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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

OR

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

For the transition period from ___ to ___.

COMMISSION FILE NUMBER 0-29794

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

PENNSYLVANIA 23-0991870
(State or other jurisdiction of (I.R.S. Employer
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 | |.

Number of shares of Common Stock outstanding as of August 13, 2002: 24,190,902

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

PUBLICARD, INC.
AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
JUNE 30, 2002 AND DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT SHARE DATA)



JUNE 30, DECEMBER 31,
2002 2001
---- ----
(unaudited)
ASSETS

Current assets:
Cash, including short-term investments of $2,225 in 2002 and $4,199 in 2001 $ 2,520 $ 4,479
Trade receivables, less allowance for doubtful accounts of $185 in 2002 and $216 in 2001 1,334 1,410
Inventories 596 557
Other 333 770
--------- ---------
Total current assets 4,783 7,216

Equipment and leasehold improvements, net 477 596
Goodwill 2,803 2,803
Other assets 6,535 6,782
--------- ---------
$ 14,598 $ 17,397
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Trade accounts payable $ 569 $ 1,206
Accrued liabilities 3,436 3,379
--------- ---------
Total current liabilities 4,005 4,585

Other non-current liabilities 5,263 5,328
--------- ---------

Total liabilities 9,268 9,913
--------- ---------

Shareholders' equity:
Class A Preferred Stock, Second Series, no par value: 1,000 shares authorized;
765 and 780 shares issued and outstanding as of June 30, 2002 and
December 31, 2001, respectively 3,825 3,900
Common shares, $0.10 par value: 40,000,000 shares authorized; 24,190,902
and 24,153,402 shares issued and outstanding as of June 30, 2002 and
December 31, 2001, respectively 2,419 2,415
Additional paid-in capital 107,169 107,098
Accumulated deficit (107,039) (104,831)
Other comprehensive loss (1,044) (1,098)
--------- ---------
Total shareholders' equity 5,330 7,484
--------- ---------
$ 14,598 $ 17,397
========= =========


The accompanying notes to Condensed Consolidated Financial Statements are an
integral part of these statements.


1

PUBLICARD, INC.
AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)



THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
2002 2001 2002 2001
---- ---- ---- ----

Sales $ 1,016 $ 1,339 $ 2,215 $ 2,859

Cost of sales 520 661 1,156 1,493
Inventory adjustment -- 1,313 -- 1,313
------------ ------------ ------------ ------------
Gross margin 496 (635) 1,059 53
------------ ------------ ------------ ------------

Operating expenses:
General and administrative 761 1,225 1,694 2,526
Sales and marketing 472 1,207 899 2,500
Product development 128 918 247 1,840
Stock compensation -- 42 -- 58
Goodwill amortization -- 660 -- 1,320
Repositioning charge -- 4,772 -- 4,772
------------ ------------ ------------ ------------
1,361 8,824 2,840 13,016
------------ ------------ ------------ ------------
Loss from operations (865) (9,459) (1,781) (12,963)
------------ ------------ ------------ ------------

Other income (expenses):
Interest income 15 110 29 317
Interest expense (6) (21) (21) (40)
Cost of pensions - non-operating (218) (165) (424) (381)
Other (9) 25 (11) 48
------------ ------------ ------------ ------------
(218) (51) (427) (56)
------------ ------------ ------------ ------------

Net loss from continuing operations (1,083) (9,510) (2,208) (13,019)

Discontinued operations -- 2,350 -- 2,350
------------ ------------ ------------ ------------

Net loss $ (1,083) $ (7,160) $ (2,208) $ (10,669)
============ ============ ============ ============

Basic income (loss) per common share:
Continuing operations $ (.04) $ (.40) $ (.09) $ (.54)
Discontinued operations -- .10 -- .10
------------ ------------ ------------ ------------
Net loss $ (.04) $ (.30) $ (.09) $ (.44)
============ ============ ============ ============

Weighted average common shares outstanding 24,181,527 24,210,152 24,169,473 24,221,831
============ ============ ============ ============


The accompanying notes to the Condensed Consolidated Financial Statements are an
integral part of these statements.


2

PUBLICARD, INC.
AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)



Other
Class A Common Shares Additional Comprehen- Share-
Preferred ---------------------- Paid-in Accumulated sive holders'
Stock Shares Amount Capital Deficit Loss Equity
----- ------ ------ ------- ------- ---- ------

Balance - January 1, 2002 $ 3,900 24,153,402 $2,415 $107,098 $(104,831) $(1,098) $ 7,484

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

Comprehensive Loss:
Net loss -- -- -- -- (2,208) -- (2,208)

Foreign currency translation
adjustment -- -- -- -- -- 54 54
------- ---------- ------ -------- --------- ------- -------
Total comprehensive loss (2,154)
-------
Balance - June 30, 2002 $ 3,825 24,190,902 $2,419 $107,169 $(107,039) $(1,044) $ 5,330
======= ========== ====== ======== ========= ======= =======


The accompanying notes to the Condensed Consolidated Financial Statements are an
integral part of these statements.


