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<SEC-DOCUMENT>0000950144-02-002606.txt : 20020415
<SEC-HEADER>0000950144-02-002606.hdr.sgml : 20020415
ACCESSION NUMBER:		0000950144-02-002606
CONFORMED SUBMISSION TYPE:	10-K405
PUBLIC DOCUMENT COUNT:		15
CONFORMED PERIOD OF REPORT:	20011231
FILED AS OF DATE:		20020322

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			INTELLIGENT SYSTEMS CORP
		CENTRAL INDEX KEY:			0000320340
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-HOSPITALS [8060]
		IRS NUMBER:				581964787
		STATE OF INCORPORATION:			GA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K405
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-09330
		FILM NUMBER:		02582628

	BUSINESS ADDRESS:	
		STREET 1:		4355 SHACKLEFORD RD
		CITY:			NORCROSS
		STATE:			GA
		ZIP:			30093
		BUSINESS PHONE:		4043812900

	MAIL ADDRESS:	
		STREET 1:		4355 SHACKLEFORD ROAD
		CITY:			NORCROSS
		STATE:			GA
		ZIP:			30093
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>g74809e10-k405.txt
<DESCRIPTION>INTELLIGENT SYSTEMS CORPORATION
<TEXT>
<PAGE>
===============================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

              Annual Report Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                         Commission file number 1-9330

                        INTELLIGENT SYSTEMS CORPORATION
- -------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                                                                                    <C>
                     GEORGIA                                                                        58-1964787
- ---------------------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)                         (I.R.S. Employer Identification No.)

       4355 SHACKLEFORD ROAD, NORCROSS, GEORGIA                                                        30093
- ---------------------------------------------------------------------------------------------------------------------------
        (Address of principal executive offices)                                                     (Zip Code)
</TABLE>

       Registrant's telephone number, including area code: (770) 381-2900

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
    TITLE OF EACH CLASS                                       NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ----------------------------                                  -----------------------------------------
<S>                                                           <C>
COMMON STOCK, $.01 PAR VALUE                                           AMERICAN STOCK EXCHANGE
</TABLE>

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]

As of March 15, 2002, 4,495,530 shares of Common Stock were outstanding. The
aggregate market value of the Common Stock held by non-affiliates of the
registrant was $3,494,558 (computed using the closing price of the Common Stock
on March 15, 2002 as reported by the American Stock Exchange).

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on May 23, 2002,
are incorporated by reference in Part III hereof.


===============================================================================


<PAGE>


                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                                 PAGE
                                                                                                                 ----
<S>                                                                                                              <C>
PART I

     Item   1.  Business...........................................................................................3
            2.  Properties.........................................................................................8
            3.  Legal proceedings..................................................................................8
            4.  Submission of matters to a vote of security holders................................................8

PART II

            5.  Market for the registrant's common equity and related stockholder matters..........................8
            6.  Selected financial data............................................................................9
            7.  Management's discussion and analysis of financial condition and results of operations..............9
            7A. Quantitative and qualitative disclosures about market risk........................................13
            8.  Financial statements and supplementary data.......................................................14
            9.  Changes in and disagreements with accountants on accounting and financial disclosure..............14

PART III

           10.  Directors and executive officers of the registrant................................................14
           11.  Executive compensation............................................................................14
           12.  Security ownership of certain beneficial owners and management....................................14
           13.  Certain relationships and related transactions....................................................14

PART IV

           14.  Exhibits, financial statement schedules and reports on Form 8-K...................................15
     Signatures ..................................................................................................18
</TABLE>


<PAGE>


                                     PART I

FORWARD-LOOKING STATEMENTS

         In addition to historical information, this Form 10-K may contain
         forward-looking statements relating to Intelligent Systems Corporation
         (ISC). All statements, trend analysis and other information contained
         in the following discussion relative to markets for our products and
         trends in revenue, gross margins and anticipated expense levels, as
         well as other statements including words such as "anticipate",
         "believe", "plan", "estimate", "expect", "likely" and "intend", and
         other similar expressions constitute forward-looking statements.
         Prospective investors are cautioned that any such forward-looking
         statements are not guarantees of future performance and involve risks
         and uncertainties, and that actual results may differ materially from
         those contemplated by such forward-looking statements. Among the
         important factors that could cause actual results to differ materially
         from those indicated by such forward-looking statements are delays in
         product development, undetected software errors, competitive
         pressures, technical difficulties, market acceptance, availability of
         technical personnel, changes in customer requirements, changes in
         financial markets, performance and financial condition of affiliate
         companies, and general economic conditions. ISC undertakes no
         obligation to update or revise its forward-looking statements to
         reflect changed assumptions, the occurrence of unanticipated events or
         changes in future operating results.

ITEM 1.  BUSINESS

OVERVIEW

Intelligent Systems Corporation, a Georgia corporation, has operated either in
corporate or partnership form since 1973 and its securities have been publicly
traded since 1981. In this report, sometimes we use the terms "company", "we",
"ours" and similar words to refer to Intelligent Systems Corporation. We
operated as a master limited partnership from 1986 to 1991, when we merged into
the present corporation. Our executive offices are located at 4355 Shackleford
Road, Norcross, Georgia 30093 and our telephone number is (770) 381-2900.

Since the early 1980's, we have conducted our operations principally through
majority owned subsidiaries or minority owned affiliates to which we devote
extensive management resources. Frequent acquisitions of or investment in
promising early stage companies in the technology industry have long been
components of our overall strategy. Since most of our companies are early or
growth stage businesses, from time to time they may require funding, in excess
of what we can provide, from third parties or the public markets to support
their business plan. They may seek to be acquired or to merge with another
company in response to various market conditions or if circumstances indicate
that operating as a stand-alone company is not in their best interest. As a
result, our ownership position frequently changes from time to time. Moreover,
in the past several years, we have sold or discontinued several subsidiaries,
such as InterQuad Services and PsyCare America, generally in response to what
we believe to be unfavorable industry trends or prospects as stand-alone
companies. We anticipate that generally lower valuations for early stage
companies and our increased liquidity will allow us to increase the number of
companies we control and in which we are involved in day-to-day management of
their operations.

Our main focus is to help entrepreneurs build valuable companies by providing
operational and strategic management, practical business advice, early stage
equity capital, a network of business contacts and, in some cases, a proven
incubator program. Depending upon the needs of the partner company, we will
undertake a variety of roles which often include day-to-day management of
operations, board of director participation, financing, market planning,
strategic contract negotiations, personnel and administrative functions, etc.
Most of our partner companies are involved in the information technology
industry (principally software for business applications) although we are
involved in other industries as well (including industrial products,
biotechnology, and wireless).


                        INTELLIGENT SYSTEMS CORPORATION
                                     - 3 -
<PAGE>


FINANCIAL REPORTING

We consolidate the results of operations of our partner companies in which we
own a majority interest or exert control. We account for investments in
affiliate companies in which we own 20 to 50 percent or in which we exert
significant influence by the equity method. In general, under the equity
method, we include our pro rata share of the income or loss generated by each
of these businesses as investment income (loss) on a quarterly basis. These
equity losses and income decrease or increase, respectively, our cost basis of
the investment. However, if there is no commitment for ISC to provide
additional funding to the company, to the extent losses exceed our cost, we do
not record a value below zero. Because of this equity method accounting
treatment, some of our affiliate companies may be recorded at zero on our
balance sheet but their estimated market value may be substantially higher.
Privately owned partner companies in which we own less than 20 percent of the
equity are carried at the lower of cost or market. We do not mark up the value
of privately-owned businesses even when they raise money at higher valuations.
We are often actively engaged in managing strategic and operational issues with
our non-consolidated companies and devote significant resources to the
development of the business.

RECENT ACQUISITION AND INDUSTRY SEGMENT OVERVIEW

On July 1, 2001, we increased our ownership in VISaer, Inc. from a 40 percent
interest to a 65 percent interest. The purchase was treated as a step
acquisition and we have consolidated the results of operations of VISaer, Inc.
since the date of the transaction. See Note 2 to the Consolidated Financial
Statements for details of the transaction and related purchase accounting. Our
consolidated companies operate in two industry segments: Information Technology
products and services, and Industrial Products. The Information Technology
segment includes our VISaer and QS Technologies subsidiaries and the Industrial
Products segment includes ChemFree. Prior to 2001, we reported information on
two segments: Technology and Health Care. In November 2000, we sold the
principal operating assets of our PsyCare subsidiary in response to unfavorable
market conditions in the managed health care environment. Therefore, we do not
have a Health Care industry segment in 2001. We also changed our segment
reporting to separate the ChemFree operations as our new Industrial Products
segment and renamed the Technology segment as the Information Technology
segment. We have restated segment data from prior reporting periods to
correspond to the current industry segments. All of our subsidiaries are
wholly-owned except for VISaer, in which our ownership is 65 percent.

Operations in the Information Technology segment are involved in the design,
development and marketing of application software products that are used by
business customers and government agencies to manage aspects of their
operations. Our software products are typically sold in competitive bids with
relatively long sales and implementation cycles. We receive software license
fees that vary depending upon the number of licensed users and the number of
software modules licensed with total contract revenue typically ranging from
$100,000 to more than a million dollars. We also derive service revenue from
implementation, customization, training and support services.

The Industrial Products segment includes the design, assembly and sale of
equipment and associated supplies that are used by commercial, industrial,
military and government agencies to maintain and service machinery or vehicles
used in their operations. Our assembled products are shipped to resellers or
direct to customer sites and do not require set-up or on-site support from us.
Unit pricing varies by model but typical end-user prices are less than $2,000.
Customers purchase replacement supplies from us after the sale.

Our individual operations in both segments are relatively small in size and are
subject to greater fluctuation in revenue and profitability than larger, more
established businesses. The business in our segments is not seasonal. In each
of the three years ended December 31, 2001, revenue related to ChemFree and QS
Technologies products have represented more than 15 percent each of
consolidated revenue. In 2001, revenue related to VISaer's products represented
more than 15 percent of consolidated revenue. For ease of comprehension, the
business discussion which follows contains information on products, markets,
competitors, research and development and manufacturing for our operating
subsidiaries, organized by industry segment and by company. For further
detailed financial information concerning our segments, see Notes 15 and 18 in
the accompanying Notes to the Consolidated Financial Statements.


                        INTELLIGENT SYSTEMS CORPORATION
                                     - 4 -
<PAGE>


INDUSTRY SEGMENT: INFORMATION TECHNOLOGY PRODUCTS AND SERVICES

VISAER - VISaer develops, sells and supports software for the world-wide
commercial aviation industry. The VISaer software helps aviation customers
manage the extensive requirements and processes involved in their maintenance,
repair and overhaul (MRO) operations. Headquartered in Wilmington,
Massachusetts, VISaer also has operations in England and Ireland to support
product development and sales activities in Europe. VISaer is the successor
company of Visibility, Inc., a software company in the enterprise resource
planning market whose operations were sold in July 2000 to allow VISaer to
concentrate on the faster growing MRO software market. VISaer's current product
offering, VISaer 2.4, includes the following major components: technical
records planning and management, MRO operations, materials management,
production scheduling, commercial operations and financial management. Version
2.5, scheduled for release in the second half of 2002, will include additional
modules and features. VISaer expects to release Version 3.0, a fully Web-native
version of the complete MRO solution, in late 2002. In mid-2001, VISaer signed
a major contract with United Parcel Systems (UPS) for its Version 3.0 software
and has approximately $2.6 million in deferred revenue at December 31, 2001
associated with the contract. In addition, VISaer has a backlog of
approximately $3-4 million related mainly to this contract and annual support
contracts. Revenue related to the UPS contract will be recognized upon contract
completion which is anticipated in early 2003. The UPS contract has certain
non-competition and acceptance provisions that the company must comply with.

The general slow-down in the global economy and the terrorist attacks of
September 11, 2001 have had a significant negative impact on the commercial
aviation market. The company believes that some airlines have delayed or
canceled planned information technology projects and others may not have the
financial strength to weather the current downturn. However, regulatory
requirements dictate that airlines manage their MRO processes carefully and
there is increased pressure to improve and automate MRO record-keeping.
VISaer's software products provide a comprehensive, cost-effective way to do
so. VISaer expects that low-cost airlines, defense related aviation, MRO
service outsourcing companies, private airlines and emerging global markets
will provide additional sales opportunities beyond the larger commercial
airlines.

VISaer markets and sells its software products and related support and
maintenance services to customers in both domestic and foreign markets. In some
cases, it sells direct to the customer; in other cases, it sells through
re-sellers such as Unisys Corporation that represents the company on a
non-exclusive basis in several Pacific Rim markets. Sales through Unisys
represented 18 percent of consolidated revenue in 2001. In most cases, sales
are made in response to competitive bids and RFP's and have sales cycles of
6-18 months with implementation periods of 6-18 months. VISaer provides full
suite implementation services and post-sales support and maintenance activities
under annual contracts as well as ongoing professional services. VISaer has a
number of competitors, some of whom offer MRO software as part of an Enterprise
Resource Planning package and who have significantly more financial resources,
larger customer bases and greater market coverage than VISaer. Other
competitors are smaller players focused on MRO solutions with resources similar
to VISaer. The company competes on the basis of providing full product
functionality and integration, offering a complete software and service
solution, and providing software that runs on industry standard technology
platforms. VISaer expects that its Web-native software version will be a strong
competitive offering.

QS TECHNOLOGIES - QS Technologies operates from its Greenville, South Carolina
location, providing health and human services software products, maintenance
and support services to its installed customer base as well as new customers.
QS Technologies' products allow public health agencies to capture, analyze and
manage client information such as immunization, maternal health, and birth and
death records. The market includes local, state and federal public health
agencies nationwide as well as other government agencies, hospitals and
clinics. The market is fragmented and limited in size. QS Technologies competes
against a number of other software companies, many of which are small vendors
like itself and some of which are larger with access to greater resources. QS
Technologies competes on the basis of product functionality and value,
reputation for customer service and knowledge of market requirements acquired
through twenty years in the market. Sales are typically made in response to
competitive bids and may take six to twelve months to complete. Demand for
products and the timing of contract awards is impacted by general economic
conditions as well as customer-specific factors such as state and local budgets
and program priorities, over which QS has little control. Typically, QS
Technologies provides its customers with post-sales service and support under
annual contracts that often renew for multiple years after the initial software
license fee is earned. QS Technologies is engaged in new product


                        INTELLIGENT SYSTEMS CORPORATION
                                     - 5 -
<PAGE>


development (including a web-based initiative) and enhanced sales activities to
expand its customer base and generate future revenue.

INDUSTRIAL PRODUCTS SEGMENT

CHEMFREE CORPORATION - Our only subsidiary in the Industrial Products segment
is ChemFree Corporation (ChemFree), one of our early incubator companies, that
designs, manufactures and markets a line of parts washers under the
SmartWasher(TM) trademark. SmartWashers use an advanced bio-remediation system
to clean automotive and machine parts without using hazardous, solvent-based
chemicals. SmartWashers consist of a molded plastic tub and sink, recirculating
pump, heater, control panel, filter with microorganisms, and aqueous based
degreasing solutions. Unlike traditional solvent-based systems, there are no
regulated, hazardous products used or produced in the process and the
SmartWasher system is completely self-cleaning. ChemFree sells replacement
fluid and filters to its customers on a regular basis after the initial parts
washer sale.

ChemFree's markets include the automotive, transportation, industrial and
military markets. The automotive market includes companies and governmental
agencies with fleets of vehicles to maintain; automobile manufacturers with
extensive service networks such as Chrysler, GM and BMW; and individual and
chains of auto repair shops and auto parts suppliers. The industrial market
includes customers with machinery that requires routine maintenance, such as in
the textile industry. Military applications include vehicle service depots in
all branches of the military. ChemFree sells its products directly to high
volume customers as well as through several distribution channels, including
international distributors in Europe and the Pacific Rim. ChemFree also sells
in competitive bid situations and under a GSA schedule to government agencies.
Because ChemFree sells in part through large national distributors such as NAPA
in the United States and exclusive distributors in certain international
markets, its results could be impacted negatively if one or more of such
customers discontinues distribution and sales of ChemFree products. One of
ChemFree's international distributors represented 10 percent of consolidated
revenue in each of the last two years. Part of ChemFree's revenue is derived
from multi-year contracts under which ChemFree provides SmartWashers and
supplies to large corporate customers, such as Firestone, at multiple corporate
sites.

ChemFree competes with larger, established companies that offer solvent-based
systems, other small companies using non-hazardous systems, and hazardous waste
hauling firms. Although smaller than the established solvent-based firms,
ChemFree believes it is competitive based on product features, positive
environmental impact, improved health and safety features, elimination of
regulatory compliance, and price.

Warranty service, typically covering a one-year period, is provided either by
ChemFree personnel or through its distributors and dealers. ChemFree
subcontracts the manufacturing of major sub-assemblies built to its
specifications to various vendors and performs final assembly and testing at
its own facility. While there are multiple sources available for subassemblies,
ChemFree frequently contracts with a single source for certain components in
order to benefit from lower prices and consistent quality.

INCUBATOR PROGRAM

For more than ten years, we have operated the Intelligent Systems Incubator at
our corporate facility in the suburbs of Atlanta, Georgia. We believe our
incubator program is one of the longest running and largest self-funded
incubator programs in the United States. In exchange for a monthly facility
fee, incubator companies have access to resources such as office space,
conference facilities, telecommunication and network infrastructure, business
advice and planning, a network of professional services, and, in some cases,
financial capital. Depending upon the experience and needs of the founding
entrepreneur, incubator companies will choose to use some or all of the
available resources. The incubator staff takes care of time-consuming
infrastructure issues so the entrepreneur can focus on driving business
development. Income from incubator companies reduces our total facility and
personnel costs. The incubator also provides us with the opportunity for
day-to-day involvement with emerging companies that may become partnership
companies, either as majority-owned subsidiaries or minority-owned affiliates.
In 1999, ChemFree Corporation, an incubator company and majority owned company,
was named Incubator Company of the Year (Manufacturing category) by the
National Business Incubation Association.


                        INTELLIGENT SYSTEMS CORPORATION
                                     - 6 -
<PAGE>


We are equity partners in some but not all of the companies in our incubator
program. Because we have a large incubator facility, we can offer the benefits
of the incubator program to non-affiliate companies. Conversely, many of our
subsidiary and minority owned partner companies are not located in our
incubator. In attracting companies to our incubator program, we compete with
other sources of business assistance, facilities and financial capital that may
be available to the entrepreneur. These sources include other incubator
programs as well as angel and venture capital investors, corporate partner
relationships and merger/sale opportunities. We do not record revenue from
incubator lease income; rather such amounts are offset against the corporate
facility expenses.

AFFILIATED PARTNER COMPANIES

Part of our business strategy is to seek out and form relationships with
companies that we believe are involved in promising technologies or markets
with good growth potential. From time to time, we have acquired or invested in
such companies and expect to continue to do so as a regular part of our
strategy. When we become involved, these companies are privately held, early
stage companies in technology-related fields. We are often actively involved in
helping the companies develop and implement their business plans. Some examples
of our involvement are as follows:

- -        Initially, we owned a 40 percent equity position in VISaer, Inc., a
         privately held company that designs, develops and markets software
         products addressing the global aircraft maintenance, repair and
         overhaul market. We increased our ownership in VISaer to 65 percent in
         2001 and now consolidate its results.

- -        Initially we own a 27 percent interest in Delos Payment Systems, Inc.,
         a development stage software company spun off from former affiliate
         company, PaySys International, Inc. in April 2001. As of January 2002,
         due to a default by Delos on an outstanding loan, we acquired control
         of Delos, we are actively involved in managing the company at our
         incubator facility and we will consolidate its results of operations.
         Refer to Note 20 to the consolidated financial statements.

- -        A 25 percent interest in affiliate company CoreXpand, a software
         company with an e-commerce application for promotional and incentive
         product distributors. CoreXpand is part of the Intelligent Systems
         Incubator program.

- -        An 18 percent interest in Cirronet Inc., a privately held and former
         incubator company involved in wireless telecommunications products for
         industrial and commercial markets as well as residential and small
         business wireless Internet markets. Refer to Note 4 to the
         Consolidated Financial Statements.

- -        A less than one percent position in Atherogenics, a pharmaceutical
         company involved in novel drugs which address inflammatory diseases
         such as cardiovascular disease and asthma. Atherogenics completed its
         initial public offering in August 2000. We were part of the original
         investor group of Georgia-based institutions supporting the company's
         efforts to commercialize technology developed at Emory University.

- -        A three percent interest in RF Solutions, Inc., a start-up company
         that is developing proprietary radio frequency integrated chips used
         in broadband wireless products. The development stage company is
         building on the founding team's world-renowned research at Georgia
         Tech to develop commercial products.

RESEARCH AND DEVELOPMENT

The Company spent $3,371,000, $915,000 and $805,000 in the fiscal years ended
December 31, 2001, 2000 and 1999, respectively, on company sponsored research
and development. The Information Technology segment increased spending on
software development significantly in 2001 mainly due to an intensive effort
related to the VISaer 3.0 product line, which is expected to continue through
at least 2002.

PATENTS, TRADEMARKS AND TRADE SECRETS

The ChemFree subsidiary has several patents (both issued and pending) covering
certain aspects of its products and processes. It may be possible for
competitors to duplicate certain aspects of these products and processes even
though we regard such aspects as proprietary. We have registered with the US
Patent and Trademark Office


                        INTELLIGENT SYSTEMS CORPORATION
                                     - 7 -
<PAGE>


and various foreign jurisdictions numerous trademarks and service marks for our
products. We believe that an active trademark and copyright protection program
is important in developing and maintaining brand recognition and protecting its
intellectual property. Our companies presently market their products under
trademarks and service marks such as SmartWasher, OzzyJuice, VISaer and others.

PERSONNEL

As of February 28, 2002, we had 145 full-time equivalent employees in our
majority-owned or controlled companies. Our employees are not represented by a
labor union, we have not had any work stoppages or strikes and we believe our
employee relations are good.

ITEM 2.  PROPERTIES

At February 28, 2002, we have leases covering approximately 137,500 square feet
in Atlanta, GA, 6,100 square feet in Greenville, SC, and 21,400 square feet in
Wilmington, MA, as well as small offices in Warrington, England and in Dublin,
Ireland to house our product development, manufacturing, sales, service and
administration operations. We believe our leased facilities are adequate for
our existing and foreseeable business operations. A portion of the Atlanta
corporate facility is subleased to businesses in our technology business
incubator.

ITEM 3.  LEGAL PROCEEDINGS

In 1999, a former consultant of the ChemFree subsidiary brought suit against
ChemFree and other third parties challenging the ownership of certain of
ChemFree's patents. ChemFree and other parties to the suit strongly deny the
allegations, have filed a counterclaim and are vigorously defending the suit,
which is pending in the Superior Court of Gwinnett County, Georgia. In 2001, we
were named as a co-defendant in a lawsuit filed by four former employees of
PaySys International, Inc. claiming certain rights to acquire shares of PaySys
stock that we acquired from PaySys founders in 1994. We strongly deny that any
valid claim exists and are vigorously defending the suit which is pending in
the Ninth Judicial Circuit in Orange County, Florida. In addition, we are party
to a small number of other legal matters arising in the ordinary course of
business. It is management's opinion that none of these other matters will have
a material adverse impact on our consolidated financial position or results of
operations. Refer to Note 10 to the consolidated financial statements.

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

We did not submit any matter to a vote of our shareholders during the fiscal
quarter ended December 31, 2001.

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

Our common stock is listed and traded on The American Stock Exchange ("AMEX")
under the symbol "INS". The following table sets forth, for the periods
indicated, the range of high and low sales prices for our common stock as
reported by AMEX.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,            2001                              2000
                           HIGH            LOW              HIGH             LOW
- ---------------------------------------------------------------------------------
<S>                        <C>             <C>             <C>              <C>
    1ST QUARTER            4.00            3.02            14.50            3.625
    2ND QUARTER            4.92            3.30            10.25            3.50
    3RD QUARTER            4.60            3.10             6.25            3.75
    4TH QUARTER            3.35            2.95             6.00            2.875
</TABLE>

We had 438 shareholders of record as of February 28, 2002. This number does not
include beneficial owners of our common stock whose shares are held in the
names of various dealers, clearing agencies, banks, brokers and other
fiduciaries. We paid a special cash dividend of $0.52 per common share on April
20, 2000. The company


                        INTELLIGENT SYSTEMS CORPORATION
                                     - 8 -
<PAGE>


may pay cash dividends from time to time on an irregular
basis but has not in the past paid regular dividends and does not expect to do
so in the future.

ITEM 6.  SELECTED FINANCIAL DATA

 (in thousands except share amounts)

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,             2001            2000             1999             1998              1997
- -------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>             <C>               <C>               <C>
Net Sales                                 $    8,718      $    7,027      $     8,479       $    18,253       $    21,160
Net Income (Loss)                              9,113a          8,215b             249c           (1,548)d          (7,176)e
Net Income (Loss) Per Share (Basic)             1.78            1.47             0.05              (.30)            (1.41)
Total Assets                                  26,089          18,057           13,658            17,099            19,091
Working Capital                               10,206           3,294              (48)           (1,827)           (1,068)
Long-term Debt                                    --              --              363               900             1,000
Stockholders' Equity                          17,858          14,674           10,209             9,641            11,396
Cash Dividends Paid Per Common Share              --      $     0.52               --                --                --
Shares Outstanding at Year End             4,495,530       5,623,784        5,114,467         5,104,467         5,104,467
</TABLE>

a.       Includes investment gains of $19.9 million, $2.2 million in net losses
         in equity of affiliates and non-recurring charges totaling $6.4
         million related to acquisition.

b.       Includes investment gains of $9.7 million and $771,000 in net losses
         in equity of affiliates.

c.       Includes investment gains of $2.2 million and $948,000 in net losses
         in equity of affiliates.

d.       Includes $944,000 charge for purchased in-process R&D, $955,000 charge
         to discontinue product lines, $5.2 million gain on investments and
         $593,000 income in equity of investments.

e.       Includes $953,000 charge for purchased in-process R&D, $2.6 million
         gain on investments, $3.0 million write-off of note receivable and
         $2.3 million loss in equity of investments.

Please refer to Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations for a discussion of material acquisitions
or dispositions that may affect the comparability of this financial
information.

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

         In addition to historical information, this Form 10-K may contain
         forward-looking statements relating to Intelligent Systems Corporation
         (ISC). All statements, trend analysis and other information contained
         in the following discussion relative to markets for our products and
         trends in revenue, gross margins and anticipated expense levels, as
         well as other statements including works such as "anticipate",
         "believe", "plan", "estimate", "expect", and "intend", and other
         similar expressions constitute forward-looking statements. Prospective
         investors are cautioned that any such forward-looking statements are
         not guarantees of future performance and involve risks and
         uncertainties, and that actual results may differ materially from
         those contemplated by such forward-looking statements. Among the
         important factors that could cause actual results to differ materially
         from those indicated by such forward-looking statements are delays in
         product development, undetected software errors, competitive
         pressures, technical difficulties, market acceptance, availability of
         technical personnel, changes in customer requirements, changes in
         financial markets, performance and financial condition of affiliate
         companies, and general economic conditions. ISC undertakes no
         obligation to update or revise forward-looking statements to reflect
         changed assumptions, the occurrence of unanticipated events or changes
         in future operating results.

RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated
financial statements and the notes to the consolidated financial statements
presented in this annual report.

OVERVIEW - Our consolidated subsidiaries during 2001 operate in two industry
segments: Information Technology and Industrial Products. Included in the
Information Technology sector are QS Technologies, Inc. (software for health
and human services) and, since July 1, 2001, VISaer, Inc. (software for
maintenance, repair and overhaul


                        INTELLIGENT SYSTEMS CORPORATION
                                     - 9 -
<PAGE>


operations in the aerospace industry). The Industrial Products segment includes
ChemFree Corporation (bio-remediating parts washers). In prior years, we also
had a Health Care segment consisting of our PsyCare America subsidiary prior to
closing the operation in November 2000.

Net profit in 2001 was $9,113,000 compared to $8,215,000 in 2000. Included in
the 2001 results is a pre-tax gain of $17,770,000 on the sale of our ownership
in PaySys International, Inc. in April 2001. The results for 2000 reflect a
gain of $8,622,000 from the sale of most of our ownership of Risk Laboratories,
LLC. Both of these events are described more fully in Note 3 to the
consolidated financial statements. Our net loss from operations in 2001 was
$10,420,000 compared to a net loss of $976,000 in 2000. The current year
operating results include non-recurring charges totaling $6.4 million in the
third quarter of 2001 related to the acquisition of a controlling interest in
VISaer in July 2001, as more fully explained in Note 2 to the consolidated
financial statements. In addition, VISaer is incurring significant current
expenses for software development while revenue for related software licenses
is being deferred until the completed software product is delivered to
customers in early 2003.

In the past several years, a significant portion of our income has been derived
from sales of holdings in affiliate and other minority-owned companies. We also
recognize on a regular basis our pro rata share of the income or losses of
affiliate companies accounted for by the equity method. The timing and amount
of gain or loss recognized as a result of a sale or the amount of equity in the
income or losses of affiliates generally are not under our control and are not
necessarily indicative of future results. Occasionally, as in the case of
VISaer, we acquire a controlling interest in a company previously accounted for
by the equity method and consolidate its results as of the acquisition date.
Therefore, period-to-period comparisons of results of operations may not be
meaningful or indicative of future results.

SALES - Total revenue in 2001 was $8,718,000, an increase of 24 percent
compared to revenue of $7,027,000 in 2000. Revenue from products, which
includes sales of equipment in our Industrial Products segment as well as
software license fees related to the Information Technology segment, increased
10 percent year-to-year whereas revenue from services billed by the Information
Technology segment increased 54 percent year-to-year. The growth in both
revenue categories reflects mainly the benefit of the mid-year acquisition of
VISaer. We did not record service revenue in the Health Care segment in 2001
since we closed the PsyCare operation in 2000.

Net sales in 2000 declined by 17 percent compared to 1999, principally due to
lower service revenue in the Health Care segment, reflecting fewer
hospital-based treatment programs and the close of the PsyCare operation in
November 2000. Revenue in the Information Technology segment was down slightly
year-to-year while sales in Industrial Products in both domestic and
international markets grew slightly in 2000 compared to the prior year.

COST OF SALES - In 2001, total cost of sales was 47 percent of revenue,
compared to 42 percent in 2000 and 47 percent in 1999. Cost of product sales as
a percentage of product revenue was essentially the same in 2001 and 2000. Cost
of service sales in the Information Technology segment increased in 2001
compared to 2000 mainly due to the inclusion of VISaer costs following the
VISaer acquisition. VISaer professional services have a higher labor component
and cost than do services provided by QS Technologies. The decline in 2000
compared to 1999 reflects reduced personnel costs in the Information Technology
and Health Care segment as we scaled back the PsyCare operation and lower
direct material costs in the Industrial Products segment. Cost of product sales
is likely to decrease as a percentage of sales in future periods as a greater
portion of anticipated product revenue is derived from software license fees.

OPERATING EXPENSES - In 2001, marketing expenses more than doubled compared to
2000, reflecting the inclusion of VISaer expenses for six months in 2001 as
well as increased expenditures in the Industrial Products segment to support
new sales and marketing initiatives. General and administrative expenses
increased over 200 percent in 2001 compared to 2000, reflecting non-recurring
charges totaling $6 million to write-down goodwill associated with the VISaer
acquisition, the inclusion of VISaer expenses for six months and management
bonuses related to the sale of PaySys. Research and development expense in 2001
increased by 268 percent compared to 2000 mainly due to significant new product
development expense in the Information Technology segment as well as a
non-recurring charge of $425,000 to record in-process research and development
projects related to the acquisition of VISaer.


                        INTELLIGENT SYSTEMS CORPORATION
                                    - 10 -
<PAGE>


In 2000, marketing expenses were down eight percent compared to the prior year,
mainly because the prior year amounts included expenses for an operation that
was sold in 1999. Marketing expenses for Industrial Products increased during
2000 to generate and support higher revenue levels. General and administrative
expenses were lower by almost $300,000 in 2000 compared to 1999. The reduction
is related to reduced personnel and facility expenses as the Health Care
segment wound down its operations, offset in part by higher legal costs to
protect intellectual property assets in the Industrial Products segment.
Corporate expenses, which are part of general and administrative expenses, were
also higher in 2000 compared to 1999 mainly due to management bonuses. Research
and development expenses in both Industrial Products and Information Technology
sectors increased in 2000 as compared to 1999 to support development of new and
enhanced product offerings.

INTEREST INCOME - In 2001, we recorded $1.0 million in interest income compared
to interest income of $434,000 in 2000 and interest expense of $88,000 in 1999.
The increase in 2001 compared to 2000 is mainly related to interest earned on a
$3.5 million, high-interest note through April 2001 and significant cash
balances since then, both related to our PaySys affiliate sale. In 2000 as
compared to 1999, we earned interest on substantially higher levels of cash
during the first half of 2000 and also earned interest on a higher level of
notes at higher rates of interest in 2000.

INVESTMENT INCOME - Investment income related to sales of affiliate companies
has been a major source of our profits in each of the last two years. In 2001,
the main components of investment income of $19.9 million are $17.8 million
from the sale of our interest in PaySys and a gain of $1.9 million on sales
related to Risk Laboratories. For 2000, we recorded a gain of $8.6 million on
the sale of part of our ownership in Risk Laboratories as well as investment
gains totaling $1.0 million related to sales of shares of common stock of
Primus and S1. In 1999, we recorded net investment income of $1.2 million on
the sale of equity holdings in three private software companies and a gain of
$995,000 on the sale of our holdings in MediaMetrix stock. Refer to Note 3 for
details on the sale transactions described in this section.

EQUITY LOSSES OF AFFILIATES - On a quarterly basis, we recognize our pro rata
share of the earnings or losses of affiliate companies that we record on the
equity method. These companies are typically early stage companies that incur
losses during their development and early revenue stages. We recorded $2.2
million of net equity losses in 2001, compared to $771,000 and $948,000 in net
equity losses in 2000 and 1999, respectively. In 2001, the majority of the
equity loss relates to Delos Payment Systems whereas the majority of the equity
loss in 2000 and in 1999 relates to VISaer.

OTHER INCOME - Other income/expense in each of the last three years consists of
miscellaneous, non-recurring sources of income and expense. Included in 2001 is
$961,000 of deferred gain related to a VISaer product line sale in July 2000.
In 1999, this category includes a non-recurring charge of $141,500 related to a
former subsidiary bankruptcy case.

TAXES - In 2001, we incurred income tax expense of $173,000, representing a tax
liability of $384,000 for alternative minimum tax on the PaySys transaction
(tax loss carryforwards offset 90 percent of the gain) and a tax benefit of
$211,000 recorded at the VISaer subsidiary. We incurred income tax expense
totaling $203,000 in 2000 relating to operating income at the QS Technologies
subsidiary and a small amount of investment income related to the Risk
Laboratories sale that could not be sheltered by tax loss carryforwards. We had
no income tax expense in 1999 because investment gains were offset by capital
loss carryforwards.

COMMON SHARES - In 2001, we repurchased 1,132,000 shares of our common stock,
including one million shares in the self-tender offer completed July 12, 2001.
In 2000, executive officers exercised options to acquire a total of 635,986
shares of common stock and surrendered a total of 101,769 shares of common
stock in partial payment of the exercise price. We also repurchased and retired
24,900 shares during 2000 pursuant to a stock repurchase plan announced in
August 2000.

LIQUIDITY AND CAPITAL RESOURCES

For the year ended December 31, 2001, our principal sources of cash were $17.8
million from the sale of our interest in PaySys, $4.3 million from repayment of
principal and interest related to a bridge loan to PaySys, $1.9 million from
the sale of our Risk units, $842,000 on sales of other investments and $195,000
in interest from other


                        INTELLIGENT SYSTEMS CORPORATION
                                    - 11 -
<PAGE>


notes receivable and bank balances. During the year, our principal uses of cash
were $5.8 million to acquire and retire 1,132,000 shares of our common stock,
$1.5 million to retire our bank debt, $400,000 for bridge loans to investees,
$2.8 million for follow-on investments in technology companies and $2.0 million
for operations, principally to fund working capital needs at VISaer and the
corporate office.

Long-term investments decreased $3.0 million at December 31, 2001 compared to
the prior year-end. The main component of this amount is reclassification of
$2.9 million of the carrying value of VISaer when it was acquired in July 2001
and we began consolidating its results. The balance of the decline is a
combination of new investments in technology companies, equity losses of
affiliate companies, sales of investments and changes in market prices of
publicly held stocks. Increases year-to-year in the balances of accounts
receivable, accounts payable, other accrued liabilities, deferred revenue and
deferred gain are principally the result of consolidating the assets and
liabilities of VISaer since its acquisition. Inventories increased year-to-year
to support a higher level of sales at ChemFree.

As of December 31, 2001, we have cash of $12.0 million. We believe our cash
balances and available-for-sale securities will be adequate to support our
operations and plans for the foreseeable future. As we have in the past, we
expect to continue to identify opportunities for new and follow-on investments
or acquisitions and would expect to use some available cash for these purposes.
Since the terrorist attacks of September 11, 2001, our Information Technology
segment has experienced delays in contract awards and implementations which, if
they continue, may have a negative impact on results of operations and increase
the segment's cash requirements, which we intend to fund or arrange funding
for. However, we believe we have more than adequate cash reserves to meet any
such needs. We do not have off-balance sheet arrangements, relationships,
transactions or guarantees with third parties or related parties that would
affect our liquidity or results of operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amount of assets,
liabilities, revenues and expenses. We consider certain accounting policies
related to revenue recognition, valuation of acquired intangibles and
impairment of long-lived assets, and valuation of investments to be critical
policies due to the estimation processes involved in each. For a detailed
description on the application of these and other accounting policies, see Note
1 to the Consolidated Financial Statements beginning on page F-7.

Revenue Recognition. Our product revenue consists of fees from software
licenses and sales of equipment and supplies. Our service revenue consists of
fees for implementation, consulting, training, maintenance and support for
software products. A portion of our revenue is derived from software contracts
that contain significant production, modification and/or customization
requirements and license fees for such contracts are recognized using contract
accounting. We recognize revenue on a percentage of completion basis that
involves estimating our progress on the contract based on input measures. We
recognize revenue and the related costs in the same proportion that the amount
of labor hours incurred to date bears to the total estimated hours required for
contract completion. If reliable estimates cannot be determined or if there is
an acceptance clause in the contract, all revenue is deferred until the
customer has accepted the software and any refund rights have expired. If we do
not accurately estimate the resources required or the scope of work to be
performed, or we do not manage the contract properly, in future periods we may
need to restate revenues or to incur additional cost which would impact our
margins and reported results.

Valuation of Intangibles. Purchase accounting for an acquisition requires use
of accounting estimates and judgments to allocate the purchase price to the
fair market value of the assets and liabilities purchased. Our business
acquisitions typically result in goodwill and other intangible assets. The
determination of the value of such intangible assets requires management to
make estimates and assumptions that affect the amount of future period
amortization expenses and possible impairment expense that we will incur.
Periodically we review the values assigned to long-lived assets using an
estimate of the undiscounted cash flows of the entity over the remaining life
of the asset. Any resulting impairment could require a write-down that would
have a material adverse impact on our financial condition or results of
operations.


                        INTELLIGENT SYSTEMS CORPORATION
                                    - 12 -
<PAGE>


Valuation of Investments. We hold minority interests in non-publicly traded
companies whose values are difficult to determine and are based on management's
estimate of realizability of the carrying value of the investment. Future
adverse changes in market conditions, poor operating results or lack of
progress of the underlying investment could result in losses or an inability to
recover the current carrying value of the investment. Our policy is to record
an impairment charge when we believe an investment has experienced a decline in
value that is other than temporary. Such charges could have a material adverse
impact on our financial condition or results of operations. We also hold
minority interests in several publicly-traded companies whose shares experience
price volatility and are thinly traded. The carrying value of these investments
reflects the market value of the shares at the balance sheet date. Future
values could increase or decrease and we may not be able to realize the current
carrying value due to changes in the market price of the stock or limited
liquidity of the stock.

FACTORS THAT MAY AFFECT FUTURE OPERATIONS

Future operations in both the Information Technology and Industrial Products
segments are subject to risks and uncertainties that may negatively impact our
results or projected cash requirements. In addition, the value of our
investments are impacted by a number of factors beyond our control. Among the
factors that may affect our consolidated results of operations are delays in
product development, undetected software errors, competitive pressures,
technical difficulties, market acceptance of our products, availability of
technical personnel, changes in customer requirements, delays in customer
payments, changes in financial markets, performance and financial condition of
affiliate or investee companies, and general economic conditions.

In 2001, we loaned $1.5 million to an affiliate company, Delos Payment Systems,
Inc., a development stage software company, under a secured loan agreement. The
affiliate loan was recorded as an equity investment and we subsequently
recorded $1.42 million in equity losses related to Delos, reducing the carrying
value of our investment to $80,000 at December 31, 2001. In early January 2002,
Delos defaulted on repayment of the loan, we acquired control of the Delos
board of directors and, consequently, we are consolidating the Delos operations
and our 27 percent ownership of common stock of Delos in 2002. We are providing
additional borrowings of $1.5 million to Delos under the loan and are
considering investing funds to increase our ownership to a significant majority
position. It will incur operating losses that we will consolidate and it will
require cash to operate in 2002. While we have no contractual requirement to
provide additional funding, we are likely to use part of our available cash
balances to support the Delos operations in the near-term. If Delos is
unsuccessful or if we decide to suspend funding, we may not recover all of
these funds.

As a result of consolidating Delos, we will record intangible assets upon
consolidation in the first quarter of 2002 in accordance with SFAS 141. It is
possible that the intangibles will be mainly in-process research and
development and goodwill and the goodwill may be impaired for a number of
reasons. Some of the factors that may negatively impact the value of the
goodwill are significant non-competition restrictions related to the sale of
PaySys in April 2001 that limit who Delos can sell its products to for varying
time periods through 2006, risks associated with completing and testing the
initial software application, lack of a proven business model and customers, a
limited operating history, and unproven market acceptance of the Delos software
features and architecture. If the company determines that the intangibles are
impaired, it will need to write-down their value to net realizable value in the
first quarter of 2002 in accordance with SFAS 142, resulting in a charge to
earnings of approximately $1 million. Despite the possible impairment charge,
we made the additional loan of $1.5 million to Delos to protect our investment
and future alternatives.

We have certain lease commitments, legal matters and contingent liabilities
described in detail in Note 10 to the consolidated financial statements. We are
not aware presently of any facts or circumstances related to these that are
likely to have a material negative impact on our results of operations or
financial condition.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not have any material market risk because we have no long-term
borrowings.


                        INTELLIGENT SYSTEMS CORPORATION
                                    - 13 -
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted as a separate section of this report.
See page F-1.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

No independent public accountant of the company has resigned, indicated any
intent to resign or been dismissed as the independent public accountant of the
company during the two years ended December 31, 2001 or at any time afterward.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Please refer to the subsection entitled "Proposal 1 - The Election of Directors
- - Nominees" and "Proposal 1 - The Election of Directors - Executive Officers"
in our Proxy Statement for the Annual Meeting of Shareholders to be held on May
23, 2002 for information about those individuals nominated as directors and
about the executive officers of the company. This information is incorporated
into this Item 10 by reference. Information regarding compliance by directors
and executive officers of the company and owners of more than 10 percent of our
common stock with the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934, as amended, is contained under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Proxy Statement mentioned
above. This information is incorporated into this Item 10 by reference.

ITEM 11. EXECUTIVE COMPENSATION

Please refer to the subsection entitled "Proposal 1 - The Election of Directors
- - Executive Compensation" in the Proxy Statement referred to in Item 10 for
information about management compensation. This information is incorporated
into this Item 11 by reference, except that we specifically do not incorporate
into this Item 11 the information in the subsections entitled "Proposal 1 - The
Election of Directors - Executive Compensation - Board Compensation Committee
Report on Executive Compensation" and "Performance Graph."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Please refer to the subsection entitled "Voting - Principal Shareholders,
Directors and Certain Executive Officers" in the Proxy Statement referred to in
Item 10 for information about the ownership of our $0.01 par value common stock
by certain persons. This information is incorporated into this Item 12 by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On January 5, 2000, three officers of the company exercised stock options and
issued to the company promissory notes bearing interest at the rate of seven
percent per annum in payment of the exercise price. J. Leland Strange,
President and Chief Executive Officer of the company and the beneficial owner
of greater than 5% of our common stock issued the company a promissory note for
$380,000 representing the total exercise price of his options. Bonnie L.
Herron, Vice President and Chief Financial Officer, and Francis A. Marks, Vice
President, each issued the company a promissory note for $258,750 representing
the total exercise price of their respective options. The loans were repaid at
various dates in 2000 and 2001 and no amounts are outstanding as of December
31, 2001.

In April 2001, J. Leland Strange, a director, and President and Chief Executive
Officer of the company, participated as a common stockholder in the sale of all
of the outstanding preferred and common stock of PaySys International, Inc., a
former affiliate company, to First Data Corporation ("FDC"). The company sold
its interest in PaySys to FDC for $17.8 million as part of the sale
transaction. Mr. Strange's shares, which he had owned since 1983 prior to the
company's investment in PaySys in 1994, represented less than one percent of
PaySys' outstanding shares. The proceeds from the sale of his PaySys stock were
$594,000, which was based on the same price per share paid to all common
shareholders of PaySys by FDC.


                        INTELLIGENT SYSTEMS CORPORATION
                                    - 14 -
<PAGE>


Each of the named officers of the company participated on a pro rata basis with
other shareholders of the company pursuant to the company's tender offer on
July 12, 2001. In addition, each officer sold shares of common stock to the
company at $4.20 per share (which was the closing price of the company's common
stock on July 20, 2001, the sale date) to meet the requirements of Section 302
of the Internal Revenue Code for capital gains treatment of shares sold by the
officers in the tender offer. J. Leland Strange, a director, President and
Chief Executive Officer, and the beneficial owner of more than 5 percent of the
company's common stock, sold 47,619 shares for a total sales price of $200,000;
Bonnie L. Herron, Vice President and Chief Financial Officer, sold 47,619
shares for a total sales price of $200,000; and Francis A. Marks, Vice
President, sold 18,500 shares for a total sales price of $77,700. The officers
previously reported these sale transactions on Forms 4 filed with the
Securities and Exchange Commission.

On March 14, 2002, the shareholders of Risk Laboratories, a former affiliate of
the company, sold their remaining ownership interests to the same buyer that
had purchased majority control of Risk in March of 2000. The company and J.
William Goodhew, a vice president of the company and minority shareholder in
Risk, each sold their respective ownership interests along with all other
minority shareholders in the $6 million transaction. Mr. Goodhew's pro rata
share of the sale proceeds was $429,600 and the company's pro rata share was
$474,000. The company previously sold most of its ownership in Risk in several
transactions totaling $10.7 million in proceeds.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A)      DOCUMENTS FILED AS PART OF THIS REPORT.

         1.       Financial Statements

         The following consolidated financial statements and related reports of
independent public accountants are included in this report and are incorporated
by reference in Part II, Item 8 hereof. See the Index to Financial Statements
and Supplemental Schedules on page F-1 hereof.

         Report of Independent Public Accountants
         Consolidated Balance Sheets at December 31, 2001 and 2000
         Consolidated Statements of Operations for the three years ended
         December 31, 2001
         Consolidated Statements of Changes in Stockholders' Equity and
         Comprehensive Income for the three years ended December 31, 2001
         Consolidated Statements of Cash Flow for the three years ended
         December 31, 2001
         Notes to Consolidated Financial Statements

         2.       Financial Statement Schedules

         We are including the financial statement schedules listed below in
this report. We omitted all other schedules required by certain applicable
accounting regulations of the Securities and Exchange Commission because the
omitted schedules are not required under the related instructions or do not
apply or because we have included the information required in the consolidated
financial statements or notes thereto. See the Index to Financial Statements
and Supplemental Schedules on page F-1 hereof.

         Schedule II - Valuation and Qualifying Accounts and Reserves

         Report of Independent Auditors for PaySys International, Inc.
         Consolidated Balance Sheets of PaySys at December 31, 2000 and 1999
         Consolidated Statements of Operations of PaySys for the three years
         ended December 31, 2000
         Consolidated Statements of Changes in Stockholders' Equity (Deficit)
         of PaySys for the three years ended December 31, 2000
         Consolidated Statements of Cash Flow of PaySys for the three years
         ended December 31, 2000
         Notes to Consolidated Financial Statements of PaySys


                        INTELLIGENT SYSTEMS CORPORATION
                                    - 15 -
<PAGE>


         Report of Independent Public Accountants for VISaer, Inc.
         Consolidated Balance Sheet of VISaer, Inc. at December 31, 2000
         Consolidated Statement of Operations of VISaer, Inc. for the year
         ended December 31, 2000
         Consolidated Statement of Comprehensive Loss of VISaer, Inc. for the
         year ended December 31, 2000
         Consolidated Statement of Redeemable Convertible Preferred Stock and
         Stockholders' Deficit of VISaer, Inc. for the year ended December 31,
         2000
         Consolidated Statement of Cash Flow of VISaer, Inc. for the year ended
         December 31, 2000
         Notes to Consolidated Financial Statements of VISaer, Inc.

         Report of Independent Public Accountants for VISaer (UK) Limited
         Report of Independent Public Accountants for VISaer (IRL) Limited

         Report of Independent Public Accountants for Visibility, Inc.
         Consolidated Balance Sheets of Visibility at December 31, 1999
         Consolidated Statements of Operations of Visibility for the year ended
         December 31, 1999
         Consolidated Statements of Changes in Stockholders' Equity of
         Visibility for the year ended December 31, 1999
         Consolidated Statements of Cash Flow of Visibility for the year ended
         December 31, 1999
         Notes to Consolidated Financial Statements of Visibility, Inc.

         Report of Independent Public Accountants for Cirronet, Inc.
         Balance Sheet of Cirronet, Inc. at December 31, 2001 (unaudited) and
         December 31, 2000 (unaudited)
         Statement of Operations of Cirronet, Inc. for the two years ended
         December 31, 2001 (unaudited) and the year ended December 31, 1999
         (audited)
         Statement of Changes in Stockholders' Equity of Cirronet, Inc. for the
         two years ended December 31, 2001 (unaudited) and the year ended
         December 31, 1999 (audited)
         Statement of Cash Flow of Cirronet, Inc. for the two years ended
         December 31, 2001 (unaudited) and the year ended December 31, 1999
         (audited)
         Notes to Financial Statements of Cirronet, Inc.

         3.       Exhibits

         We are filing the following exhibits with this report or incorporating
them by reference to earlier filings. Shareholders may request a copy of any
exhibit by contacting Bonnie L. Herron, Secretary, Intelligent Systems
Corporation, 4355 Shackleford Road, Norcross, Georgia 30093; telephone (770)
381-2900. There is a charge of $.50 per page to cover expenses of copying and
mailing.

3(i)     Amended and Restated Articles of Incorporation of the Registrant dated
         November 14,1991, as amended November 25, 1997. (Incorporated by
         reference to Exhibit 3.1 to the Registrant's Annual Report on Form
         10-K for the year ended December 31, 1991 and to Exhibit 3.1 to the
         Registrant's Report on Form 8-K dated November 25, 1997.)

3(ii)    Bylaws of the Registrant dated June 6, 1997. (Incorporated by
         reference to Exhibit 3(ii) of the Registrant's Form 10-K/A for the
         year ended December 31, 1997.)

4.1      Rights Agreement dated as of November 25, 1997 between the Registrant
         and American Stock Transfer & Trust Company as Rights Agent.
         (Incorporated by reference to Exhibit 4.1 of the Registrant's Report
         on Form 8-K dated November 25, 1997 and filed on December 16, 1997.)

4.2      Form of Rights Certificate. (Incorporated by reference to Exhibit 4.2
         of the Registrant's Report on Form 8-K dated November 25, 1997 and
         filed on December 16, 1997.)


                        INTELLIGENT SYSTEMS CORPORATION
                                    - 16 -
<PAGE>


10.1     Lease Agreement dated March 11, 1985, between a subsidiary of the
         Registrant and A.R. Weeks. (Incorporated by reference to Exhibit 10.1
         to Intelligent Systems Corporation Annual Report on Form 10-K for the
         fiscal year ended March 31, 1986.)

10.2     Second Amendment to Lease Agreement dated June 19, 1997 between a
         subsidiary of the Registrant and A.R. Weeks. (Incorporated by
         reference to Exhibit 10.2 of the Registrant's Form 10-K for the year
         ended December 31, 1997.)

10.3     Management Compensation Plans and Arrangements:
         (a)      Intelligent Systems Corporation 1991 Stock Incentive Plan,
                  amended June 6, 1997.
         (b)      Intelligent Systems Corporation Change in Control Plan for
                  Officers.
         (c)      Intelligent Systems Corporation Outside Director's Retirement
                  Plan.
         (d)      Non-Employee Directors Stock Option Plan.

         Item 10.3 (a) is incorporated by reference to Exhibit 4.1 of the
         Registrant's Form S-8 dated July 25, 1997.

         Items 10.3 (b) and (c) are incorporated by reference to Exhibit 10.4
         to the Registrant's Form 10-K for the year ended December 31, 1993.

         Item 10.3 (d) is incorporated by reference to Exhibit 10.3 to the
         Registrant's Form 10-K for the year ended December 31, 2000.

10.4     Series A-1 Convertible Preferred Stock Purchase Agreement dated as of
         July 1, 2001 by and between VISaer, Inc., Intelligent Systems
         Corporation and other third parties.

10.5     7 X 24 Agreement dated as of June 26, 2001 between United Parcel
         General Services Co. and VISaer, Inc.

10.6     Warrant to Purchase Common Stock of VISaer, Inc. dated December 7,
         2001 issued to United Parcel General Services Co.

10.7     Software License Agreement dated as of April 27, 2001 by and between
         PaySys International, Inc. and Delos Payment Systems, Inc.

10.8     Trade Secret License Agreement dated as of April 27, 2001 by and
         between PaySys International, Inc. and Delos Payment Systems, Inc.

10.9     Non-Competition Agreement made as of April 27, 2001 by and between
         First Data Corporation, J. Leland Strange and PaySys International,
         Inc.

10.10    Subscription Agreement dated August 23, 2001 between the Registrant
         and Delos Payment Systems, Inc.

21.1     List of subsidiaries of Registrant.

23.1     Consent of Arthur Andersen LLP.

23.2     Consent of Ernst and Young LLP.

23.3     Consent of Moody, Famiglietti and Andronico LLP.

23.4     Consent of Hacker Young.

23.5     Consent of Arthur Andersen.

23.6     Consent of Arthur Andersen LLP.


                        INTELLIGENT SYSTEMS CORPORATION
                                    - 17 -
<PAGE>


(B)      REPORTS ON FORM 8-K.

We did not file any reports on Form 8-K during the quarter ended December 31,
2001.

(C)      SEE ITEM 14(A)(3) ABOVE.

(D)      SEE ITEM 14(A)(2) ABOVE.


                                   SIGNATURES

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


                                             INTELLIGENT SYSTEMS CORPORATION
                                             Registrant

Date:  March 22, 2002                        By:  /s/ J. Leland Strange
                                                -------------------------------
                                                J. Leland Strange
                                                Chairman of the Board, President
                                                and Chief Executive Officer

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

<TABLE>
<CAPTION>
SIGNATURE                            CAPACITY                                         DATE
<S>                                  <C>                                              <C>
/s/ J. Leland Strange                Chairman of the Board, President,                March 22, 2002
- ---------------------                Chief Executive Officer and Director
    J. Leland Strange                (Principal Executive Officer)

/s/ Bonnie L. Herron                 Chief Financial Officer                          March 22, 2002
- ---------------------                (Principal Accounting
    Bonnie L. Herron                 and Financial Officer)

/s/ Donald A. McMahon                Director                                         March 22, 2002
- ---------------------
    Donald A. McMahon

/s/ James V. Napier                  Director                                         March 22, 2002
- ---------------------
    James V. Napier

/s/ John B. Peatman                  Director                                         March 22, 2002
- ---------------------
    John B. Peatman

/s/ Parker H. Petit                  Director                                         March 22, 2002
- ---------------------
    Parker H. Petit
</TABLE>


                        INTELLIGENT SYSTEMS CORPORATION
                                    - 18 -
<PAGE>


                        INTELLIGENT SYSTEMS CORPORATION
            INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES

The following consolidated financial statements and schedules of the Registrant
and its subsidiaries are submitted herewith in response to Item 8:

FINANCIAL STATEMENTS:

<TABLE>
     <S>                                                                                                              <C>
     Report of Independent Public Accountants.........................................................................F-2
     Consolidated Balance Sheets - December 31, 2001 and 2000.........................................................F-3
     Consolidated Statements of Operations -
        Three Years Ended December 31, 2001...........................................................................F-4
     Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income -
        Three Years Ended December 31, 2001...........................................................................F-5
     Consolidated Statements of Cash Flow -
        Three Years Ended December 31, 2001...........................................................................F-6
     Notes to Consolidated Financial Statements.......................................................................F-7
</TABLE>

FINANCIAL STATEMENT SCHEDULES:

The following supplemental schedules of the Registrant and its subsidiaries are
submitted herewith in response to Item 14(a)(2):

<TABLE>
     <S>                                                                                                              <C>
     Schedule II - Valuation and Qualifying Accounts and Reserves.....................................................S-1
     Report of Independent Auditors for PaySys International, Inc.....................................................S-2
        Consolidated Balance Sheets of PaySys at December 31, 2000 and 1999...........................................S-3
        Consolidated Statements of Operations of PaySys for the three years ended December 31, 2000...................S-4
        Consolidated Statements of Changes in Shareholders' Equity (Deficit) of PaySys for the three years
          ended December 31, 2000.....................................................................................S-5
        Consolidated Statements of Cash Flow of PaySys for the three years ended December 31, 2000....................S-6
        Notes to Consolidated Financial Statements of PaySys..........................................................S-7
     Report of Independent Public Accountants for VISaer, Inc........................................................S-32
        Consolidated Balance Sheet of VISaer, Inc. at December 31, 2000..............................................S-33
        Consolidated Statement of Operations of VISaer, Inc. for the year ended December 31, 2000....................S-34
        Consolidated Statement of Comprehensive Loss of VISaer, Inc. for the year ended
          December 31, 2000..........................................................................................S-35
        Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders' Deficit of
          VISaer, Inc. for the year ended December 31, 2000..........................................................S-36
        Consolidated Statement of Cash Flow of VISaer, Inc. for the year ended December 31, 2000.....................S-37
        Notes to Consolidated Financial Statements of VISaer, Inc. ..................................................S-38
     Report of Independent Public Accountants for VISaer (UK) Limited................................................S-48
     Report of Independent Public Accountants for VISaer (IRL) Limited...............................................S-49
     Report of Independent Public Accountants for Visibility, Inc....................................................S-50
        Consolidated Balance Sheets of Visibility at December 31, 1999...............................................S-51
        Consolidated Statements of Operations of Visibility for the year ended December 31, 1999.....................S-52
        Consolidated Statements of Changes in Stockholders' Equity of Visibility for the year ended
              December 31, 1999......................................................................................S-53
        Consolidated Statements of Cash Flow of Visibility for the year ended December 31, 1999......................S-54
        Notes to Consolidated Financial Statements of Visibility, Inc................................................S-55
     Report of Independent Public Accountants for Cirronet, Inc......................................................S-68
        Balance Sheet of Cirronet, Inc. at December 31, 2001 and 2000 (unaudited)....................................S-69
        Statement of Operations of Cirronet, Inc. for the two years ended December 31, 2001 (unaudited) and the
          year ended December 31, 1999 (audited).....................................................................S-70
        Statement of Changes in Shareholders' Equity of Cirronet, Inc. for the two years ended December 31, 2001
          (unaudited) and the year ended December 31, 1999 (audited).................................................S-71
        Statement of Cash Flow of Cirronet, Inc. for the two years ended December 31, 2001 (unaudited)
          and the year ended December 31, 1999 (audited).............................................................S-72
        Notes to Financial Statements of Cirronet, Inc...............................................................S-73
</TABLE>


                        INTELLIGENT SYSTEMS CORPORATION
                                      F-1
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO INTELLIGENT SYSTEMS CORPORATION:

We have audited the accompanying consolidated balance sheets of Intelligent
Systems Corporation (a Georgia corporation) and its subsidiaries as of December
31, 2001 and 2000, and the related consolidated statements of operations,
changes in stockholders' equity and comprehensive income, and cash flows for
each of the three years in the period ended December 31, 2001. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. The summarized financial
data for PaySys International, Inc. contained in Note 4 are based on the
financial statements of PaySys International, Inc. which were audited by other
auditors. Their report has been furnished to us and our opinion, insofar as it
relates to the data in Note 4, is based solely on the report of the other
auditors. We did not audit the December 31, 2000 financial statements of
VISaer, Inc., an investment which is reflected in the accompanying financial
statements using the equity method of accounting. The investment in VISaer,
Inc. represents 16 percent of total assets in 2000, and the equity in 2000 net
loss represents 9 percent of consolidated net income for 2000. The statements
of PaySys International, Inc. and VISaer, Inc. were audited by other auditors
whose reports have been furnished to us and our opinion, insofar as it relates
to the amounts included for PaySys International, Inc. and VISaer, Inc., is
based solely on the reports of the other auditors.

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

In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Intelligent Systems Corporation and its
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted
in the United States.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule II in Item
14(a)(2) is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.


ARTHUR ANDERSEN LLP



Atlanta, Georgia
March 1, 2002


                        INTELLIGENT SYSTEMS CORPORATION
                                      F-2
<PAGE>


                        INTELLIGENT SYSTEMS CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                      (in thousands except share amounts)

<TABLE>
<CAPTION>
AS OF DECEMBER 31,                                                                           2001                2000
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>                <C>
ASSETS
- -----------------------------------------------------------------------------------------------------------------------
Current assets:
  Cash                                                                                      $ 12,026           $    594
  Accounts receivable, net                                                                     2,297              1,253
  Notes and interest receivable                                                                  424              4,088
  Inventories                                                                                    547                475
  Other current assets                                                                           353                268
- -----------------------------------------------------------------------------------------------------------------------
    Total current assets                                                                      15,647              6,678
- -----------------------------------------------------------------------------------------------------------------------
Long-term investments                                                                          7,476             10,504
Long-term notes receivable                                                                        --                378
Property and equipment, at cost less accumulated depreciation                                    664                482
Intangibles, net                                                                               2,271                 --
Other assets, net                                                                                 31                 15
- -----------------------------------------------------------------------------------------------------------------------
Total assets                                                                                $ 26,089           $ 18,057
=======================================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------
Current liabilities:
  Short-term borrowings                                                                     $     --           $  1,504
  Accounts payable                                                                             1,013                357
  Deferred revenue                                                                             1,536                661
  Deferred gain                                                                                1,328                 --
  Accrued expenses and other current liabilities                                               1,564                861
- -----------------------------------------------------------------------------------------------------------------------
    Total current liabilities                                                                  5,441              3,383
- -----------------------------------------------------------------------------------------------------------------------
Deferred revenue, net of current portion                                                       2,596                 --
Other long-term liabilities                                                                       80                 --
- -----------------------------------------------------------------------------------------------------------------------
    Total long term liabilities                                                                2,676                 --
- -----------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (note 10)
Redeemable preferred stock of subsidiary                                                         114                 --
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
  Common stock, $.01 par value, 20,000,000 shares authorized, 4,495,530 and
      5,623,784 issued and outstanding at December 31, 2001 and 2000, respectively                45                 56
  Paid-in capital                                                                             18,438             24,216
  Accumulated other comprehensive loss                                                          (355)              (215)
  Accumulated deficit                                                                           (270)            (9,383)
- -----------------------------------------------------------------------------------------------------------------------
    Total stockholders' equity                                                                17,858             14,674
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                                                  $ 26,089           $ 18,057
=======================================================================================================================
</TABLE>

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


                        INTELLIGENT SYSTEMS CORPORATION
                                      F-3
<PAGE>


                        INTELLIGENT SYSTEMS CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands except share amounts)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,                                                2001                    2000                     1999
- -------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                     <C>                     <C>
Revenue
   Products                                                         $     5,321             $     4,824             $     4,856
   Services                                                               3,397                   2,203                   3,623
- -------------------------------------------------------------------------------------------------------------------------------
    Total revenue                                                         8,718                   7,027                   8,479
- -------------------------------------------------------------------------------------------------------------------------------
Cost of sales
   Products                                                               2,633                   2,432                   2,410
   Services                                                               1,439                     542                   1,573
- -------------------------------------------------------------------------------------------------------------------------------
    Total cost of sales                                                   4,072                   2,974                   3,983
- -------------------------------------------------------------------------------------------------------------------------------
Gross profit                                                              4,646                   4,053                   4,496
Expenses
    Marketing                                                             2,090                     942                   1,021
    General & administrative                                              9,605                   3,172                   3,469
    Research & development                                                3,371                     915                     805
- -------------------------------------------------------------------------------------------------------------------------------
Loss from operations                                                    (10,420)                   (976)                   (799)
- -------------------------------------------------------------------------------------------------------------------------------
Other income
    Interest income (expense), net                                        1,017                     434                     (88)
    Investment income, net                                               19,902                   9,665                   2,170
    Equity losses of affiliate companies                                 (2,173)                   (771)                   (948)
    Other income (loss), net                                                960                      66                     (76)
- -------------------------------------------------------------------------------------------------------------------------------
Income before income tax provision and minority interest                  9,286                   8,418                     259
- -------------------------------------------------------------------------------------------------------------------------------
Income tax provision                                                        173                     203                      --
- -------------------------------------------------------------------------------------------------------------------------------
Income before minority interest                                           9,113                   8,215                     259
- -------------------------------------------------------------------------------------------------------------------------------
Minority interest                                                            --                      --                      10
- -------------------------------------------------------------------------------------------------------------------------------
Net income                                                          $     9,113             $     8,215             $       249
===============================================================================================================================
Basic net income per share                                          $      1.78             $      1.47             $      0.05
Diluted net income per share                                        $      1.77             $      1.46             $      0.05
===============================================================================================================================
Basic weighted average shares outstanding                             5,108,413               5,606,715               5,106,134
Diluted weighted average shares outstanding                           5,145,691               5,632,484               5,336,776
===============================================================================================================================
</TABLE>

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


                        INTELLIGENT SYSTEMS CORPORATION
                                      F-4
<PAGE>


                        INTELLIGENT SYSTEMS CORPORATION
                     CONSOLIDATED STATEMENTS OF CHANGES IN
                 STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                      (in thousands except share amounts)

<TABLE>
<CAPTION>
                                                                                         YEAR ENDED DECEMBER 31,
                                                                             2001                  2000                   1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                   <C>                   <C>
STOCKHOLDERS' EQUITY
COMMON STOCK, NUMBER OF SHARES, beginning of year                           5,623,784             5,114,467             5,104,467
Exercise of options during year                                                 3,334               635,986                10,000
Purchase and retirement of stock                                           (1,131,588)             (126,669)                   --
- ---------------------------------------------------------------------------------------------------------------------------------
  End of year                                                               4,495,530             5,623,784             5,114,467
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK, AMOUNT, beginning of year                                   $        56           $        51           $        51
Exercise of options during year                                                    --                     6                    --
Purchase and retirement of stock                                                  (11)                   (1)                   --
- ---------------------------------------------------------------------------------------------------------------------------------
  End of year                                                                      45                    56                    51
- ---------------------------------------------------------------------------------------------------------------------------------
PAID-IN CAPITAL, beginning of year                                             24,216                24,069                24,046
Proceeds from options exercised                                                    14                 1,085                    23
Purchase and retirement of stock                                               (5,792)                 (938)                   --
- ---------------------------------------------------------------------------------------------------------------------------------
  End of year                                                                  18,438                24,216                24,069
- ---------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), beginning of year                 (215)                  731                   436
Foreign currency translation adjustment during year                                 4                    --                   197
Change in accumulated other comprehensive income (loss)                          (144)                 (946)                   98
- ---------------------------------------------------------------------------------------------------------------------------------
  End of year                                                                    (355)                 (215)                  731
- ---------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEFICIT, beginning of year                                         (9,383)              (14,642)              (14,891)
Dividends paid                                                                     --                (2,956)                   --
Net income                                                                      9,113                 8,215                   249
- ---------------------------------------------------------------------------------------------------------------------------------
  End of year                                                                    (270)               (9,383)              (14,642)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY                                                $    17,858           $    14,674           $    10,209
=================================================================================================================================

COMPREHENSIVE INCOME
Net income                                                                $     9,113           $     8,215           $       249
Other comprehensive income:
   Foreign currency translation adjustments                                         4                    --                    --
   Unrealized gain (loss)                                                        (144)                 (946)                  731
- ---------------------------------------------------------------------------------------------------------------------------------
 Comprehensive income                                                     $     8,973           $     7,269           $       980
=================================================================================================================================
</TABLE>

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


                        INTELLIGENT SYSTEMS CORPORATION
                                      F-5
<PAGE>


                        INTELLIGENT SYSTEMS CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                        2001               2000              1999
- -------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                <C>                <C>
CASH PROVIDED BY (USED FOR):
OPERATIONS:
   Net income                                                         $  9,113           $  8,215           $   249
   Adjustments to reconcile net income to net cash
      used for operating activities, net of
      effects of acquisitions and dispositions:
         Depreciation and amortization                                   6,595                314               347
         Investment income, net                                        (19,902)            (9,665)           (2,170)
         Equity loss of affiliate companies                              2,173                771               948
         Changes in operating assets and liabilities, net of
            effects of acquisition
            Accounts receivable                                            (33)               249                19
            Inventories                                                    (72)              (149)              279
            Other current assets                                           126                 66               290
            Accounts payable                                              (166)               (87)             (459)
            Accrued expenses and other current liabilities                 149               (124)              315
- -------------------------------------------------------------------------------------------------------------------
Cash used for continuing operations                                     (2,017)              (410)             (182)
===================================================================================================================

INVESTING ACTIVITIES:
   Proceeds from sales of investments                                   20,540             10,291             2,365
   Acquisition of company, net of cash acquired                             81                 --                --
   Increase (decrease) in minority interests                                --                  5              (190)
   Acquisitions of long-term investments                                (2,806)            (3,628)             (788)
   Repayments under notes and interest receivable                        5,105                377                38
   Advances under notes and interest receivable                         (2,087)            (4,533)              (95)
   Purchases of property and equipment, net                                (95)              (111)              (13)
- -------------------------------------------------------------------------------------------------------------------
Cash provided by investing activities                                   20,738              2,401             1,317
===================================================================================================================

FINANCING ACTIVITIES:
   Borrowings under short-term borrowing arrangements                      889              1,503               262
   Repayments under short-term borrowings arrangements                  (2,393)              (763)           (1,237)
   Payment of dividends to stockholders                                     --             (2,956)               --
   Purchase and retirement of stock                                     (5,803)              (112)               --
   Exercise of stock options                                                14                194                23
   Foreign currency translation adjustment                                   4                 --                93
- -------------------------------------------------------------------------------------------------------------------
Cash used for financing activities                                      (7,289)            (2,134)             (859)
===================================================================================================================

Net increase (decrease) in cash                                         11,432               (143)              276
Cash at beginning of year                                                  594                737               461
Cash at end of year                                                   $ 12,026           $    594           $   737
===================================================================================================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid during the year for interest                             $     52           $     59           $   159
   Cash paid during the year for taxes                                     577                 --                --
</TABLE>

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


                        INTELLIGENT SYSTEMS CORPORATION
                                      F-6
<PAGE>

NOTE 1

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization - Intelligent Systems Corporation, a Georgia corporation, was
formed in November 1991 to acquire through merger the business, net assets and
operations of Intelligent Systems Master, L.P. In this document, terms such as
the company, we, us, and ISC refer to Intelligent Systems Corporation.

