      The Company has four stock-based compensation plans that provide for the
granting of incentive and non-qualified stock options, restricted stock, stock
appreciation rights, performance awards and other stock-based awards to
employees, non-employee directors and consultants. Under these plans adopted by
shareholders of the Company, the Company may grant up to 7,300,000 shares of
common stock. The plans are administered by either the Board of Directors of the
Company or the Compensation Committee of the Board of Directors. The exercise
price of each option granted was equal to the market price of the Company's
common stock on the date of grant. Stock options granted to non-employee
directors expire five years from the date of grant and vest immediately. Stock
options granted to employees generally expire five or ten years from the date of
grant. Prior to 1999, stock options granted to employees vested immediately.
Grants subsequent to 1998 generally vest over three or four years. As of
December 31, 2002, there were 2,244,325 shares available for grant under the
fixed stock-based compensation plans.


                                      F-19
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      A summary of the stock options issued pursuant to the fixed stock-based
compensation plans as of December 31, 2002, 2001 and 2000 and changes during the
years then ended is presented below:

<TABLE>
<CAPTION>
                                 2002                       2001                     2000
                          ---------------------     ----------------------   ----------------------
                                       Weighted                   Weighted                 Weighted
                                        average                    average                  average
                                       exercise                   exercise                 exercise
                            Shares       price       Shares         price      Shares        price
                            ------       -----       ------         -----      ------        -----

<S>                       <C>          <C>          <C>           <C>        <C>           <C>
Balance at January 1      4,608,450      $1.07      3,543,750       $4.63    2,771,167       $4.15
Granted                      90,000        .25      4,171,400         .69    2,322,375        5.31
Exercised                        --         --             --          --     (594,167)       1.81
Canceled                 (1,759,275)      1.13     (3,106,700)       4.63     (955,625)       6.60
                         ----------                ----------                ---------
Balance at December 31    2,939,175       1.01      4,608,450        1.07    3,543,750        4.63
                         ==========                ==========                =========
</TABLE>

      A summary of the Company's stock options outstanding and exercisable
issued pursuant to the fixed stock-based compensation plans as of December 31,
2002, is as follows:

<TABLE>
<CAPTION>
                                       OUTSTANDING                        EXERCISABLE
                            ------------------------------------    ----------------------
                                                        Weighted                  Weighted
                                                        average                   average
Range of                                 Contractual   exercise                   exercise
exercise price                Shares         life        price        Shares       price
--------------              ---------    -----------   ---------    ---------     --------
<S>                         <C>          <C>           <C>          <C>           <C>
$.25-$.40                   2,358,800         6.7        $ .38      1,719,267      $ .38
$1.37-$2.72                    96,500         1.5         1.82         90,281       1.81
$2.88-$3.28                   388,375         2.4         3.18        294,375       3.15
$6.31-$6.88                    95,500         1.6         6.77         93,438       6.81
                            ---------                               ---------
$.25-$6.88 (all options)    2,939,175         5.8         1.01      2,197,361       1.08
                            =========                               =========
</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, 2002, there are a total of 363,960 special
stock options outstanding. These options have exercise prices ranging from
$2.00 to $9.75 per share and all 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. No options were exercised in 2002 or 2001.

      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.

      In connection with the Company's business acquisitions in 1998 and 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 had 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. As of December 31, 2002, a total of
203,960 options granted outside of the fixed stock option plans remained
outstanding.

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


                                      F-20
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 7 - COMMITMENTS AND CONTINGENCIES

LEASES
      The Company leases certain office space, vehicles and office equipment
under operating leases that expire over the next six 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 $221,000 in 2002, $481,000 in
2001 and $490,000 in 2000.

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

<TABLE>
<CAPTION>
                                                MINIMUM
      YEAR ENDING                                LEASE       SUBLEASE
      DECEMBER 31,                              PAYMENTS      INCOME      NET
      ------------                              --------     --------     ---
<S>   <C>                                       <C>          <C>         <C>
      2003                                        $422         $205      $217
      2004                                         210           67       143
      2005                                          64           --        64
      2006                                          55           --        55
      2007                                          55           --        55
      Remainder                                     40           --        40
                                                  ----         ----      ----
              Total minimum lease payments        $846         $272      $574
                                                  ====         ====      ====
</TABLE>

      The Company and Balfour Investors Inc. ("Balfour") are parties to an
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 agreement commenced on January 1, 1995 and will expire on June 30, 2004,
unless sooner terminated pursuant to law or the terms of the agreement. The
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. Effective
March 1, 2002, Balfour's share of rent and other costs was 50% of the total
costs incurred. The base rent payable by Balfour under the agreement is
approximately $11,000 per month.