3

PUBLICARD, INC.
AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS)
(UNAUDITED)



2002 2001
---- ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,208) $(10,669)
Adjustments to reconcile net loss to net cash used in operations:
Non-cash gain from discontinued operations -- (2,350)
Goodwill amortization -- 1,320
Stock compensation expense -- 58
Depreciation 111 164
Repositioning charge -- 6,085
Changes in operating assets and liabilities 63 (3,289)
------- --------
Net cash used in operating activities (2,034) (8,681)
------- --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (16) (24)
Other -- (25)
Proceeds from discontinued operations and sale of fixed assets 88 194
------- --------
Net cash provided by investing activities 72 145
------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Costs incurred from private placement of Class A Preferred Stock -- (37)
------- --------
Net cash used in financing activities -- (37)
------- --------

Effect of exchange rate changes on cash and cash equivalents 3 (4)
------- --------

Net decrease in cash (1,959) (8,577)
Cash - beginning of period 4,479 17,049
------- --------
Cash - end of period $ 2,520 $ 8,472
======= ========


The accompanying notes to the Condensed Consolidated Financial Statements are an
integral part of these statements.


4

PUBLICARD, INC.
AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF THE BUSINESS

PubliCARD, Inc. ("PubliCARD" or the "Company") was incorporated in the
Commonwealth of Pennsylvania in 1913. PubliCARD entered the smart card industry
in early 1998, and began to develop solutions for the conditional access,
security, payment system and data storage needs of industries utilizing smart
card technology. In 1998 and 1999, the Company made a series of acquisitions to
enhance its position in the smart card industry. In March 2000, PubliCARD's
Board of Directors (the "Board"), together with its management team, determined
to integrate its operations and focus on deploying smart card solutions, which
facilitate secure access and transactions. To effect this new business strategy,
in March 2000, the Board adopted a plan of disposition pursuant to which the
Company divested its non-core operations. See Note 5 for a discussion on the
disposition plan.

In July 2001, after evaluating the timing of potential future revenues,
PubliCARD's Board decided to shift the Company's strategic focus. While the
Board remained confident in the long-term prospects of the smart card business,
the timing of public sector and corporate initiatives in wide-scale, broadband
environments utilizing the Company's smart card reader and chip products had
become more uncertain. Given the lengthened time horizon, the Board did not
believe it would be prudent to continue to invest the Company's resources in the
ongoing development and marketing of these technologies. Accordingly, the Board
determined that shareholders' interests would be best served by pursuing
strategic alliances with one or more companies that have the resources to
capitalize more fully on the Company's smart card reader and chip-related
technologies. In connection with this shift in the Company's strategic focus,
workforce reductions and other measures were implemented to achieve cost
savings. See Note 3 for a discussion on the repositioning charge.

At present, PubliCARD's sole operating activities are conducted through
its Infineer Ltd. subsidiary ("Infineer"), which designs smart card platform
solutions for educational and corporate sites. The Company's future plans
revolve around an acquisition strategy focused on businesses in areas outside
the high technology sector while continuing to support the expansion of the
Infineer business.

LIQUIDITY AND GOING CONCERN CONSIDERATIONS

The Condensed 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 six months ended
June 30, 2002 and years 2001, 2000 and 1999. 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 $2.5 million at June 30, 2002, and
has an accumulated deficit of $107 million at June 30, 2002.

Although the Company believes that existing cash and short term
investments may be sufficient to meet the Company's obligations and capital
requirements at its currently anticipated levels of operations through December
31, 2002, additional working capital will be necessary in order to fund the
Company's current business plan and to ensure it is able to fund its pension,
environmental 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 obtain additional funding on acceptable terms or at all.
If the Company cannot raise additional capital to continue its present level of
operations it may not be able to meet its obligations, take advantage of future
acquisition opportunities or further develop or enhance its product offering,
any of which could have a material adverse effect on its business and results of
operations and could lead the Company being required to seek bankruptcy
protection. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The Condensed Consolidated Financial Statements
do not include any adjustments that might result from the outcome of this
uncertainty. The auditors' report on the Company's Consolidated Financial
Statements for the year ended December 31, 2001 contained a


5

PUBLICARD, INC.
AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

qualified opinion raising substantial doubt about the Company's ability to
continue as a going concern.

PRINCIPLES OF CONSOLIDATION

The Condensed Consolidated Financial Statements include the accounts of
PubliCARD and its majority-owned subsidiaries. All significant intercompany
transactions are eliminated in consolidation.

BASIS OF PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements
reflect all normal and recurring adjustments that are, in the opinion of
management, necessary to present fairly the financial position of the Company
and its subsidiary companies as of June 30, 2002 and the results of their
operations and cash flows for the three and six months ended June 30, 2002 and
2001. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with 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 Form 10-K for the year ended December 31,
2001, 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. Diluted net
income (loss) per share was not computed for 2002 and 2001 as the effect of
stock options, warrants and convertible preferred stock were antidilutive.

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE.

Revenue from product sales 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 software 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, returns and bad debts 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 guarantee that the
Company will continue to experience the same credit loss rates as in the past.