Nature of Operations - Our business is to create, operate and invest in
businesses which we believe have promising growth potential. Consolidated
companies (in which we have majority ownership and control) are principally
engaged in two industries: information technology products and services and
industrial products. Operations in information technology products and
services, which include our VISaer and QS Technologies subsidiaries, include
development and sales of software licenses and related professional services
and software maintenance contracts. Operations in the industrial product
segment include the manufacture and sale of bio-remediating parts washers by
our ChemFree subsidiary. In prior periods, through November 2000, we also were
involved in health care services. These operations are explained in further
detail in Note 18. Our affiliate companies (in which we have a minority
ownership) are mainly involved in the information technology industry.

Use of Estimates - In preparing the financial statements in conformity with
accounting principles generally accepted in the United States, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. These estimates and assumptions also affect amounts
of revenues and expenses during the reporting period. Actual results could
differ from these estimates.

Consolidation - The financial statements include the accounts of Intelligent
Systems Corporation and its majority owned and controlled U.S. and non-U.S.
subsidiary companies after elimination of material accounts and transactions
between our subsidiaries.

Investments - For entities in which we have 20 to 50 percent ownership interest
and do not exert control, we account for these investments by the equity
method. We account for investments of less than 20 percent in non-marketable
equity securities at the lower of cost or market. When calculating gain or loss
on the sale of an investment, we use the average cost basis of the securities.
Marketable securities are accounted for in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115). At December 31, 2001, the aggregate
fair market value of our available-for-sale securities consisted of equity
securities and totaled $2.0 million. At December 31, 2000, the aggregate fair
market value of our available-for-sale securities consisted of equity
securities and totaled $2.3 million. These amounts include net unrealized
holding losses of $359,000 and $215,000 as of December 31, 2001 and 2000,
respectively. These amounts are reflected as a separate component of
stockholders' equity.

Translation of Foreign Currencies - We consider that local currencies are the
functional currencies for foreign operations. We translate assets and
liabilities to U.S. dollars at period-end exchange rates. We translate income
and expense items at average rates of exchange prevailing during the period.
Translation adjustments are accumulated as a separate component of
stockholders' equity. Gains and losses that result from foreign currency
transactions are recorded in the consolidated statement of operations.

Cash - We consider all highly liquid instruments with maturities of less than
90 days to be cash.

Inventories - We state the value of inventories at the lower of cost or market
determined on a first-in first-out basis. Cost includes labor, materials and
production overhead. Market is defined as net realizable value.

Property and Equipment - Property and equipment are carried at cost less
accumulated depreciation. The cost of each major class of property and
equipment at December 31, 2001 and 2000 is as follows:

<TABLE>
(in thousands)                              2001      2000
- -----------------------------------------------------------
<S>                                       <C>         <C>
Operating equipment                       $1,397      $974
Furniture and fixtures                       199       117
Leasehold improvements                       241        33
- -----------------------------------------------------------
</TABLE>


                        INTELLIGENT SYSTEMS CORPORATION
                                      F-7
<PAGE>


For financial reporting purposes, with the exception of the VISaer subsidiary
which uses the straight-line method, we depreciate these assets using the 150
percent declining balance method over the estimated lives of the assets, as
follows:


<TABLE>
<CAPTION>
CLASSIFICATION                     USEFUL LIFE IN YEARS
- --------------------------------------------------------
<S>                                <C>
Operating equipment                       3-5
Furniture & fixtures                      5-7
Leasehold improvements                    1-7
- --------------------------------------------------------
</TABLE>

Accumulated depreciation and amortization was $1.2 million and $642,000 at
December 31, 2001 and 2000, respectively. Depreciation expense was $307,000,
$316,000 and $332,000 in 2001, 2000 and 1999, respectively. These expenses are
included in general and administrative expenses.

Leased Equipment - In the Industrial Products segment, certain equipment is
leased to customers. At December 31, 2002, the cost and carrying value of
equipment leased to customers is $488,000 and $101,000, respectively, and
accumulated depreciation associated with leased equipment is $387,000. The
minimum future lease revenue under non-cancelable contracts is $1.25 million at
December 31, 2001. There is no contingent rental income under the leases.

Other Assets - Other assets are carried at cost net of related amortization.
Effective July 1, 2001, we account for acquisitions in accordance with
Statement of Financial Accounting Standards No. 141, "Accounting for Business
Combinations" (SFAS 141) and Statement of Financial Accounting Standards No.
142, "Accounting for Intangible Assets" (SFAS 142). Our policy is to write off
the asset and accumulated amortization for fully amortized intangibles.
Periodically we review the values assigned to long-lived assets to determine
whether they have been permanently impaired. To measure whether long-lived
assets are recoverable, we use an estimate of the undiscounted cash flows of
the applicable entity over the remaining life of the asset. At September 30,
2001, we determined the long-lived assets associated with our VISaer subsidiary
were impaired under SFAS 121 (see Note 2). Accordingly we expensed $6.0 million
related to goodwill in general and administrative expense which is reflected in
the statements of operations for the year ended December 30, 2001. The carrying
value of intangibles at December 31, 2001 is $2.3 million, of which $1.9
million is goodwill. Also in the year ended December 31, 2001, we expensed
$425,000 of purchased research and development related to the acquisition of
VISaer (see Note 2). In 2001, 2000 and 1999, we recorded total intangible
amortization expense of approximately $92,000, $29,000 and $15,000,
respectively. Accumulated amortization of intangibles totaled $92,000 and $0 at
December 31, 2001 and 2000, respectively.

Accrued Expenses and Other Liabilities - Accrued expenses and other liabilities
at December 31, 2001 and 2000 consist of the following:

<TABLE>
<CAPTION>
(in thousands)                             2001     2000
- ---------------------------------------------------------
<S>                                        <C>     <C>
Income taxes payable                       $ --    $ 203
Accrued payroll                             761      242
Other accrued expenses                      803      416
- ---------------------------------------------------------
</TABLE>

Warranty Costs - We accrue the estimated costs associated with product
warranties as an expense in the period the related sales are recognized.

Revenue Recognition - Product revenue consists of fees from software licenses
and sales or leases of industrial products. Service revenue consists of fees
for implementation, consulting, training, maintenance and support for software
products and health care services.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues. The Company has reviewed
its revenue recognition policies and determined that they are in compliance
with SAB 101.

We recognize revenue for industrial products when products are shipped, at
which time title transfers to the customer. There are no remaining future
obligations and delivery occurs upon shipment. We provide for estimated sales
returns in the period in which the sales are recorded. For leased equipment, we
recognize revenue monthly at the contracted monthly rate during the term of the
lease.

We recognize software fees in accordance with Statement of Position No. 97-2,
"Software Revenue Recognition" ("SOP 97-2"), as amended by Statement of
Position No. 98-9, "Software Revenue Recognition, With Respect to Certain
Transactions" ("SOP 98-9"). Under SOP 97-2, we recognize software license fees
when the following criteria are met: (1) a signed contract is obtained; (2)
delivery of the product has occurred; (3) the license fee is fixed or
determinable; and (4) collectibility is


                        INTELLIGENT SYSTEMS CORPORATION
                                      F-8
<PAGE>


probable. SOP 98-9 requires recognition of revenue using the "residual method"
when (1) there is vendor-specific objective evidence of the fair values of all
undelivered elements in a multiple-element arrangement that is not accounted
for using long-term contract accounting; (2) vendor-specific objective evidence
of fair value does not exist for one or more of the delivered elements in the
arrangement; and (3) all revenue-recognition criteria in SOP 97-2 other than
the requirement for vendor-specific objective evidence of the fair value of
each delivered element of the arrangement are satisfied. Under the residual
method, the fair value of the undelivered elements is deferred and the
remaining portion of the license fee is recognized as revenue. SOP 98-9 was
effective for transactions entered into after March 15, 1999, and we adopted
the residual method for such arrangements at that time. For those contracts
that contain significant production, modification and/or customization,
software license fees are recognized utilizing contract accounting (ARB No.
45), using the relevant guidance in SOP 81-1.

For percentage of completion contracts we measure the progress toward
completion and recognize the software license fees based upon input measures
(i.e. in the same proportion that the amount of labor hours incurred to date
bears to the total estimated labor hours required for the contract). If
reliable estimates cannot be determined, we follow the completed contract
method. Under the completed contract method, all revenue is deferred until the
customer has accepted the software and any refund rights have expired.

Service revenue related to implementation, consulting, training and healthcare
services is recognized when the services are performed. Service revenue related
to software maintenance and support contracts is recognized on a straight-line
basis over the life of the contract (typically one year).

Deferred Revenue - Deferred revenue, net of current portion, consists of
advance payments from one customer and is being accounted for on a
completed-contract basis. As of December 31, 2001, the Company had an
outstanding balance of $2,596,000. The Company does not anticipate any loss
under this contract.

Fair Value of Financial Instruments - The carrying value of cash, accounts
receivable, accounts payable and other financial instruments included in the
accompanying consolidated balance sheets approximates their fair value
principally due to the short-term maturity of these instruments.

Cost of Sales - Cost of sales for product revenue includes direct material,
direct labor, production overhead and third party license fees. Cost of sales
for service revenue includes direct cost of services rendered.

Software Development Expense - We have evaluated the establishment of
technological feasibility of our products in accordance with SFAS No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed. We sell products in markets that are subject to rapid technological
change, new product development and changing customer needs; accordingly, we
have concluded that technological feasibility is not established until the
development stage of the product is nearly complete. We define technological
feasibility as the completion of a working model. The time period during which
cost could be capitalized, from the point of reaching technological feasibility
until the time of general product release, is very short and, consequently, the
amounts that could be capitalized are not material to our financial position or
results of operations. Therefore, we have charged all such costs to research
and development in the period incurred.

In accordance with AICPA SOP No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, we have expensed all cost
incurred in the preliminary project stage for software developed for internal
use. We capitalize all direct costs of materials and services consumed in
developing or obtaining internal use software. All costs incurred for upgrades,
maintenance and enhancements that do not result in additional functionality are
expensed. During the three years ended December 31, 2001, we did not capitalize
any internal use software costs.

New Accounting Pronouncements - In September 2000, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities - a Replacement of FASB Statement No. 125." This Statement
revises the standards for accounting for securitizations and other transfers of
financial assets and collateral. This statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. The adoption of this Statement did not have a significant
impact on our financial statements.


                        INTELLIGENT SYSTEMS CORPORATION
                                      F-9
<PAGE>


In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 141, "Business Combinations" (SFAS 141). This
Statement requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. See Note 2 for the impact related to the
acquisition of VISaer, Inc. Also in July 2001, the Financial Accounting
Standards Board issued SFAS No. 142, "Goodwill and Other Intangible Assets"
(SFAS 142). This Statement requires that goodwill and certain intangible
assets, including those recorded in past business combinations, no longer be
amortized to earnings, but instead be tested for impairment at least annually.
The adoption of SFAS No. 142 by the Company did not have a significant impact
on our financial statements. For acquisitions completed after June 30, 2001,
the Statement requires that goodwill not be amortized to earnings beginning
immediately. Related to the acquisition of VISaer, Inc. (Note 2), we recorded
$1.86 million of goodwill, after related charges, of which no amortization
expense is reflected in the statement of operations.

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. This Statement
is effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. We have
determined that the adoption of this Statement will not have an impact on our
financial statements.

NOTE 2

ACQUISITION

VISaer, Inc. - As of June 30, 2001, we owned 40% of VISaer, Inc. ("VISaer") and
accounted for our investment under the equity method of accounting. At that
date, we had a carrying value for VISaer of $2.86 million in long-term
investments and $1.68 million in principal and interest outstanding under
affiliate notes receivable from VISaer. VISaer, a software company that designs
and sells software that automates the maintenance, repair and overhaul (MRO)
operations of airlines, is the successor company of Visibility, Inc., an
enterprise resource planning (ERP) company whose operations were spun off a
year ago in June 2000. Effective July 1, 2001, in an unplanned restructuring
transaction involving all preferred shareholders of VISaer, we converted
$956,000 of our VISaer note receivable into a new series of preferred stock of
VISaer. In addition, VISaer repaid the balance of $725,000 owed to us shortly
after the restructuring was completed.

The debt to equity conversion in July resulted in ISC taking control of VISaer.
Our ownership of VISaer increased from 40% to 65%, and we account for the
transaction as a "step" acquisition. For financial reporting periods after July
1, 2001, we account for VISaer under the consolidation method. The accounting
treatment for the "step" acquisition and related purchase accounting of VISaer
had the result of immediately creating $8.8 million in intangible assets for
financial reporting purposes. In accordance with SFAS 141, based on third party
valuations, we identified and valued the following intangible assets: existing
software technology ($2.0 million), in-process research and development ($1.7
million) and a favorable lease contract ($200,000). At the time of the
acquisition we recorded 25% of such amounts to reflect the amount associated
with our acquisition of an additional 25% "step" of VISaer. The recorded amount
for existing software technology ($500,000) is being amortized over its
estimated useful life of three years and the recorded amount for the favorable
lease contract ($50,000) is being amortized over the remaining term of the
lease (through July 2004). We immediately expensed $425,000 (representing 4.8%
of the $8.8 million of total intangibles) related to purchased research and
development projects that had not reached technological feasibility and that
did not have an alternative future use. This amount is included in research and
development expense in the accompanying financial statements. The remaining
excess intangible value in the amount of $7.83 million was booked as goodwill
at July 1, 2001.

Post-acquisition Write-down of Goodwill - At September 30, 2001, as a result of
the terrorist attacks on September 11, 2001 which have directly impacted the
aerospace industry into which VISaer sells its software products, we evaluated
the extent to which the VISaer reporting unit might be impaired. An analysis by
a third party based on an undiscounted cash flow model determined that under
SFAS 121, the long-lived assets associated with VISaer were impaired. Based upon
this appraisal, we assessed the total fair value of VISaer at September 30, 2001
to be $3.7 million. Based on our 65% ownership, the value of our


                        INTELLIGENT SYSTEMS CORPORATION
                                     F-10
<PAGE>


ownership was $2.4 million. We expensed $6.0 million related to goodwill. The
one-time charge is included in general and administrative expense in the
consolidated financial statements for the year ended December 31, 2001. Despite
the write-down, we are committed to the VISaer business plan and have agreed to
assist VISaer with working capital needs, if any, during 2002.

NOTE 3

SALES OF ASSETS

PaySys International, Inc. - On April 27, 2001, we sold our 32 percent
ownership interest in PaySys, an affiliate company, to First Data Corporation.
In exchange for the sale of all of our shares of PaySys common stock, we
received cash proceeds of $17.8 million and recorded a pretax gain of $17.8
million. In addition, PaySys repaid $4.3 million in principal and interest
related to short-term bridge loans. In addition, an escrow fund totaling $20.0
million was set aside for potential liabilities that may arise after the
closing of the sale. The balance of the fund, after payment of any and all
claims, will be distributed pro rata to PaySys shareholders, including us, as
additional sale proceeds at various time periods over the next four years.

Immediately prior to the sale to First Data Corporation, PaySys spun off two
subsidiaries to its shareholders. Accordingly, we own approximately 27 percent
of Delos Payment Systems, Inc. and 31 percent of dbbAPPS, Inc., both
development stage companies that are continuing to develop and market a
proprietary software operating platform and application software that had been
under development by PaySys. We did not record a gain on the distribution to us
of an interest in these two companies. Rather, due to uncertainty regarding the
two early stage companies, we booked a valuation reserve equal to the net asset
value and goodwill associated with our pro rata share of the value of our
interest in Delos Payment Systems and dbbAPPS. In the fourth quarter of 2001,
in accordance with APB18, we classified a secured loan in the amount of $1.5
million to Delos Payment Systems as additional investment. At the same time, we
recaptured $1.42 million in losses related to our pro rata share of cumulative
unrecorded losses. This loss is recorded in equity loss in affiliates in the
consolidated statements of operations. The carrying value of Delos at year-end
is $80,000 and of dbbAPPS is zero.

HeadHunter.net - In the third quarter ended September 30, 2001, we sold 90,228
shares of common stock (representing all of our interest) of HeadHunter.net. We
originally acquired the shares in exchange for our holdings in privately held
MiracleWorker.net in August 2000. We received $821,000 cash and recognized a
gain of $471,000 on an original cost basis of $350,000.

PsyCare America, LLC - On November 1, 2000, we sold certain operating assets of
our subsidiary PsyCare America, LLC, consisting mainly of contracts and
intellectual property, and closed the remaining operations. We sold the assets
to iExalt, Inc. in exchange for 200,000 shares of common stock of iExalt, a
publicly traded company, and may receive additional shares based on the trading
price of the iExalt stock on the second anniversary of the transaction.

Risk Laboratories, LLC - On March 21, 2000, we sold part of our interest in
Risk Laboratories, LLC in a private transaction. We sold 2,310,000 units for
$8.8 million in cash and a gain of $8.6 million. On January 18, 2001, we sold
214,273 units of Risk to the same buyer for a total of $900,000 cash and
recorded a gain of $893,000 based on a cost basis of $7,000. At the same time,
we acquired 107,137 common units from Risk for a total acquisition price of
$450,000. Concurrent with the purchase of these units, we recaptured $450,000
in losses related to our pro rata share of cumulative unrecorded losses. This
loss is recorded in equity loss in affiliates in the accompanying consolidated
statement of operations for 2001. On May 3, 2001, we sold an additional 257,127
common units of Risk to the same buyer. We received $1.0 million cash and
recorded a second quarter gain of $1.0 million on a cost basis of zero. At
December 31, 2001, we retain 259,253 common units, representing approximately
2.7% of Risk.

Primus Knowledge System, Inc. - In January 2000, a company in which we held a
minority equity position was acquired by Primus Knowledge Solutions, Inc., a
publicly traded company. We received 66,431 shares of Primus common stock in
exchange for our interest in the acquired company. The shares were sold at
various times during 2000, resulting in a net gain of $775,000 and cash of $1.3
million.

S1 Corporation - At various times during 2000, we sold a total of 9,515 shares
of S1 Corporation common stock, which had been received as consideration for
our shares of stock in VerticalOne


                        INTELLIGENT SYSTEMS CORPORATION
                                     F-11
<PAGE>


Corporation upon the merger of the two companies in 1999. We realized net gains
of $249,000 and cash of $296,000 on the sales of S1 stock.

MediaMetrix, Inc. - As a result of a merger between Relevant Knowledge (a
company in which we were a minority investor) and MediaMetrix in 1998, we
acquired shares of MediaMetrix stock. We sold the shares in the public market
on November 6, 1999, realizing a gain of $995,000 on the sale.

Novient, Inc. - In the first quarter of 1999, we sold 66,500 shares of
preferred stock of Novient, Inc., in a private transaction, recognizing a gain
of $233,000 and netting $286,000 in cash. At December 31, 2001 we hold 227,250
shares of preferred stock in the private company.

InterQuad Services - Effective February 1, 1999, we sold our ownership in the
InterQuad Services subsidiary. We sold our interest in return for a 19 percent
interest in a privately held U.K. company whose principal asset is a 49 percent
ownership in InterQuad Group. InterQuad Group is a privately held U.K. based
company that provides computer hardware, software, training and consulting
services to businesses.

Information Advantage, Inc. - In January 1999, we sold 95,449 shares of common
stock of Information Advantage (formerly IQ Software, an affiliate company
acquired by Information Advantage in 1998). We recorded a gain on the sale of
$814,000.

NOTE 4

INVESTMENTS IN AFFILIATES

PaySys International, Inc. - Prior to the sale of PaySys on April 27, 2001
(refer to Note 3), we owned a 32.6 percent interest in PaySys International,
Inc., a software company accounted for using the equity method of accounting.
In 1997, in accordance with the equity method of accounting, we recorded $3.0
million representing our pro rata share of PaySys losses, thus reducing the
carrying value of our $3.0 million investment to zero. In subsequent periods,
we did not record any additional losses or income related to PaySys operations.
No cash dividends were received from the affiliate during 2001 and 2000.

The following table contains the summarized financial information of PaySys.

<TABLE>
<CAPTION>
- -------------------------------------------------------
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------
(in thousands)                      2000        1999
- -------------------------------------------------------
<S>                               <C>          <C>
Current assets                    $  8,747     $18,929
Current liabilities                 31,992      18,947
Noncurrent assets                    4,978       4,960
Noncurrent liabilities              12,730      16,370

Net sales                         $ 40,477     $50,068
Operating income (loss)            (20,653)        902
Net loss                           (24,527)     (1,706)
- -------------------------------------------------------
</TABLE>

*        There is no data provided for 2001 because we sold our PaySys stock in
         April 2001. See Note 3.

VISaer, Inc. - Prior to the acquisition of VISaer, Inc. (see Note 2), we owned
a 40.2 percent interest in VISaer, Inc. The investment was classified as an
affiliate and accounted for using the equity method of accounting because we
did not exert control over the company prior to the acquisition. Since the
acquisition, we have consolidated the results of VISaer. Our pro rata share of
VISaer loss was $(116,000) for the six months ended June 30, 2001 and
$(720,000) and $(1,418,000) for fiscal years 2000 and 1999, respectively. No
cash dividends were received from the affiliate in 2001 or 2000.

The following table contains the summarized financial information of VISaer.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------
(in thousands)                2001*      2000**     1999**
- -----------------------------------------------------------
<S>                        <C>        <C>        <C>
Current assets             $ 1,465    $ 1,036    $ 9,177
Current liabilities          5,184      7,794     16,862
Noncurrent assets              335        257      1,108
Noncurrent liabilities       2,677      2,632      1,972

Net sales                  $ 4,821    $11,752    $24,210
Operating loss              (3,558)    (2,757)    (3,636)
Net loss                      (184)      (583)    (4,225)
- -----------------------------------------------------------
</TABLE>

*        We have consolidated VISaer since July 1, 2001.

**       Includes results of business line sold in July 2000.

Cirronet, Inc. - At December 31, 2001, we owned an 18.2 percent interest in
Cirronet, Inc. (formerly Digital Wireless Corporation), a private company
involved in wireless telecommunication products that is accounted for using the
cost method of accounting.

During 2000, we lost the ability to exert significant influence and therefore
converted from the equity to the cost method of accounting. Our pro rata share
of Cirronet's income (loss) in 2000 and 1999 was


                        INTELLIGENT SYSTEMS CORPORATION
                                     F-12
<PAGE>


($28,000) and $184,000, respectively. No dividends were received from the
affiliate in 2001 or 2000.

The following table contains the summarized financial information of Cirronet.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------
                         2001          2000          1999
(in thousands)        (unaudited)   (unaudited)   (audited)
- -----------------------------------------------------------
<S>                    <C>             <C>         <C>
Current assets         $ 3,121         $3,279      $2,785
Current liabilities        576            911         439
Noncurrent assets          490            364         115
Noncurrent                 166             84         103
   liabilities
Net sales               $8,821         $6,241      $4,471
Operating income           111           (117)      1,006
(loss)
Net income (loss)          199            (38)        794
- -----------------------------------------------------------
</TABLE>

NOTE 5

INVESTMENTS

The following summarizes our ownership interest in certain non-significant
companies included in our long-term investments. At December 31, 2001, our
ownership interest in each of the named companies was as follows: Alliance
Technology Ventures (<3%), NKD Enterprises (25%), Delos Payment Systems (27%),
Cirronet (18%) and Atherogenics (<1%). The ownership interests are classified
according to applicable accounting methods at December 31, 2001.

<TABLE>
<CAPTION>
                                                 COST
                                                 BASIS
                                                 LESS
                                     CARRYING    DISTRI-
(in thousands)                        VALUE     BUTIONS
- ---------------------------------------------------------
EQUITY METHOD
- ---------------------------------------------------------
<S>                                  <C>        <C>
Alliance Technology Ventures          $595      $  836
NKD Enterprises                        949       1,250
Delos Payment Systems                   80          80

COST METHOD
- ---------------------------------------------------------
   Cirronet                            740         525
- ---------------------------------------------------------
</TABLE>


MARKETABLE SECURITIES - The carrying and estimated fair values of
available-for-sale securities at December 31, 2001 and 2000 are summarized as
follows:

<TABLE>
<CAPTION>
(in thousands)                         2001          2000
- ------------------------------------------------------------
<S>                                 <C>           <C>
Amortized cost                      $ 2,398       $ 2,469
Gross unrealized gains                  792           795
Gross unrealized losses              (1,151)       (1,010)
- ------------------------------------------------------------
Estimated fair values               $ 2,039       $ 2,254
- ------------------------------------------------------------
</TABLE>

Of the estimated fair values above, Atherogenics represents $1.85 million and
$1.2 million at December 31, 2001 and 2000, respectively.

Our aggregate share of the undistributed earnings (losses) of 50 percent or
less owned companies accounted for by the equity method was $(432,000) at
December 31, 2001, the majority of which is related to Delos Payment Systems.

NOTE 6

ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK

At December 31, 2001 and 2000, our allowance for doubtful accounts and sales
returns amounted to $45,000 and $46,000, respectively. Provisions for doubtful
accounts and sales returns were $8,500, $12,000 and $24,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.

Our accounts receivable are subject to potential credit risk. Our subsidiaries
sell products direct to end-user customers and through channel resellers and
partners. If the financial condition of a significant channel reseller
deteriorates, it could have an adverse impact on the subsidiary and
consolidated operating results. One reseller customer of VISaer represents
approximately 23 percent of consolidated revenue in 2001 and 2 customers
represent 29 percent of accounts receivable as of December 31, 2001. One
customer of ChemFree represents approximately 10 percent of consolidated
revenue in 2001 and 10 percent of year-end accounts receivable. In 2000, one
reseller customer of ChemFree represented 10.4 percent of consolidated revenue
and 20 percent of accounts receivable at December 31, 2000.


                        INTELLIGENT SYSTEMS CORPORATION
                                     F-13
<PAGE>


NOTE 7

BORROWINGS AND LONG-TERM DEBT

Terms and borrowings under our credit facilities are summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------
(in thousands)                              2001      2000
- ------------------------------------------------------------
<S>                                        <C>       <C>
Maximum outstanding (month-end)            $1,933    $1,504
Outstanding at year end                        --    $1,504
Average interest rate at year end              --       9.5%
Average borrowings during the year         $  509    $  197
Average interest rate                         8.2%      9.2%
- ------------------------------------------------------------
</TABLE>

Our credit facility expired in May 2001 at which time we paid the outstanding
balance in full.

Interest paid on debt during 2001, 2000 and 1999 amounted to $52,000, $59,000
and $159,000, respectively.

NOTE 8

DEFERRED GAIN

In connection with the sale of our VISaer subsidiary's product line in July
2000, the buyer assumed the liabilities of the purchased line of business.
VISaer did not obtain releases from creditors for a portion of these
liabilities and contracts and, accordingly, remains contingently liable for
these obligations. VISaer recorded these liabilities as deferred gain. As of
December 31, 2001, the balance of deferred gain consisted of $562,000 in
accounts payable and accrued expenses, $711,000 related to a bank line of
credit and $55,000 in capital lease obligations. In accordance with SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities", VISaer recognizes the deferred gain when the
liability is paid and the company is relieved of its obligation. Since our
acquisition of VISaer on July 1, 2001, approximately $961,000 of the deferred
gain has been recognized in the component of other income/expense in the
consolidated statements of operations for the year ended December 31, 2001. In
January 2002, the buyer paid the bank line of credit in full.

NOTE 9

INCOME TAXES

The income tax provision consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------
(in thousands)                 2001        2000     1999
- ---------------------------------------------------------
<S>                            <C>         <C>      <C>
Current                        $173        $203     $ --
=========================================================
</TABLE>

Following is a reconciliation of estimated income taxes at the blended
statutory rate to estimated tax expense as reported:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------
                              2001       2000       1999
- -----------------------------------------------------------
<S>                           <C>        <C>        <C>
Statutory rate, blended        34%        34%        34%
Change in valuation
   allowance                  (32%)      (32%)      (34%)
- -----------------------------------------------------------
Effective rate                  2%         2%         0%
===========================================================
</TABLE>

At December 31, 2001, our subsidiaries had net operating loss carryforwards
totaling $7.2 million. The net operating loss carryforwards, if unused as
offsets to future taxable income, will expire by 2021. At December 31, 2001, we
had federal and state tax credit carryforwards of approximately $1.1 million
and $940,000, respectively. We may not be able to use these carryforwards
because, in some cases, they are limited to taxable income of a particular
subsidiary or may be subject to annual limitation under the Internal Revenue
Code if there is a greater than 50 percent change in ownership as defined under
Section 382.

We account for income taxes using SFAS 109, "Accounting for Income Taxes". We
have a deferred tax benefit of approximately $9.3 million at December 31, 2001
and $8.0 million at December 31, 2000. Since our ability to realize the
deferred tax asset is uncertain, the amount is offset in both 2001 and 2000 by
a valuation allowance of an equal amount. The deferred tax benefit at December
31, 2001 and 2000 relates primarily to net operating loss carryforwards.

Income taxes paid during 2001 were $577,000. No income taxes were paid in 2000
and 1999.


                        INTELLIGENT SYSTEMS CORPORATION
                                     F-14
<PAGE>


NOTE 10

COMMITMENTS AND CONTINGENCIES

Leases - We have noncancellable operating leases expiring at various dates
through June 2004. Future minimum lease payments are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------
(in thousands)
- -------------------------------------------------------
<S>                                        <C>
      2002                                 $1,049
      2003                                    297
      2004                                    153
- -------------------------------------------------------
Total minimum lease payments               $1,499
=======================================================
</TABLE>

Rental expense for leased facilities and equipment related to operations
amounted to $1.0 million, $948,000 and $995,000, for the years ended December
31, 2001, 2000 and 1999, respectively.

Legal Matters - In 1999, a suit was brought against our ChemFree subsidiary and
two other parties by a former consultant of ChemFree. The suit challenges the
ownership of various intellectual property assets of ChemFree. ChemFree and the
other parties to the litigation strongly deny the allegations, have filed cross
claims against another entity and intend to vigorously defend the suit. The
case is pending in the Superior Court of Gwinnett County, Georgia. While the
company believes ChemFree has sufficient evidence to refute the claims made,
there can be no assurance that the case will be resolved in favor of ChemFree.

In 2001, Intelligent Systems was named as co-defendant in a lawsuit filed in
the Circuit Court of the Ninth Judicial Circuit in Orange County, Florida by
four former employees of PaySys International, Inc. The suit alleges that the
former employees hold warrants to purchase up to 142,500 shares of common stock
of PaySys owned by us. The plaintiffs allege the warrants were issued to them
by a former officer of PaySys, from whom we acquired shares in 1994. We filed
an initial response to the suit and deny that any valid warrants exist. While
we believe the initial discovery process supports our position and there exist
sufficient evidence and legal grounds to refute the claims made, the ultimate
outcome of this claim cannot be determined currently.

In addition, we are party to a small number of legal matters arising in the
ordinary course of business. It is management's opinion that none of these
matters will have a material adverse impact on our consolidated financial
position or results of operations.

Investment Company Act - The Investment Company Act of 1940 broadly defines an
investment company generally as any issuer that is primarily engaged in, or
proposes to engage in, the business of investing, reinvesting, owning, holding
or trading in securities and owns or proposes to acquire investment securities
having a value exceeding 40% of the issuer's total assets. We do not intend to
be and do not consider that we are an investment company and have relied on
Rule 3a-1 of the 1940 Act which provides that a company is not deemed to be an
investment company if not more than 45 percent of the value of its assets and
no more that 45 percent of its net income in the last four quarters is derived
from securities of companies it does not control. In the quarter ended March
31, 2001, we may technically have triggered the definition related to net
income because of gains generated from the sale of non-control securities in
the past four quarters. However, at that time and to the extent necessary to do
so, we elected to rely on safe harbor from the definition of an investment
company for transient investment companies contained in Rule 3a-2 under the
Investment Company Act. Rule 3a-2 provides a conditional one year exclusion
from the investment company definition for an issuer that, among other things,
has a bona fide intent not to be an investment company as soon as reasonably
practical. At December 31, 2001, we were in compliance with the requirements of
Rule 3a-1 of the 1940 Act within the one-year exemption period. We believe we
will continue to be in compliance but if we fail to do so within the next two
years, we may not be able to rely on the safe harbor provision of Rule 3a-2.

NOTE 11

POST-RETIREMENT BENEFITS

Effective January 1, 1992, we adopted the Outside Directors' Retirement Plan
which provides that each nonemployee director, upon resignation from the Board
after reaching the age of 65, will receive a lump sum cash payment equal to
$5,000 for each full year of service as a director of the company (and its
predecessors and successors) up to $50,000. We have accrued $100,000 to date
for anticipated future payments under the plan.


                        INTELLIGENT SYSTEMS CORPORATION
                                     F-15
<PAGE>


NOTE 12

REDEEMABLE PREFERRED STOCK OF SUBSIDIARY

This amount relates to our VISaer subsidiary's obligation to a minority
shareholder of VISaer pursuant to the redemption provision of the preferred
stock of VISaer. The amount related to the VISaer obligation to Intelligent
Systems pursuant to the redemption provision is eliminated in consolidation.
Intelligent Systems has not guaranteed payment of this obligation.

NOTE 13

STOCKHOLDERS' EQUITY

We have authorized 20,000,000 shares of Common Stock, $.01 par value per share,
and 2,000,000 shares of Series A Preferred Stock, $.10 par value per share. No
shares of Preferred Stock have been issued; however, we adopted a Rights
Agreement on November 25, 1997, which provides that, under certain
circumstances, shareholders may redeem the Rights to purchase shares of
Preferred Stock. The Rights have certain anti-takeover effects. The Board of
Directors has authorized stock repurchases at various times in the past. On
July 17, 2001, we repurchased and retired one million shares of our common
stock at $5.25 per share pursuant to a self-tender offer. We repurchased and
retired an additional 132,000 shares at fair market value during the year ended
December 31, 2001. In the year ended December 31, 2000, we repurchased and
retired 126,669 shares of common stock at fair market value but made no
repurchases during 1999.

NOTE 14

STOCK OPTION PLAN

We instituted the 1991 Incentive Stock Plan (the "Plan") in December 1991 and
amended it in 1997 to increase the number of shares authorized under the Plan
to 925,000. The Plan expired in December 2001, with 148,000 shares ungranted.
The Plan provides shares of common stock that may be sold to officers and key
employees. In August 2000, we instituted a Non-Employee Directors' Stock Option
Plan (the "Directors' Plan") that authorizes the issuance of up to 200,000
shares of common stock to non-employee directors. Upon adoption of the
Directors' Plan, each non-employee director was granted an option to acquire
5,000 shares. At each annual meeting, each director receives a grant of 4,000
shares. Stock options under both plans are granted at fair market value on the
date of grant. As of December 31, 2001, a total of 813,000 options under both
plans have been granted, 724,320 have been exercised and 38,014 options are
fully vested and exercisable at a weighted average price per share of $3.53.
All options expire ten years from their respective dates of grant. At December
31, 2001, the weighted average remaining contractual life of the outstanding
options is 7.86 years. Stock option transactions during the three years ended
December 31, 2001 were as follows:

<TABLE>
<CAPTION>
                                                     2001             2000            1999
- --------------------------------------------------------------------------------------------
<S>                                               <C>               <C>              <C>
Options outstanding
  at Jan. 1                                         76,014          655,000          665,000
Options granted                                     16,000           57,000               --
Options exercised                                    3,334          635,986           10,000
Options canceled                                        --               --               --
Options outstanding
  at Dec. 31                                        88,680           76,014          655,000

Options available for
  grant at Dec. 31                                 164,000          328,000          185,000

Option price ranges per share:
  Granted                                         $   4.26          $4.00 -               --
                                                                       4.25
  Exercised                                       $   4.25          $.875 -          $  2.25
                                                                     2.9375
  Canceled                                              --               --               --

Weighted average option price per share:
  Granted                                         $   4.26          $  4.16               --
  Exercised                                       $   4.25          $  1.72          $  2.25
  Canceled                                              --               --               --
  Outstanding at
    Dec. 31                                       $   3.91          $  3.86          $  1.75
- --------------------------------------------------------------------------------------------
</TABLE>

We account for the Plan under the provisions of Accounting Principles Board
Opinion No. 25. The following pro forma information is based on estimating the
fair value of grants under the Plan based upon the provisions of SFAS No. 123,
"Accounting for Stock Based Compensation". The fair value of each option
granted in 2001 and 2000 has been estimated as of the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:


                        INTELLIGENT SYSTEMS CORPORATION
                                     F-16
<PAGE>


- -        risk free interest rate of 4 percent

- -        expected life of the option of 7.86 years

- -        expected dividend yield rate of 0 percent

- -        expected volatility of 51 percent

Under these assumptions, the weighted average fair value of options granted in
2001 and 2000 was $1.71 and $3.15 per share, respectively. There were no awards
under the Plan in 1999. The fair value of the grants would be amortized over
the vesting period for the options. Accordingly, our pro forma net income and
net income per common share assuming compensation cost as determined under SFAS
No. 123 would have been the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- --------------------------------------------------------
(in thousands except
  per share data)             2001      2000      1999
- --------------------------------------------------------
<S>                           <C>       <C>        <C>
Net income                    $9,086    $8,215     $ 249
Net income per
  common share basic          $ 1.78    $ 1.47     $0.05
- --------------------------------------------------------
Net income per
  common share diluted          $1.77    $1.46     $0.05
- --------------------------------------------------------
</TABLE>

NOTE 15

FOREIGN SALES AND OPERATIONS

Aggregate export and foreign sales were $2.87 million, $805,000 and $1.3
million for the years ended December 31, 2001, 2000 and 1999, respectively.
Export and foreign sales were made principally in Europe and the Pacific Rim.
Sales in these geographic areas are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------
(in thousands)               2001         2000        1999
- -----------------------------------------------------------
<S>                         <C>           <C>       <C>
Europe                      $2,499        $733      $1,317
Pacific Rim                    258          72          22
South America                  118          --          --
- -----------------------------------------------------------
</TABLE>

With the acquisition of VISaer on July 1, 2001, we acquired foreign
subsidiaries in the United Kingdom and Ireland. Previously, in February 1999,
we had sold our only foreign subsidiary, InterQuad. For the years ended
December 31, 2001, 2000 and 1999, income (loss) before provision for income
taxes derived from foreign subsidiaries approximated $63,000, $0 and
$(109,000), respectively.

At December 31, 2001 and 2000, foreign subsidiaries had assets of $595,000 and
$0 respectively, and total liabilities of $498,000 and $0, respectively.

There are no currency exchange restrictions related to our foreign subsidiaries
that would affect our financial position or results of operations.

Refer to Note 1 for a discussion regarding how we account for translation of
non-US currency amounts.

NOTE 16

EARNINGS PER SHARE

For the years ended December 31, 2001, 2000 and 1999, our diluted weighted
average shares outstanding include the assumed conversion of stock options.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------
(in thousands except
  per share data)                2001       2000       1999
- -------------------------------------------------------------
<S>                             <C>        <C>        <C>
Net income                      $9,113     $8,215     $  249
Basic earnings
  per share                      $1.78      $1.47      $0.05
Basic weighted
  average shares                 5,108      5,607      5,106
Diluted earnings
  per share                      $1.77      $1.46      $0.05
Diluted weighted
  average shares                 5,146      5,632      5,337
</TABLE>

NOTE 17

HUMANSOFT SUBSIDIARY REORGANIZATION UNDER CHAPTER 11

On November 18, 1999, the United States Bankruptcy Court for the Northern
District of Georgia confirmed a Plan of Reorganization for a former subsidiary.
The plan provided for payment of a fixed percent of the allowed claims for
certain trade creditors and customers as well as payment of the administrative
expenses. The first payments were made immediately following the confirmation,
a second payment was made in November 2000 and the final payment was made in
November 2001.


                        INTELLIGENT SYSTEMS CORPORATION
                                     F-17
<PAGE>


NOTE 18

INDUSTRY SEGMENTS

Our consolidated subsidiaries were involved in three industry segments:
information technology products and services, industrial products and health
care services. Operations in information technology products and services,
which include our VISaer and QS Technologies subsidiaries, include development
and sales of software licenses and related professional services and software
maintenance contracts. Operations in the industrial product segment include the
manufacture and sale of bio-remediating parts washers by our ChemFree
subsidiary. Operations in health care services, which consisted of the PsyCare
subsidiary prior to its sale in November 2000, involved mental health and
substance abuse treatment programs. Total revenue by industry segment includes
sales to unaffiliated customers. Sales between our industry segments are not
material. Operating profit (loss) is total revenue less operating expenses.
None of the corporate overhead expense is allocated to the individual industry
segments. Identifiable assets by industry segment are those assets that are
used in our subsidiaries in each industry segment. Corporate assets are
principally cash, notes receivable and investments. The table following
contains segment information for the years ended December 31, 2001, 2000 and
1999.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------
(in thousands)                    2001          2000         1999
- -------------------------------------------------------------------
<S>                            <C>           <C>           <C>
Information Technology
  Revenue                      $ 4,353       $ 1,828       $ 2,601
  Operating Income (loss)       (4,754)          219          (102)
  Depreciation and
    amortization                 2,527            51            61
  Capital expenditures             189            32            23
  Identifiable assets            4,792           528           950
Industrial Products
  Revenue                        4,365         4,269         4,092
  Operating Income (loss)         (227)           85           138
  Depreciation and
    amortization                   157           176           152
  Capital expenditures              83           145           165
  Identifiable assets            1,730         1,792         1,841
Healthcare Services
  Revenue                           --           930         1,786
  Operating Income (loss)           --           (17)           64
  Depreciation and
    amortization                    --            42            76
  Capital expenditures              --            --             7
  Identifiable assets               --            61           497
Consolidated Segments
  Revenue                      $ 8,718       $ 7,027       $ 8,479
  Operating Income (loss)       (4,981)          287           100
  Depreciation and
    amortization                 2,684           270           289
  Capital expenditures             272           177           195
 Identifiable assets             6,522         2,381         3,288
</TABLE>

A reconciliation of consolidated segment data above to consolidated income
(loss), depreciation and amortization, capital expenditures and assets follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------
(in thousands)                  2001       2000       1999
- ------------------------------------------------------------
<S>                          <C>        <C>         <C>
Consolidated segments
  operating income (loss)    $(4,981)   $   287     $  100
Corporate expenses            (5,439)    (1,264)      (899)
- ------------------------------------------------------------
Consolidated operating
  loss                       (10,420)      (976)      (799)
Interest income (expense)      1,017        434        (88)
Investment income             19,902      9,665      2,170
Equity of affiliates          (2,173)       771       (948)
Other income (expense)           960         66        (76)
- ------------------------------------------------------------
Income before taxes            9,286      8,418        259
Income taxes                     173        203         --
Minority interest                 --         --         10
- ------------------------------------------------------------
Net income                   $ 9,113    $ 8,215     $   249
============================================================
Depreciation and
  amortization
Consolidated segments        $ 2,684    $   270     $   289
Corporate                      3,911         44          58
- ------------------------------------------------------------
Consolidated                 $ 6,595    $   314     $   347
============================================================
Capital Expenditures
Consolidated segments        $   272    $   177     $   195
Corporate                         25         26          43
- ------------------------------------------------------------
Consolidated                 $    297   $   203     $   238
============================================================
Assets
Consolidated segments
  identifiable assets        $ 6,522    $ 2,381     $ 3,288
Corporate                     19,567     17,634      10,370
- ------------------------------------------------------------
Consolidated                 $26,089    $18,057     $13,658
============================================================
</TABLE>


                        INTELLIGENT SYSTEMS CORPORATION
                                     F-18
<PAGE>


NOTE 19

QUARTERLY FINANCIAL DATA (unaudited)

The table following contains a summary of selected quarterly data for the years
ended December 31, 2001 and 2000.

<TABLE>
<CAPTION>
                                         FOR QUARTERS ENDED
(in thousands except
   per share data)             MAR. 31         JUNE 30        SEPT. 30        DEC.31
- --------------------------------------------------------------------------------------
<S>                           <C>             <C>            <C>             <C>
2001
Net sales                     $1,694          $ 1,519        $ 2,257         $ 3,249
Operating (loss)                (234)            (588)        (8,350)c        (1,248)
Net income (loss)                749a          17,931b        (7,672)         (1,895)d
Basic income (loss)
  per  share                    0.13             3.19          (1.63)          (0.42)
Diluted income (loss)
  per share                     0.13             3.19          (1.63)          (0.42)

2000
Net sales                     $2,007          $ 1,988        $ 1,630         $ 1,402
Operating income
  (loss)                        (309)              50           (275)           (442)
Net income (loss)              8,384e            (132)f          145g           (182)h
Basic income (loss)
  per share                     1.48            (0.02)          0.03           (0.03)
Diluted income (loss)
  per share                     1.48            (0.02)          0.03           (0.03)
</TABLE>

a.       Includes gains of $845,000 and $306,000 loss in equity of affiliates.

b.       Includes gains of $18.8 million and $183,000 loss in equity of
         affiliates.

c.       Includes non-recurring charges of $6.4 million.

d.       Includes $1.6 million loss in equity of affiliates and recognition of
         deferred gain of $673,000.

e.       Includes gains of $8.8 million on investments and $195,000 loss in
         equity of affiliates.

f.       Includes $284,000 loss in equity of affiliates.

g.       Includes gains of $826,000 on investments and $247,000 loss in equity
         of affiliates.

h.       Includes $44,000 loss in equity of affiliates.

NOTE 20

SUBSEQUENT EVENT

In 2001, we loaned $1.5 million to Delos Payment Systems, Inc. ("Delos"), an
affiliate company accounted for under the equity method. We acquired our 27
percent interest in Delos as a result of the spin-off of Delos to the
shareholders of PaySys prior to its sale, as explained in Note 3 to the
consolidated financial statements. The carrying value of the loan on our
balance sheet at December 31, 2001 was $80,000 due to recording our pro rata
share of Delos losses during 2001 under equity accounting. As a result of the
loan default in January 2002, we acquired control of the Delos board of
directors and we will consolidate the Delos operations in 2002. We are
providing additional borrowings of $1.5 million to Delos under the loan and are
performing due diligence to decide whether to make an investment in Delos to
increase our ownership to a significant majority position. The loan eliminates
in consolidation.

As a result of consolidating Delos, we expect to record an intangible asset
upon consolidation in the first quarter of 2002 in accordance with SFAS 141. It
is possible that the intangible will be mainly in-process research and
development and goodwill and that the goodwill may be impaired for a number of
reasons. If we determine that the intangibles are impaired, we will need to
write-down the value to net realizable value in the first quarter of 2002 in
accordance with SFAS 141, resulting in a charge to earnings, which is estimated
to be approximately $1 million. Some of the factors that may negatively impact
the value of the goodwill are significant non-competition restrictions related
to the sale of PaySys in April 2001 that limit who Delos can sell its products
to for varying time periods through 2006, risks associated with completing and
testing the initial software application, lack of a proven business model and
customers, a limited operating history, and unproven market acceptance of the
Delos software features and architecture.

Despite the possible impairment charge, we have made the additional loan to
Delos to protect our investment and future alternatives.


                        INTELLIGENT SYSTEMS CORPORATION
                                     F-19
<PAGE>
                                                                     SCHEDULE II


                         INTELLIGENT SYSTEMS CORPORATION
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
              FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

<TABLE>
<CAPTION>
                                         BALANCE AT    CHARGED TO                                            BALANCE AT
                                          BEGINNING    COSTS AND                                               END OF
DESCRIPTION                               OF PERIOD     EXPENSES      DEDUCTIONS(a)    RECLASSIFICATION(c)     PERIOD
- -------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>            <C>              <C>                   <C>
ALLOWANCE FOR
  DOUBTFUL ACCOUNTS(b)
  Year Ended December 31, 1999            $1,187,568       $23,375    $1,156,523             $3,238            $57,658
  Year Ended December 31, 2000                57,658        11,594        23,348                 --             45,904
  Year Ended December 31, 2001                45,904         8,591        (9,511)                --             44,984
</TABLE>


(a)      Write-offs of accounts receivable against allowance accounts.

(b)      This includes the combination of the Allowance for Sales Returns with
         the Allowance for Doubtful Accounts.

(c)      Reclassification of unearned revenue to Allowance for Doubtful
         Accounts.


                                      S-1
<PAGE>

                         Report of Independent Auditors

Board of Directors
PaySys International, Inc.

We have audited the accompanying consolidated balance sheets of PaySys
International, Inc. and subsidiaries (the "Company") as of December 31, 2000 and
1999, and the related consolidated statements of operations, shareholders'
equity (deficit), and cash flows for each of the three years in the period ended
December 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of PaySys
International, Inc. and subsidiaries at December 31, 2000 and 1999 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company has incurred recurring operating losses and has a working capital
deficiency. In addition, the Company has $8,000,000 of Short Term Notes Payable
that become due on demand on or after February 28, 2001 that have not been
renegotiated. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.



                                          /s/ Ernst and Young LLP


February 16, 2001
 except for the third paragraph of Note 11,
 which is dated March 17, 2001
Atlanta, Georgia


                                      S-2
<PAGE>

                   PaySys International, Inc. and Subsidiaries

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31
                                                                           2000                   1999
                                                                   --------------------------------------------
                                                                         (In thousands, except share data)
<S>                                                                       <C>                   <C>
ASSETS
Current assets:
Cash and cash equivalents                                                 $     881             $   3,974
Accounts receivable, less allowance for bad debts of $1,000 and               4,824
   $2,266 at December 31, 2000 and 1999, respectively                                               9,450
Unbilled receivables                                                          2,439                 4,837
Prepaid expenses and other current assets                                       603                   668
                                                                   --------------------------------------------
Total current assets                                                          8,747                18,929

Furniture and equipment, net                                                  3,304                 2,936
Computer software costs, net of accumulated amortization of $1,616            1,273
   and $1,204 at December 31, 2000 and 1999, respectively
                                                                                                    1,685
Deposits and other assets                                                       401                   339
                                                                   --------------------------------------------
                                                                          $  13,725             $  23,889
                                                                   ============================================
Liabilities and shareholders' equity (deficit)
Current liabilities:
Accounts payable                                                          $   2,746             $   1,821
Accrued employee compensation                                                 1,943                 2,415
Deferred revenues                                                            17,102                10,728
Current portion of long-term debt and capital lease obligations                 100                   733
Short Term Notes Payable                                                      8,000                    --
Accrued interest                                                                923                    --
Other current liabilities                                                     1,178                 3,250
                                                                   --------------------------------------------
Total current liabilities                                                    31,992                18,947

Other liabilities                                                                --                   226
Long-term debt and capital lease obligations, less current portion           12,719                12,378
Deferred rent expense                                                            11                   183
                                                                   --------------------------------------------
                                                                             44,722                31,734

Redeemable stock purchase warrants                                               --                 3,583

Shareholders' equity (deficit):
Preferred stock, $.01 par value; 10,000,000 shares authorized;                   28
   2,779,689 shares issued and outstanding; liquidation preference
   of $15,900 at December 31, 2000 and 1999                                                            28
Common stock, $.01 par value; 30,000,000 shares authorized;                      84
   8,371,254 and 6,976,644 shares issued and outstanding at
   December 31, 2000 and 1999, respectively                                                            70
Additional paid-in capital                                                   21,112                16,282
Notes receivable - officers                                                  (3,423)               (3,423)
Deferred stock compensation                                                      --                    (3)
Accumulated deficit                                                         (48,380)              (24,123)
Cumulative translation adjustments                                             (418)                 (259)
                                                                   --------------------------------------------
                                                                            (30,997)              (11,428)
                                                                   --------------------------------------------
                                                                          $  13,725             $  23,889
                                                                   ============================================
</TABLE>

See accompanying notes.


                                      S-3
<PAGE>

                   PaySys International, Inc. and Subsidiaries

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31
                                                         2000               1999                1998
                                                   ----------------------------------------------------------
                                                                        (In thousands)
<S>                                                    <C>                   <C>                <C>
Revenues:
   License fees                                        $   12,215            $19,789            $18,385
   Services                                                28,262             30,279             27,520
                                                   ----------------------------------------------------------
Total revenues                                             40,477             50,068             45,905

Cost of revenues:
   License fees                                               649                998              1,934
   Services                                                22,391             21,552             20,608
                                                   ----------------------------------------------------------
Total cost of revenues                                     23,040             22,550             22,542

Gross margin                                               17,437             27,518             23,363

Operating expenses:
   Sales and marketing                                     11,239              7,691              6,240
   Research and development                                17,994             12,424             11,804
   General and administrative                               8,857              6,501              4,793
   Royalty termination settlement                              --                 --              4,340
                                                   ----------------------------------------------------------
Total operating expenses                                   38,090             26,616             27,177

(Loss) income from operations                             (20,653)               902             (3,814)
Interest income (expense):
   Interest income                                            369                217                118
   Interest expense                                        (3,978)            (2,555)            (1,279)
                                                   ----------------------------------------------------------
                                                           (3,609)            (2,338)            (1,161)
                                                   ----------------------------------------------------------
Loss before income taxes                                  (24,262)            (1,436)            (4,975)
Income tax (benefit) expense                                   (5)               270                188
                                                   ----------------------------------------------------------
Net loss                                                 $(24,257)           $(1,706)        $   (5,163)
                                                   ==========================================================
</TABLE>


See accompanying notes.


                                      S-4

<PAGE>

                   PaySys International, Inc. and Subsidiaries

      Consolidated Statements of Changes in Shareholders' Equity (Deficit)

<TABLE>
<CAPTION>
                                                            PREFERRED STOCK                COMMON STOCK
                                                  -------------------------------------------------------------       ADDITIONAL
                                                           NUMBER                     NUMBER                           PAID-IN
                                                          OF SHARES    AMOUNT        OF SHARES          AMOUNT         CAPITAL
                                                  -------------------------------------------------------------------------------
<S>                                                    <C>             <C>           <C>                <C>            <C>
Balance at December 31, 1997                                 --         $--          7,131,825           $  71         $ 5,398
  Comprehensive loss:
    Net loss                                                 --          --                 --              --              --
    Foreign currency translation adjustment                  --          --                 --              --              --
  Comprehensive loss
  Noncash compensation from stock purchase
     warrants and stock options                              --          --                 --              --              --
  Exercise of stock options                                  --          --              8,335              --              26
  Issuance of preferred stock and
    repurchase and retirement of
    common stock                                      2,779,689          28         (1,342,626)            (13)          7,358
                                                  -------------------------------------------------------------------------------
Balance at December 31, 1998                          2,779,689          28          5,797,534              58          12,782
  Comprehensive loss:
    Net loss                                                 --          --                 --              --              --
    Foreign currency translation adjustment                  --          --                 --              --              --
  Comprehensive loss
  Noncash compensation from stock
    purchase warrants and stock options                      --          --                 --              --              --
  Exercise of stock options                                  --          --             75,000               1              88
  Issuance of common stock for notes
    receivable from officers                          2,779,689          28          1,104,110              11           3,412
                                                  -------------------------------------------------------------------------------
Balance at December 31, 1999                          2,779,689          28          6,976,644              70          16,282
  Comprehensive loss:
    Net loss                                                 --          --                 --              --              --
    Foreign currency translation                             --          --                 --              --              --
      adjustment
  Comprehensive loss                                    (24,416)
  Exercise of stock purchase warrants                        --          --          1,091,058              11           3,572
  Exercise of stock purchase warrants --
    officers                                                 --          --             52,675              --              31
  Beneficial conversion feature of
    convertible Short Term Notes Payable                     --          --                 --              --             890
  Noncash compensation from stock
    purchase warrants and stock options                      --          --                 --              --              --
  Exercise of stock options                                  --          --            250,877               3             337
  Balance at December 31, 2000                        2,779,689         $28          8,371,254            $ 84         $21,112
                                                  ===============================================================================


<CAPTION>
                                                        NOTES        DEFERRED                     CUMULATIVE
                                                     RECEIVABLE -     STOCK       ACCUMULATED     TRANSLATION
                                                       OFFICERS    COMPENSATION     DEFICIT       ADJUSTMENTS        TOTAL
                                                   -------------------------------------------------------------------------------
<S>                                                  <C>              <C>          <C>               <C>           <C>
Balance at December 31, 1997                         $     --         $(67)        $ (17,254)        $ (71)        $ (11,923)
  Comprehensive loss:
    Net loss                                               --           --            (5,163)           --            (5,163)
    Foreign currency translation adjustment                --           --                --           (92)              (92)
                                                                                                                   ---------
  Comprehensive loss                                                                                                  (5,255)
  Noncash compensation from stock
    purchase warrants and stock options                    --           26                --            --                26
  Exercise of stock options                                --           --                --            --                26
  Issuance of preferred stock and
    repurchase and retirement of
    common stock                                           --           --                --            --             7,373
                                                   -------------------------------------------------------------------------------
Balance at December 31, 1998                               --          (41)          (22,417)         (163)           (9,753)
  Comprehensive loss:
    Net loss                                               --           --            (1,706)           --            (1,706)
    Foreign currency translation adjustment                --           --                --           (96)              (96)
                                                                                                                   ---------
  Comprehensive loss                                                                                                   (1,802)
  Noncash compensation from stock
    purchase warrants and stock options                    --           38                --            --                38
  Exercise of stock options                                --           --                --            --                89
  Issuance of common stock for notes
    receivable from officers                           (3,423)          --                --            --                --
                                                   -------------------------------------------------------------------------------
Balance at December 31, 1999                           (3,423)          (3)          (24,123)         (259)          (11,428)
  Comprehensive loss:
    Net loss                                               --           --           (24,257)           --           (24,257)
    Foreign currency translation adjustment                --           --                            (159)             (159)
                                                                                                                   ---------
  Comprehensive loss                                                                                                 (24,416)
  Exercise of stock purchase warrants                      --           --                --            --             3,583
  Exercise of stock purchase warrants
    - officers                                             --           --                --            --                31
  Beneficial conversion feature of
    convertible Short Term Notes                           --           --                --            --               890
    Payable
  Noncash compensation from stock
    purchase warrants and stock options                    --            3                --            --                 3
  Exercise of stock options                                --           --                --            --               340
  Balance at December 31, 2000                       $ (3,423)        $ --         $ (48,380)        $(418)        $ (30,997)
                                                   ===============================================================================
</TABLE>


See accompanying notes.


                                      S-5
<PAGE>

                   PaySys International, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31
                                                                    2000             1999            1998
                                                              -------------------------------------------------
                                                                                (In thousands)
<S>                                                                <C>              <C>            <C>
OPERATING ACTIVITIES
Net loss                                                           $ (24,257)       $  (1,706)      $  (5,163)
Add (deduct) adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
     Revised joint venture agreement                                    (550)              --              --
     Depreciation                                                      1,525            1,294           1,480
     Amortization of computer software costs                             412              434             391
     Amortization of discounts on debt                                   443              353             118
     Interest expense associated with beneficial conversion
       feature of convertible Short Term Notes Payable                   890               --              --
     Provision for doubtful accounts and concession                   (1,266)           1,915           1,940
     Accrued rent expense                                               (172)            (337)           (308)
     Noncash compensation                                                  3               38              26
     Changes in operating assets and liabilities:
       Accounts receivable and unbilled receivables                    8,290           (3,482)         (5,361)
       Deposits and other assets                                           3             (528)            (48)
       Accounts payable                                                  925               87          (1,321)
       Accrued employee compensation                                    (472)             415            (483)
       Deferred revenues                                               6,374            1,142             199
       Other liabilities                                              (1,375)           1,468          (3,639)
                                                              -------------------------------------------------
Net cash (used in) provided by operating activities                   (9,227)           1,093         (12,169)

INVESTING ACTIVITIES
Purchases of furniture and equipment                                  (1,893)          (1,721)         (1,224)
Purchased computer software rights                                        --           (1,818)             --
                                                              -------------------------------------------------
Net cash used in investing activities                                 (1,893)          (3,539)         (1,224)

FINANCING ACTIVITIES
Proceeds from issuance of preferred stock                                 --               --           7,373
Exercise of options and warrants                                         371               89             172
Proceeds from short-term notes payable                                 8,000           15,016           9,735
Principal payments on long-term debt, capital lease
   obligations                                                          (185)         (10,435)         (3,023)
                                                              -------------------------------------------------
Net cash provided by financing activities                              8,186            4,670          14,257
                                                              -------------------------------------------------

Effect of foreign currency translation on cash and cash
   equivalents                                                          (159)             (96)            (92)
                                                              -------------------------------------------------

(Decrease) increase in cash and cash equivalents                      (3,093)           2,128             772
Cash and cash equivalents at beginning of period                       3,974            1,846           1,074
                                                              -------------------------------------------------
Cash and cash equivalents at end of period                         $     881        $   3,974        $  1,846
                                                              =================================================
</TABLE>


See accompanying notes.



                                      S-6
<PAGE>

                   PaySys International, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements

                                December 31, 2000

1. SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

PaySys International, Inc. (the Company) is a global provider of credit card
transaction processing software to banks, retailers and third party processors.
PaySys' flagship software product, VisionPLUS(R), is a customizable software
system consisting of a range of integrated application modules for processing
both bank and retail credit card transactions. Additionally, the Company has
developed a new transaction payment software engine that is an internet-enabled,
diversified billing and customer management system that serves
business-to-business e-commerce. This new engine will enable commercial users to
integrate a highly flexible payment system into their e-commerce systems.

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances,
transactions, and profits and losses have been eliminated.

BASIS OF PRESENTATION

The Company's financial statements are prepared and presented on a basis
assuming it will continue as a going concern. At December 31, 2000, the Company
had an accumulated deficit of $48,380,000 and negative working capital of
$24,245,000 and incurred a net loss of $24,257,000 for the year ended December
31, 2000. The Company has total cash and cash equivalents of $881,000 at
December 31, 2000, which are not sufficient for the Company to fund operations
through December 31, 2001. Management believes that sufficient funds will be
available from either the sale of the Company's operations or obtaining
additional financing to support planned operations through December 31, 2001.
The Company intends to raise additional funds through the sale of a portion of
the operations to outside investors (see Note 11). There can be no assurance
that the Company will be able to raise additional funds on terms favorable to
the Company, or at all. These conditions raise substantial doubt about the
Company's ability to continue as a going concern through at least December 31,
2001. These financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.


                                      S-7

<PAGE>

                   PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

REVENUE RECOGNITION

Revenues are derived from sales of software licenses and related services.

The Company recognizes revenue in accordance with Statement of Position (SOP)
97-2, "Software Revenue Recognition". Under SOP 97-2, license and professional
service fee revenues from contracts that require significant production or
modification are recognized under contract accounting on a percentage of
completion basis as services are performed. For contracts which do not require
significant production or modification, fees are allocated to the various
contract elements based on the fair value of each element and are recognized as
follows; software license revenue upon delivery of the software and related
documentation when the fees are fixed and determinable and collectibility is
assessed as probable; professional services revenue as the services are
performed; and post-contract customer support over the term of the arrangement.
Revenue related to research and development agreements is recognized as services
are performed over the related funding period for each contract. Such revenue is
included in license revenue. Service fees received from the sales of software
maintenance and support contracts and sales of other professional services were
recognized over the period the services were provided or as the services were
performed.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, which provided guidance on revenue recognition matters. The Company
adopted the provisions of SAB 101 effective January 1, 2000. The adoption of SAB
101 did not have a material impact on the Company's revenue recognition
policies, financial condition or results of operations.


                                      S-8

<PAGE>

                   PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

The Company's revenues consist primarily of license and service revenues from
large companies in the United States, Canada, South America, Europe, Australia,
China and South Africa. The Company does not obtain collateral against its
outstanding receivables. The Company maintains reserves for potential credit
losses for both billed and unbilled receivables. Bad debt expense was $363,000,
$240,000, and $240,000 during the years ended 2000, 1999 and 1998, respectively.
During 2000, revenues from one customer accounted for 11% of the Company's
revenue. During 1999 and 1998, no individual customer exceeded 10% of revenues.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents. The Company maintains
deposits with a bank and invests its excess cash in overnight funds.

FURNITURE AND EQUIPMENT

Furniture and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives (generally 3 to 5 years). Amortization of computer equipment under
capital lease is recorded over the term of the lease and is included in
depreciation expense. Expenditures for repairs and maintenance are charged to
operations as incurred.

INTERNAL USE SOFTWARE

Under the provisions of SOP 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use", the Company capitalizes costs incurred
in developing or obtaining internal use software. No software has been developed
internally for internal use. At December 31, 2000 unamortized software costs
from purchased software totaled $600,000, net of accumulated amortization of
$253,000, which is included in furniture and equipment (see Note 2).


                                      S-9

<PAGE>

                   PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SOFTWARE COMPUTER COSTS

The Company conforms with the requirements of Statement of Financial Accounting
Standards (SFAS) No. 86, "Accounting for the Costs of Computer Software to Be
Sold, Leased or Otherwise Marketed", which requires capitalization of costs
incurred in developing new software products once technological feasibility, as
defined, has been achieved. Costs of maintaining existing software and research
and development costs are otherwise expensed as incurred. No software
development costs were capitalized in 2000, 1999 or 1998. The Company records
amortization of capitalized software development costs using the greater of 1)
the ratio of current sales to total expected sales for a product or 2) the
straight-line method over the estimated economic life of the related product
(currently three years). Amortization of software development costs totaled
$48,000, $252,000, and $357,000 for the years ended December 31, 2000, 1999 and
1998, respectively.

SFAS No. 86 also allows for the capitalization of purchased software. In 1999,
the Company entered into an agreement to terminate a previously existing royalty
agreement. The original agreement provided for royalty payments based on the
sale of a particular component of the Company's product. The termination
agreement assigns all rights to that component to the Company. The net amount of
the agreement, $1,818,000, is included in computer software costs and is being
amortized over five years, the estimated economic life of the product.
Amortization of such costs totaled $364,000 and $182,000 for the years ended
December 31, 2000 and 1999, respectively, and is included in Cost of License
Fees.

INCOME TAXES

The Company follows the liability method of accounting for income taxes.
Deferred income taxes relate to the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.


                                      S-10

<PAGE>

                   PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK-BASED COMPENSATION

SFAS No. 123, "Accounting for Stock-Based Compensation", provides an alternative
to Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), in accounting for stock-based compensation issued to
employees. The Company accounts for stock option grants in accordance with APB
25 and has elected the pro forma disclosure alternative of the effect of SFAS
No. 123.

ADVERTISING COSTS

During 2000, 1999, 1998 the Company expensed advertising costs of $359,000,
$143,000, and $143,000, respectively. Advertising costs are expensed as
incurred.

RECLASSIFICATION

Certain amounts reported in the 1998 and 1999 financial statements have been
reclassified to conform to the 2000 financial statement presentation.

2. FURNITURE AND EQUIPMENT

Furniture and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                          DECEMBER 31
                                                                   2000                 1999
                                                           ------------------------------------------
                                                                        (In thousands)
      <S>                                                        <C>                  <C>
      Furniture and equipment:
        Office furniture and equipment                           $   1,974            $   1,313
        Computer equipment and software                              5,983                4,808
        Computer equipment under capital lease                       1,560                1,565
                                                           ------------------------------------------
                                                                     9,517                7,686
        Less allowances for depreciation and
          amortization                                              (6,213)              (4,750)
                                                           ------------------------------------------
                                                                 $   3,304            $   2,936
                                                           ==========================================
</TABLE>


                                      S-11
<PAGE>

                   PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company considers its cash and cash equivalents, accounts receivable,
short-term and long-term debt and capital lease obligations to be its only
significant financial instruments and believes that the carrying amounts of
these instruments approximate their fair value. The carrying amount of long-term
debt approximates fair value based on current interest rates available to the
Company for debt instruments with similar terms, degree of risk and remaining
maturities. The remaining financial instruments approximate fair value based on
their short-term nature.

4. LONG-TERM DEBT AND LEASES

Long-term debt and capital lease obligations consist of the following:

<TABLE>
<CAPTION>
                                                                            DECEMBER 31
                                                                       2000             1999
                                                                 -----------------------------------
                                                                           (In thousands)
<S>                                                                    <C>              <C>
12.5% Note payable due May 15, 2006 (1)                                $15,000          $15,000
Less discount                                                           (2,342)          (2,785)
                                                                 -----------------------------------
                                                                        12,658           12,215

Loan from product development joint venture due
   August 31, 2002, no interest (2)                                         --              550

Other debt                                                                  --               52

Capital lease obligations, various imputed interest rates and
   monthly payments                                                        161              294
                                                                 -----------------------------------
                                                                        12,819           13,111
Less current portion                                                      (100)            (733)
                                                                 -----------------------------------
                                                                       $12,719          $12,378
                                                                 ===================================
</TABLE>


                                      S-12

<PAGE>

                   PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

4. LONG-TERM DEBT AND LEASES (CONTINUED)

(1)  This note is secured by a lien on equipment, accounts receivable and
     software and related material. The lender was granted warrants to purchase
     999,563 shares of the Company's common stock, exercisable at $.01 per share
     (see Note 7). The stated interest rate combined with the amortization of
     discount allocated to the fair value of the warrants results in a 15.5%
     effective interest rate. Beginning in June 2003 and continuing each quarter
     through March 2006, the Company must redeem $1,250,000 in aggregate
     principal plus accrued and unpaid interest. Redemption of the outstanding
     principal amount of the note, including accrued and unpaid interest, is
     required upon the closing of an initial public offering resulting in at
     least $25 million in proceeds, a change in control or a qualified
     disposition, as defined by the note. In January of 2000 the lender
     exercised the referenced warrants and received 996,338 shares of the
     Company's common stock (net of exercise costs settled in shares).