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

      As discussed in Note 9, in September 2002, the Company reached an
agreement pursuant to which the Greenwald Escrow was terminated and net proceeds
of approximately $1.3 million were disbursed to the


                                      F-21
<PAGE>


                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company. Upon termination of the Greenwald Escrow in October 2002, the Company
satisfied the remaining obligation to the EPA amounting to $806,000, which
included accrued interest.

GRANTS AND BANK FINANCING
      The Company has received grants from several government agencies in the
United Kingdom. These grants have been used for marketing, research and
development and other governmental business incentives such as general
employment. Such grants require the Company to maintain certain levels of
operations and employment in Northern Ireland. As of December 31, 2002, the
Company has a contingent liability to repay, in whole or part, grants received
of approximately $620,000 in the event the Company becomes insolvent or
otherwise violates the terms of such grants.

      Infineer has an overdraft facility with a bank in Northern Ireland, which
allows for the maximum borrowing of 130,000 British pounds. This facility is
secured by all of Infineer's assets and bears an interest rate at the bank's
base rate plus 2% (approximately 6% at December 31, 2002). As of December 31,
2002, Infineer had borrowings outstanding under this facility totaling 86,000
British pounds (or the equivalent of $138,000).

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

      Notice of the commencement of this action has been given to the Company's
directors and officers liability insurance carriers. The Company believes it has
meritorious defenses to the allegations and intends to defend vigorously. In
November 2002, the Company and the individual defendants served with the action
filed a demurrer seeking the dismissal of six of the plaintiffs' nine purported
causes of action. In January 2003, the court ruled in favor of the demurrer and
dismissed the entire complaint. The plaintiffs were granted the right to replead
and subsequently filed an amended complaint in February 2003. The Company and
individual defendants filed a second demurrer in March 2003. The lawsuit is in
the early stages. There has been no discovery and no trial date has been set.
Consequently, at this time it is not reasonably possible to estimate the damage,
or range of damages, if any, that the Company might incur in connection with
this action. However, if the outcome of this lawsuit is unfavorable to the
Company, it could have a material adverse effect on the Company's operations,
cash flow and financial position. Through December 31, 2002, the Company has
incurred approximately $200,000 in defense costs.

      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.

CHANGE OF CONTROL AGREEMENTS
      The Company is a party to change of control agreements, which provide for
payments to certain directors and executive officers under certain circumstances
following a change of control. Since the change of control agreements require
large cash payments to be made by any person effecting a change of control,
these agreements may discourage takeover attempts. The change of control
agreements provide that, if the services of


                                       F-22
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

any person party to a change of control agreement are terminated within three
years following a change of control, that individual will be entitled to
receive, in a lump sum within 10 days of the termination date, a payment equal
to 2.99 times that individual's average annual compensation for the shorter of
the five years preceding the change of control and the period the individual
received compensation from us for personal services. Assuming a change of
control were to occur at the present time, payments of $842,000 each would be
made to the Company's Chairman and Vice Chairman. If any such payment, either
alone or together with others made in connection with the individual's
termination, is considered to be an excess parachute payment under the Internal
Revenue Code, the individual will be entitled to receive an additional payment
in an amount which, when added to the initial payment, would result in a net
benefit to the individual, after giving effect to excise taxes imposed by
Section 4999 of the Internal Revenue Code and income taxes on such additional
payment, equal to the initial payment before such additional payment and the
Company would not be able to deduct these initial or additional payments for
income tax purposes.

INSURANCE RECOVERIES
      In February and March 2003, the Company entered into two binding
settlements with various historical insurers that would resolve certain claims
(including certain future claims) under policies of insurance issued to the
Company by those insurers. As a result of the settlements, after allowance for
associated expenses and offsetting adjustments, the Company received net
proceeds of approximately $1.0 million in February 2003 and expects to receive
an additional estimated $650,000 in April 2003. Accordingly, the Company expects
to recognize a non-recurring gain of approximately $1.7 million in the first
quarter of 2003.