RECENT ACCOUNTING PRONOUNCEMENTS

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

In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and


6

PUBLICARD, INC.
AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Other Intangible Assets" ("SFAS No. 142"). SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets.
Under this new statement, goodwill and intangible assets that have indefinite
useful lives will not be amortized, but rather will be tested at least annually
for impairment based on the specific guidance of this statement. In addition,
this statement requires disclosure of information about goodwill and other
intangible assets in the years subsequent to their acquisition that was not
previously required. The provisions of this statement are required to be applied
starting with fiscal years beginning after December 15, 2001. However, goodwill
and intangible assets acquired after June 30, 2001 will be subject immediately
to the non-amortization and amortization provisions of this statement. The
Company adopted this statement on January 1, 2002. In accordance with this
statement, no amortization expense for goodwill will be recorded in current and
future periods. Goodwill and other intangibles will be subject to an annual
review for impairment or earlier if circumstances or events indicate that
impairment has occurred. This may result in future write-downs or the write-off
of such assets. The Company completed the initial impairment test in the first
quarter of 2002 which did not result in an impairment of goodwill. The
provisions of SFAS No. 142 are effective for periods after adoption and
retroactive application is not permitted. Therefore, the historical results of
periods prior to 2002 in the Company's Consolidated Statements of Operations do
not reflect the effect of SFAS No. 142 and, accordingly, the first six months of
2001 includes amortization expense of $1.3 million. Excluding goodwill
amortization, the pro forma net loss for the three and six months ended June 30,
2001, was $6,500,000 and $9,349,000 or $.27 and $.39 per share, respectively.

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

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146 will
supersede Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". SFAS No. 146 requires
that costs associated with an exit or disposal plan be recognized when incurred
rather than at the date of a commitment to an exit or disposal plan. SFAS No.
146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002.

INVENTORIES

Inventories are stated at lower of cost (first-in, first-out method) or
market. The Company evaluates the need to record adjustments for impairment of
inventory on a quarterly basis. Inventory in excess of the Company's estimated
usage requirements is written down to its estimated net realizable value.
Inherent in the estimates of net realizable value are management's estimates
related to the Company's production schedules, customer demand, possible
alternative uses and the ultimate realization of potentially excess inventory.
Inventories as of June 30, 2002 and December 31, 2001 consisted of the following
(in thousands):


7

PUBLICARD, INC.
AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



2002 2001
---- ----

Raw materials and supplies $ 401 $ 389
Work-in-process 32 37
Finished goods 163 131
----- -----
$ 596 $ 557
===== =====


NOTE 2 - INVESTMENTS

In December 2000, the Company acquired an ownership interest in TecSec,
Incorporated, a Virginia corporation ("TecSec"), for $5.1 million. TecSec
develops and markets encryption products and solutions, which are designed to
enable the next generation information security for the enterprise,
multi-enterprise e-business and other markets. The TecSec investment, amounting
to a 5% ownership interest on a fully diluted basis, has been accounted for at
cost and could be subject to write-down in future periods if it is determined
that the investment is impaired and not recoverable. The Company has certain
anti-dilutive rights whereby its ownership interest may be increased following
contributions of additional third-party capital. 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 permanently impaired and subject to a 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 in
April 2002 to liquidate Mako and terminate the license agreement. Pending the
wind-down of this venture, the Company has written-off the entire investment in
Mako against reserves accumulated during the first quarter of 2002.

NOTE 3 - REPOSITIONING CHARGE

As discussed in Note 1, in July 2001, after evaluating the timing of
potential future revenues, PubliCARD's Board decided to shift the Company's
strategic focus. The Company recorded a charge aggregating $7.3 million in the
second and third quarters of 2001 associated with the departure from the smart
card reader and chip business. The second quarter 2001 charge consisted
principally of write-offs of goodwill of $4.1 million and fixed assets of
$630,000 and an inventory realizability adjustment of $1.3 million (included in
cost of sales) as a result of the business closure. An additional charge of $1.2
million was recorded in the third quarter of 2001 principally associated with
severance and other costs related to the termination of 36 employees. The
repositioning activities were substantially completed by December 31, 2001.

NOTE 4 - SEGMENT DATA

As a result of the disposition of certain operations (See Note 5) and
because the Company predominantly operates in one industry, that being the
deployment of smart card solutions which facilitate secure access and
transactions, the Company reports as a single segment. Sales by geographical
areas for the six months ended June 30, 2002 and 2001 are as follows (in
thousands):


8

PUBLICARD, INC.
AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


2002 2001
---- ----

United States $ 420 $1,102
Europe 1,748 1,617
Rest of world 47 140
------ ------
$2,215 $2,859
====== ======

The Company has operations in the United States and United Kingdom.
Identifiable assets by country as of June 30, 2002 and December 31, 2001 are as
follows (in thousands):


2002 2001
---- ----

United States $ 9,345 $12,037
United Kingdom 2,450 2,557
------- -------
$11,795 $14,594
======= =======


NOTE 5 - DISCONTINUED OPERATIONS

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

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

In the second quarter of 2001, the Company revised its estimates of
proceeds and expenses associated with the wind-down of Amazing and Greystone,
which has been substantially completed, and recognized a gain of $2.4 million,
which had been previously deferred pending resolution of certain contingencies.
The amounts the Company will ultimately realize from its discontinued operations
could differ from the amounts estimated and could therefore result in additional
charges or gains in future periods.