(2)  In 1999, the Company entered into a software development joint venture
     agreement for a specific project, whereby the Company could borrow fifty
     percent of the associated development cost, up to $600,000, from the
     co-developer. The loan was non-interest bearing and repayment was due by
     the earlier of August 31, 2002 or as future revenue was recognized from the
     sales of the jointly developed product. In December 2000, this agreement
     was modified whereby the third party provided for 100% funding for all
     development costs up to $1,200,000, thus relieving this loan obligation.
     The modification requires the Company to be responsible for all additional
     development costs. In addition, revised revenue sharing methodology was
     established concurrently. As of December 31, 2000, approximately $3,400,000
     has been incurred on this project. The $600,000 and $600,000 received from
     the third-party in the years ended 2000 and 1999, respectively, is
     reflected in the statement of operations as license revenue.


                                      S-13

<PAGE>

                   PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

4. LONG-TERM DEBT AND LEASES (CONTINUED)

The Company's notes payable and long-term debt agreements contain covenants
restricting additional borrowings, the incurrence of liens on assets, the
acquisition and disposition of assets, capital expenditures, distributions to
shareholders and certain financial restrictions.

Under a sublease agreement, the Company leases office space from Quadram
Corporation ("Quadram"), a wholly owned subsidiary of Intelligent Systems
Corporation (ISC). ISC and the chairman of ISC are shareholders of the Company.
The lease began in 1996 and ends November 2002 (subject to earlier termination
if Quadram's lease is terminated). Rental expense under this agreement was
$460,000, $342,000, and $310,000 for 2000, 1999, and 1998, respectively.

Total rental expense was $3,214,000, $2,861,000, and $2,784,000 for 2000, 1999,
and 1998, respectively.

Required payments by year for long-term debt, capital leases and non-cancelable
operating leases with initial or remaining terms in excess of one year at
December 31, 2000, were as follows:

<TABLE>
<CAPTION>
                                                     LONG-TERM          CAPITAL         OPERATING
YEAR ENDING DECEMBER 31,                               DEBT             LEASES            LEASES
- ------------------------------------------------------------------------------------------------------
                                                                    (In thousands)
<S>                                                   <C>                  <C>              <C>
2001                                                  $      --            $112             $2,429
2002                                                         --              62              1,502
2003                                                      3,750              --                133
2004                                                      5,000              --                112
2005 and beyond                                           6,250              --                159
                                                 -----------------------------------------------------
                                                         15,000             174              4,335
Less amounts representing interest and discounts
                                                         (2,342)            (13)                --
                                                 -----------------------------------------------------
                                                        $12,658            $161             $4,335
                                                 =====================================================
</TABLE>


                                      S-14

<PAGE>

                   PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

5. COMMITMENTS AND CONTINGENCIES

LINE OF CREDIT

On October 19, 1999, the Company entered into a $5 million revolving line of
credit facility with a financial institution. Borrowings under the facility at
December 31, 1999 were $1,067,000 and are included in other current liabilities
due to the revolving nature of repayment. In December 2000, the revolving line
of credit facility was cancelled and the outstanding amount on the line of
credit was repaid in full through proceeds from the $1,500,000 promissory note
from existing investors as described under Short Term Notes Payable.

SHORT TERM NOTES PAYABLE

In July 2000, the Company issued convertible subordinated notes ("Notes") to a
group of existing investors for a total of $4,500,000 in cash. The Notes bear
interest at 8% per annum. Interest and principal were due on the earlier of
December 31, 2000, the closing date of Maker's first Triggering Financing (as
defined in the Notes), or the occurrence of an Event of Default (as defined in
the Notes). The Notes were convertible into the Company's Series A-2 preferred
stock upon a Triggering Event (as defined in the Note Purchase Agreement) on or
before December 31, 2000 in an amount equal to the Conversion Amount divided by
the Alternative Per Share Price (as defined in the Note Purchase Agreement), or
if A-2 preferred shares are not available or designated at the conversion date,
the Notes may be converted into notes bearing interest of 12% beginning
January 1, 2001. The stated interest rate combined with the amortization of
discount allocated to fair value of the beneficial conversion feature (see
Note 7) results in a 50% effective interest rate.

In January 2001, the Company cancelled the Note Purchase Agreement and the Notes
and issued revised notes and a revised Note Purchase Agreement effective July
2000 ("New Notes"), whereby the interest rate was retroactively increased to 50%
per annum from the effective date of the original convertible subordinate notes
and the conversion feature of the Notes was cancelled (see Note 11). Principal
and interest on the New Notes are due on demand on or after February 28, 2001,
subject to the terms in the amended Note Purchase Agreement.


                                      S-15

<PAGE>


                   PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

5. COMMITMENTS AND CONTINGENCIES (CONTINUED)

SHORT TERM NOTES PAYABLE (CONTINUED)

In September 2000, the Company issued a promissory note to an existing investor
("the Investor") in exchange for $2,000,000 in cash. Interest is accrued at 12%
per annum and accrued interest and principal are due on demand on or after
October 31, 2000. In December 2000, the Company issued an additional promissory
note to the Investor in exchange for $1,500,000 in cash. Interest is accrued at
50% per annum and accrued interest and principal are due on demand on or after
January 12, 2001. In January 2001, the Company cancelled the two promissory
notes and reissued revised promissory notes effective on the original promissory
notes respective issuance dates, whereby interest is accrued at 50% and
principal and accrued interest are due on demand on or after February 28, 2001
(see Note 11).

ROYALTY AGREEMENT

In 1998, the Company executed an agreement to terminate a royalty agreement that
had previously been in place as a result of a software development agreement
entered into by the Company and a customer.

The Company had been required in the initial period of the original agreement to
pay 10% of any sale, license or other grant of right to use the product that
totaled less than $1,000,000 and 15% of any sale, license or other grant of
right to use the product that totaled more than $1,000,000. The fees were to
increase incrementally each year until paid in full. The entire amount that
would have been owed was capped at $6,027,000. In settlement, the Company issued
a note payable of $4,694,000 and incurred a one-time expense in 1998 of $4.3
million. The outstanding balance at December 31, 1998 of $4,444,000 was repaid
in 1999.


                                      S-16


<PAGE>
                   PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


5. COMMITMENTS AND CONTINGENCIES (CONTINUED)

SOFTWARE LICENSE AGREEMENT

In 1999, the Company entered into a software license agreement whereby the
Company purchased approximately $675,000 of software for internal use. The terms
of the agreement require the Company to pay for the license in equal monthly
installments through August 31, 2001. As of December 31, 2000 the remaining
balance of $196,000 is included in the balance sheet in other current
liabilities.

DEVELOPMENT AND DISTRIBUTION AGREEMENT

In 2000, the Company entered into a development and distribution agreement
whereby the Company purchased approximately $93,000 of software for internal
use. The terms of the agreement require the Company to pay an annual
distribution fee of $30,000 annually for four year effective March 31, 2001.

LEGAL MATTERS

The Company is a party to various legal proceedings and is involved in various
unasserted claims and assessments that have arisen in the normal course of its
business. In the opinion of management, these actions will not have a material
adverse effect on the Company's consolidated financial statements.


                                      S-17
<PAGE>

                   PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


6. INCOME TAXES

The provisions for income taxes for 2000, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                            YEAR ENDED DECEMBER 31
                                        2000         1999        1998
                                       -------------------------------
                                                (In thousands)
<S>                                    <C>           <C>         <C>
Current tax expense:
   Federal                             $  --         $ --        $ --
   Foreign                                (5)         270         188
   State                                  --           --          --
                                       -------------------------------
Total current                             (5)         270         188

Deferred tax expense (benefit):
   Federal                                --           --          --
   Foreign                                --           --          --
   State                                  --           --          --
                                       -------------------------------
Total deferred                            --           --          --
                                       -------------------------------
                                       $  (5)        $270        $188
                                       ===============================
</TABLE>

Income tax expense for the year ended December 31, 2000 relates to a foreign tax
credit. No additional income tax expense has been recorded for the year ended
December 31, 2000 due to the Company's loss for the period and the related net
operating loss carryforward position.


                                      S-18
<PAGE>

                   PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


6. INCOME TAXES (CONTINUED)

A reconciliation of the statutory U.S. income tax rate to the effective income
tax rate is as follows:

<TABLE>
<CAPTION>

                                                       YEAR ENDED DECEMBER 31
                                                   2000         1999         1998
                                                ---------------------------------
                                                          (In thousands)
<S>                                             <C>            <C>        <C>
Tax (benefit) at statutory federal rate         $(8,234)      $ (488)     $(1,692)
State taxes, net of federal benefit                (264)         (38)        (131)
Foreign tax credits                                 (23)        (270)        (274)
Foreign withholding taxes                            17          190          188
Foreign operations not subject to U.S. tax           69           80           50
Meals and entertainment                             112           40           74
Increase in other tax credits                      (530)        (423)          --
Other-net                                            63         (144)        (189)
Change in valuation allowance                     8,785        1,323        2,162
                                                ---------------------------------
Total income tax (benefit) expense              $    (5)      $  270         $188
                                                =================================
</TABLE>


                                      S-19

<PAGE>

                   PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


6. INCOME TAXES (CONTINUED)

Components of U.S. deferred tax assets (liabilities) are as follows:

<TABLE>
<CAPTION>
                                                           DECEMBER 31
                                                  2000          1999        1998
                                               -----------------------------------
                                                          (In thousands)
<S>                                            <C>          <C>          <C>

Deferred tax assets:
   Net operating loss carryforwards            $ 14,859     $  6,217     $  5,591
   Accruals not deductible for tax purposes       2,254        2,532        2,629
   General business credit carryforwards          2,578        2,070        1,567
   Foreign tax credit carryforwards                 491          506          316
   Minimum tax credit carryforwards                 213          213          213
   Property and equipment, principally due to
     depreciation                                    --           15            9
                                                ---------------------------------
Total gross deferred tax assets                  20,395       11,553       10,325

Deferred tax liability:
   Property and equipment, principally due to
     depreciation                                   (75)          --           --
   Amortization of intangibles                       --          (18)        (113)
                                                ---------------------------------
Total gross deferred tax liabilities                (75)         (18)        (113)

Less valuation allowance                        (20,320)     (11,535)     (10,212)
                                                ---------------------------------
Net deferred tax asset                          $    --     $     --     $    --
                                                =================================
</TABLE>


At December 31, 2000, the Company had general business and foreign tax
carryforwards which expire in 2001 through 2015 and AMT credit carryforwards
available to offset future federal income tax liabilities totaling approximately
$213,000. The Company has net federal loss carryforwards of $37,477,000
generated through December 31, 2000 for federal income tax purposes that expire
at various dates between 2012 through 2020.


                                      S-20
<PAGE>

                  PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


6. INCOME TAXES (CONTINUED)

In addition, the Company's foreign subsidiaries had cumulative losses of
$3,350,000 at December 31, 2000. The tax benefits of these credit carryforwards
and net operating loss carryforwards can be realized only through their
application to taxable income arising from future successful operations of the
Company. These credit and net operating loss carryforwards may be subject to
certain limitations under Section 382 in the event of an ownership change. Due
to the uncertainty of the Company's ability to fully realize the benefits of the
credit and net operating loss carryforwards, a valuation allowance has been
recorded against net deferred tax assets. When recognized, the tax benefit of
those items will be applied to reduce future income tax amounts.

7. SHAREHOLDERS' EQUITY

WARRANTS

In connection with a financing agreement entered into with Capital Resource
Partners IV, L.P. and CRP Investment Partners IV, L.L.C. on April 15, 1999, the
Company issued warrants to purchase an aggregate of 999,563 shares of the
Company's common stock at an exercise price of $.01 per share. In the event of a
change in control or an event of default, as defined, or within one year of the
redemption of all outstanding shares of Series A-1 Preferred Stock, the holder
or holders of the warrants have the right to put the warrants to the Company at
the then current fair market value of the shares underlying the warrants. The
warrants were valued at approximately $3.1 million, which has been recorded as a
discount to the related debt and redeemable stock purchase warrants. The
discount is amortized to interest expense over eighty-four months, the term of
the debt. The related interest expense in 2000 and 1999 was approximately
$445,000 and $300,000, respectively. Warrants issued under the agreement expire
on the earlier of (a) a qualified IPO or (b) the later of April 15, 2006 or such
time as all principal and interest on the notes is paid in full. The warrants
may either be exercised in full, partially, or through a net issue election, as
defined. Warrant holders have certain rights to purchase future subordinated
debt issued by the Company, according to their pro-rata holdings of warrants and
warrant shares to total stock outstanding. In January 2000, these warrants were
exercised and 994,346 shares of common stock were issued (net of exercise price
settled in shares).


                                      S-21
<PAGE>

                  PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


7. SHAREHOLDERS' EQUITY (CONTINUED)

WARRANTS (CONTINUED)

In connection with a financing agreement entered into with Sirrom Capital, L.P.
(Sirrom) on September 26, 1997, the Company issued warrants to purchase 37,660
shares of the Company's common stock at an exercise price of $.002 per share
which were fully exercisable and outstanding at December 31, 1997. The warrant
was valued at approximately $307,000. If the debt remained outstanding for
certain periods during the term of the financing arrangement the Company was
required to issue warrants to purchase additional shares of common stock. During
1999 and 1998, the Company issued warrants to purchase 9,560 and 47,500,
respectively additional shares at $0.002 per share and valued these additional
warrants at approximately $30,000 and $147,000, respectively. Of the additional
warrants 57,060 were fully exercisable and outstanding during 2000 and 1999,
respectively. Warrants issued under this financing agreement provide the holder
of the warrant the right and option to sell to the Company the warrants for a
period of thirty days immediately prior to the expiration of the warrant, at a
purchase price equal to the fair market value of the shares of common stock that
would be issued upon exercise of the warrant. In December 2000, 94,720 warrants
were exercised by Sirrom in exchange for an equal amount of shares of the
Company's common stock.

BENEFICIAL CONVERSION FEATURE OF SHORT TERM NOTES PAYABLE

The Notes described in Note 4 included a beneficial conversion feature for
conversion into capital stock. The $890,000 value of the beneficial conversion
feature has been recorded as a discount on the Notes and was amortized to
interest expense over the terms of the notes payable.

STOCK-BASED AWARDS TO EMPLOYEES

The Company has elected to follow APB 25 and related interpretations in
accounting for its stock-based awards to employees because, as discussed below,
the alternative fair value accounting provided for under SFAS No. 123 requires
use of option valuation models that were not developed for use in valuing
stock-based awards to employees. Under APB 25, no compensation expense is
recognized for stock-based awards with an exercise price equal to the fair value
of the underlying stock on the date of grant.


                                      S-22
<PAGE>

                  PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


7. SHAREHOLDERS' EQUITY (CONTINUED) (CONTINUED)

STOCK-BASED AWARDS TO EMPLOYEES (CONTINUED)

Pro forma information regarding net income (loss) is required by SFAS No. 123,
which also requires that the information be determined as if the Company has
accounted for its stock-based awards to employees granted subsequent to December
31, 1994 under the fair value method prescribed by that statement. The fair
value for these awards were estimated at the date of grant using the minimum
value method with the following weighted-average assumptions for 2000, 1999 and
1998: risk-free interest rate of 5.5% for 1998, 6.0% for 1999; and 6.4% for
2000, no dividend yield; and a weighted-average expected life of the awards of 7
years. The weighted average fair value of awards granted during 2000, 1999 and
1998 was $.67, $1.10, and $.93 per share, respectively.

The option valuation models require the input of highly subjective assumptions.
Because the Company's stock-based awards to employees have characteristics
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee awards.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:

<TABLE>
<CAPTION>

                                            DECEMBER 31
                            2000               1999              1998
                          --------------------------------------------
                          <S>               <C>                <C>
                                          (In thousands)
Net loss                  $24,387           $(1,824)           $(5,255)
</TABLE>


                                      S-23
<PAGE>

                  PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


7. SHAREHOLDERS' EQUITY (CONTINUED) (CONTINUED)

STOCK-BASED AWARDS TO EMPLOYEES (CONTINUED)

The 1995 Stock Incentive Plan (the "1995 Plan") allows for the granting of
options for up to 1,088,750 shares of common stock to employees and directors.
Stock options granted under the Plan may be either incentive stock options or
nonqualified stock options. Incentive stock options may be granted with exercise
prices of no less than the fair market value. The options expire 10 years from
the date of grant. Options may be granted with different vesting terms but
generally provide for vesting equally over a four-year period.

In October 1997, the Company adopted the 1997 Stock Incentive Plan (the "1997
Plan"). The 1997 Plan allowed for the granting of options for up to 411,250
shares of common stock to employees, non-employee directors, consultants and
other vendors. In 1999, the 1997 Plan was amended to increase the number of
options by 932,835, or a total of 1,344,085. Stock options granted under the
Plan may be either incentive stock options or nonqualified stock options.
Incentive stock options may be granted with exercise prices of no less than the
fair market value. The options expire 10 years from the date of grant. Options
may be granted with different vesting terms but generally provide for vesting
equally over a four-year period.


                                      S-24
<PAGE>

                  PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

7. SHAREHOLDERS' EQUITY (CONTINUED)

STOCK-BASED AWARDS TO EMPLOYEES (CONTINUED)

The following table summarizes option activity for 2000, 1999 and 1998 under the
Company's stock option plans.

<TABLE>
<CAPTION>

                                                                                  WEIGHTED
                                                            EXERCISE PRICE         AVERAGE
                                                 SHARES         RANGE          EXERCISE PRICE
                                                ---------------------------------------------
<S>                                             <C>           <C>              <C>
Outstanding at December 31, 1997                1,058,085     $0.80-3.10           $1.30
   Granted                                        339,000        3.10               3.10
   Exercised                                       (8,335)       3.10               3.10
   Expired                                        (81,250)       3.10               3.10
                                                ---------------------------------------------
Outstanding at December 31, 1998                1,307,500     $0.80-3.10           $1.64
   Granted                                        193,500        3.10               3.10
   Exercised                                      (75,000)     0.80-3.10            1.11
   Expired                                       (153,938)       3.10               3.10
                                                ---------------------------------------------
Outstanding at December 31, 1999                1,272,062     $0.80-3.10           $1.72
   Granted                                        889,000        3.10               3.10
   Exercised                                     (250,877)       3.10               3.10
   Expired                                       (233,727)       3.10               3.10
                                                ---------------------------------------------
Outstanding at December 31, 2000                1,676,458     $0.80-3.10           $2.48
                                                =============================================

Exercisable at December 31, 1998                  796,581     $0.80-$3.10          $1.24
Exercisable at December 31, 1999                  844,859     $0.80-$3.10          $1.47
Exercisable at December 31, 2000                  775,185     $0.80-$3.10          $1.88
</TABLE>

Options outstanding at $.80 per share totaled 572,020 of which 410,080 were
exercisable at December 31, 2000. The weighted average remaining contractual
life of options exercisable at $.80 per share was five years at December 31,
2000. Options outstanding at $3.10 per share totaled 1,104,438 of which 365,105
were exercisable at December 31, 2000. The weighted average remaining
contractual life of options exercisable at $3.10 per share was nine years at
December 31, 2000.


                                      S-25
<PAGE>

                  PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


7. SHAREHOLDERS' EQUITY (CONTINUED)

STOCK-BASED AWARDS TO EMPLOYEES (CONTINUED)

In addition to the stock option plans described above, the Company has issued
warrants to purchase common stock to employees. During 1995, the Company issued
to each of two individuals warrants to purchase 52,675 shares of common stock at
an exercise price of $.60 per share. These warrants, which expire in December
2005, become exercisable equally over a two-year and three-year vesting period.
In April and June 1997, 35,000 shares of common stock were issued pursuant to
the partial exercise of one of these warrants and the remainder of the warrant
to purchase 17,675 shares of common stock was canceled in September 1997. In
March 2000, the remaining warrants were exercised and 52,675 shares of common
stock were issued.

In 1996, the Company issued warrants to two employees to purchase 1,104,110
shares of common stock exercisable at a price per share based on $50,000,000
divided by the number of shares outstanding at the exercise date. These warrants
were exercisable upon achievement of certain milestones and expire in February
2003. Effective August 5, 1997, the Company amended these warrants. The
amendment fixed the exercise price of the warrants at $4.80 per share, and the
warrants became fully exercisable as of the amendment date. As a result of
amending the warrants, the Company recorded compensation expense of $3,708,000
in 1997 for the difference between the exercise price and estimated fair value
per share at the amendment date. In 1999, these warrants were canceled in
exchange for full recourse notes receivable, totaling $3,423,000, and the
issuance of 1,104,110 shares of common stock. The notes bear interest at 5% per
annum payable on April 30, 2001 and annually thereafter. The notes are due on
the earlier of (a) September 30, 2004 or (b) one year after the date of an
initial public offering or any other sale or transfer of securities of the
Company, as defined in the agreement. The December 31, 2000 notes receivable
balance is included in shareholders' equity.

At December 31, 2000, a total of 4,878,311 shares of the Company's common stock
were reserved for the exercise of outstanding stock options and conversion of
convertible preferred stock.


                                      S-26
<PAGE>

                  PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

7. SHAREHOLDERS' EQUITY (CONTINUED)

PREFERRED STOCK

In 1998 the Company amended and restated its Articles of Incorporation to
authorize 10,000,000 shares of preferred stock and designate 2,779,689 shares as
Series A-1 Convertible Participating Preferred Stock. Each share of Series A-1
Preferred Stock is convertible at any time after the date of issuance into a
number of shares of common stock, determined by dividing the Series A-1 original
cost by the Series A-1 conversion price that is currently in effect. Upon
issuance, the conversion price is deemed to be the original price. Each share of
Series A-1 Preferred Stock entitles it's holder to voting rights equivalent to
those that would exist if the holder were to convert to common stock and to
receive $5.72 per share plus accrued dividends in the event of involuntary or
voluntary liquidation, adjusted for any combinations, consolidations, stock
splits, or stock distributions or dividends. The collective Series A-1 Preferred
Stock shareholders have the right to appoint and remove, at their discretion,
one member of the Company's Board of Directors. In 1998 the Company issued
2,779,689 shares of Series A-1 Preferred Stock in exchange for $7.5 million in
cash (less issuance costs) and 1,342,626 shares of previously outstanding shares
of common stock that were retired.

8. EMPLOYEE BENEFIT PLAN

The Company has a 401(k) Profit Sharing Plan (the "Plan") for the benefit of
eligible employees and their beneficiaries. All employees are eligible to
participate in the Plan on the first day of the month following hire. Effective
July 1, 1998 the Company amended the plan to provide for an employer matching
contribution equal to 20% of up to 6% of eligible compensation deferred by the
employee. Prior to this amendment, employer contributions were discretionary.
Effective January 1, 2000 the Company amended the plan to provide for an
employer matching contribution equal to 100% of up to 3% of the eligible
compensation deferred by the employee. The Company's contribution vests in even
increments over a five-year period. Contribution expense related to the Plan
during 2000, 1999 and 1998 was $480,000, $219,000 and $194,000 respectively.


                                      S-27
<PAGE>

                  PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

9. SEGMENTS AND GEOGRAPHICAL INFORMATION

The Company is organized around two geographic areas; the United States and
foreign operations. Foreign operations primarily consist of Australia, Ireland,
Singapore, and South Africa.

The foreign locations principally function as service providers for the products
developed by the Company in the United States. The accounting policies as
described in the summary of significant accounting policies are applied
consistently across the two segments. Foreign revenues are based on intercompany
transfer prices to provide a reasonable margin upon distribution.


                                      S-28
<PAGE>

                  PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

9. SEGMENTS AND GEOGRAPHICAL INFORMATION (CONTINUED)

Information about the Company's operations by geographic area is as follows:

<TABLE>
<CAPTION>

                                             2000            1999           1998
                                          ----------------------------------------
                                                        (In thousands)
<S>                                       <C>             <C>             <C>
UNITED STATES

Revenues:
  License fees                            $ 12,215        $ 19,789        $ 18,385
  Service                                   21,542          25,144          23,443
                                          ----------------------------------------
Total revenues                              33,757          44,933          41,828

Interest income                                361             211             108
Interest expense                            (3,978)         (2,554)         (1,279)
Depreciation and amortization               (1,870)         (1,577)         (1,783)
Income tax expense                             (17)             --        $     --
Income (loss) before income taxes          (24,441)         (1,150)       $ (4,826)
Long-lived assets                            4,423           4,593        $  2,571
Total segment assets                        12,637          22,702        $ 17,148
Expenditures for long-lived assets           1,536           3,371        $    757

FOREIGN OPERATIONS
Revenues:
  License fees                                  --              --        $     --
  Service                                    6,720           5,135           4,077
                                          ----------------------------------------
Total revenues                               6,720           5,135        $  4,077

Interest income                                  8               8        $     10
Interest expense                                --              (1)       $     --
Depreciation and amortization                  (67)           (151)       $    (88)
Income tax benefit (expense)                    22            (270)       $   (188)
Income (loss) before income taxes              179            (286)       $   (149)
Long-lived assets                              555             367        $    434
Total segment assets                         1,088           1,187        $    709
Expenditures for long-lived assets             357             168        $    467
</TABLE>


                                      S-29
<PAGE>

                  PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


9. SEGMENTS AND GEOGRAPHICAL INFORMATION (CONTINUED)

Export sales were $28.3 million, $30.6 million, and $27.6 million in 2000, 1999,
and 1998, respectively. Such revenues were derived principally from Australia,
New Zealand, Canada, Europe, West Indies, South Africa and South America.
Accounts receivable (billed and unbilled) arising from foreign revenues total
$7.2 million and $8.1 million as of December 31, 2000 and 1999, respectively.

10. SUPPLEMENTAL CASH FLOW INFORMATION

The following is a summary of non-cash transactions and additional cash flow
information:

<TABLE>
<CAPTION>

                                                      FOR THE YEAR ENDED DECEMBER 31
                                                    2000          1999           1998
                                                   ----------------------------------
                                                             (In thousands)
<S>                                                <C>           <C>           <C>
Furniture and equipment acquired under
  capital lease obligations                        $   --        $   46        $  382
                                                   ==================================
Relief of loan from negotiated cost-sharing
 agreement
                                                   $  550        $   --        $   --
                                                   ==================================
Cash paid for interest                             $1,723        $2,010        $1,303
                                                   ==================================
Cash paid for income taxes                         $   17        $  247        $  188
                                                   ==================================
</TABLE>

11. SUBSEQUENT EVENTS

On January 11, 2001 the existing $4,500,000 of convertible notes and Note
Purchase Agreement and $3,500,000 of demand notes described in Note 5 under the
subheading Short Term Financing were cancelled and exchanged for unsubordinated,
non-convertible demand notes with an interest rate of 50%. The notes described
above have the same principal amount and issuance date of the originally issued
notes. Principal and accrued interest are due on demand on or after February 28,
2001.

As part of the revised Note Purchase Agreement dated January 11, 2001, an
additional $4,000,000 of notes were issued on January 11, 2001. Interest accrues
at 50%. Principal and accrued interest are due on demand on or after February
28, 2001.


                                      S-30
<PAGE>

                  PaySys International, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

11. SUBSEQUENT EVENTS (CONTINUED)

On March 17, 2001 the Company signed a definitive agreement to be acquired in a
cash transaction for $135 million including payment of debt. Certain proprietary
technology will be spun out to shareholders immediately prior to the
acquisition. Several contractual modifications, assignments, and dispute
resolutions need to be completed as conditions to closing. In addition, certain
governmental approvals, corporate governance transactions, personnel and
shareholder-related actions are required.


                                      S-31
<PAGE>
To the Board of Directors
VISaer, Inc. and Subsidiaries
100 Fordham Road
Wilmington, Massachusetts  01887

                          INDEPENDENT AUDITORS' REPORT

We have audited the accompanying consolidated balance sheet of VISaer, Inc. and
Subsidiaries (the Company) as of December 31, 2000 and the related consolidated
statements of operations, comprehensive loss, redeemable convertible preferred
stock and stockholders' deficiency, and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We did not audit the financial
statements of VISaer (UK) Ltd. and VISaer (IRL) Ltd., wholly owned subsidiaries,
which statements reflect total assets of $817,198 and $6,198 as of December 31,
2000, respectively, and total revenues of $488,841 and $249,360, for the five
months and year then ended, respectively. Those statements were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to the amounts included for VISaer (UK) Ltd. and VISaer (IRL) Ltd.,
which have been reconciled by us to accounting principles generally accepted in
the United States of America in the accompanying consolidated financial
statements, is based solely on the reports of the other auditors.

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

In our opinion, based on our audit and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of VISaer, Inc. and Subsidiaries as of
December 31, 2000, and the results of their operations and their cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.




Moody, Famiglietti & Andronico, LLP
March 20, 2002


                                      S-32
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEET                                                                    VISAER, INC. AND SUBSIDIARIES
==================================================================================================================================

DECEMBER 31                                                                                                                  2000
- ----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                                    <C>
ASSETS
Current Assets:
     Cash                                                                                                              $  168,926
     Accounts Receivable, Net of Allowance for Doubtful Accounts of $15,000                                               837,927
     Prepaid Expenses and Other Current Assets                                                                             29,314
- ----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets                                                                                                    1,036,167

Property and Equipment, Net of Accumulated Depreciation (Note 2)                                                          206,647
Other Assets                                                                                                               50,577
- ----------------------------------------------------------------------------------------------------------------------------------

TOTAL ASSETS                                                                                                          $ 1,293,391
                                                                                                                      ============


LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:
     Notes Payable - Stockholders (Note 12)                                                                           $   263,750
     Accounts Payable                                                                                                     824,189
     Accrued Expenses                                                                                                   1,067,183
     Deferred Revenues                                                                                                  1,017,601
     Deferred Gain (Note 7)                                                                                             4,564,325
     Current Maturities of Capital Lease Obligations (Note 3)                                                              57,137
- ----------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities                                                                                               7,794,185

Notes Payable - Stockholders (Note 12)                                                                                  2,267,856
Capital Lease Obligations, Net of Current Maturities (Note 3)                                                              44,606
Deferred Rent                                                                                                             108,231
Deferred Income Taxes (Note 4)                                                                                            211,525
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities                                                                                                      10,426,403
- ----------------------------------------------------------------------------------------------------------------------------------

Redeemable Convertible Preferred Stock:
     Series A Redeemable Convertible Preferred Stock:  $0.001 Par Value;
       1,881,721 Shares Authorized; 1,523,298 Shares Issued and Outstanding
       at Redemption Value; Liquidation Preference of $4,250,000 (Note 10)                                              4,250,000
     Series B Redeemable Convertible Preferred Stock:  $0.001 Par Value;
       1,628,700 Shares Authorized, Issued and Outstanding at Redemption
       Value; Liquidation Preference of $879,500 (Note 10)                                                                879,500
     Series C Redeemable Convertible Preferred Stock:  $0.001 Par Value;
       337,331 Shares Authorized, No Shares Issued and Outstanding (Note 10)                                                    -
     Series D Redeemable Convertible Preferred Stock:  $0.001 Par Value;
       369,125 Shares Authorized; 33,556 Shares Issued and Outstanding at Redemption
       Value, Net of Unaccreted Discount of $20,294; Liquidation Preference
       of $49,327 (Note 10)                                                                                                29,033
- ----------------------------------------------------------------------------------------------------------------------------------
Total Redeemable Convertible Preferred Stock                                                                            5,158,533
- ----------------------------------------------------------------------------------------------------------------------------------

Stockholders' Deficiency:
     Common Stock:  $0.001 Par Value; 15,000,000 Shares Authorized;
        965,189 Shares Issued and Outstanding                                                                                 965
     Additional Paid-in Capital                                                                                         4,689,522
     Accumulated Deficit                                                                                              (18,934,603)
     Accumulated Other Comprehensive Deficit                                                                              (47,429)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Deficiency                                                                                        (14,291,545)
- ----------------------------------------------------------------------------------------------------------------------------------

TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIENCY                                $ 1,293,391
                                                                                                                      ============
</TABLE>


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


                                      S-33
<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS                                                          VISAER, INC. AND SUBSIDIARIES
==================================================================================================================================

FOR THE YEAR ENDED DECEMBER 31                                                                                              2000
- ----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                                  <C>
Revenues:
     Software Licenses                                                                                               $ 3,113,159
     Maintenance and Support Services                                                                                  8,094,870
     Hardware Equipment Sales                                                                                            544,118
- ----------------------------------------------------------------------------------------------------------------------------------
Total Revenues                                                                                                        11,752,147
- ----------------------------------------------------------------------------------------------------------------------------------

Cost of Revenues:
     Software Licenses                                                                                                   680,477
     Maintenance and Support Services                                                                                  4,619,525
     Hardware Equipment Sales                                                                                            445,975
- ----------------------------------------------------------------------------------------------------------------------------------
Total Cost of Revenues                                                                                                 5,745,977
- ----------------------------------------------------------------------------------------------------------------------------------

Gross Profit                                                                                                           6,006,170
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
     Research and Development                                                                                          3,415,907
     Selling and Marketing                                                                                             3,206,936
     General and Administrative                                                                                        2,140,493
- ----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses                                                                                               8,763,336
- ----------------------------------------------------------------------------------------------------------------------------------

Loss from Operations                                                                                                  (2,757,166)
- ----------------------------------------------------------------------------------------------------------------------------------

Other Income (Expense):
     Gain on Sale of Product Line (Note 7)                                                                             2,926,114
     Interest Expense                                                                                                   (708,504)
     Other Expense                                                                                                       (69,297)
     Other Income                                                                                                         26,154
- ----------------------------------------------------------------------------------------------------------------------------------
Total Other Income                                                                                                     2,174,467
- ----------------------------------------------------------------------------------------------------------------------------------

Net Loss                                                                                                             $  (582,699)
                                                                                                                     ==============
</TABLE>


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


                                      S-34
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS                                                  VISAER, INC. AND SUBSIDIARIES
==================================================================================================================================

FOR THE YEAR ENDED DECEMBER 31                                                                                              2000
- ----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                                  <C>
Net Loss                                                                                                             $  (582,699)

Other Comprehensive Loss:
     Foreign Currency Translation Adjustment                                                                             (52,778)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Loss                                                                                             $  (635,477)
                                                                                                                     =============
</TABLE>


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


                                      S-35
<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIENCY        VISAER, INC. AND SUBSIDIARIES
===================================================================================================================================

                                                                  REDEEMABLE CONVERTIBLE PREFERRED STOCK
                              -----------------------------------------------------------------------------------------------
                               CONVERTIBLE PREFERRED   CONVERTIBLE PREFERRED   CONVERTIBLE PREFERRED   CONVERTIBLE PREFERRED
                                     SERIES A                SERIES B                SERIES C                SERIES D
                               ----------------------- ----------------------- ----------------------- -----------------------
                                 NUMBER     $.001 PAR    NUMBER    $.001 PAR    NUMBER    $.001 PAR     NUMBER    $.001 PAR
                               OF SHARES     VALUE     OF SHARES     VALUE     OF SHARES    VALUE      OF SHARES    VALUE
                               ----------   ---------- ----------  ----------- ---------  ------------ ---------  ------------
<S>                            <C>          <C>         <C>        <C>         <C>        <C>           <C>       <C>
Balance as of December 31, 1999 1,881,721   $5,250,000  1,628,700  $  879,500    337,331   $2,250,000    369,125   $  790,768

Exercise of Stock Options               -            -          -           -          -            -          -            -
Accretion of Series D
     Convertible Preferred Stock        -            -          -           -          -            -          -      287,250
Repurchase of Convertible
     Preferred Stock             (358,423)  (1,000,000)         -           -   (337,331)  (2,250,000)  (335,569)  (1,048,985)
Issuance of Common Stock
     Warrants                           -            -          -           -          -            -          -            -
Net Loss                                -            -          -           -          -            -          -            -
Foreign Currency Translation
     Adjustment                         -            -          -           -          -            -          -            -
                               ----------   ---------- ----------  ----------- ---------  ------------ ---------  ------------
Balance as of December 31, 2000 1,523,298   $4,250,000  1,628,700  $  879,500          -       $    -     33,556    $  29,033
                               ==========   ========== ==========  =========== =========  ============ =========  ============


<Caption>
                                                        STOCKHOLDERS' DEFICIENCY
                                -------------------------------------------------------------------------------
                                     COMMON STOCK                      FOREIGN
                                ----------------------  ADDITIONAL    CURRENCY                      TOTAL
                                  NUMBER    $.001 PAR     PAID-IN    TRANSLATION   ACCUMULATED   STOCKHOLDERS'
                                OF SHARES     VALUE       CAPITAL    ADJUSTMENT      DEFICIT      DEFICIENCY
                                ----------  ----------  -----------  ------------  ------------  ------------
<S>                             <C>         <C>         <C>          <C>           <C>           <C>
Balance as of December 31, 1999    958,146    $    958   $  318,677    $   5,349   $(18,064,654) $(17,739,670)

Exercise of Stock Options            7,043           7        2,218            -              -         2,225
Accretion of Series D
     Convertible Preferred Stock         -           -            -            -       (287,250)     (287,250)
Repurchase of Convertible
     Preferred Stock                     -           -    4,298,984            -              -     4,298,984
Issuance of Common Stock
     Warrants                            -           -       69,643            -              -        69,643
Net Loss                                 -           -            -            -       (582,699)     (582,699)
Foreign Currency Translation
     Adjustment                          -           -            -      (52,778)             -       (52,778)
                                ----------  ----------  -----------  ------------  ------------  ------------

Balance as of December 31, 2000    965,189    $    965   $4,689,522    $ (47,429)  $(18,934,603) $(14,291,545)
                                ==========  ==========  ===========  ============  ============  ============
</TABLE>


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


                                      S-36
<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS                                                          VISAER, INC. AND SUBSIDIARIES
===================================================================================================================================

FOR THE YEAR ENDED DECEMBER 31                                                                                               2000
- ----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                               <C>
Cash Flows from Operating Activities:
     Net Loss                                                                                                     $      (582,699)
     Adjustments to Reconcile Net Loss to Net Cash Used in
        Operating Activities:
            Depreciation and Amortization                                                                                 399,319
            Gain of Sale of Product Line                                                                               (2,926,114)
            Deferred Income Taxes                                                                                        (106,000)
            Interest Expense Capitalized to Debt                                                                          205,070
            Non-Cash Amortization of Debt Discount                                                                        191,803
            Decrease in Accounts Receivable                                                                             4,342,214
            Increase in Prepaid Expenses and Other Current Assets                                                        (226,323)
            Increase in Other Assets                                                                                      (50,577)
            Increase in Accounts Payable                                                                                1,145,298
            Decrease in Accrued Expenses                                                                                 (539,585)
            Decrease in Deferred Revenues                                                                              (2,854,414)
            Decrease in Deferred Rent                                                                                     (15,854)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities                                                                                  (1,017,862)
- ----------------------------------------------------------------------------------------------------------------------------------

Cash Flows Used in Investing Activities:
     Acquisition of Property and Equipment                                                                                (76,978)
- ----------------------------------------------------------------------------------------------------------------------------------

Cash Flows from Financing Activities:
     Proceeds from Issuance of Notes Payable - Stockholders                                                               905,000
     Repayments Under Line of Credit                                                                                     (356,831)
     Principal Repayments of Capital Lease Obligations                                                                    (49,356)
     Proceeds from Issuance of Common Stock                                                                                 2,225
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities                                                                                 501,038
- ----------------------------------------------------------------------------------------------------------------------------------

Effect of Foreign Currency Exchange Rate Changes on Cash                                                                   24,657
- ----------------------------------------------------------------------------------------------------------------------------------

Net Decrease in Cash                                                                                                     (569,145)
                                                                                                                  ----------------

Cash, Beginning                                                                                                           738,071
                                                                                                                  ----------------

Cash, Ending                                                                                                      $       168,926
                                                                                                                  ================

Supplemental Disclosures of Cash Flow Information:

     Cash Paid During the Year for:
        Interest                                                                                                  $       289,251

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
</TABLE>

         During the year ended December 31, 2000, the Company financed the
         acquisition of certain property and equipment with capital lease
         obligations in the amount of $48,735.

See Notes 7 and 12 for additional disclosure of non-cash investing and financing
activities.


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


                                      S-37
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS          VISAER INC. AND SUBSIDIARIES
===============================================================================


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation: The consolidated financial statements include the
accounts of VISaer, Inc. (the Parent) and its wholly owned subsidiaries, VISaer
(UK) Ltd., VISaer (IRL) Ltd., Visibility, Ltd. and Visibility Europe Ltd. (the
Subsidiaries). On July 28, 2000, under the terms of a share purchase agreement
(the Share Purchase Agreement) with a third party, the Parent effectively sold
its net assets, operations and contracts relating to its Engineer-to-Order (ETO)
product line of business, which included the sale of Visibility Europe, Ltd.
(Note 7). Accordingly, the consolidated financial statements include the
activity of Visibility Europe Ltd. and the Parents' ETO product line of business
operations only through July 28, 2000. Under the terms of the Share Purchase
Agreement, the Parent also sold its rights to the "Visibility" name and, as
such, the Parent's name was changed from Visibility, Inc. to VISaer, Inc.,
effective on August 1, 2000. All significant inter-company balances and
transactions of the Parent and Subsidiaries (the Company) have been eliminated
in consolidation.

Reporting Entity: VISaer Inc. was originally incorporated in 1979 as a
Massachusetts corporation and, effective October 25, 1996, became incorporated
as a Delaware corporation. VISaer (UK), Ltd. was incorporated on June 27, 2000,
as an English corporation. VISaer (IRL) Ltd. was incorporated on August 16,
1994, as an Irish corporation. Visibility, Ltd. was incorporated on May 15,
1985, as a Canadian corporation. Visibility Europe Ltd. was incorporated on
September 18, 1996, as an English corporation. Through July 28, 2000, the
principal business activities of the Company included the development,
marketing, sale and support of an integrated line of business application
software for manufacturers and aviation maintenance, repair and overhaul
companies. Subsequent to the Parent's sale of its ETO product line of business
on July 28, 2000 (Note 7), the Company's business activities are focused
primarily toward the development, marketing, sale and support of the "VISaer",
an integrated, enterprise resource planning (ERP) system suited to the specific
"Service-to-Order" needs of aerospace maintenance, repair and overhaul (MRO)
companies, as well as various technical records management and other consulting
services. The Company's customers are located worldwide.

The Company is subject to a number of risks similar to those of other companies
in a similar stage of development, such as the need to obtain adequate
financing, dependence on key individuals, the need for products, and competition
from other companies.

The Company has experienced losses from operations, reduction in liquidity and
is in an accumulated deficit and negative working capital position. The Company
also remains primary obligor as of December 31, 2000 on certain liabilities in
the amount of approximately $4,500,000 assumed by a third party (the Buyer)
under the Share Purchase Agreement, including certain liabilities in litigation
as of December 31, 2000 (Note 7). Included in the liabilities assumed by the
Buyer was the Parent's line of credit arrangement with a financial institution
with a balance outstanding as of December 31, 2000 in the amount of
approximately $1,600,000. This line of credit is currently in default and has
been terminated by the financial institution effective March 30, 2001, at which
time all outstanding obligations under the line of credit are to become due and
payable (Note 8).

In regard to these conditions, the Buyer and the Company are working toward
arranging a renegotiated payment plan with the financial institution for the
Buyer to repay the balance outstanding under the line of credit. Also, the
Company may attempt to seek a new relationship with a bank to provide the
Company with additional working capital. However, there can be no assurance that
the Company and the Buyer will be successful in renegotiating the terms of the
line of credit, or that additional bank financing will be available or on terms
favorable to the Company. Management estimates the Company's backlog as of
February 27, 2001, to be approximately $2,000,000 (unaudited), which represents
contracts for full systems implementations, including licensed software,
services and software maintenance. The Company has developed an operating plan
designed to control operating costs, increase revenues, sustain gross margins
and provide for additional procedures to monitor and manage the payment of
liabilities assumed by the Buyer. Through December 31, 2000, the Company's
largest investors have provided funding to the Company under various equity and
debt financings and have stated that they have the positive ability, intent and
commitment to continue to fund or arrange sufficient funding for cash
requirements that the Company may have through at least December 31, 2001.

Property and Equipment: Property and equipment are recorded at cost.
Depreciation is calculated using straight-line and accelerated methods for both
financial and income tax reporting purposes over the estimated useful and
statutory lives of the related assets, respectively.


                                      S-38
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
                                                    VISAER INC. AND SUBSIDIARIES
================================================================================


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

Software Development Costs: The Company capitalizes software development costs
after technological feasibility of the product has been established. Costs
incurred prior to the establishment of technological feasibility are charged to
research and development expense. The Company did not capitalize software
development costs during the year ended December 31, 2000, as the costs incurred
after reaching technological feasibility was established were immaterial.

Deferred Rent: The Company records rent expense related to non-cancelable lease
agreements based on a constant periodic rent over the term of the lease. The
excess of the cumulative rent expense incurred over the cumulative amounts due
under the lease agreement is deferred and recognized over the term of the
non-cancelable lease.

Revenue Recognition: The Company reports under the provisions of Statement of
Position (SOP) No. 97-2, "Software Revenue Recognition". In accordance with SOP
No. 97-2, the Company recognizes revenue from non-cancelable software licenses
upon delivery, provided evidence of an arrangement exists, the fee is fixed and
determinable, collection is probable and no further significant obligations
remain at the time of delivery. Post contract maintenance and support service
fees are typically billed separately and are recognized on a straight-line basis
over the life of the applicable agreement. Revenues from consulting services are
recognized upon performance of the services. Revenues from equipment sales are
recognized when the products are shipped. Revenues from long-term service and
development contracts are recognized on the percentage of completion method.

Income Taxes: The Company reports under the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which
require an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.

Research and Development: The Company expenses all research and development
expenses as incurred.

Foreign Currency Translation: The financial statements of VISaer, (UK) Ltd. and
Visibility Europe, Ltd. are translated into United States dollars in accordance
with SFAS No. 52, "Foreign Currency Translation." Assets and liabilities are
translated at the current exchange rates in effect as of the balance sheet date.
Common stock and additional paid-in capital are translated at historical
exchange rates. Income statement accounts are translated at the average exchange
rates for the related periods. Translation adjustments arising from differences
in exchange rates are recorded as a separate component of stockholders'
deficiency. Transaction gains and losses are recorded in the consolidated
statement of operations. The functional currency of the Parent's other foreign
subsidiaries, VISaer (IRL) Ltd. and Visibility, Ltd., is the U.S. dollar. Gains
and losses for these subsidiaries resulting from the remeasurement of foreign
currencies into U.S. dollars are recorded in the consolidated statement of
operations and such amounts are immaterial.

Advertising Costs: The Company expenses advertising costs as incurred.
Advertising expense incurred by the Company during the year ended December 31,
2000, amounted to $99,798.

Comprehensive Loss: Comprehensive loss consists of changes in stockholders'
deficiency not related to transactions with stockholders. They include net loss
and certain other comprehensive loss items that are not presented in the
consolidated statement of operations, but which are recorded as a separate
component of stockholders' deficiency, net of the related tax effect. As of
December 31, 2000, these items of other comprehensive loss include foreign
currency translation adjustments.

Use of Estimates: Management has used estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities in its preparation of the consolidated financial statements in
accordance with generally accepted accounting principles. Actual results
experienced by the Company may differ from those estimates.


                                      S-39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
                                                    VISAER INC. AND SUBSIDIARIES
================================================================================


2.  PROPERTY AND EQUIPMENT:

As of December 31, 2000, property and equipment consists of the following:

<TABLE>
<S>                                           <C>
Computer Equipment                            $     248,620
Leasehold Improvements                              176,104
Telephone System                                    159,021
Purchased Software                                  100,293
Furniture and Fixtures                               29,281
                                                -----------
                                                    713,319
Less:  Accumulated
    Depreciation                                    506,672
                                                -----------

                                              $     206,647
                                              =============
</TABLE>


3.  CAPITAL LEASE OBLIGATIONS:

The Parent is a party to various non-cancelable capital lease agreements, which
expire at various dates through October, 2003. As of December 31, 2000, the
total future minimum and present value lease payments due under these agreements
are as follows:

<TABLE>
<CAPTION>
 YEAR ENDED
DECEMBER 31,
- ------------
<S>                                          <C>
     2001                                    $       67,008
     2002                                            35,061
     2003                                            13,616
                                             --------------
                                                    115,685

Less:  Amount Representing Interest                  13,942
                                             --------------

Present Value of Net Minimum Lease
    Payments                                        101,743

Current Maturities of Capital Lease
    Obligations                                      57,137
                                             --------------

Capital Lease Obligations, Net of
    Current Maturities                       $       44,606
                                             ==============
</TABLE>

4.  INCOME TAXES:

The provision for income taxes during the year ended December 31, 2000, consists
of the following:

<TABLE>
    <S>                                       <C>
    Current                                   $     106,000
    Deferred                                       (106,000)
                                              -------------

                                              $           -
                                              =============
</TABLE>

As discussed in Note 1, the Company reports under the provisions of SFAS 109.
Deferred income taxes reflect the impact of temporary differences between the
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. The temporary differences, which give rise to a
significant portion of the Company's deferred income taxes as of December 31,
2000, are as follows:

<TABLE>
<S>                                           <C>
Deferred Tax Liabilities                      $     211,525
                                              =============

Deferred Gain                                 $   1,845,000
Net Operating Loss Carryforwards                  2,331,000
Tax Credits                                       1,494,000
Deferred Rent                                        44,000
Other Deferred Tax Assets                            34,000
                                              -------------
                                                  5,748,000
Less:  Valuation Allowance                       (5,748,000)
                                              -------------

Total Deferred Tax Assets                     $           -
                                              =============
</TABLE>

The valuation allowance as of December 31, 2000, relates to the uncertainty of
realizing the tax benefits of the deferred tax assets. Nonetheless, some, if not
all, of these deferred tax assets may be available to offset any deferred tax
liabilities as they become otherwise payable.

As of December 31, 2000, the Company has federal and foreign net operating loss
carryforwards of approximately $4,300,000 and $2,700,000, respectively. The
Parent also has federal and state tax credit carryforwards of approximately
$949,000 and $825,000, respectively. Section 382 of the Internal Revenue Code
and the tax laws of certain foreign jurisdictions contain provisions that could
place limitations on the utilization of these net operating loss carryforwards
and tax credits in the event of a change in ownership, as defined.


                                      S-40
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
                                                    VISAER INC. AND SUBSIDIARIES
================================================================================


5.  RETIREMENT PLAN:

The Parent maintains a 401(k) retirement plan covering substantially all of its
employees. The plan allows each employee participant an election to defer a
percentage of their compensation up to the maximum allowed for federal income
tax purposes. The Parent contributes 25% of the employee's contribution, up to a
maximum of 6% of each participant's salary. Contributions may be suspended at
the option of the Parent's Board of Directors. During the year ended December
31, 2000, the Parent contributed approximately $64,000 into the plan.


6.  OPERATING LEASE COMMITMENTS:

The Company leases certain facilities, vehicles and equipment under
non-cancelable lease agreements expiring through July 2004, as well as certain
facilities under tenant-at-will agreements. The Parent subleases certain space
in its Wilmington, Massachusetts facility under a tenant-at-will agreement.
During the year ended December 31, 2000, lease expense incurred by the Company
under these lease agreements, net of sublease rental income, amounted to
$391,638.

Future minimum lease payments due under these non-cancelable lease agreements as
of December 31, 2000, are as follows:

<TABLE>
<CAPTION>
 YEAR ENDED
DECEMBER 31,
- ------------
<S>                                           <C>
     2001                                     $     332,953
     2002                                           320,569
     2003                                           313,465
     2004                                           153,182
                                              -------------

                                              $  1,120,169
</TABLE>


7.  SALE OF PRODUCT LINE:

On July 27, 2000, the Parent formed a new wholly owned subsidiary, ETO, Inc. and
on June 27, 2000, it's former wholly owned subsidiary, Visibility Europe, Ltd.
also formed a new subsidiary, Tribonium, Inc. In connection with the formation
of ETO, Inc., the Parent contributed, at book value, all of its operational
assets and liabilities relating to its ETO product line of business into ETO,
Inc. In connection with the formation by Visibility Europe, Ltd. of Tribonium,
Inc., Visibility Europe, Ltd. contributed, at book value, all of its non-ETO
product line of business operational assets and liabilities into Tribonium, Inc.
Subsequent to such transfer of assets and liabilities, 100% of the stock of
Tribonium, Inc. was spun off from Visibility Europe, Ltd. to the Parent. On July
27, 2000, the name of Tribonium, Inc. was changed to VISaer (UK) Ltd.

On July 28, 2000, under the Share Purchase Agreement, the Parent sold 100% of
its shares in ETO, Inc. and Visibility Europe, Ltd. (the Sold Subsidiaries),
containing all of its net assets, operations and contracts relating to its ETO
product line of business, to the Buyer. The consideration received by the Parent
under this sale transaction consisted solely of the assumption by the buyer of
all of the liabilities contained in the Sold Subsidiaries.

The book value of net assets included in the Sold Subsidiaries on July 28, 2000
consisted of the following:

<TABLE>
<S>                                           <C>
Accounts Receivable                           $   2,642,518
Other Current Assets                                637,247
Property and Equipment, Net                         621,703
Accounts Payable and Accrued Expenses            (4,706,874)
Line of Credit, Plus Accrued Interest            (1,580,239)
Note Payable, Plus Accrued Interest              (1,270,628)
Deferred Revenues                                (3,953,247)
Capital Lease Obligations                          (254,448)
                                               ------------

Excess of Liabilities over Book Value of
   Net Assets Included in Sold Subsidiaries   $  (7,863,968)
                                              =============
</TABLE>

The Parent did not obtain releases from creditors for a substantial portion of
the liabilities and contracts assumed by the Buyer and, consequently, remains
the primary obligor for any such obligations outstanding as of December 31,
2000. Accordingly, the Parent has not derecognized liabilities assumed by the
Buyer for which the Parent continues to be the primary obligor as of December
31, 2000 and has classified them on the accompanying consolidated balance sheet
as "deferred gain." As of December 31, 2000, the balance of deferred gain
consisted of the following liabilities:

<TABLE>
<S>                                           <C>
Accounts Payable and Accrued
   Expenses                                   $   2,020,966
Line of Credit, Plus Accrued
   Interest (Note 8)                              1,618,505
Note Payable, Plus Accrued
   Interest                                         595,626
Deferred Revenues                                   124,976
Capital Lease Obligations                           204,252
                                              -------------

Total Deferred Gain as of
   December 31, 2000                          $   4,564,325
                                              =============
</TABLE>


                                      S-41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
                                                    VISAER INC. AND SUBSIDIARIES
================================================================================


7.  SALE OF PRODUCT LINE (CONTINUED):

During the year ended December 31, 2000, the gain recognized by the Parent on
the sale of the ETO product line of business consisted of the following:


<TABLE>
<S>                                           <C>
Excess of Liabilities over Book Value of
   Net Assets Included in Sold Subsidiaries   $   7,863,968

Less:   Deferred Gain as of
             December 31, 2000                   (4,564,325)
        Transaction Costs                          (373,529)
                                              -------------

Gain on Sale of Product Line                  $   2,926,114
                                              =============
</TABLE>

In connection with the Share Purchase Agreement, the Buyer assumed a
subordinated, unsecured note payable agreement between the Parent and Mentec
Limited (Mentec), at which time the outstanding balance, plus accrued interest,
amounted to 1,270,628. The note bears interest at 8% per annum. In connection
with the issuance of this note, the Parent issued 50,000 common stock warrants
at an exercise price of $6.67 per share. The fair value of the warrants was
immaterial. The warrants expire upon the repayment of the note. As of December
31, 2000, the remaining balance outstanding under the note, including accrued
interest and certain expenses, amounted to $595,626. This balance has been
included as deferred gain in the accompanying consolidated balance sheet. During
January 2001, the Parent and the Buyer entered into a settlement agreement with
Mentec, such that the outstanding balance due as of December 31, 2000 would be
repaid by the Buyer in two $200,000 installments on January 25, 2001 and
February 22, 2001, with a third and final installment due on March 22, 2001, for
the remaining balance due. During January and February 2001, the Buyer made
payments in accordance with the terms of the January, 2001 settlement agreement.

During July 2000, a vendor of the Parent filed a lawsuit in the U.S. District
Court, District of Massachusetts for a claim in the amount of $291,567, plus
certain damages and expenses. The lawsuit claims that payment had not been made
for certain invoices provided to the Parent for services performed by the vendor
during 1999. This liability was assumed by the Buyer under the Share Purchase
Agreement and remains outstanding as of December 31, 2000. The outstanding
balance of this liability as of December 31, 2000 in the amount of $291,567 has
been included in the deferred gain - accounts payable in the accompanying
consolidated balance sheet.

8.  DEFERRED GAIN - LINE OF CREDIT:

During March 2000, the Parent entered into a line of credit agreement with a
financial institution, the initial proceeds from which were used to repay and
terminate the Parent's then existing line of credit agreement. The Parent
continues to have 71,685 common stock warrants outstanding with the financial
institution that provided the previous line of credit, which warrants have an
exercise price of $2.79 per share and expire during June 2004. Under the terms
of the new line of credit agreement, borrowings were limited to the lesser of
85% of worldwide eligible accounts receivable or $4,000,000. The line of credit
is collateralized by a first security interest in substantially all assets of
the Parent. Interest on the outstanding balance was calculated at the prime rate
in effect during the borrowing term plus 2%, with a minimum monthly interest
charge of $4,150.

In connection with this line of credit agreement, the Parent issued to the
financial institution 55,363 common stock warrants with an exercise price of
$5.78 per share and an expiration date of March 30, 2007. The fair value of
these warrants was not material.

In connection with the Parent's sale of its ETO product line operations during
July 2000 (Note 7), the Buyer assumed the line of credit, at which time the
outstanding balance, plus accrued interest, amounted to $1,580,239. The Parent
did not obtain a release from the financial institution for the assumption of
this obligation by the Buyer and, accordingly, it remains the primary obligor
under the original agreement. As of December 31, 2000, the outstanding balance
under the line of credit, plus accrued interest, amounted to $1,618,505, and has
been included as deferred gain in the accompanying consolidated balance sheet
(Note 7). As of December 31, 2000, the Parent, as primary obligor, was in
default of its obligations to the financial institution for, among other things,
changes in the nature of its business and the sale of assets under the Share
Purchase Agreement. The default interest rate under the line of credit is prime
plus 4%. Based on the defaults under the line of credit agreement, during
January 2001, the financial institution terminated the line of credit agreement
effective on its maturity date of March 30, 2001, at which time all outstanding
obligations under the line of credit are to become due and payable. The Buyer
and the Company are working toward arranging a renegotiated payment plan for the
Buyer to repay the balance outstanding under the line of credit. However, there
can be no assurance that the Company and the Buyer will be successful in
renegotiating the terms of the line of credit.


                                      S-42
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
                                                    VISAER INC. AND SUBSIDIARIES
================================================================================


9.  CROSS LICENSE, NON-COMPETITION AND NON-DISCLOSURE AGREEMENT:

In connection with the closing of the Share Purchase Agreement (Note 7), the
Parent entered into a cross license, non-competition and non-disclosure
agreement with the Buyer. Both, the software products under the ETO line of
business sold under the Share Purchase Agreement and the software products under
the MRO line of business retained by the Parent, generally share much of the
same source code contained in the ETO software products. Accordingly, the Buyer
granted the Parent an exclusive, royalty-free, worldwide, perpetual right to
license the ETO software for use solely in connection with the MRO line of
business, which provides that the Buyer and the Parent do not license products
to distributors that are in direct competition with each other. The Parent
retained exclusive ownership and all rights to the MRO software products. This
agreement also provides for, among other things, the licensing of certain
additional products and potential royalties thereon based on which parties are
involved in the future development of such products, as defined. In addition,
this agreement provides that, among other matters, the Buyer and the Parent will
generally not compete within each other's lines of businesses for a period of
five years.


10.  PREFERRED STOCK:

SERIES A, B, C AND D REDEEMABLE CONVERTIBLE PREFERRED STOCK:

Series D: Series D preferred stock consists of 335,569, 16,778 and 16,778
authorized shares of Series D-1, D-2 and D-3 redeemable convertible preferred
stock, respectively. As of December 31, 2000, 16,778 shares of each of Series
D-2 and D-3 redeemable convertible preferred stock are outstanding.

Dividends: All classes of preferred stockholders are entitled to receive
dividends or other distributions equal to the dividend or distributions that
would be received had the preferred stockholders converted their shares into
common stock.

Voting: All classes of preferred stockholders are entitled to vote on an
as-converted basis together with common stockholders as one class.

Conversion: All classes of preferred stockholders are entitled to convert, at
the option of the holder, each share of preferred stock into one share of common
stock, adjusted for certain dilutive events, as defined. In the event of an
initial public offering with a per share price of less than $15.00, each holder
of the preferred stock will receive a cash payment equal to the liquidation
preference (the IPO Preference Amount) and all shares will then convert
automatically into common stock. In the event of a qualified offering with a per
share price greater than or equal to $15.00, the preferred shares automatically
convert into common stock without any IPO Preference Amount.

Liquidation: In the event of a voluntary or involuntary liquidation, dissolution
or winding up of the Parent, the holders of Series A, B and C redeemable
convertible preferred stock are entitled to receive a $2.79, $.54 and $6.67 per
share liquidation preference, respectively, plus accrued and unpaid dividends.
The holders of Series D-1, D-2 and D-3 redeemable convertible preferred stock
are entitled to receive a $5.78, $.54 and $2.40 per share liquidation
preference, respectively, plus accrued and unpaid dividends. If the assets
available for distribution are insufficient to permit payment of the liquidation
preference amount, then the holders of the preferred stock shall share ratably
in any distributions, as defined. After distribution to the preferred
stockholders of the full liquidation preference amount, any remaining assets
available for distribution are distributed both to holders of common stock and
preferred stock on a pro rata basis, with the exception of holders of Series D
redeemable convertible preferred stock, assuming the preferred stock is
converted into common stock. Any dissolution or liquidation resulting from an
event of sale, as defined, with proceeds of greater than or equal to $15.00 per
share on an as-converted basis, will not result in distributions in accordance
with the foregoing; rather, all preferred stock will be converted into common
stock and shareholders will participate in the proceeds on a pro rata basis.

Redemption: As of March 31, 2003, the preferred stockholders may require the
Parent, with written notice of at least 30 days, to redeem the outstanding
preferred stock. The redemption price equals the liquidation preference of the
series held, plus all accrued but unpaid dividends.


                                      S-43
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
                                                    VISAER INC. AND SUBSIDIARIES
================================================================================


10.  PREFERRED STOCK (CONTINUED):

Other Restrictions: The Parent is restricted, without the approval of 51% of the
holders of preferred stock, from issuing additional shares of preferred stock,
common stock or convertible debt, altering the terms of outstanding preferred
stock, amending its articles of incorporation, selling or otherwise disposing of
all or substantially all of its assets, or voluntarily dissolving or otherwise
liquidating the Company.

Accretion: In connection with the issuance of notes payable to certain
stockholders of the Parent in the aggregate amount of $1,100,000 (Note 12), the
Parent allowed such stockholders to convert 369,125 shares of common stock held
by them into 335,569, 16,778 and 16,778 shares of Series D-1, D-2 and D-3
redeemable convertible preferred stock, respectively, and issued 415,847 common
stock warrants to those stockholders. The warrants expire during September 2002,
have an exercise price of $.60 and were valued using the Black-Scholes option
pricing model. The value of the consideration was allocated to the debt and
equity securities based on their relative fair values. The discount on preferred
stock is being accreted over the term of the securities. The unaccreted discount
on Series D-2 and D-3 redeemable convertible preferred stock outstanding as of
December 31, 2000, amounted to $20,294.

Repurchase of Preferred Stock: During September 2000, the Parent repurchased
358,423, 337,331 and 335,569 shares of its Series A, C and D-1 redeemable
convertible preferred stock, respectively, and 654,952 of its common stock
warrants, all of which had an exercise price of $.60, for aggregate
consideration in the amount of $1. In connection with this transaction, the
Parent reduced the balance of its redeemable convertible preferred stock, net of
unaccreted discount, with a corresponding increase to additional paid-in capital
in the aggregate amount of $4,298,984.


11.  CONTINGENCIES:

During January 2001, a vendor filed a lawsuit against the Parent and the Buyer
for a claim in the amount of $137,397, plus certain damages and expenses.
Obligations under the Parent's contract with this vendor were assumed by the
Buyer under the Share Purchase Agreement. The lawsuit claims that the Parent
breached its contract with the vendor for failing to make license fee payments
due under the terms of the Parent's contract with the vendor in the amount of
$137,397 and that the Parent wrongfully transferred its rights and obligations
under that contract to the Buyer under the Share Purchase Agreement. The Parent
and the Buyer are defending this lawsuit and the management of the Parent is of
the opinion that the outcome of this litigation will not have a material adverse
effect on the accompanying consolidated balance sheet.


                                      S-44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
                                                    VISAER INC. AND SUBSIDIARIES
================================================================================


12.  NOTES PAYABLE - STOCKHOLDERS:

As of December 31, 2000, notes payable - stockholders consists of the following:

Seven, prime plus 2% unsecured notes payable to certain stockholders in the
amount of $1,100,000, plus aggregate accrued interest in the amount of $152,206.
During May 2000, maturities were extended from January 2001 to May 2003. In
connection with the issuance of these notes and the conversion of 369,125 shares
of common stock held by such stockholders into 335,569, 16,778 and 16,778 shares
of Series D-1, D-2 and D-3 redeemable convertible preferred stock, respectively,
during 1999, the Parent issued 415,847 common stock warrants to such
stockholders. The warrants, which expire during September 2002, have an exercise
price of $.60, and were valued using the Black-Scholes option pricing model. The
value of the consideration received was allocated to the debt and equity
instruments based on their relative fair values. The original debt discount on
these notes in the amount of $478,907 is being amortized over the extended term
of the notes to interest expense. Amortization of the debt discount on these
notes during the year ended December 31, 2000 amounted to $177,875. The
aggregate balance outstanding under these notes as of December 31, 2000, is net
of unamortized debt discount of $174,861. During September 2000, the Parent
repurchased 277,231 of the common stock warrants originally issued with these
notes (Note 10). $ 1,077,345

Nine, prime plus 2% unsecured notes payable to certain stockholders in the
amount of $650,000, plus aggregate accrued interest in the amount of $42,712,
mature in May 2003. In connection with the issuance of these notes, the Parent
issued 818,396 common stock warrants. The warrants, which expire during May
2003, have an exercise price of $.60, and were valued using the Black-Scholes
option pricing model. The value of the consideration received was allocated to
the debt and equity instruments based on their relative fair values. The
original debt discount on these notes in the amount of $69,643 is being
amortized over the term of the notes to interest expense. Amortization of the
debt discount on these notes during the year ended December 31, 2000 amounted to
$13,928. The aggregate balance outstanding under these notes as of December 31,
2000, is net of unamortized debt discount in the amount of $55,715. During
September 2000, the Parent repurchased 377,721 of the common stock warrants
originally issued with these notes (Note 10). 636,997

Two, 10% notes payable to certain stockholders, in the amount of $402,555, plus
aggregate accrued interest in the amount of $150,959. During May 2000,
maturities were extended from January 2001 to May 2003. The notes are
collateralized by the Parent's accounts receivable. 553,514


                                      S-45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
                                                    VISAER INC. AND SUBSIDIARIES
================================================================================


12.  NOTES PAYABLE - STOCKHOLDERS (CONTINUED):

<TABLE>
<S>                                                                             <C>
Five, 12% unsecured notes payable to certain stockholders in the amount of
$255,000, plus aggregate accrued interest in the amount of $8,750, due upon
demand.                                                                                 263,750
                                                                                ---------------

Total Notes Payable - Stockholders                                                    2,531,606

Less:  Current Portion                                                                  263,750
                                                                                ---------------

Long-Term Portion of Notes Payable - Stockholders                               $     2,267,856
                                                                                ===============
</TABLE>

Maturities of notes payable - stockholders as of December 31, 2000, consist of
the following:

<TABLE>
<CAPTION>
             YEAR ENDED
            DECEMBER 31,
            ------------
            <S>                         <C>
                2001                    $       263,750
                2002                                  -
                2003                          2,498,432
                                        ---------------
                                        $     2,762,182
                                        ===============
</TABLE>

13.  FOREIGN OPERATIONS:

Condensed audited information of the Parent's European Subsidiaries as of and
for the year ended December 31, 2000, is summarized as follows:
<TABLE>
  <S>                                   <C>
  Revenues                              $ 2,981,758

  Net Loss                              $(1,390,119)

  Total Assets                          $   823,396

  Stockholders' Deficiency              $(2,883,649)
</TABLE>

Activity in the Canadian subsidiary, Visibility, Ltd., was not material during
the year ended December 31, 2000.


                                      S-46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
                                                    VISAER INC. AND SUBSIDIARIES
================================================================================


14.  STOCK OPTION PLANS:

As of December 31, 2000, 1,252,500 shares of the Parent's common stock are
reserved for issuance or grant under the Parent's 1996 and 1994 stock option
plans. The options may be granted to certain employees and directors of the
Parent and Subsidiaries at exercise prices not less than the fair market value
of the stock on the date of grant. The fair market value, rate of exercisability
and expiration dates of the options granted are determined by the Board of
Directors at the time of the grant. Options generally vest over a period
determined by the Board of Directors and expire ten years from the date of
grant.

Stock option activity during the year ended December 31, 2000, is as follows:

<TABLE>
<CAPTION>
                                                                                                  Weighted
                                                                                Exercise          Average
                                                              Number of       Price Range     Exercise Price      Expiration
                                                               Shares          Per Share         Per Share           Dates
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>              <C>                 <C>
Outstanding as of December 31, 1999                            895,001       $0.20 - $1.67         $0.46           2004-2009

Stock Options Granted                                           55,800           $0.60             $0.60             2010
Stock Options Exercised                                         (7,043)      $0.20 - $0.60         $0.48           2007-2008
                                                          --------------------------------------------------------------------

Outstanding as of December 31, 2000                            943,758       $0.20 - $1.67         $0.47           2002-2010
                                                          ====================================================================

Exercisable as of December 31, 2000                            463,529       $0.20 - $1.67         $0.47           2002-2010
                                                          ====================================================================
</TABLE>

During the year ended December 31, 2000, the employment of certain employees of
the Parent was terminated as a result of the transaction under the Share
Purchase Agreement discussed in Note 7. The expiration dates of 66,509 vested
options held by such terminated employees were extended by the Board of
Directors from three months to eighteen months after the termination of
employment. The weighted average exercise price of these extended options was
$.89 per share.

