UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                -----------------

                                    FORM 10-Q

(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

                                       OR

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

                   For the transition period from ___ to ___.

         COMMISSION FILE NUMBER 0-29794

                                 PUBLICARD, INC.
             (Exact name of registrant as specified in its charter)

                   PENNSYLVANIA                             23-0991870
(State or other jurisdiction of incorporation            (I.R.S. Employer
               or organization)                          Identification No.)

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

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

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
    -----       -------

  Number of shares of Common Stock outstanding as of August 7, 2003: 24,565,902

PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                        CONSOLIDATED BALANCE SHEETS AS OF
                       JUNE 30, 2003 AND DECEMBER 31, 2002
                        (IN THOUSANDS EXCEPT SHARE DATA)



                                                                                                    JUNE 30,       DECEMBER 31,
                                                                                                       2003            2002
                                                                                                       ----            ----
                                                                                                   (unaudited)
                                                                                                             
                                              ASSETS

Current assets:
     Cash, including short-term investments of $1,835 and $1,138 in 2003 and 2002, respectively     $   1,841      $   1,290
     Trade receivables, less allowance for doubtful accounts of $94 and $103 in 2003 and
          2002, respectively                                                                            1,045            853
     Inventories                                                                                          639            885
     Prepaid insurance and other                                                                          246            375
                                                                                                    ---------      ---------
          Total current assets                                                                          3,771          3,403
                                                                                                    ---------      ---------
Equipment and leasehold improvements, net                                                                 310            379
Goodwill and intangibles                                                                                  842            862
Other assets                                                                                            3,295          3,295
                                                                                                    ---------      ---------
                                                                                                    $   8,218      $   7,939
                                                                                                    =========      =========

                               LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
     Trade accounts payable and overdraft                                                           $   1,410      $   1,269
     Accrued liabilities                                                                                2,450          2,682
                                                                                                    ---------      ---------
          Total current liabilities                                                                     3,860          3,951
Other non-current liabilities                                                                           5,281          4,990
                                                                                                    ---------      ---------
          Total liabilities                                                                             9,141          8,941
                                                                                                    ---------      ---------
Commitments and contingencies (Note 6)

Shareholders' deficit:
     Class A Preferred Stock, Second Series, no par value: 1,000 shares authorized; 665 and 765
           issued and outstanding as of June 30, 2003 and December 31, 2002, respectively               3,325          3,825
     Common shares, $0.10 par value: 40,000,000 shares authorized; 24,440,902 and 24,190,902
          shares issued and outstanding as of June 30, 2003 and December 31, 2002, respectively         2,444          2,419
     Additional paid-in capital                                                                       107,644        107,169
     Accumulated deficit                                                                             (111,953)      (112,024)
     Other comprehensive loss                                                                          (2,383)        (2,391)
                                                                                                    ---------      ---------
          Total shareholders' deficit                                                                    (923)        (1,002)
                                                                                                    ---------      ---------
                                                                                                    $   8,218      $   7,939
                                                                                                    =========      =========


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

                                       1

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
                        (IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)



                                                               THREE MONTHS ENDED                  SIX MONTHS ENDED
                                                                    JUNE 30,                            JUNE 30,
                                                                    --------                            --------
                                                             2003               2002            2003               2002
                                                             ----               ----            ----               ----
                                                                                                 
Sales                                                  $      1,193      $      1,016      $      2,606      $      2,215

Cost of sales                                                   612               520             1,231             1,156
                                                       ------------      ------------      ------------      ------------
     Gross margin                                               581               496             1,375             1,059
                                                       ------------      ------------      ------------      ------------
Operating expenses:
     General and administrative                                 687               761             1,391             1,694
     Sales and marketing                                        523               472             1,005               899
     Product development                                        156               128               245               247
     Amortization of intangibles                                 10               144                20               288
                                                       ------------      ------------      ------------      ------------
                                                              1,376             1,505             2,661             3,128
                                                       ------------      ------------      ------------      ------------
     Loss from operations                                      (795)           (1,009)           (1,286)           (2,069)
                                                       ------------      ------------      ------------      ------------
Other income (expenses):
     Interest income                                              4                15                 7                29
     Interest expense                                            (2)               (6)               (5)              (21)
     Cost of pensions - non-operating                          (225)             (218)             (442)             (424)
     Gain on insurance recoveries                                --                --             1,707                --
     Other income (expenses), net                                89                (9)               90               (11)
                                                       ------------      ------------      ------------      ------------
                                                               (134)             (218)            1,357              (427)
                                                       ------------      ------------      ------------      ------------
Net income (loss)                                      $       (929)     $     (1,227)     $         71      $     (2,496)
                                                       ============      ============      ============      ============