Summarized balance sheet information with respect to the discontinued
operations as of June 30, 2002 is as follows (in thousands):



Cash held in escrow $ 2,096
Disposition reserves (1,220)
-------
Net assets of discontinued operations (non-current) $ 876
=======


NOTE 6 - COMPREHENSIVE LOSS

Comprehensive loss for the Company includes foreign currency translation
adjustments as well as net loss reported in the Company's Condensed
Consolidated Statements of Operations. Comprehensive loss for the three and six
months ended June 30, 2002 and 2001 was as follows (in thousands):

Three months ended June 30, Six months ended June 30,
2002 2001 2002 2001
---- ---- ---- ----

Net loss $ (1,083) $ (7,160) $ (2,208) $ (10,669)
Foreign currency
translation
adjustments 80 (35) 54 (255)
------- ------- ------- --------
Comprehensive loss $ (1,003) $ (7,195) $ (2,154) $ (10,924)
========= ========= ========= ==========

NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION

9

PUBLICARD, INC.
AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Changes in operating assets and liabilities reflected in the Condensed
Consolidated Statements of Cash Flows consisted of the following for the six
months ended June 30, 2002 and 2001 (in thousands):



2002 2001
---- ----

Trade receivables $ 127 $ 132
Inventories (15) (1,022)
Other current assets 442 (344)
Other assets 192 (107)
Trade accounts payable (661) (181)
Accrued liabilities 38 (700)
Other non-current liabilities (60) (1,067)
------- -------
$ 63 $(3,289)
======= =======


Cash paid for interest for the six months ended June 30, 2002 and 2001 was
$59,000 and $69,000, respectively. No income taxes were paid in 2002 and 2001.

NOTE 8 - UNDERFUNDED PENSION OBLIGATION

The Company sponsors a defined benefit pension plan that was frozen in
1993. The assets of the defined benefit pension plan are managed by an outside
trustee and invested primarily in equity and fixed income securities. PubliCARD
common stock represented 1.2% of plan assets as of December 31, 2001. As of
December 31, 2001, the present value of the accrued benefit liabilities exceeded
the plan's assets by approximately $5.5 million. Contributions to the plan were
$1.1 million and $1.2 million in fiscal 2001 and 2000, respectively. For 2002,
the minimum required contributions are expected to be $1.1 million. The Company
failed to make the timely payment of the required quarterly contribution of
$253,000 to the plan due April 15, 2002. The Company paid this required
contribution on June 11, 2002.

NOTE 9 - 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. The
lawsuit is in the early stages. There has been no discovery and no trial date
has been set. Consequently, at this time it is not reasonably possible to
estimate the damage, or range of damages, if any, that the Company might incur
in connection with this action. However, if the outcome of this lawsuit is
unfavorable to the Company, it would have a material adverse effect on the
Company's operations, cash flow and financial position.

Various other legal proceedings are pending against the Company. The
Company considers all such 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 financial position or results of operations of the
Company.


10

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

Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q contains forward-looking
statements, including (without limitation) statements concerning possible or
assumed future results of operations of PubliCARD preceded by, followed by or
that include the words "believes," "expects," "anticipates," "estimates,"
"intends," "plans" or similar expressions. For those statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
U.S. Private Securities Litigation Reform Act of 1995. Forward-looking
statements are not guarantees of future performance. They involve risks,
uncertainties and assumptions. You should understand that 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. See Note 5 to
the Condensed Consolidated Financial Statements for a discussion on the
disposition plan.

In July 2001, after evaluating the timing of potential future revenues,
PubliCARD's Board decided to shift the Company's strategic focus. While the
Board remained confident in the long-term prospects of the smart card business,
the timing of public sector and corporate initiatives in wide-scale, broadband
environments utilizing the Company's smart card reader and chip products had
become more uncertain. Given the lengthened time horizon, the Board did not
believe it would be prudent to continue to invest the Company's current
resources in the ongoing development and marketing of these technologies.
Accordingly, the Board determined that shareholders' interests will be best
served by pursuing strategic alliances with one or more companies that have the
resources to capitalize more fully on the Company's smart card reader and
chip-related technologies. In connection with this shift in the Company's
strategic focus, workforce reductions and other measures were implemented to
achieve cost savings. See Note 3 to the Condensed Consolidated Financial
Statements for a discussion on the restructuring charge.

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 an
acquisition strategy focused on businesses in areas outside the high technology
sector while continuing to support the expansion of the Infineer business.

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

RESULTS OF OPERATIONS


11

THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001

SALES. Revenues are generated from product sales, licenses of software
products, maintenance contracts and software development services. Consolidated
sales decreased to $1.0 million in 2002 compared to $1.3 million for 2001. The
2001 figure included $286,000 of revenues associated with the smart card reader
and chip business, which the Company exited in July 2001. Sales related to smart
card platform solutions for educational and corporate sites were comparable with
the prior year period.

GROSS MARGIN. Cost of sales consists primarily of material, personnel
costs and overhead. Cost of sales in 2001 included an adjustment of $1.3 million
for the write-off of inventories associated with the July 2001
repositioning action. Excluding this repositioning charge, gross margin as a
percentage of sales decreased slightly to 49% in 2002 from 51% in 2001.

SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of personnel and travel costs, public relations, trade shows and
marketing materials. Sales and marketing expenses were $472,000 in 2002 compared
to $1.2 million in 2001. The decrease is mainly due to headcount reductions
associated with the Company's July 2001 repositioning action.