During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation". As permitted by SFAS No. 123, the
Company has elected to continue following the guidance of Accounting Principles
Board (APB) No. 25 for measurement and recognition of stock-based transactions
with employees and to adopt the disclosure only provisions of SFAS No. 123. If
the Company had elected to recognize compensation costs for stock-based
compensation plans with employees based on the fair market value at the grant
dates for awards under those plans consistent with the method prescribed under
SFAS No. 123, such compensation expense would not have been material to the
consolidated statement of operations during the year ended December 31, 2000.
The fair value of the stock options, at the date of grant used to compute such
additional compensation was calculated under the Black-Scholes option pricing
model as described in SFAS No. 123 using the following assumptions: (i)
risk-free interest rate of 5.75% (ii) expected life of five years; (iii) no
dividend yield and (iv) no volatility. The weighted average fair value at the
date of grant for options granted during the year ended December 31, 2000, was
$0.15 per option.

15.  CONCENTRATION OF CREDIT RISK:

Financial instruments that potentially expose the Company to concentrations of
credit risk include trade accounts receivable. To minimize this risk, ongoing
credit evaluations of customers' financial condition are performed, although
collateral is not required. The Company maintains reserves for potential credit
losses.

As of December 31, 2000, three customers represented approximately 25%, 16% and
13%, respectively, of gross accounts receivable.


                                      S-47
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE MEMBERS OF VISAER (UK) LIMITED


We have audited the accompanying balance sheet of VISaer (UK) Limited as of 31
December 2000 and the related profit and loss account for the period then ended.
These financial statements are the responsibility of the company's directors.
Our responsibility is to express an opinion on these financial statements based
on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of VISaer (UK) Limited as of 31
December 2000 and the results of its operations for the period then ended in
conformity with accounting principles generally accepted in the United Kingdom.



/S/ HACKER YOUNG
Manchester, England

20 March 2002


                                      S-48
<PAGE>

REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Shareholders,
Visaer (Irl) Limited


We have audited the accompanying balance sheet of Visaer (Irl) Limited as of
December 31, 2000, and the related profit and loss account for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Visaer (Irl) Limited as of
December 31, 2000, and the results of its operations for the year then ended in
conformity with accounting principles generally accepted in Ireland.



/s/Arthur Andersen
Dublin, Ireland

March 20, 2002


                                      S-49
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors of
Visibility Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Visibility Inc.
(a Delaware corporation) and subsidiaries as of December 31, 1999 and the
related consolidated statements of operations, redeemable convertible preferred
stock and stockholders' deficit and cash flows for each of the two years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Visibility Inc. and
subsidiaries as of December 31, 1999 and the results of their operations and
their cash flows for each of the two years in the period ended December 31, 1999
in conformity with accounting principles generally accepted in the United
States.

                                        /s/ Arthur Andersen LLP


Boston, Massachusetts
March 15, 2000


                                      S-50
<PAGE>

VISIBILITY INC. AND SUBSIDIARIES

Consolidated Balance Sheets
December 31, 1999

<TABLE>
<CAPTION>

ASSETS                                                                                                     1999
<S>                                                                                                    <C>
Current Assets:
    Cash and cash equivalents                                                                          $    738,071
    Accounts receivable, net of allowance for doubtful accounts of $373,861                               7,977,903
    Prepaid expenses and other current assets                                                               461,377
                                                                                                       ------------
            Total current assets                                                                          9,177,351
Property and Equipment, net                                                                               1,063,573
Other Assets                                                                                                 44,734
                                                                                                       ------------
            Total assets                                                                               $ 10,285,658
                                                                                                       ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
    Short-term debt                                                                                    $  2,923,370
    Current portion of capital lease obligations                                                            135,368
    Accounts payable                                                                                      3,374,419
    Accrued expenses                                                                                      2,647,204
    Deferred revenue                                                                                      7,801,751
                                                                                                       ------------
            Total current liabilities                                                                    16,882,112
Notes Payable to Shareholders                                                                             1,299,373
Capital Lease Obligations                                                                                   221,444
Deferred Rent                                                                                               124,085
Deferred Income Taxes                                                                                       328,046
                                                                                                       ------------
            Total liabilities                                                                            18,855,060
                                                                                                       ------------
Commitments and Contingencies (Note 10)

Redeemable Convertible Preferred Stock
    Series A redeemable convertible preferred stock, $0.001 par value-
      Authorized, issued and outstanding--1,881,721 shares, at redemption value
        (liquidation preference of $5,250,000)                                                            5,250,000
    Series B redeemable convertible preferred stock, $0.001 par value-
      Authorized, issued and outstanding--1,628,700 shares, at redemption value
        (liquidation preference of $879,500)                                                                879,500
    Series C redeemable convertible preferred stock, $0.001 par value-
      Authorized, issued and outstanding--337,331 shares, at redemption value
        (liquidation preference of $2,250,000)                                                            2,250,000
    Series D redeemable convertible preferred stock, $0.001 par value-
      Authorized, issued and outstanding--369,125 shares (redemption value and
        liquidation preference of $1,988,916)                                                               790,768
                                                                                                       ------------
            Total redeemable convertible preferred stock                                                  9,170,268

Stockholders' Deficit
    Common stock, $0.001 par value-
      Authorized--15,000,000 shares
      Issued and outstanding--958,147 shares                                                                    958
    Additional paid-in capital                                                                              318,677
    Accumulated deficit                                                                                 (18,064,654)
    Accumulated other comprehensive income                                                                    5,349
                                                                                                       ------------
            Total stockholders' deficit                                                                 (17,739,670)
                                                                                                       ------------
            Total liabilities, redeemable convertible preferred stock and stockholders' deficit        $ 10,285,658
                                                                                                       ============
</TABLE>

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


                                      S-51
<PAGE>

VISIBILITY INC. AND SUBSIDIARIES

Consolidated Statements of Operations
For the Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                             1999                1998
<S>                                                                     <C>                  <C>
Revenues:
    Software licenses                                                   $  7,088,950         $10,580,620
    Maintenance and support services                                      14,504,997          15,648,548
    Hardware equipment sales                                               2,616,061           3,963,723
                                                                        ------------         -----------

                                                                          24,210,008          30,192,891
                                                                        ------------         -----------

Cost of Revenues:
    Software licenses                                                        942,403           2,140,600
    Maintenance and support services                                       9,050,259           8,874,150
    Hardware equipment sales                                               2,129,342           3,208,613
                                                                        ------------         -----------

                                                                          12,122,004          14,223,363
                                                                        ------------         -----------

            Gross profit                                                  12,088,004          15,969,528

Operating Expenses:
    Selling and marketing                                                  7,757,451           5,928,999
    Research and development                                               5,511,591           6,628,824
    General and administrative                                             2,455,290           2,372,088
                                                                        ------------         -----------

                                                                          15,724,332          14,929,911
                                                                        ------------         -----------

            (Loss) income from operations                                 (3,636,328)          1,039,617

Interest Expense, net (includes amortization of debt discount of            (553,384)
$126,171 in 1999 (Note 7))                                                                      (315,392)

Other (Expense) Income, net                                                  (35,435)             19,751
                                                                        ------------         -----------

            (Loss) income before provision for income taxes               (4,225,147)            743,976

Provision for Income Taxes                                                        --              65,000
                                                                        ------------         -----------

            Net (loss) income                                           $ (4,225,147)        $   678,976
                                                                        ============         ===========
</TABLE>

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


                                      S-52
<PAGE>

VISIBILITY INC. AND SUBSIDIARIES

Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Deficit
For the Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                               CONVERTIBLE               CONVERTIBLE              CONVERTIBLE
                                                             PREFERRED STOCK           PREFERRED STOCK         PREFERRED STOCK
                                                                 SERIES A                  SERIES B                SERIES C
                                                           SHARES        AMOUNT       SHARES      AMOUNT     SHARES       AMOUNT
<S>                                                      <C>           <C>          <C>           <C>        <C>         <C>
Balance, December 31, 1997                               1,881,721     5,250,000    1,628,700     879,500    337,331     2,250,000

    Comprehensive loss                                          --            --           --          --         --            --

    Net loss                                                    --            --           --          --         --            --
    Foreign currency translation adjustment                     --            --           --          --         --            --

    Comprehensive loss                                          --            --           --          --         --            --
                                                         ---------    ----------    ---------    --------    -------    ----------


Balance, December 31, 1998                               1,881,721     5,250,000    1,628,700     879,500    337,331     2,250,000
    Exercise of stock options                                   --            --           --          --         --            --
    Conversion of common stock to Series D
       convertible preferred stock                              --            --           --          --         --            --
    Accretion of Series D convertible preferred stock           --            --           --          --         --            --
    Issuance of common stock warrants                           --            --           --          --         --            --
    Comprehensive loss                                          --            --           --          --         --            --
    Net loss                                                    --            --           --          --         --            --
    Foreign currency translation adjustment                     --            --           --          --         --            --

    Comprehensive loss                                          --            --           --          --         --            --
                                                         ---------    ----------    ---------    --------    -------    ----------

Balance, December 31, 1999                               1,881,721    $5,250,000    1,628,700    $879,500    337,331    $2,250,000
                                                         =========    ==========    =========    ========    =======    ==========

<CAPTION>
                                                             CONVERTIBLE
                                                            PREFERRED STOCK                               ADDITIONAL
                                                               SERIES D              COMMON SHARES         PAID-IN
                                                          SHARES     AMOUNT       SHARES        AMOUNT     CAPITAL
<S>                                                      <C>        <C>          <C>           <C>       <C>
Balance, December 31, 1997                                    --          --     1,189,669       1,190       452,397

    Comprehensive loss                                        --          --            --          --            --

    Net loss                                                  --          --            --          --            --
    Foreign currency translation adjustment                   --          --            --          --            --

    Comprehensive loss                                        --          --            --          --            --
                                                         -------    --------    ----------     -------     ---------


Balance, December 31, 1998                                    --          --     1,189,669       1,190       452,397
    Exercise of stock options                                 --          --       137,603         137        30,562
    Conversion of common stock to Series D
       convertible preferred stock                       369,125     643,558      (369,125)       (369)     (221,106)
    Accretion of Series D convertible preferred stock         --     147,210            --          --            --
    Issuance of common stock warrants                         --          --            --          --        56,824
    Comprehensive loss                                        --          --            --          --            --
    Net loss                                                  --          --            --          --            --
    Foreign currency translation adjustment                   --          --            --          --            --

    Comprehensive loss                                        --          --            --          --            --
                                                         -------    --------    ----------     -------     ---------

Balance, December 31, 1999                               369,125    $790,768       958,147     $   958     $ 318,677
                                                         =======    ========    ==========     =======     =========


<CAPTION>

                                                                          ACCUMULATED
                                                                             OTHER                           TOTAL
                                                        COMPREHENSIVE    COMPREHENSIVE  ACCUMULATED     STOCKHOLDERS'
                                                        INCOME (LOSS)    INCOME (LOSS)    DEFICIT           DEFICIT
<S>                                                     <C>              <C>            <C>             <C>
Balance, December 31, 1997                                                  (4,240)     (14,371,273)     (13,921,926)

    Comprehensive loss                                                          --               --               --

    Net loss                                            $     678,976           --          678,976          678,976
    Foreign currency translation adjustment                     6,054        6,054               --            6,054
                                                        -------------
    Comprehensive loss                                  $     685,030           --               --               --
                                                        =============       ------     ------------     ------------


Balance, December 31, 1998                                                   1,814      (13,692,297)     (13,236,896)
    Exercise of stock options                                                   --               --           30,699
    Conversion of common stock to Series D
       convertible preferred stock                                              --               --         (221,475)
    Accretion of Series D convertible preferred stock                           --         (147,210)        (147,210)
    Issuance of common stock warrants                                           --               --           56,824
    Comprehensive loss                                                          --               --               --
    Net loss                                            $  (4,225,147)          --       (4,225,147)      (4,225,147)
    Foreign currency translation adjustment                     3,535        3,535               --            3,535
                                                        -------------
    Comprehensive loss                                  $  (4,221,612)          --               --               --
                                                        =============       ------     ------------     ------------

Balance, December 31, 1999                                                  $5,349     $(18,064,654)    $(17,739,670)
                                                                            ======     ============     ============
</TABLE>

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


                                      S-53
<PAGE>

VISIBILITY INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                                1999              1998
<S>                                                                                         <C>               <C>
Cash Flows from Operating Activities:
    Net (loss) income                                                                       $(4,225,147)      $   678,976
    Adjustments to reconcile net income (loss) to net cash used in
      operating activities-
      Depreciation and amortization                                                             781,716           734,440
      Interest expense capitalized to debt                                                      162,459            76,925
      Noncash amortization of debt discount                                                     126,171                --
      Changes in assets and liabilities, net of assets acquired-
          Accounts receivable, net                                                              585,998        (4,743,798)
          Prepaid expenses and other current assets                                              48,227          (204,607)
          Accounts payable                                                                      153,906         1,063,590
          Accrued expenses                                                                     (859,601)          272,695
          Deferred revenue                                                                    1,815,373         1,269,554
          Deferred rent                                                                           5,274            26,402
                                                                                            -----------       -----------

            Net cash used in operating activities                                            (1,405,624)         (825,823)
                                                                                            -----------       -----------

Cash Flows from Investing Activities:
    Acquisition, net of cash acquired                                                                --          (126,000)
    Purchases of fixed assets                                                                  (588,162)         (206,878)
    Other assets                                                                                 35,609            (3,078)
                                                                                            -----------       -----------

            Net cash used in investing activities                                              (552,553)         (335,956)
                                                                                            -----------       -----------

Cash Flows from Financing Activities:
    Proceeds from issuance of common stock                                                       30,700                --
    Proceeds from issuance of Series A preferred stock                                               --                --
    Proceeds from issuance of notes payable and Series D preferred stock                      1,100,000                --
    Proceeds from short-term bank loans, net                                                    423,370                --
    Repayment of notes payable                                                                       --                --
    Payment of capital lease obligation                                                         (23,962)         (311,395)
    Payments of short-term bank loans, net                                                           --                --
                                                                                            -----------       -----------

            Net cash provided by (used in) by financing activities                            1,530,108          (311,395)
                                                                                            -----------       -----------

Foreign Exchange Impact on Cash                                                                   3,535             6,054
                                                                                            -----------       -----------

Net (Decrease) Increase in Cash and Cash Equivalents                                           (424,534)       (1,467,120)

Cash and Cash Equivalents, beginning of year                                                  1,162,605         2,629,725
                                                                                            -----------       -----------

Cash and Cash Equivalents, end of year                                                      $   738,071       $ 1,162,605
                                                                                            ===========       ===========

Supplemental Disclosure of Cash Flow Information:
    Cash paid during the year for interest                                                  $   433,334       $   242,771
                                                                                            ===========       ===========

Supplemental Disclosure of Noncash Financing and Investing Activities:
    Acquisition of equipment under capital lease                                            $   197,352       $   283,731
                                                                                            ===========       ===========
    Conversion of  369,125 shares of common stock into 369,125 shares of Series D
       redeemable convertible preferred stock, net of discount (Note 12)                    $   643,558       $        --
                                                                                            ===========       ===========
    Conversion of notes payable into 627,240 shares of Series A redeemable convertible
       preferred stock                                                                      $        --       $        --
                                                                                            ===========       ===========
    Discount on issuance of note payable to shareholders                                    $   478,907       $        --
                                                                                            ===========       ===========
    Acquisition of certain assets of the former European distributor-
      Fair value of assets acquired-
          Equipment                                                                         $        --       $        --
          Goodwill and other intangible assets                                                       --           126,000
                                                                                            -----------       -----------
                                                                                                     --           126,000
      Forgiveness of Visibility debt, net                                                            --                --
                                                                                            -----------       -----------

            Cash payment for acquisition                                                    $        --       $   126,000
                                                                                            ===========       ===========
</TABLE>

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


                                      S-54
<PAGE>

VISIBILITY INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 1999

(1)      NATURE OF THE BUSINESS

         Visibility Inc., a Delaware corporation, and subsidiaries (the
         Company), develops, markets, sells and supports an integrated line of
         business application software for manufacturers and aviation
         maintenance, repair and overhaul companies. The Company is subject to a
         number of risks similar to those of other companies in a similar stage
         of development. Principal among these risks are the need to obtain
         adequate financing, dependence on key individuals, the need for
         successful development and marketing of services and products, and
         competition from other companies.

         Management believes that its current cash and available borrowings
         under the Company's current and future bank lines of credit (see Note
         6) will provide sufficient capital to finance the Company through
         December 31, 2000. The Company may attempt to raise additional capital
         during 2000 in order to fund operations, product marketing and
         development, and working capital requirements. There can be no
         assurance that additional financing will be available or on terms
         favorable to the Company. The Company's largest investors have stated
         that they continue to support the Company and that they have the
         positive ability, intent and commitment to fund or arrange funding of
         any cash requirements that Visibility may have, resulting from
         operating losses or other uses of cash required in the ordinary course
         of business, through at least December 31, 2000.

(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         A summary of the Company's significant accounting policies follows:

         USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         date of the financial statements and the reported amounts of revenues
         and expenses during the reporting period. Actual results could differ
         from those estimates.

         RECLASSIFICATIONS

         Certain prior-year balances have been reclassified in order to conform
         with the current year's presentation.

         PRINCIPLES OF CONSOLIDATION

         The accompanying financial statements include the accounts of the
         Company and its wholly owned subsidiaries after elimination of
         intercompany accounts and transactions.

         CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid investments purchased with a
         maturity of three months or less to be cash equivalents. The carrying
         amounts of cash and cash equivalents approximate their fair value due
         to the short-term maturities of these investments.


                                      S-55
<PAGE>

         FOREIGN CURRENCY TRANSLATION

         The functional currency for the Company's United Kingdom subsidiary is
         the British pound sterling. Gains (losses) from foreign currency
         translations of the United Kingdom subsidiary are credited or charged
         to accumulated other comprehensive income (loss), which is included as
         a component of stockholders' equity in the accompanying consolidated
         balance sheets. The functional currency of the Company's other foreign
         operations is the U.S. dollar. Gains and losses for these subsidiaries
         resulting from the remeasurement of foreign currencies into U.S.
         dollars are included in the results of operations and the amounts are
         insignificant.

         FAIR VALUE OF FINANCIAL INSTRUMENTS

         The Company's financial instruments consist primarily of cash and cash
         equivalents, accounts receivable, accounts payable and long-term debt.
         The carrying amounts of the Company's cash and cash equivalents,
         accounts receivable and accounts payable approximate fair value due to
         their short-term nature. See Note 6 for fair value information
         pertaining to the Company's long-term debt.

         REVENUE RECOGNITION

         In accordance with the provisions of Statement of Position (SOP) No.
         97-2, Software Revenue Recognition, the Company recognizes revenue from
         noncancelable software licenses upon product shipment, provided
         collection is probable and no significant vendor and postcontract
         customer obligations remain at the time of shipment. Sales of the
         Company's products do not require significant production, modification
         or customization of software. Installation of the software is routine,
         requires insignificant effort and is not essential to the functionality
         of the system or software. The Company accounts for insignificant
         vendor obligations by deferring a portion of the revenue and
         recognizing it when the related services are performed. Postcontract
         support (maintenance) service fees are typically billed separately and
         are recognized on a straight-line basis over the life of the applicable
         agreement. The Company recognizes service revenues from consulting and
         implementation services, including training, provided by both its own
         personnel and by third parties, upon performance of the services.
         Long-term service and development contracts are recognized using the
         percentage-of-completion method. Revenue from equipment sales is
         recognized upon shipment of the equipment.

         SOFTWARE DEVeLOPMENT COSTS

         The Company capitalizes certain software development costs after
         technological feasibility of the product has been established. Costs
         incurred prior to the establishment of technological feasibility are
         charged to research and development expense. The Company capitalized no
         software development costs during 1999 and 1998, as the costs incurred
         after technological feasibility was established were deemed to be
         immaterial. Capitalized software costs are amortized ratably over the
         useful life of the product, generally two years, and are charged to
         cost of revenues. There was no amortization expense for the year ended
         December 31, 1999 relating to capitalized software.


                                      S-56
<PAGE>

         INCOME TAXES

         The Company accounts for income taxes in accordance with SFAS No. 109,
         Accounting for Income Taxes. Under this method, deferred tax assets and
         liabilities are recognized for the expected future tax consequences,
         utilizing current tax rates, of temporary differences between the
         carrying amounts and the tax bases of assets and liabilities.

         RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
         Instruments and Hedging Activities. This statement requires companies
         to record derivatives on the balance sheet as assets or liabilities,
         measured at fair value. Gains or losses resulting from changes in the
         values of those derivatives would be accounted for depending on the use
         of the derivative and whether it qualifies for hedge accounting. In
         June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
         Financial Instruments and Hedging Activities--Deferral of the Effective
         Date of FASB Statement No. 133. Consequently, SFAS No. 133 will be
         effective for the Company's year ending December 31, 2001. Management
         believes that this statement will not have a significant impact on the
         Company.

(3)      ACQUISITION

         On May 15, 1997, the Company established a wholly owned UK subsidiary,
         Visibility Europe Ltd. (the Subsidiary), which acquired certain
         equipment and intangible assets of the Company's then European
         distributor, whose parent company was formerly also a minority
         stockholder of the Company, for $250,000. The purchase price was
         allocated $109,135 to equipment and $140,865 to goodwill and other
         intangibles, which are being amortized on a straight-line basis over
         three years. This acquisition was accounted for as a purchase.
         Additional purchase price was contingent on the Subsidiary achieving
         certain profitability levels for 1997 and 1998, which the Company did
         not achieve in 1997. The Company achieved the 1998 targeted
         profitability, resulting in an additional $117,000 of contingent
         consideration. This payment has been accounted for as an addition to
         goodwill. $87,677 of goodwill amortization was recorded as an expense
         in 1999. Pro forma information for this acquisition has not been
         presented, as the impact was not material.

(4)      ACCOUNTS RECEIVABLE; ALLOWANCE FOR DOUBTFUL ACCOUNTS

<TABLE>
<CAPTION>

                                     BALANCE AT     PROVISION      NET DEDUCTIONS
                                    BEGINNING OF    CHARGED TO         FROM            BALANCE AT
                                       PERIOD       OPERATIONS      ALLOWANCE(1)     END OF PERIOD
<S>                                 <C>             <C>            <C>               <C>
Year Ended December 31, 1999            $424            $55            $(105)            $374
Year Ended December 31, 1998             484             40             (100)             424
</TABLE>

         (1) Accounts deemed uncollectable, net of recoveries.


                                      S-57
<PAGE>

(5)      PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment are recorded at cost and depreciated
         using the straight-line method over the estimated useful lives of the
         assets. Maintenance and repair costs are charged to expense as
         incurred.

         Fixed assets consist of the following at December 31, 1999:

<TABLE>
<CAPTION>
                                                                      ESTIMATED
                                                                     USEFUL LIVES               1999
           <S>                                                       <C>                    <C>
           Furniture and fixtures                                     5 years               $  708,980
           Equipment                                                  1-3 years              3,503,784
           Computer software                                          3 years                  636,493
           Leasehold improvements                                     2-10 years               352,207
                                                                                            ----------

                                                                                             5,201,464

           Less--Accumulated depreciation and amortization                                   4,137,891
                                                                                            ----------

                                                                                            $1,063,573
                                                                                            ==========
</TABLE>

         Included above is equipment held under capital leases with a cost of
         $477,494 and accumulated amortization of $149,319 at December 31, 1999.

(6)      SHORT-TERM DEBT

         LINE OF CREDIT

         The Company has two line of credit facilities with a bank which allow
         the Company to borrow up to $3,125,000 as of December 31, 1999.
         Borrowings are secured by substantially all of the Company's assets
         under these two facilities. Aggregate borrowings under these facilities
         at December 31, 1999 totaled $1,923,370. The facilities expire on March
         31, 2000.

         The first facility allows the Company to borrow against 80% of factored
         U.S. accounts receivable up to a maximum of $2,125,000. Interest
         accrues at the bank's prime rate (8.5% at December 31, 1999) plus 1.5%
         points. In addition, a 0.5% administrative fee is due on the value of
         each factored account receivable when it is collected. The facility has
         certain covenants that pertain to the Company's profitability, as
         defined, which the Company was in compliance with at December 31, 1999.
         $1,673,370 was outstanding under this facility at December 31, 1999.

         The second facility was entered into on October 1, 1999 and established
         a line of credit in the maximum principal amount of $1,000,000
         guaranteed by the U.S. Export-Import Bank (EXIM). This facility allowed
         the Company to borrow the lesser of a borrowing base calculation based
         on certain percentages of accounts receivable originating outside the
         U.S., primarily from the U.K., as defined, or $1,000,000. As of
         December 31, 1999, the Company had borrowed $250,000 under this
         facility. During 1999, the interest rate under this facility was the
         bank's prime rate (8.5% at December 31, 1999) plus 2% points. The
         facility has certain covenants that include the Company's profitability
         and quick ratios, as defined. At December 31, 1999, the


                                      S-58
<PAGE>

         Company was not in compliance with these covenants. During 2000, the
         Company is obligated to pay down the borrowings in $125,000
         installments on the 15th and last day of each month, beginning in
         February. The bank applied the February payments to the $250,000 EXIM
         loan that has settled this facility.

         In connection with the November 1997 amendment of the credit line
         agreement with the bank, the Company issued the bank a warrant to
         purchase 71,685 shares of common stock at an exercise price of $2.79
         per share. The fair value of this warrant was immaterial. In connection
         with the April 1998 amendment of the agreement with the bank, the bank
         will be issued a warrant to purchase 10,526 shares of common stock at
         an exercise price of $4.75 per share in the event that the Company
         defaults on its payment obligations to the bank and it is not cured
         within two business days. To date, warrants have not been issued since
         the Company has not defaulted on its payments to the bank.

         The Company has executed a Commitment Letter offered by a commercial
         credit corporation that offers a $4 million credit line effective March
         31, 2000. Borrowings under the credit line would be advanced against a
         borrowing base calculation and would allow the lesser of 85% of
         worldwide accounts receivable or $4 million. To secure the loans, the
         lender would be granted a first priority security interest in all the
         assets of the Company. Interest would accrue at the commercial credit
         corporation's prime lending rate plus 2% points and a 1% commitment fee
         has been paid subsequent to year-end. Minimum monthly interest charges
         would be $4,150. The Company would grant to the lender warrants to
         purchase 55,363 shares of the Company's common stock at an exercise
         price of $5.78 per share which would be exercisable for seven years
         from the date of issuance. The credit line period is one year and is
         automatically renewable. There are no profitability or financial ratio
         covenants associated with the credit line. The Company expects that
         this credit line would be sufficient to provide for its working capital
         needs through December 31, 2000.

         NOTE PAYABLE TO OTHERS

         The Company has $1,000,000 of borrowings under a senior subordinated
         note agreement due to a former shareholder, the parent company of its
         former European distributor. The note plus accrued interest is
         reflected as short-term debt in the accompanying 1999 balance sheet and
         is due on May 15, 2000. The note is subject to acceleration provisions
         upon the closing of an initial public offering, sale or other
         disposition, as defined. The note accrues interest at 8% per annum,
         payable upon maturity, and is unsecured. As part of the financing, the
         Company also issued a warrant for the purchase of up to 50,000 shares
         of common stock at $6.67 per share. The fair value of the warrant was
         not material. The warrant expires upon repayment of the senior
         subordinated note.

         Interest expense on this note for 1999 and 1998 was $80,000 for each
         year.

(7)      LONG-TERM DEBT

         The Company has $402,555 of notes outstanding to a stockholder as of
         December 31, 1999. The notes accrue interest at 10% per annum. During
         1999, the maturity date was extended to January 1, 2000. Subsequent to
         year-end, the maturity date was further extended to January 31, 2001
         and, accordingly, the outstanding


                                      S-59
<PAGE>

         borrowings and accrued interest of $509,904 at December 31, 1999 are
         reflected as noncurrent in the accompanying balance sheet. The
         borrowings are secured by the Company's accounts receivable.

         On September 17, 1999, the Company entered into several stockholder
         note agreements totaling $1,100,000. These notes accrue interest at a
         rate of 10% per annum and are unsecured. The original maturity date was
         March 31, 2000 but subsequent to year-end this was extended to January
         31, 2001. Accordingly, the outstanding borrowings and accrued interest
         are reflected as noncurrent in the accompanying balance sheet. The debt
         is carried in the financial statements net of unamortized discount,
         based on the relative fair values of securities issued in connection
         with the notes (see Note 12 (a)). The original debt discount of
         $478,907 is being amortized over the term of the debt as additional
         noncash interest expense. This noncash interest expense amounted to
         $126,171 in 1999.

         Interest expense, including amortized debt discount, for 1999 and 1998
         on these notes payable to stockholders totaled $208,631 and $40,255,
         respectively.

         The fair value of the Company's debt approximates its carrying value
         based on the current rate offered to the Company for obligations of the
         same remaining maturities.

(8)      BENEFIT PLAN

         The Company has a defined contribution plan, which is qualified under
         Section 401(k) of the Internal Revenue Code. The plan covers
         substantially all employees who meet minimum age and service
         requirements and allows participants to defer a portion of their
         salary. After one year of employment, the Company contributes 25% of
         the employee's contribution, up to a maximum of 6% of the employee's
         salary. Employer contributions may be suspended at the option of the
         Board of Directors. The Company's contributions to the plan for the
         years ended December 31, 1999 and 1998 were approximately $100,000 and
         $100,000, respectively.

(9)      INCOME TAXES

         (Loss) income before income taxes for domestic and foreign operations
         is as follows:

<TABLE>
<CAPTION>

                                   1999                  1998
           <S>                <C>                    <C>
           Domestic           $(2,932,507)           $1,649,938
           Foreign             (1,292,640)             (905,962)
                               ----------             ---------

                              $(4,225,147)           $  743,976
                               ==========             =========
</TABLE>


                                      S-60
<PAGE>

         The provision for income taxes consists of the following for 1999 and
         1998:

<TABLE>
<CAPTION>
                                              1999                   1998
           <S>                             <C>                   <C>
           Current tax expense-
                Federal                    $       --            $   38,000
                State                              --                27,000
                Foreign                            --                    --
                                           ----------            ----------

                                           $       --            $   65,000
                                           ==========            ==========
</TABLE>

         The 1998 federal tax expense represents alternative minimum taxes
         payable and the 1998 state provision represents minimum and other
         non-income-measured taxes. The Company utilized $1,655,000 of federal
         and state net operating loss carryforwards in 1998 and reduced the
         valuation allowance accordingly.

         A reconciliation of the federal statutory rate to the Company's
         effective tax rate is as follows:

<TABLE>
<CAPTION>
                                                                    1999        1998
            <S>                                                    <C>          <C>
            Income tax provision (benefit) at
               statutory rate                                        (34)%        34%
            State tax provision (benefit)                             (5)         10
            Impact of foreign tax rates (benefit)                      2           9
            (Decrease) increase in valuation allowance                45         (59)
            Other                                                     (8)         15
                                                                   -----       -----

                                                                      --%          9%
                                                                   =====       =====
</TABLE>

         The Company has approximately $9,000,000 of U.S. federal net operating
         loss carryforwards available to reduce future taxable income, if any.
         These net operating loss carryforwards expire in varying amounts
         through 2019 and are subject to the review and possible adjustment by
         the Internal Revenue Service. The Company has $4,915,000 of foreign net
         operating loss carryforwards available to reduce future taxable income
         in the foreign jurisdictions, if any.

         Section 382 of the Internal Revenue Code and the tax laws of certain
         foreign jurisdictions also contain provisions that could place annual
         limitations on the utilization of these net operating loss
         carryforwards in the event of a change in ownership, as defined.


                                      S-61

<PAGE>


         Significant components of deferred income taxes are as follows:


<TABLE>
<CAPTION>
                                                        1999

         <S>                                        <C>
         Deferred tax liabilities                   $   328,046
                                                    -----------


         Deferred tax assets-
            Net operating loss carryforwards        $ 4,652,900
            Allowance for doubtful accounts             117,035
            Deferred rent                                50,875
            Accrued benefits                            112,503
            Tax credits                                 617,934
            Other                                        44,038
                                                    -----------

                                                      5,595,285

         Valuation allowance                         (5,595,285)
                                                    -----------

                  Total deferred tax assets         $        --
                                                    ===========
</TABLE>

       The valuation allowance at December 31, 1999 relates to the uncertainty
       of realizing the tax benefits of the deferred tax assets. Nonetheless,
       some, if not all, of these deferred tax assets may be available to offset
       any deferred income tax liabilities as they become otherwise payable.

(10)   COMMITMENTS AND CONTINGENCIES

       The Company leases facilities under various operating leases. The Company
       also leases certain equipment under noncancelable capital and operating
       leases. Future minimum lease commitments under all noncancelable
       operating and capital leases at December 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                                        OPERATING           CAPITAL
                                                          LEASES            LEASES

         <S>                                            <C>               <C>
         2000                                           $  534,380        $  187,290
         2001                                              514,943           198,744
         2002                                              445,416            52,404
         2003                                              425,699                --
         2004                                              282,422
         Thereafter                                      1,292,400                --
                                                        ----------        ----------

         Total minimum lease payments                   $3,495,260           438,438
                                                        ==========

         Less--Amount representing interest                                   81,626
                                                                          ----------

         Present value of minimum lease payments
         (including current portion of $135,368)                          $  356,812
                                                                          ==========
</TABLE>

       Total rent expense under noncancelable operating leases was approximately
       $493,000 and $464,000 for the years ended December 31, 1999 and 1998,
       respectively.

                                      S-62


<PAGE>


(11)     CONCENTRATIONS OF CREDIT RISK

         Financial instruments that potentially expose the Company to
         concentrations of credit risk include trade accounts receivable. To
         minimize this risk, ongoing credit evaluations of customers' financial
         condition are performed, although collateral is not required. The
         Company maintains reserves for potential credit losses.

         No one customer accounted for 10% or more of gross accounts receivable
         at December 31, 1999. One customer accounted for 13% of total revenues
         in 1999. No customer accounted for 10% or more of total revenues in
         1998.

(12)     STOCKHOLDERS' EQUITY

         (A)      PREFERRED STOCK

                  On October 6, 1997, the Company amended and restated its
                  Certification of Incorporation, whereby the Company's
                  authorized shares of $0.001 par value common stock was
                  increased to 15,000,000. The Company also authorized the
                  issuance of 3,847,752 shares of $0.001 par value preferred
                  stock, of which 1,881,721 shares are designated as Series A
                  Preferred Stock, 1,628,700 shares are designated as Series B
                  Preferred Stock and 337,331 shares are designated as Series C
                  Preferred Stock.

                  The Company issued 1,881,721 shares of Series A Redeemable
                  Convertible Preferred Stock in exchange for $3,500,000 of cash
                  plus the conversion of the $1,750,000 notes payable issued in
                  1997 and 1996. In 1997, the Company also allowed common
                  stockholders to convert 1,966,031 shares of common stock into
                  1,628,700 shares of Series B Redeemable Convertible Preferred
                  Stock and 337,331 shares of Series C Redeemable Convertible
                  Preferred Stock.

                  On September 10, 1999, the Company further amended and
                  restated the Amended and Restated Certification of
                  Incorporation to provide for the authorization and issuance of
                  369,125 additional shares of $0.001 par value preferred stock,
                  335,569 shares to be designated as Series D-1 Preferred Stock,
                  16,778 shares to be designated as Series D-2 Preferred Stock,
                  16,778 shares to be designated as Series D-3 Preferred Stock
                  (collectively, the Series D Preferred Stock).

                  In connection with the September 17, 1999 stockholder debt
                  financing discussed in Note 7, the Company allowed certain
                  common stockholders who participated in the debt financing to
                  convert 369,125 shares of common stock into 335,569 shares of
                  Series D-1 Redeemable Convertible Preferred Stock, 16,778
                  shares of Series D-2 Redeemable Convertible Preferred Stock
                  and 16,778 shares of Series D-3 Redeemable Convertible
                  Preferred Stock. Warrants to purchase 415,847 shares of common
                  stock were also issued to the investors who participated in
                  the debt financing. The warrants expire on September 17, 2002,
                  have an exercise price of $0.60, and were valued using the
                  Black-Scholes option pricing model. The value of the
                  consideration received has been allocated to the debt and
                  equity instruments based on their relative fair values. The
                  resulting discount is being accreted over the term of the
                  securities.


                                      S-63

<PAGE>


         The Series A, Series B Series C and Series D redeemable convertible
         preferred stock have the following rights and preferences:

                  VOTING

                  Preferred stockholders are entitled to vote on an as-converted
                  basis together with common stockholders as one class.

                  DIVIDENDS

                  The preferred stockholders are entitled to receive dividends
                  or other distributions equal to the dividend or distribution
                  that would be received had the preferred stockholders
                  converted their shares into common stock.

                  LIQUIDATION

                  In the event of any voluntary or involuntary liquidation,
                  dissolution or winding up of the Company, the holders of
                  Series A, B and C redeemable convertible preferred stock are
                  entitled to receive a $2.79, $.54 and $6.67 per share
                  liquidation preference, respectively, plus accrued or unpaid
                  dividends. The holders of Series D-1, D-2 and D-3 redeemable
                  convertible preferred stock are entitled to receive a $5.78,
                  $0.54 and $2.40 per share liquidation preference,
                  respectively, plus accrued or unpaid dividends. If the assets
                  available for distribution are insufficient to permit payment
                  of the liquidation preference amount, then the holders of the
                  preferred stock shall share ratably in any distribution, as
                  defined. After distribution to the preferred stockholders of
                  the full liquidation preference amount, any remaining assets
                  available for distribution are distributed both to holders of
                  common stock and preferred stock on a pro rata basis, with the
                  exception of holders of Series D redeemable convertible
                  preferred stock, assuming the preferred stock is converted
                  into common stock. Any dissolution or liquidation resulting
                  from an event of sale, as defined, with proceeds of greater
                  than or equal to $15.00 per share on an as-converted basis,
                  will not result in distributions in accordance with the
                  foregoing; rather, all preferred stock will be converted into
                  common and share in the proceeds on a pro rata basis.

                  CONVERSION

                  Each share of preferred stock is convertible, at the option of
                  the holder, into one share of common stock, adjusted for
                  certain dilutive events, as defined. In the event of an
                  initial public offering with a per share price of less than
                  $15.00, each holder of the preferred stock will receive a cash
                  payment equal to the liquidation preference (the IPO
                  Preference Amount) and all shares shall convert automatically
                  into common stock. The shares automatically convert upon the
                  occurrence of a qualified offering with a per share price
                  greater than or equal to $15.00 without any IPO Preference
                  Amount.


                                      S-64


<PAGE>


                           REDEMPTION

                           As of March 31, 2003, the holders of the preferred
                           stock may require the Company, with 30 days' written
                           notice, to redeem outstanding preferred stock. The
                           redemption price equals the liquidation preference
                           plus all accrued but unpaid dividends.

                           OTHER RESTRICTIONS

                           The Corporation is restricted, without the approval
                           of 51% of the holders of preferred stock, from
                           issuing additional shares of preferred stock, common
                           stock or convertible debt, altering the terms of
                           outstanding preferred stock, amending its articles of
                           incorporation, selling or otherwise disposing of all
                           or substantially all of its assets, or voluntary
                           dissolving or otherwise liquidating the Company.

         (B)      STOCK OPTION PLANS

                  In 1994, the Company adopted the Visibility Inc. and
                  Subsidiaries Stock Option Plan (the 1994 Plan), which is
                  administered by the Board of Directors. The 1994 Plan provides
                  for the issuance to key employees and directors of the Company
                  options to purchase shares of common stock. The maximum number
                  of shares of common stock that may be issued under the 1994
                  Plan is 202,500 shares. Options are granted under the 1994
                  Plan at exercise prices not less than the fair value of the
                  stock on the date of grant. The options are exercisable over
                  periods determined by the Board of Directors and expire after
                  10 years from the date of grant.

                  On February 2, 1996, the Company adopted the Visibility Inc.
                  and Subsidiaries 1996 Stock Plan (the Plan), which is
                  administered by the Board of Directors. The Plan provides for
                  the issuance of incentive and nonqualified options to purchase
                  shares of common stock to key employees and directors of the
                  Company. The maximum number of shares of common stock that may
                  be issued under the Plan is 1,050,000 shares. Incentive stock
                  options may be granted under the Plan at exercise prices not
                  less than the fair value of the stock on the date of grant.
                  The options are exercisable over periods determined by the
                  Board of Directors and expire 10 years from the date of grant.

                                      S-65

<PAGE>


                           The following summarizes the stock option activity
                           under the Company's stock option plans:


<TABLE>
<CAPTION>
                                                                   WEIGHTED
                                           OUTSTANDING             AVERAGE
                                             OPTIONS            EXERCISE PRICE

         <S>                               <C>                  <C>
         Balance, December 31, 1997           1,152,550                 0.40
            Granted                             196,300                 0.40
            Exercised                                --                   --
            Canceled                           (162,499)                0.25
                                           ------------

         Balance, December 31, 1998           1,186,351                 0.42
            Granted                             344,000                 0.58
            Exercised                          (137,603)                0.22
            Canceled                           (495,797)                0.52
                                           ------------

         Balance, December 31, 1999             896,951         $       0.46
                                           ============         ============
</TABLE>

         At December 31, 1999 and 1998, options to purchase 457,122 and 549,162
         shares were exercisable, respectively. The options exercisable at
         December 31, 1999 and 1998 had a weighted average exercise price of
         $0.46 and $0.49, respectively. Options generally vest over three to
         four years. At December 31, 1999, 127,946 shares were available for
         future option grants.

         During 1995, the Financial Accounting Standards Board issued SFAS No.
         123, Accounting for Stock-Based Compensation, which defines a fair
         value-based method of accounting for employee stock options or similar
         equity instruments and encourages all entities to adopt that method of
         accounting for all their employee stock compensation plans. However, it
         also allows an entity to continue to measure compensation costs for
         those plans using the intrinsic method of accounting prescribed by APB
         Opinion 25. Entities electing to remain with the accounting in APB
         Opinion 25 must make pro forma disclosures of net income as if the
         fair-value-based method of accounting defined in SFAS No. 123 has been
         applied. The Company has elected to account for its stock-based
         compensation plans under APB Opinion 25.

         Had compensation costs for the stock option plan been determined using
         the fair value-based method as prescribed by SFAS No. 123, the
         Company's 1999 net loss and 1998 net income would have been increased
         and decreased, respectively, to the following pro forma amounts:

<TABLE>
<CAPTION>
                                    1999             1998
         Net (loss) income-
         <S>                   <C>                <C>
           As reported         $ (4,225,147)      $ 678,976
           Pro forma             (4,228,464)        665,174
</TABLE>

         Consistent with SFAS No. 123, pro forma compensation cost has not been
         calculated for options granted prior to January 1, 1995. Pro forma
         compensation cost may not be representative of that to be expected in
         future years.

         The weighted average per share fair values of options granted during
         1999 and 1998 were $0.10 and $0.09, respectively. The values were
         estimated on the date of grant using the following weighted average
         assumptions for grants in 1999 and 1998: risk-


                                      S-66
<PAGE>

         free interest rate of 5.50 % and 5.17%; expected life of five years;
         expected dividend yield of 0% and volatility factor of 0%.

         The weighted average remaining contractual life of outstanding options
         was 7.67 years and the range of exercise prices was $0.20 to $1.67 at
         December 31, 1999.

(13)     FOREIGN OPERATIONS

         The following table summarizes the Company's operations by geographic
         area:

<TABLE>
<CAPTION>
                                                  1999             1998
            <S>                               <C>              <C>
            Revenues-
              North America                   $ 19,664,679     $ 24,022,301
              Europe                             4,545,329        6,170,590
                                              ------------     ------------

                   Consolidated total         $ 24,210,008     $ 30,192,891
                                              ============     ============

            (Loss) income from operations-
              North America                   $ (2,932,507)    $  1,964,561
              Europe                            (1,292,640)        (924,944)
                                              ------------     ------------

                   Consolidated total         $ (4,225,147)    $  1,039,617
                                              ============     ============

            Identifiable assets-
              North America                   $  8,061,279     $  7,872,620
              Europe                             2,224,379        3,700,960
                                              ------------     ------------

                   Consolidated total         $ 10,285,658     $ 11,573,580
                                              ============     ============
</TABLE>

         Export sales were not material in 1999 and 1998.


                                      S-67
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
Digital Wireless Corporation:

We have audited the accompanying balance sheet of Digital Wireless Corporation
as of December 31, 1999, and the related statements of operations, changes in
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Digital Wireless Corporation as
of December 31, 1999, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States.

Atlanta, Georgia                       ARTHUR ANDERSEN LLP
February 18, 2000


                                      S-68
<PAGE>
                                  CIRRONET INC.

                                 Balance Sheets

                           December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                        ASSETS                                       2001                2000
                                                                                  -----------         -----------
                                                                                  (unaudited)         (unaudited)
<S>                                                                               <C>                 <C>
Current assets:
    Cash and cash equivalents                                                     $   630,085            333,274
    Accounts receivable, less allowance for doubtful accounts
       of $9,055 and 24,980, respectively                                             966,132          1,292,741
    Inventories                                                                     1,371,608          1,425,605
    Income tax refund receivable                                                       39,366            152,855
    Deferred income tax assets                                                         37,757             41,961
    Prepaid expenses and other current assets                                          76,334             10,001
                                                                                  -----------         ----------
                   Total current assets                                             3,121,282          3,256,437
Property and equipment, net                                                           370,165            315,365
Deferred income tax assets                                                             77,388                 --
Other assets                                                                           42,611             48,728
                                                                                  -----------         ----------
                   Total assets                                                   $ 3,611,446          3,620,530
                                                                                  ===========         ==========
                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                              $   326,152            579,135
    Accrued expenses                                                                  222,454            171,993
    Current maturities of obligations under capital leases
        and long-term debt                                                             27,472            136,688
                                                                                  -----------         ----------
                   Total current liabilities                                          576,078            887,816
Obligations under capital leases and long-term debt
    excluding current maturities                                                      165,877             66,156
Deferred income tax liabilities                                                            --             18,266
                                                                                  -----------         ----------
                   Total liabilities                                                  741,955            972,238
                                                                                  -----------         ----------
Stockholders' equity:
    Common stock, $.001 par value; 40,000,000 shares authorized;
       7,359,458 and 7,335,050 shares issued and outstanding, respectively             73,590             73,350
    Additional paid-in capital                                                      1,862,557          1,831,788
    Retained earnings                                                               1,079,362            880,419
    Note receivable from employee for stock options                                  (146,018)          (137,265)
                                                                                  -----------         ----------
                   Total stockholders' equity                                       2,869,491          2,648,292
Commitments and contingencies
                                                                                  -----------         ----------
                   Total liabilities and stockholders' equity                     $ 3,611,446          3,620,530
                                                                                  ===========         ==========
</TABLE>

See accompanying notes to financial statements.


                                      S-69


<PAGE>


                                  CIRRONET INC.

                            Statements of Operations

                  Years ended December 31, 2001, 2000 and 1999


<TABLE>
<CAPTION>
                                                                           2001                2000                1999
                                                                        -----------         -----------         -----------
                                                                        (unaudited)         (unaudited)          (audited)
<S>                                                                     <C>                 <C>                 <C>
Revenues:
    Product sales and service revenues                                  $ 8,760,866           5,975,684           4,118,153
    Development contracts                                                    60,000             265,067             352,700
                                                                        -----------         -----------         -----------
                   Total revenues                                         8,820,866           6,240,751           4,470,853
Costs of revenues                                                         4,921,757           3,059,098           1,912,709
                                                                        -----------         -----------         -----------
                   Gross profit                                           3,899,109           3,181,653           2,558,144
Operating expenses:
    Research and development                                              1,250,026             857,347             520,720
    Sales and marketing                                                   1,593,835           1,133,739             656,285
    General and administrative                                              943,789             836,806             375,447
    Compensation charge for warrants                                             --             471,200                  --
                                                                        -----------         -----------         -----------
                   Total operating expenses                               3,787,650           3,299,092           1,552,452
                                                                        -----------         -----------         -----------
                   Operating (loss) income                                  111,459            (117,439)          1,005,692
Other income (expense):
    Interest income                                                          11,232              33,309              23,921
    Interest expense                                                        (32,551)            (14,886)             (9,387)
    Other (expense) income                                                      540              (7,053)             13,487
                                                                        -----------         -----------         -----------
                   Total other income (expense)                             (20,779)             11,370              28,021
                                                                        -----------         -----------         -----------
                   Income (loss) before income tax expense and
                     cumulative effect of accounting change                  90,680            (106,069)          1,033,713
Income tax (benefit) expense                                               (108,263)            (67,748)            274,208
                                                                        -----------         -----------         -----------
                   Net income (loss) before cumulative effect of
                     accounting change                                      198,943             (38,321)            759,505
Cumulative effect of accounting change, less applicable
    income taxes of $-0-, $-0- and $22,980 in 2001, 2000
    and 1999, respectively                                                       --                  --              34,469
                                                                        -----------         -----------         -----------
                   Net income (loss)                                    $   198,943             (38,321)            793,974
                                                                        ===========         ===========         ===========
</TABLE>


See accompanying notes to financial statements.


                                      S-70


<PAGE>


                                  CIRRONET INC.

                       Statements of Stockholders' Equity

                  Years ended December 31, 2001, 2000 and 1999


<TABLE>
<CAPTION>
                                                                                                 NOTE
                                              COMMON STOCK        ADDITIONAL                  RECEIVABLE           TOTAL
                                          ----------------------    PAID-IN    RETAINED      FROM EMPLOYEE     STOCKHOLDERS'
                                            SHARES      AMOUNT      CAPITAL    EARNINGS    FOR STOCK OPTIONS      EQUITY
                                          ----------  ----------  ----------  ----------   -----------------   -------------
<S>                                       <C>         <C>         <C>         <C>          <C>                 <C>
Balances at Dec. 31, 1998 (audited)        6,258,880  $   62,588   1,335,513     124,766                  --       1,522,867
Conversion of subordinated debentures
       into common stock                      80,000         800      39,920          --                  --          40,720
Net income                                        --          --          --     793,974                  --         793,974
                                          ----------  ----------  ----------  ----------   -----------------   -------------
Balances at Dec. 31, 1999 (audited)        6,338,880      63,388   1,375,433     918,740                  --       2,357,561
Note receivable from employee
       for stock options exercise            346,500       3,465     130,815          --            (134,280)             --
Interest on note receivable                       --          --       2,985          --              (2,985)             --
Issuance of stock in exchange for
       warrants                              620,000       6,200     303,800          --                  --         310,000
Exercise of stock options                     29,670         297       2,670          --                  --           2,967
Issuance of stock options for
       services compensation                      --          --      16,085          --                  --          16,085
Net loss                                          --          --          --     (38,321)                 --         (38,321)
Balances at Dec. 31, 2000 (unaudited)      7,335,050      73,350   1,831,788     880,419            (137,265)      2,648,292
Issuance of stock to non-employee
       for services                           24,408         240      11,963          --                  --          12,203
Interest on note receivable                       --          --       8,753          --              (8,753)             --
Issuance of stock options to
       non-employee for services                  --          --      10,053          --                  --          10,053
Net income                                        --          --          --     198,943                  --         198,943
                                          ----------  ----------  ----------  ----------   -----------------   -------------
Balances at December 31, 2001(unaudited)   7,359,458      73,590   1,862,557   1,079,362            (146,018)      2,869,491
                                          ==========  ==========  ==========  ==========   =================   =============
</TABLE>



See accompanying notes to financial statements.


                                      S-71
<PAGE>


                                  CIRRONET INC.

                            Statements of Cash Flows

                  Years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                            2001         2000         1999
                                                                         ----------   ----------   ----------
                                                                         (unaudited)  (unaudited)   (audited)
<S>                                                                      <C>          <C>          <C>
Cash flows from operating activities:
    Net (loss) income                                                    $  198,943      (38,321)     793,974
    Adjustments to reconcile net income (loss) to net cash
       provided by (used in) operating activities:
          Depreciation and amortization                                     111,095       62,676      (27,941)
          Provision for doubtful accounts receivable and returns             55,893       41,129       20,109
          Provision for inventory obsolescence                               20,000       30,000           --
          Deferred income tax (benefit) expense                             (91,450)     (45,503)      21,460
          Stock compensation expense                                         22,256      324,845           --
          Loss on disposal of property and equipment                          6,785           --           --
          (Increase) decrease in:
            Accounts receivable                                             270,716     (738,817)    (138,847)
            Inventories                                                      33,997     (205,593)    (307,098)
            Income tax receivable                                           113,489     (152,855)          --
            Other assets                                                    (62,533)     (26,158)          --
          Increase (decrease) in:
            Accounts payable                                               (252,983)     420,970       62,432
            Accrued expenses                                                 50,461      (44,878)      12,775
            Advance billings                                                     --           --     (102,060)
                                                                         ----------   ----------   ----------
                   Net cash (used in) provided by operating activities      476,669     (372,505)     334,804
                                                                         ----------   ----------   ----------
Cash flows from investing activities:
    Purchases of property and equipment                                     (36,419)    (164,054)     (28,085)
    Increase in other assets                                                     --      (15,434)          --
                                                                         ----------   ----------   ----------
                   Net cash used in investing activities                    (36,419)    (179,488)     (28,085)
                                                                         ----------   ----------   ----------
Cash flows from financing activities:
    Proceeds from long-term debt                                            135,000       41,900      123,049
    Payments on convertible subordinated debentures                              --           --     (143,557)
    Payments on long-term debt                                             (121,538)     (43,411)     (17,742)
    Payments on obligations under capital leases                           (156,901)     (34,558)     (34,916)
    Proceeds from exercise of stock options                                      --        2,967           --
    Proceeds from exercise of stock warrants                                     --        1,240           --
                                                                         ----------   ----------   ----------
                   Net cash used in financing activities                   (143,439)     (31,862)     (73,166)
                                                                         ----------   ----------   ----------
                   Net (decrease) increase in cash and cash equivalents     296,811     (583,855)     233,553
Cash and cash equivalents at beginning of year                              333,274      917,129      683,576
                                                                         ----------   ----------   ----------
Cash and cash equivalents at end of year                                 $  630,085      333,274      917,129
                                                                         ==========   ==========   ==========
Supplemental disclosure of cash flow information:
   Cash paid during the year for:
       Interest                                                          $   29,153       13,536       19,757
       Income taxes                                                      $       --      137,880      239,899
Supplemental disclosures of noncash operating and investing
   activities:
       Issuance of stock options for services                            $   22,256       16,085           --
       Issuance of stock warrant                                                 --      308,760
       Capital lease obligations incurred for the purchase of
          property and equipment                                         $  133,944      115,864           --
       Note receivable and interest from employee for stock
          option exercise                                                $    8,753      137,265           --
                                                                         ==========   ==========   ==========
</TABLE>


The accompanying notes are an integral part of these statements.


                                      S-72
<PAGE>

(1)      BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         (A)      DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

                  Cirronet Inc., formerly known as Digital Wireless Corporation
                  (the "Company"), designs, manufactures, and markets wireless
                  telecommunications products for industries that provide a
                  wireless pathway for information. The Company has expertise in
                  a wide range of wireless technologies, including wireless
                  system architecture, application-specific integrated circuit
                  design, data communications software, protocols, and hardware.
                  The Company focuses exclusively on products for the industrial
                  and commercial markets. Additionally, the Company holds a
                  patent on a wireless system called Recombinant Spread Spectrum
                  that minimizes dropout or data transfer errors in wireless
                  data transmission.

                  The Company's customers are spread across the United States
                  and Europe. However, the Company derives a substantial portion
                  of its revenue from one product. Typical product lives for
                  wireless telecommunications products are three to five years.

                  The markets for the Company's telecom products are
                  characterized by significant risk as a result of rapid changes
                  in technology, competitors with significant financial
                  resources, frequent new product and service introductions, and
                  mergers and acquisition activity in the telecom industry.
                  Furthermore, the Company's business is also subject to
                  additional significant risks such as availability of capital,
                  dependency on major suppliers, protection of intellectual
                  property rights, dependence on key personnel, and new laws or
                  regulations affecting the telecom industry. As a result,
                  negative developments in the Company's markets or in managing
                  these additional risks could have an adverse effect on the
                  Company's financial position, results of operations, and
                  liquidity.

         (B)      CASH AND CASH EQUIVALENTS

                  The Company considers all highly liquid investments with
                  original maturities of three months or less to be cash
                  equivalents.

         (C)      INVENTORIES

                  Inventories are stated at lower of cost or market. Cost is
                  determined using the first-in, first-out (FIFO) method.

         (D)      PROPERTY AND EQUIPMENT

                  Property and equipment are stated at cost less accumulated
                  depreciation. Depreciation on property and equipment are
                  provided using the straight-line method over the estimated
                  useful lives of the assets as follows:

<TABLE>
                  <S>                                                   <C>
                  Computer software and equipment                       3-5 years
                  Furniture and fixtures                                5-7 years
                  Vehicles                                                5 years
                  Equipment                                             5-7 years
</TABLE>


                                      S-73
<PAGE>

         (E)      REVENUE RECOGNITION

                  Revenue from the sale of products is recognized at the time of
                  shipment. Revenues from services and development contracts are
                  recognized as services are performed.

         (F)      INCOME TAXES

                  Income taxes are accounted for under the asset and liability
                  method. Deferred income tax assets and liabilities are
                  recognized for the future tax consequences attributable to
                  differences between the financial statement carrying amounts
                  of existing assets and liabilities and their respective tax
                  bases and operating loss and tax credit carryforwards.
                  Deferred income tax assets and liabilities are measured using
                  enacted tax rates expected to apply to taxable income in the
                  years in which those temporary differences are expected to be
                  recovered or settled. The effect on deferred income tax assets
                  and liabilities of a change in tax rates is recognized in the
                  consolidated statement of operations in the period that
                  includes the enactment date.

         (G)      STOCK OPTION PLAN

                  The Company accounts for its stock option plans in accordance
                  with Statement of Financial Accounting Standards No. 123,
                  Accounting for Stock-Based Compensation ("SFAS No. 123"),
                  which encourages entities to recognize as compensation expense
                  over the vesting period the fair value of all stock-based
                  awards on the date of grant. Alternatively, SFAS No. 123
                  allows entities to continue to apply the provisions of
                  Accounting Principles Board ("APB") Opinion No. 25 and provide
                  pro forma disclosures for employee stock-based awards as if
                  the fair-value based method of SFAS No. 123 had been applied.
                  As such, compensation expense would be recorded only if the
                  current market price of the underlying stock as of the date of
                  grant exceeded the exercise price. The Company has elected to
                  continue applying the provisions of APB Opinion No. 25 and
                  include the pro forma disclosures required under SFAS No. 123.

         (H)      USE OF ESTIMATES

                  The preparation of financial statements in conformity with
                  accounting principles generally accepted in the United States
                  of America requires management to make estimates and
                  assumptions that affect the reported amounts of assets and
                  liabilities and disclosures of contingent assets and
                  liabilities at the date of the financial statements and the
                  reported amounts of revenue and expenses during the reporting
                  period. Actual results could differ from those estimates.

         (I)      COMPREHENSIVE INCOME (LOSS)

                  No statements of comprehensive income (loss) have been
                  included in the accompanying financial statements since
                  comprehensive income (loss) and net income (loss) presented in
                  the accompanying statements of operations would be the same.

         (J)      RESEARCH AND DEVELOPMENT

                  Research and development costs consist principally of
                  compensation and benefits paid to the Company's employees and
                  certain allocated indirect costs. All research and development
                  costs are expensed as incurred.


                                      S-74
<PAGE>

         (K)      FAIR VALUE OF FINANCIAL INSTRUMENTS

                  The carrying amounts of cash and cash equivalents, accounts
                  receivable, income tax refund receivable, accounts payable,
                  accrued expenses, income taxes payable, and obligations under
                  capital leases approximate fair value because of the short
                  maturity of these instruments. The Company also believes that
                  the carrying values of its long-term debt approximates fair
                  value because of the floating interest rate terms applicable
                  to the Company's long-term financing arrangements.

         (L)      IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
                  DISPOSED OF

                  The Company accounts for long-lived assets in accordance with
                  the provisions of SFAS No. 121, Accounting for the Impairment
                  of Long-Lived Assets and for Long-Lived Assets to Be Disposed
                  Of ("SFAS No. 121"). SFAS No. 121 requires that long-lived
                  assets and certain identifiable intangibles be reviewed for
                  impairment whenever events or changes in circumstances
                  indicate that the carrying amount of an asset may not be
                  recoverable. Recoverability of assets to be held and used is
                  measured by a comparison of the carrying amount of an asset to
                  future net cash flows expected to be generated by the asset.
                  If such assets are considered to be impaired, the impairment
                  to be recognized is measured by the amount by which the
                  carrying amount of the assets exceeds the fair value of the
                  assets. Assets to be disposed of are reported at the lower of
                  the carrying amount or fair value less costs to sell.

         (M)      RECLASSIFICATIONS

                  Reclassifications were made to certain amounts in the 1999
                  financial statements to conform with the presentation in the
                  2000 financial statements.

(2)      RELATED PARTY TRANSACTIONS

         The Company leased space under an operating lease and purchased certain
         services from a company controlled by one of its stockholders. During
         2000 and 1999, the Company paid approximately $107,000 and $95,000,
         respectively, for rent and other services to this related company. The
         lease expired in September 2000. In management's opinion, the amounts
         paid were reasonable and equivalent to what it would have paid an
         unrelated party for the facility rental and services. At December 31,
         2000 and 1999, no amounts were owed to the related company.

(3)      INVENTORIES

         Inventories consist of the following at December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                                         2000                      1999
                                                                                     ------------               ----------
                                                                                      (unaudited)                (audited)
                  <S>                                                                <C>                        <C>
                  Raw materials and purchased parts                                  $    628,962                  688,863
                  Work in process                                                         402,310                  338,240
                  Finished goods                                                          424,333                  222,909
                                                                                     ------------               ----------
                                                                                        1,455,605                1,250,012
                  Less valuation allowances                                               (30,000)                      --
                                                                                     ------------               ----------

                                    Total inventories                                $  1,425,605                1,250,012
                                                                                     ============               ==========
</TABLE>


                                      S-75
<PAGE>

(4)      PROPERTY AND EQUIPMENT

         Property and equipment consists of the following at December 31, 2000
         and 1999:

<TABLE>
<CAPTION>
                                                                                         2000                      1999
                                                                                     ------------               ----------
                                                                                      (unaudited)                (audited)
                  <S>                                                                <C>                        <C>
                  Vehicles                                                           $     25,496                       --
                  Furniture and fixtures                                                   76,101                    3,344
                  Equipment                                                               359,395                  267,026
                  Computer software and equipment                                         174,662                   85,366
                                                                                     ------------               ----------
                                                                                          635,654                  355,736
                  Less accumulated depreciation and amortization                          320,289                  259,552
                                                                                     ------------               ----------

                                                                                      $    315,365                   96,184
                                                                                      ============               ==========
</TABLE>

         Depreciation and amortization relating to property and equipment for
         the years ended December 31, 2000 and 1999 was approximately $60,737
         and $28,009, respectively.

(5)      NOTE PAYABLE TO BANK

         The Company maintains a revolving credit facility with a commercial
         bank whereby it may borrow the lesser of $300,000 or 80% of eligible
         accounts receivable, as defined. The facility is secured by all assets
         of the Company and expires on March 31, 2001. Outstanding advances
         under the line accrue interest at the prime rate plus .75%. The Company
         has borrowed no monies under the revolving line of credit as of
         December 31, 2000 and 1999.

(6)      LONG-TERM DEBT

         The Company also maintained two equipment lines of credit during the
         years ended December 31, 2000 and 1999. Equipment line No. 1 was used
         to finance property and equipment purchases up to a maximum of
         $200,000. Advances accrue interest at the prime rate plus 1.25%.
         Interest accrued from the date of each advance and was payable monthly
         until June 1, 1999. On June 1, 1999, the balance outstanding under the
         line of $123,049 was converted to a term note, payable in 42 equal
         monthly installments of principal and accrued interest through 2002.
         The outstanding balance of the notes accrues interest at the rate of
         10.75% as of December 31, 2000. The note is secured by all the assets
         of the Company.

         In connection with a March 2000 amendment to the credit facility, the
         bank extended the Company another equipment line credit ("Line No. 2").
         Line No. 2 was used to finance the purchase of property and equipment
         up to a maximum of $100,000. Advances accrue interest at the prime rate
         plus 1.00%. Interest accrued from the date of each advance and was
         payable monthly until October 31, 2000. On October 31, 2000, the
         outstanding balance of advances of $41,900 was converted to a term
         note, payable in 35 equal monthly installments of principal plus
         accrued interest beginning on November 31, 2000 through 2002. The
         outstanding balance of the note accrues interest at the rate of 10.50%
         as of December 31, 2000. The note is secured by all the assets of the
         Company.


                                      S-76
<PAGE>

         Future minimum principal payments are as follows:

<TABLE>
<CAPTION>
                  YEAR ENDING DECEMBER 31,                      AMOUNT
                  ------------------------                    ----------
                  <S>                                         <C>
                              2001                            $   55,382
                              2002                                66,156
                                                              ----------

                                                              $  121,538
                                                              ==========
</TABLE>

(7)      CONVERTIBLE SUBORDINATED DEBENTURES

         At December 31, 1998, the Company had outstanding convertible
         subordinated debentures amounting to $183,557. These debentures
         included interest at varying rates from 8% to 10% and were convertible
         into common stock at a conversion rate of $0.50 in debentures for one
         share of common stock. The debentures matured on May 31, 1999. Interest
         accrued and was payable annually on May 31. The debentures were
         convertible any time until maturity, at the option of the holder. The
         debentures were subordinated to current and future obligations due to
         financial institutions and/or certain other traditional lending
         institutions. During 1999, $40,000 of debentures were converted into
         80,000 shares of common stock of the Company. The Company used existing
         financing facilities to retire the remaining debentures during 1999.

(8)      INCOME TAXES

         The components of the income tax expense (benefit) for the years ended
         December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                                   2000                     1999
                                                                               -----------                --------
                                                                               (unaudited)                (audited)
                  <S>                                                          <C>                        <C>
                  Current Federal and state income taxes                        $  (22,245)                240,706
                  Deferred Federal and state income taxes                          (45,503)                 33,502
                                                                                ----------                --------

                           Total provision for income taxes                     $  (67,748)                274,208
                                                                                ==========                ========
</TABLE>

         The following is a summary of the items that caused recorded income
         taxes to differ from income taxes computed using the statutory Federal
         income tax rate for the years ended December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                                            2000                      1999
                                                                                         -----------               ---------
                                                                                         (unaudited)               (audited)
                  <S>                                                                    <C>                       <C>
                  Computed "expected" income taxes                                        $  (36,063)                351,462
                  Increase (decrease) in income taxes resulting from:
                     State income taxes, net of Federal income taxes                          (3,889)                 41,349
                     Research and development credits                                        (30,470)                (82,697)
                     Decrease in valuation allowance                                              --                 (63,906)
                     Nondeductible items                                                       2,676                  28,000
                                                                                          ----------                --------

                                                                                          $  (67,748)                274,208
                                                                                          ==========                ========
</TABLE>


                                      s-77
<PAGE>

         Deferred income tax assets and liabilities are determined based on the
         difference between the financial accounting and tax bases of assets and
         liabilities. Significant components of the Company's deferred income
         tax assets and liabilities as of December 31, 2000 and 1999 are as
         follows:

<TABLE>
<CAPTION>
                                                                                            2000                      1999
                                                                                         -----------               ---------
                                                                                         (unaudited)               (audited)
                  <S>                                                                    <C>                       <C>
                  Deferred income tax assets - accrued expenses
                     and reserve accounts                                                 $   42,309                      --
                  Deferred income tax liabilities - differences in the
                     book and tax bases of depreciable fixed assets                          (18,614)                (21,460)
                                                                                          ----------                --------

                            Net deferred income tax assets                                $   23,695                 (21,460)
                                                                                          ==========                ========
</TABLE>

         The net decrease in the valuation allowance for deferred income tax
         assets 2000 and 1999 was $-0- and $63,906, respectively. In assessing
         the realizability of deferred tax assets, management considers whether
         it is more likely than not that some portion or all of the deferred
         income tax assets will not be realized. The ultimate realization of
         deferred income tax assets is dependent upon the generation of future
         taxable income during the periods in which those temporary differences
         become deductible. Management considers the scheduled reversal of
         deferred income tax liabilities, projected future taxable income, and
         tax planning strategies in making this assessment.

         The Company utilized $3,470 and $90,630 of available research and
         experimentation credits during the years ended December 31, 2000 and
         1999, respectively. At December 31, 2000, the Company has no research
         and experimentation credits available for carryforward to future
         taxable years.

(9)      STOCKHOLDERS' EQUITY

         (A)      WARRANTS

                  On December 31, 1995 and January 1, 1996, the Company issued
                  to various long-term employees stock warrants to purchase a
                  total of 620,000 shares of the Company's common stock at $.002
                  per share. The warrants vested over a two-year period and were
                  fully vested and exercisable as of December 31, 1997. During
                  the year ended December 31, 2000, the Company agreed to waive
                  the exercise price and provide the holders with cash bonuses
                  to cover their income tax liabilities. As a result, the
                  Company recorded a compensation charge equal to the fair value
                  of the common stock issued pursuant to the warrants price.

         (B)      STOCK SPLIT

                  On October 31, 2000, the Company effected a 10-for-1 stock
                  split which became effective immediately. All common stock and
                  stockholders' equity amounts have been retroactively adjusted
                  to reflect the stock split.


                                      S-78
<PAGE>

         (C)      STOCK OPTIONS

                  The Company has an incentive stock option plan and outstanding
                  nonqualified stock options for the benefit of directors,
                  shareholders, officers, and employees. Options are granted at
                  fair value at the time of grant as determined by the Company's
                  board of directors.

                  The following summarizes stock option activity for the years
                  ended December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                                                                  WEIGHTED-
                                                                                                                   AVERAGE
                                                                                              NUMBER OF           EXERCISE
                                                                                                SHARES              PRICE
                                                                                              ----------          ---------
                  <S>                                                                         <C>                 <C>
                  Outstanding at December 31, 1998                                              2,723,260          $  .420
                     Granted                                                                      145,500             .479
                     Exercised                                                                         --               --
                     Canceled or expired                                                         (26,000)             .308
                                                                                              ----------           -------

                  Outstanding at December 31, 1999                                             2,842,760              .424

                     Granted                                                                   1,077,500              .500
                     Exercised                                                                  (376,170)             .365
                     Canceled or expired                                                         (97,000)             .331
                                                                                              ----------           -------

                  Outstanding at December 31, 2000                                             3,447,090           $  .457
                                                                                              ==========           =======
</TABLE>


                  At December 31, 2000 and 1999, the number of options
                  exercisable was 2,031,420 and 1,709,760, respectively.

