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 MARCH 31, 2003

                                       OR

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

                   For the transition period from ___ to ___.

    COMMISSION FILE NUMBER 0-29794

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

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

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

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

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 May 9, 2003: 24,440,902



PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

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



                                                                                                     MARCH 31,      DECEMBER 31,
                                                                                                       2003            2002
                                                                                                       ----            ----
                                                                                                    (unaudited)
                                                                                                              
                                              ASSETS

Current assets:
     Cash, including short-term investments of $1,653 and $1,138 in 2003 and 2002, respectively     $     1,622     $      1,290
     Trade receivables, less allowance for doubtful accounts of $92 and $103 in 2003 and
          2002, respectively                                                                              1,205              853
     Inventories                                                                                            825              885
     Insurance recovery receivable                                                                          682                -
     Prepaid insurance and other                                                                            375              375
                                                                                                    -----------     ------------
          Total current assets                                                                            4,709            3,403
                                                                                                    -----------     ------------

Equipment and leasehold improvements, net                                                                   339              379
Goodwill and intangibles                                                                                    852              862
Other assets                                                                                              3,295            3,295
                                                                                                    -----------     ------------
                                                                                                    $     9,195     $      7,939
                                                                                                    ===========     ============

                          LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
     Trade accounts payable and overdraft                                                           $     1,218     $      1,269
     Accrued liabilities                                                                                  2,840            2,682
                                                                                                    -----------     ------------
          Total current liabilities                                                                       4,058            3,951

Other non-current liabilities                                                                             5,140            4,990
                                                                                                    -----------     ------------

          Total liabilities                                                                               9,198            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 March 31, 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 March 31, 2003 and December 31, 2002, respectively          2,444            2,419
     Additional paid-in capital                                                                         107,644          107,169
     Accumulated deficit                                                                               (111,024)        (112,024)
     Other comprehensive loss                                                                            (2,392)          (2,391)
                                                                                                    -----------     ------------
          Total shareholders' deficit                                                                        (3)          (1,002)
                                                                                                    -----------     ------------
                                                                                                    $     9,195     $      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 MONTHS ENDED MARCH 31, 2003 AND 2002
                        (IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)



                                                                                                      2003            2002
                                                                                                      ----            ----
                                                                                                            
Net sales                                                                                         $     1,413     $     1,199

Cost of sales                                                                                             619             636
                                                                                                  -----------     -----------

     Gross margin                                                                                         794             563
                                                                                                  -----------     -----------

Operating expenses:
     General and administrative                                                                           704             933
     Sales and marketing                                                                                  482             427
     Product development                                                                                   89             119
     Amortization of intangibles                                                                           10             144
                                                                                                  -----------     -----------
                                                                                                        1,285           1,623
                                                                                                  -----------     -----------
     Loss from operations                                                                                (491)         (1,060)
                                                                                                  -----------     -----------

Other income (expenses):
     Interest income                                                                                        3              14
     Interest expense                                                                                      (3)            (15)
     Cost of pensions - non-operating                                                                    (217)           (206)
     Gain on insurance recoveries                                                                       1,707               -
     Other income (expenses), net                                                                           1              (2)
                                                                                                  -----------     -----------
                                                                                                        1,491            (209)
                                                                                                  -----------     -----------

Net income (loss)                                                                                 $     1,000     $    (1,269)
                                                                                                  ===========     ===========

Earnings (loss) per common share:
     Basic                                                                                        $       .04     $      (.05)
                                                                                                  ===========     ===========
     Diluted                                                                                      $       .04     $      (.05)
                                                                                                  ===========     ===========

Weighted average shares outstanding:
     Basic                                                                                         24,315,902      24,153,402
                                                                                                  ===========     ===========
     Diluted                                                                                       26,103,402      24,153,402
                                                                                                  ===========     ===========


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

                                        2



                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
                    FOR THE THREE MONTHS ENDED MARCH 31, 2003
                        (IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)