PRODUCT DEVELOPMENT EXPENSES. Product development expenses include
expenses associated with the development of new products and enhancements to
existing products. Product development expenses consist primarily of personnel
and travel costs, independent consultants and contract engineering services.
Product development expenses amounted to $128,000 in 2002 compared to $918,000
in 2001. Expenses decreased in 2002 primarily due to headcount reductions
associated with the Company's July 2001 repositioning action.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of personnel and related costs for general corporate
functions, including finance and accounting, human resources, risk management
and legal. General and administrative expenses for the quarter ended June 30,
2002 decreased by approximately 38% to $761,000 from $1.2 million for 2001. The
decrease is mainly due to corporate cost containment initiatives.

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

GOODWILL AMORTIZATION. In accordance SFAS No. 142, no amortization expense
for goodwill will be recorded in current and future periods. Goodwill and other
intangibles will be subject to an annual review for impairment or earlier if
circumstances or events indicate that impairment has occurred. This may result
in future write-downs or the write-off of such assets.

OTHER INCOME AND EXPENSE. Interest income decreased to $15,000 for 2002
from $110,000 for 2001 principally due to lower cash balances. Cost of pensions
principally relates to pension expense associated with the Company's frozen
defined benefit pension plan.

SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001

SALES. Consolidated sales decreased to $2.2 million in 2002 compared to
$2.9 million for 2001. The 2001 figure included $766,000 of revenues associated
with the smart card reader and chip business, which the Company exited in July
2001. Sales related to smart card platform solutions for educational and
corporate sites increased 6% from the prior year period.

GROSS MARGIN. Cost of sales in 2001 included an adjustment of $1.3 million
for the write-off of inventories associated with the July 2001
repositioning action. Excluding this repositioning charge, gross margin as a
percentage of sales was 48% in both 2002 and 2001.

SALES AND MARKETING EXPENSES. Sales and marketing expenses were $899,000
in 2002 compared to $2.5 million in 2001. The decrease is mainly due to
headcount reductions associated with the Company's


12

July 2001 repositioning action.

PRODUCT DEVELOPMENT EXPENSES. Product development expenses amounted to
$247,000 in 2002 compared to $1.8 million in 2001. Expenses decreased in 2002
primarily due to headcount reductions associated with the Company's July 2001
repositioning action.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the six months ended June 30, 2002 decreased to $1.7 million from $2.5
million for 2001. The decrease is mainly due to corporate cost containment
initiatives.

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

GOODWILL AMORTIZATION. In accordance SFAS No. 142, no amortization expense
for goodwill will be recorded in current and future periods. Goodwill and other
intangibles will be subject to an annual review for impairment or earlier if
circumstances or events indicate that impairment has occurred. This may result
in future write-downs or the write-off of such assets.

OTHER INCOME AND EXPENSE. Interest income decreased to $29,000 for 2002
from $317,000 for 2001 principally due to lower cash balances. Cost of pensions
principally relates to pension expense associated with the Company's frozen
defined benefit pension plan.

LIQUIDITY

The Company has financed its operations over the last three years
primarily through the sale of capital stock and the sale of non-core businesses.
During the six months ended June 30, 2002, cash, including short-term
investments, decreased by $2.0 million to $2.5 million as of June 30, 2002.

Operating activities utilized cash of $2.0 million for the six months
ended June 30, 2002 and principally consisted of the net loss of $2.2 million
offset by a decrease in net operating assets and liabilities of $63,000 and
depreciation of $111,000. Operating activities included $552,000 of cash
contributions to the Company's frozen defined benefit plan and a $450,000
payment under an environmental consent decree (the "Consent Decree") to which
the Company is subject.

Investing activities provided cash of $72,000 in 2002 and consisted
principally of proceeds from discontinued operations and sale of fixed assets.

The Company has experienced negative cash flow from operating activities
in the past and expects to experience negative cash flow in 2002. 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, 2001, the actuarial present value
of accrued liabilities exceeded the plan assets by approximately
$5.5 million. The annual required contribution to the plan is
expected to be approximately $1.1 million in 2002. Since the plan is
significantly underfunded, the Company expects that the annual
contribution requirements beyond 2002 will continue to be
significant.

- In April 1996, a Consent Decree among the Company, the United States
Environmental Protection Agency ("EPA") and the Pennsylvania
Department of Environmental Protection ("PADEP") was entered by the
court which resolved all of the United States' and PADEP's claims
against the Company for recovery of costs incurred in responding to
releases of hazardous substances at a facility previously owned and
operated by the Company. Pursuant to the Consent Decree, the Company
will pay a total of $14.4 million plus interest to the United States
and the Commonwealth of Pennsylvania. Through June 30, 2002, the
Company has made principal


13

payments aggregating $13.6 million. In January 2002, the Company and
the EPA reached an agreement to extend the due date on the remaining
unpaid balance. In return, the EPA was granted a security interest
in certain assets held in escrow. The remaining payments totaling
$842,000, including interest, will be made to the EPA over the next
two years and consist of $431,000 in 2003 and $411,000 in 2004.

- 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.

- The Company leases certain office space, vehicles and office
equipment under operating leases that expire over the next eight
years. Minimum payments for operating leases having initial or
remaining non-cancelable terms in excess of one year are $213,000
for the remainder of 2002, $412,000 in 2003, $387,000 in 2004 and
$348,000 thereafter.