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

NOTE 8 - SEGMENT DATA

      As a result of the disposition of certain operations (See Note 9) and
because the Company operates in one industry, that being the deployment of smart
card solutions for educational and corporate sites, the Company reports as a
single segment. Sales by geographical areas for the years ended December 31,
2002, 2001 and 2000 are as follows (in thousands):

<TABLE>
<CAPTION>
                                2002      2001      2000
                                ----      ----      ----
<S>                            <C>       <C>       <C>
      United States            $1,029    $1,727    $1,160
      Europe                    3,445     3,671     4,029
      Rest of world               131       254       354
                               ------    ------    ------
                               $4,605    $5,652    $5,543
                               ======    ======    ======
</TABLE>

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

<TABLE>
<CAPTION>
                                2002            2001
                                ----            ----
<S>                            <C>            <C>
      United States            $ 4,842        $12,037
      United Kingdom             2,235          2,557
                               -------        -------
                               $ 7,077        $14,594
                               =======        =======
</TABLE>


                                      F-23
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 -  DISCONTINUED OPERATIONS

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

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

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

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

NOTE 10 - REPOSITIONING CHARGE

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


                                      F-24
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - SUPPLEMENTAL INFORMATION

      Changes in 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, 2002, 2001 and 2000 (in thousands):

<TABLE>
<CAPTION>
                                                  2002        2001       2000
                                                  ----        ----       ----

<S>                                             <C>         <C>        <C>
      Trade receivables                         $   686     $   122    $    88
      Inventories                                  (248)       (830)      (714)
      Prepaid insurance and other current assets    404        (450)       152
      Other assets                                  533         340       (374)
      Net assets of discontinued operations        (404)       (424)    (3,260)
      Trade accounts payable                        (27)         15     (1,333)
      Accrued liabilities                          (135)     (2,227)      (607)
      Other non-current liabilities              (1,849)     (1,580)      (300)
                                                -------     -------    -------
                                                $(1,040)    $(5,034)   $(6,348)
                                                =======     =======    =======
</TABLE>

      Cash paid for interest during 2002, 2001, and 2000 was $81,000, $79,000,
and $137,000, respectively. No income taxes were paid in 2002, 2001 and 2000.
Non-cash investing activities include the acquisition of 35% of Greenwald
Intellicard for shares of common stock of $696,000 in 2000.

      Other assets as of December 31, 2002 and 2001 consisted of the following
(in thousands):

<TABLE>
<CAPTION>
                                                   2002            2001
                                                   ----            ----

<S>                                               <C>            <C>
      Investment in minority owned affiliates     $3,000         $5,307
      Intangible pension asset                       295            589
      Net assets of discontinued operations           --            886
                                                  ------         ------
                                                  $3,295         $6,782
                                                  ======         ======
</TABLE>

      Accrued liabilities as of December 31, 2002 and 2001 consisted of the
      following (in thousands):

<TABLE>
<CAPTION>
                                                   2002            2001
                                                   ----            ----

<S>                                               <C>            <C>

      Pension liability                           $1,505         $1,586
      Payroll and other employee benefits            292            409
      Environmental obligation                        --            434
       Deferred revenue                              402            166
      Other                                          483            784
                                                  ------         ------
                                                  $2,682         $3,379
                                                  ======         ======
</TABLE>

      Other non-current liabilities as of December 31, 2002 and 2001 consisted
      of the following (in thousands):

<TABLE>
<CAPTION>
                                                        2002         2001
                                                        ----         ----

<S>                                                    <C>          <C>
      Pension liability and other retiree benefits     $4,872       $4,448
      Environmental obligation                             --          783
      Other                                               118           97
                                                       ------       ------
                                                       $4,990       $5,328
                                                       ======       ======
</TABLE>


                                      F-25
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The components of other comprehensive loss as of December 31, 2002 and
2001 consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                     2002      2001
                                                     ----      ----
<S>                                                 <C>       <C>

      Foreign currency translation adjustment       $   85    $  197
      Minimum pension liability                      2,306       901
                                                    ------    ------
                                                    $2,391    $1,098
                                                    ======    ======
</TABLE>