                                                      Common Shares                                      Other
                                        Class A       -------------      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 (loss):
 Net income                                   -            -         -           -           1,000              -         1,000
 Foreign currency translation
     adjustment                               -            -         -           -               -             (1)           (1)
                                        -------   ----------   -------   ---------   -------------     ----------     ---------
    Comprehensive income                                                                                                    999
                                                                                                                      ---------

Balance - March 31, 2003                $ 3,325   24,440,902   $ 2,444   $ 107,644   $    (111,024)    $   (2,392)    $      (3)
                                        =======   ==========   =======   =========   =============     ==========     =========


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

                                        3



                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
                                 (IN THOUSANDS)
                                   (UNAUDITED)



                                                                                                   2003            2002
                                                                                                   ----            ----
                                                                                                           
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                                                           $  1,000        $  (1,269)
     Adjustments to reconcile net income (loss) to net cash used
        in operating activities:
          Gain on insurance recoveries                                                             (1,707)               -
          Amortization of intangibles                                                                  10              144
          Depreciation and amortization                                                                44               47
          Changes in assets and liabilities:
             Trade receivables                                                                       (352)              44
             Inventories                                                                               60               94
             Prepaid insurance and other current assets                                                 -              400
             Other assets                                                                               -               (9)
             Trade accounts payable                                                                   (51)            (468)
             Accrued liabilities                                                                      158              328
             Other non-current liabilities                                                            144             (146)
                                                                                                 --------        ---------
                     Net cash used in operating activities                                           (694)            (835)
                                                                                                 --------        ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures                                                                              (4)               -
     Proceeds from insurance recovery                                                               1,025                -
     Proceeds from discontinued operations                                                              5               24
                                                                                                 --------        ---------
                     Net cash provided by investing activities                                      1,026               24
                                                                                                 --------        ---------

CASH FLOWS FROM FINANCING ACTIVITIES                                                                    -                -
                                                                                                 --------        ---------

Effect of exchange rate changes on cash and cash equivalents                                            -               (1)
                                                                                                 --------        ---------

Net increase (decrease) in cash                                                                       332             (812)
Cash - beginning of period                                                                          1,290            4,479
                                                                                                 --------        ---------
Cash - end of period                                                                             $  1,622        $   3,667
                                                                                                 ========        =========

Cash paid for income taxes                                                                       $      -        $       -
                                                                                                 ========        =========
Cash paid for interest                                                                           $      3        $       -
                                                                                                 ========        =========


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

                                        4



                                 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 $4.5 million at December 31, 2001, to $1.3 million at December 31, 2002
and to $1.6 million at March 31, 2003. The Company also had working capital of
$651,000 and an accumulated deficit of $111.0 million at March 31, 2003.

         If the distress termination of the Company's defined benefit pension
plan for which the Company has applied is completed (see Note 5), 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

                                        5



                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

effect on its business and results of operations and could lead the Company to
seek bankruptcy protection. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The 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 March 31, 2003 and the results of their operations
and cash flows for the three months ended March 31, 2003. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles generally accepted 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 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
months ended March 31, 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

                                        6



                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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



                                                                 2003             2002
                                                                 ----             ----
                                                                            
Raw materials and work-in-process                              $   329            $ 175
Finished goods                                                     496              710
                                                               -------            -----
                                                               $   825            $ 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 March 31, 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 months ended March 31, 2003 and 2002 would have been as follows (in
thousands except per share data):



                                                     2003           2002
                                                     ----           ----
                                                           
Net income (loss), as reported                    $    1,000     $    (1,269)
Deduct: Total stock-based compensation expense
   determined under fair value based method             (121)            (43)
                                                  ----------     -----------
Pro forma net income (loss)                       $      879     $    (1,312)
                                                  ==========     ===========

Basic earnings (loss) per share:
   As reported                                    $      .04     $      (.05)
                                                  ==========     ===========
   Pro forma                                      $      .04     $      (.05)
                                                  ==========     ===========

Diluted earnings (loss) per share:
   As reported                                    $      .04     $      (.05)
                                                  ==========     ===========
   Pro forma                                      $      .03     $      (.05)
                                                  ==========     ===========


         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 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.