Basic and diluted earnings (loss) per common share     $       (.04)     $       (.05)     $         --      $       (.10)
                                                       ============      ============      ============      ============
Weighted average common shares outstanding
      Basic                                              24,440,902        24,181,527        24,369,473        24,169,473
                                                       ============      ============      ============      ============
      Diluted                                            26,103,402        24,181,527        26,103,402        24,169,473
                                                       ============      ============      ============      ============


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

                                       2

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
                     FOR THE SIX MONTHS ENDED JUNE 30, 2003
                        (IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)



                                                                                                         Other
                                   Class A         Common Shares        Additional                    Comprehen-    Share-
                                  Preferred     Shares                    Paid-in      Accumulated       sive      holders'
                                    Stock       Issued        Amount      Capital        Deficit         Loss       Deficit
                                    -----       ------        ------      -------        -------         ----       -------
                                                                                              
Balance - January 1, 2003           $3,825      24,190,902     $2,419     $107,169     $(112,024)     $(2,391)     $(1,002)

Conversion of preferred stock         (500)        250,000         25          475            --           --           --

Comprehensive income:
 Net income                             --              --         --           --            71           --           71
 Foreign currency
    translation
    adjustment                          --              --         --           --           --             8            8
                                    ------      ----------     ------     --------     ---------      -------      -------
    Comprehensive income                                                                                                79
                                                                                                                   -------
Balance - June 30, 2003             $3,325      24,440,902     $2,444     $107,644     $(111,953)     $(2,383)     $  (923)
                                    ======      ==========     ======     ========     =========      =======      =======


The accompanying notes to unaudited consolidated financial statements are an
integral part of this statement.

                                       4

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
                                 (IN THOUSANDS)
                                   (UNAUDITED)



                                                                       2003         2002
                                                                       ----         ----
                                                                            
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                               $    71      $(2,496)
     Adjustments to reconcile net income (loss) to net cash used
        in operating activities:
          Gain on insurance recoveries                                (1,707)          --
          Amortization of intangibles                                     20          288
          Depreciation and amortization                                   83          111
          Changes in assets and liabilities:
             Trade receivables                                          (170)         127
             Inventories                                                 264          (15)
             Prepaid insurance and other current assets                  131          442
             Other assets                                                 --          192
             Trade accounts payable                                     (147)        (661)
             Accrued liabilities                                          18           38
             Other non-current liabilities                               271          (60)
                                                                     -------      -------
                     Net cash used in operating activities            (1,166)      (2,034)
                                                                     -------      -------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures                                                (11)         (16)
     Proceeds from insurance recoveries                                1,707           --
     Proceeds from discontinued operations                                20           88
                                                                     -------      -------
                     Net cash provided by investing activities         1,716           72
                                                                     -------      -------
CASH FLOWS FROM FINANCING ACTIVITIES                                      --           --
                                                                     -------      -------
Effect of exchange rate changes on cash and cash equivalents               1            3
                                                                     -------      -------
Net increase (decrease) in cash                                          551       (1,959)
Cash - beginning of period                                             1,290        4,479
                                                                     -------      -------
Cash - end of period                                                 $ 1,841      $ 2,520
                                                                     =======      =======
Cash paid for income taxes                                           $    --      $    --
                                                                     =======      =======
Cash paid for interest                                               $     5      $    59
                                                                     =======      =======


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

                                       5

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              NOTES TO UNAUDITED 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.