      Comprehensive loss for the Company includes foreign currency translation
adjustments and minimum pension liability, as well as net loss reported in the
Company's Statements of Operations. Comprehensive loss for years ended December
31, 2002, 2001 and 2000 was as follows (in thousands):

<TABLE>
<CAPTION>
                                                       2002        2001        2000
                                                       ----        ----        ----

<S>                                                  <C>        <C>         <C>
      Net loss                                       $(7,193)   $(14,821)   $(15,400)
      Minimum pension liability                       (1,405)       (901)         --
      Foreign currency translation adjustments           112        (197)         --
                                                     -------    --------    --------
      Comprehensive loss                             $(8,486)   $(15,919)   $(15,400)
                                                     =======    ========    ========
</TABLE>

NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

      The unaudited consolidated financial statements for each of the quarterly
periods in the years ended December 31, 2002 and 2001 are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                        MAR. 31    JUN. 30    SEP. 30    DEC. 31
                                                        -------    -------    -------    -------

<S>                                                     <C>        <C>        <C>        <C>
2002
      Net sales                                         $ 1,199    $ 1,016    $ 1,298    $ 1,092
      Gross margin                                          563        496        650        441
      Loss from continuing operations                    (1,269)    (1,227)    (3,409)    (2,354)
      Income from discontinued operations                    --         --      1,066         --
      Net loss                                           (1,269)    (1,227)    (2,343)    (2,354)

      Basic and diluted earnings (loss) per share
          Continuing operations                         $  (.05)   $  (.05)   $  (.14)   $  (.10)
          Discontinued operations                            --         --        .04         --
                                                        --------   --------   --------   --------
                                                        $  (.05)   $  (.05)   $  (.10)   $  (.10)
                                                        ========   ========   ========   ========
2001
      Net sales                                         $ 1,520    $ 1,339    $ 1,575    $ 1,218
      Gross margin                                          688       (635)       506        557
      Loss from continuing operations                    (3,509)    (9,510)    (2,799)    (1,353)
      Income from discontinued operations                    --      2,350         --         --
      Net Loss                                           (3,509)    (7,160)    (2,799)    (1,353)

      Basic and diluted earnings (loss) per share
          Continuing operations                         $  (.14)   $  (.40)   $  (.12)   $  (.06)
          Discontinued operations                            --        .10         --         --
                                                        -------    -------    -------    -------
                                                        $  (.14)   $  (.30)   $  (.12)   $  (.06)
                                                        =======    =======    =======    =======

</Table>

                                      F-26
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                  INDEPENDENT AUDITORS' REPORT ON SCHEDULE II

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

We have audited the consolidated financial statements of PubliCARD, Inc. and
subsidiary companies (the "Company") as of and for the year ended December 31,
2002, and have issued our report thereon dated March 24, 2003 (which report
expresses an unqualified opinion and includes explanatory paragraphs relating to
the Company's ability to continue as a going concern and the application of
procedures performed in regards to certain disclosures in the 2001 and 2000
financial statements that were audited by other auditors who have ceased
operations and for which we have expressed no opinion or other form of assurance
other than with respect to such disclosures). Our audit also included the
consolidated financial statement schedule of the Company as of and for the year
ended December 31, 2002 listed in Item 15. This consolidated financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audit. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic 2002
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein. The consolidated financial
statements and consolidated financial statement schedules of the Company as of
December 31, 2001 and for the years ended December 31, 2000 and 2001 were
audited by other auditors who have ceased operations. Those other auditors
expressed an unqualified opinion on those consolidated financial statements and
consolidated financial statement schedule in their report dated March 20, 2002.

/s/ DELOITTE & TOUCHE LLP

New York, New York
March 24, 2003


                                      F-27
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

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

To the Shareholders of PubliCARD, Inc.:

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

The aforementioned financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred operating losses and requires
additional capital to meet its obligations and accomplish the Company's business
plan, which raises substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

/s/ Arthur Andersen LLP

Stamford, Connecticut
March 20, 2002


                                      F-28
<PAGE>

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES


                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<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, 2002:
     Allowance for doubtful accounts           216               -          -           (113)           103

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

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

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

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
</TABLE>

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

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


                                      F-29