                                        7



                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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
financial statements 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.

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

                                        8



                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

on the implied fair value using a multiple of revenues for several entities with
comparable operations and economic characteristics. Significant assumptions used
in the discounted cash valuation included estimates of future cash flows, future
short-term and long-term growth rates and estimated cost of capital for purposes
of arriving at a discount factor.

         The Company performed its annual goodwill impairment test in the fourth
quarter of 2002 and determined that goodwill had been impaired. The Company
determined the fair value primarily using two approaches: a market approach
technique and a discounted cash flow valuation technique. The market approach
relied primarily on the implied fair value using a multiple of revenues for an
entity with comparable operations and economic characteristics. Significant
assumptions used in the discounted cash valuation included estimates of future
cash flows, future short-term and long-term growth rates and estimated cost of
capital for purposes of arriving at a discount factor. Based on comparing the
values derived from the two techniques to the carrying value of the reporting
unit, the Company recorded a goodwill impairment loss of $364,000 in the fourth
quarter of 2002. The Company attributes the impairment loss to the value of a
comparable entity that was sold in a transaction in late 2002, the significant
2002 operating loss for the reporting unit and lower forecasted revenue growth
due to a continued overall decline in technology spending and a shortage of
capital available to invest in the reporting unit. On an ongoing basis, the
Company expects to perform its annual impairment test during the fourth quarter
absent any interim impairment indicators. The carrying value of goodwill as of
March 31, 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 attributes the impairment loss to the significant 2002
operating loss for the reporting unit and lower forecasted revenue growth due to
a continued overall decline in technology spending and a shortage of capital
available to invest in the reporting unit.

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



                                                               2003              2002
                                                               ----              ----
                                                                         
Gross carrying amount                                         $ 1,881          $ 1,881
Accumulated amortization                                       (1,811)          (1,801)
                                                              -------          -------
                                                              $    70          $    80
                                                              =======          =======


         Amortization of intangibles for the three months ended March 31, 2003
and 2002 was $10,000 and $144,000, 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

                                        9



                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

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

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 three months ended
March 31, 2003 and 2002 are as follows (in thousands):



                                                          2003                           2002
                                                          ----                           ----
                                                                                 
United States                                            $   228                       $    283
Europe                                                     1,092                            896
Rest of world                                                 93                             20
                                                         -------                       --------
                                                         $ 1,413                       $  1,199
                                                         =======                       ========


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



                                                           2003                          2002
                                                           ----                          ----
                                                                                 
United States                                            $ 5,926                       $  4,842
United Kingdom                                             2,417                          2,235
                                                         -------                       --------
                                                         $ 8,343                       $  7,077
                                                         =======                       ========


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. 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 $1.5 million.

         In January 2003, the Company filed a notice with the Pension Benefit
Guaranty Corporation ("PBGC")

                                       10



                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 6 - 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. The
court has not yet heard argument or ruled on the demurrer to 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 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.

                                       11



                                 PUBLICARD, INC.
                            AND SUBSIDIARY COMPANIES

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

         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.

                                       12



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

                   THREE MONTHS ENDED MARCH 31, 2003 AND 2002

         "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.

                                       13



RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002

         SALES. Revenues are generated from product sales, technology and
software license fees, installation and maintenance contracts. Consolidated net
sales increased to $1.4 million in 2003 compared to $1.2 million for 2002. Sales
in the first quarter of 2003 benefited from several one-time custom development
projects and an increase in license fees.

         GROSS MARGIN. Cost of sales consists primarily of material, personnel
costs and overhead. Gross margin as a percentage of net sales increased to 56%
in 2003 from 47% 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 consist
primarily of personnel and travel costs, public relations, trade shows and
marketing materials. Sales and marketing expenses were $482,000 in 2003 compared
to $427,000 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 $89,000 in 2003 compared to $119,000 in 2002. The decrease in
expenses is attributed to greater reimbursement of certain development costs
under an ongoing grant with a government agency in Northern Ireland.