The Company will need to raise additional capital that may not be
available to it. Although 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 level through December 31, 2002,
additional working capital will be necessary in order to fund the current
business plan and to ensure the Company is able to fund the pension,
environmental 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 obtain additional funding on acceptable terms or at all.
If the Company cannot raise additional capital to continue its present level of
operations it may not be able to meet its obligations, take advantage of future
acquisition opportunities or further develop or enhance its product offering,
any of which could have a material adverse effect on its business and results of
operations.

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

As a result of a failure to meet certain continuing listing requirements
of the Nasdaq National Market ("National Market"), the Company transferred the
listing of its common stock to the Nasdaq SmallCap Market ("SmallCap Market")
effective May 2, 2002. The Company is currently not in compliance with the
SmallCap Market $1.00 minimum bid price requirement and may not comply with
other continuing listing requirements in the future. There is no assurance (i)
that the Company will remedy the identified minimum bid price deficiency (ii)
that the Company will continue to meet any other SmallCap Market continued
maintenance requirements, (iii) that any appeal in the event of non-compliance
of its common stock will be successful or (iv) that its common stock will not be
delisted. Should the Company's common stock be delisted, the liquidity of the
common stock would 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 be required to 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, 2001
contained a qualified opinion raising 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


14

Consolidated Financial Statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001, as amended. 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 pension accounting to be critical policies due to
the estimation processes involved.

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE. Revenue from product sales
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
software 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, returns and bad debts 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 evaluates the need to record adjustments for
impairment of inventory on a quarterly basis. Inventory in excess of the
Company's estimated usage requirements is written down to its estimated net
realizable value. Inherent in the estimates of net realizable value are
management's estimates related to the Company's production schedules, customer
demand, possible alternative uses and the ultimate realization of potentially
excess inventory. During 2001, the decision to exit the smart card reader and
chip business resulted in a significant inventory realizability adjustment.
While management deems this adjustment to be non-recurring, a decrease in future
demand for current products could result in an increase in the amount of excess
inventories on hand.

VALUATION OF INVESTMENTS. The Company periodically assesses the carrying
value of its minority-owned investments for impairment. This assessment is based
upon a review of operations and indications of continued viability, such as
subsequent rounds of financing. While management believes that the current
carrying value of its investment in TecSec has not been impaired, different
assumptions could affect the valuation.

IMPAIRMENT OF GOODWILL. The Company periodically evaluates acquired
businesses for potential impairment indicators. Judgments regarding the
existence of impairment indicators are based on market conditions and
operational performance of the acquired businesses. Future events could cause
the conclusion that impairment indicators exist and that goodwill associated
with acquired businesses is impaired. Any resulting impairment loss could have
an adverse impact on the Company's financial condition and results of
operations. The Company has adopted SFAS No. 142 as described below.

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. In accordance
with accounting principles generally accepted in the United States of America,
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,


15

differences in actual experience or significant changes in assumptions may
materially affect the pension obligation and future expense.

RECENT ACCOUNTING PRONOUNCEMENTS

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

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets. Under this new statement, goodwill and
intangible assets that have indefinite useful lives will not be amortized, but
rather will be tested at least annually for impairment based on the specific
guidance of this statement. In addition, this statement requires disclosure of
information about goodwill and other intangible assets in the years subsequent
to their acquisition that was not previously required. The provisions of this
statement are required to be applied starting with fiscal years beginning after
December 15, 2001. However, goodwill and intangible assets acquired after June
30, 2001 will be subject immediately to the non-amortization and amortization
provisions of this statement. The Company adopted this statement on January 1,
2002. In accordance with this statement, no amortization expense for goodwill
will be recorded in current and future periods. Goodwill and other intangibles
will be subject to an annual review for impairment or earlier if circumstances
or events indicate that impairment has occurred. This may result in future
write-downs or the write-off of such assets. The Company completed the initial
impairment test in the first quarter of 2002 which did not result in an
impairment of goodwill. The provisions of SFAS No. 142 are effective for periods
after adoption and retroactive application is not permitted. Therefore, the
historical results of periods prior to 2002 in the Company's Consolidated
Statements of Operations do not reflect the effect of SFAS No. 142 and,
accordingly, the first six months of 2001 includes amortization expense of $1.3
million. Excluding goodwill amortization, the pro forma net loss for the three
and six months ended June 30, 2001, was $6,500,000 and $9,349,000 or $.27 and
$.39 per share, respectively.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supercedes FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed of", and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a segment of a business. This statement also
amends ARB No. 51, "Consolidated Financial Statements", to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. The provisions of this statement are required to be applied starting
with fiscal years beginning after December 15, 2001. The Company is currently
evaluating the impact of the new accounting standard on existing long-lived
assets and does not believe that adoption of this statement will have a material
effect on our results of operations or financial position.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 will supersede
Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)". SFAS No. 146 requires that costs
associated with an exit or disposal plan be recognized when incurred rather than
at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002.


16

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 WOULD LEAD TO OUR BEING REQUIRED 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 1999, 2000, 2001 and
for the six months ended June 30, 2002 of approximately $16.7 million, $19.7
million, $17.2 million and $2.2 million, respectively. In addition, we
experienced negative cash flow from continuing operating activities of $8.5
million, $18.7 million, $12.2 million and $2.0 million in 1999, 2000, 2001 and
for the six months ended June 30, 2002, respectively.