                  The following table summarizes information about stock options
                  outstanding at December 31, 2000:

<TABLE>
<CAPTION>
                                                       OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE
                                       -----------------------------------------------       ---------------------------
                                          NUMBER           WEIGHTED-                           NUMBER
                                       OUTSTANDING          AVERAGE          WEIGHTED-       OUTSTANDING       WEIGHTED-
                     RANGE OF               AT             REMAINING          AVERAGE            AT             AVERAGE
                     EXERCISE          DECEMBER 31,       CONTRACTUAL        EXERCISE        DECEMBER 31,      EXERCISE
                      PRICES               2000              LIFE              PRICE            2000             PRICE
                  -------------        ------------       -----------        ---------       ------------      ---------
                  <S>                  <C>                <C>                <C>             <C>               <C>
                  $ 0.11 - 0.20              48,760           1.89             0.15               48,760          0.15
                    0.31 - 0.44           1,870,330           6.50             0.41            1,515,330          0.41
                    0.50 - 0.70           1,528,000           8.14             0.53              467,330          0.59
                  -------------          ----------          -----            -----           ----------         -----

                  $ 0.11 - 0.70           3,447,090           7.17             0.46            2,031,420          0.44
                  =============          ==========          =====            =====           ==========         =====
</TABLE>


                                      S-79
<PAGE>

                  The Company applies APB Opinion No. 25 in accounting for its
                  stock option plans and, accordingly, no compensation cost has
                  been recognized for stock options issued with exercise prices
                  at fair value in the consolidated financial statements. Had
                  the Company determined compensation cost based on the fair
                  value at the grant date for its stock options under SFAS No.
                  123, the Company's net loss would have been adjusted to the
                  pro forma amounts indicated below.

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                         --------------------------------
                                                                             2000                 1999
                                                                         ------------           ---------
                                                                          (unaudited)           (audited)
                  <S>                                                    <C>                    <C>
                  Net (loss) income          As reported                 $   (38,321)           793,974
                                             Pro forma                      (187,426)           778,160
</TABLE>

                  Pro forma net loss reflects only options granted during the
                  years ended December 31, 2000 and 1999. Therefore, the full
                  impact of calculating compensation cost for stock options
                  under SFAS 123 is not reflected in the pro forma loss amounts
                  presented above because compensation cost is reflected over
                  the options' vesting periods ranging from three to four years
                  and compensation cost for options granted prior to January 1,
                  1999 is not considered.

         (D)      NOTE RECEIVABLE FROM EMPLOYEE

                  Note receivable from employee for stock option resulted from
                  the exercise of stock options for a full-recourse promissory
                  note during the year ended December 31, 2000.

         (E)      STOCK OPTIONS FOR SERVICES

                  The Company has an arrangement whereby they are compensating a
                  nonemployee for services provided to the Company. During the
                  year ended December 31, 2000, the Company has issued a stock
                  option for 20,000 shares under this agreement at an exercise
                  price of $.50 per share. At the time of issuance, the Company
                  recorded a compensation charge of $16,085 to reflect the fair
                  value of the stock option granted using the Black-Scholes
                  option pricing model. At December 31, 2000, all of these
                  options remain outstanding.

(10)     COMMITMENTS AND CONTINGENCIES

         (A)      EMPLOYEE COMPENSATION AGREEMENT

                  The Company has a compensation agreement with an
                  officer/employee of the Company. Under the agreement, the
                  employee is entitled to a base salary and bonuses based on
                  increases in revenues and operating profit and the success of
                  raising capital during 2001.

                  The employee was granted stock options to purchase 360,000
                  shares of the Company's common stock at $.44 per share during
                  1998. Vesting for the 360,000 shares occurred over a two-year
                  period. During December 2000, the employee was awarded options
                  for 2000, 2001, and 2002, to purchase 350,000, 250,000, and
                  140,000 shares, respectively, of the Company's common stock at
                  $.50 per share. The options have four-year vesting periods
                  from the year for which the options were granted. All of the
                  options will be fully vested on December 31, 2005.


                                      S-80
<PAGE>

         (B)      401(K) PLAN

                  The Company maintains a tax-qualified defined contribution
                  plan under Section 401(k) of the Internal Revenue Code (the
                  "401(k) Plan"). Employees are eligible to participate the
                  first of the month following their date of hire. The 401(k)
                  Plan allows participants to contribute by salary reduction up
                  to 20% of eligible compensation, subject to Internal Revenue
                  Service limitations. The 401(k) Plan also provides for
                  discretionary employer matching contributions.

                  The Company made $-0- and $40,000 in contributions to the Plan
                  for the years ended December 31, 2000 and 1999, respectively.

         (C)      LEASES

                  The Company leases office and warehouse facilities as well as
                  certain other equipment under noncancelable operating lease
                  agreements which expire in 2005.

                  Rental expense under all lease agreements for the years ended
                  December 31, 2000 and 1999 was approximately $43,000 and
                  $59,340, respectively.

                  The Company has also entered into capital lease arrangements
                  for equipment.

                  Future minimum lease payments under non-cancelable operating
                  leases (with initial or remaining lease terms in excess of one
                  year) and future minimum lease payments under capital lease
                  arrangements as of December 31, 2000 are as follows:

<TABLE>
<CAPTION>
                         YEAR ENDING                                                          CAPITAL                OPERATING
                         DECEMBER 31,                                                          LEASES                  LEASES
                  ----------------------------                                               ----------             ----------
                  <S>                                                                        <C>                    <C>
                            2001                                                             $  86,400                122,000
                            2002                                                                    --                121,000
                            2003                                                                    --                121,000
                            2004                                                                    --                121,000
                            2005                                                                    --                 80,000
                                                                                            ----------             ----------

                              Total future minimum lease payments                               86,400             $  565,000
                                                                                                                   ==========

                  Less amount representing interest (at a rate
                    of 12.0%)                                                                    5,094
                                                                                            ----------
                           Present value of future minimum
                             capital lease payments                                             81,306

                  Less current maturities of obligations
                    under capital leases                                                        81,306
                                                                                            ----------

                           Obligations under capital leases,
                             excluding current maturities                                    $      --
                                                                                            ==========
</TABLE>

                  At December 31, 2000, the gross amount of property and
                  equipment under capital leases and related accumulated
                  amortization was $119,000 and $10,270, respectively.


                                      S-81
<PAGE>

(11)     CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

         During 1999, the Company changed its method of depreciating property
         and equipment from the declining-balance method to the straight-line
         method. The Company believes that using the straight-line method over
         the estimated useful lives is a more accurate and conservative approach
         to depreciating the assets. The effect of this change was to increase
         income before provision for income taxes and cumulative effect of
         accounting change and net income for 1999 by $57,449 and $34,469,
         respectively.

(12)     MAJOR CUSTOMERS, SUPPLIERS, AND INTERNATIONAL SALES

         Sales derived from major customers (those customers representing more
         than 10% of total sales) as a percentage of total sales for the year
         ended December 31, 2000 were Customer A - 16%, Customer B - 15%,
         Customer C - 12%, and Customer D - 11%.

         The Company had international sales that represented approximately 30%
         of sales for the year ended December 31, 2000.

         The Company had purchases from two suppliers representing 52% and 21%
         of purchases for the years ended December 31, 2000 and 1999,
         respectively.


                                      S-82

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>3
<FILENAME>g74809ex10-4.txt
<DESCRIPTION>STOCK PURCHASE AGREEMENT
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.4


                                  VISAER, INC.

                     SERIES A-1 CONVERTIBLE PREFERRED STOCK
                               PURCHASE AGREEMENT



                            Dated as of July 1, 2001


<PAGE>


NOTE: - EXHIBITS B THROUGH I ARE NOT FILED HEREWITH BUT WILL BE FILED
SUPPLEMENTALLY UPON THE REQUEST OF THE SECURITIES AND EXCHANGE COMMISSION.

EXHIBITS

         Exhibit A            List of Purchasers
         Exhibit B            Amended and Restated Certificate of Incorporation
         Exhibit C            Exceptions to Representations
         Exhibit D            Share Capitalization
         Exhibit E            Employee Invention Assignment, Confidentiality and
                              Non-Competition Agreement
         Exhibit F            Intentionally Omitted
         Exhibit G            Stockholders' Voting Agreement
         Exhibit H            Investor Rights Agreement
         Exhibit I            Right of First Refusal and Co-Sale Agreement


                                      -ii-

<PAGE>


                                  VISAER, INC.
            SERIES A-1 CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

THIS SERIES A-1 CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement") is dated as of July 1, 2001 and is entered into by and among
VISaer, Inc., a Delaware corporation (the "Company") and the individuals and
entities listed on Exhibit A hereto (the "Purchasers.")

In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:

1.       AUTHORIZATION AND SALE OF SHARES.

         1.1      Authorization. The Company has, or before the Closing (as
                  defined in Section 2) will have, duly authorized the sale and
                  issuance, pursuant to the terms of this Agreement, of
                  97,230,804 shares of its Series A-1 Convertible Preferred
                  Stock, $.001 par value per share (the "Series A-1 Preferred,")
                  having the rights, restrictions, privileges and preferences
                  set forth in the Amended and Restated Certificate of
                  Incorporation of the Company attached hereto as Exhibit B (the
                  "Certificate.") The Company has, or before the Closing will
                  have, adopted and filed the Certificate with the Secretary of
                  State of the State of Delaware.

         1.2      Sale of Shares. Subject to the terms and conditions of this
                  Agreement, at the Closing the Company will sell and issue to
                  each of the Purchasers, and each of the Purchasers will
                  purchase, the number of shares of Series A-1 Preferred set
                  forth opposite such Purchaser's name on Exhibit A for the
                  purchase price of $0.0801 per share (the "Purchase Price").
                  The shares of Series A-1 Preferred sold under this Agreement
                  are referred to as the "Shares." The Company's agreement with
                  each of the Purchasers is a separate agreement, and the sale
                  of Shares to each of the Purchasers is a separate sale.

         1.3      Payment for the Shares. The purchasers will pay for the Shares
                  through the cancellation and surrender to the Company of the
                  promissory notes and the shares of common and preferred stock
                  of the Company held by them as of the Closing as set forth in
                  Exhibit A.

2.       THE CLOSING. The closing (the "Closing") of the sale and purchase of
         the Shares under this Agreement shall take place at the offices of the
         Company at 10:00 a.m. on June 29, 2001, or at such other time, date and
         place as are mutually agreeable to the parties. At the Closing, the
         Company shall deliver to each of the Purchasers a certificate for the
         number of Shares being purchased at the Closing by such Purchaser,
         registered in the name of such Purchaser, against payment to the
         Company of the Purchase Price. The date of the Closing is hereinafter
         referred to as the "Closing Date." If at the Closing any of the
         conditions specified in Section 6, below, shall not have been
         fulfilled, each of the Purchasers shall, at its election, be relieved
         of all of its obligations under this Agreement without thereby waiving
         any other rights it may have by reason of such failure or such
         non-fulfillment.

3.       REPRESENTATIONS OF THE COMPANY. The Company hereby represents and
         warrants to each of the Purchasers that the statements contained in
         this Section 3 are true, complete and correct except as disclosed by
         the Company in Exhibit C hereto. Exhibit C shall be arranged in
         paragraphs corresponding to the numbered and lettered paragraphs
         contained in this Section 3, and the disclosures in any paragraph of
         Exhibit C shall qualify only the corresponding paragraph of this
         Section 3, unless otherwise specified. All references to the "Company"
         in this Section 3 shall be deemed to also refer to its subsidiaries.

         3.1      Organization and Standing. The Company is a corporation duly
                  organized, validly existing and in good standing under the
                  laws of the State of Delaware and has full corporate power and
                  authority to conduct its business as presently conducted and
                  as proposed to be conducted by it and to enter into and
                  perform this Agreement and all other agreements required to be
                  executed


                                                                    Page 1 of 16
<PAGE>

                  by the Company at or prior to the Closing pursuant to Section
                  6.4 (the "Ancillary Agreements") and to carry out the
                  transactions contemplated by this Agreement and the Ancillary
                  Agreements. The Company is duly qualified to do business as a
                  foreign corporation and is in good standing in the
                  Commonwealth of Massachusetts and in every other jurisdiction
                  in which the failure so to qualify would have a material
                  adverse effect on the business, prospects, assets or condition
                  (financial or otherwise) of the Company (a "Company Material
                  Adverse Effect.") True and correct copies of the By-Laws of
                  the Company, as amended to date and as will be in effect at
                  the Closing have been furnished to the Purchaser. The Company
                  has at all times complied with all provisions of its
                  Certificate and By-laws and is not in default under, or in
                  violation of, any such provision.

         3.2      Capitalization. The authorized capital stock of the Company
                  (immediately prior to the Closing) is as set forth on Exhibit
                  D hereto. All of the issued and outstanding shares of Common
                  Stock and Preferred Stock have been duly authorized and
                  validly issued and are fully paid and nonassessable. Except as
                  provided in this Agreement or as set forth in Exhibit D, (i)
                  no subscription, warrant, option, convertible security or
                  other right (contingent or otherwise) to purchase or acquire
                  any shares of capital stock of the Company is authorized or
                  outstanding, (ii) the Company has no obligation (contingent or
                  otherwise) to issue any subscription, warrant, option,
                  convertible security or other such right or to issue or
                  distribute to holders of any shares of its capital stock any
                  evidences of indebtedness or assets of the Company, (iii) the
                  Company has no obligation (contingent or otherwise) to
                  purchase, redeem or otherwise acquire any shares of its
                  capital stock or any interest therein or to pay any dividend
                  or make any other distribution in respect thereof, and (iv)
                  there are no outstanding or authorized stock appreciation,
                  phantom stock or similar rights with respect to the Company.
                  All of the issued and outstanding shares of capital stock of
                  the Company have been offered, issued and sold by the Company
                  in compliance with applicable federal and state securities
                  laws. Except as disclosed on Exhibit D and except as provided
                  herein, the Company is not under any obligation and has not
                  granted any rights to register under the Securities Act of
                  1933 any of its presently outstanding securities or any of its
                  securities that may subsequently be issued. To the Company's
                  knowledge, except as provided herein, no shareholder of the
                  Company is a party to any agreement with respect to the voting
                  of the Company's securities.

         3.3      Subsidiaries, Etc. The Company has two active and one inactive
                  subsidiaries all of the outstanding stock of which is owned by
                  the Company. The Company does not own or control, directly or
                  indirectly, any shares of capital stock of any other
                  corporation or any interest in any partnership, joint venture
                  or other non-corporate business enterprise.

         3.4      Security Holder Lists and Agreements. The Company has
                  furnished to the Purchasers a true and complete list of the
                  security holders of the Company, showing the number of shares
                  of Common Stock, Preferred Stock or other securities of the
                  Company held by each security holder as of the date of this
                  Agreement and, in the case of options, warrants and other
                  convertible securities, the exercise price thereof and the
                  number and type of securities issuable thereunder. Except as
                  provided in this Agreement, there are no agreements, written
                  or oral, between the Company and any holder of its securities,
                  or, to the Company's knowledge, among any holders of its
                  securities, relating to the acquisition (including without
                  limitation rights of first refusal, anti-dilution or
                  pre-emptive rights), disposition, registration under the
                  Securities Act of 1933, as amended (the "Securities Act"), or
                  voting of the capital stock of the Company other than those to
                  which the Purchasers are parties.

         3.5      Issuance of Shares. The issuance, sale and delivery of the
                  Shares in accordance with this Agreement, and the issuance and
                  delivery of the shares of Common Stock issuable upon
                  conversion of the Shares, have been, or will be on or prior to
                  the Closing, duly authorized by all necessary corporate action
                  on the part of the Company, and all such shares have been duly



                                                                    Page 2 of 16
<PAGE>

                  reserved for issuance. The Shares when so issued, sold and
                  delivered against payment therefor in accordance with the
                  provisions of this Agreement, and the shares of Common Stock
                  issuable upon conversion of the Shares, when issued upon such
                  conversion, will be duly and validly issued, fully paid and
                  nonassessable.

         3.6      Authority for Agreement; No Conflict. The execution, delivery
                  and performance by the Company of this Agreement and the
                  Ancillary Agreements, and the consummation by the Company of
                  the transactions contemplated hereby and thereby, have been
                  duly authorized by all necessary corporate action. This
                  Agreement has been, and the Ancillary Agreements when executed
                  at the Closing will be, duly executed and delivered by the
                  Company and constitute valid and binding obligations of the
                  Company enforceable in accordance with their respective terms,
                  subject as to enforcement of remedies to applicable
                  bankruptcy, insolvency, reorganization, moratorium or similar
                  laws affecting generally the enforcement of creditors' rights
                  and subject to a court's discretionary authority with respect
                  to the granting of a decree ordering specific performance or
                  other equitable remedies. The execution and performance of the
                  transactions contemplated by this Agreement and the Ancillary
                  Agreements and compliance with their respective provisions by
                  the Company will not (a) conflict with or violate any
                  provision of the Certificate or By-laws of the Company; (b)
                  require on the part of the Company any filing with, or any
                  permit, authorization, consent or approval of, any court,
                  arbitrational tribunal, administrative agency or commission or
                  other governmental or regulatory authority or agency (each of
                  the foregoing is hereafter referred to as a "Governmental
                  Entity;") (c) conflict with, result in a breach of, constitute
                  (with or without due notice or lapse of time or both) a
                  default under, result in the acceleration of, create in any
                  party the right to accelerate, terminate, modify or cancel, or
                  require any notice, consent or waiver under, any contract,
                  lease, sublease, license, sublicense, franchise, permit,
                  indenture, agreement or mortgage for borrowed money,
                  instrument of indebtedness, Security Interest (as defined
                  below) or other arrangement to which the Company is a party or
                  by which the Company is bound or to which its assets are
                  subject; (d) result in the imposition of any Security Interest
                  upon any assets of the Company; or (e) violate any order,
                  writ, injunction, decree, statute, rule or regulation
                  applicable to the Company or any of its properties or assets.
                  For purposes of this Agreement, "Security Interest" means any
                  mortgage, pledge, security interest, encumbrance, charge, or
                  other lien (whether arising by contract or by operation of
                  law.

         3.7      Governmental Consents. No consent, approval, order or
                  authorization of, or registration, qualification, designation,
                  declaration or filing with, any Governmental Entity is
                  required on the part of the Company in connection with the
                  execution and delivery of this Agreement or the Ancillary
                  Agreements, the offer, issuance, sale and delivery of the
                  Shares, the issuance and delivery of the shares of Common
                  Stock issuable upon conversion of the Shares or the other
                  transactions to be consummated at the Closing, as contemplated
                  by this Agreement and the Ancillary Agreements, except such
                  filings as shall have been made prior to and shall be
                  effective on and as of the Closing and such filings required
                  to be made after the Closing under applicable federal and
                  state securities laws. Based on the representations made by
                  each of the Purchasers in Section 5 of this Agreement, the
                  offer and sale of the Shares to each of the Purchasers will be
                  in compliance with applicable federal and state securities
                  laws.

         3.8      Litigation. Except as set forth in Exhibit C, there is no
                  action, suit or proceeding, or governmental inquiry or
                  investigation, pending, or, to the Company's knowledge, any
                  basis therefor or threat thereof, against the Company which
                  questions the validity of this Agreement or the right of the
                  Company to enter into it, or which might result, either
                  individually or in the aggregate, in a Company Material
                  Adverse Effect The Company is not subject to any outstanding
                  judgement, order or decree.


                                                                    Page 3 of 16
<PAGE>

         3.9      Financial Statements. The Company has furnished to each of the
                  Purchasers a complete and correct copy of the audited
                  financial statements of the Company for the period ending
                  December 31, 2000 and the unaudited balance sheet of the
                  Company (the "Balance Sheet") at May 31, 2001 (the "Balance
                  Sheet Date") and the related statements of operations and cash
                  flow for the period then ended (collectively, the "Financial
                  Statements.") The Financial Statements are complete and
                  correct, are in accordance with the books and records of the
                  Company and present fairly the financial condition and results
                  of operations of the Company, at the dates and for the periods
                  indicated, and have been prepared in accordance with generally
                  accepted accounting principles ("GAAP") consistently applied,
                  except that the Financial Statements may not be in accordance
                  with GAAP because of the absence of footnotes normally
                  contained therein and are subject to normal year-end audit
                  adjustments which in the aggregate will not be material.

         3.10     Absence of Undisclosed Liabilities. The Company does not have
                  any liability (whether known or unknown and whether absolute
                  or contingent), except for (a) liabilities shown on the
                  Balance Sheet and in the notes thereto; and (b) liabilities
                  which have arisen since the Balance Sheet Date in the ordinary
                  course of business and which do not exceed $10,000; and (c)
                  contractual and other liabilities incurred in the ordinary
                  course of business which are not required by GAAP to be
                  reflected on a balance sheet, and which are not in the
                  aggregate material.

         3.11     Taxes. The amount shown on the Balance Sheet as provision for
                  taxes is sufficient in all respects for payment of all accrued
                  and unpaid federal, state, county, local and foreign taxes for
                  the period then ended and all prior periods. The Company has
                  filed or has obtained presently effective extensions with
                  respect to all federal, state, county, local and foreign tax
                  returns which are required to be filed by it, such returns are
                  true and correct and all taxes shown thereon to be due have
                  been timely paid. [Federal income tax returns of the Company
                  have not been audited by the Internal Revenue Service,] [and
                  no controversy with respect to taxes of any type is pending
                  or, to the Company's knowledge, threatened]. The Company has
                  withheld or collected from each payment made to its employees
                  the amount of all taxes required to be withheld or collected
                  therefrom and has paid all such amounts to the appropriate
                  taxing authorities when due. Neither the Company nor any of
                  its stockholders has ever filed (a) an election pursuant to
                  Section 1362 of the Internal Revenue Code of 1986, as amended
                  (the "Code"), that the Company be taxed as an S Corporation;
                  or (b) a consent pursuant to Section 341(f) of the Code
                  relating to collapsible corporations.

         3.12     Property and Assets. The Company has good title to, or a valid
                  leasehold interest in, all of its material properties and
                  assets, including all properties and assets reflected in the
                  Balance Sheet, except those disposed of since the date thereof
                  in the ordinary course of business, and none of such
                  properties or assets is subject to any Security Interest other
                  than those the material terms of which are described in the
                  Balance Sheet or in Exhibit C.

         3.13     Intellectual Property.

                  (a)      The Company owns, free and clear of all Security
                           Interests, or has the valid right to use all
                           Intellectual Property (as defined below in this
                           Section 3.13) used by it in its business as currently
                           conducted or as currently proposed to be conducted.
                           No other person or entity (other than licensors of
                           software that is generally commercially available,
                           joint owners or licensors of Intellectual Property
                           under the agreements disclosed pursuant to
                           subparagraph (d) below and non-exclusive licensees of
                           the Company's Intellectual Property in the ordinary
                           course of the Company's business) has any rights to
                           any of the Intellectual Property owned or used by the
                           Company, and, to the Company's knowledge, no other
                           person or entity is infringing, violating or
                           misappropriating any of the Intellectual Property
                           that the Company owns. For purposes of this
                           Agreement, "Intellectual Property" means



                                                                    Page 4 of 16
<PAGE>

                           all (i) patents and patent applications; (ii)
                           copyrights and registrations thereof; (iii) mask
                           works and registrations and applications for
                           registration thereof; (iv) computer software, data
                           and documentation; (v) trade secrets and confidential
                           business information, whether patentable or
                           unpatentable and whether or not reduced to practice,
                           know-how, manufacturing and production processes and
                           techniques, research and development information,
                           copyrightable works, financial, marketing and
                           business data, pricing and cost information, business
                           and marketing plans and customer and supplier lists
                           and information; (vi) trademarks, service marks,
                           trade names, domain names and applications and
                           registrations therefor; and (vii) other proprietary
                           rights relating to any of the foregoing.

                  (b)      None of the activities or business conducted by the
                           Company or proposed to be conducted by the Company
                           infringes, violates or constitutes a misappropriation
                           of (or in the past infringed, violated or constituted
                           a misappropriation of) any Intellectual Property of
                           any other person or entity. The Company has not
                           received any complaint, claim or notice alleging any
                           such infringement, violation or misappropriation, and
                           to the knowledge of the Company, there is no basis
                           for any such complaint, claim or notice.

                  (c)      The Company has taken reasonable precautions (i) to
                           protect its rights in its Intellectual Property; and
                           (ii) to maintain the confidentiality of its trade
                           secrets, know-how and other confidential Intellectual
                           Property, and to the Company's knowledge, there have
                           been no acts or omissions (other than those made
                           based on reasonable, good faith business decisions)
                           by the officers, directors, shareholders and
                           employees of the Company the result of which would be
                           to materially compromise the rights of the Company to
                           apply for or enforce appropriate legal protection of
                           the Company's Intellectual Property.

                  (d)      All of the Company's Intellectual Property has been
                           created by employees of the Company within the scope
                           of their employment by the Company or by independent
                           contractors of the Company who have executed
                           agreements expressly assigning all right, title and
                           interest in such Intellectual Property to the Company
                           and no portion of the Company's Intellectual Property
                           was jointly developed with any third party.

         3.14     Insurance. The Company's insurance policies are in full force
                  and effect and are in amounts and of a nature which are
                  adequate and customary for the Company's business. All
                  premiums due on the Insurance Policies have been paid and
                  there is no default under any of the Insurance Policies. The
                  Company has not received any notice or other communication
                  from any issuer of the Insurance Policies canceling or
                  materially amending any of such policies, increasing any
                  deductibles or retained amounts thereunder, or increasing the
                  annual or other premiums payable thereunder, and, to the
                  knowledge of the Company, no such cancellation, amendment or
                  increase of deductibles, retainages or premiums is threatened.

         3.15     Material Contracts and Obligations. All of the Company's
                  material agreements and contracts are valid, binding and in
                  full force and effect. Neither the Company, nor, to the
                  Company's knowledge, any other party thereto, is in default of
                  any of its obligations under any of the agreements or
                  contracts in a manner which could have a Company Material
                  Adverse Effect.

         3.16     Compliance. The Company has, in all material respects,
                  complied with all laws, regulations and orders applicable to
                  its present and proposed business and has all material permits
                  and licenses required thereby. There is no term or provision
                  of any mortgage, indenture, contract, agreement or instrument
                  to which the Company is a party or by which it is bound, or,
                  to the Company's knowledge, of any provision of any state or
                  federal judgment, decree, order, statute, rule or regulation
                  applicable to or binding upon the Company, which materially
                  adversely affects or, so far as the Company may now foresee,
                  in the future is reasonably likely to result in or have a
                  Company Material Adverse Effect.



                                                                    Page 5 of 16
<PAGE>

         3.17     Absence of Changes. Since the Balance Sheet Date, there has
                  not been (other than changes expressly contemplated by this
                  Agreement and the Ancillary Agreements) (a) any change in the
                  assets, liabilities, financial condition or operations of the
                  Company from those reflected on the Balance Sheet, except
                  changes in the ordinary course of business that have not been,
                  either individually or in the aggregate, materially adverse;
                  (b) any adverse change (individually or in the aggregate),
                  except in the ordinary course of business, in the contingent
                  obligations of the Company by way of guaranty, endorsement,
                  indemnity, warranty or otherwise; (c) any damage, destruction
                  or loss, whether or not covered by insurance, materially and
                  adversely affecting the properties or business of the Company;
                  (d) any waiver or compromise by the Company of a valuable
                  right or of a material debt owed to it; (e) any loans made by
                  the Company to its employees, officers or directors other than
                  travel advances made in the ordinary course of business; (f)
                  any extraordinary increases in the compensation of any
                  Company's employees, officers or directors not approved by the
                  Board of Directors; (g) any declaration or any payment of any
                  dividend or other distribution of the assets of the Company;
                  (h) any issuance or a sale by the Company of any shares of its
                  Common Stock, Preferred Stock or other securities other than
                  pursuant to the Company's stock option plans; (i) to the
                  Company's knowledge, any other event or condition of any
                  character that has materially and adversely affected the
                  Company's business or prospects; or (j) any agreement or
                  commitment by the Company to do any of the things described in
                  this Section 3.17.

         3.18     Employees. All employees of the Company who have access to
                  confidential or proprietary information of the Company have
                  executed and delivered nondisclosure, non-competition and
                  assignment of invention agreements, and all of such agreements
                  are in full force and effect. The Company is not aware that
                  any employee of the Company has plans to terminate his or her
                  employment relationship with the Company. The Company has
                  complied in all material respects with all applicable laws
                  relating to wages, hours, equal opportunity, collective
                  bargaining, workers' compensation insurance and the payment of
                  social security and other taxes. None of the employees of the
                  Company is represented by any labor union, and there is no
                  labor strike or other labor trouble pending with respect to
                  the Company (including, without limitation, any organizational
                  drive) or, to the Company's knowledge, threatened.

         3.19     ERISA. Each of the Company's employee benefit plans complies
                  in all material respects with all applicable requirements of
                  ERISA and the Code.

         3.20     Books and Records. The minute books of the Company contain
                  complete and accurate records of all material corporate
                  actions of its stockholders and its Board of Directors and
                  committees thereof. The stock ledger of the Company is
                  complete and reflects all issuances, transfers, repurchases
                  and cancellations of shares of capital stock of the Company.

         3.21     Permits. The Company has all permits that are required for the
                  Company to conduct its business as presently or proposed to be
                  conducted, except for those the absence of which would not
                  have a Company Material Adverse Effect. All such permits are
                  in full force and effect and, to the knowledge of the Company,
                  no suspension or cancellation of any of such permits is
                  threatened.

         3.22     Environmental Matters.

                  (a)      The Company has complied in all material respects
                           with all applicable Environmental Laws (as defined
                           below in this Section 3.22(a)). There is no pending
                           or, to the knowledge of the Company, threatened civil
                           or criminal litigation, written notice of violation,
                           formal administrative proceeding, or investigation,
                           inquiry or information request by any Governmental
                           Entity, relating to any Environmental Law involving
                           the Company. For purposes of this Agreement,
                           "Environmental Law" means any federal, state or local
                           law, statute, rule or regulation or the common law
                           relating to the protection of human health or the
                           environment.



                                                                    Page 6 of 16
<PAGE>

                  (b)      Neither the Company, nor to the knowledge of the
                           Company, has any third party released any Materials
                           of Environmental Concern (as defined below in this
                           Section 3.22(b)) into the environment at any parcel
                           of real property or any facility formerly or
                           currently owned, operated or controlled by the
                           Company. The Company is not aware of any releases of
                           Materials of Environmental Concern at parcels of real
                           property of facilities other than those owned,
                           operated or controlled by the Company that could
                           reasonably be expected to have an impact on the real
                           property or facilities owned, operated or controlled
                           by the Company. For purposes of this Agreement,
                           "Materials of Environmental Concern" means any
                           chemicals, pollutants or contaminants, hazardous
                           substances, solid wastes and hazardous wastes, toxic
                           materials, oil or petroleum and petroleum products,
                           or any other material subject to regulation under any
                           Environmental Law.

                  (c)      The Company is not aware of any material
                           environmental liability of the solid and hazardous
                           waste transporters and treatment, storage and
                           disposal facilities that have been utilized by the
                           Company.

                  (d)      The Company is not aware of any environmental report,
                           investigation or audit (whether conducted by or on
                           behalf of the Company or a third party, and whether
                           done at the initiative of the company or directed by
                           a Governmental Entity or other third party) issued or
                           conducted relating to premises currently or
                           previously owned or operated by the Company.

         3.23     U.S. Real Property Holding Corporation. The Company is not now
                  and has never been a "United States Real Property Holding
                  Corporation" as defined in Section 897(c)(2) of the Code and
                  Section 1.897-2(b) of the Regulations promulgated by the
                  Internal Revenue Service.

         3.24     Related Party Transactions. Except as disclosed on Exhibit C,
                  no employee, officer, shareholder or director of the Company
                  or member of his or her immediate family is indebted to the
                  Company, nor is the Company indebted (or committed to make
                  loans or extend or guarantee credit) to any of them, other
                  than (i) for payment of salary for services rendered; (ii)
                  reimbursement for reasonable expenses incurred on behalf of
                  the Company; and (iii) for other standard employee benefits
                  made generally available to all employees (not including stock
                  option agreements outstanding under any stock option plan
                  approved by the Board of Directors of the Company.) To the
                  Company's knowledge, none of such persons has any direct or
                  indirect ownership interest in any firm or corporation with
                  which the Company is affiliated or with which the Company has
                  a business relationship, or any firm or corporation that
                  competes with the Company, except that employees, officers or
                  directors of the Company and members of their immediate
                  families may own stock in publicly traded companies with which
                  the Company has a business relationship, or that may compete
                  with the Company. To the Company's knowledge, no officer,
                  director, or shareholder or any member of their immediate
                  families is, directly or indirectly, interested in any
                  contract with the Company (other than such contracts as they
                  relate to any such person's employment with the Company or
                  ownership of capital stock of the Company, or as otherwise
                  contemplated by this Agreement).

         3.25     Disclosures. Neither this Agreement nor any exhibit hereto,
                  nor any report, certificate or instrument furnished to any of
                  the Purchasers or their special counsel in connection with the
                  transactions contemplated by this Agreement when read
                  together, contains or will contain any untrue statement of a
                  material fact or omits or will omit to state a material fact
                  necessary in order to make the statements contained herein or
                  therein, in light of the circumstances under which they were
                  made, not misleading.

4.       INTENTIONALLY OMITTED

5.       REPRESENTATIONS OF THE PURCHASERS. Each of the Purchasers severally
         represents and warrants to the Company as follows:



                                                                    Page 7 of 16
<PAGE>

         5.1      Investment. Such Purchaser is acquiring the Shares, and the
                  shares of Common Stock into which the Shares may be converted,
                  for its own account for investment and not with a view to, or
                  for sale in connection with, any distribution thereof, nor
                  with any present intention of distributing or selling the
                  same; and, except as contemplated by this Agreement and the
                  exhibits hereto, such Purchaser has no present or contemplated
                  agreement, undertaking, arrangement, obligation, indebtedness
                  or commitment providing for the disposition thereof. Such
                  Purchaser is an "accredited investor" as defined in Rule
                  501(a) under the Securities Act.

         5.2      Authority. Such Purchaser has full power and authority to
                  enter into and to perform this Agreement in accordance with
                  its terms. Any Purchaser that is a corporation, partnership or
                  trust represents that it has not been organized, reorganized
                  or recapitalized specifically for the purpose of investing in
                  the Company.

         5.3      Experience. Such Purchaser has carefully reviewed the
                  representations concerning the Company contained in this
                  Agreement and has made detailed inquiry concerning the
                  Company, its business and its personnel; the officers of the
                  Company have made available to such Purchaser any and all
                  written information which it has requested and have answered
                  to such Purchaser's satisfaction all inquiries made by such
                  Purchaser; and such Purchaser has sufficient knowledge and
                  experience in finance and business that it is capable of
                  evaluating the risks and merits of its investment in the
                  Company and such Purchaser is able financially to bear the
                  risks thereof.

6.       CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS. The obligation of each
         of the Purchasers to purchase Shares at the Closing is subject to the
         fulfillment, or the waiver by such Purchaser, of each of the following
         conditions on or before the Closing:

         6.1      Accuracy of Representations and Warranties. Each
                  representation and warranty contained in Section 3 shall be
                  true on and as of the Closing Date with the same effect as
                  though such representation and warranty had been made on and
                  as of that date except for those representations and
                  warranties that are given with respect to a specified date.

         6.2      Performance. The Company shall have performed and complied
                  with all agreements and conditions contained in this Agreement
                  required to be performed or complied with by the Company prior
                  to or at the Closing.

         6.3      Ancillary Agreements.

                  (a)      Stockholders' Voting Agreement. The Stockholders'
                           Voting Agreement attached hereto as Exhibit G (the
                           "Stockholders' Voting Agreement") shall have been
                           executed and delivered by the Company, each of the
                           Purchasers and by each of David R. A. Steadman, Chief
                           Executive Officer, David J. Spellman, President and
                           Geoffrey P. Andrew, Chief Technology Officer of the
                           Company (collectively referred to as the "Key
                           Executives.") All such action shall have been taken
                           as may be necessary to elect a Board of Directors of
                           the Company, effective upon the Closing, in
                           accordance with the Stockholders' Voting Agreement.

                  (b)      Investor Rights Agreement. The Investor Rights
                           Agreement attached hereto as Exhibit H (the "Investor
                           Rights Agreement") shall have been executed and
                           delivered by the Company and each of the Purchasers.

                  (c)      Right of First Refusal and Co-Sale Agreement. The
                           Right of First Refusal and Co-Sale Agreement attached
                           hereto as Exhibit I (the "Co-Sale Agreement") shall
                           have been executed and delivered by the Company and
                           each of the Purchasers and the Key Executives.

                  (d)      Non-Competition Agreement. Each Key Executives and
                           the Company has entered into an Employee Invention
                           Assignment, Confidentiality and Non-Competition
                           Agreement in the form of Exhibit E hereto.



                                                                    Page 8 of 16
<PAGE>

                  (e)      Amended and Restated Certificate of Incorporation.
                           The Amended and Restated Certificate of Incorporation
                           of the Company attached as Exhibit B shall have been
                           filed with the Secretary of State of the State of
                           Delaware.

         6.4      Certificates and Documents. The Company shall have delivered
                  to the Purchasers:

                  (a)      The Certificate of the Company, as amended and in
                           effect as of the Closing Date, certified by the
                           Secretary of State of the State of Delaware;

                  (b)      Certificates, as of the most recent practicable
                           dates, as to the corporate good standing of the
                           Company issued by the Secretary of State of the State
                           of Delaware and the Secretary of the Commonwealth of
                           Massachusetts;

                  (c)      Resolutions of the Board of Directors and
                           stockholders of the Company, authorizing and
                           approving all matters in connection with this
                           Agreement and the transactions contemplated hereby,
                           certified by the Secretary or Assistant Secretary of
                           the Company as of the Closing Date.

         6.5      Compliance Certificates. The Company shall have delivered to
                  the Purchasers a certificate, executed by the Chief Executive
                  Officer of the Company, dated the Closing Date, certifying to
                  the fulfillment of the conditions specified in Sections 6.1
                  and 6.2 of this Agreement.

         6.6      No Material Adverse Change. There shall not have been any
                  material adverse change in the business, financial conditions
                  or prospects of the Company and its subsidiaries taken as a
                  whole.

         6.7      Other Matters. All corporate and other proceedings in
                  connection with the transactions contemplated by this
                  Agreement and all documents and instruments incident to such
                  transactions shall be reasonably satisfactory in substance and
                  form to the Purchasers, and the Purchasers shall have received
                  all such counterpart originals or certified or other copies of
                  such documents as they may reasonably request.

         6.8      No Actions Restraining. No suit, proceeding, or investigation
                  shall have been commenced or threatened by any governmental
                  authority or Person on any grounds to restrain or enjoin, or
                  seek damages on account of, the consummation of the
                  transactions contemplated by this Agreement.

7.       CONDITION TO THE OBLIGATIONS OF THE COMPANY. The obligations of the
         Company under Section 1.2 of this Agreement are subject to the
         representations and warranties of the Purchasers contained in Section 5
         being true on and as of the Closing Date with the same effect as though
         such representations and warranties had been made on and as of that
         date.

8.       AFFIRMATIVE COVENANTS OF THE COMPANY.

         8.1      Inspection and Observation. The Company shall permit each
                  Purchaser, or any authorized representative thereof, to visit
                  and inspect the properties of the Company, including its
                  corporate and financial records, and to discuss its business
                  and finances with officers of the Company, during normal
                  business hours following reasonable notice and as often as may
                  be reasonably requested.

         8.2      Financial Statements and Other Financial Information. The
                  Company shall deliver to each Purchaser:

                  (a)      Monthly, unaudited financial statements prepared
                           substantially in accordance with GAAP as usual and
                           customary for private companies of similar size
                           within the United States as at the end of such month
                           within 15 days of month end, with commentary by the
                           Chief Executive Officer or the President.



                                                                    Page 9 of 16
<PAGE>

                  (b)      within 90 days after the end of each fiscal year of
                           the Company, an audited balance sheet of the Company
                           prepared in accordance with GAAP as at the end of
                           such year and audited statements of income and of
                           cash flows of the Company for such year, certified
                           with an unqualified opinion by certified public
                           accountants of established national reputation
                           selected by the Company and subject to the reasonable
                           prior approval of the Purchasers; and

                  (c)      An annual budget for the subsequent fiscal year
                           within 30 days prior to current year end;


         8.3      Material Events. The Company shall deliver to each Purchaser:

                  (a)      Notice of reportable events within 15 days of their
                           occurrence. Reportable events will include offers to
                           buy the Company, resignations or serious illnesses of
                           corporate officers, lawsuits and lenders' default
                           notices.

                  (b)      Notice of any known default in any major contract,
                           this Agreement or any of the Ancillary Agreements or
                           any loan agreements within 15 days of its occurrence.

                  (c)      Such other notices, information and data with respect
                           to the Company as the Company delivers to the holders
                           of its capital stock at the same time it delivers
                           such items to such holders.

                  (d)      With reasonable promptness, such other information
                           and data as such Purchaser may from time to time
                           reasonably request.

         8.4      Insurance. The Company shall maintain adequate property and
                  business insurance, including without limitation insurance
                  against loss, damage, fire, theft, public liability and other
                  risks.

         8.5      Agreements with Employees. The Company shall require all
                  persons now or hereafter employed by the Company who have
                  access to confidential and proprietary information of the
                  Company to enter into nondisclosure and assignment of
                  inventions agreements substantially in a form approved by the
                  Board of Directors of the Company.

         8.6      Directors.

                  (a)      The Company shall promptly reimburse in full each
                           director of the Company who is not an employee of the
                           Company for all of his or her reasonable
                           out-of-pocket expenses incurred in attending each
                           meeting of the Board of Directors of the Company or
                           any committee thereof.

                  (b)      The Board of Directors shall meet at least quarterly,
                           unless otherwise agreed by a majority of the members
                           of the Board of Directors who are not employees of
                           the Company or a subsidiary of the Company.

         8.7      Reservation of Common Stock. The Company shall reserve and
                  maintain a sufficient number of shares of Common Stock for
                  issuance upon conversion of all of the outstanding Shares.

         8.8      Related Party Transactions. The Company shall not enter into
                  any agreement with any stockholder, officer or director of the
                  Company, or any "affiliate" or "associate" of such persons (as
                  such terms are defined in the rules and regulations
                  promulgated under the Securities Act), including without
                  limitation any agreement or other arrangement providing for
                  the furnishing of services by, rental of real or personal
                  property from, or otherwise requiring payments to, any such
                  person or entity without the consent of at least a majority of
                  the members of the Company's Board of Directors having no
                  interest in such agreement or arrangement.

         8.9      Compliance with Law; Maintenance of Corporate Existence,
                  Properties and Records. The Company shall comply with all
                  laws, including environmental laws, applicable to it, except
                  where the failure to comply would not be reasonably likely to
                  result in a material adverse



                                                                   Page 10 of 16
<PAGE>

                  effect on the business, assets, operations, prospects or
                  financial or other condition of the Company. The Company shall
                  comply with and conduct its business in accordance with its
                  Certificate of Incorporation and Bylaws. The Company will
                  preserve, protect and maintain its corporate existence,
                  rights, franchises and privileges and all properties necessary
                  or useful to the proper conduct of its business. The Company
                  will at all times maintain proper books of record and account
                  which fairly present the financial condition and results of
                  operation of the Company in accordance with GAAP and maintain
                  internal control systems to the reasonable satisfaction of the
                  Purchasers.

         8.10     Termination of Covenants. The covenants of the Company
                  contained in Sections 8.1 through Section 8.9 shall terminate,
                  and be of no further force or effect, upon the closing of the
                  Company's first public offering of Common Stock pursuant to an
                  effective registration statement under the Securities Act
                  resulting in net proceeds to the Company of at least
                  $15,000,000 and at a price to the public at least equal to
                  three times the conversion price per share of the Series A-1
                  Preferred (as adjusted for stock splits, stock dividends,
                  recapitalizations and similar events.)

9.       TRANSFER OF SHARES.

         9.1      Restricted Shares. "Restricted Shares" means (a) the Shares;
                  (b) the shares of Common Stock issued or issuable upon
                  conversion of the Shares; (c) any shares of capital stock of
                  the Company acquired by the Purchasers pursuant to the
                  Investor Rights Agreement or the Co-Sale Agreement; and (iv)
                  any other shares of capital stock of the Company issued in
                  respect of such shares (as a result of stock splits, stock
                  dividends, reclassifications, recapitalizations, or similar
                  events); provided, however, that shares of Common Stock which
                  are Restricted Shares shall cease to be Restricted Shares (x)
                  upon any sale pursuant to a registration statement under the
                  Securities Act, under Section 4(1) of the Securities Act or
                  under Rule 144 under the Securities Act; or (y) at such time
                  as they become eligible for sale under Rule 144(k) under the
                  Securities Act.

         9.2      Requirements for Transfer.

                  (a)      Restricted Shares shall not be sold or transferred
                           unless either (i) they first shall have been
                           registered under the Securities Act; or (ii) such
                           sale or transfer is exempt from the registration
                           requirements of the Securities Act.

                  (b)      Notwithstanding the foregoing, but provided that each
                           transferee described below agrees in writing to be
                           subject to the terms of this Section 9 to the same
                           extent as if it were the original Purchaser
                           hereunder, no registration shall be required for

                           (i)      a transfer by a Purchaser which is a
                                    corporation to a majority owned subsidiary
                                    of such corporation;

                           (ii)     a transfer by a Purchaser which is a
                                    partnership to a partner of such
                                    partnership, or to an affiliated limited
                                    partnership managed by the same management
                                    company or managing general partner of such
                                    Purchaser or by an entity which controls, is
                                    controlled by, or is under common control
                                    with, such management company or managing
                                    general partner;

                           (iii)    a transfer by a Purchaser which is a trust
                                    to any beneficiary of the trust; or

                           (iv)     a transfer by a Purchaser which is a limited
                                    liability company to a member of such
                                    limited liability company.

                  (c)      no registration shall be required for a transfer made
                           in accordance with Rule 144 under the Securities Act.



                                                                   Page 11 of 16
<PAGE>

         9.3      Legend. Each certificate representing Restricted Shares shall
                  bear a customary Securities Act legend, which shall be removed
                  from the certificates representing any Restricted Shares at
                  the request of the holder thereof at such time as such shares
                  become eligible for resale pursuant to Rule 144(k) under the
                  Securities Act.

         9.4      Rule 144A Information. The Company shall, at all times during
                  which it is neither subject to the reporting requirements of
                  Section 13 or 15(d) of the Securities Exchange Act of 1934, as
                  amended (the "Exchange Act"), nor exempt from reporting
                  pursuant to Rule 12g3-2(b) under the Exchange Act, upon the
                  written request of any Purchaser, provide in writing to such
                  Purchaser and to any prospective transferee of any Restricted
                  Shares of such Purchaser the information concerning the
                  Company described in Rule 144A(d)(4) under the Securities Act
                  ("Rule 144A Information"). The Company's obligations under
                  this Section 9.4 shall at all times be contingent upon receipt
                  from the prospective transferee of Restricted Shares of a
                  written agreement to take all reasonable precautions to
                  safeguard the Rule 144A Information from disclosure to anyone
                  other than persons who will assist such transferee in
                  evaluating the purchase of any Restricted Shares.

10.      MISCELLANEOUS.

         10.1     Successors and Assigns. This Agreement shall be binding upon
                  and inure to the benefit of the parties and their respective
                  successors and permitted assigns. This Agreement, and the
                  rights and obligations of each Purchaser hereunder, may be
                  assigned by such Purchaser to any person or entity to which
                  Shares are transferred by such Purchaser, and such transferee
                  shall be deemed a "Purchaser" for purposes of this Agreement;
                  provided that the transferee provides written notice of such
                  assignment to the Company. The Company may not assign its
                  rights under this Agreement.

         10.2     Confidentiality. Each Purchaser agrees to keep confidential
                  and will not disclose, divulge or use for any purpose other
                  than to monitor its investment in the Company any
                  confidential, proprietary or secret information which such
                  Purchaser may obtain from the Company pursuant to financial
                  statements, reports and other materials submitted by the
                  Company to such Purchaser pursuant to this Agreement, or
                  pursuant to visitation or inspection rights granted hereunder
                  ("Confidential Information,") unless such Confidential
                  Information is known, or until such Confidential Information
                  becomes known, to the public (other than as a result of a
                  breach of this Section 10.2 by such Purchaser;) provided,
                  however, that a Purchaser may disclose Confidential
                  Information (a) to its attorneys, accountants, consultants,
                  and other professionals to the extent necessary to obtain
                  their services in connection with monitoring its investment in
                  the Company; (b) to any prospective purchaser of any Shares
                  from such Purchaser as long as such prospective purchaser
                  agrees in writing to be bound by the provisions of this
                  Section 10.2; (c) to any affiliate of such Purchaser or to a
                  partner, stockholder or subsidiary of such Purchaser, provided
                  that such affiliate agrees in writing to be bound by the
                  provisions of this Section 10.2, or (d) as may otherwise be
                  required by law, including but not limited to Securities and
                  Exchange Commission and stock exchange disclosure requirements
                  applicable to any party hereof, provided that the Purchaser
                  takes reasonable steps to minimize the extent of any such
                  required disclosure.

         10.3     Survival of Representations and Warranties. All agreements,
                  representations and warranties contained herein shall survive
                  the execution and delivery of this Agreement and the closing
                  of the transactions contemplated hereby for a period of three
                  years.

         10.4     Expenses. The Company shall pay at the Closing the reasonable
                  expenses incurred by the Purchasers in conjunction with their
                  investment in the Series A-1 Preferred (including their
                  reasonable legal fees and expenses) up to a maximum of
                  $15,000.



                                                                   Page 12 of 16
<PAGE>

         10.5     Brokers. The Company and each Purchaser (a) represents and
                  warrants to the other parties hereto that it has not retained
                  a finder or broker in connection with the transactions
                  contemplated by this Agreement; and (b) will indemnify and
                  save the other parties harmless from and against any and all
                  claims, liabilities or obligations with respect to brokerage
                  or finders' fees or commissions, or consulting fees in
                  connection with the transactions contemplated by this
                  Agreement asserted by any person on the basis of any statement
                  or representation alleged to have been made by such
                  indemnifying party.

         10.6     Severability. The invalidity or unenforceability of any
                  provision of this Agreement shall not affect the validity or
                  enforceability of any other provision of this Agreement.

         10.7     Specific Performance. In addition to any and all other
                  remedies that may be available at law in the event of any
                  breach of this Agreement, each Purchaser shall be entitled to
                  specific performance of the agreements and obligations of the
                  Company hereunder and to such other injunctive or other
                  equitable relief as may be granted by a court of competent
                  jurisdiction.

         10.8     Governing Law. This Agreement shall be governed by and
                  construed in accordance with the internal laws of the State of
                  Delaware (without reference to the conflicts of law provisions
                  thereof.)

         10.9     Notices.

                  (a)      All notices, requests, consents, and other
                           communications under this Agreement shall be in
                           writing and either shall be delivered by hand against
                           a receipt therefor; or sent by reputable overnight
                           express courier service as follows:

                           If to the Company, at its headquarters address,
                           attention of the President, or at such other address
                           or addresses as may have been furnished in writing by
                           the Company to the Purchasers;

                           If to a Purchaser, at its address set forth on
                           Exhibit A, or at such other address or addresses as
                           may have been furnished to the Company in writing by
                           such Purchaser;

                  (b)      Notices provided in accordance with this Section 10.9
                           shall be deemed delivered upon personal delivery or
                           (x) in the case of notices provided within the
                           continental United States, at noon on the first
                           business day following deposit with a reputable
                           overnight express courier service, or (ii) in the
                           case of notices provided outside the continental
                           United States at noon on the second business day next
                           following deposit with a reputable overnight express
                           courier service.

                  (c)      Any party may give any notice, request, consent or
                           other communication under this Agreement using any
                           other means, but no such notice, request, consent or
                           other communication shall be deemed to have been duly
                           given unless and until it is actually received by the
                           party for whom it is intended. Any party may change
                           the address to which notices, requests, consents or
                           other communications hereunder are to be delivered to
                           it by giving the other parties notice in the manner
                           set forth in this Section.

         10.10    Complete Agreement. This Agreement including the exhibits
                  referred to herein and the Ancillary Agreements constitute the
                  entire agreement and understanding of the parties hereto with
                  respect to the subject matter hereof and supersedes all prior
                  agreements and understandings relating to such subject matter
                  including, without limitation, that certain Summary of Terms
                  dated May 21, 2001.

         10.11    Amendments and Waivers. Except as otherwise expressly set
                  forth in this Agreement, any term of this Agreement may be
                  amended or terminated and the observance of any term of this
                  Agreement may be waived (either generally or in a particular
                  instance and either retroactively or prospectively), with the
                  written consent of the Company and the holders of


                                                                   Page 13 of 16
<PAGE>

                  at least 51% of the shares of Common Stock issued or issuable
                  upon conversion of the Shares; ; provided however that any
                  amendment or termination which materially adversely affect a
                  party to this Agreement shall require the written consent of
                  such party, in addition to the majority consent. Any
                  amendment, termination or waiver effected in accordance with
                  this Section 10.11 shall be binding upon each holder of any
                  Shares (including shares of Common Stock into which such
                  Shares have been converted) even if they do not execute such
                  consent, on each future holder of all such securities and on
                  the Company. No waivers of or exceptions to any term,
                  condition or provision of this Agreement, in any one or more
                  instances, shall be deemed to be, or construed as, a further
                  or continuing waiver of any such term, condition or provision.

         10.12    Pronouns. Whenever the context may require, any pronouns used
                  in this Agreement shall include the corresponding masculine,
                  feminine or neuter forms, and the singular form of nouns and
                  pronouns shall include the plural, and vice versa.

         10.13    Counterparts; Facsimile Signatures. This Agreement may be
                  executed in any number of counterparts, each of which shall be
                  deemed to be an original, and all of which shall constitute
                  one and the same document. This Agreement may be executed by
                  facsimile signatures.

         10.14    Section Headings. The section headings are for the convenience
                  of the parties and are not intended to alter, modify, amend,
                  limit, or restrict the contractual obligations of the parties.

         10.15    Aggregation of Shares. The Shares held by any Purchasers who
                  are affiliates of each other and their assignees shall be
                  aggregated for purposes of determining the availability of any
                  right or the applicability of any limitation under this
                  Agreement. For the avoidance of doubt, an affiliate shall
                  include, without limitation, (a) an entity which controls, is
                  controlled by or is under common control with, a Purchaser;
                  (b) as to a Purchaser which is a limited partnership, any of
                  its limited partners or retired partners, or the estate of any
                  such partner, and any affiliated limited partnership managed
                  by the same management company or managing general partner of
                  such Purchaser or by any entity which controls, is controlled
                  by, or is under common control with, such management company
                  or managing general partner; or (c) any beneficiary of a trust
                  which is a Purchaser.

            [The remainder of this page is intentionally left blank]



                                                                   Page 14 of 16
<PAGE>


EXECUTED AS OF THE DATE FIRST WRITTEN ABOVE.


VISAER, INC.


By:
   -----------------------------------------------------
    David R. A. Steadman, Chief Executive Officer

INTELLIGENT SYSTEMS CORPORATION


By:
   -----------------------------------------------------
    J. Leland Strange, President

GRUBB & WILLIAMS, LTD. ("GWL")


By:
   -----------------------------------------------------
     John Y. Williams
     Managing Director, GW Partners
     General Partner of GWL

GW INVESTMENTS, LTD ("GWI")


By:
   -----------------------------------------------------
     John Y. Williams
     President, JYW, Inc.
     General Partner of GWI

JYW, INC. ("JYW")


BY:
   -----------------------------------------------------
    John Y. Williams, President




                                                                   Page 15 of 16
<PAGE>

                                    EXHIBIT A

<TABLE>
<CAPTION>
                                                                 AMOUNT OF                                     SHARES OF
                                           SHARES OF SERIES         DEBT        SHARES OF PREFERRED STOCK       COMMON
PURCHASER                                   A-1 PREFERRED        CANCELLED              CANCELED(1)            CANCELLED
                                           ----------------      ---------      -------------------------      ---------
<S>                                        <C>                   <C>            <C>                            <C>
INTELLIGENT SYSTEMS CORPORATION                72,923,103        $2,470,665        Series A - 1,433,692          245,122
4355 Shackleford Road                                                              Series D -    16,778
Norcross, GA 30093

GRUBB & WILLIAMS, LTD.                         13,757,719          $434,862        Series A -    52,760            2,434
3399 Peachtree Road - Suite 1790                                                   Series B -   958,800
Atlanta, GA30326                                                                   Series D -     9,865


GW INVESTMENTS, LTD.                            9,908,388          $327,613        Series A -    36,846            1,487
3399 Peachtree Road - Suite 1790                                                   Series B -   669,900
Atlanta, GA30326                                                                   Series D -     6,913

JYW, INC.                                         641,594           $51,538                 -0-                      -0-
3399 Peachtree Road - Suite 1790
Atlanta, GA30326
</TABLE>


(1)  Refers to old Series A, B and D.



                                                                   Page 16 of 16

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>4
<FILENAME>g74809ex10-5.txt
<DESCRIPTION>7 X 24 AGREEMENT
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.5


                                 7X24 AGREEMENT

         THIS AGREEMENT ("Agreement"), made as of the 26th day of June, 2001,
between UNITED PARCEL SERVICE GENERAL SERVICES CO., including its parent company
and any now-existing or future direct or indirect subsidiaries of such parent
company and any authorized agents of such parent (collectively, "UPS") having
offices at 55 Glenlake Parkway, Atlanta, GA, 30328, and VISaer, Inc., a Delaware
Corporation, having offices at 100 Fordham Rd., Wilmington, MA 01887
("Company").

WHEREAS, Company is the sole owner of, or has the right to sublicense, its
proprietary software product known as the VISaer System, including source code,
object code (referenced below), Company provided databases, related
documentation and any enhancements, modifications and upgraded versions, data
and information, (collectively the "Licensed Software"), which UPS wishes to
license from Company in order to enhance its maintenance systems; and

WHEREAS, UPS desires Company to provide consulting services ("Consulting
Services") to UPS in order for Company to make certain enhancements and
modifications to the Licensed Software (the Licensed Software modifications
funded by UPS to be hereinafter referred to as the "Jointly Owned Software") as
further described in Section 1 a.) to meet UPS's specific system requirements;
and

WHEREAS, Company desires to provide support services ("Support Services") to UPS
for the System, as that term is defined in this Agreement; and

WHEREAS, UPS desires that Company provide UPS with documentation for, and
training in the use and operation of the System (the "Operations Manual"); as
well as recommendations of Third Party Hardware (defined below) on which the
System will run; and

WHEREAS, UPS, on the basis of representations contained in Company's proposal
dated February 4, 2000, (the "Proposal") and in reliance upon Company's
expertise in analyzing, designing and providing software systems appropriate for
specific applications, desires to engage Company to provide the Licensed
Software, Consulting Services, Jointly Owned Software, Support Services and
Operations Manual, and Company desires to enter into this Agreement to provide
such goods and services, all in accordance with the terms and conditions set
forth in this Agreement; and

WHEREAS, in summary, UPS desires that Company develop and deliver to UPS a
customized system conforming to UPS's requirements as stated in RFP 99-9573,
attached hereto as Exhibit "A" (the "Requirements) and any Design Document,
developed pursuant to this Agreement, which is attached hereto as Exhibit "B"
(the "Design Document") which shall include all necessary Licensed Software,
Jointly Owned Software, Third Party Software (defined below) and Third Party
Hardware, (all of the foregoing being collectively referred to as the "System").
If there are any inconsistencies among any document relating to this project,
including this Agreement and the Requirements, the Requirements will prevail.

NOW, THEREFORE, for good and valuable mutual consideration and the foregoing
recitals, the receipt and sufficiency of which are hereby acknowledged, UPS and
Company hereby agree as follows:

1.       License Grant.

         Except for the software developed pursuant to this Agreement i.e., the
Jointly Owned Software, which shall be owned jointly by UPS and Company, as
provided for in Section 1(a) below, and except for the Third Party Software, as
provided for in Section 1(b) below, Company hereby grants, and shall require
that any subcontractors grant, to UPS a direct, irrevocable, nonexclusive, fully
paid up, perpetual worldwide, subject to U.S. export laws, licenses to (i) make,
have made, (ii) use, reconstruct, repair, modify, (iii) prepare derivative
works, (iv) reproduce, publish, and distribute (for UPS's internal use only),
(v) and install the Licensed Software furnished hereunder, in


                                       1
<PAGE>

object code form and source code together with the associated documentation,
including any and all updates to any of the foregoing. If UPS modifies the
Licensed Software through others, Company shall not be obligated to support the
Licensed Software, and UPS assumes full support responsibility therefore, unless
such modification was authorized in writing by Company.

                  a.       JOINTLY OWNED SOFTWARE

         The parties shall own jointly all work created by Company under the
         terms of this Agreement pursuant to rendering to UPS Consulting
         Services. Such work shall include computer programs, derivative works
         developed from the Company's Property, as defined below, software
         modifications and related documentation, whether patentable or
         unpatentable, which are first conceived or made or first actually or
         constructively reduced to practice during the term of this Agreement or
         within six (6) months following the expiration or cancellation hereof,
         whether preliminary or final, and on whatever media rendered
         (collectively, the "Jointly Owned Software"). Such work shall not
         include for (i) Company Property, (ii) Licensed Software documentation
         and other VISaer intellectual property developed by Company before,
         during and after this Agreement unless such intellectual property is
         directly commissioned and paid for by UPS. Accordingly, each party
         shall have an unrestricted, irrevocable, nonexclusive, worldwide, fully
         paid up, perpetual license, with right to sublicense, in and to the
         Jointly Owned Software and shall have the unlimited right to make, have
         made, use, reconstruct, repair, modify, reproduce, publish, distribute,
         and sell the Jointly Owned Software subject to the restrictions set
         forth in this Section, in whole or in part, or combine the Jointly
         Owned Software with another matter without any obligation to account to
         the other party therefore, or not use the Jointly Owned Software at
         all, as such party sees fit except that (i) UPS shall not use Jointly
         Owned Software for the purposes of conducting a business consisting of
         licensing software programs to third parties or of running a software
         service bureau;(ii) notwithstanding the foregoing, UPS shall be
         permitted to allow other airlines or maintenance providers to access
         the System for the purposes of providing maintenance services and other
         activities to such airlines or maintenance providers; and such
         permitted access shall not constitute the running of a service bureau
         by UPS; (iii) UPS shall be permitted to allow airlines or maintenance
         providers to access the System for the purposes of providing
         maintenance services and other activities to UPS and such permitted
         accesse shall not constitute the running of a service bureau by UPS;
         (iv) Company shall not use the Jointly Owned Software in any software
         product sold or licensed to customers listed in Exhibit "C", (the
         "Competitor List") and (v) Company must notify UPS of the sale of the
         Company Product, defined in Exhibit "I", to any third party within
         thirty (30) days from the date of sale and pay to UPS royalty fees
         within sixty (60) days from the date such sale is recognized by Company
         as revenue under U.S. GAAP and in accordance with the terms attached as
         Exhibit "D" or as otherwise mutually agreed to by the parties in
         writing. Company will provide to UPS a report of all sales on a
         quarterly basis. Such report is to be utilized solely for tracking
         royalties and will not be required after royalties paid exceed the cap
         described in Exhibit "D". Prior to providing services under this
         Agreement, Company shall identify to UPS in writing any technology,
         information, computer programs, other documentation or intellectual
         property owned by, or licensed to, Company prior to the commencement of
         such services which will be useful or necessary to the Jointly Owned
         Software (collectively, "Company Property"). UPS shall be permitted to
         grant sublicenses to use the System to Third Parties, provided that UPS
         or such Third Party pays to Company its license fees therefor then in
         effect and such Third Parties agree to be bound by all of Company's
         then current license terms and conditions.


                  b.       THIRD PARTY SOFTWARE

Company shall secure, transfer to or administer for UPS, in UPS's name and at
UPS' option, any and all necessary sublicenses or direct licenses for all or any
portion of the System owned by third parties (the "Third Party Software"), that
may be identified as such in any System Deliverable, as defined in Section 8.1
of this Agreement. Company shall provide to UPS such Third Party Software with
such license agreements containing terms consistent with those set forth in
Section 1 of this Agreement as between UPS and Company. Company represents


                                       2
<PAGE>

that all of the Third Party Software identified or referenced in the System
Deliverable are standard, commercially available products, and that the
associated licenses therefore are perpetual in duration. Should UPS desire to
obtain additional licenses or maintenance services for the Third Party Software,
Company shall use its best efforts to cause the suppliers of such Third Party
Software to grant licenses and/or provide maintenance services at the best
commercial rates available from such suppliers.

Notwithstanding the terms of the Third Party Software license agreements,
Company shall remain primarily liable to UPS for all of Company's obligations
under this Agreement. In addition, the terms in such Third Party Software
license agreements which may be inconsistent with the provisions of this
Agreement shall in no way limit Company's obligations hereunder. Accordingly,
such license agreements may not be used by Company to: (i) reduce or otherwise
limit any of the provisions of this Agreement; or (ii) relieve Company from any
of its obligations under this Agreement. Company warrants that all Third Party
licenses are standard and perpetual.

         c.       THIRD PARTY HARDWARE

Company represents that the Licensed Software and Jointly Owned Software will
operate on any and all equipment specified by Company for use in any portion or
all of the System that is sold by third parties ("Third Party Hardware") and
that is identified as such in any System Deliverable, as defined in Section 8.1
of this Agreement, and that such hardware is a standard, commercially available
product as long as the Third Party Hardware works according to the published
specifications. Company shall assist UPS in obtaining any configuration
information, operating manuals, instructions and associated documentation
pertaining to such Third Party Hardware. Should UPS desire to obtain additional
maintenance or support of Third Party Hardware, Company shall use its best
efforts to cause the suppliers of such Third Party Hardware to provide
maintenance or support services at the best commercial rates available from such
suppliers.

Notwithstanding the terms of the Third Party Hardware agreements, Company shall
remain primarily liable to UPS for all of Company's obligations under this
Agreement. In addition, the terms in such Third Party Hardware agreements which
may be inconsistent with the provisions of this Agreement shall in no way limit
Company's obligations hereunder. Accordingly, such agreements may not be used by
Company to: (i) reduce or otherwise limit any of the provisions of this
Agreement; or (ii) relieve Company from any of its obligations under this
Agreement.

2.       COMMITMENT TO DEVELOP SYSTEM.

         On the terms and conditions set forth herein, Company agrees to develop
for the benefit of, and deliver to, UPS a system capable of providing UPS with
the data processing services and capabilities described in the Requirements and
to provide the training, support services and Operations Manual necessary to
enable UPS employees to effectively use the System with a reasonable amount of
instruction.

3.       SYSTEM PARAMETERS AND COMPANY RESPONSIBILITY.

3.1      System Timetable and System Deliverables.

         In order to facilitate completion of the System on a timely basis, a
timetable (the "System Timetable") has been established and is attached hereto
as Exhibit "E". The System Timetable sets forth the System Deliverables, defined
in Section 8.1 of this Agreement, which must be completed by Company as part of
its obligations with respect to the System development. Certain System
Deliverables are specifically identified and described in other sections of this
Agreement, while others are identified and described only in the System
Timetable. The System Timetable may be amended only as provided in this
Agreement or pursuant to an express written agreement executed by UPS and
Company. Company acknowledges that UPS has an urgent need to have the System
operating in a "live" production environment by the end of the time frames
contained in Exhibit "E" and that time therefore is of the essence with respect
to this Agreement. Company shall therefore adhere to, and perform its
obligations within, the time frames contained in Exhibit "E".


                                       3
<PAGE>


3.2       Completion Dates.

         The System Timetable lists the milestone events representing certain
key System Deliverables and the dates on which Company represents that these
events will occur. UPS and Company recognize and acknowledge that the System
Timetable contemplates that Company may, at various times during the System
development, be concurrently performing more than one (1) System Deliverable.
The dates set forth in the System Timetable for completion of all tasks
necessary to bring about the milestone event are hereinafter referred to as the
"Completion Date(s)". The System Timetable also sets forth the dates by which
Company has represented that it will complete all System Deliverables which it
is required to perform hereunder in order to complete the System.

3.3      Representations Referencing Completion Dates.

         Company hereby represents and warrants to UPS that:

(a)      The System Timetable and the Completion Dates have been represented by
         Company based upon Company's expertise and experience in developing
         software systems comparable to the System and upon UPS's
         representations and specifications being accurate and complete; and

(b)      Each of the System Deliverables will, subject to the fulfillment by UPS
         of its obligations hereunder, be completed by Company by such
         deliverable's Completion Date. A copy of the complete project plan,
         showing UPS' obligations and dependencies, will be made available to
         Company.

         The representations and warranties contained in this Section 3.3 shall
not be construed as modifying or qualifying any express obligation of Company
pursuant to any other provision of this Agreement.

3.4      Commitment by Company of Additional Personnel.

         Without limitation of Company's other obligations hereunder or any
other rights or remedies which UPS may have hereunder or at law or in equity, in
the event that UPS determines in the reasonable exercise of its business
judgment that any System Deliverable may not be completed by its Completion Date
without the commitment by Company of additional personnel to the System
development, UPS shall provide Company with a written notice specifying the
additional personnel which UPS believes should be committed to the System
development, and Company shall commit such personnel to the System as soon as
practicable (but in no event to exceed fifteen (15) days) from receipt of such
notice. Should Company disagree with UPS's requested allocation of personnel, it
will so indicate to UPS within five (5) days of receiving notice thereof. The
parties will then promptly meet and work diligently and in good faith to reach
agreement on the issue.

3.5      Work Performed on UPS Facilities.

         Company recommends that during the course of this Agreement, UPS shall
permit employees of Company to be present, when reasonable, as observers or
participants while various tasks are being conducted and to consult with UPS's
personnel. UPS shall provide, at no additional cost, office space and facilities
commensurate with that provided to its own employees for a minimum of seven (7)
Company personnel who will be engaged in the work associated with this
Agreement. Company recommends that one (1) training and one (1) conference room
with conference phone be made available at the UPS facilities where work is
being performed. With respect to all work performed by, or for, the Company at
UPS facilities, the Company shall comply with all applicable state, local and
Federal government laws and regulations in effect where such work is being
performed and applicable to such work and shall comply with all UPS security and
safety regulations in effect at such facilities.