         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 $704,000 in 2003 compared to
$933,000 in 2002. The decrease is mainly due to corporate headcount reductions.

         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.

         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 three months ended March 31, 2003, cash,
including short-term investments, increased by $332,000 to $1.6 million as of
March 31, 2003.

         Operating activities utilized cash of $694,000 in 2003 and principally
consisted of the net income of

                                       14



$1.0 million plus depreciation and amortization of $54,000 offset by a gain on
insurance recoveries of $1.7 million and an increase in assets and liabilities
of $41,000.

         Investing activities provided cash of $1.0 million in 2003 and
consisted principally of $1.0 million of proceeds received from insurance
recoveries. An additional $682,000 in cash relating to the insurance recoveries
was received in April 2003.

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

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

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

         -    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 $260,000
              for the remainder of 2003, $207,000 in 2004, $68,000 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

                                       15



 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
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.

                                       16



         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 and Mako were impaired. While
management believes that the adjusted carrying value of its investment in TecSec
is fairly stated, future circumstances could affect the valuation.

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

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

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

                                       17



         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 financial statements 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 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.




                                       18






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 $694,000 in 2000, 2001, 2002 and the
three months ended March 31, 2003, respectively, and have working capital of
$651,000 as of March 31, 2003.

         We sponsor a defined benefit pension plan which was frozen in 1993. As
of December 31, 2002, the present value of the accrued benefit liabilities of
our pension plan exceeded the Plan's assets by approximately $6.1 million. The
annual required contribution to the Plan is expected to be $1.5 million for 2003
and if the Plan is continued, we will be obligated to make continued
contributions in accordance with the Employee Retirement Income Security Act of
1974. Since the Plan is significantly underfunded, absent some action by us, we
expect that the annual contribution requirements beyond 2003 will continue to be
significant. Future contribution levels depend in large measure on the mortality
rate of plan participants, discount rate and the expected return on the plan
assets. In April 2002, we failed to make the required quarterly contribution to
the Plan due April 15, 2002, in the amount of $253,000. We paid this required
contribution on June 11, 2002. Quarterly contributions of $253,000 each were
made on a timely basis in July 2002 and October 2002. In view of our financial
condition, in January 2003, we filed a notice with the PBGC seeking a "distress
termination" of the Plan and did not make the quarterly contributions of
approximately $253,000 due on January 15, 2003 and April 15, 2003. If the PBGC
determines that we meet one of the tests for such termination, the Plan will
terminate and the PBGC will become responsible for meeting future retirement
obligations to participants (within certain limitations). We would be liable to
the PBGC for the amount of the unfunded benefit obligation. We believe that, on
a 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
$686,000.

         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

                                       19



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 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

                                       20



replead and subsequently filed an amended complaint in February 2003. We and
individual defendants filed a second demurrer in March 2003. The court has not
yet heard argument or ruled on the demurrer to 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.

         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 March 31, 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

                                       21



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 three months ended March 31,
2003, one customer represented approximately 13% of our sales. Amounts due from
this customer represented approximately 17% of the accounts receivable balance
as of March 31, 2003. For the year ended December 31, 2002, one customer
represented approximately 10% of our sales. Amounts due from a second customer
represented approximately 12% of the accounts receivable balance as of December
31, 2002.

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

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

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

            -        product selections;

            -        timely and efficient completion of product design and
                     development;

            -        timely and efficient implementation of manufacturing
                     processes;

            -        effective sales, service and marketing;

            -        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;

                                       22



            -        price;

            -        product reputation, reliability, quality, performance and
                     customer support;

            -        product features such as adaptability, functionality and
                     ease of use; and

            -        competitor reputation, positioning and resources.