We also have continuing obligations to fund payments due under the Consent
Decree and an underfunded pension plan. We sponsor a defined benefit pension
plan, which was frozen in 1993. As of December 31, 2001, the present value of
the accrued benefit liabilities of our pension plan exceeded the plan's assets
by approximately $5.5 million. In addition to the $1.1 million required
contribution to the plan in 2002, we are obligated to make continued
contributions to the plan in accordance with the rules and regulations
prescribed by the Employee Retirement Income Security Act of 1974. Since the
plan is significantly underfunded, we expect that the annual contribution
requirements beyond 2002 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.

We are required to make future payments to the EPA in connection with an
environmental related Consent Decree. In January 2002, we reached an agreement
with the EPA to extend the due date on the remaining unpaid balance. In return,
the EPA was granted a security interest in certain assets held in escrow. Future
payments aggregating $842,000, including interest, will be made to the EPA over
the next two years consisting of $431,000 in 2003 and $411,000 in 2004.
Consistent with the general practices of environmental enforcement agencies, the
Consent Decree does not eliminate our potential liability for remediation of
contamination that had not been known at the time of the settlement.

We have future non-cancelable operating lease obligations aggregating $1.4
million. In addition, we may incur substantial costs in defense of a lawsuit.
For more information see "We are unable to predict the extent to which the
resolution of lawsuits pending against us could adversely affect our business".

We will need to raise additional capital that may not be available to us.
Although we believe existing cash and short term investments may be sufficient
to meet our operating and capital requirements at the currently anticipated
level through December 31, 2002, additional working capital will be necessary in
order to fund our current business plan and to ensure we are able to fund our
pension, environmental 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
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 to our being required to seek bankruptcy protection. The auditors' report
on the Company's Consolidated Financial Statements for the year ended December
31, 2001 contained a qualified opinion raising substantial doubt about the
Company's ability to continue as a going concern.

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


17

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

Notice of the commencement of this action has been given our directors and
officers liability insurance carriers. We believe we have meritorious defenses
to the allegations and we intend to defend ourselves vigorously. The lawsuit is
in the early stages. There has been no discovery and no trial date has been set.
Consequently, at this time it is not reasonably possible to estimate the damage,
or range of damages, if any, that we might incur in connection with this action.
However, if the outcome of this lawsuit is unfavorable to us, it would have a
material adverse effect on our operations, cash flow and financial position.

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. 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 June 30, 2002, the carrying value of our
investment in TecSec, a privately held company, was $5.1 million. This
investment has been accounted for at cost. While we have not participated in
TecSec's subsequent rounds of financing in August 2001 and July 2002, the
valuations inherent in these financings validate our investment carrying value.
However, the investment 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 permanently impaired and subject to a
significant write-down.


18

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

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

WE DEPEND ON A RELATIVELY SMALL NUMBER OF CUSTOMERS FOR A MAJORITY OF OUR
REVENUES. We rely on a limited number of customers in our business. We expect to
continue to depend upon a relatively small number of customers for a majority of
the revenues in our business. For the year ended December 31, 2001, one customer
represented approximately 17% of our sales and 17% of the accounts receivable
balance as of December 31, 2001. For the six months ended June 30, 2002, no
customer represented more than 10% of sales and one customer represented 17% of
the accounts receivable balance as of June 30, 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.


19

We believe that the principal competitive factors affecting us are:

- the extent to which products support industry standards and are
capable of being operated or integrated with other products;

- technical features and level of security;

- strength of distribution channels;

- price;

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

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

- competitor reputation, positioning and resources.

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

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

OUR LONG PRODUCT SALES CYCLES SUBJECT US TO RISK. Our products fall into
two categories; those that are standardized and ready to install and use and
those that require significant development efforts to implement within the
purchasers' own systems. Those products requiring significant development
efforts tend to be newly developed technologies and software applications that
can represent major investments for customers. We rely on potential customers'
internal review processes and systems requirements. The implementation of some
of our products involves deliveries of small quantities for pilot programs and
significant testing by the customers before firm orders are received, 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, 2001, we had federal net operating loss
carryforwards, subject to review by the Internal Revenue Service, totaling
approximately $86.0 million for federal income tax purposes, approximately $25.0
million of which will expire at the end of 2002. We do not expect to earn any
significant taxable income in the next several years, and may not do so until
much later. A federal net operating loss can generally be carried back two or
three years and then forward fifteen or twenty years (depending on the year in
which the loss was incurred), and used to offset taxable income earned by a
company (and thus reduce its income tax liability).

Section 382 of the Internal Revenue Code provides that when a company
undergoes an "ownership change," 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


20

the future. In addition, the exercise of outstanding options to purchase shares
of our common stock may require us to issue additional shares of our common
stock. The issuance of a significant number of shares of stock could result in
an "ownership change." If we were to experience such an "ownership change," we
estimate that virtually all of our available federal net operating loss
carryforwards could not be used 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.
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


21

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

WE MAY HAVE DIFFICULTY RETAINING OR RECRUITING PROFESSIONALS FOR OUR
BUSINESS. Our future success and performance is dependent on the continued
services and performance of our senior management and other key personnel. 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 programmers, creative designers
and application developers, and our success depends on identifying, hiring,
training and retaining such experienced, knowledgeable professionals. If a
significant number of our current employees or any of our senior technical
personnel resign, or for other reasons are no longer employed by us, we may be
unable to complete or retain existing projects or bid for new projects of
similar scope and revenues. In addition, former employees may compete with us in
the future.