                                       4
<PAGE>

3.6      Work Performed on Company Facilities

         During the course of this Agreement, Company shall permit employees of
UPS to be present, when reasonable, as observers or participants while various
tasks are being conducted and to consult with Company's personnel. Company shall
provide, at no additional cost, office space and facilities commensurate with
that provided to its own employees for a minimum of two (2) UPS personnel who
will be engaged in the work associated with this Agreement. UPS shall comply
with all applicable state, local and Federal government laws and regulations in
effect where such work is being performed and applicable to such work and shall
comply with all Company security and safety regulations in effect at such
facilities

4.       MECHANISMS FOR AVOIDING AND IDENTIFYING SYSTEM PROBLEMS.

4.1      Project Managers.

         UPS and Company shall each designate in writing one (1) individual to
serve as its project manager for the System through successful completion of the
System Acceptance Procedure, as defined in Section 8, which individual shall be
deemed to have authority to grant or provide approvals that relate to the
day-to-day performance and technical and other project issues that may arise
which do not affect the terms and conditions or costs hereunder (each a "Project
Manager"). UPS hereby designates Dick Deats as the UPS Project Manager and
Company hereby designates David Spellman as the Company Project Manager.

4.2      Contract Managers.

         UPS and Company shall each designate in writing one (1) individual to
serve as its contract manager for the System through final acceptance which
individual shall be deemed to have the authority to issue, execute, grant or
provide any approvals, requests, notices, contract amendments or other
communications required hereunder or requested by the other party hereto (each a
"Contract Manager"). UPS hereby designates Bill Haeseley as the UPS Contract
Manager and Company hereby designates David Spellman the Company Contract
Manager.

4.3      Review Meetings and Project Reports.

         Not less than once per month until and no later than 30 days after
completion of the final System Deliverable, UPS's Project Manager and Company
Project Manager, as well as appropriate additional personnel involved in the
particular task underway, shall meet via telephone or televideo conference or in
person to discuss the progress made by Company and UPS in the performance of
their respective obligations hereunder during the preceding month. The UPS
Project Manager and Company Project Manager will jointly produce a meeting
schedule that will reflect but is not limited to the Completion Dates set forth
in the System Timetable. To facilitate proper Project management, once every
month Company shall provide UPS with a written status report ("Progress Report")
specifying in detail:

         4.3.1    Any problem or circumstance ("Project Problem") encountered by
                  Company, or of which Company gained knowledge, during the
                  preceding month which Company could reasonably expect to
                  prevent Company's completing any System Deliverable by the
                  date specified in the System Timetable for such System
                  Deliverable (any such projected delay being hereinafter
                  referred to as a "Project Delay");

         4.3.2    The estimated length of any Project Delay and estimated amount
                  of any project cost overrun which may result from any Project
                  Problem specified pursuant to Section 4.3.1 hereof;

         4.3.3    The cause of any Project Problem specified pursuant to Section
                  4.3.1 hereof and the specific steps taken or proposed to be
                  taken by Company to remedy such Project Problem; and

         4.3.4    The Licensed Software, Third Party Software, Jointly Owned
                  Software, Third Party Hardware, Pre-Existing Technology
                  (defined in Section 13D), Inventions (defined in 13C) and
                  Technical Information (defined in 13B) developed or used by
                  Company in the prior month in its performance under this
                  Agreement.


                                       5
<PAGE>

4.4      Effect of Company's Failure to Identify and Specify Project Problems.

         In the event that Company fails to specify in writing any Project
Problem of which it was aware with respect to a given period in the appropriate
Progress Report and in such manner and at such time as required pursuant to
Section 4 hereof (an "Unidentified Project Problem"), it shall be conclusively
presumed for purposes of this Agreement that no Project Problem arose during
such period and Company shall not be entitled to rely upon such Unidentified
Project Problem as a purported justification for either;

(a)      claiming that it is entitled to receive any additional amounts with
         respect to a System Deliverable, or

(b)      failing to complete any System Deliverable by such deliverable's
         respective Completion Date. Reports submitted pursuant to Section 4.3
         and the implications thereof shall reasonably be taken into account by
         UPS in consideration of deviations from the System Timetable or from
         the project budget.



                                       6
<PAGE>

5.       CHARGES PAYABLE BY UPS.

5.1      Billing by Company of Fixed Price.

         . Company shall provide UPS with a valid invoice in accordance with the
fixed payment schedule as defined in Exhibit "F" only after receiving written
notification of acceptance of the System Deliverables required to complete a
Milestone from UPS's Contract Manager.

         Company shall not invoice UPS for services or expenses in excess of the
maximum compensation amount of                 set forth in Exhibit F of this
Agreement. If additional projects are entered into between UPS and Company
during the term of this Agreement, those additional projects may, at UPS's
option, be governed by separately negotiated agreements. Company shall bill UPS
at rates not to exceed Company Hourly Rates identified in Exhibit F for services
provided in connection with any additional projects.

5.2      UPS shall not pay to Company any travel expenses or time and material
         work necessarily and actually incurred by Company in connection with
         providing such services other than what is stated in the Fixed Price
         Schedule in Exhibit F. UPS shall pay only those fix price amounts
         indicated in Exhibit F, unless Company is given written notification in
         accordance with Section 10, Changes, of this Agreement.

         All invoices prepared by Company pursuant to this Agreement shall be
itemized, shall reference the Contract Number of this Agreement and shall
substantiate charges therein set forth. Company shall maintain complete and
accurate accounting records, in a form in accordance with generally accepted
accounting practices, to substantiate Company's charges and expenses hereunder.
Company shall retain records for a period of one (1) year from the date of final
payment. UPS shall pay all valid invoices, except for any amounts disputed by
UPS, within thirty (30) days after UPS's receipt thereof.

Invoices are to be sent to:

                  United Parcel Service
                  1400 N. Hurstbourne Pkwy 4-b
                  Louisville, KY 40223
                  Attn.: IT Contracts

5.3      Offsets for Damages Suffered by UPS.

         In addition to any other rights or remedies UPS may have hereunder or
at law or in equity, UPS shall be entitled to offset the amount of any damages
it suffers or incurs as a result of the breach by Company of any of its
obligations, warranties or representations hereunder against the amount of any
charges becoming due and payable to Company hereunder; provided that prior to
any such offset or other delay in any payment, whether invoiced or scheduled,
UPS will give Company fifteen (15) days notice thereof, and shall either (i)
receive written acceptance of such offset from VISaer or (ii) shall have such
offset authorized by via the Dispute Resolution procedure specified in this
Agreement.

5.4      Taxes

         UPS will pay all United States federal, state, local, sales, use,
excise, and other similar sales and use taxes based on this Agreement and the
purchase of services hereunder (except those based on Company's net or gross
income, license, occupation, or property taxes, or worth) unless UPS furnishes
Company with a valid resale or exemption certificate.


                                       7
<PAGE>

6        PROJECT PERSONNEL.

6.1      Company Project Personnel

         Company shall provide UPS with such information regarding individual
project personnel or proposed Project Personnel which UPS may reasonably
request. In the event that Company proposes to have any services under this
Agreement performed by personnel other than employees of Company, Company shall
so notify UPS in advance. Any such personnel shall be deemed subcontractors of
Company. UPS reserves the right to reject any and all subcontractors with
respect to any or all projects to be conducted pursuant to this Agreement

6.2      Continuity of Project Personnel.

         Attached hereto as Exhibit "G" is a schedule setting forth certain
specific employees of Company who will be assigned by Company as Project
Personnel in the specific capacities indicated next to their respective names.
Company shall not have the right to remove any Project Personnel (or any
permissible replacement for such Project Personnel) unless such Project
Personnel leave the employ of Company or the Project Personnel have received a
promotion to another position. In the event Project Personnel are removed due to
receiving a promotion to another position, Company shall provide access to such
personnel for questions related to the development of the System for a period of
sixty (60) days. Company shall not remove project personnel strictly for the
purposes of staffing projects not related to the development of the System. The
replacement for such Project Personnel must be acceptable to UPS in the exercise
of UPS's discretion. Project Personnel may be temporarily replaced by Company
for vacations, absences due to illness, accident, other events outside of
Company's control and other events scheduled with UPS's prior written approval,
which approval shall not be unreasonably withheld, conditioned or delayed.
Without limiting the foregoing, UPS may not replace UPS Project Manager except
upon prior written notice to Company.

6.3      Replacement of Project Personnel Upon UPS's Request.

         Upon at least five (5) days prior written notice to Company from UPS,
which notice identifies work performance problems with respect to a member of
the Project Personnel, UPS shall be entitled to require Company to replace such
person upon the conclusion of such five (5) day period.

6.4      Indemnification of UPS by Company.

         Company shall defend, indemnify, and hold UPS, and its parent company
and any and all subsidiaries of UPS and its parent company, and their respective
directors, officers, employees, and agents (the "UPS Indemnified Parties"),
harmless from and against any and all claims, losses, damages, judgments, costs,
and expenses (including attorneys' fees and disbursements) which UPS Indemnified
Parties may suffer or incur arising out of or in connection with injuries to
persons (including death) or loss of, or damage to, property, occasioned by the
negligence, unlawful act, or willful misconduct of Company, or of Company's
personnel, subcontractors, or agents.

7        INSURANCE.

         Company shall, at its own cost and expense, obtain and maintain in full
force and effect, with sound and reputable insurers, during the term of this
Agreement, the following insurance coverage's: Worker's Compensation as required
by applicable law; employer's liability with a minimum limit of $100,000.00 of
liability, and not less than $100,000.00 aggregate limit of liability per policy
year for disease, including death at any time resulting therefrom, not caused by
accident; Comprehensive General Liability insurance against all hazards with a
minimum limit of liability for personal injury, including death resulting
therefrom, on an occurrence basis of $1,000,000.00 in the aggregate, and with a
minimum limit of liability for property damage on an occurrence basis of
$1,000,000.00 in the aggregate; and Automobile Liability insurance against
liability arising from the maintenance or use of all owned, non-owned and hired
automobiles and trucks with a minimum limit of liability for bodily injury of
$1,000,000.00 in the aggregate, and with a minimum limit of liability for
property damage of $500,000.00 per accident. Company's insurance shall be deemed
primary. Company shall provide UPS with certificates of insurance evidencing the
coverage required hereunder and naming UPS as an additional insured as its
interests may appear


                                       8
<PAGE>

within thirty (30) days after execution of this Agreement. Each policy required
hereunder shall name UPS as an additional insured as its interests may appear
and shall provide that UPS shall receive thirty (30) days' advance written
notice in the event of a cancellation or material change in such policy. In the
event that any service under this Agreement is to be rendered by persons other
than Company's employees, prior to commencement of service by such person(s),
Company shall arrange to furnish UPS with evidence of insurance for such persons
subject to the same terms and conditions as set forth above and applicable to
Company.

In the event of inability or refusal to furnish such certificates or notice of
the cancellation of any required insurance, UPS may immediately terminate this
Agreement.

UPS warrants that it will maintain similar levels of insurance on behalf of UPS
employees visiting Company locations and shall, upon request by Company, provide
copies of insurance certificates or other appropriate documentation.

8.       DELIVERY AND APPROVAL OF SYSTEM DELIVERABLES.

8.1      General Obligations of Company with Respect to System Deliverables.

         In accordance with the System Timetable and this Section 8, Company
shall develop, complete and deliver to UPS the system deliverables outlined in
the Requirements and Design Document, attached in Exhibit "E" ("System
Deliverable(s)").

8.2      Delivery and Acceptance of System Deliverables.

         In accordance with the System Timetable attached as Exhibit E, Company
         shall develop, complete and deliver to UPS, each System Deliverable.
         Prior to September 1 2001, each System Deliverable shall be classified
         as either a Standard System Deliverable or a Critical System
         Deliverable and for each Critical System Deliverable, a written,
         mutually agreeable Acceptance Plan shall be developed. If this
         requirement is not completed by September 1 2001, UPS may terminate
         this Agreement, in accordance with Section 16.2, upon notice thereof to
         Company without any further obligation to Company hereunder. Upon
         receipt of such notice Company shall immediately refund to UPS all
         monies paid by UPS under this Agreement.

8.2.1    Based upon adherence to the Acceptance Plan, UPS shall accept or reject
         each such Critical System Deliverable within fifteen business (15) days
         or if the timing of UPS's acceptance or rejection is not critical in
         the sense of delaying work on other project components, such time that
         UPS deems appropriate but in no event longer than thirty (30) business
         days from receipt thereof. In the event that UPS rejects any Critical
         System Deliverable, it shall notify Company in writing specifying the
         nature of the deficiencies or inadequacies contained in such Critical
         System Deliverable, in which event the following provisions shall
         apply:

         8.2.1.1  Company shall have a period of fifteen (15) business days from
         receipt of notice in which to correct all deficiencies or inadequacies
         specified by UPS in such document and to resubmit a revised Critical
         System Deliverable to UPS. When timing is not critical in UPS's
         judgment, the preceding requirement shall be a thirty (30) business
         days instead of fifteen (15) business days.

         8.2.1.2  Based upon adherence to the Acceptance Plan, UPS shall accept
         or reject such revised Critical System Deliverable within fifteen (15)
         business days or if the timing is not critical, such time that UPS
         deems appropriate, but in no event longer than thirty (30) business
         days from receipt thereof. In the event that UPS rejects such revised
         Critical System Deliverable, UPS shall notify Company in writing
         specifying the nature of the deficiencies or inadequacies contained in
         such revised draft and further revisions thereof shall continue in
         accordance with this Section 8.2 hereof until such time as UPS approves
         in writing the latest Critical System Deliverable submitted by Company
         (any such time spent by UPS in retesting such


                                       9
<PAGE>

         Critical System Deliverable shall be itemized and reimbursed to UPS by
         Company upon written notice to Company by UPS. In the event that UPS
         rejects such revised Critical System Deliverable a third time, UPS
         shall either notify Company in writing specifying the nature of the
         deficiencies or inadequacies contained in such revised draft and
         further revisions thereof shall continue in accordance with this
         Section 8.2 hereof until such time as UPS approves in writing the
         latest Critical System Deliverable submitted by Company (any such time
         spent by UPS in retesting such Critical System Deliverable shall be
         itemized and reimbursed to UPS by Company upon written notice to
         Company by UPS), or UPS may terminate this Agreement, in accordance
         with Section 16.2, upon notice thereof to Company without any further
         obligation to Company hereunder. Upon receipt of such notice Company
         shall immediately refund to UPS all monies paid by UPS under this
         Agreement.

8.2.2    UPS shall accept or reject each such Standard System Deliverable in the
         reasonable exercise of its discretion within fifteen business (15) days
         or if the timing of UPS's acceptance or rejection is not critical in
         the sense of delaying work on other project components, such time that
         UPS deems appropriate but in no event longer than thirty (30) business
         days from receipt thereof. In the event that UPS rejects any Standard
         System Deliverable, it shall notify Company in writing specifying the
         nature of the deficiencies or inadequacies contained in such Standard
         System Deliverable, in which event the following provisions shall
         apply:

         8.2.2.1  Company shall have a period of fifteen (15) business days from
         receipt of notice in which to correct all deficiencies or inadequacies
         specified by UPS in such document and to resubmit a revised Standard
         System Deliverable to UPS. When timing is not critical in UPS's
         judgment, the preceding requirement shall be a thirty (30) business
         days instead of fifteen (15) business days.

         8.2.2.2  UPS shall accept or reject such revised Standard System
         Deliverable in the reasonable exercise of its discretion within fifteen
         (15) business days or if the timing is not critical, such time that UPS
         deems appropriate, but in no event longer than thirty (30) business
         days from receipt thereof. In the event that UPS rejects such revised
         Standard System Deliverable, UPS shall notify Company in writing
         specifying the nature of the deficiencies or inadequacies contained in
         such revised draft and further revisions thereof shall continue in
         accordance with this Section 8.2 hereof until such time as UPS approves
         in writing the latest Standard System Deliverable submitted by Company
         (any such time spent by UPS in retesting such Standard System
         Deliverable shall be itemized and reimbursed to UPS by Company upon
         written notice to Company by UPS . In the event that UPS rejects such
         revised Standard System Deliverable a third time, UPS shall either
         notify Company in writing specifying the nature of the deficiencies or
         inadequacies contained in such revised draft and further revisions
         thereof shall continue in accordance with this Section 8.2 hereof until
         such time as UPS approves in writing the latest Standard System
         Deliverable submitted by Company (any such time spent by UPS in
         retesting such Standard System Deliverable shall be itemized and
         reimbursed to UPS by Company upon written notice to Company by UPS), or
         UPS may elect to fulfill the deliverable using its own internal
         resources and / or other third parties, in which case UPS's cost will
         be deducted from the Total Project Cost specified in Exhibit F.

8.2.3    UPS's approval of any System Deliverable, including without limitation
         all statements of requirements, specifications, designs, plans, codes
         and procedures, shall not constitute a waiver or modification of
         Company's obligations under this Agreement unless any such waiver or
         modification is expressly stated by the UPS Contract Manager in
         writing.

9.       SYSTEM ACCEPTANCE.

9.1      System Acceptance.

         In accordance with the System Timetable, but not later than September
1, 2001, UPS and Company shall develop a written system acceptance procedure
(the "System Acceptance Procedure"), which will be incorporated


                                       10
<PAGE>

into this Agreement as Exhibit "H", which describes all criteria that System
Deliverables must meet to be acceptable and the procedure that will be applied
by UPS to determine whether each criterion is met. If a mutually agreed upon
System Acceptance Test Procedure cannot be developed prior to the completion of
the System development, the parties shall promptly meet and work diligently
until the parties reach mutual agreement on the Acceptance Procedure. If the
parties cannot agree after a reasonable amount of time, UPS may, at its option,
terminate this Agreement in Accordance with Section 16.2 of this Agreement.

9.2      System Acceptance Procedure.

         Upon acceptance by UPS of all System Deliverables required for Go-Live,
UPS shall carry out the System Acceptance Procedure. In the event the System
passes the System Acceptance Procedure, the UPS Project Manager and UPS Contract
Manger shall provide Company written notification thereof. At this point, the
System will be deemed ready for Go-Live. Final Acceptance shall occur when the
System has operated in successful, live operation for a period of 30 days,
("Final Acceptance"), at which point, the UPS Project Manager and UPS Contract
Manger shall provide Company written notification thereof stating the Final
Acceptance of the System. Any respect in which the System fails to meet the
acceptance criteria provided in the System Acceptance Procedure will be referred
to as a Specification Non-Conformity. The UPS Project Manager and UPS Contract
Manager will provide Company with a written description of any Specification
Non-Conformities. Any Specification Non-Conformities revealed by such test or
re-test after correction by Company shall be promptly corrected, (and
appropriate documentation for such correction produced and delivered to UPS) but
in any event, within ten (10) days, by Company, and as soon as practicable
thereafter, the System shall be resubmitted to testing pursuant to this Section
9.2. In the event that the System fails to pass successfully the System
Acceptance Procedure on the first or any subsequent re-test, the UPS Contract
Manager shall either notify Company in writing specifying the Specification
Non-Conformities and further correction to the System shall be made by Company
in accordance with this Section 9.2 hereof until such time as UPS approves in
writing the latest System Deliverable submitted by Company (any such time spent
by UPS in retesting such System Deliverable shall be itemized and reimbursed to
UPS by Company upon written notice to Company by UPS), or UPS may terminate this
Agreement, in accordance with Section 16.2,upon notice thereof to Company
without any further obligation to Company hereunder. Upon receipt of such notice
from UPS, Company shall immediately refund to UPS all monies paid by UPS under
this Agreement.

9.3      Contract Completion.

         Contract Completion shall occur when System Acceptance and all System
Deliverables scheduled for post Go-Live completion have been accepted by UPS in
accordance with the System Acceptance Procedure.

10.      CHANGES.

         No change order shall be valid unless in writing and signed for UPS, by
the UPS Project Manager and UPS Contract Manager and for Company, by the Company
Contract Manager and Company Project Manager. No additional payment by UPS shall
be due to Company for any change from the agreed upon Requirements, Design
Document, specifications or scope of the System or the work plans, or project
schedules unless the change affects Company's cost of the System in excess of
_____________and is set forth in a change order signed by the Project Manager
and Contract Manager of each party.

11       PARTICIPATION OF UPS PERSONNEL.

11.1     Assistance by UPS Personnel.

         In order to facilitate the development by UPS personnel of an
understanding of the System, UPS shall have the right, but not the obligation,
to direct any number of its employees to assist Company in the performance of
any of Company's obligations hereunder; provided, however, that any such
assistance shall not relieve Company of


                                       11
<PAGE>

responsibility for the performance of any such obligation. Company shall
cooperate fully with UPS in carrying out the intent of this Section 11.1. To the
extent Company finds UPS's exercise of this Paragraph 11.1 a cause for delay or
additional costs in fulfilling its obligations under this Agreement, it will so
inform UPS, requesting appropriate adjustments. If UPS does not agree thereto,
the parties will promptly meet and work diligently and in good faith to reach
agreement on the issue. If no agreement can be met, the Dispute Resolution
procedure defined within this Agreement shall prevail.

11.2     UPS Audit Rights.

UPS shall have the right from time to time upon five business days notice to
Company to inspect all of the books and records of Company necessary to verify
the accuracy of any invoice submitted by Company, such inspection being only for
such verification. Any such audit shall be conducted at Company's place of
business on at least 15 business days prior written notice, during Company's
normal business hours and at UPS's expense, provided that all costs incurred by
UPS in conducting any such audit shall be reimbursed by Company in the event
that such audit reveals an aggregate discrepancy in any invoice or cumulative
invoices not previously audited by UPS pursuant to this Section of more than ten
thousand Dollars ($10,000.00). Personnel performing such audits will be subject
to the confidentiality provisions of this Agreement

12.      WARRANTY

12.1     Company warrants that: (a) Company is the owner of the Licensed
Software or has the absolute right to license or sublicense the Licensed
Software in accordance with this Agreement; (b) neither the Licensed Software or
the System or UPS's use of the Licensed Software or System will infringe any
copyright, trademark, trade secret, U.S. patent or any other proprietary right
of any third party; (c) the version of the Licensed Software or System delivered
to UPS is an accurate copy of the most current version of the Licensed Software
or System as of the date of delivery.

         The Company warrants that the System shall be free from defects in
title.


12.2     In addition to the warranties set forth in paragraph 12.1, which shall
be unlimited as to time, Company hereby warrants and represents to UPS that for
a period of twelve (12) months from successful completion of the System
Acceptance Procedure (the "Warranty Period"):

         (a) the System shall operate without Specification Non-Conformities and
         that the system shall be free from defects in title, material,
         workmanship and design and of no less than the highest quality
         standards in the industry;

         (b) the System shall be in compliance with the Requirements and the
         quality, description, and functional requirements set forth in or
         applicable to this Agreement; and shall be merchantable and fit for the
         purpose and use specified in this Agreement.

         (c) the System shall satisfy all Acceptance Criteria identified in the
         Acceptance Test Procedure as described in Exhibit "H".

         (d) UPS shall look to the providers of the Third Party Software and
         Third Party Hardware for warranty coverage with respect to those items;
         however, Company warrants that when functioning in accordance with
         their respective specifications, the Third Party Software and Third
         Party Hardware will adequately perform their functions within the
         System.

         (e) The Company warrants that all services provided hereunder shall be
         provided in a workman-like and responsive manner and shall conform to
         the highest industry standards. The Company makes no warranty under
         this Agreement, however, with respect to any software programming or
         development services performed by UPS or any third party.


                                       12
<PAGE>


12.3     If, within the Warranty Period, UPS gives Company written notice of a
Specification Non-Conformity contained in the System, Company will, upon receipt
of such notice and at Company's expense, investigate such Specification
Non-Conformity according to the Service Levels specified in Exhibit J. In the
event Company is unable to correct a Specification Non-Conformity within
specified Service Levels, Company will so notify UPS and provide details of the
circumstances that prevent correction.

If Third Party Software or Third Party Hardware is the cause for Specification
Non-Conformities, Company will, use reasonable commercial efforts to design and
implement a fix to the Specification Non-Conformities. If such fix is not
sufficient to allow the System to operate without Specification
Non-Conformities, Company will recommend and assist UPS in identifying,
procuring, and implementing alternate Third Party Software or Third Party
Hardware within ten (10) days.

In the event Company does not or cannot correct such Specification
Non-Conformity within the Service Levels specified in Exhibit J and fails to
reasonably justify such inability, UPS may either make such correction or
contract therefor with others, and Company shall pay UPS the proven costs
thereof.

12.4       Support

         Company shall make available to UPS Company Project Personnel approved
by UPS to support the System on an on going basis. Those Project Personnel or
UPS approved substitute personnel will be made available to UPS for a period not
less than seven (7) years and subject to the rates and other terms specified in
Exhibit F.

12.5     Miscellaneous.

         12.5.1. (a) In addition to the foregoing, Company warrants that:

         (i) The Licensed Software and System, as delivered by Company, do not
         and will not contain any codes, commands or instructions, including
         viruses, time bombs, worms, and trojan horses, that may, or may be used
         to, access, alter, delete, damage or disable the Licensed Software or
         System, other products, UPS information or other UPS property.

         (ii) The media on which the Licensed Software or System resides will be
         free from defects in material and workmanship when delivered by
         Company.

(b) Company warrants and represents that all products and services provided by
Company to UPS or used by Company pursuant to this Agreement are or will be Year
2000 Compliant prior to the date of this Agreement regardless of whether such
Systems are owned by Company or by third party providers or suppliers.

Definitions.

12.5.2. For the purposes of the Agreement, "Year 2000 Compliant" and "Year 2000
Compliance" mean:

         (a)      the interface functionality, calculations, comparisons,
                  extraction, management, manipulation, output, sequencing,
                  recording, storing, processing and other computing processes
                  provided by the System (collectively, "Processes") accurately
                  perform in a consistent manner regardless of the date in time
                  on which the Processes are actually performed and regardless
                  of any data or input which represents a date or includes an
                  indication of or reference to a date, part of a date or time
                  period ("Date Data") whether such Processes are performed
                  before, on, during or after January 1, 2000;


                                       13
<PAGE>

         (b)      the Processes respond to two-digit year-date input in a manner
                  that resolves any ambiguities as to century in a defined and
                  predetermined manner; and

         (c)      the Processes store and display date information in ways that
                  are unambiguous as to the determination of the century.

         12.5.3.  All of Company's critical internal systems and all interfaces
         with all of Company's critical Systems do now, or prior to the date of
         the Agreement will be able to, manage and manipulate Date Data without
         causing an abnormal ending scenario or generating incorrect value
         involving such dates; and Company has identified its critical supply
         chain and has obtained reasonable assurances from critical suppliers
         that they will be able to continue to supply Company products and
         services as the Year 2000 is approached and reached.

         12.5.6.  Compliance Indemnity. If the System interfaces or is used in
         conjunction with the products, services, software or other technology
         of a third party (the "Third Party Interface"), and the System causes
         the Third Party Interface to fail as a result of Company's breach of
         the warranties contained herein, Company agrees to indemnify and hold
         UPS and its shareholders, officers, directors, employees, agents,
         successors, and assigns harmless from and against any and all claims,
         suits, actions, liabilities, losses, costs, reasonable attorneys' fees,
         expenses, judgments or damages, whether ordinary, special or
         consequential, resulting from any third party claim made or suit
         brought against the UPS or such persons. This remedy shall be in
         addition to UPS's other indemnification rights set forth in the
         Agreement.

         12.5.7.  Corrections. Company shall, at its expense, commit the
         resources necessary to correct any nonperformance, error or defect in a
         timely manner as specified in Exhibit J and commensurate with the
         nature of harm to UPS caused by the nonperformance, error or defect,
         and shall deliver the correction to UPS in accordance with the Service
         Levels specified in Exhibit J. If Company fails to correct the
         nonperformance, error or defect within the Service Levels specified in
         Exhibit J, after UPS has apprised Company of the problem, in writing,
         or if the Systems do not meet the Year 2000 Compliance as determined by
         UPS in its sole discretion, then UPS may terminate, without liability
         on behalf of UPS, part or all of UPS's obligations under the Agreement.
         Year 2000 Compliance shall be deemed included under any maintenance and
         support provisions contained in the Agreement or in a separate
         maintenance agreement, if any, all at no additional charge to UPS.

13       INTELLECTUAL PROPERTY RIGHTS

         A.  PROPRIETARY RIGHTS

Except for (i) Company Property, (ii) Licensed Software, documentation and other
VISaer intellectual property developed by Company before, during and after this
Agreement unless such intellectual property is directly commissioned and paid
for by UPS as Custom Software, and (iii) Jointly Owned Software for which the
rights defined herein shall equally vest with Company and UPS , all right, title
and interest in and to the software (source and object codes) and documentation,
including, but not limited to drawings, plans, and specifications, and copies
thereof prepared and furnished by Company hereunder (for the purposes of this
Agreement, the Software (source and object codes), documentation and other items
referenced above shall be collectively referred to as "Documents") including all
copyright and other proprietary rights therein, shall vest in UPS. Neither
Company nor any of its employees, agents, subcontractors, suppliers or vendors
shall, without the prior written consent of UPS, use such Documents on any other
project in which such Party is or may become engaged. Company expressly
acknowledges that the parties have agreed that all aspects of the Documents and
all work in process in connection therewith are to be considered "works made for
hire" within the meaning of the U.S. Copyright Act, (the "Act"), and that UPS is
to be the "author" within the meaning of such Act. All right, title, and
interest in the Documents shall vest in UPS upon creation thereof and shall be
owned exclusively by UPS at its creation, and Company hereby expressly disclaims
any interest in any of them. In the event (and to the extent) that the Documents
created by Company hereunder or any part or element thereof is found as a matter
of law not to be a "work made for hire"


                                       14
<PAGE>

within the meaning of the Act, Company hereby conveys and assigns to UPS the
sole and exclusive right, title and interest to all such Documents without
further consideration, and agrees to assist UPS (at UPS's cost) to register, and
from time to time to enforce, all copyrights and other rights and protections
relating to the Documents created hereunder in any and all countries. With the
exception of Licensed Software, Company acknowledges and agrees that UPS and its
licensors, licensees, or other persons, as applicable, retain all right, title
and interest in and to all other software incorporated into the System, as
identified or described in the Requirements, together with the technology
incorporated therein, and including all patent, copyright, trademark and other
proprietary rights therein.

         B.       DEVELOPED TECHNICAL INFORMATION

Except for (i) Company Property, (ii) Licensed Software documentation and other
VISaer intellectual property developed by Company before, during and after this
Agreement unless such intellectual property is directly commissioned and paid
for by UPS, , and (iii) Jointly Owned Software for which the rights defined
herein shall equally vest with Company and UPS, Company agrees to disclose and
promptly furnish UPS any and all information developed in furthering the
Requirements and in developing the System Deliverables, computer or other
specifications, documentation, works of authorship or other creative works,
ideas, knowledge, or data, written, oral or otherwise expressed, originated by
Company or by one or more of Company's employees, subcontractors, consultants,
representatives or agents ("Associates") as a result of work ("Work") performed
under or in anticipation of this Agreement ("Technical Information"). UPS shall
own all right, title and interest in and to the Technical Information created by
Company hereunder, including all copyrights and proprietary rights therein.
Company expressly acknowledges that the Parties have agreed that all aspects of
the Technical Information and all work in process in connection therewith are to
be considered "works made for hire" within the meaning of the Act, and that UPS
is to be the "author" within the meaning of such Act. All such copyrightable
Technical Information, as well as all copies of such Technical Information, in
whatever medium fixed or embodied, shall be owned exclusively by UPS as its
creation, and Company hereby expressly disclaims any interest in any of them.

In the event (and to the extent) that the Technical Information created by
Company hereunder or any part or element thereof is found as a matter of law not
to be a "work made for hire" within the meaning of the Act, Company hereby
conveys and assigns to UPS the sole and exclusive right, title and interest
in/and to all such Technical Information, and all copies of any of them, without
further consideration, and agrees to assist UPS to register, and from time to
time to enforce, all copyrights and other rights and protections relating to the
Technical Information created hereunder in any and all countries. Company shall
place a copyright notice in favor of UPS on the Technical Information at UPS's
request.

         C.       INVENTIONS

Except for (i) Company Property, (ii) Licensed Software documentation and other
VISaer intellectual property developed by Company before, during and after this
Agreement unless such intellectual property is directly commissioned and paid
for by UPS, , and (iii) Jointly Owned Software for which the rights defined
herein shall equally vest with Company and UPS, Company agrees that if any
inventions, discoveries, or improvements are conceived, first reduced to
practice, made or developed as a direct result of the work performed under this
Agreement by Company or by one or more of Company's Associates, Company hereby
assigns and agrees to assign to UPS all of Company's and its Subcontractors'
entire right, title and interest in and to such inventions, discoveries or
improvements, and any patents that may be granted thereon in any country of the
world ("Inventions"). Company shall promptly share with UPS all information
relating to any Inventions. Company agrees that it will promptly have its
Associates sign all papers and, without charge to UPS, do all acts which may be
necessary, desirable or convenient to enable UPS at its expense to file and
prosecute applications for patents on such Inventions, and to maintain patents
granted thereon. Company also agrees to acquire from its Associates who perform
Work hereunder, such assignments, rights and covenants as may be necessary to
assure that UPS shall receive the rights provided for in this Section 13(C).


                                       15
<PAGE>

         D.  LICENSE TO PRE-EXISTING TECHNOLOGY

If the System includes or requires the use of inventions or materials previously
made, developed or copyrighted by Company or others, and not originated or
developed for purposes of the Agreement ("Pre-existing Technology"), then
Company hereby grants to UPS a fully paid-up, world-wide, perpetual,
non-exclusive license to make, use, have made, copy, modify, display,
reconstruct, repair, prepare derivative works, reproduce, publish, distribute
(for UPS' use only), install and perform the Pre-existing Technology, to the
extent necessary to effectively use the System. The license so granted to UPS
includes, subject to the License Grant defined within this Agreement, the right
to grant to any affiliate of UPS royalty-free licenses to make, use, have made,
copy, modify, display and perform the Pre-existing Technology, consistent with
the provisions of this Section 13(D).

13.2     Confidentiality

         Both parties acknowledge that Company and UPS are the owners of
valuable trade secrets and are in possession of other confidential information
licensed from third parties. Company and UPS shall not disclose to third parties
or use any non-public information and data obtained in connection with this
Agreement or otherwise, except to the extent permitted by the owner of such
trade secrets and/or confidential information or to the extent necessary for UPS
or its affiliates to effectively use the System or for Company to develop the
System for use by UPS.

14       RESTRICTIONS ON PUBLICITY AND RIGHT OF COMPANY TO DEVELOP COMPARABLE
         SYSTEMS.

14.1     Prohibition on Publicity.

         Company shall not use the name or logo of UPS, or any abbreviation or
adaptation thereof, in any advertising, trade display, client list, or public
statement, or for any other commercial purposes without the prior written
consent of UPS.

14.2     Exclusivity

         During the term of this Agreement and for a period of three (3) years
following the termination of this Agreement for any reason whatsoever, Company
shall not provide consulting or other services to the list of companies
identified on Exhibit C as it relates to Jointly Owned Software. UPS reserves
the right to modify the list contained in Exhibit C every three months to
include other companies whose primary business is similar to and directly
competitive to those companies listed in Exhibit C.

         14.2.1   The restrictions set forth in this clause shall be included in
all subcontracts entered into for the performance of any services under this
Agreement. Any such subcontractors shall be approved by UPS prior to starting
work. Company shall identify any subcontractors that does not agree to be bound
by the clause, at which point, UPS may elect to have the subcontractor removed
from the project, but must do so with the understanding that deliverable
schedules may need to be revised.

14.3     Survival of Obligations and Right to Equitable Relief.

         Company's obligations and UPS's rights under this Section 14 shall
survive any expiration or termination of this Agreement for any reason
(including without limitation termination by Company for a material breach by
UPS of its obligations hereunder) unless this Agreement is terminated by reason
of a default by UPS. Company hereby acknowledges and agrees that UPS's remedies
at law for a breach by Company of its obligations under this Section 14 will be
inadequate and that UPS shall, in the event of any such breach, be entitled to
equitable relief (including without limitation preliminary and permanent
injunctive relief and specific performance), in addition to all other remedies
provided hereunder or available at law.


                                       16
<PAGE>

15       PROPRIETARY RIGHTS INDEMNITY.

         If any third party claims or asserts in any suit, action, proceeding,
or otherwise, that UPS's or any UPS affiliate's use of the System or any portion
thereof infringes or violates any copyright trademark, trade secret, U.S.
patent, or other third party proprietary right, UPS shall promptly notify
Company thereof, and Company shall, at its own expense, defend such action and
indemnify and hold harmless UPS or such UPS affiliate from and against any and
all claims, losses, damages, judgments, costs, and expenses (including
attorneys' fees and disbursements) arising therefrom or caused thereby. Company
shall permit UPS to participate in such defense at UPS' expense, if UPS so
desires, and Company shall not settle any such action without the prior written
consent of UPS, which consent shall not be unreasonably withheld, conditioned or
delayed. If UPS or any UPS affiliate is enjoined from using the System or any
portion thereof, Company shall promptly, at its expense, either (a) procure for
UPS or such UPS affiliate the right to use the System or portion thereof, the
use of which is enjoined; or (b) modify the same so that it is no longer
infringing, but still performs the same functions.

         If, despite exercising its best efforts, Company is unable to
accomplish one of the foregoing measures, UPS may immediately terminate this
Agreement effective upon written notice to Company, reserving cumulatively all
other rights and remedies available at law and in equity, and Company shall
promptly refund to UPS all monies paid for the System reduced by the reasonable
value of the period of use of the System determined by amortizing the monies
paid over a period of ten (10) years using straight line depreciation method.

         The foregoing indemnity is subject to the following requirements: (a)
that Company is given prompt notice of the claim, but the failure to give such
notice shall only relieve Company from liability hereunder to the extent of the
actual damage suffered by Company as a result of such failure; (b) Company is
given immediate and complete control over the defense and/or settlement of the
claim, and UPS fully cooperates with Company in such defense and/or settlement;
(c) UPS does not prejudice in any manner Company's conduct of such defense; and
(d) the alleged infringement is not based upon the use of the System in a manner
prohibited under this Agreement, in a manner for which the System was not
designed, or in a manner not in accordance with its specifications.

         Company shall have no liability for any claim of infringement based on
(a) the use of a superseded or altered version of the System if infringement
would have been avoided by the use of a current or unaltered version of the
System which Company made available to UPS; or (b) the combination, operation or
use of the System with software, hardware or other materials not furnished or
recommended by Company.

         The foregoing states Company's entire obligation and liability with
respect to the infringement of any property right.

16       TERMINATION

16.1     Termination for Convenience

         UPS shall have the right to terminate this Agreement with or without
cause at any time whether or not Company is in default. Such termination will be
effective within five (5) days of receipt of written notice of termination by
Company. Company shall forward to UPS all completed or uncompleted work
products, documentation and deliverables within fifteen days of receiving such
notice. Company shall be entitled to payment with respect to provable charges
and fees earned and reimbursable expenses incurred (including those for which
Company is reasonably contractually bound) up to the effective date of the
termination, provided that Company agrees to stop all work to the extent
specified in the notice, and incur no further expense beyond those authorized in
such notice. Provable charges shall include hours worked billed at the company
hourly rate, defined in Exhibit F,


                                       17
<PAGE>

plus any reimbursable out of pocket expenses approved per Section 5. Provable
charges with respect to any Company staff terminated due to UPS's decision to
terminate this Agreement shall be limited to salary necessary to give fifteen
(15) calendar days notice. If expenses are less than amounts prepaid by UPS,
Company shall promptly return the difference to UPS.

16.2     Termination for Default

         In the event that either party;

(a)      breaches a material provision of this Agreement and fails to cure such
         breach within thirty (30) days after the non-breaching party notifies
         the breaching party thereof;

(b)      ceases conducting business in the ordinary course;

(c)      becomes insolvent;

(d)      makes a general assignment for the benefit of creditors;

(e)      suffers or permits the appointment of a receiver for its business or
         assets;

(f)      avails itself of, or becomes subject to, any proceeding under the
         federal bankruptcy laws or any statute of any state relating to
         insolvency or the protection of the rights of creditors (and, in the
         case of an involuntary bankruptcy, insolvency or receivership
         proceeding there is entered an order for relief, an order appointing a
         receiver or some similar order or decree and the affected party does
         not succeed in having such order lifted or stayed within sixty (60)
         days from the date of its entry),

(g)      discontinues support services as provided for herein.

then the non-breaching party may terminate this Agreement by notifying the
breaching party thereof, and this Agreement shall, from that time on, terminate
and be of no further force or effect. Unless a refund has been awarded to UPS
pursuant to Sections 8 or 9 of this Agreement, Company shall forward to UPS all
completed or uncompleted work products, documentation, System Deliverables,
Licensed Software, Jointly Owned Software, Third Party Software, Technical
Information and Inventions, and Third Party Hardware for which UPS has made
payment within fifteen days of receiving such termination notice.

16.3     Termination by UPS

For a period of one (1) year from the Final Acceptance as defined in Section 9.2
of this Agreement, without the written consent of UPS, which consent shall not
be unreasonably withheld, conditioned or delayed, Company shall not (a) sell
substantially all of its assets or business to an unrelated third party; (b)
sell more than 50% of the capital stock or other securities of Company on a
fully diluted basis having voting power to an unrelated third party; or (c)
merge with an unrelated third party in a transaction in which Company is not the
surviving entity.

16.4     Effect of Termination

         UPS may terminate this Agreement upon the occurrence of those events
         described in, and in accordance with, Sections 3.4, 8.2, 9, 11.1, 12.3,
         15, 16.1, 16.2 and 16.3.

17.      NO ASSIGNMENT.

         Neither party may assign any of its rights or delegate any of its
duties pursuant to this Agreement without the prior written consent of the
other, and any attempted assignment without such consent shall be void.
Notwithstanding the foregoing, (i) UPS may assign this Agreement to its parent
company or any now-existing or


                                       18
<PAGE>

future direct or indirect subsidiary of such parent company upon prior notice to
Company without such consent and (ii) with prior UPS written consent, which such
consent shall not be unreasonably withheld, conditioned or delayed, Company may
assign this Agreement to any person or entity acquiring all or substantially all
of the business of the Company.

18       MISCELLANEOUS.

18.1     Cumulative Remedies.

         No remedy made available to either party hereunder is intended to be
exclusive of any other remedy (unless explicitly so provided), and each and
every remedy shall be cumulative and shall be in addition to every other remedy
provided hereunder or available at law or in equity.

18.2     Notices.

         Except as otherwise expressly specified herein, any notice required or
permitted to be given hereunder shall be given in writing to the parties at
their respective addresses first set forth above, or at such other addresses as
shall be specified in writing by either of the parties to the other by personal
delivery, registered or certified mail, return receipt requested, telegram,
telex, telecopier or UPS Next Day Air in accordance with the terms and
conditions of this Section 18.2. If by personal delivery, registered or
certified mail, return receipt requested, or UPS Next Day Air, the date upon
which such notice is so personally delivered (or if notice is given by
registered or certified mail, the date that is three (3) business days from
sending, or if by telegram or telex or telecopier, the date of receipt) shall be
deemed to be the date of such notice, irrespective of the date appearing
thereon.

18.3.    Captions.

         Captions used herein are for convenience only and shall not be deemed a
part of this Agreement or be used to construe the meaning of any of the
provisions hereof.

18.4     Counterparts.

         This Agreement may be executed in one or more counterparts each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

18.5     Waiver

         Performance of any obligation required of a party hereunder may be
waived only by a written waiver signed by the other party, which waiver shall be
effective only with respect to the specific obligation described therein.

18.6     Entire Agreement.

         This Agreement and all attachments designated herein constitute the
entire understanding and contract between the parties hereto and supersede any
and all prior or contemporaneous oral or written representations or
communications with respect to the subject matter hereof, all of which
communications are merged herein. This Agreement shall not be modified, amended
or in any way altered except by an instrument in writing signed by both of the
parties hereto. All amendments or modifications of this Agreement shall be
binding upon the parties despite any lack of consideration so long as the same
shall be in writing and executed by the parties hereto.


                                       19
<PAGE>

18.7     Severability of Provisions.

         In the event that any provision hereof is found invalid or
unenforceable pursuant to judicial decree or decision of arbitrators pursuant to
Section 20(B), the remainder of this Agreement shall remain valid and
enforceable according to its terms to the fullest extent possible.

18.8     Benefit of Successors and Assigns.

         This Agreement shall be binding upon and inure to the benefit of each
of the parties hereto and, except as otherwise provided herein, their respective
legal successors and assigns.

18.9     Relationship of Parties.

         Nothing contained in this Agreement shall be construed as creating a
joint venture, partnership or employment relationship between the parties
hereto, nor shall either party have the right, power or authority to create any
obligations or duty, express or implied, on behalf of the other party hereto.

Notwithstanding the above, Company grants UPS the right to attend and observe
the Company's Board of Directors meetings other than executive sessions. Company
shall extend UPS an invitation to attend and participate in such meetings that
will occur a minimum of 4 times per year. Company agrees that UPS can recommend
an industry expert to be such observer.

18.10    Excused Performances.

         Neither party shall be deemed to be in default of or to have breached
any provision of this Agreement as a result of any delay, failure in performance
or interruption of service, resulting directly or indirectly from acts of
nature, acts of God, acts of civil or military authority, civil disturbance,
war, fires, laws, regulations, acts or order of any government agency or
official thereof.

18.11    Governing Law.

         This Agreement shall be construed and enforced in accordance with the
laws of the State of Georgia, excluding any choice of law, rules or provisions.

18.12    Attorneys' Fees.

         The prevailing party shall be entitled to recover its reasonable
attorneys' fees and costs actually incurred in connection with any action or
proceeding between Company and UPS arising out of or related to this Agreement.

19       GENERAL SERVICES.

19.1     Support Services.

Company shall during the first year following the Warranty Period provide the
Support Services as set forth in this Section 19 to those UPS employees
specifically authorized by UPS, in writing, to request support services
("Authorized Support Contacts"). UPS will cause Authorized Support Contacts to
trained in and familiar with the use of the System.

Company shall provide UPS with the Support Services described in this Section
19, and further described in Exhibit J, via a US toll free telephone number
twenty-four (24) hours per day.

For the purposes of this Agreement, if the Licensed Software and/or the System
fails to perform in accordance with its published documentation and
specifications, a "Specification Non-Conformity" shall be deemed to exist.


                                       20
<PAGE>

Company shall provide Support Services, appropriate to the level of Severity as
defined in Exhibit J, required to correct such Specification Non-Conformity,
which includes, but is not limited to, correcting, revising or replacing the
Licensed Software and/or the System if either Company or UPS discovers a
Specification Non-Conformity.

Company shall provide all Support Services required to successfully resolve any
request for assistance of any nature in connection with, but not limited to, the
use, operation, or business functionality of, the Licensed Software and/or the
System ("Request for Assistance") that may arise.

Upon receipt of UPS's oral or written notification of a Specification
Non-Conformity in a current unaltered release of the Licensed Software and/or
the System, Company will provide support and problem resolution services
according to the Service Levels defined in Exhibit J.

Support Services shall include the provision to UPS of all updates and
enhancements to the Licensed Software and/or the System within 90 days of the
date when such updates and enhancements have been made generally available to
the public.

Support Services provided hereunder shall automatically terminate at the end of
the twelve- (12) month period stated above unless UPS authorizes renewal.
Notwithstanding the foregoing, Company shall provide UPS ninety (90) days' prior
written notice of the expiration of each Support Services term. Such notice
shall include the applicable renewal fees. Any such renewal fee shall not
increase more than five percent (5%) of the previous term.

19.2     Training.

Training shall be provided as described in the Proposal.

20.      Dispute Resolution.

(A). Mediation. If a dispute arises out of or related to this Agreement or the
breach thereof and if the dispute cannot be settled through negotiation, the
parties agree first to try in good faith to settle the dispute by mediation
administered by the American Arbitration Association ("AAA") under its
Commercial Mediation Rules before resorting to arbitration.

(B). Arbitration. In the event that a settlement cannot be reached through
Mediation, and subject to the limitations imposed by all applicable statutes of
limitation, either party shall have the right to submit the dispute to
arbitration by serving a demand for arbitration in writing on the other party
and filing same with the AAA.

The parties agree that all disputes, claims or causes of action arising out of
or relating to this Agreement, or the validity, interpretation, breach,
violation, or termination thereof, shall be finally and solely determined and
settled by arbitration to be conducted in Kentucky in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in effect
at the date of execution of this Agreement.

Any arbitration commenced pursuant to this Section 20(B) shall be conducted by a
panel of three neutral arbitrators. These arbitrators shall have a minimum of
three years' commercial experience with information systems contracts and
Intellectual Property, including, but not limited to, Patents, Trade Secrets,
Trademarks and Copyrights.

In the event of any inconsistencies between the terms and conditions of this
Agreement and those of the Commercial Arbitration Rules of the AAA, the terms
and conditions of this Agreement shall control.


                                       21
<PAGE>

21.      FUTURE PRICING.

         UPS may at any time, up to one (1) year after "Go-Live", purchase the
Company owned software products or services from Company, as described in the
Proposal, at the price defined in Exhibit F below.

22.      SURVIVAL

         Notwithstanding the termination or expiration of this Agreement, the
following Sections, Attachments and Exhibits of this Agreement shall survive any
such termination or expiration:

6.4   Indemnification of UPS by Company
12    Warranty
13    Intellectual Proprietary Rights
14    Restrictions on Publicity and Rights of Company to Develop Comparable
      Systems
15    Proprietary Rights Indemnity
18.1  Cumulative Remedies
18.5  Waiver
18.7  Severability of Provisions
18.8  Benefit of Successors and Assigns
18.11 Governing Law
20    Dispute Resolution

23.      LIMITATION OF LIABILITY

          UPS shall not be liable to Company for any special, direct, indirect,
punitive, or consequential damages arising out of this Agreement, even if
advised in advance of the possibility of such damages.

24.      DELIVERY OF SYSTEM

         Company shall deliver to UPS the System via an electronic data
         interface. In the event that an electronic data interface is not
         available, Company shall deliver the System to the following address:

         United Parcel Service
         911 Grade Lane
         Louisville, KY 40213
         Attn:  Dick Deats, UPS 7x24 Project Manager


                                       22
<PAGE>


         IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first above written.




UNITED PARCEL SERVICE                     VISAER, INC.
GENERAL SERVICES CO.


- ---------------------------               --------------------------------------
Signature                                 Signature


- ---------------------------               --------------------------------------
Name                                      Name


- ---------------------------               --------------------------------------
Title                                     Title


- ---------------------------               --------------------------------------
Date                                      Date



                                       23
<PAGE>

                                LIST OF EXHIBITS

NOTE: THE FOLLOWING EXHIBITS ARE NOT FILED HEREWITH BUT WILL BE PROVIDED
SUPPLEMENTALLY BY THE REGISTRANT ON THE REQUEST OF THE SECURITIES AND EXCHANGE
COMMISSION.

The following described documents, whether attached hereto or not, are hereby
incorporated into this Agreement as though fully set forth herein.

         Exhibit "A"           Requirements
         Exhibit "B"           Design Document
         Exhibit "C"           Competitor List
         Exhibit "D"           UPS Incentives (VISaer Letter Oct. 11, 2000)
         Exhibit "E"           System Timetable
         Exhibit "F"           Pricing
         Exhibit "G"           Project Personnel
         Exhibit "H"           System Acceptance Procedure
         Exhibit "I"           Definitions
         Exhibit "J"           Response Time Metrics for VISaer 7 x 24 Support
         Reference Document    Project Plan




                                       24

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>5
<FILENAME>g74809ex10-6.txt
<DESCRIPTION>WARRANT TO PURCHASE COMMON STOCK
<TEXT>
<PAGE>

December 7, 2001

                                                                    EXHIBIT 10.6

THE SALE AND ISSUANCE OF THIS WARRANT AND THE SECURITIES REPRESENTED BY THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER THE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION.
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE DISTRIBUTION THEREOF. THESE SECURITIES MAY NOT BE OFFERED,
SOLD, PLEDGED, OR TRANSFERRED UNLESS (i) A REGISTRATION STATEMENT UNDER THE ACT
IS IN EFFECT AS TO THESE SECURITIES AND SUCH OFFER, SALE, PLEDGE, OR TRANSFER IS
IN COMPLIANCE WITH APPLICABLE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION
OR (ii) THERE IS AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY
TO THE COMPANY, THAT AN EXEMPTION THEREFROM IS AVAILABLE AND THAT SUCH OFFER,
SALE, PLEDGE, OR TRANSFER IS IN COMPLIANCE WITH APPLICABLE SECURITIES LAW OF ANY
STATE OR OTHER JURISDICTION.

WARRANT NO. UPS-1                                              11,930,160 SHARES
                                                         (subject to adjustment)

WARRANT DATE: December 7, 2001

                        WARRANT TO PURCHASE COMMON STOCK

                                       OF

                                  VISAER, INC.

                          Void after December 31, 2006

This certifies that for value received, UNITED PARCEL GENERAL SERVICES CO., or
registered assigns (the "Holder") is entitled, subject to the terms set forth
below, to purchase from VISAER, INC., a Delaware corporation (the "Company")
Eleven Million Nine Hundred Thirty Thousand One Hundred Sixty (11,930,160)
shares (the "Warrant Shares") of the Common Stock, $0.001 par value per share,
of the Company (the "Common Stock") upon surrender hereof, at the principal
office of the Company referred to below, with the subscription form attached
hereto duly executed, and simultaneous payment therefor in lawful money of the
United States or otherwise as hereinafter provided, at the Exercise Price set
forth in Section 2 below. The number, character and Exercise Price of such
shares of Common Stock are subject to adjustment as provided below. The term
"Warrant" as used herein shall include this Warrant and any warrants delivered
in substitution or exchange therefor as provided herein.

This Warrant is issued in connection with that certain 7x24 Agreement made as of
June 12, 2001 between the Company and United Parcel Service General Services Co.
("UPS") and is effective as of the date set forth above (the "Warrant Issue
Date").

1.       EXERCISE TERM OF WARRANT. Subject to the terms and conditions set forth
         herein, this Warrant shall be exercisable, in whole or in part, during
         the term commencing on July 2, 2004 and ending at 5:00 p.m., Eastern
         Time on the thirty first (31st) day of December, 2006, and shall be
         void thereafter. For purposes of this Warrant, a "person" shall be
         deemed to include natural persons, firms, corporations, partnerships,
         associations, joint ventures, joint stock companies, trusts,
         unincorporated organizations and any other private or public entities,
         whether or not any of the foregoing are acting on their behalf or in a
         representative capacity. Notwithstanding the foregoing, in the event
         that the Company is required under Section 16 of the 7x24 Agreement to
         return to UPS or any of its affiliates moneys paid to the Company, then
         this Warrant shall terminate without further action of the Company or
         the Holder on the date of such payment.


                                                                    Page 1 of 13
<PAGE>

December 7, 2001

2.       EXERCISE PRICE. The Exercise Price at which this Warrant may be
         exercised shall be equal to two and twenty-four hundredths cents
         ($0.0224) per share. The Exercise Price shall be subject to adjustment
         as provided below.

3.       EXERCISE OF WARRANT.

         (a)      The purchase rights represented by this Warrant are
                  exercisable by the Holder in whole or in part at any time, or
                  from time to time, during the term hereof as set forth in
                  Section 1, above, by the surrender of this Warrant and the
                  Notice of Exercise attached as Annex I hereto duly completed
                  and executed on behalf of the Holder, at the principal office
                  of the Company (or such other office or agency of the Company
                  as it may designate by notice in writing to the Holder at the
                  address of the Holder appearing on the books of the Company),
                  upon payment by cashier's check payable to the Company or by
                  wire transfer of the purchase price of the shares to be
                  purchased.

         (b)      This Warrant shall be deemed to have been exercised at 5:00
                  p.m. Eastern Time on the date of its surrender for exercise as
                  provided above, and the person entitled to receive the shares
                  of Common Stock issuable upon such exercise shall be treated
                  for all purposes as the holder of record of such shares at
                  such date and time. As promptly as practicable on or after
                  such date and in any event within ten (10) days thereafter,
                  the Company at its expense shall issue and deliver to the
                  person or persons entitled to receive the same a certificate
                  or certificates for the number of shares issuable upon such
                  exercise. In the event that this Warrant is exercised in part,
                  the Company at its expense shall execute and deliver a new
                  Warrant of like tenor exercisable for the number of shares for
                  which this Warrant may then be exercised.

4.       NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
         representing fractional shares shall be issued upon the exercise of
         this Warrant. In lieu of any fractional share to which the Holder would
         otherwise be entitled, the Company shall make a cash payment equal to
         the Fair Market Value per share of Common Stock multiplied by such
         fraction.

5.       REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
         to the Company of the loss, theft, destruction or mutilation of this
         Warrant and, in the case of loss, theft or destruction, on delivery of
         an indemnity agreement reasonably satisfactory in form and substance to
         the Company or, in the case of mutilation, on surrender and
         cancellation of this Warrant, the Company at its expense shall execute
         and deliver, in lieu of this Warrant, a new warrant of like tenor and
         amount.

6.       RIGHTS OF STOCKHOLDERS. Subject to Sections 9 and 11 of this Warrant,
         the Holder, as such, shall not be entitled to vote or receive dividends
         or be deemed the holder of Common Stock or any other securities of the
         Company that may at any time be issuable on the exercise hereof for any
         purpose, nor shall anything contained herein be construed to confer
         upon the Holder, as such, any of the rights of a stockholder of the
         Company or any right to vote for the election of directors or upon any
         matter submitted to stockholders at any meeting thereof, or to give or
         withhold consent to any corporate action (whether upon any
         recapitalization, issuance of stock, reclassification of stock, change
         of par value, or change of stock to no par value, consolidation,
         merger, conveyance, or otherwise) or to receive notice of meetings, or
         to receive dividends or subscription rights or otherwise until this
         Warrant shall have been exercised as provided herein.


                                                                    Page 2 of 13
<PAGE>

December 7, 2001

7.       TRANSFER OF WARRANT.

         (a)      Warrant Register. The Company shall maintain a register (the
                  "Warrant Register") containing the names and addresses of the
                  Holder or Holders. Any Holder of this Warrant or any portion
                  thereof may change his address as shown on the Warrant
                  Register by written notice to the Company requesting such
                  change. Any notice or written communication required or
                  permitted to be given to the Holder may be delivered or given
                  by mail to such Holder as shown on the Warrant Register and at
                  the address shown on the Warrant Register. Until this Warrant
                  is transferred on the Warrant Register, the Company may treat
                  the Holder as shown on the Warrant Register as the absolute
                  owner of this Warrant for all purposes, notwithstanding any
                  notice to the contrary.

         (b)      Warrant Agent. The Company may, by written notice to the
                  Holder, appoint an agent for the purpose of maintaining the
                  Warrant Register, issuing the Common Stock or other securities
                  then issuable upon the exercise of this Warrant, exchanging
                  this Warrant, replacing this Warrant, or any or all of the
                  foregoing. Thereafter, any such registration, issuance,
                  exchange, or replacement, as the case may be, shall be made at
                  the office of such agent.

         (c)      Transferability and Non-negotiability of Warrant.

                  (i)      This Warrant shall not be transferred to a non-UPS
                           entity without the expressed written permission of
                           the Company and such permission shall not be
                           unreasonably withheld, conditioned or delayed.

                  (ii)     This Warrant may not be transferred or assigned in
                           whole or in part without compliance with all
                           applicable federal and state securities laws by the
                           transferor and the transferee (including the delivery
                           of investment representation letters and legal
                           opinions reasonably satisfactory to the Company, if
                           such are reasonably requested by the Company.)

                  (iii)    Subject to the foregoing restrictions, this Warrant
                           may be transferred by endorsement (by the Holder
                           executing the Assignment Form attached as Annex II
                           hereto) and delivery in the same manner as a
                           negotiable instrument transferable by endorsement and
                           delivery.

         (d)      Exchange of Warrant Upon a Transfer. On surrender of this
                  Warrant for exchange, properly endorsed on the Assignment Form
                  and subject to the provisions of this Warrant with respect to
                  compliance with the Act and with the limitations on
                  assignments and transfers contained in this Section 7, the
                  Company at its expense shall issue to or on the order of the
                  Holder a new warrant or warrants of like tenor, in the name of
                  the Holder or as the Holder (on payment by the Holder of any
                  applicable transfer taxes) may direct, for the number of
                  shares issuable upon exercise hereof.

         (e)      Compliance with Securities Laws. The Holder of this Warrant,
                  by acceptance hereof, acknowledges (i) that this Warrant and
                  the shares of Common Stock to be issued upon exercise hereof
                  are being acquired solely for the Holder's own account and not
                  as a nominee for any other party, and for investment, and (ii)
                  that the Holder shall not offer, sell or otherwise dispose of
                  this Warrant or any shares of Common Stock to be issued upon
                  exercise hereof except under circumstances that will not
                  result in a violation of the Act or any state securities laws.
                  Upon exercise of this Warrant, the Holder shall, if requested
                  by the Company, confirm in writing, in a form reasonably


                                                                    Page 3 of 13
<PAGE>

December 7, 2001

                  satisfactory to the Company, that the shares of Common Stock
                  so purchased are being acquired solely for the Holder's own
                  account and not as a nominee for any other party, for
                  investment, and not with a view toward distribution or resale.

8.       RESERVATION OF STOCK. The Company covenants that during the term that
         this Warrant is outstanding, the Company shall reserve from its
         authorized and unissued Common Stock a sufficient number of shares to
         provide for the issuance of Common Stock upon the exercise of this
         Warrant and, from time to time, shall take all steps necessary to amend
         its Certificate of Incorporation to provide sufficient reserves of
         shares of Common Stock issuable upon exercise of this Warrant. The
         Company further covenants that all shares that may be issued upon the
         exercise of rights represented by this Warrant, and payment of the
         Exercise Price, all as set forth herein, will be free from all taxes,
         liens and charges in respect of the issue thereof (other than taxes in
         respect of any transfer occurring contemporaneously or otherwise
         specified herein).

9.       NOTICES.

         (a)      Whenever the Exercise Price or number of shares purchasable
                  hereunder shall be adjusted pursuant to Section 11 hereof, the
                  Company shall issue a certificate signed by its Chief
                  Financial or Chief Executive Officer setting forth, in
                  reasonable detail, the event requiring the adjustment, the
                  amount of the adjustment, the method by which such adjustment
                  was calculated, and the Exercise Price and number of shares
                  purchasable hereunder after giving effect to such adjustment,
                  and shall cause a copy of such certificate to be mailed by
                  first-class mail, postage prepaid, to the Holder of this
                  Warrant. To the extent that the Company has prior knowledge of
                  such event, it shall use commercially reasonable efforts to
                  give the Holder at least ten (10) days prior written notice
                  thereof, and to the extent it does not have such knowledge, it
                  shall give the Holder notice of the adjustment within fifteen
                  (15) days after such event.

         (b)      In the event --

                  (i)      that the Company shall take a record of the holders
                           of its Common Stock (or other stock or securities at
                           the time receivable upon the exercise of this
                           Warrant) for the purpose of entitling them to receive
                           any dividend or other distribution, or any right to
                           subscribe for or purchase any shares of stock of any
                           class or any other securities, or to receive any
                           other right; or

                  (ii)     of any capital reorganization of the Company, any
                           reclassification of the capital stock of the Company,
                           any consolidation or merger of the Company with or
                           into another corporation, or any conveyance of all or
                           substantially all of the assets of the Company to
                           another corporation; or

                  (iii)    of any voluntary dissolution, liquidation or
                           winding-up of the Company,

                  then, and in each such case, the Company shall mail or cause
                  to be mailed to the Holder or Holders a notice specifying,
                  as the case may be, (A) the date on which a record is to be
                  taken for the purpose of such dividend, distribution or
                  right, and stating the amount and character of such
                  dividend, distribution or right; or (B) the date on which
                  such reorganization, reclassification, consolidation,
                  merger, conveyance, dissolution, liquidation or winding-up
                  is to take place, and the time, if any is to be fixed, as of
                  which the holders of record of Common Stock (or such stock or
                  securities at the time receivable upon the exercise of this
                  Warrant) shall be entitled to exchange their shares of
                  Common Stock (or such other stock or securities) for


                                                                    Page 4 of 13
<PAGE>

December 7, 2001

                  securities or other property deliverable upon such
                  reorganization, reclassification, consolidation, merger,
                  conveyance, dissolution, liquidation or winding-up. Such
                  notice shall be mailed at least 15 days prior to the date
                  therein specified.

         (c)      All such notices, advice and communications shall be deemed to
                  have been received (i) in the case of personal delivery, on
                  the date of such delivery and (ii) in the case of mailing, on
                  the third business day following the date of such mailing.

10.      AMENDMENTS & WAIVERS.

         (a)      Any term of this Warrant may be amended with the written
                  consent of the Company and the Holder.

         (b)      No waivers of, or exceptions to, any term, condition or
                  provision of this Warrant, in any one or more instances, shall
                  be deemed to be, or construed as, a further or continuing
                  waiver of or exception to any such term, condition or
                  provision.

11.      ADJUSTMENTS. The Exercise Price and the number of shares purchasable
         hereunder are subject to adjustment from time to time as follows:

         (a)      Merger, Sale of Assets, etc.

                  (i)      If at any time while this Warrant or any portion
                           hereof is outstanding and unexpired, there shall be
                           (A) a reorganization (other than a combination,
                           reclassification, exchange or subdivision of shares
                           otherwise provided for herein); (B) a merger or
                           consolidation of the Company with or into another
                           corporation in which the Company is not the surviving
                           entity or a merger (including a reverse triangular
                           merger) in which the Company is the surviving entity,
                           but the shares of the Company's capital stock
                           outstanding immediately prior to the merger are
                           converted by virtue of the merger into other
                           property, whether in the form of securities, cash, or
                           otherwise; or (C) a sale or transfer of the Company's
                           properties and assets as, or substantially as, an
                           entirety to any other person, then, as a part of such
                           reorganization, merger, consolidation, sale or
                           transfer, lawful provision shall be made so that the
                           holder of this Warrant shall thereafter be entitled
                           to receive upon exercise of this Warrant, during the
                           period specified herein and upon payment of the
                           Exercise Price then in effect, the number of shares
                           of stock or other securities or property of the
                           successor corporation resulting from such
                           reorganization, merger, consolidation, sale or
                           transfer that a holder of the shares deliverable upon
                           exercise of this Warrant would have been entitled to
                           receive in such reorganization, consolidation,
                           merger, sale or transfer if this Warrant had been
                           exercised immediately before such reorganization,
                           consolidation, merger, sale or transfer, all subject
                           to further adjustment as provided in this Section 11.

                  (ii)     The foregoing provisions of this Section 11(a) shall
                           similarly apply to successive reorganizations,
                           consolidations, mergers, sales and transfers and to
                           the stock or securities of any other corporation that
                           are at the time receivable upon the exercise of this
                           Warrant. If the per share consideration payable to
                           the holder hereof for shares in connection with any
                           such transaction is in a form other than cash or
                           marketable securities, then the value of such
                           consideration shall be determined in good faith by
                           the Company's Board of Directors. In all events,
                           appropriate adjustment (as determined in good faith
                           by the Company's Board of Directors) shall be made in
                           the application of the provisions of this Warrant
                           with respect to the rights and interest of the Holder
                           after the transaction, to the end that


                                                                    Page 5 of 13
<PAGE>

December 7, 2001

                           the provisions of this Warrant shall be applicable
                           after that event, as near as reasonably may be, in
                           relation to any shares or other property deliverable
                           after that event upon exercise of this Warrant.

         (b)      Reclassification, etc. If the Company, at any time while this
                  Warrant or any portion hereof remains outstanding and
                  unexpired, by reclassification of securities or otherwise,
                  shall change any of the securities as to which purchase rights
                  under this Warrant exist into the same or a different number
                  of securities of any other class or classes, this Warrant
                  shall thereafter represent the right to acquire such number
                  and kind of securities as would have been issuable as the
                  result of such change with respect to the securities that were
                  subject to the purchase rights under this Warrant immediately
                  prior to such reclassification or other change and the
                  Exercise Price therefor shall be appropriately adjusted, all
                  subject to further adjustment as provided in this Section 11.

         (c)      Split, Subdivision or Combination of Shares. If the Company at
                  any time while this Warrant or any portion hereof remains
                  outstanding and unexpired, shall split, subdivide or combine
                  the securities as to which purchase rights under this Warrant
                  exist, into a different number of securities of the same
                  class, the Exercise Price for such securities shall be
                  proportionately decreased, and the number of shares of such
                  securities for which this Warrant may be exercised shall be
                  proportionately increased, in the case of a split or
                  subdivision, or the Exercise Price for such securities shall
                  be proportionately increased and the number of shares of such
                  securities for which this Warrant may be exercised shall be
                  proportionately decreased, in the case of a combination.

         (d)      Adjustments for Dividends in Stock or Other Securities or
                  Property. If at any time while this Warrant or any portion
                  hereof remains outstanding and unexpired the holders of the
                  securities as to which purchase rights under this Warrant
                  exist at the time shall have received, or, on or after the
                  record date fixed for the determination of eligible
                  stockholders, shall have become entitled to receive, without
                  payment therefor, other or additional stock or other
                  securities or property (other than cash) of the Company by way
                  of dividend, then and in each case, this Warrant shall
                  represent the right to acquire, in addition to the number of
                  shares of the security receivable upon exercise of this
                  Warrant, and without payment of any additional consideration
                  therefor, the amount of such other or additional stock or
                  other securities or property (other than cash) of the Company
                  that such holder would hold on the date of such exercise had
                  it been the holder of record of the security receivable upon
                  exercise of this Warrant on the date hereof and had
                  thereafter, during the period from the date hereof to and
                  including the date of such exercise, retained such shares
                  and/or all other additional stock available by it as aforesaid
                  during such period, giving effect to all adjustments called
                  for during such period by the provisions of this Section 11.

         (e)      Adjustment For Diluting Issuances.