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

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

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

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

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

                                       23



in an "ownership change." If we were to experience such an "ownership change,"
we estimate that virtually all of our available federal net operating loss
carryforwards would be effectively unavailable to reduce our taxable income.

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

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

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

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

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

                                       24



from such claims through warranty disclaimers and liability limitation clauses
in our sales agreements and by maintaining product liability insurance, we
cannot assure you that these measures will be effective in limiting our
liability for any damages. Any liability for damages resulting from security
breaches could be substantial and could have a material adverse effect on our
business and operating results. In addition, a well-publicized actual or
perceived security breach involving our conditional access or security products
could adversely affect the market's perception of our products in general,
regardless of whether any breach is attributable to our products. This could
result in a decline in demand for our products, which could have a material
adverse effect on our business and operating results.

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

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

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

         OUR INTERNATIONAL OPERATIONS SUBJECT US TO RISK ASSOCIATED WITH
OPERATING IN FOREIGN MARKETS, INCLUDING FLUCTUATIONS IN CURRENCY EXCHANGE RATES,
WHICH COULD ADVERSELY AFFECT OUR OPERATIONS AND FINANCIAL CONDITION. Sales
outside the U.S. represented approximately 78% and 84% of total sales for the
year ended December 31, 2002 and three months ended March 31, 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

                                       25



liability. Given the current climate of rapidly increasing insurance premiums
and erosions of coverage, we may need or be required to reduce our coverage and
increase our deductibles in order to afford the premiums. To the extent we
reduce our coverage and increase our deductibles, our exposure and the exposure
of our directors and officers for liabilities that either become excluded from
coverage or underinsured will increase. As a result, we may lose or may
experience difficulty in attracting qualified directors and officers.

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

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

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

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

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

         The change of control agreements provide that, if the services of any
person party to a change of control agreement are terminated within three years
following a change of control, that individual will be entitled to receive, in a
lump sum within 10 days of the termination date, a payment equal to 2.99 times
that individual's average annual compensation for the shorter of the five years
preceding the change of control and the period the individual received
compensation from us for personal services. Assuming a change of control were to
occur at the present time, payments in the following amounts would be required:
Mr. Harry I. Freund of $842,000 and Mr. Jay S. Goldsmith of $842,000. If any
such payment, either alone or together with others made in connection with the
individual's termination, is considered to be an excess parachute payment under
the Internal Revenue Code, the individual will be entitled to receive an
additional payment in an amount which, when added to the initial payment, would
result in a net benefit to the individual, after giving effect to excise taxes
imposed by Section 4999 of the Internal Revenue Code and income taxes on 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.

                                       26



         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;

            -        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 March 31, 2003, short-term investments
(principally U.S. Treasury bills) were $1.7 million and borrowing under the
overdraft facility amounted to $279,000. 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 March 31, 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 evaluated the effectiveness of the Company's
disclosure controls and procedures within 90 days of the filing of this
quarterly report. Based upon this evaluation, the chief executive officer and
chief financial officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting him to material information relating
to the Company (including its consolidated subsidiaries) required to be included
in the reports that the Company files with the Securities and Exchange
Commission.

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

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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. The
court has not yet heard argument or ruled on the demurrer to 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

99.1 Certification of periodic report dated May 14, 2003

(b) Report on Form 8-K

Form 8-K dated March 31, 2003, regarding the delisting of the Registrant's
common stock from trading on the Nasdaq SmallCap Market and the reporting of the
Registrant's results of operations for the fourth quarter of 2002.

                                       29



                                   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: May 15, 2003                    /s/ Antonio L. DeLise
                                      Antonio L. DeLise, President,
                                      Chief Executive Officer, Chief Financial
                                      Officer

                                       30



                                  CERTIFICATION

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

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

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

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

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

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

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

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

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

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

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

6.       I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: May 15, 2003                    /s/ Antonio L. DeLise
                                      -------------------------------------
                                      Antonio L. DeLise
                                      President, Chief Executive Officer,
                                      Chief Financial Officer and Secretary

                                       31