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

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

LIQUIDITY AND GOING CONCERN CONSIDERATIONS

         These unaudited 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 $1.8 million at June 30, 2003. The Company also had a working capital
deficit of $89,000 and an accumulated deficit of $112.0 million at June 30,
2003.

         If the distress termination of the Company's defined benefit pension
plan for which the Company has applied is completed (see Note 5), for which no
assurance can be given, 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 be able to 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.

                                       6

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The unaudited consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
The independent auditors' report on the Company's Consolidated Financial
Statements for the year ended December 31, 2002 contained an emphasis paragraph
concerning substantial doubt about the Company's ability to continue as a going
concern.

PRINCIPLES OF CONSOLIDATION

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

BASIS OF PRESENTATION

         The accompanying unaudited consolidated financial statements reflect
all normal and recurring adjustments that are, in the opinion of management,
necessary to present fairly the financial position of the Company and its
subsidiary companies as of June 30, 2003 and the results of their operations and
cash flows for the six months ended June 30, 2003. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United States of
America have been omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002, as
amended.

EARNINGS (LOSS) PER COMMON SHARE

         Basic net income (loss) per common share is based on net income (loss)
divided by the weighted average number of common shares outstanding during each
period. 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. For the three and
six months ended June 30, 2002, 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 antidilutive.

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

                                       7

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

inventory. Inventories as of June 30, 2003 and December 31, 2002 consisted of
the following (in thousands):



                                                     2003             2002
                                                     ----             ----
                                                               
           Raw materials and work-in-process        $ 217            $ 175
           Finished goods                             422              710
                                                    -----            -----
                                                    $ 639            $ 885
                                                    =====            =====


STOCK-BASED COMPENSATION

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

         At June 30, 2003, the Company had four fixed stock-based compensation
plans. The exercise price of each option granted pursuant to these plans is
equal to the market price of the Company's common stock on the date of grant.
Accordingly, pursuant to APB No. 25, no compensation cost has been recognized
for such grants. Had compensation cost been determined based on the fair value
at the grant dates for such awards consistent with the method prescribed by SFAS
No. 123, the Company's net income (loss) and earnings (loss) per share for the
three and six months ended June 30, 2003 and 2002 would have been as follows (in
thousands except per share data):



                                                          THREE MONTHS ENDED        SIX MONTHS ENDED
                                                               JUNE 30,                 JUNE 30,
                                                               --------                 --------
                                                           2003         2002        2003        2002
                                                           ----         ----        ----        ----
                                                                                  
Net income (loss), as reported                           $  (929)     $(1,227)     $  71      $(2,496)
Deduct: Total stock-based compensation expense
            determined under fair value based method        (121)         (43)      (243)         (86)
                                                         -------      -------      -----      -------
Pro forma loss                                           $(1,050)     $(1,270)     $(172)     $(2,582)
                                                         =======      =======      =====      =======
Basic earnings (loss) per share:
    As reported                                          $  (.04)     $  (.05)     $  --      $  (.10)
                                                         =======      =======      =====      =======
    Pro forma                                            $  (.04)     $  (.05)     $(.01)     $  (.11)
                                                         =======      =======      =====      =======
Diluted earnings (loss) per share:
    As reported                                          $  (.04)     $  (.05)     $  --      $  (.10)
                                                         =======      =======      =====      =======
    Pro forma                                            $  (.04)     $  (.05)     $(.01)     $  (.11)
                                                         =======      =======      =====      =======


         The weighted-average fair value of each stock option included in the
preceding pro forma amounts was estimated using the Black-Scholes option-pricing
model and is amortized over the vesting period of the underlying options.

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

                                       8

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

RECENT ACCOUNTING PRONOUNCEMENTS

         In July 2002, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No.
146 supersedes 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 statement is effective beginning January 1, 2003,
and did not have a material impact on the Company's Consolidated Financial
Statements.

         In December 2002, the FASB issued SFAS No. 148. 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
fiscal years and interim periods ending after December 15, 2002. SFAS No. 148
did not require the Company to change to the fair value based method of
accounting for stock-based compensation. The Company has elected to continue to
apply APB No. 25 and related interpretations in accounting for stock options,
and the disclosures required by SFAS Nos. 123 and 148 are included in Note 1
herein.