                  (i)      For purposes of this Section 11(e), the following
                           definitions shall apply:

                           (A)      "Convertible Securities" shall mean any
                                    evidences of indebtedness, shares or other
                                    securities directly or indirectly
                                    convertible into or exchangeable for Common
                                    Stock other than Excluded Securities (as
                                    defined below;)


                                                                    Page 6 of 13
<PAGE>

December 7, 2001

                           (B)      "Options" shall mean rights, options or
                                    warrants to subscribe for, purchase or
                                    otherwise acquire Common Stock or
                                    Convertible Securities, other than Excluded
                                    Securities;

                           (C)      "Additional Shares of Common Stock" shall
                                    mean all shares of Common Stock issued (or
                                    deemed to be issued) by the Company after
                                    the Warrant Issue Date, other than:

                                    (1) shares of Common Stock issued or
                                        issuable upon conversion or exchange
                                        of any Convertible Securities
                                        outstanding on the Warrant Issue Date;

                                    (2) Excluded Securities; or

                                    (3) shares of Common Stock issued or
                                        issuable by reason of a dividend, stock
                                        split, split-up or other distribution
                                        on shares of Common Stock that are
                                        covered elsewhere in this Section 11.

                           (D)      "Excluded Securities" shall mean up to, but
                                    not in excess of 13,500,000 shares of Common
                                    Stock in the aggregate issued after the date
                                    of this Warrant to officers, employees, or
                                    directors of, or consultants to, the Company
                                    (including officers, employees, or directors
                                    of, or consultants to its affiliates),
                                    pursuant to any agreement, plan, or
                                    arrangement that has been approved by the
                                    Board of Directors of the Company, or
                                    options to purchase or rights to subscribe
                                    for such Common Stock or securities by their
                                    terms convertible into or exchangeable for
                                    such Common Stock, or options to purchase or
                                    rights to subscribe for such convertible or
                                    exchangeable securities, in each case as
                                    approved by the Board of Directors.

                  (ii)     In the event the Company shall at any time after the
                           Warrant Issue Date issue Additional Shares of Common
                           Stock, without consideration or for a consideration
                           per share less than the Exercise Price in effect
                           immediately prior to such issue, then and in such
                           event, the Exercise Price shall be reduced,
                           concurrently with such issue, to the price
                           (calculated to the nearest hundredth of a cent)
                           determined by multiplying such Exercise Price by a
                           fraction,

                           (A)      the numerator of which shall be (1) the
                                    number of shares of Common Stock outstanding
                                    immediately prior to such issue plus (2) the
                                    number of shares of Common Stock which the
                                    aggregate consideration received or to be
                                    received by the Company for the total number
                                    of Additional Shares of Common Stock so
                                    issued would purchase at such Exercise
                                    Price; and

                           (B)      the denominator of which shall be the number
                                    of shares of Common Stock outstanding
                                    immediately prior to such issue plus the
                                    number of such Additional Shares of Common
                                    Stock so issued; provided that,

                                    (1)      for the purpose of this Section
                                             11(e), all shares of Common Stock
                                             issuable upon conversion or
                                             exchange of Convertible Securities
                                             outstanding immediately prior to
                                             such issue shall be deemed to be
                                             outstanding;, and

                                    (2)      the number of shares of Common
                                             Stock deemed issuable upon
                                             conversion or exchange of such
                                             outstanding Convertible Securities
                                             shall not give effect to any
                                             adjustments to the conversion or
                                             exchange price or conversion or
                                             exchange rate of such Convertible
                                             Securities resulting from


                                                                    Page 7 of 13
<PAGE>

December 7, 2001

                                             the issuance of Additional Shares
                                             of Common Stock that is the subject
                                             of this calculation.

                           In addition, the number of Warrant Shares purchasable
                           upon the exercise of this Warrant shall be changed to
                           the number determined by dividing (x) an amount equal
                           to the number of shares issuable upon the exercise of
                           this Warrant immediately prior to such adjustment,
                           multiplied by the Exercise Price in effect
                           immediately prior to such adjustment, by (y) the
                           Exercise Price in effect immediately after such
                           adjustment.

                  (iii)    If the Company at any time or from time to time after
                           the Warrant Issue Date shall issue any Options or
                           Convertible Securities or shall fix a record date for
                           the determination of holders of any class of
                           securities entitled to receive any such Options or
                           Convertible Securities, then the maximum number of
                           shares of Common Stock (as set forth in the
                           instrument relating thereto without regard to any
                           provision contained therein for a subsequent
                           adjustment of such number) issuable upon the exercise
                           of such Options or, in the case of Convertible
                           Securities and Options therefor, the conversion or
                           exchange of such Convertible Securities, shall be
                           deemed to be Additional Shares of Common Stock issued
                           as of the time of such issue or, in case such a
                           record date shall have been fixed, as of the close of
                           business on such record date, provided that
                           Additional Shares of Common Stock shall not be deemed
                           to have been issued unless the consideration per
                           share payable to the Company of such Additional
                           Shares of Common Stock would be less than the
                           Exercise Price in effect on the date of and
                           immediately prior to such issue, or such record date,
                           as the case may be, and provided further that in any
                           such case in which Additional Shares of Common Stock
                           are deemed to be issued:

                           (A)      no further adjustment in the Exercise Price
                                    shall be made upon the subsequent issue of
                                    Convertible Securities or shares of Common
                                    Stock upon the exercise of such Options or
                                    conversion or exchange of such Convertible
                                    Securities;

                           (B)      if such Options or Convertible Securities by
                                    their terms provide, with the passage of
                                    time or otherwise, for any increase or
                                    decrease in the consideration payable to the
                                    Company, then upon the exercise, conversion
                                    or exchange thereof, the Exercise Price
                                    computed upon the original issue thereof (or
                                    upon the occurrence of a record date with
                                    respect thereto), and any subsequent
                                    adjustments based thereon, shall, upon any
                                    such increase or decrease becoming
                                    effective, be recomputed to reflect such
                                    increase or decrease insofar as it affects
                                    such Options or the rights of conversion or
                                    exchange under such Convertible Securities;

                           (C)      upon the expiration or termination of any
                                    such unexercised Option, the Exercise Price
                                    shall be readjusted as if such issuance had
                                    never occurred; and

                           (D)      no readjustment pursuant to clause (B),
                                    above, shall have the effect of increasing
                                    the Exercise Price to an amount which
                                    exceeds the lower of

                                    (1)      the Exercise Price on the original
                                             adjustment date; or

                                    (2)      the Exercise Price that results
                                             from any issuances of Additional
                                             Shares of Common Stock between the
                                             original adjustment date and such


                                                                    Page 8 of 13
<PAGE>

December 7, 2001

                                             readjustment date. [I think this
                                             latter change makes the provision
                                             make sense.]

                  (iv)     The consideration per share received by the Company
                           for Additional Shares of Common Stock deemed to have
                           been issued pursuant to Section 11(e)(iii), relating
                           to Options and Convertible Securities, shall be
                           determined by dividing:

                           (A)      the total amount, if any, received or
                                    receivable by the Company as consideration
                                    for the issue of such Options or Convertible
                                    Securities, plus the minimum aggregate
                                    amount of additional consideration (as set
                                    forth in the instruments relating thereto,
                                    without regard to any provision contained
                                    therein for a subsequent adjustment of such
                                    consideration) payable to the Company upon
                                    the exercise of such Options or the
                                    conversion or exchange of such Convertible
                                    Securities, or in the case of Options for
                                    Convertible Securities, the exercise of such
                                    Options for Convertible Securities and the
                                    conversion or exchange of such Convertible
                                    Securities, by

                           (B)      the maximum number of shares of Common Stock
                                    (as set forth in the instruments relating
                                    thereto, without regard to any provision
                                    contained therein for a subsequent
                                    adjustment of such number) issuable upon the
                                    exercise of such Options or the conversion
                                    or exchange of such Convertible Securities.

         (f)      Certificate as to Adjustments. Upon the occurrence of each
                  adjustment or readjustment pursuant to this Section 11, the
                  Company at its expense shall promptly compute such adjustment
                  or readjustment in accordance with the terms hereof and
                  furnish to each Holder of this Warrant a certificate setting
                  forth such adjustment or readjustment and showing in detail
                  the facts upon which such adjustment or readjustment is based.
                  The Company shall, upon the written request, at any time, of
                  any such Holder, furnish or cause to be furnished to such
                  Holder a like certificate setting forth (i) such adjustments
                  and readjustments; (ii) the Exercise Price at the time in
                  effect; and (iii) the number of shares and the amount, if any,
                  of other property that at the time would be received upon the
                  exercise of the Warrant.

         (g)      No Impairment. The Company shall not, by amendment of its
                  Certificate of Incorporation or through any reorganization,
                  transfer of assets, consolidation, merger, dissolution, issue
                  or sale of securities or any other voluntary action, avoid or
                  seek to avoid the observance or performance of any of the
                  terms to be observed or performed hereunder by the Company,
                  but shall at all times in good faith assist in the carrying
                  out of all the provisions of this Section 11 and in the taking
                  of all such action as may be necessary or appropriate in order
                  to protect the rights of the Holder of this Warrant against
                  impairment.

         (h)      Anything to the contrary notwithstanding, in no event shall
                  the Exercise Price be reduced to an amount less than the then
                  par value of the Common Stock.

12.      REGISTRATION RIGHTS. Whenever the Company proposes to file a
         registration statement other than on Forms S-4 or S-8 (and any
         successors thereto) under the Act with respect to the Common Stock (a
         "Registration Statement") at any time and from time to time, prior to
         such filing it will give written notice to the Holder of its intention
         to do so. Upon the written request of the Holder given within twenty
         (20) days after the Company provides such notice (which request shall
         state the Holder's intended method of disposition of such shares),
         subject to the registration rights of preferred shareholders, the
         Company shall use commercially reasonable efforts to cause all Warrant
         Shares which the Company has


                                                                    Page 9 of 13
<PAGE>

December 7, 2001

         been requested by the Holder to register to be registered under the Act
         to the extent necessary to permit their sale or other disposition in
         accordance with the intended methods of distribution specified in the
         request of the Holder. If the registration for which the Company gives
         such notice is a registered public offering involving an underwriting,
         the Company shall so advise the Holder and the right of the Holder to
         include its Warrant Shares in such registration shall be conditioned
         upon the Holder's participation in such underwriting on the terms
         thereof, which terms, however, shall be no more onerous to the Holder
         than the terms applicable to all stockholders registering shares under
         the Registration Statement, and if the managing underwriter determines
         that marketing factors require a limitation of the number of shares to
         be underwritten, the number of Warrant Shares to be included in the
         Registration Statement shall be accordingly reduced.

         (a)      Registration Procedures. In connection with the filing by the
                  Company of a Registration Statement, the Company shall furnish
                  to the Holder a copy of the prospectus, including a
                  preliminary prospectus, in conformity with the requirements of
                  the Act. The Company shall use commercially reasonable efforts
                  to register or qualify the Warrant Shares covered by the
                  Registration Statement under the securities laws of each state
                  of the United States; provided, however, that the Company
                  shall not be required in connection with this Section 12(a) to
                  qualify as a foreign corporation or execute a general consent
                  to service of process in any jurisdiction. If the Company has
                  delivered preliminary or final prospectuses to the Holder and
                  after having done so the prospectus is amended or supplemented
                  to comply with the requirements of the Act, the Company shall
                  promptly notify the Holder and, if requested by the Company,
                  the Holder shall immediately cease making offers or sales of
                  shares under the Registration Statement and return all
                  prospectuses to the Company. The Company shall promptly
                  provide the Holder with revised or supplemented prospectuses
                  and, following receipt of the revised or supplemented
                  prospectuses, the Holder shall be free to resume making offers
                  and sales under the Registration Statement. The Company shall
                  pay the expenses incurred by it in complying with its
                  obligations under this Section 12, including all registration
                  and filing fees, exchange listing fees, fees and expenses of
                  counsel for the Company, and fees and expenses of accountants
                  for the Company, but excluding (i) any brokerage fees, selling
                  commissions or underwriting discounts incurred by the Holder
                  in connection with sales under the Registration Statement and
                  (ii) the fees and expenses of any counsel retained by Holder.

         (b)      Requirements of Holder. The Company shall not be required to
                  include any Warrant Shares in the Registration Statement
                  unless:

                  (i)      the Holder furnishes to the Company in writing such
                           information regarding the Holder and the proposed
                           sale of Warrant Shares by the Holder as the Company
                           may reasonably request in writing in connection with
                           the Registration Statement or as shall be required in
                           connection therewith by the U.S. Securities and
                           Exchange Commission or any state securities law
                           authorities;

                  (ii)     the Holder shall have provided to the Company its
                           written agreement:

                           (A)      to indemnify the Company and each of its
                                    directors and officers (collectively the
                                    "Company Indemnitees") against, and hold the
                                    Company Indemnitees harmless from, any
                                    losses, claims, damages, expenses or
                                    liabilities to which the Company Indemnitees
                                    may become subject by reason of any untrue


                                                                   Page 10 of 13
<PAGE>

December 7, 2001

                                    statement of a material fact contained in
                                    the Registration Statement or any omission
                                    to state therein a fact required to be
                                    stated therein or necessary to make the
                                    statements therein not misleading, insofar
                                    as such losses, claims, damages, expenses or
                                    liabilities arise out of, or are based upon,
                                    information furnished to the Company by the
                                    Holder for use in the Registration Statement
                                    or are in conformity with, a written
                                    statement by the Holder furnished pursuant
                                    to Section 12(b)(i); and

                           (B)      to report to the Company sales made pursuant
                                    to the Registration Statement.

                  (c)      Indemnification. The Company agrees to indemnify and
                           hold harmless the Holder against any losses, claims,
                           damages, expenses or liabilities to which Holder may
                           become subject by reason of any untrue statement of a
                           material fact contained in the Registration Statement
                           or any omission to state therein a fact required to
                           be stated therein or necessary to make the statements
                           therein not misleading, except insofar as such
                           losses, claims, damages, expenses or liabilities
                           arise out of or are based upon information furnished
                           to the Company by the Holder for use in the
                           Registration Statement or are in conformity with, a
                           written statement by the Holder furnished pursuant to
                           Section 12(b)(i).

                  (d)      Anything herein to the contrary notwithstanding, the
                           rights on the Holder contained in this Section 12
                           shall be subject in all respects to any registration
                           rights of holders of the Company's equity existing on
                           the Warrant Issue Date.

13.      GENERAL.

         (a)      Governing Law. This Warrant shall be governed by and construed
                  according to the laws of the State of Delaware.

         (b)      Delays or Omissions. No delay or omission to exercise any
                  right, power, or remedy accruing to either party upon any
                  breach or default under this Warrant, shall be deemed a waiver
                  of any other breach or default theretofore or thereafter
                  occurring. Any waiver, permit, consent, or approval of any
                  kind or character on the part of either party of any breach or
                  default under this Warrant, or any waiver on the part of
                  either party of any provisions or conditions of this Warrant,
                  must be in writing and signed by the party to be bound
                  thereby. All remedies, either under this Warrant or by law or
                  otherwise afforded to either of the parties, shall be
                  cumulative and not alternative.

         (c)      Captions. Captions of sections have been added only for
                  convenience and shall not be deemed to be a part of this
                  Warrant.

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by an
officer thereunto duly authorized.

VISAER, INC.



By:
   -------------------------------------
     David J. Spellman, President


                                                                   Page 11 of 13
<PAGE>

December 7, 2001

                                     ANNEX I
                               NOTICE OF EXERCISE

TO: VISaer, Inc.:

(1)      The undersigned hereby irrevocably elects to purchase _____ shares of
         Common Stock of VISaer, Inc. pursuant to the terms of the attached
         Warrant, and tenders herewith payment of the purchase price for such
         shares in full consisting of $______ in lawful money of the United
         States; or the cancellation of such portion of the attached Warrant as
         is exercisable for a total of __________ Warrant Shares (using a Fair
         Market Value per share of Common Stock of $________ for purposes of
         this calculation).

(2)      In exercising this Warrant, the undersigned hereby confirms and
         acknowledges that the shares of Common Stock are being acquired solely
         for the account of the undersigned and not as a nominee for any other
         party, and for investment, and that the undersigned shall not offer,
         sell or otherwise dispose of any such shares of Common Stock except
         under circumstances that will not result in a violation of the
         Securities Act of 1933, as amended, or any state securities laws.

(3)      Please issue a certificate or certificates representing said shares of
         Common Stock, and pay any cash for any fractional share to:

<TABLE>
<CAPTION>
NAME                                         ADDRESS                                       NUMBER OF SHARES
<S>                                          <C>                                           <C>
</TABLE>

(4)      Please issue a new Warrant for the unexercised portion of the attached
         Warrant in the name of the undersigned and/or, if the undersigned has
         completed an Assignment Form in the form of Annex II to this Warrant,
         in such other names and amounts as is specified in such Assignment
         Form.



Dated:                                 Holder:
      ----------------------                  ---------------------------------

                                       By:
                                          -------------------------------------
                                          Name:
                                          Title:


                                                                   Page 12 of 13
<PAGE>

December 7, 2001

                                    ANNEX II

                                 ASSIGNMENT FORM

For value received, the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Common Stock set forth below:

and does hereby irrevocably constitute and appoint Attorney ___________________
to make such transfer on the books of VISaer, Inc. maintained for such purpose,
with full power of substitution in the premises.

<TABLE>
<CAPTION>
NAME                                         ADDRESS                                       NUMBER OF SHARES
<S>                                          <C>                                           <C>
</TABLE>

The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of Common Stock to be issued upon
exercise hereof are being acquired for investment and that the Assignee shall
not offer, sell or otherwise dispose of this Warrant or any shares of stock to
be issued upon exercise hereof except under circumstances which will not result
in a violation of the Securities Act of 1933, as amended, or any state
securities laws.

Further, the Assignee has acknowledged that upon exercise of this Warrant, the
Assignee shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of stock so purchased are being
acquired for investment and not with a view toward distribution or resale.



Dated:                                 Holder:
      ----------------------                  ---------------------------------

                                       By:
                                          -------------------------------------
                                          Name:
                                          Title:


                                                                   Page 13 of 13

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>6
<FILENAME>g74809ex10-7.txt
<DESCRIPTION>SOFTWARE LICENSE AGREEMENT
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.7

                           SOFTWARE LICENSE AGREEMENT

                  THIS SOFTWARE LICENSE AGREEMENT (the "Agreement") is dated as
of April 27, 2001 (the "Effective Date"), and is by and between PaySys
International, Inc., a Florida corporation, and Delos Payment Systems, Inc., a
Delaware corporation.

                  WHEREAS, pursuant to that certain Contribution Agreement,
dated as of April 27, 2001, between PaySys and Delos (the "Contribution
Agreement"), PaySys transferred and assigned to Delos inter alia, all of its
right, title and interest in and to those certain computer software programs and
related materials generally known as the "dBB Software" as defined therein;

                  WHEREAS, in connection with the Contribution Agreement, Delos
agreed to grant PaySys a limited license to use the dBB System as set forth
herein; and

                  WHEREAS, Delos has agreed to make certain covenants that will,
for limited periods of time, restrict Delos from using the dBB Platform and dBB
Applications as set forth herein and from marketing or selling the same as set
forth herein.

                  NOW, THEREFORE, for and in consideration of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

1.       DEFINITIONS. In this Agreement, the following terms have the meanings
         specified or referred to in this Section 1 and shall be equally
         applicable to both the singular and plural forms. In this Agreement,
         the words "including", "include" and "includes" shall each be deemed to
         be followed by the term "without limitation". Any agreement, schedule,
         attachment or exhibit referred to herein shall mean such agreement,
         schedule, attachment or exhibit as amended, restated, supplemented and
         modified from time to time to the extent permitted by the applicable
         provisions thereof and by this Agreement. References to any statute or
         regulation means such statute or regulation as amended from time to
         time and includes any successor statute or regulation. Unless otherwise
         stated, references to recitals, articles, sections, paragraphs,
         schedules and exhibits shall be references to recitals, articles,
         sections, paragraphs, schedules and exhibits of this Agreement.

(a)      "AAA" has the meaning set forth in Section 2(a) of Schedule 15(a).

(b)      "ACCOUNT" shall mean an active or inactive physical, virtual or other
         type of check card ATM card, debit card, credit card (including private
         label and retail credit card), charge card, commercial card, bank card,
         oil card, payment card, electronic benefit payment card, smart card,
         stored value card or other similar card, device, program or similar or
         replacement technology, whether presently existing or hereafter
         invented, that is used directly or indirectly in connection with the
         initiation, transmission, capturing, authorization, processing,
         clearing, settlement or recording of related financial and monetary
         transactions and related data capture and processing.


<PAGE>

(c)      "ACCOUNT-RELATED PROCESSING" shall mean services relating to the direct
         or indirect initiation, transmission, capture, authorization,
         processing, clearing, settling and recording of financial and monetary
         transactions with respect to Accounts.

(d)      "AFFILIATE" shall mean an entity (including any joint venture or
         alliance) that, directly or indirectly, owns or controls, is owned or
         is controlled by or is under common ownership or control with another
         entity (including any joint venture or alliance). For purposes hereof,
         an entity, shall be deemed to "own or control" another entity if and
         for so long as it beneficially owns fifty percent (50%) or more of the
         voting equity securities or other equivalent voting interests of the
         other entity. Notwithstanding the foregoing, with respect to PaySys, if
         that certain transaction contemplated by that certain Agreement and
         Plan of Merger by and among First Data Corporation, PSI Merging
         Corporation, PaySys International, Inc. and certain shareholders of
         PaySys International, Inc. dated April 27, 2001 is consummated,
         Affiliates of First Data Corporation, as well as the entities set forth
         on Schedule 1(d) shall be deemed to be Affiliates of PaySys.

(e)      "AGREEMENT" has the meaning set forth in the first paragraph.

(f)      "ARBITRATION DEMAND" has the meaning set forth in Section 2(b) of
         Schedule 15(a).

(g)      "ARBITRATION PANEL" has the meaning set forth in Section 2(d) of
         Schedule 15(a).

(h)      "BASIC QUALIFICATIONS" has the meaning set forth in Section 2(b) of
         Schedule 15(a).

(i)      "BILL PAYMENT SERVICES" shall mean a bill payment service undertaken
         through a Money Transfer Service whereby a Person sends money to a
         biller in exchange for a fee.

(j)      "CHECK RELATED-PROCESSING" shall mean services relating to the direct
         or indirect processing, verification, clearing, approval, settling and
         recording of financial and monetary transactions with respect to Check
         Services.

(k)      "CHECK SERVICES" shall mean any one or any combination of check
         verification, check guarantee, electronic check conversion and check
         collection; provided that Check Services shall not include activities
         related to the processing of checks through the Federal Reserve System
         (other than those set forth herein) or the processing of any demand
         deposit account on which a check is drawn or into which a check is
         deposited.

(l)      "CONFIDENTIAL INFORMATION" has the meaning set forth in Section 13(a).

(m)      "CONTRIBUTION AGREEMENT" has the meaning set forth in the first
         recital.

(n)      "DBB APPLICATION" shall mean any computer software program, including
         any DSL that is not a system DSL, and related user and technical
         manuals, documentation and other materials that is created using the
         dBB System.


                                       2
<PAGE>

(o)      "DBB LIABILITIES" shall mean the liabilities listed on Schedule B of
         the Contribution Agreement and assumed by Delos in accordance with
         Section 3.2 of the Contribution Agreement.

(p)      "DBB PATENT APPLICATION" shall mean each of the patent applications set
         forth on Schedule 1(p), together with all letters patents, statutory
         invention registrations, divisions, continuations and
         continuations-in-part, reissues, renewals and extensions thereto.

(q)      "DBB PLATFORM" shall mean the most current (as of the Effective Date)
         Microsoft Windows NT version of that certain computer program commonly
         known as the "dBB Platform", both in source code format in C++
         programming language, and as compiled into executable code format,
         (along with the Integrated Development Environment, including the
         computer programs commonly known as the Localization Editor, the User
         Admin Editor and the Visual Workflow Modeler, all of the application
         program interfaces that are designed to be used in conjunction with the
         computer application programs which are created using and/or executable
         by the dBB Platform, the system DSLs, DSLs and development tools and
         related documentation), all as identified in Schedule 1(q).

(r)      "DBB SOFTWARE" shall mean the following: (i) the computer program known
         as dBB Platform currently in source code format in the C++ programming
         language, including all versions, including Versions 1.945(b), 3.106(b)
         and 3.202 thereof; (ii) all of the computer programs commonly referred
         to as "libraries" in dBB serial language which are created using and/or
         executable by the dBB Platform; (iii) all of the computer application
         programs in DSL which are created using and/or executable by the dBB
         Platform, including the application programs known as B2B Prototype,
         Apogee Prototype, Flooz Prototype, Fraud Dossier, Step Stone,
         Commercial Card, ECDM, Desktop and Eservice; (iv) the computer programs
         known as the Integrated Development Environment, including the computer
         programs known as the Localization Editor, the User Admin Editor and
         the Visual Workflow Modeler; (v) all of the application program
         interfaces that are designed to be used in conjunction with the
         computer application programs which are created using and/or executable
         by the dBB Platform, including that certain application program
         interface currently in common business oriented language (COBOL)
         designed to be used in conjunction with the Fraud Dossier, Step Stone,
         and/or commercial card application programs; and (vi) all corrections,
         fixes, modifications, enhancements, updates, upgrades, new releases,
         versions and translations of or to any of the foregoing, regardless of
         whether made by PaySys or its employees, agents, contractors, customers
         or licensees.

(s)      "DBB SYSTEM" shall mean the dBB Platform and all Intellectual Property
         embodied therein or relating thereto.

(t)      "DBB THIRD PARTY SOFTWARE" shall mean the software, tools, utilities,
         compilers, operating systems and the like as well as associated
         documentation that as of the Effective Date is owned by Persons other
         than Delos or its Affiliates that is required to be used in combination
         with the source code relating to the dBB System for the effective


                                       3
<PAGE>

         development, maintenance and implementation of the same, all as
         identified in Schedule 1(t).

(u)      "DELOS" shall mean Delos Payment Systems, Inc., a Delaware corporation,
         and its permitted successors and permitted assigns.

(v)      "DELOS INDEMNITEE" has the meaning set forth in Section 11(a).

(w)      "DISPUTE" shall mean any and all disputes, controversies and claims
         between the parties arising from or in connection with this Agreement
         or the relationship of the parties under this Agreement whether based
         on contract, tort, common law, equity, statute, regulation, order or
         otherwise.

(x)      "DISPUTING PARTY" has the meaning set forth in Section 2(a) of Schedule
         15(a).

(y)      "DSL" shall mean dBB serial language.

(z)      "EFFECTIVE DATE" has the meaning set forth in the first paragraph.

(aa)     "ENCUMBRANCE" shall mean any lien, claim, charge, security interest,
         mortgage, pledge, easement, conditional sale or other title retention
         agreement, defect in title, covenant or other restrictions of any kind
         that could impair the ability of a Person to use or exploit the item
         that is so encumbered.

(bb)     "ESCROW AGENT" has the meaning set forth in Section 18(a).

(cc)     "ESCROW AGREEMENT" has the meaning set forth in Section 18(a).

(dd)     "ESCROW MATERIALS" has the meaning set forth in Section 18(a).

(ee)     "INDEMNITEE" has the meaning set forth in Section 12(a).

(ff)     "INDEMNITOR" has the meaning set forth in Section 12(a).

(gg)     "INTELLECTUAL PROPERTY" shall mean any: (i) trademarks, trade names,
         service marks, domain names, trade dress, logos and other similar
         designations; (ii) copyrights and copyrightable works; (iii) patents,
         patent rights, patent applications, inventions and trade secrets; and
         (iv) other protectable property rights.

(hh)     "MONEY TRANSFER PROCESSING" shall mean services relating to the direct
         or indirect initiation, transmission, capture, authorization,
         processing, clearing, settling and recording of financial and monetary
         transactions with respect to Money Transfer Services.

(ii)     "MONEY TRANSFER SERVICES" shall mean, following the consummation of the
         merger contemplated by the certain Agreement and Plan of Merger by and
         among First Data Corporation, PSI Merging Corporation, PaySys
         International, Inc. and certain


                                       4
<PAGE>

         shareholders of PaySys International, Inc., dated as of March 17, 2001,
         any one or any combination of the services presently constituting all
         of Western Union Financial Services, Inc.'s and its Affiliates' person
         to person funds delivery services and funds disbursement services,
         including, Domestic Money Transfer Services, International Money
         Transfer Services, Mexico Money Transfer Services, Quick Collect,
         Direct Connect, BidPay, Money Zap, Z-Cash, Quick Cash (including
         Benefits Quick Cash), and Western Union Cash Card and any replacements
         therefor.

(jj)     "PAYSYS" shall mean PaySys International, Inc., a Florida corporation,
         and its permitted successors and permitted assigns.

(kk)     "PAYSYS AFFILIATE CUSTOMER" shall mean any Person for which any
         Affiliate of PaySys other than any subsidiary of PaySys: (i) provides
         services and/or software; or (ii) may in the future provide services
         and/or software.

(ll)     "PAYSYS CUSTOMER" shall mean any Person for which PaySys or any
         subsidiary of PaySys: (i) provides services and/or software; or (ii)
         may in the future provide services and/or software.

(mm)     "PAYSYS INDEMNITEE" has the meaning set forth in Section 10.

(nn)     "PERSON" shall mean an individual, corporation, limited liability
         company, partnership, sole proprietorship, joint venture, or other form
         of organization or governmental agency or authority.

(oo)     "PROCESSOR" shall mean any Person other than PaySys and its Affiliates
         that processes Accounts, performs Account-Related Processing, provides
         Check Services or performs Check-Related Processing, in each case for
         third Persons.

(pp)     "TRANSFERRED OPERATIONS" shall have the meaning set forth in Section
         2(b)(i).

2.       DELOS LICENSE GRANT.

(a)      Subject to the terms and conditions of this Agreement, Delos hereby
         grants to PaySys a non-exclusive, nontransferable (except as otherwise
         provided in this Agreement), worldwide, perpetual, irrevocable (subject
         to Section 14), royalty-free and fully paid up license to:

         (i)      use, execute, copy, modify and have modified the dBB System
                  solely for processing Accounts, performing Account-Related
                  Processing, providing Money Transfer Services, performing
                  Money Transfer Processing, providing Check Services and
                  performing Check-Related Processing internally and externally
                  (A) through any and all means now known or hereafter invented,
                  (B) on any and all operating environments and systems now
                  known or hereafter invented, and (C) on any and all media now
                  known or hereafter invented;

         (ii)     use, execute and copy the dBB Platform and use the dBB System
                  to create or have created modifications, enhancements,
                  upgrades, add-ons or similar computer


                                       5
<PAGE>

                  programs solely in connection with processing Accounts,
                  performing Account-Related Processing, providing Money
                  Transfer Services, performing Money Transfer Processing,
                  providing Check Services and performing Check-Related
                  Processing, provided that PaySys' and/or its Affiliates'
                  copyright in any such modifications, enhancements, upgrades,
                  add-ons or similar computer programs shall extend only to the
                  materials contributed by PaySys, its Affiliates or their
                  respective designees, as distinguished from the dBB Platform
                  itself;

         (iii)    prepare derivative works of the dBB Platform and use the same
                  in accordance with the limitations set forth in this Section
                  2, provided that PaySys' and/or its Affiliates' copyright in
                  any such derivative work shall extend only to the materials
                  contributed by PaySys, its Affiliates or their respective
                  designees, as distinguished from the dBB Platform itself;

         (iv)     sublicense executable versions of the dBB System and dBB
                  Applications created using the dBB System to customers of
                  PaySys and its Affiliates solely for use in connection with
                  processing Accounts, performing Account-Related Processing,
                  providing Money Transfer Services, performing Money Transfer
                  Processing, providing Check Services and performing
                  Check-Related Processing; and

         (v)      sublicense to any Affiliate of PaySys the rights granted in
                  Sections 2(a)(i), 2(a)(ii), 2(a)(iii) and 2(a)(iv) provided
                  that PaySys has delivered to Delos a writing executed by an
                  authorized representative of such Affiliate to abide by the
                  terms of this Agreement as if such Affiliate was an original
                  party to this Agreement.

(b)      Divested or Transferred Operations.

         (i)      Should PaySys or any Affiliate of PaySys sell or otherwise
                  transfer the assets or equity ownership of any Affiliate
                  (which for purposes of this Section 2(b) shall include PaySys)
                  (hereafter "Transferred Operations"), such Transferred
                  Operations and its Affiliates shall continue to be afforded
                  use of the dBB System, provided that such Transferred
                  Operations or successor entity, as applicable, enter into that
                  certain agreement substantially in the form attached hereto as
                  Schedule 2(b)(i), which Delos shall execute at no additional
                  cost.

         (ii)     In addition, if such Transferred Operations or successor
                  entity, as applicable, desires to possess the source code for
                  the dBB Platform and have all rights previously afforded under
                  this Agreement, upon such Transferred Operations' or successor
                  entity's election, as applicable, and the payment to Delos of
                  two million dollars ($2,000,000), such Transferred Operations
                  or successor entity, as applicable, and its Affiliates shall
                  be entitled to possess the source code and exercise such
                  rights, provided that such Transferred Operations or successor
                  entity, as applicable, enter into that certain agreement
                  substantially in the form attached hereto as Schedule
                  2(b)(ii), which Delos shall execute at no additional cost. If
                  such Transferred Operations or successor entity, as
                  applicable, does not make the payment and enter into the
                  agreement as required by this Section 2(b)(ii)


                                       6
<PAGE>

                  within thirty (30) days after the effective date of the sale
                  or transfer, then such Transferred Operations shall promptly:
                  (A) delete all copies of the source code for the dBB Platform,
                  from all computers and storage devices, and at the Transferred
                  Operations' or successor entities' option, either immediately
                  return to Delos all copies of the source code for the dBB
                  Platform or destroy all copies of the source code for the dBB
                  Platform and certify to Delos the compliance with the
                  foregoing; and (B) enter into the agreement contemplated by
                  Section 2(b)(i).

(c)      Reservation of Rights. Except for the limited rights expressly granted
         herein, all rights are reserved by Delos, and, except as expressly
         granted herein, nothing contained in this Agreement shall be construed
         as conferring any right or license with respect to the dBB System upon
         PaySys or its Affiliates, by implication, estoppel or otherwise.

3.       DELIVERY OF THE DBB SYSTEM. The parties shall cooperate to specify the
         timing of the delivery of the dBB System to PaySys as set forth on
         Schedule 3.

4.       COVENANTS AND RESTRICTIVE COVENANTS.

(a)      Installation. No later than thirty (30) days after a request by PaySys,
         Delos shall, at its sole cost and expense, install the dBB Platform
         onto a PC and then ship the PC to a United States location reasonably
         specified by PaySys.

(b)      Training. Delos shall perform, at Delos' standard rates and at an
         Atlanta, Georgia location reasonably specified by Delos, one training
         session of six days, or two sessions of three days each, at PaySys'
         election, to instruct no more than ten persons designated by PaySys
         regarding the dBB Platform and the creation of dBB Applications using
         the dBB Platform.

(c)      Patent Applications.

         (i)      Delos shall use commercially reasonable efforts to cause
                  letters patents to be issued with respect to each of the dBB
                  Patent Applications at its sole cost and expense.

         (ii)     If Delos determines that it is not in its business interest to
                  cause letters patents to be issued with respect to any of the
                  dBB Patent Applications, Delos shall promptly notify PaySys of
                  the same so that, at PaySys' sole election, PaySys may
                  instruct Delos to continue to cause letters patents to be
                  issued with respect to each of the dBB Patent Applications at
                  PaySys' cost and expense. In such an event, ownership of any
                  such letters patents issued thereon shall remain with Delos,
                  and the rights of PaySys and its Affiliates with respect
                  thereto shall be as set forth in this Agreement. PaySys shall
                  pay, within thirty (30) days after receipt, all invoices for
                  costs reasonably incurred by Delos at the request of PaySys
                  pursuant to this Section 4(c)(ii). However, all such amounts
                  paid by PaySys to Delos shall be credited against any payments
                  due Delos pursuant to this Agreement.

(d)      Processors. For a period of five (5) years following the Effective
         Date, neither Delos nor any Affiliate of Delos shall directly or
         indirectly:


                                       7
<PAGE>

         (i)      solicit, negotiate or effect the sale, transfer or assignment
                  to any Processor of any dBB Application, in whole or in part,
                  or the dBB System or any updates, modifications, enhancements
                  or derivative works thereto, in whole or in part, for the
                  purpose of processing Accounts, performing Account-Related
                  Processing, providing Check Services or performing
                  Check-Related Processing;

         (ii)     authorize any Processor to use any dBB Application, in whole
                  or in part, or the dBB System or any updates, modifications,
                  enhancements or derivative works thereto, in whole or in part,
                  for the purpose of processing Accounts, performing
                  Account-Related Processing, providing Check Services or
                  performing Check-Related Processing;

         (iii)    grant to any Processor any right or license to: (A) use any
                  dBB Application, in whole or in part, to process Accounts of,
                  or perform Account-Related Processing for, third Persons; or
                  (B) use the dBB System or any updates, modifications,
                  enhancements or derivative works thereto, in whole or in part,
                  to create any dBB Application to process Accounts of, or
                  perform Account-Related Processing for, third Persons; (C) use
                  any dBB Application, in whole or in part, to provide Check
                  Services to, or perform Check-Related Processing for, third
                  Persons; or (D) use the dBB System or any updates,
                  modifications, enhancements or derivative works thereto, in
                  whole or in part, to create any dBB Application to provide
                  Check Services to, or perform Check-Related Processing for,
                  third Persons;

         (iv)     use any dBB Application in whole or in part, to process
                  Accounts of, or perform Account-Related Processing for, any
                  third Person, or use the dBB System or any updates,
                  modifications, enhancements or derivative works thereto, in
                  whole or in part, to process Accounts of, or perform
                  Account-Related Processing for, any third Person; or

         (v)      use any dBB Application in whole or in part, to provide Check
                  Services to, or perform Check-Related Processing for, any
                  third Person, or use the dBB System or any updates,
                  modifications, enhancements or derivative works thereto, in
                  whole or in part, to provide Check Services to, or perform
                  Check-Related Processing for, any third Person.

         For purposes of clarification, nothing contained in this Section 4(d)
         shall prevent Delos or any Affiliate of Delos from (X) using the dBB
         System or any updates, modifications, enhancements or derivative works
         thereto, in whole or in part, or any dBB Application, in whole or in
         part as a processor other than for processing Accounts, performing
         Account-Related Processing, providing Check Services or performing
         Check-Related Processing, or (Y) granting any right or license to any
         Person with respect to the dBB System or any updates, modifications,
         enhancements or derivative works thereto, in whole or in part, or any
         dBB Application, in whole or in part, in any manner that is not
         processing Accounts, performing Account-Related Processing, providing
         Check Services or performing Check-Related Processing, including by way
         of example and without limitation, performing processing or granting
         licenses with respect to non-Account transactions or non-Check Service
         transactions in: (vi) business-to-business e-commerce; (vii) electronic
         benefits


                                       8
<PAGE>

         payments; (viii) closed loop payment systems (including the use of
         smart cards only with regard to such closed loop payment systems); and
         (ix) the telecommunication, banking, mutual fund, financial services,
         health care and insurance industries.

(e)      PaySys Customers. For a period of forty-eight (48) months following the
         Effective Date, neither Delos nor any Affiliate of Delos shall solicit
         or grant to any PaySys Customer any right or license to use the dBB
         System or any updates, modifications, enhancements or derivative works
         thereto, in whole or in part, or any dBB Application, in whole or in
         part, to (i) process such PaySys Customer's own Accounts for its own
         benefit, (ii) perform Account-Related Processing with respect to
         Accounts owned by such PaySys Customer for its own benefit, (iii)
         provide Check Services with respect to checks issued by such PaySys
         Customer, or (iv) perform Check-Related Processing with respect to
         checks issued by such PaySys Customer for its own benefit; provided
         that nothing in this Agreement shall preclude Delos from:

                           (A)      granting any right or license to any PaySys
                                    Customer listed on the attached Schedule
                                    4(e) the use of any dBB Application as a
                                    commercial card system to process such
                                    PaySys Customer's own Accounts; or

                           (B)      granting any right or license to, or
                                    otherwise dealing with, any PaySys Customer
                                    other than as set forth in this Section
                                    4(e).

(f)      For a period of thirty (30) months following the Effective Date,
         neither Delos nor any Affiliate of Delos shall solicit or grant to any
         PaySys Affiliate Customer any right or license to use the dBB System or
         any updates, modifications, enhancements or derivative works thereto,
         in whole or in part, or any dBB Application, in whole or in part, to
         (i) process such PaySys Affiliate Customer's own Accounts for its own
         benefit, (ii) perform Account-Related Processing with respect to
         Accounts owned by such PaySys Affiliate Customer for its own benefit,
         (iii) provide Check Services with respect to checks issued by such
         PaySys Affiliate Customer, or (iv) perform Check-Related Processing
         with respect to checks issued by such PaySys Affiliate Customer for its
         own benefit, or (v) provide Bill Payment Services; provided that
         nothing in this Agreement shall preclude Delos from:

                           (A)      granting any right or license to any PaySys
                                    Affiliate Customer listed on the attached
                                    Schedule 4(e) the use of any dBB Application
                                    as a commercial card system to process such
                                    PaySys Affiliate Customer's own Accounts; or

                           (B)      granting any right or license to, or
                                    otherwise dealing with, any PaySys Affiliate
                                    Customer other than as set forth in this
                                    Section 4(f).

5.       PROPRIETARY RIGHTS LEGENDS. PaySys shall reproduce on all copies of the
         dBB Platform and derivative works thereto that PaySys creates or has
         created, the proprietary rights legends set forth on Schedule 5 in the
         manner set forth therein. In addition, PaySys shall replace or
         otherwise modify such legends as reasonably requested by Delos on all
         future copies of the dBB Platform and derivative works thereto that
         PaySys creates or has


                                       9
<PAGE>

         created. Subject to the foregoing, PaySys and its Affiliates may modify
         the documentation and screen displays of the dBB Platform, any portion
         thereof and any derivative works thereto to conform them to the product
         branding, display and documentation standards of PaySys and its
         Affiliates, including to identify PaySys and/or its Affiliates as the
         service and software provider of the dBB Platform and derivative works
         thereto.

6.       PROPRIETARY RIGHTS.

(a)      By Delos. As between Delos and PaySys and its Affiliates, subject to
         the licenses granted to Delos pursuant to that certain Trade Secret
         License Agreement dated as of April 27, 2001, between Delos and PaySys,
         Delos shall own all right, title and interest, including any
         Intellectual Property rights, in and to the dBB System.

(b)      By PaySys and its Affiliates. Subject to Sections 2(a)(ii), 2(a)(iii)
         and 6(a), PaySys shall own all right, title and interest, including
         Intellectual Property rights, in and to all updates, modifications,
         enhancements or derivative works that PaySys or its Affiliates create
         or have created to, or with the use of, the dBB System.

(c)      Cooperation. Each party shall perform any acts that may be deemed
         necessary or desirable by the other party to more fully evidence the
         foregoing Sections 6(a) and 6(b).

7.       TAXES. The license granted herein is exclusive of any federal, state,
         or local excise, sales, use and similar taxes assessed or imposed with
         respect to the transactions set forth herein. PaySys shall be
         responsible for all such taxes assessed or levied upon Delos with
         respect to such transactions. PaySys shall pay any such amounts upon
         request of Delos accompanied by evidence of imposition of such taxes.
         Notwithstanding the foregoing, in no event shall PaySys be liable for
         taxes relating to Delos' income. PaySys shall not be responsible for
         payment of any interest or penalties in connection with the payment of
         any such taxes not caused by PaySys, and PaySys may protest the
         validity or amount of any such tax.

8.       LIMITED REPRESENTATIONS AND WARRANTIES; DISCLAIMERS.

(a)      By Each Party. Each party represents and warrants to the other as
         follows:

         (i)      Organization, Corporate Power, Etc. Each party: (A) is duly
                  organized, validly existing and in good standing under the
                  laws of the state in which it is incorporated; (B) has the
                  requisite corporate or other power and authority to carry on
                  its business as it is now being conducted; and (C) is duly
                  licensed or qualified to do business in each jurisdiction in
                  which the nature of the business conducted by it makes such
                  licensing or qualification necessary.

         (ii)     Authority of Parties. Each party has full power and authority
                  to execute, deliver and perform this Agreement. The execution,
                  delivery and performance of this Agreement has been duly
                  authorized and approved by all necessary corporate or other
                  authorities and does not require any further authorization or
                  consent.


                                       10
<PAGE>

         (iii)    No Litigation. To each party's respective knowledge, there are
                  no lawsuits, claims, suits, proceedings or investigations
                  pending or threatened against it that questions the legality
                  or propriety of the transactions contemplated by this
                  Agreement.

         (iv)     Consents and Approvals. No consent, approval, authorization,
                  action or order of, or declaration, filing or registration
                  with, or notice to, any court, administrative agency,
                  governmental body or other third party is required to be made
                  or obtained by a party in connection with the execution and
                  delivery of this Agreement, the consummation of the
                  transactions contemplated by it, or the performance of its
                  obligations under it.

         (v)      Noncontravention. The execution, delivery and performance by
                  each party of this Agreement will not conflict with,
                  constitute a breach of, or default under, or violate any
                  provision of any agreement, indenture, note, or other
                  instrument to which such party is a party or by which such
                  party is or may be bound or to which any of such party's
                  property or assets is subject, or any statute, law, rule,
                  regulation, ruling, judgment, injunction, order or decree
                  applicable to such party or to any property or assets of such
                  party.

(b)      By Delos. Delos represents and warrants to PaySys that: (i) no viruses
         or similar data-damaging elements generally known in the software
         industry or disabling devices shall be present in the dBB Platform at
         the time it is delivered in accordance with Section 3; and (ii) the dBB
         System does not include any Intellectual Property rights, Software, or
         other rights of Accenture.

(c)      DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 8, NEITHER
         PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND, NATURE OR
         DESCRIPTION, EITHER EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO THE
         dBB SYSTEM OR ANY OTHER GOODS OR SERVICES PROVIDED HEREUNDER, INCLUDING
         ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE,
         AND EACH PARTY HEREBY DISCLAIMS THE SAME. WITHOUT LIMITING THE
         GENERALITY OF THE FOREGOING, EACH PARTY HEREBY DISCLAIMS ANY
         REPRESENTATIONS OR WARRANTIES THAT THE dBB PLATFORM WILL OPERATE
         UNINTERRUPTED OR ERROR FREE.

9.       LIABILITY LIMITATIONS; DISCLAIMER OF DAMAGES.

(a)      Liability Limitation. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE
         CONTRARY, EXCEPT FOR LIABILITY ARISING PURSUANT TO SECTIONS 10, 11 AND
         13, THE CUMULATIVE AGGREGATE LIABILITY OF A PARTY AND ITS RESPECTIVE
         AFFILIATES ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE
         LIMITED TO THE LESSER OF: (i) FIVE MILLION DOLLARS ($5,000,000); OR
         (ii) THE ACTUAL DIRECT DAMAGES SUFFERED BY THE OTHER PARTY AND ITS
         AFFILIATES.


                                       11
<PAGE>

(b)      Disclaimer of Damages. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO
         THE CONTRARY, EXCEPT FOR LIABILITY ARISING PURSUANT TO A BREACH OF A
         PARTY'S OBLIGATIONS SET FORTH IN SECTION 13, OR DAMAGES AWARDED TO A
         THIRD PERSON PURSUANT TO INDEMNIFICATION OBLIGATIONS SET FORTH IN
         SECTIONS 10 AND 11, IN NO EVENT SHALL EITHER PARTY, THEIR AFFILIATES OR
         ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR
         SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF TORT, CONTRACT, STRICT
         LIABILITY OR OTHER LEGAL THEORY FOR ANY LOST PROFITS, LOSS OF DATA,
         EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL
         DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES,
         REGARDLESS OF WHETHER EITHER PARTY OR ANY OTHER SUCH PERSON HAS BEEN
         ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

(c)      Allocation of Risk. THE FOREGOING REPRESENTS AN EXPRESS ALLOCATION OF
         RISK. EACH PARTY, ON BEHALF OF ITSELF AND ITS AFFILIATES ACKNOWLEDGES
         THAT EACH PARTY HAS ENTERED INTO THIS AGREEMENT IN RELIANCE UPON THE
         DISCLAIMERS SET FORTH IN THIS AGREEMENT AND THAT THE SAME FORM AN
         ESSENTIAL BASIS OF THE BENEFIT OF THE BARGAIN BETWEEN THE PARTIES.

10.      INDEMNIFICATION BY DELOS. Delos shall defend, indemnify and hold
         harmless PaySys, its Affiliates and their respective directors,
         officers, employees, agents and contractors (each a "PaySys
         Indemnitee") from and against all third Person claims, liabilities,
         losses or damages (including reasonable attorneys fees, expert witness
         fees, expenses and costs of settlement) resulting from or arising out
         of:

         (i)      any third Person claim or suit asserted or brought within five
                  (5) years following the Effective Date against any PaySys
                  Indemnitee alleging that the dBB System or any portion thereof
                  as delivered by Delos to PaySys infringes, misappropriates or
                  violates any copyright or trade secret of any third Person;

         (ii)     any third Person claim or suit known to Delos or any Delos
                  Affiliate as of the Effective Date and brought against any
                  PaySys Indemnitee alleging that the dBB System or any portion
                  thereof as delivered by Delos to PaySys infringes,
                  misappropriates or violates any copyright or trade secret of
                  any third Person; and

         (iii)    any third Person claim or suit asserted or brought within five
                  (5) years following the Effective Date against any PaySys
                  Indemnitee arising out of an Encumbrance on the dBB System or
                  any portion thereof which is existing as of the Effective
                  Date.

(b)      In addition to the obligations set forth in Section 10(a), if a final
         injunction is obtained against PaySys' or an Affiliate of PaySys' use
         of the dBB System or any portion thereof by reason of a claim


                                       12
<PAGE>

         set forth in Sections 10(a)(i) or 10(a)(ii), or if in Delos' reasonable
         opinion the dBB System or any portion thereof is likely to become the
         subject to a claim as set forth in Sections 10(a)(i) or 10(a)(ii),
         Delos shall, at its sole option and expense: (i) procure for PaySys
         and/or the Affiliate of PaySys, as applicable, the right to continue
         using the same in the manner permitted hereunder; (ii) replace or
         modify the same so that it no longer becomes subject to any such claim;
         or if neither of the foregoing are available (as reasonably determined
         by Delos) without the expenditure of more than five hundred thousand
         dollars ($500,000), terminate Section 2 only to the extent of the
         infringement, misappropriation or violation, upon ninety (90) days
         prior notice to PaySys and pay PaySys five hundred thousand dollars
         ($500,000) within ninety (90) days after such notification, provided,
         that Delos' liability pursuant to this Section 10(b)(iii) shall not
         exceed five hundred thousand dollars ($500,000).

11.      INDEMNIFICATION BY PAYSYS.

(a)      PaySys shall defend, indemnify and hold harmless Delos, its Affiliates
         and their respective directors, officers, employees, agents and
         contractors (each a "Delos Indemnitee") from and against all third
         Person claims, liabilities, losses or damages (including reasonable
         attorneys fees, expert witness fees, expenses and costs of settlement)
         resulting from or arising out of:

         (i)      any third Person claim or suit asserted or brought within five
                  (5) years following the Effective Date against any Delos
                  Indemnitee alleging that any updates, modifications,
                  enhancements, derivative works or portions thereof that PaySys
                  or its Affiliates create or have created to the dBB System
                  infringe, misappropriate or violate any copyright or trade
                  secret of any third Person;

         (ii)     any third Person claim or suit asserted or brought within five
                  (5) years following the Effective Date against any Delos
                  Indemnitee with respect to any use by PaySys of any dBB
                  Application or portion thereof created by or on behalf of
                  PaySys; and

         (iii)    any third Person claim or suit asserted or brought within five
                  (5) years following the Effective Date against any Delos
                  Indemnitee should PaySys continue to use the dBB System or any
                  portion thereof for which its license has terminated in
                  accordance with Section 10(b)(iii).

         (iv)     any third Person claim or suit asserted or brought against any
                  Delos Indemnitee should PaySys or any of its Affiliates
                  continue to use the dBB System or any portion thereof pursuant
                  to Section 14(c)(iii) after this Agreement is terminated by
                  Delos in accordance with Section 14(b) with regard to the
                  rights of PaySys' and its Affiliates' sublicensees who are not
                  PaySys or PaySys Affiliates who continue to receive support
                  from PaySys after such termination.

(b)      For the avoidance of doubt, subject to Sections 11(a)(iii) and
         11(a)(iv), neither PaySys nor any of its Affiliates shall have any
         obligation or liability hereunder with respect to claims or suits
         alleging that the dBB System or any portion thereof infringes,
         misappropriates or violates any Intellectual Property of any other
         Person.


                                       13
<PAGE>

12.      INDEMNIFICATION PROCEDURES.

(a)      The obligations of Delos under Section 10, or of PaySys and under
         Section 11 (in each instance the "Indemnitor"), to defend, indemnify
         and hold harmless PaySys Indemnitees and Delos Indemnitees, as
         applicable (the "Indemnitee") shall be subject to the following:

         (i)      the Indemnitee shall provide the Indemnitor with prompt notice
                  of the claim or suit giving rise to such obligation; provided,
                  however, that any failure or delay in giving such notice shall
                  only relieve the Indemnitor of its obligations under Section
                  10 or Section 11, as applicable, to the extent it reasonably
                  demonstrates that its defense or settlement of such claim or
                  suit was adversely affected thereby;

         (ii)     subject to Section 12(b), the Indemnitor shall have sole
                  control of the defense and of all negotiations for settlement
                  of such claim or suit, it being understood that the Indemnitor
                  shall not, without the Indemnitee's prior written consent
                  (which consent shall not be unreasonably withheld or delayed),
                  compromise or settle such claim or suit if: (A) such
                  compromise or settlement would impose an injunction or other
                  equitable relief upon the Indemnitee; or (B) such compromise
                  or settlement does not include the third Person's release of
                  the Indemnitee from all liability relating to such claim or
                  suit for which the Indemnitee is entitled to be indemnified;
                  and

         (iii)    the Indemnitee shall cooperate with the Indemnitor in the
                  defense or settlement of any such claim or suit, provided that
                  the Indemnitee shall be reimbursed for all reasonable
                  out-of-pocket expenses incurred in providing any such
                  cooperation.

(b)      Notwithstanding Section 12(a)(ii), a PaySys Indemnitee may elect to
         assume the defense of any such claim or suit at its own expense;
         provided that in such case, Delos shall: (i) cooperate with the PaySys
         Indemnitee in the defense and settlement of any such claim or suit;
         (ii) reimburse such PaySys Indemnitee for fifty percent (50%) of the
         costs and expenses of such PaySys Indemnitee relating to the assumption
         of such defense; (iii) pay any damages provisionally or finally awarded
         with respect to such claim or suit; and (iv) subject to its written
         consent (which consent shall not be unreasonably withheld or delayed),
         pay any settlement with respect to such claim or suit.

(c)      Except as set forth in Section 12(b), if the Indemnitor does not assume
         full control over the defense of a claim or suit in accordance with
         Section 12(a)(ii), then the Indemnitor may participate in such defense,
         at its sole cost and expense, and the Indemnitee may defend or settle
         the claim or suit in such manner as it may deem appropriate, at the
         sole cost and expense of the Indemnitor.

13.      CONFIDENTIALITY.

(a)      Confidential Information. For purposes of this Agreement, "Confidential
         Information" shall mean all technical, business, and other information
         and materials of PaySys disclosed to or obtained by Delos, or of Delos
         disclosed to or obtained by PaySys, in connection with this Agreement
         whether prior to, on or after the Effective Date, that derives economic
         value, actual or potential, from not being generally known to others,


                                       14
<PAGE>

         including, any technical or non-technical data, designs, methods,
         techniques, drawings, processes, products, inventions, improvements,
         methods or plans of operation, research and development, business plans
         and financial information of such party. Without limiting the
         generality of the foregoing, non-public information concerning the dBB
         System (including all documentation and specifications therefor) shall
         be deemed Confidential Information of Delos and among other things: (i)
         Confidential Information shall include confidential or proprietary
         information and materials of third parties and their respective
         Affiliates in possession of one of the parties to this Agreement and
         needed to perform obligations hereunder; and (ii) this Agreement,
         financial information and confidential business plans of either party
         shall in any event be considered Confidential Information of the
         parties or their licensors, respectively.

(b)      Obligations. Except as expressly authorized herein or by prior written
         consent of the disclosing party, which consent may be withheld in the
         disclosing party's sole discretion, the receiving party shall:

         (i)      limit access to any Confidential Information received by it to
                  its employees, agents, representatives, and consultants who
                  have a need-to-know in connection with this Agreement and the
                  obligations of the parties hereunder, and who are under
                  written or ethical obligations to maintain the confidentiality
                  of the receiving party's Confidential Information;

         (ii)     advise its employees, agents, representatives and consultants
                  having access to the Confidential Information of the
                  proprietary nature thereof and of the obligations set forth in
                  this Agreement and that such Confidential Information is to be
                  treated as the Confidential Information of the receiving
                  party;

         (iii)    safeguard all Confidential Information received by it using a
                  reasonable degree of care, but not less than that degree of
                  care used by the receiving party in safeguarding its own
                  similar information or material;

         (iv)     not disclose any Confidential Information received by it to
                  third Persons; and

         (v)      use the Confidential Information of the other party only for
                  the performance of such party's obligations and exercise of
                  such party's rights under this Agreement.

         A receiving party shall be responsible for any unauthorized use or
         disclosure of any Confidential Information received by the receiving
         party's employees, agents, representatives and consultants.

(c)      Exceptions to Confidentiality. Notwithstanding the foregoing Section
         13(b), the parties' obligations respecting confidentiality and
         limitation on use under Section 13(b) shall not apply to any particular
         information or materials that the other party can demonstrate:

         (i)      was, at the time of disclosure to it, in the public domain;

         (ii)     after disclosure to it, is published or otherwise becomes part
                  of the public domain through no fault of the receiving party;


                                       15
<PAGE>

         (iii)    was in the lawful possession of the receiving party at the
                  time of disclosure to it without being subject to an
                  obligation of confidentiality;

         (iv)     was received after disclosure to it from a third Person who
                  had a lawful right to disclose such information or materials
                  to it;

         (v)      was independently developed by the receiving party without
                  reference to or reliance upon Confidential Information
                  received by the receiving party;

         (vi)     was required to be disclosed to any regulatory body having
                  jurisdiction over the parties or any of their respective
                  Affiliates or their respective clients, provided that such
                  party shall use reasonable efforts to provide the other party
                  with prior notice thereof so that the other party may seek a
                  protective order or other appropriate remedy to prevent such
                  disclosure, and if such protective order or other remedy is
                  not obtained prior to the time such disclosure is required,
                  the party required to make the disclosure shall only disclose
                  that portion of such Confidential Information which it is
                  legally required to disclose; or

         (vii)    that disclosure is necessary by reason of legal, accounting or
                  regulatory requirements beyond the reasonable control of the
                  receiving party, provided that such party shall use all
                  reasonable efforts to provide the other party with prior
                  notice thereof so that the other party may seek a protective
                  order or other appropriate remedy to prevent such disclosure,
                  and if such protective order or other remedy is not obtained
                  prior to the time such disclosure is required, the party
                  required to make the disclosure will only disclose that
                  portion of such Confidential Information which it is legally
                  required to disclose.

(d)      The restrictions contained in this Section 13 shall not apply to any
         Delos information that does not constitute a trade secret under
         applicable law two years after the expiration or termination of this
         Agreement for any reason.

14.      DEFAULT AND TERMINATION.

(a)      Except as set forth in Section 14(b), if Delos, PaySys or any PaySys
         Affiliate fails to remedy within thirty (30) days after notice thereof
         a failure to perform any obligation imposed pursuant to this Agreement
         or comply with any restriction or other provision contained in this
         Agreement, the notifying party may resolve the same as set forth in
         Section 15.

(b)      If a party shall fail to pay when due any amounts due pursuant to this
         Agreement after one hundred eighty (180) days after notice thereof by
         the other party, such other party may terminate this Agreement after
         such one hundred eighty (180) day period unless such amounts are paid
         within such one hundred eighty (180) day period.

(c)      If Delos terminates this Agreement pursuant to Section 14(b):

         (i)      the rights and licenses granted herein shall terminate;


                                       16
<PAGE>

         (ii)     subject to Section 14(c)(iii) PaySys and its Affiliates shall
                  promptly delete all copies of the dBB Platform, including all
                  executable versions used in dBB Applications, from all
                  computers and storage devices and at PaySys' option, either
                  immediately return to Delos all copies of the dBB Platform or
                  destroy all copies of the dBB Platform and certify to Delos
                  the compliance with the foregoing;

         (iii)    notwithstanding anything to the contrary set forth in Section
                  14(c), PaySys and its Affiliates may retain copies of the dBB
                  Platform solely for the purpose, and solely to the extent
                  necessary for, continued support of PaySys' and its
                  Affiliates' sublicensees who are not PaySys or PaySys
                  Affiliates; and

         (iv)     the following provisions shall survive the termination of this
                  Agreement by Delos pursuant to Section 14(b) for any reason:
                  Sections 5, 6, 7, 8(c), 9, 10, 11, 12, 13, 14(c), 15, 16(a),
                  18 and 19.

(d)      If PaySys terminates this Agreement pursuant to Section 14(b):

         (i)      the rights and licenses granted herein shall continue;

         (ii)     without further action on either party, Section 2(a) shall be
                  revised to read in its entirety as set forth on Schedule
                  14(d)(ii); and

         (iii)    the following provisions shall survive the termination of this
                  Agreement by PaySys pursuant to Section 14(b) for any reason:
                  Sections 2, 3, 4, 5, 6, 7, 8(c), 9, 10, 11, 12, 13, 14(d), 15,
                  16(b), 17, 18 and 19.

15.      DISPUTE RESOLUTION.

(a)      Subject to Section 15(b), any and all Disputes shall be resolved as
         provided in Schedule 15(a).

(b)      Notwithstanding anything to the contrary set forth herein, no party
         shall be required to submit any dispute or disagreement regarding the
         interpretation of any provision of this Agreement, the performance by a
         party of such party's obligations under this Agreement or a default
         hereunder to the mechanisms set forth in Section 15(a), if such
         submission seeks solely equitable relief from irreparable harm.

16.      COVENANT NOT TO SOLICIT EMPLOYEES.

(a)      Without the consent of Delos, for a period of one (1) year following
         the Effective Date, PaySys shall not induce or persuade any employee of
         Delos or any of its Affiliates to terminate such employment
         relationship to enter into any employment, independent contractor or
         other business relationship with PaySys or any of its Affiliates. The
         covenant contained in this Section 16(a) shall not apply to
         solicitations of a general nature or if any such employee approaches
         PaySys with respect to any of the foregoing opportunities.


                                       17
<PAGE>

(b)      Without the consent of PaySys, for a period of one (1) year following
         the Effective Date, Delos shall not induce or persuade any employee of
         PaySys or any of its Affiliates to terminate such employment
         relationship to enter into any employment, independent contractor or
         other business relationship with Delos or any of its Affiliates. The
         covenant contained in this Section 16(b) shall not apply to
         solicitations of a general nature or if any such employee approaches
         Delos with respect to any of the foregoing opportunities.

17.      RIGHTS IN BANKRUPTCY. Delos agrees that if Delos as a
         debtor-in-possession or a trustee in bankruptcy rejects this Agreement,
         PaySys and any of its Affiliates may elect to retain their respective
         rights under this Agreement as provided in Section 365(n) of the
         Bankruptcy Code. To the extent permitted by Section 365(n) of the
         Bankruptcy Code, upon request of PaySys and/or any of its Affiliates to
         Delos or the trustee in bankruptcy, Delos or such trustee shall allow
         PaySys and/or any of PaySys' Affiliates, as applicable, to exercise
         their respective rights under this Agreement and shall not interfere
         with the rights of PaySys or any of its Affiliates as provided in this
         Agreement, provided that PaySys and its Affiliates, as applicable,
         continue to comply with the provisions of this Agreement.

18.      SOURCE CODE ESCROW AGREEMENT.

(a)      Delos shall keep on deposit with DSI Technology Escrow Services, Inc.
         (the "Escrow Agent") the source code and executable code for the dBB
         Software, including: (i) the source code and executable code for all
         modifications, enhancements, upgrades, and add-ons thereto and any
         derivative works thereof relating to any dBB Liabilities [existing as
         of the Effective Date]; and (ii) all materials, diagrams, drawings,
         manuals and documents required for ongoing support of the foregoing
         (collectively, the "Escrow Materials"). The Escrow Materials shall be
         on deposit with the Escrow Agent pursuant to the terms of the escrow
         agreement between Delos, PaySys and the Escrow Agent (the "Escrow
         Agreement"), to be entered into within 30 days after the Effective
         Date. The Escrow Agreement shall be substantially in the form of
         Schedule 18(a) attached hereto. Delos shall update the Escrow Materials
         as any changes to the Escrow Materials relate to the dBB Liabilities
         each year on the anniversary of the initial deposit of the Escrow
         Materials.

(b)      The Escrow Agreement shall provide that the Escrow Agent shall release
         the Escrow Materials to PaySys and its Affiliates if: (i) any
         proceedings are instituted by or against Delos seeking to adjudicate
         Delos as bankrupt or insolvent, or seeking liquidation, winding-up,
         arrangement, adjustment, relief or compensation of its debts under
         bankruptcy law, or seeking the entry of an order for relief or the
         appointment of a receiver trustee or other similar official for it or
         for its property and such proceedings are not dismissed within sixty
         (60) days after they are instituted; (ii) PaySys terminates this
         Agreement in accordance with Section 14(b); or (iii) Delos fails to
         meet the obligations regarding the dBB Liabilities assumed by Delos in
         accordance with the Contribution Agreement, and fails to cure such
         default within 60 days after receiving notice of such default from
         PaySys.


                                       18
<PAGE>

(c)      The Escrow Agreement shall terminate upon the later of: (i) the
         termination of all dBB Liabilities; or (ii) 4 years after the Effective
         Date.

(d)      Notwithstanding anything in this Agreement or the Escrow Agreement to
         the contrary and subject to the terms and conditions of this Agreement,
         Delos hereby grants to: (i) PaySys and its Affiliates; and (ii) the
         Transferred Operations and any successor entity, a non-exclusive,
         nontransferable (except as otherwise provided in this Agreement),
         worldwide, royalty-free and fully paid up right and license to use,
         execute, sublicense, copy, modify and have modified the Escrow
         Materials solely to the extent necessary to discharge any obligations
         relating to the dBB Liabilities, which right and license such parties
         may exercise at any time after the Escrow Materials have been released
         by the Escrow Agent.

19.      MISCELLANEOUS.

(a)      Assignment; Transfer. Except as provided herein, neither party may
         assign or transfer this Agreement and any such attempted assignment or
         transfer shall be void. Either party may: (i) transfer this Agreement
         in connection with any merger or consolidation of such party with
         another Person, provided that such party furnishes the other party with
         notice of such transfer within ten (10) business days after the
         announcement of the same; or (ii) in connection with the sale of
         substantially all of the party's assets (including the rights of a
         party under this Agreement), provided that (A) the assignee thereof
         shall assume all of such party's obligations hereunder, and (B) the
         party furnishes the other party with notice of the closing of such
         assignment and assumption within ten (10) business days after the same.
         Subject to the foregoing, all provisions contained in this Agreement
         shall extend to and be binding upon the parties hereto and their
         respective permitted successors and permitted assigns.

(b)      Waiver. No failure or delay on the part of any party to exercise any
         right or remedy hereunder shall operate as a waiver thereof, nor shall
         a single or partial exercise by any party of any right or remedy
         preclude any further exercise thereof or the exercise of any other
         right or remedy. No express waiver or assent by a party to any breach
         of or default in a term or condition of this Agreement shall constitute
         a waiver of or assent to any other breach of or default in the same or
         any other term or condition hereof.

(c)      Independent Contractors. The Parties acknowledge that the relationship
         between Delos and PaySys is that of licensor and licensee and nothing
         contained in this Agreement shall be construed to place either party in
         the relationship of principal and agent, master and servant, partners
         or joint venturers with the other party or its Affiliates. Neither
         party shall have, expressly or by implication, or represent itself as
         having any authority to make contracts or enter into any agreement in
         the name of the other parties, or to obligate or bind the other party
         in any manner whatsoever.

(d)      Entire Agreement. This Agreement and its Schedules supersedes all prior
         discussions, understandings and agreements between the parties with
         respect to the matters contained herein, and contains the sole and
         entire agreement between the parties with respect to the


                                       19
<PAGE>

         transactions contemplated herein. This Agreement may not be amended or
         modified except by another agreement in writing executed by the parties
         hereto.

(e)      Governing Law. The validity and effect of this Agreement shall be
         governed by the laws of the State of Florida, without regard to its
         rules regarding conflicts of law.

(f)      Force Majeure. No party shall be liable for any default or delay in the
         performance of its obligations (other than payment obligations, if any)
         under this Agreement if and to the extent such default or delay is
         caused, directly or indirectly, by: (i) fire, flood, elements of nature
         or other acts of God; (ii) any outbreak or escalation of hostilities,
         war, riots or civil disorders in any country; (iii) any act or omission
         of the other party or any governmental authority; or (iv) any labor
         disputes (whether or not the employees' demands are reasonable or
         within the party's power to satisfy). In any such event, the
         non-performing party shall be excused from any further performance or
         observance of the obligation so affected only for as long as such
         circumstances prevail and such party continues to use commercially
         reasonable efforts to recommence performance or observance as soon as
         practicable.

(g)      No Third-Party Beneficiaries. Nothing contained in this Agreement is
         intended to confer upon any party (other than the parties hereto and
         Affiliates of either party) any rights, benefits or remedies of any
         kind or character whatsoever, and no party shall be deemed a
         third-party beneficiary under or by reason of this Agreement.

(h)      Consent. If either party requires the consent or approval of the other
         party for the taking of, or omitting to take, any action under this
         Agreement, except as expressly set forth in this Agreement, such
         consent or approval shall not be unreasonably withheld or delayed.

(i)      Severability. If any provision of this Agreement or the application of
         any such provision to any party or circumstance, shall be declared
         judicially to be invalid, unenforceable or void, such decision shall
         not have the effect of invalidating or voiding the remainder of this
         Agreement, it being the intent and agreement of the parties that this
         Agreement shall be deemed amended by modifying such provision to the
         extent necessary to render it valid, legal and enforceable while
         preserving its intent or, if such modification is not possible, by
         substituting therefor another provision that is valid, legal and
         enforceable so as to materially effectuate the parties' intent.