Even if we retain our current employees, our management must continually
recruit talented professionals in order for our business to grow. 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 81% of total sales for the six months ended June
30, 2002. Because we derive a substantial portion of our business outside the
United States, we are subject to certain risks associated with operating in
foreign markets including the following:

- tariffs and other trade barriers;

- difficulties in staffing and managing foreign operations;

- currency exchange risks;

- export controls related to encryption technology;

- unexpected changes in regulatory requirements;

- changes in economic and political conditions;

- potentially adverse tax consequences; and

- burdens of complying with a variety of foreign laws.

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

CHANGES WE MAY NEED OR BE REQUIRED TO MAKE IN OUR INSURANCE COVERAGE MAY
EXPOSE US TO INCREASED LIABILITIES AND MAY INTERFERE WITH OUR ABILITY TO RETAIN
OR ATTRACT QUALIFIED OFFICERS AND DIRECTORS. We renew or replace various
insurance policies on an annual basis, including those that cover directors and
officers liability. Given the current climate of rapidly increasing insurance
premiums and erosions of


22

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, would subject us to liabilities and would 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 $934,000 and Mr. Jay S. Goldsmith of $934,000. If any
such payment, either alone or together with others made in connection with the
individual's termination, is considered to be an excess parachute payment under
the Internal Revenue Code, the individual will be entitled to receive an
additional payment in an amount which, when added to the initial payment, would
result in a net benefit to the individual, after giving effect to excise taxes
imposed by Section 4999 of the Internal Revenue Code and income taxes on such
additional payment, equal to the initial payment before such additional payment
and we would not be able to deduct these initial or additional payments for
income tax purposes.

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

OUR STOCK PRICE IS EXTREMELY VOLATILE. The stock market has recently
experienced significant price and volume fluctuations unrelated to the operating
performance of particular companies. The market price


23

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:

- continued listing of our common stock on the Nasdaq SmallCap Market
(see "Our stock may be delisted from the Nasdaq System" below);

- 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.

OUR STOCK MAY BE DELISTED FROM THE NASDAQ SYSTEM. On February 14, 2002, we
a received 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. We will now be afforded a grace period to comply with the
$1.00 minimum bid price requirement, which will extend the delisting
determination until August 14, 2002. We may also be eligible for an additional
180-day grace period provided that we meet certain SmallCap Market initial
listing criteria.

Continued listing of our common stock on the SmallCap Market is subject to
meeting various on-going quantitative and qualitative minimum maintenance
requirements, including among others, the maintenance of $2.5 million of
stockholders equity. As of June 30, 2002 our stockholders equity was $5.3
million. If we are unable to meet the SmallCap Market minimum maintenance
requirements, we would be subject to delisting from the Nasdaq system.

We cannot assure you (i) that we will remedy the identified minimum bid
price deficiency, (ii) that we will continue to meet any other SmallCap Market
continued maintenance requirements, (ii) that any appeal in the event of
non-compliance of our common stock will be successful or (iv) that our common
stock will not be delisted.

Should our common stock be delisted, the liquidity of our common stock
would be materially adversely affected. This could impair our ability to raise
capital in the future. If we are not successful in raising additional capital
when required in sufficient amounts and on terms acceptable to us or at all, we
may be required to scale back the scope of our business plan, which would have a
material adverse effect on our financial condition and results of operations,
and be unable to fund our pension and environmental obligations.


24

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.
Our investment policy calls for investment in short-term, low risk instruments.
As of June 30, 2002, short-term investments (principally U.S. Treasury bills)
were $2.2 million. Due to the nature of these investments, any decrease in rates
would not have a material impact on our financial condition or results of
operations.

Investment Risk

As of June 30, 2002, the value of our investment in TecSec, a privately
held company, was $5.1 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 obtaining sufficient capital on
acceptable terms or at all, our investment in TecSec could be permanently
impaired and subject to a significant write-down.


25

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. The
lawsuit is in the early stages. There has been no discovery and no trial date
has been set. Consequently, at this time it is not reasonably possible to
estimate the damage, or range of damages, if any, that the Company might incur
in connection with this action. However, if the outcome of this lawsuit is
unfavorable to the Company, it would have a material adverse effect on the
Company's operations, cash flow and financial position.

Various other legal proceedings are pending against the Company. The
Company considers all such 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 August 13, 2002

(b) Report on Form 8-K

Form 8-K dated June 6, 2002, regarding Changes in Registrant's Certifying
Accountant


26

SIGNATURES

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

PUBLICARD, INC.
(Registrant)

Date: August 13, 2002 /s/ Antonio L. DeLise
Antonio L. DeLise, President,
Chief Executive Officer, Chief Financial
Officer and Secretary


Date: August 13, 2002 /s/ Robert J. Caldaroni
Robert J. Caldaroni,
Vice President and Controller


27