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

         In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities". The interpretation requires that the assets,
liabilities and results of the activity of variable interest entities be
consolidated into the financial statements of the company that has controlling
financial interest. It also provides the framework for determining whether a
variable interest entity should be consolidated based on voting interest or
significant financial support provided to it. This Interpretation is effective
July 1, 2003, and is not expected to have a material impact on the Company's
Consolidated Financial Statements.

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

         In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
("SFAS No. 150"). SFAS No. 150 establishes standards for

                                       9

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. This statement will become effective for financial
instruments entered into or modified after May 31, 2003, and otherwise shall be
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of this statement is not expected to have a material impact
on the Company's Consolidated Financial Statements.

NOTE 2 - 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 FASB Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" ("SFAS No. 142"). In accordance with the guidelines of
this statement, goodwill and indefinite lived intangible assets are no longer
amortized but will be assessed for impairment on at least an annual basis. SFAS
No. 142 also requires that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives and reviewed for
impairment. The Company 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 attributed the impairment loss to the value of a
comparable entity that was sold in a transaction in late 2002, the significant
2002 operating loss for the reporting unit and lower forecasted revenue growth
due to a continued overall decline in technology spending and a shortage of
capital available to invest in the reporting unit. On an ongoing basis, the
Company expects to perform its annual impairment test during the fourth quarter
absent any interim impairment indicators. The carrying value of goodwill as of
June 30, 2003 and December 31, 2002 was $782,000.

         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 attributed 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.

                                       10

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

         The gross carrying amount and accumulated amortization of intangible
assets at June 30, 2003 and December 31, 2002 was as the following (in
thousands):



                                                       2003             2002
                                                       ----             ----
                                                                
           Gross carrying amount                     $ 1,881          $ 1,881
           Accumulated amortization                   (1,821)          (1,801)
                                                     -------          -------
                                                     $    60          $    80
                                                     =======          =======


         Amortization of intangibles for the six months ended June 30, 2003 and
2002 was $20,000 and $288,000, respectively. The estimated annual amortization
expense for intangibles is $40,000 for each of the years 2003 and 2004.

NOTE 3 - 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. The Company believed that the investment in TecSec had been impaired
and a charge of $2.1 million was recorded in the third quarter of 2002. The
Company attributed the impairment to a general decline in valuations of
technology entities, the difficulties in raising capital and TecSec's recurring
operating losses. 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.

NOTE 4 - SEGMENT DATA

         The Company's sole operating activities involve the deployment of smart
card solutions for educational and corporate sites. As such, the Company reports
as a single segment. Sales by geographical areas for the six months ended June
30, 2003 and 2002 are as follows (in thousands):



                                           2003          2002
                                           ----          ----
                                                  
     United States                        $  554        $  420
     Europe                                1,853         1,748
     Rest of world                           199            47
                                          ------        ------
                                          $2,606        $2,215
                                          ======        ======


         The Company has operations in the United States and United Kingdom.
Identifiable assets by country as of June 30, 2003 and December 31, 2002 are as
follows (in thousands):



                                                    2003         2002
                                                    ----         ----
                                                         
     United States                                $ 5,372      $ 4,842
     United Kingdom                                 2,004        2,235
                                                  -------      -------
                                                  $ 7,376      $ 7,077
                                                  =======      =======


                                       11

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5 - UNDERFUNDED PENSION PLAN

         The Company sponsors a defined benefit pension plan (the "Plan") that
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
(determined on an ongoing basis). 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. For 2003, the minimum required contributions are expected to be
approximately $1.5 million.

         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
contributions that were due on January 15, 2003, April 15, 2003 and July 15,
2003 which aggregate approximately $900,000. 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 - COMMITMENTS AND CONTINGENCIES

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. In
June 2003, the court ruled in favor of the demurrer to dismiss, without leave to
amend, six of the eleven purported causes of action in the amended complaint.
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 damages, or range of damages, if any, that the Company might incur
in connection with this action. However, if the outcome of this lawsuit is
unfavorable to the Company, it could have a material adverse effect on the
Company's operations, cash flow and financial position. The Company incurred
approximately $200,000 in defense costs in 2002. No additional costs have been
incurred in 2003.