(j)      Notices. Any notices, requests, demands, certifications and other
         communications required or permitted under this Agreement shall be in
         writing and shall be sufficiently given if delivered in person or if
         mailed by registered or certified mail, postage prepaid, to the parties
         at the addresses specified in this Section 19(j), or if transmitted by
         facsimile to the fax number specified below and confirmed by the
         recipient by facsimile. A party may change the address or fax number to
         which notices are to be sent by giving notice to the other party in the
         manner provided herein. Notices sent by mail shall be deemed delivered
         when received. Notices transmitted by confirmed facsimile shall be
         deemed delivered on the date of transmittal.


                                       20
<PAGE>

         If to PaySys:                              If to Delos:

         First Data Corporation                     Delos Payment Systems, Inc.
         5660 New Northside Drive                   One Meca Way
         Suite 1400                                 Norcross, GA 30093
         Atlanta, GA 30328-5800                     Attn: President
         Attn: General Counsel                      Telecopy: (770) 564-8006
         Telecopy: (770) 857-0414

         With a copy to:                            With a copy to:

         Sidley & Austin                            Kilpatrick Stockton LLP
         Bank One Plaza                             Suite 2800
         10 S. Dearborn St.                         1100 Peachtree Street
         Chicago, IL 60603                          Atlanta, GA 30309-4530

         Attention: Frederick C. Lowinger           Attn: Larry Ledbetter
         Telecopy: (312) 853-7036                   Telecopy: (404) 815-6555

(k)      Export. Neither PaySys nor its Affiliates shall export or re-export the
         dBB System without appropriate United States and/or foreign government
         licenses, and PaySys and its Affiliates shall comply with all
         applicable export and import laws and regulations with respect thereto.

(l)      Headings. Headings as to the contents of particular sections are
         inserted only for convenience and shall not be construed a part of this
         Agreement or as a limitation on the scope of any of the terms or
         provisions of this Agreement.

(m)      No Interpretation Against Drafter. Both parties have participated
         substantially in the negotiation and drafting of this Agreement and
         each party hereby disclaims any defense or assertion in any litigation
         or arbitration that any ambiguity herein should be construed against
         the draftsman.

(n)      Counterparts. This Agreement may be executed in any number of
         counterparts, each of which shall be deemed an original and all of
         which together shall constitute one and the same instrument.


                                       21
<PAGE>

IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be
executed by their duly authorized officers as of the Effective Date.

DELOS PAYMENT SYSTEMS, INC.            PAYSYS INTERNATIONAL, INC.



By:                                       By:
   ----------------------------------        ----------------------------------

Name:                                     Name:
     --------------------------------          --------------------------------

Title:                                    Title:
      -------------------------------           -------------------------------


                                       22
<PAGE>

                                      NOTE

   SCHEDULES TO THIS EXHIBIT ARE NOT FILED HEREWITH. THE REGISTRANT AGREES TO
    PROVIDE THE SCHEDULES SUPPLEMENTALLY UPON REQUEST OF THE SECURITIES AND
                              EXCHANGE COMMISSION.


                                        1

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>7
<FILENAME>g74809ex10-8.txt
<DESCRIPTION>TRADE SECRET LICENSE AGREEMENT
<TEXT>
<PAGE>


                                                                    EXHIBIT 10.8


                         TRADE SECRET LICENSE AGREEMENT

                  THIS TRADE SECRET LICENSE AGREEMENT (the "Agreement") is dated
as of April 27, 2001 (the "Effective Date"), and is by and between PaySys
International, Inc., a Florida corporation, and Delos Payment Systems, Inc., a
Delaware corporation.

                  WHEREAS, pursuant to that certain Contribution Agreement,
dated as of April 27, 2001, between PaySys and Delos (the "Contribution
Agreement"), PaySys transferred and assigned to Delos inter alia, all of its
right, title and interest in and to those certain computer software programs and
related materials generally known as the "dBB Software" as defined therein;

                  WHEREAS, in connection with the Contribution Agreement, PaySys
agreed to enter into this Agreement to grant Delos certain limited rights to use
the VisionPlus Trade Secrets as set forth herein.

                  NOW, THEREFORE, for and in consideration of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

1.       DEFINITIONS. In this Agreement, the following terms have the meanings
         specified or referred to in this Section 1 and shall be equally
         applicable to both the singular and plural forms. In this Agreement,
         the words "including", "include" and "includes" shall each be deemed to
         be followed by the term "without limitation". Any agreement, schedule,
         attachment or exhibit referred to herein shall mean such agreement,
         schedule, attachment or exhibit as amended, restated, supplemented and
         modified from time to time to the extent permitted by the applicable
         provisions thereof and by this Agreement. References to any statute or
         regulation means such statute or regulation as amended from time to
         time and includes any successor statute or regulation. Unless otherwise
         stated, references to recitals, articles, sections, paragraphs,
         schedules and exhibits shall be references to recitals, articles,
         sections, paragraphs, schedules and exhibits of this Agreement.

(a)      "AAA" has the meaning set forth in Section 2(a) of Schedule 12(a).

(b)      "AFFILIATE" shall mean an entity (including any joint venture or
         alliance) that, directly or indirectly, owns or controls, is owned or
         is controlled by or is under common ownership or control with another
         entity (including any joint venture or alliance). For purposes hereof,
         an entity, shall be deemed to "own or control" another entity if and
         for so long as it beneficially owns fifty percent (50%) or more of the
         voting equity securities or other equivalent voting interests of the
         other entity.

(c)      "AGREEMENT" has the meaning set forth in the first paragraph.

(d)      "ARBITRATION DEMAND" has the meaning set forth in Section 2(b) of
         Schedule 12(a).

(e)      "ARBITRATION PANEL" has the meaning set forth in Section 2(d) of
         Schedule 12(a).

(f)      "BASIC QUALIFICATIONS" has the meaning set forth in Section 2(b) of
         Schedule 12(a).

<PAGE>
(g)      "CONTRIBUTION AGREEMENT" has the meaning set forth in the first
         recital.

(h)      "DBB PLATFORM" shall mean all versions of that certain computer program
         commonly known as the "dBB Platform", both in source code format in C++
         programming language, and as compiled into executable code format,
         (along with the integrated development environment, the system DSLs,
         DSLs and development tools and related documentation).

(i)      "DBB SYSTEM" shall mean the dBB Platform and all Intellectual Property
         embodied therein or relating thereto.

(j)      "DELOS" shall mean Delos Payment Systems, Inc., a Delaware corporation,
         and its permitted successors and permitted assigns.

(k)      "DISPUTE" shall mean any and all disputes, controversies and claims
         between the parties arising from or in connection with this Agreement
         or the relationship of the parties under this Agreement whether based
         on contract, tort, common law, equity, statute, regulation, order or
         otherwise.

(l)      "DISPUTING PARTY" has the meaning set forth in Section 2(a) of Schedule
         12(a).

(m)      "DSL" shall mean dBB serial language.

(n)      "EFFECTIVE DATE" has the meaning set forth in the first paragraph.

(o)      "INDEMNIFIED PARTIES" has the meaning set forth in Section 8(b)(i).

(p)      "INDEMNIFIED PARTY" has the meaning set forth in Section 8(b)(i).

(q)      "INFRINGEMENT CLAIM" has the meaning set forth in Section 8(a)(i).

(r)      "INTELLECTUAL PROPERTY" shall mean any: (i) trademarks, trade names,
         service marks, domain names, trade dress, logos and other similar
         designations; (ii) copyrights and copyrightable works; (iii) patents,
         patent rights, patent applications, inventions and trade secrets; and
         (iv) other protectable property rights.

(s)      "LICENSE AGREEMENT TERMS" has the meaning set forth in Section
         2(a)(ii).

(t)      "PAYSYS" shall mean PaySys International, Inc., a Florida corporation,
         and its permitted successors and permitted assigns.

(u)      "PERSON" shall mean an individual, corporation, limited liability
         company, partnership, sole proprietorship, joint venture, or other form
         of organization or governmental agency or authority.

(v)      "SUBLICENSEE" has the meaning specified in Section 2(a)(ii).

(w)      "VISIONPLUS TRADE SECRETS" means those trade secrets owned by PaySys
         that are embodied in the CMS (credit management system), FAS (financial
         authorization system)


                                       2
<PAGE>

         and/or ITS (interchange tracking system) modules of that certain
         software known as VisionPLUS, version 2.50.

2.       PAYSYS LICENSE GRANT.

(a)      Subject to the terms and conditions of this Agreement, PaySys hereby
         grants to Delos a royalty-free, non-exclusive, non-transferable (except
         as set forth in this Agreement), worldwide, perpetual, irrevocable
         (subject to Section 11) limited license to:

         (i)      use the VisionPlus Trade Secrets solely in connection with and
                  embodied within the dBB Platform and applications developed
                  through the use of the dBB Platform, and to create or have
                  created modifications, enhancements, updates and derivative
                  works of the dBB Platform and such applications and use the
                  same in accordance with the limitations provided in this
                  Section 2;

         (ii)     permit third Person licensees and their respective
                  sublicensees (each a "Sublicensee") to use the dBB Platform
                  and/or applications developed through the use of the dBB
                  Platform and to create or have created modifications,
                  enhancements, updates and derivative works of the dBB Platform
                  and such applications, and use the same for any purpose
                  whatsoever, provided that: (A) Delos executes an agreement
                  with each such Sublicensee that contains terms consistent with
                  the terms set forth on Schedule 2(a)(ii) (the "License
                  Agreement Terms"); (B) neither Delos nor any Delos Affiliate
                  may license or sublicense to a Sublicensee the VisionPlus
                  Trade Secrets; and (C) the rights granted to any Sublicensee
                  by Delos and/or any Delos Affiliate pursuant to this Section
                  2(a)(ii) shall not violate the restrictive covenants contained
                  in Section 4 of that certain Software License Agreement, dated
                  as of April 27, 2001, between PaySys and Delos;

         (iii)    sublicense to any Affiliate of Delos the rights granted in
                  Sections 2(a)(i) and 2(a)(ii), provided that Delos has
                  delivered to PaySys a writing executed by an authorized
                  representative of such Affiliate to abide by the terms of this
                  Agreement as if such Affiliate was an original party to this
                  Agreement.

(b)      All rights not specifically granted herein are reserved by PaySys.

3.       PROPRIETARY RIGHTS LEGENDS. Delos shall reproduce on all copies of the
         dBB Platform and all modifications, enhancements, updates and
         derivative works thereto that Delos creates or has created, the
         proprietary rights legends set forth on Schedule 3 in the manner set
         forth therein. In addition, Delos shall replace or otherwise modify
         such legends as reasonably requested by PaySys on all future copies of
         the dBB Platform and all modifications, enhancements, updates and
         derivative works thereto that Delos creates or has created. Subject to
         the foregoing, Delos and its Affiliates may modify the documentation
         and screen displays of the dBB Platform, any portion thereof and any
         and modifications, enhancements, updates and derivative works thereto
         to conform them to the product branding, display and documentation
         standards of Delos and its Affiliates, including to identify Delos
         and/or its Affiliates as the service and software provider of the


                                       3
<PAGE>

         dBB Platform and all modifications, enhancements, updates and
         derivative works thereto.

4.       PROPRIETARY RIGHTS.

(a)      By PaySys. As between Delos and its Affiliates and PaySys, PaySys owns
         own all right, title and interest in and to each of the VisionPlus
         Trade Secrets.

(b)      By Delos. Subject to Section 4(a), as between Delos and PaySys and its
         Affiliates, and subject to the licenses granted herein, Delos shall own
         all right, title and interest, including any Intellectual Property
         rights, in and to the dBB System, any applications developed by Delos
         and any Delos Affiliate through the use of the dBB Platform, and to any
         modifications, enhancements, updates or derivative works that Delos or
         its Affiliates create to the dBB System or such applications using the
         VisionPlus Trade Secrets.

5.       TAXES. The license granted herein is exclusive of any federal, state,
         or local excise, sales, use and similar taxes assessed or imposed with
         respect to the transactions set forth herein. Delos shall be
         responsible for all such taxes assessed or levied upon PaySys with
         respect to such transactions. Delos shall pay any such amounts upon
         request of PaySys accompanied by evidence of imposition of such taxes.
         Notwithstanding the foregoing, in no event shall Delos be liable for
         taxes relating to PaySys' income. Delos shall not be responsible for
         payment of any interest or penalties in connection with the payment of
         any such taxes not caused by Delos, and Delos may protest the validity
         or amount of any such tax.

6.       LIMITED REPRESENTATIONS AND WARRANTIES; DISCLAIMERS.

(a)      By Each Party. Each party represents and warrants to the other as
         follows:

         (i)      Organization, Corporate Power, Etc. Each party: (A) is duly
                  organized, validly existing and in good standing under the
                  laws of the state in which it is incorporated; (B) has the
                  requisite corporate or other power and authority to carry on
                  its business as it is now being conducted; and (C) is duly
                  licensed or qualified to do business in each jurisdiction in
                  which the nature of the business conducted by it makes such
                  licensing or qualification necessary.

         (ii)     Authority of Parties. Each party has full power and authority
                  to execute, deliver and perform this Agreement. The execution,
                  delivery and performance of this Agreement has been duly
                  authorized and approved by all necessary corporate or other
                  authorities and does not require any further authorization or
                  consent.

         (iii)    No Litigation. To each party's respective knowledge, there are
                  no lawsuits, claims, suits, proceedings or investigations
                  pending or threatened against it that questions the legality
                  or propriety of the transactions contemplated by this
                  Agreement.

         (iv)     Consents and Approvals. No consent, approval, authorization,
                  action or order of, or declaration, filing or registration
                  with, or notice to, any court, administrative agency,
                  governmental body or other third party is required to be made
                  or obtained


                                       4
<PAGE>

                  by a party in connection with the execution and delivery of
                  this Agreement, the consummation of the transactions
                  contemplated by it, or the performance of its obligations
                  under it.

         (v)      Noncontravention. The execution, delivery and performance by
                  each party of this Agreement will not conflict with,
                  constitute a breach of, or default under, or violate any
                  provision of any agreement, indenture, note, or other
                  instrument to which such party is a party or by which such
                  party is or may be bound or to which any of such party's
                  property or assets is subject, or any statute, law, rule,
                  regulation, ruling, judgment, injunction, order or decree
                  applicable to such party or to any property or assets of such
                  party.

(b)      DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 6, NEITHER
         PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND, NATURE OR
         DESCRIPTION, EITHER EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO THE
         VISIONPLUS TRADE SECRETS, INCLUDING ANY WARRANTY OF MERCHANTABILITY,
         FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT, AND EACH PARTY
         HEREBY DISCLAIMS THE SAME.

7.       LIABILITY LIMITATIONS; DISCLAIMER OF DAMAGES.

(a)      Liability Limitation. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO
         THE CONTRARY, EXCEPT FOR LIABILITY ARISING PURSUANT TO SECTIONS 8 AND
         9, THE CUMULATIVE AGGREGATE LIABILITY OF A PARTY AND ITS AFFILIATES
         ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LIMITED TO THE
         LESSER OF: (i) FIVE MILLION DOLLARS ($5,000,000); OR (ii) THE ACTUAL
         DIRECT DAMAGES SUFFERED BY THE OTHER PARTY AND ITS AFFILIATES.

(b)      Disclaimer of Damages. NOTWITHSTANDING ANYTHING TO THE CONTRARY
         HEREIN, EXCEPT FOR LIABILITY ARISING PURSUANT TO A BREACH OF DELOS'
         OBLIGATIONS SET FORTH IN SECTION 9 OR DAMAGES AWARDED TO A THIRD
         PERSON PURSUANT TO INDEMNIFICATION OBLIGATIONS SET FORTH IN SECTION
         8(b), IN NO EVENT SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF THEIR
         RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE
         LIABLE UNDER ANY THEORY OF TORT, CONTRACT, STRICT LIABILITY OR
         OTHER LEGAL THEORY FOR ANY LOST PROFITS, LOSS OF DATA, EXEMPLARY,
         PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES,
         EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES,
         REGARDLESS OF WHETHER EITHER PARTY HAS BEEN ADVISED OF THE
         POSSIBILITY OF SUCH DAMAGES.

(c)      Allocation of Risk. THE FOREGOING REPRESENTS AN EXPRESS ALLOCATION OF
         RISK. EACH PARTY ACKNOWLEDGES THAT EACH PARTY HAS ENTERED INTO THIS
         AGREEMENT IN RELIANCE UPON THE DISCLAIMERS SET FORTH


                                       5
<PAGE>

         IN THIS AGREEMENT AND THAT THE SAME FORM AN ESSENTIAL BASIS OF THE
         BENEFIT OF THE BARGAIN BETWEEN THE PARTIES.

8.       INTELLECTUAL PROPERTY INFRINGEMENT ISSUES; INDEMNIFICATION.

(a)      Notice of Infringement Claims.

         (i)      If any civil, criminal, administrative or investigative action
                  or proceeding of any nature involving any claim of
                  infringement, misappropriation or violation of any patent,
                  copyright, trademark, trade secret, confidential information
                  or other intellectual property right relating to any of the
                  VisionPlus Trade Secrets or any portion thereof ("Infringement
                  Claim") is threatened or commenced by any third Person against
                  Delos, any Delos Affiliate or any Sublicensee with respect to
                  the use or possession of any of the VisionPlus Trade Secrets
                  or any portion thereof, Delos shall notify PaySys of the same
                  as promptly as practicable. After such notice, PaySys shall be
                  entitled, if it so elects in writing within ten (10) days
                  after PaySys' receipt of such notice, to control the defense,
                  investigation, settlement and compromise of such Infringement
                  Claim and to employ and engage attorneys of its choice to
                  handle and defend the same, at PaySys' sole cost and expense.
                  Delos, its Affiliates and any Sublicensee, as applicable,
                  shall cooperate in all reasonable respects with PaySys and its
                  attorneys in the investigation, trial, defense, settlement and
                  compromise of such Infringement Claim and any appeal arising
                  therefrom. Delos, its Affiliates and any Sublicensee, as
                  applicable, shall have the right to employ and engage separate
                  counsel and participate in the defense, investigation,
                  settlement and compromise of such Infringement Claim and to
                  consult with PaySys' counsel (it being agreed that PaySys
                  shall retain control of such defense, investigation,
                  settlement and compromise) but the fees and expenses of such
                  counsel shall be at Delos' sole cost and expense.

         (ii)     If PaySys does not assume full control over the defense,
                  investigation, settlement and compromise of any such
                  Infringement Claim, then PaySys may participate in such
                  defense, investigation, settlement and compromise at its sole
                  cost and expense, and Delos, its Affiliate or Sublicensee, as
                  applicable, shall defend, settle or compromise such
                  Infringement Claim in such manner as it may deem appropriate,
                  at the cost and expense of Delos, its Affiliate or
                  Sublicensee, as applicable; provided that Delos, its Affiliate
                  or any Sublicensee, as applicable, shall not settle or
                  compromise an Infringement Claim that involves a remedy other
                  than the payment of money by Delos or any Sublicensee, as
                  applicable, without the prior written consent of PaySys (which
                  consent shall not be unreasonably withheld or delayed),
                  including, any settlement or compromise involving any
                  admission, finding or the like relating to any of the
                  VisionPlus Trade Secrets, without the prior written consent of
                  PaySys.

(b)      Indemnification by Delos.

         (i)      Notwithstanding the provisions of Section 8(a), if any civil,
                  criminal, administrative or investigative action or proceeding
                  of the nature of an


                                       6
<PAGE>

                  Infringement Claim is threatened or commenced by any third
                  Person against PaySys, its Affiliates and their respective
                  directors, officers, employees and agents (each an
                  "Indemnified Party," and collectively, "Indemnified Parties")
                  with respect to the use by Delos, any Delos Affiliate or any
                  Sublicensee, of any of the VisionPlus Trade Secrets or any
                  portion thereof, either during the Agreement term, or after
                  the termination of this Agreement, should Delos or any Delos
                  Affiliate continue to use any of the VisionPlus Trade Secrets
                  or any portion thereof in accordance with Section 11(e)(iv)
                  after such termination, then notice thereof shall be given to
                  Delos as promptly as practicable; provided, however, that any
                  delay by an Indemnified Party in giving such notice shall not
                  constitute a breach of this Agreement and shall not excuse
                  Delos' obligations under this Section 8(b) except to the
                  extent, if any, that Delos is prejudiced by such delay. Within
                  ten (10) days after such notice, Delos shall assume full
                  control over the defense, investigation, settlement and
                  compromise of any such Infringement Claim and shall employ and
                  engage attorneys of its choice reasonably acceptable to PaySys
                  to handle and defend the same, at Delos' sole cost and
                  expense. The Indemnified Party shall cooperate in all
                  reasonable respects with Delos and its attorneys in the
                  investigation, trial and defense of such Infringement Claim
                  and any appeal arising therefrom; provided however, that the
                  Indemnified Party or PaySys may, at its own cost and expense,
                  participate through its attorneys or otherwise, in such
                  investigation, trial, defense and settlement of such
                  Infringement Claim and any appeal arising therefrom. Delos
                  shall not settle or compromise any such Infringement Claim
                  that involves a remedy other than the payment of money without
                  the prior written consent of PaySys (which consent shall not
                  be unreasonably withheld or delayed), including, any
                  settlement or compromise involving any admission, finding or
                  the like relating to any of the VisionPlus Trade Secrets.

         (ii)     If Delos does not assume full control over the defense of an
                  Infringement Claim pursuant to Section 8(b)(i), then Delos may
                  participate in such defense, compromise, settlement and
                  investigation at its sole cost and expense, and the
                  Indemnified Party shall have the right to defend, settle or
                  compromise such Infringement Claim in such manner as it may
                  deem appropriate, at the sole cost and expense of Delos.

9.       CONFIDENTIALITY.

(a)      Obligations. Except as expressly authorized herein or by prior written
         consent of PaySys, Delos shall:

         (i)      limit access to the VisionPlus Trade Secrets received by it to
                  its employees, agents, representatives, and consultants who
                  have a need-to-know in connection with this Agreement and
                  Delos' obligations hereunder, and who are under written or
                  ethical obligations to maintain the confidentiality of Delos
                  confidential information, including the VisionPlus Trade
                  Secrets, which, in accordance with Section 9(a)(ii), are to be
                  treated as Delos' confidential information;


                                       7
<PAGE>

         (ii)     advise its employees, agents, representatives and consultants
                  having access to the VisionPlus Trade Secrets of the
                  proprietary nature thereof and of the obligations set forth in
                  this Agreement and that such VisionPlus Trade Secrets are to
                  be treated as Delos' confidential information;

         (iii)    not disclose the VisionPlus Trade Secrets received by it to
                  third Persons;

         (iv)     use the VisionPlus Trade Secrets only for the performance of
                  Delos' obligations and the exercise of Delos' rights under
                  this Agreement;

         Delos shall be responsible for any unauthorized use or disclosure of
         the VisionPlus Trade Secrets by Delos, its Affiliates, and their
         respective employees, agents, representatives and consultants.

(b)      Exceptions to Confidentiality. Notwithstanding the foregoing Section
         9(a), Delos' obligations under Section 9(a) shall not apply to any of
         the VisionPlus Trade Secrets that Delos can demonstrate:

         (i)      was, at the time of disclosure to it, in the public domain;

         (ii)     after disclosure to it, is published or otherwise becomes part
                  of the public domain through no fault of Delos;

         (iii)    was received after disclosure to it from a third Person who
                  had a lawful right to disclose any of the VisionPlus Trade
                  Secrets to it;

         (iv)     was required to be disclosed to any regulatory body having
                  jurisdiction over Delos, its Affiliates and/or their
                  respective clients, provided that Delos, its Affiliates,
                  and/or their respective clients shall use reasonable efforts
                  to provide PaySys with prior notice thereof so that PaySys may
                  seek a protective order or other appropriate remedy to prevent
                  such disclosure, and if such protective order or other remedy
                  is not obtained prior to the time such disclosure is required,
                  Delos, its Affiliates, and/or their respective clients shall
                  only disclose that portion of the VisionPlus Trade Secrets
                  which such party or parties is legally required to disclose;
                  or

         (v)      that disclosure is necessary by reason of legal, accounting or
                  regulatory requirements beyond Delos' reasonable control,
                  provided that Delos shall use all reasonable efforts to
                  provide PaySys with prior notice thereof so that PaySys may
                  seek a protective order or other appropriate remedy to prevent
                  such disclosure, and if such protective order or other remedy
                  is not obtained prior to the time such disclosure is required,
                  Delos shall only disclose that portion of the VisionPlus Trade
                  Secrets which it is legally required to disclose.

10.      COVENANT NOT TO SOLICIT EMPLOYEES.

(a)      Without the consent of PaySys, for a period of one (1) year following
         the Effective Date, Delos shall not induce or persuade any employee of
         PaySys or any of its Affiliates to


                                       8
<PAGE>

         terminate such employment relationship to enter into any employment,
         independent contractor or other business relationship with Delos or any
         of its Affiliates. The covenant contained in this Section 10(a) shall
         not apply to solicitations of a general nature or if any such employee
         approaches Delos with respect to any of the foregoing opportunities,
         provided, however, that if Delos or any of its Affiliates shall enter
         into any employment, independent contractor or other business
         relationship with (i) any independent contractor who provided services
         to PaySys or any of its Affiliates, or (ii) any employee of PaySys or
         any of its Affiliates in accordance with the preceding sentence, Delos
         or its Affiliate, as applicable, shall execute an agreement with each
         such former employee or independent contractor substantially in the
         form attached hereto in Schedule 10(a). Upon request by PaySys to
         Delos, Delos and its Affiliates, as applicable, shall provide PaySys
         with copies of each such agreement executed by each such independent
         contractor or former employee of PaySys or its Affiliates.

(b)      Without the consent of Delos, for a period of one (1) year following
         the Effective Date, PaySys shall not induce or persuade any employee of
         Delos or any of its Affiliates to terminate such employment
         relationship to enter into any employment, independent contractor or
         other business relationship with PaySys or any of its Affiliates. The
         covenant contained in this Section 10(b) shall not apply to
         solicitations of a general nature or if any such employee approaches
         PaySys with respect to any of the foregoing opportunities.

11.      TERM; DEFAULT AND TERMINATION.

(a)      Term. This Agreement shall be effective as of the Effective Date and
         shall continue unless terminated as set forth herein.


(b)      Except as set forth in Section 11(c), if PaySys, Delos or any Delos
         Affiliate fails to remedy within thirty (30) days after notice thereof
         a failure to perform any obligation imposed pursuant to this Agreement
         or comply with any restriction or other provision contained in this
         Agreement, the notifying party may resolve the same as set forth in
         Section 12.

(c)      If a party shall fail to pay when due any amounts due pursuant to this
         Agreement after one hundred eighty (180) days after notice thereof by
         the other party, such other party may terminate this Agreement after
         such one hundred eighty (180) day period unless such amounts are paid
         within such one hundred eighty (180) day period.

(d)      PaySys may terminate this Agreement upon ninety (90) days notice to
         Delos if any third Person obtains a judgement or injunction against
         PaySys or any other Person with respect to the continued use or
         possession of any of the VisionPlus Trade Secrets.

(e)      If PaySys terminates this Agreement pursuant to Sections 11(c) or
         11(d):

         (i)      the rights and licenses granted herein shall terminate;


                                       9
<PAGE>

         (ii)     Delos and its Affiliates shall promptly cease use of the
                  VisionPlus Trade Secrets and PaySys Confidential Information
                  and certify to PaySys the compliance with the foregoing;

         (iii)    the following provisions shall survive the termination of this
                  Agreement by PaySys pursuant to Sections 11(c) or 11(d) for
                  any reason: Sections 4, 5, 6(b), 7, 8, 9, 10(a), 11(e), 12 and
                  14; and

         (iv)     notwithstanding any termination of this Agreement pursuant to
                  Section 11(d), Delos and its Affiliates may continue to use
                  the VisionPlus Trade Secrets solely for the purpose, and
                  solely to the extent necessary for, continued support of
                  Sublicensees who are not Delos or Delos Affiliates.

(f)      If Delos terminates this Agreement pursuant to Section 11(c):

         (i)      the rights and licenses granted herein shall continue;

         (ii)     the following provisions shall survive the termination of this
                  Agreement by Delos pursuant to Section 11(c) for any reason:
                  Sections 2, 3 4, 5, 6(b), 7, 8, 9, 10(b), 11(f), 12, 13 and
                  14.

12.      DISPUTE RESOLUTION.

(a)      Subject to Section 12(b), any and all Disputes shall be resolved as
         provided in Schedule 12(a).

(b)      Notwithstanding anything to the contrary set forth herein, no party
         shall be required to submit any dispute or disagreement regarding the
         interpretation of any provision of this Agreement, the performance by a
         party of such party's obligations under this Agreement or a default
         hereunder to the mechanisms set forth in Section 12(a), if such
         submission seeks solely equitable relief from irreparable harm.

(c)      THE PARTIES CONSENT TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED
         STATES DISTRICT COURT FOR THE STATE OF FLORIDA AND OF ANY FLORIDA STATE
         COURT SITTING IN FLORIDA FOR ALL LITIGATION THAT MAY BE BROUGHT WITH
         RESPECT TO THE TERMS OF, AND THE TRANSACTIONS AND RELATIONSHIPS
         CONTEMPLATED BY, THIS AGREEMENT. THE PARTIES FURTHER CONSENT TO THE
         JURISDICTION OF ANY STATE COURT LOCATED WITHIN A DISTRICT THAT
         ENCOMPASSES ASSETS OF A PARTY AGAINST WHICH A JUDGMENT HAS BEEN
         RENDERED, EITHER THROUGH ARBITRATION OR THROUGH LITIGATION, FOR THE
         ENFORCEMENT OF SUCH JUDGMENT AGAINST THE ASSETS OF SUCH PARTY.

13.      RIGHTS IN BANKRUPTCY. PaySys agrees that if PaySys as a
         debtor-in-possession or a trustee in bankruptcy rejects this Agreement,
         Delos may elect to retain its rights under this Agreement as provided
         in Section 365(n) of the Bankruptcy Code. To the extent permitted by
         Section 365(n) of the Bankruptcy Code, upon request of Delos to PaySys
         or


                                       10
<PAGE>

         the trustee in bankruptcy, PaySys or such trustee shall allow Delos to
         exercise its rights under this Agreement and shall not interfere with
         the rights of Delos as provided in this Agreement, provided that Delos
         continues to comply with the provisions of this Agreement.

14.      MISCELLANEOUS.

(a)      Assignment; Transfer. Except as provided herein, neither party may
         assign or transfer this Agreement and any such attempted assignment or
         transfer shall be void. Either party may: (i) transfer this Agreement
         in connection with any merger or consolidation of such party with
         another Person, provided that such party furnishes the other party with
         notice of such transfer within ten (10) business days after the
         announcement of the same; or (ii) in connection with the sale of
         substantially all of the party's assets (including the rights of a
         party under this Agreement), provided that (A) the assignee thereof
         shall assume all of such party's obligations hereunder, and (B) the
         party furnishes the other party with notice of the closing of such
         assignment and assumption within ten (10) business days after the same.
         Subject to the foregoing, all provisions contained in this Agreement
         shall extend to and be binding upon the parties hereto and their
         respective permitted successors and permitted assigns.

(b)      Waiver. No failure or delay on the part of any party to exercise any
         right or remedy hereunder shall operate as a waiver thereof, nor shall
         a single or partial exercise by any party of any right or remedy
         preclude any further exercise thereof or the exercise of any other
         right or remedy. No express waiver or assent by a party to any breach
         of or default in a term or condition of this Agreement shall constitute
         a waiver of or assent to any other breach of or default in the same or
         any other term or condition hereof.

(c)      Independent Contractors. The Parties acknowledge that the relationship
         between Delos and PaySys is that of licensor and licensee and nothing
         contained in this Agreement shall be construed to place either party in
         the relationship of principal and agent, master and servant, partners
         or joint venturers with the other party or its Affiliates. Neither
         party shall have, expressly or by implication, or represent itself as
         having any authority to make contracts or enter into any agreement in
         the name of the other parties, or to obligate or bind the other party
         in any manner whatsoever.

(d)      Entire Agreement. This Agreement and its Schedules supersedes all prior
         discussions, understandings and agreements between the parties with
         respect to the matters contained herein, and contains the sole and
         entire agreement between the parties with respect to the transactions
         contemplated herein. This Agreement may not be amended or modified
         except by another agreement in writing executed by the parties hereto.

(e)      Governing Law. The validity and effect of this Agreement shall be
         governed by the laws of the State of Florida, without regard to its
         rules regarding conflicts of law.

(f)      Force Majeure. No party shall be liable for any default or delay in the
         performance of its obligations (other than payment obligations, if any)
         under this Agreement if and to the extent such default or delay is
         caused, directly or indirectly, by: (i) fire, flood, elements


                                       11
<PAGE>

         of nature or other acts of God; (ii) any outbreak or escalation of
         hostilities, war, riots or civil disorders in any country; (iii) any
         act or omission of the other party or any governmental authority; or
         (iv) any labor disputes (whether or not the employees' demands are
         reasonable or within the party's power to satisfy). In any such event,
         the non-performing party shall be excused from any further performance
         or observance of the obligation so affected only for as long as such
         circumstances prevail and such party continues to use commercially
         reasonable efforts to recommence performance or observance as soon as
         practicable.

(g)      No Third-Party Beneficiaries. Nothing contained in this Agreement is
         intended to confer upon any party (other than the parties hereto and
         Affiliates of either party) any rights, benefits or remedies of any
         kind or character whatsoever, and no party shall be deemed a
         third-party beneficiary under or by reason of this Agreement.

(h)      Consent. If either party requires the consent or approval of the other
         party for the taking of, or omitting to take, any action under this
         Agreement, except as expressly set forth in this Agreement, such
         consent or approval shall not be unreasonably withheld or delayed.

(i)      Severability. If any provision of this Agreement or the application of
         any such provision to any party or circumstance, shall be declared
         judicially to be invalid, unenforceable or void, such decision shall
         not have the effect of invalidating or voiding the remainder of this
         Agreement, it being the intent and agreement of the parties that this
         Agreement shall be deemed amended by modifying such provision to the
         extent necessary to render it valid, legal and enforceable while
         preserving its intent or, if such modification is not possible, by
         substituting therefor another provision that is valid, legal and
         enforceable so as to materially effectuate the parties' intent.

(j)      Notices. Any notices, requests, demands, certifications and other
         communications required or permitted under this Agreement shall be in
         writing and shall be sufficiently given if delivered in person or if
         mailed by registered or certified mail, postage prepaid, to the parties
         at the addresses specified in this Section 14(j), or if transmitted by
         facsimile to the fax number specified below and confirmed by the
         recipient by facsimile. A party may change the address or fax number to
         which notices are to be sent by giving notice to the other party in the
         manner provided herein. Notices sent by mail shall be deemed delivered
         when received. Notices transmitted by confirmed facsimile shall be
         deemed delivered on the date of transmittal.

         If to PaySys:                           If to Delos:

         First Data Corporation                  Delos Payment Systems, Inc.
         5660 New Northside Drive                One Meca Way
         Suite 1400                              Norcross, GA 30093
         Atlanta, GA 30328-5800                  Attn:  President
         Attn:  General Counsel                  Telecopy: (660) 564-8006
         Telecopy: (770) 857-0414


                                       12
<PAGE>

         With a copy to:                         With a copy to:

         Sidley & Austin                         Kilpatrick Stockton LLP
         Bank One Plaza                          Suite 2800
         10 S. Dearborn St.                      1100 Peachtree Street
         Chicago, IL 60603                       Atlanta, GA 30309-4530

         Attention: Frederick C. Lowinger        Attn:  Larry Ledbetter
         Telecopy:  (312) 853-7036               Telecopy: (404) 815-6555

(k)      Export. Delos shall not export or re-export any of the VisionPlus Trade
         Secrets without appropriate United States and/or foreign government
         licenses, and Delos shall comply, and shall ensure that its
         sublicensees comply with all applicable export and import laws and
         regulations with respect thereto.

(l)      Headings. Headings as to the contents of particular sections are
         inserted only for convenience and shall not be construed a part of this
         Agreement or as a limitation on the scope of any of the terms or
         provisions of this Agreement.

(m)      No Interpretation Against Drafter. Both parties have participated
         substantially in the negotiation and drafting of this Agreement and
         each party hereby disclaims any defense or assertion in any litigation
         or arbitration that any ambiguity herein should be construed against
         the draftsman.

(n)      Counterparts. This Agreement may be executed in any number of
         counterparts, each of which shall be deemed an original and all of
         which together shall constitute one and the same instrument.

              [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]


                                       13
<PAGE>


         IN WITNESS WHEREOF, the parties hereto have each caused this Agreement
to be executed by their duly authorized officers as of the Effective Date.


DELOS PAYMENT SYSTEMS, INC.                PAYSYS INTERNATIONAL, INC.



By:                                        By:
    --------------------------------           ---------------------------------

Name:                                      Name:
      ------------------------------             -------------------------------

Title:                                     Title:
       -----------------------------              ------------------------------


                  NOTE: SCHEDULES TO THIS EXHIBIT ARE NOT FILED HEREWITH. THE
                  REGISTRANT AGREES TO FILE THE SCHEDULES SUPPLEMENTALLY UPON
                  REQUEST OF THE SECURITIES AND EXCHANGE COMMISSION.


                                       14

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>8
<FILENAME>g74809ex10-9.txt
<DESCRIPTION>NON-COMPETITION AGREEMENT
<TEXT>
<PAGE>


                                                                    EXHIBIT 10.9


                            NONCOMPETITION AGREEMENT

         THIS NONCOMPETITION AGREEMENT, made as of April 27, 2001, by and among
First Data Corporation, a Delaware corporation ("PURCHASER"), J. Leland Strange
("SELLER"), and PaySys International, Inc., a Florida corporation (the "COMPANY"
and, collectively with its subsidiaries, the "ACQUIRED COMPANIES").


                              W I T N E S S E T H:

         WHEREAS, concurrently with the execution and delivery of this
Agreement, Purchaser is acquiring the Company and its subsidiaries from Seller
and the other shareholders thereof pursuant to the terms and conditions of an
Agreement and Plan of Merger dated as of March 17, 2001, (the "ACQUISITION
AGREEMENT"); and

         WHEREAS, Section 4.6 of the Acquisition Agreement requires that
noncompetition agreements be executed and delivered by each of Seller, Stephen
B. Grubb, and David B. Black as a condition to the acquisition of the Company
and its subsidiaries by Purchaser;

         NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:

         1.       DEFINITIONS

         Capitalized terms not expressly defined in this Agreement shall have
the meanings ascribed to them in the Acquisition Agreement.

         2.       ACKNOWLEDGMENTS BY SELLER

         Seller acknowledges that (a) Seller has occupied a position of trust
and confidence with the Acquired Companies prior to the date hereof and may have
become familiar with some or all of the following, any and all of which
constitute confidential information of the Acquired Companies (collectively the
"CONFIDENTIAL INFORMATION"): (i) any and all trade secrets concerning the
business and affairs of the Acquired Companies, product specifications, data,
know-how, formulae, compositions, processes, designs, sketches, photographs,
graphs, drawings, samples, inventions and ideas, past, current and planned
research and development, current and planned manufacturing and distribution
methods and processes, customer lists, current and anticipated customer
requirements, price lists, market studies, business plans, computer software and
programs (including object code and source code), computer software and database
technologies, systems, structures and architectures (and related processes,
formulae, compositions, improvements, devices, know-how, inventions,
discoveries, concepts, ideas, designs, methods and information), of the Acquired
Companies and any other information, however documented, of the Acquired
Companies that is a trade secret within the


<PAGE>

meaning of Florida law; (ii) any and all information concerning the business and
affairs of the Acquired Companies (which includes historical financial
statements, financial projections and budgets, historical and projected sales,
capital spending budgets and plans, the names and backgrounds of key personnel,
personnel training and techniques and materials), however documented; and (iii)
any and all notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Acquired Companies containing or based, in whole
or in part, on any information included in the foregoing, (b) the business of
the Acquired Companies is international in scope, (c) its products and services
are marketed throughout the world; (d) Purchaser has required that Seller make
the covenants set forth in SECTIONS 4 and 5 of this Agreement as a condition to
the Purchaser's acquisition of the Company from Seller and the other
shareholders of the Company; (e) the provisions of SECTIONS 4 and 5 of this
Agreement are reasonable and necessary to protect and preserve the Acquired
Companies' business, and (f) the Acquired Companies would be irreparably damaged
if Seller were to breach the covenants set forth in SECTIONS 4 and 5 of this
Agreement.

         3.       ACKNOWLEDGEMENTS BY PURCHASER

         Purchaser acknowledges that in no event shall any provision of this
Agreement be deemed to apply to, or restrict in any manner, Intelligent Systems
Corporation (or any successor, subsidiary, or affiliate thereof) or any
activities of Seller taken through such company as a director, officer,
employee, shareholder, member, or limited partner of any other entity.

         4.       CONFIDENTIAL INFORMATION

         Except to the extent conveyed to dBB-2 Corp. in accordance with the dBB
Agreement, Seller acknowledges and agrees that all Confidential Information
known or obtained by Seller, whether before or after the date hereof, is the
property of the Acquired Companies. Therefore, Seller agrees that Seller will
not, at any time, disclose or cause to be disclosed to any unauthorized Persons
or use for his own account or for the benefit of any third party, including
Intelligent Systems Corporation (or any successor, subsidiary, or affiliate
thereof), any Confidential Information, without Purchaser's written consent,
unless and to the extent that the Confidential Information is or becomes
generally known to and available for use by the public other than as a result of
Seller's fault or the fault of any other Person bound by a duty of
confidentiality to Purchaser or the Acquired Companies.

         5.       NONCOMPETITION

         As an inducement for Purchaser to enter into the Acquisition Agreement
and as additional consideration for the consideration to be paid to Seller under
the Acquisition Agreement, Seller agrees that:

         (a)      For a period of 2 years after the Closing:

                  (i)      Seller will not, directly or indirectly, own a
         controlling interest in, serve as an executive officer of, operate, or
         control any business whose products or activities


                                       2
<PAGE>

         compete in whole or in part with the products or activities of the
         Acquired Companies, anywhere in the world; provided, however, that this
         provision shall not prevent Seller from purchasing or otherwise
         acquiring up to (but not more than) forty-nine percent of any class of
         securities of any enterprise (but without otherwise controlling the
         operations of such enterprise);

                  (ii)     Except as contemplated by the Acquisition Agreement
         (including with respect to the dBB-2 Corp.), Seller will not, directly
         or indirectly, either for himself or any other Person, (A) induce or
         attempt to induce any employee of an Acquired Company to leave the
         employ of such Acquired Company, (B) in any way interfere with the
         relationship between an Acquired Company and any employee of such
         Acquired Company, (C) employ, or otherwise engage as an employee, any
         employee of an Acquired Company, or (D) induce or attempt to induce any
         customer, supplier, licensee, or business relation of an Acquired
         Company to cease doing business with such Acquired Company, or in any
         way interfere with the relationship between any customer, supplier,
         licensee, or business relation of an Acquired Company;

                  (iii)    Seller will not, directly or indirectly, either for
         himself or any other Person, solicit the business of any Person known
         to Seller to be a customer of an Acquired Company, whether or not
         Seller had personal contact with such Person, with respect to products
         or activities which compete in whole or in part with the products or
         activities of an Acquired Company; and

         (b)      In the event of a breach by Seller of any covenant set forth
in Subsection 4(a) of this Agreement, the term of such covenant will be extended
by the period of the duration of such breach.

         6.       REMEDIES

         If Seller breaches the covenants set forth in SECTIONS 4 or 5 of this
Agreement, Purchaser and the Acquired Companies will be entitled to the
following remedies:

         (a)      Damages from Seller;

         (b)      In addition to its right to damages and any other rights it
may have, to obtain injunctive or other equitable relief to restrain any breach
or threatened breach or otherwise to specifically enforce the provisions of
SECTIONS 4 and 5 of this Agreement, it being agreed that money damages alone
would be an inadequate remedy for such breach.

The rights and remedies of the parties to this Agreement are cumulative and not
alternative.

         7.       SUCCESSORS AND ASSIGNS

         The obligations of Seller under this Agreement may not be assigned by
Seller. Purchaser may assign its rights hereunder to the affiliates of Purchaser
and any such assignee of Purchaser


                                       3
<PAGE>

shall be entitled to all of the provisions of this Agreement. This Agreement
will be binding upon Purchaser, the Acquired Companies and Seller and will inure
to the benefit of Purchaser and the Acquired Companies and their Affiliates,
successors and assigns and Seller and Seller's assigns, heirs and legal
representatives.

         8.       WAIVER

         Neither the failure nor any delay by any party in exercising any right,
power, or privilege under this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement can be discharged by one party, in whole or in part, by a waiver
or renunciation of the claim or right unless in writing signed by the other
party; (b) no waiver that may be given by a party will be applicable except in
the specific instance for which it is given; and (c) no notice to or demand on
one party will be deemed to be a waiver of any obligation of such party of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement.

         9.       GOVERNING LAW

         This Agreement will be governed by the laws of the State of Georgia
without regard to conflicts of laws principles.

         10.      JURISDICTION; SERVICE OF PROCESS

         Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against any of the
parties in the courts of the State of Georgia, County of Gwinnett, or, if it has
or can acquire jurisdiction, in the United States District Court for the
Northern District of the Eleventh Circuit, and each of the parties consents to
the jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may be
served on any party anywhere in the world.

         11.      SEVERABILITY

         Whenever possible each provision and term of this Agreement will be
interpreted in a manner to be effective and valid but if any provision or term
of this Agreement is held to be prohibited by or invalid, then such provision or
terms will be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement. If any
of the covenants set forth in SECTIONS 4 or 5 of this Agreement are held to be
unreasonable, arbitrary, or against public policy, such covenants will be
considered divisible with respect to scope, time, and geographic area, and in
such lesser scope, time and geographic area, will be effective, binding and
enforceable against Seller.


                                       4
<PAGE>

         12.      COUNTERPARTS

         This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.

         13.      SECTION HEADINGS, CONSTRUCTION

         The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.

         14.      NOTICES

         All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(when written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):

         SELLER:                    J. Leland Strange
                                    Intelligent Systems Corporation
                                    4355 Shackleford Road
                                    Norcross, GA  30093
                                    Facsimile No.: (770) 381-2808

         PURCHASER:                 First Data Corporation
                                    10825 Farnam Drive, C-12
                                    Omaha, NE  68154
                                    Attention: Peter L. Harrington
                                    Facsimile No.: (402) 222-8894

                                    First Data Corporation
                                    Suite 1400
                                    5660 New Northside Drive
                                    Atlanta, GA  30328
                                    Attention: Michael T. Whealy
                                    Facsimile No.: (770) 857-0414


                                       5
<PAGE>

         with a copy to:            Sidley & Austin
                                    Bank One Plaza
                                    10 S. Dearborn St.
                                    Chicago, IL  60603
                                    Attention: Frederick C. Lowinger
                                    Facsimile No.: (312) 853- 7036

         COMPANY:                   PaySys International, Inc.
                                    900 Winderley Place, Suite 200
                                    Maitland, Florida  32751
                                    Attention: President
                                    Facsimile No.: (407) 660-8235

         with a copy to:            Kilpatrick Stockton, LLP
                                    1100 Peachtree Street, N.E.
                                    Atlanta, Georgia  30303
                                    Attention: Larry Ledbetter
                                    Fascimile No.: (404) 815-6555

         15.      ENTIRE AGREEMENT

         This Agreement and the Acquisition Agreement constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersede all prior written and oral agreements and understandings
between Purchaser and Seller with respect to the subject matter of this
Agreement. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.

         IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.


PURCHASER:                                J. LELAND STRANGE:



By:
   ------------------------------         --------------------------------------
Name:
Title:

                                          COMPANY:


                                          By:
                                             -----------------------------------
                                          Name:
                                          Title:


                                       6

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>9
<FILENAME>g74809ex10-10.txt
<DESCRIPTION>SUBSCRIPTION AGREEMENT
<TEXT>
<PAGE>
                                                                   EXHIBIT 10.10

                           DELOS PAYMENT SYSTEMS, INC.

                             SUBSCRIPTION AGREEMENT

                                 August 23, 2001

Delos Payment Systems, Inc.
Attn:  Mr. Stephen Grubb
One Meca Way
Norcross, GA 30093

Dear Mr. Grubb:

         By executing this Subscription Agreement (the "Agreement"), the
undersigned (the "Investor") hereby irrevocably subscribes to acquire from Delos
Payment Systems, Inc., a Delaware corporation (the "Company"), upon the terms
and conditions of this Agreement, (1) warrants to purchase shares of the
Company's Common Stock, par value $0.0001 per share (the "Common Stock"), at a
purchase price of $0.01 per share, pursuant to the terms and subject to the
conditions of a warrant in the form attached hereto as Exhibit A (the
"Warrant"), and (2) a $3,000,000 principal amount 10% secured convertible master
promissory note, between the Company and Investor, in the form attached hereto
as Exhibit B (the "Note"), which Note may, pursuant to the terms thereof, be
converted into the class of shares of the Company's capital stock issued in a
Qualified Equity Financing (as defined in the Note), which are anticipated to be
designated as Series B Convertible Preferred Stock, par value $0.0001 per share
(the "Series B Stock").

         To secure the full and prompt repayment of the Note, upon execution of
this Agreement the Company shall execute and deliver to the Investor a security
agreement in the form attached as Exhibit C (the "Security Agreement").

                         REPRESENTATIONS AND WARRANTIES

         The Investor makes representations and warranties in this Subscription
Agreement in order to permit the Company to determine the suitability of the
Note and the Warrant as an investment for the Investor and to determine the
availability of the exemptions relied upon by the Company from registration
under Section 5 of the United States Securities Act of 1933, as amended, and the
regulations promulgated thereunder (the "Securities Act"). The undersigned
understands and agrees that, although the Company will use its best efforts to
keep the information provided in the answers to this Agreement strictly
confidential, the Company may present this Agreement, and the information
provided in answers to it, to such parties as it deems advisable if called upon
to establish the availability under any federal or state securities laws of an
exemption from registration of a private placement or if the contents hereof are
relevant


<PAGE>

to any issue in any investigation, action, suit or proceeding to which the
Company is a party or by which it is or may be bound.

1.       Investor Representations, Warranties and Covenants. The Investor hereby
represents and warrants to the Company as follows:

         (a)      Legal Power; Due Authorization. The Investor has the requisite
legal power to enter into this Agreement, to purchase the securities of the
Company hereunder, to convert its Note and exercise its Warrant, and to carry
out and perform its obligations under the terms of this Agreement. This
Agreement has been duly authorized, executed and delivered by the Investor, and,
upon due execution and delivery by the Company, this Agreement will be a valid
and binding agreement of the Investor.

         (b)      Accredited Investor Status. The Investor represents that the
Investor is an "accredited investor" as such term is defined in Rule 501(a)
under the Securities Act.

         (c)      Investment Intention and Restrictions on Disposition. The
Investor represents and warrants that the Investor is acquiring the Warrant
being purchased by it and the Note being issued to it hereunder, and will
acquire the Series B Stock to be issued upon the conversion of the Note and the
shares of Common Stock to be issued upon the exercise of the Warrant and
conversion of the Series B Stock, solely for the Investor's own account for
investment and not with a view to, or for sale in connection with, any
distribution thereof in any transaction or series of transactions that would be
in violation of the securities laws of the United States or any state thereof.
The Investor agrees that it will not, directly or indirectly, offer, transfer,
sell, pledge, hypothecate or otherwise dispose of any of those securities (or
solicit any offers to buy, purchase or otherwise acquire or take a pledge of any
of those securities or any interest therein or any rights relating thereto,
except in compliance with (i) the Securities Act and (ii) all applicable state
securities or "blue sky" laws. The Investor further understands, acknowledges
and agrees that the those securities or any economic or voting rights relating
thereto may not be transferred, sold, pledged, hypothecated or otherwise
disposed of unless such disposition is pursuant to an effective registration
statement under the Securities Act or an exemption therefrom and is exempt from
or in compliance with applicable state securities laws. The Investor has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the Note and Warrant and the condition of the Company's
business, including without limitation its financial condition. The Investor is
an experienced investor in securities and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment and has such knowledge
and experience in financial or business matters that it is capable of evaluating
the merits and risks of the investment in the Note and Warrant. The Investor
understands that all securities issued hereunder are characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations such securities may not be
resold without registration under the Securities Act and applicable state
securities laws, except in certain limited circumstances. In this connection,
the Investor represents that it is familiar with Rule 144 under the Securities
Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Act. The


                                      -2-
<PAGE>

Investor understands that no public market now exists for any of the Company's
equity securities and that it is uncertain whether a public market will ever
exist therefrom. Investor hereby acknowledges that the Note, the Warrant and the
underlying shares of Common Stock and Series B Stock shall bear such legends as
may be required by applicable federal and state securities laws, as determined
in the good faith judgment of the Company.

         2.       Representations, Warranties and Covenants of the Company. The
Company represents and warrants to the Investor that:

                  (a)      the execution and delivery of this Agreement, the
Warrant and the Note, the performance of the Company's obligations hereunder and
thereunder, the consummation by it of the transactions contemplated hereby, the
issuance of the Common Stock upon the exercise of the Warrant, and the issuance
of the Series B Stock upon the conversion of the Note have been duly and validly
authorized by all requisite corporate action on the part of the Company (except
that the Series B Stock has not been authorized for issuance and approval of the
Company's board of directors and shareholders will be required for same);

                  (b)      the Warrant, the Common Stock and the Series B Stock,
when issued and delivered in accordance with the terms hereof, the Warrant or
the Note, as the case may be, will be validly issued, fully paid and
non-assessable and free and clear of any liens or encumbrances other than those
created pursuant to this Agreement or otherwise in connection with the
transactions contemplated hereby and thereby;

                  (c)      the Company is a corporation duly organized and
validly existing under the laws of the State of Delaware and in good standing
under such laws. The Company is qualified to do business as a foreign
corporation in every jurisdiction in which the failure to so qualify would have
a material adverse effect on its business, assets, results of operation and
prospects. The Company has the requisite corporate power and authority to own
and operate its properties and assets and to carry on its business as presently
conducted;

                  (d)      the Company does not own or control, directly or
indirectly, any interest or investment in any corporation, partnership,
association or other form of business entity;

                  (e)      the authorized capital stock of the Company consists
of 2,000,000 shares of Common Stock, of which 1,172,387 are issued and
outstanding, and 2,000,000 shares of Preferred Stock, of which 1,200,000 shares
have been designated Series A Junior Redeemable Preferred Stock, $0.0001 par
value per share ("Series A Stock"), of which 1,172,387 are issued and
outstanding. Additionally, the Company has granted no options or warrants to
purchase shares of Common Stock;

                  (f)      subject in part to the accuracy of the Investor's
representations herein, the offer, sale and issuance of the Warrant and the Note
pursuant to the terms of this Agreement, the issuance of the Common Stock upon
exercise of the Warrant, and the issuance of the Series B Stock upon conversion
of the Note, constitute transactions exempt from the registration


                                      -3-
<PAGE>

requirements of Section 5 of the Securities Act, as amended, and all applicable
state securities laws;

                  (g)      the Company has good and marketable title to all of
the properties and assets which it owns, free and clear of any mortgage, pledge,
lien, lease, encumbrance or charge, other than liens for current taxes not yet
due and payable;

                  (h)      the Company owns or possesses sufficient legal rights
to all patents, patent applications, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, know-how, concepts, computer programs and
software, technical data, proprietary rights, proprietary processes and other
information necessary for its business as presently conducted and as currently
contemplated to be conducted (each such item, the "Company Intellectual
Property") without any conflict with or infringement of the rights of others.
Except as set forth on Schedule 2(h), except for proprietary information
agreements with its employees, consultants, and independent contractors
substantially in the forms previously made available to the Investor, and except
for licenses or agreements entered into in the ordinary course of the Company's
business, consistent with past practices, there are no outstanding options,
licenses, or agreements of any kind relating to any of the Company Intellectual
Property, nor is the Company bound by or a party to any options, licenses, or
agreements of any kind with respect to the patents, patent applications,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
know-how, concepts, computer programs, technical data, proprietary rights,
proprietary processes and information of any other person or entity. All
employees, consultants, and independent contractors of the Company who created
or developed the Company Intellectual Property have assigned to the Company any
rights such employees, consultants, and independent contractors may have had in
the Company Intellectual Property. No person or entity has the right to purchase
or exclusively license any of the Company Intellectual Property;

                  (i)      there are no actions, suits, proceedings, or
investigations pending or, to the Company's knowledge, threatened against the
Company or its properties before any court or governmental agency, and to the
Company's knowledge, no actions, suits, proceedings or investigations are
pending or threatened against its employees that may relate to their employment
with, or conduct on behalf of, the Company, or that question the validity of
this Agreement or any action taken or to be taken in connection herewith;

                  (j)      the Company is not under any obligation and has not
granted any rights to register under the Securities Act any of its presently
outstanding securities or any of its securities that may subsequently be issued.
To the Company's knowledge, except as contemplated herein, no stockholder of the
Company is a party to any agreement with respect to the voting of the Company's
securities; and

                  (k)      the copies of the minute books of the Company
provided to the Investor or its legal counsel in connection with this Agreement
contain minutes of all meetings of directors and shareholders and all actions by
written consent by the directors and shareholders and accurately reflect all
actions by the directors (and any committee of directors) and shareholders with
respect to all transactions referred to therein in all material respects.


                                      -4-
<PAGE>

         3.       Tax Matters.

                  (a)      Withholding. The Company shall have the right to
withhold or require the Investor to remit to the Company an amount, if any,
necessary to satisfy federal, state and local withholding tax requirements
incurred upon the purchase, ownership or disposition of the Warrant, the Common
Stock issued upon the exercise of the Warrant, or the Series B Stock issued upon
the conversion of the Note.

                  (b)      Value. The parties hereto agree that the Warrant has
a nominal value (i.e. $100.00) as of the date hereof.

         4.       Stock Certificate Legends. The Warrant, as well as any shares
of Common Stock or Series A Stock issued in connection with the exercise thereof
or issued in connection with the conversion of the Note, shall bear a legend
substantially as follows:

         "THE ISSUANCE OF THE SECURITIES REPRESENTED BY THIS
         CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
         OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND
         MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR
         OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
         REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
         SECURITIES LAWS, OR PURSUANT TO AN EXEMPTION FROM THE
         REGISTRATION PROVISIONS OF THE SECURITIES ACT OF 1933, AS
         AMENDED, AND APPLICABLE STATE SECURITIES LAWS.

         THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE, IN
         PART, ON PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE GEORGIA
         SECURITIES ACT OF 1973, AS AMENDED, AND MAY NOT BE SOLD OR
         TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER
         SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH
         ACT."

         5.       Indemnification. Investor hereby indemnifies and holds
         harmless the Company, and its directors, officers and affiliates from
         and against all damages, losses, costs and expenses (including
         reasonable attorney's fees) which they may incur by reason of any
         factual statements made by Investor that result in (a) the failure of
         Investor to fulfill any of the material terms or conditions of this
         Agreement or (b) any material breach of the representations and
         warranties made by Investor herein. The Company hereby indemnifies and
         holds harmless the Investor and its affiliates from and against all
         damages, losses, costs and expenses (including reasonable attorney's
         fees) which they may incur by reason of the failure of the Company to
         fulfill any of


                                      -5-
<PAGE>

the material terms and conditions of this Agreement or by reason of any material
breach of the representations and warranties made by the Company herein.

                                  MISCELLANEOUS

         1. Agreement to Lend, Issuance of Note. Investor agrees to lend to the
Company the amount of up to Three Million Dollars ($3,000,000) (the "Loan"). The
Loan will be advanced in installments (each, an "Advance"), as evidenced by and
subject to the conditions set forth in the Note and in this Agreement. Investor
agrees to lend to the Company the Loan, and the Company agrees to issue to
Investor the Note in the aggregate principal amount of the Loan, and the Warrant
subject to the terms and conditions of this Agreement.

         2. Initial Closing. The closing of the first Advance contemplated by
this Agreement (the "Initial Closing") will take place at the offices of
Kilpatrick Stockton LLP, 1100 Peachtree Street, Atlanta, Georgia 30309 at 11:30
a.m., on the date hereof (the "Initial Closing Date") or at such other place or
different time or day as may be mutually acceptable to Investor and the Company.
At the Initial Closing, the Company will deliver to Investor the Warrant dated
as of the Initial Closing Date, together with the Note dated as of the Initial
Closing Date, and the Security Agreement dated as of the Initial Closing Date,
against payment to the Company by Investor, by certified check or wire transfer,
of the first Advance in the amount of $1,500,000; and the Company shall repay in
full the principal and interest outstanding under the Promissory Note dated July
27, 2001, and the Promissory Note dated August 13, 2001, both in favor of
Investor (collectively, the "Matured Notes").

         3. Subsequent Advances. After the Initial Closing and prior to December
31, 2001, the Company may request additional advances which, when added to the
first Advance, do not exceed $3,000,000. Each request for an advance shall be in
an amount not to exceed $500,000 and shall be accompanied by a written
statement, signed by the Chief Executive Officer of the Company, stating that
the Company is in full compliance with all terms, conditions and covenants of
this Agreement, the Warrant, the Note and the Security Agreement. The Investor
shall fund each qualified advance within three days of each request up to an
aggregate maximum of $1,500,000 in principal amount. For requests by the Company
for advances in excess of the first Advance and up to $3,000,000, the Investor
shall have no obligation whatsoever to fund such additional advances, and shall
make such additional advances, if any, in its sole discretion.

         4. Use of Proceeds. The proceeds of the Loan shall be used for
repayment of the Matured Notes, the payment of expenses and the pursuit of
activities outlined in the budget dated July 25, 2001 presented to the Investor.

         5. Subsequent Corporate Action Concerning Series B Stock. Not later
than the closing of a Qualified Equity Financing, as defined in the Note, the
Company shall have taken such steps, as may be necessary to permit the issuance
of the Series B Stock to the Investor upon the conversion of the Note.


                                      -6-
<PAGE>

         6. Notices. All notices and other communications required or permitted
to be given under this Agreement shall be in writing and shall be deemed to have
been given if delivered personally or by telecopy or sent by certified mail,
return receipt requested, postage prepaid, or by Federal Express or other
similar courier service to the parties to this Agreement at the following
addresses or to such other address as the party to this Agreement whose address
it is shall specify by notice to the other: (a) if to the Investor, to the
Investor at the address set forth under the Investor's name on the signature
page hereto; and (b) if to the Company, to it at One Meca Way, Norcross, Georgia
30093 with a copy to Larry Ledbetter, Kilpatrick Stockton LLP, 1100 Peachtree
Street, Suite 2800, Atlanta, Georgia 30309.

         7. Binding Effect; Benefits. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
heirs, successors and assigns. Nothing in this Agreement, express or implied, is
intended or shall be construed to give any person other than the parties to this
Agreement and their respective heirs or successors or permitted assigns any
legal or equitable right, remedy or claim under or in respect of any agreement
or any provision contained herein.

         8. Waiver; Amendment. No action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of either
party, shall be deemed to constitute a waiver by such party taking such action
of compliance by the other party with any representations, warranties, covenants
or agreements contained herein. The waiver by either party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any preceding or succeeding breach and no failure by either party to exercise
any right or privilege hereunder shall be deemed a waiver of such party's rights
or privileges hereunder or shall be deemed a waiver of such party's rights to
exercise the same at any subsequent time or times hereunder. Neither this
Agreement nor any terms or provision hereof may be amended, modified, waived or
supplemented orally, but only by a written instrument executed by the Company
and the Investor.

         9. Assignability. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by the Company without the prior written consent of the Investor,
which consent shall not be unreasonably withheld, or by the Investor without the
prior written consent of the Company, which consent shall not be unreasonably
withheld; provided that Investor may assign this Agreement to any of its
affiliates or any successor entity without the consent of the Company.
Notwithstanding the foregoing, the Investor shall not assign this Agreement to a
competitor of the Company without the prior written consent of the Company.

         10. Applicable Law. This Agreement shall be governed by and construed
in accordance with the law of the State of Georgia, regardless of the law that
might be applied under principles of conflicts of law.

         11. Section and Other Headings. The section and other headings
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.


                                      -7-
<PAGE>

         12. Attorneys Fees. Investor shall be entitled to recover from the
Company all attorneys' fees, costs and expenses incurred in connection with the
acquisition of the Warrant and the Note.

         13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.

         14. Pronouns. Any use of masculine pronouns herein shall be deemed to
include the feminine and neuter cases, and vice versa, as applicable.

         15. Entire Agreement. This Agreement, the Warrant, the Note, the
Security Agreement and any written documents referenced herein or therein, along
with any other written agreements that have been or are subsequently executed by
and between the Company and Investor and that relate to the subject matter of
this Agreement, shall constitute the entire agreement of the parties hereto with
respect to the subject matter hereof. This Agreement may be amended or modified
only by a writing executed by the party to be bound thereby.

         16. Severability. In case any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, the validity and enforceability of
the remaining provisions shall not in any way be affected thereby.


                                      -8-
<PAGE>

         IN WITNESS WHEREOF, Investor has duly executed and delivered this
Agreement as of the date first written above.

INTELLIGENT SYSTEMS CORPORATION



By:
    ---------------------------------
    Bonnie Herron
    Vice President

Address:          4355 Shackleford Road
                  Norcross, Georgia 30093

Telephone:        (770) 381-2900

Facsimile:        (770) 381-2808


Accepted this 23 day of August, 2001

DELOS PAYMENT SYSTEMS, INC.



By:
    ----------------------------------
    Stephen Grubb
    Chief Executive Officer


     NOTE: EXHIBITS AND SCHEDULES TO THIS AGREEMENT ARE NOT FILED HEREWITH.
  THEY WILL BE SUPPLIED SUPPLEMENTALLY UPON THE REQUEST OF THE SECURITIES AND
                              EXCHANGE COMMISSION.


                                      -9-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>10
<FILENAME>g74809ex21-1.txt
<DESCRIPTION>LIST OF SUBSIDIARIES OF THE REGISTRANT
<TEXT>
<PAGE>
                                                                    EXHIBIT 21.1

                         INTELLIGENT SYSTEMS CORPORATION

           LIST OF PRINCIPAL SUBSIDIARY COMPANIES AS OF MARCH 1, 2002

<TABLE>
<CAPTION>
SUBSIDIARY NAME                                     STATE OF ORGANIZATION
- ---------------                                     ---------------------
<S>                                                 <C>
ChemFree Corporation                                Georgia
Delos Payment Systems, Inc.                         Delaware
QS Technologies, Inc.                               Georgia
VISaer, Inc.                                        Delaware
</TABLE>



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>11
<FILENAME>g74809ex23-1.txt
<DESCRIPTION>CONSENT OF ARTHUR ANDERSEN LLP
<TEXT>
<PAGE>
                                                                    EXHIBIT 23.1


CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report dated March 1, 2002 with respect to the financial statements of
Intelligent Systems Corporation and Subsidiaries included in this Form 10-K for
the fiscal year ended December 31, 2001 into the previously filed Registration
Statements on Form S-8 (File No. 33-99432, No. 333-32157 and No. 333-58134).

                                                /s/ Arthur Andersen LLP


Atlanta, Georgia
March 20, 2002


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>12
<FILENAME>g74809ex23-2.txt
<DESCRIPTION>CONSENT OF ERNST & YOUNG LLP
<TEXT>
<PAGE>
                                                                    EXHIBIT 23.2

                         CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements on
Form S-8 (No. 33-99432, No. 333-32157 and No. 333-58134) of Intelligent Systems
Corporation of our report dated February 16, 2001 except for the third paragraph
of Note 11, which is dated March 17, 2001, with respect to consolidated
financial statements of PaySys International, Inc. and subsidiaries as of
December 31, 1999 and 2000 and for the three years in the period ended December
31, 2000 included in the Form 10-K of Intelligent Systems Corporation for the
year ended December 31, 2001.



                                      /s/Ernst & Young LLP


March 19, 2002
Atlanta, Georgia



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.3
<SEQUENCE>13
<FILENAME>g74809ex23-3.txt
<DESCRIPTION>CONSENT OF MOODY, FAMIGLIETTI AND ANDRONICO LLP
<TEXT>
<PAGE>
                                                                    EXHIBIT 23.3

                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference in the previously filed Registration Statements on Form S-8 (No.
33-99432, No. 333-32157 and No. 333-58134) of Intelligent Systems Corporation of
our report dated March 20, 2002 with respect to consolidated financial
statements of VISaer, Inc. and Subsidiaries for the year ended December 31, 2000
included in the Form 10-K of Intelligent Systems Corporation for the year ended
December 31, 2001, filed with the Securities and Exchange Commission.



                                 /s/ Moody, Famiglietti & Andronico, LLP


Boston, MA
March 20, 2002



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.4
<SEQUENCE>14
<FILENAME>g74809ex23-4.txt
<DESCRIPTION>CONSENT OF HACKER YOUNG
<TEXT>
<PAGE>
                                                                    EXHIBIT 23.4

                  CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS

As independent Chartered Accountants, we hereby consent to the incorporation of
our report dated March 20, 2002 with respect to the financial statements of
VISaer (UK) Limited for the year ended December 31, 2000 included in this Form
10-K for the year ended December 31, 2001 into the previously filed Registration
Statements on Form S-8 (No. 33-99432, No. 333-32157 and No. 333-58134) of
Intelligent Systems Corporation.



/s/ Hacker Young
Manchester England

March 20, 2002



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.5
<SEQUENCE>15
<FILENAME>g74809ex23-5.txt
<DESCRIPTION>CONSENT OF ARTHUR ANDERSEN
<TEXT>
<PAGE>
                                                                    EXHIBIT 23.5

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report dated March 20, 2002 with respect to the financial statements of VISaer
(IRL) Limited for the year ended December 31, 2000 included in this Form 10-K
for the fiscal year ended December 31, 2001 into Intelligent Systems
Corporation's previously filed Registration Statements on Form S-8 (File No.
33-99432, No. 333-32157 and No. 333-58134).



/s/ Arthur Andersen


Dublin, Ireland
March 20, 2002



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.6
<SEQUENCE>16
<FILENAME>g74809ex23-6.txt
<DESCRIPTION>CONSENT OF ARTHUR ANDERSEN LLP
<TEXT>
<PAGE>
                                                                    EXHIBIT 23.6


CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report dated March 15, 2000 with respect to the financial statements of
Visibility Inc. and Subsidiaries as of and for the year ended December 31, 1999
included in this Form 10-K into Intelligent Systems Corporation's previously
filed Registration Statements on Form S-8 (File No. 33-99432, No. 333-32157 and
No. 333-58134).



                                             /s/Arthur Andersen LLP


Boston, Massachusetts
March 20, 2002



</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