                                       12

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

INSURANCE RECOVERIES

         In February and March 2003, the Company entered into two binding
settlements with various historical insurers that 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 an additional
$682,000 in April 2003. The Company recognized a non-recurring gain from these
settlements of $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 7 -  COMPREHENSIVE INCOME (LOSS)

         Comprehensive income (loss) for the Company includes foreign currency
translation adjustments as well as net income (loss) reported in the Company's
Consolidated Statements of Operations. Comprehensive income (loss) for the three
and six months ended June 30, 2003 and 2002 was as follows (in thousands):



                                              THREE MONTHS ENDED         SIX MONTHS ENDED
                                                   JUNE 30,                  JUNE 30,
                                                   --------                  --------
                                              2003         2002          2003         2002
                                              ----         ----          ----         ----
                                                                       
Net income (loss)                            $  (929)     $(1,227)     $    71     $(2,496)
Foreign currency translation adjustments           9           80            8          54
                                             -------      -------      -------     -------
Comprehensive income (loss)                  $  (920)     $(1,147)     $    79     $(2,442)
                                             =======      =======      =======     =======


                                       13

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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

OVERVIEW

         PubliCARD 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, 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.

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

         At present, PubliCARD's sole operating activities are conducted through
its Infineer 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
Unaudited Consolidated Financial Statements, the Company has incurred operating
losses, has a working capital deficiency and requires additional capital to meet
its obligations and accomplish the Company's business plan, which raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
Company's failure to obtain funding or inability to continue as a going concern.

                                       14

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002

         SALES. Revenues are generated from product sales, technology and
software license fees, installation and maintenance contracts. Consolidated net
sales increased to $1.2 million in 2003 compared to $1.0 million for 2002. The
increase in sales was due to principally to an improvement in shipments to
distributors in the United States.

         GROSS MARGIN. Cost of sales consists primarily of material, personnel
costs and overhead. Gross margin, as a percentage of net sales, was 49% in both
2003 and 2002.

         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 $523,000 in 2003 compared
to $472,000 in 2002. The increase is mainly due to higher personnel costs.

         PRODUCT DEVELOPMENT EXPENSES. Product development expenses include
costs associated with the development of new products and enhancements to
existing products. Product development expenses consist primarily of personnel
and travel costs and contract engineering services. Product development expenses
amounted to $156,000 in 2003 compared to $128,000 in 2002.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consist primarily of personnel and related costs for general corporate
functions, including finance and accounting, human resources, risk management
and legal. General and administrative expenses were $687,000 in 2003 compared to
$761,000 in 2002. The decrease is mainly due to a slight overall reduction in
salaries and benefit expenses.

         AMORTIZATION OF INTANGIBLES. In accordance with SFAS No. 142, effective
January 1, 2002, goodwill is no longer amortized. Goodwill and other intangibles
will be subject to an annual review for impairment or earlier if circumstances
or events indicate that impairment has occurred. This may result in future
write-downs or the write-off of such assets. Amortization of intangibles relates
to the continuing amortization of definite life intangibles. Amortization
expense decreased from $144,000 in 2002 to $10,000 in 2003 as a result of an
impairment loss of $1.0 million recognized in the fourth quarter of 2002.

         OTHER INCOME AND EXPENSE. 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.

SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002

         SALES. Consolidated net sales increased to $2.6 million in 2003
compared to $2.2 million for 2002. Sales in 2003 benefited from several one-time
custom development projects and an increase in sales outside of the United
Kingdom.

         GROSS MARGIN. Gross margin, as a percentage of net sales, was 53% in
2003 compared to 48% in 2002. The gross margin improvement resulted from higher
margins generated by the revenues from the custom development projects and
license fees in the first quarter of 2003.

         SALES AND MARKETING EXPENSES. Sales and marketing expenses were $1.0
million in 2003 compared to $899,000 in 2002. The increase is mainly due to
higher personnel costs.

         PRODUCT DEVELOPMENT EXPENSES. Product development expenses amounted to
$245,000 in 2003 compared to $247,000 in 2002.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the six months ended June 30, 2003 decreased to $1.4 million from
$1.7 million for 2002. The decrease is mainly due to

                                       15

corporate cost containment initiatives and headcount reductions.

         AMORTIZATION OF GOODWILL AND INTANGIBLES. Amortization expense
decreased from $288,000 in 2002 to $20,000 in 2003 as a result of an impairment
loss of $1.0 million recognized in the fourth quarter of 2002.

         OTHER INCOME AND EXPENSE. 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 February and March 2003, the Company entered into two binding
settlements with various historical insurers that 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 an additional
$682,000 in April 2003. The Company recognized a non-recurring gain from these
settlements of $1.7 million in the first quarter of 2003.

LIQUIDITY

         The Company has financed its operations over the last three years
primarily through the sale of capital stock, the sale of non-core businesses and
insurance recoveries. During the six months ended June 30, 2003, cash, including
short-term investments, increased by $551,000 to $1.8 million as of June 30,
2003.

         Operating activities utilized cash of $1.2 million in 2003 and
principally consisted of the net income of $71,000 plus depreciation and
amortization of $103,000 and a reduction in assets and liabilities of $367,000
offset by a gain on insurance recoveries of $1.7 million.

         Investing activities provided cash of $1.7 million in 2003 and
consisted principally of $1.7 million of proceeds received from insurance
recoveries.

         The Company has experienced negative cash flow from operating
activities in the past and expects to experience negative cash flow in 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 (determined on an ongoing basis).
                  The required contribution to the plan is expected to be
                  approximately $1.5 million in 2003. 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 PBGC seeking a "distress termination" of the Plan. If the
                  PBGC determines that the Company meets one of the tests for
                  such a termination, the Plan will terminate and the PBGC will
                  become responsible for meeting future retirement obligations
                  to participants (within certain limitations). The Company
                  would be liable to the PBGC for the amount of the unfunded
                  guaranteed benefit obligation. The Company believes that on a
                  termination basis, the Plan's liabilities could exceed the
                  value of its assets by in excess of $7.0 million. In addition,
                  the Company did not make the required contributions that were
                  due on January 15, 2003, April 15, 2003 and July 15, 2003
                  which aggregate approximately $900,000. 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

                                       16

                  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.

         -        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
                  $176,000 for the remainder of 2003, $217,000 in 2004, $77,000
                  in 2005, $56,000 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 Unaudited 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 be able to
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 was therefore subject to
delisting. The Board of the Company decided not to appeal the delisting
determination. Effective March 28, 2003, the Company's common stock no longer
traded on the Nasdaq SmallCap Market. On March 28, 2003 the Company's common
stock began trading on the OTC Bulletin Board. As a result of the delisting, the
liquidity of the common stock may be adversely affected. This could impair the
Company's ability to raise capital in the future. If additional capital is
raised through the issuance of equity securities, the Company's stockholders'
percentage ownership of the common stock will be reduced and stockholders may
experience dilution in net book value per share, or the new equity securities
may have rights, preferences or privileges senior to those of its common
stockholders.

         If the Company's liquidity does not improve, it may be unable to
continue as a going concern and could seek bankruptcy protection. Such an event
may result in the Company's common and preferred stock being negatively affected
or becoming worthless. The auditors' report on the Company's Consolidated
Financial Statements for the year ended December 31, 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 Unaudited Consolidated Financial Statements.
Certain accounting policies require the application of significant judgment by
management in selecting the appropriate assumptions for calculating financial

                                       17

estimates. By their nature, these judgments are subject to an inherent degree of
uncertainty. The Company considers certain accounting policies related to
revenue recognition, estimates of reserves for receivables and inventories,
valuation of investments and goodwill and intangibles and pension accounting to
be critical policies due to the estimation processes involved.

         REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE. Revenue from product sales
and technology and software license fees is recorded upon shipment if a signed
contract exists, the fee is fixed and determinable, the collection of the
resulting receivable is probable and the Company has no obligation to install
the product or solution. If the Company is responsible for installation, revenue
from product sales and license fees is 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. 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 3 to the Unaudited
Consolidated Financial Statements, during 2002 the Company made a determination
that its minority-owned investments in TecSec was 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

                                       18

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 attributed the impairment loss to the value of a comparable entity that
was sold in a transaction in late 2002, the significant 2002 operating loss for
the reporting unit and lower forecasted revenue growth due to a continued
overall decline in technology spending and a shortage of capital available to
invest in the reporting unit. 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 attributed 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 July 2002, the FASB issued Statement of Financial Accounting
Standards No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities". SFAS No. 146 supersedes 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 statement is effective
beginning January 1, 2003, and did not have a material impact on the Company's
Consolidated Financial Statements.

         In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation". 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 fiscal years and interim periods
ending after December 15, 2002. SFAS No. 148 did not require the Company to
change to the fair value based method of accounting for stock-based
compensation. The Company has elected to continue to apply APB No. 25 and
related interpretations in accounting for stock options, and the disclosures
required by SFAS Nos. 123 and 148 are included in Note 1 to the Unaudited
Consolidated Financial Statements.

         In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". The interpretation

                                       19

addresses the disclosures to be made by a guarantor in its financial statements
about its obligations under guarantee. In addition, it also clarifies the
requirements related to the recognition of a liability by a guarantor at the
inception of a guarantee for the obligations the guarantor has undertaken in
issuing that guarantee. The initial recognition and measurement provisions of
this interpretation are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002. The disclosure provisions became effective
December 15, 2002 and did not have a material impact on the Company's
Consolidated Financial Statements.

         In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities". The interpretation requires that the assets,
liabilities and results of the activity of variable interest entities be
consolidated into the financial statements of the company that has controlling
financial interest. It also provides the framework for determining whether a
variable interest entity should be consolidated based on voting interest or
significant financial support provided to it. This Interpretation is effective
July 1, 2003, and is not expected to have a material impact on the Company's
Consolidated Financial Statements.

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

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

FACTORS THAT MAY AFFECT FUTURE RESULTS

         WE HAVE A HISTORY OF OPERATING LOSSES AND NEGATIVE CASH FLOW, WE HAVE
ONGOING FUNDING OBLIGATIONS AND WE NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT
BE AVAILABLE TO US, ALL OF WHICH COULD LEAD US TO SEEK BANKRUPTCY PROTECTION. We
have incurred losses and experienced negative cash flow from operating
activities in the past, and we expect to incur losses and experience negative
cash flow from operating activities in the foreseeable future. We incurred
losses from continuing operations in 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, $5.1 million and $1.2 million in 2000, 2001, 2002 and
the six months ended June 30, 2003, respectively, and have a working capital
deficit of $89,000 as of June 30, 2003.

         We sponsor a defined benefit pension plan which was frozen in 1993. As
of December 31, 2002, the present value of the accrued liabilities of our plan
exceeded its' assets by approximately $6.1 million. (determined on an ongoing
basis) The required contribution to the Plan is expected to be approximately
$1.5 million for 2003 and if the Plan is continued, we will be obligated to make
continued contributions in future years which, absent some action by us, we
expect that the annual contribution requirements beyond 2003 will continue to be
significant. Future contribution levels depend in large measure on the mortality
rate of plan participants, the discount rate required, and the expected return
on the plan assets. In April 2002, we failed to make the required quarterly
contribution to the Plan due April 15, 2002, in the amount of $253,000. We made
this contribution on June 11, 2002 and quarterly contributions of $253,000 were
made

                                       20

on a timely basis in July 2002 and October 2002. In view of our financial
condition, in January 2003, we filed a notice with the PBGC seeking a "distress
termination" of the Plan and did not make the contributions due on January 15,
2003, April 15, 2003 and July 15, 2003 which aggregate approximately $900,000.
If the PBGC determines that we meet one of the tests for such termination, the
Plan will terminate and the PBGC will become responsible for meeting future
retirement obligations to participants (within certain limitations). We would be
liable to the PBGC for the amount of the unfunded benefit obligation. We believe
that, on a termination basis, the Plan's liabilities could exceed the value of
its assets by in excess of $7.0 million. We have initiated discussions with the
PBGC concerning the termination of the Plan and our repayment obligation to the
PBGC if the Plan is terminated (including the timing of our repayment
obligation). It is not possible to predict the outcome of such discussions.

         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 we are not successful in defending ourself, we may be
required to pay the plaintiff's damages, which could have a material adverse
effect on our 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
$620,000.

         We will need to raise additional capital that may not be available to
us. If the distress termination of the Plan for which we have applied is
completed, our 2003 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 be able to
eliminate the 2003 funding requirements for the Plan or be able to obtain
additional funding, on acceptable terms or at all. If we cannot raise additional
capital to continue at our present level of operations we may not be able to
meet our obligations, take advantage of future acquisition opportunities or
further develop or enhance our product offering, any of which could have a
material adverse effect on our business and results of operations and could lead
us to seek bankruptcy protection. The auditors' reports on our Consolidated
Financial Statements for the years ended December 31, 2001 and 2002 contained an
emphasis paragraph concerning substantial doubt about our 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 HAS BEEN 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

                                       21

determination by Nasdaq until February 10, 2003.

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

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

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

         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 had the right to
replead and subsequently filed an amended complaint in February 2003. We and
individual defendants filed a second demurrer in March 2003. In June 2003, the
court ruled in favor of the demurrer to dismiss, without leave to amend, six of
the eleven purported causes of action in the amended complaint. 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
damages, or range of damages, if any, that we might incur in connection with
this action. However, if the outcome of this lawsuit is unfavorable to us, it
could have a material adverse effect on our operations, cash flow and financial
position. The Company incurred approximately $200,000 in defense costs in 2002.
No additional costs have been incurred in 2003.

         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.

                                       22

         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;

         -        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 June 30, 2003, 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 six months ended June 30,
2003, no one customer represented more than 10% of our sales. Amounts due from
three customers represented approximately 17%, 13% and 11%, respectively, of the
accounts receivable balance as of June 30, 2003. For the year ended December 31,
2002, one customer represented approximately 10% of our sales. Amounts due from
this 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.

                                       23

         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;

         -        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.

                                       24

         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 $64.0 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 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

                                       25

with any competitive advantages or will not be challenged by third parties.
Furthermore, we cannot assure you that the patents of others will not have a
material adverse effect on our business and operating results.

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

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

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

                                       26

         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% and 79% of total sales for the
year ended December 31, 2002 and six months ended June 30, 2003, respectively.
Because we derive a substantial portion of our business outside the United
States, we are subject to certain risks associated with operating in foreign
markets including the following:

         -        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.

         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.

                                       27

         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 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 has been 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;

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         -        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.

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ITEM 3. 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 June 30, 2003, short-term investments
(principally U.S. Treasury bills and money-market accounts) were $1.8 million
and borrowing under the overdraft facility amounted to $299,000. Due to the
nature of the short-term investments and the amount of the overdraft facility,
any change in rates would not have a material impact on our financial condition
or results of operations.

Investment Risk

         As of June 30, 2003, 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 4. CONTROLS AND PROCEDURES

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

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

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PART II. OTHER INFORMATION

ITEM 1. 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. In
June 2003, the court ruled in favor of the demurrer to dismiss, without leave to
amend, six of the eleven purported causes of action in the amended complaint.
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 damages, or range of damages, if any, that the Company might incur
in connection with this action. However, if the outcome of this lawsuit is
unfavorable to the Company, it could have a material adverse effect on the
Company's operations, cash flow and financial position. The Company incurred
approximately $200,000 in defense costs in 2002. No additional costs have been
incurred in 2003.

         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 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

31.1 Certification of the Chief Executive Officer and Chief Financial Officer
     filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of the Chief Executive Officer and Chief Financial Officer
     filed herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Report on Form 8-K

Form 8-K dated May 15, 2003, reporting of the Registrant's results of operations
for the first quarter of 2003.

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                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                       PUBLICARD, INC.
                                       (Registrant)


Date: August 8, 2003                   /s/ Antonio L. DeLise
                                       Antonio L. DeLise, President,
                                       Chief Executive Officer, Chief Financial
                                       Officer

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