<PAGE>

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                                      2001

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K

<Table>
<S>    <C>
(MARK ONE)
[X]           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

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

FOR THE TRANSITION PERIOD FROM              TO

COMMISSION FILE NUMBER 000-30045
</Table>

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

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

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

<Table>
<S>                                            <C>
                  DELAWARE                                      38-3518829
       (State or other jurisdiction of                       (I.R.S. Employer
       incorporation or organization)                       Identification No)

  2711 E. JEFFERSON AVE., DETROIT, MICHIGAN                        48207
  (Address of principal executive offices)                      (Zip code)
</Table>

Registrant's telephone number, including area code (313) 567-4348

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

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common stock, par
value $.001 per share

           NASDAQ Small Cap Market          Australian Stock Exchange

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

     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 (ss. 229.405 of this chapter) 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]

     At February 28, 2002, the aggregate market value of voting and non-voting
stock held by non-affiliates of the Registrant totaled approximately $17,349,077
based on the last sale price as reported on the Nasdaq Small Cap Market. As of
February 28, 2002 there were 8,069,338 shares of the Registrant's common stock
outstanding, par value $.001 per share.

                      DOCUMENTS INCORPORATED BY REFERENCE

     The registrant incorporates the information required by Items 11, 12, and
13 by reference to its proxy statement to be furnished to shareholders for its
Annual Meeting of Shareholders to be held in May 2002.
--------------------------------------------------------------------------------
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<PAGE>

                          FORWARD LOOKING INFORMATION

     This document includes "forward-looking" statements within the meaning of
the Private Securities Litigation Act of 1995. This Act provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information so long as they identify these statements as forward-looking and
provide meaningful cautionary statements identifying important factors that
could cause actual results to differ from the expected results. All statements
other than statements of historical fact made in this document are forward
looking. In some cases, they can be identified by terminology such as "may,"
"will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential," or "continue," the negative of such terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
consider various factors that may cause actual results to differ materially from
any forward-looking statements.

     Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee our future results, levels of
activity, performance or achievement. Moreover, neither we nor any other person
assumes liability for the accuracy and completeness of the forward-looking
statements. Actual results may differ materially from those projected as a
result of certain risks and uncertainties, including but not limited to;
currency exchange rates, inflation rates, recession, and other external economic
factors over which the Company has no control; the timing and speed with which
major customers and prospects execute their plans for the use of loyalty and /or
smart cards; the demand for, timing and market acceptance of, new and existing
smart card products; continued development of the Company's software products;
competitive product and pricing pressures; patent and other litigation risk and
the decisions, and timing of decisions, in the Welcome Real-Time legal
proceedings; the risks of key staff leaving the Company; the risk that major
customers of the Company's products, including Visa, reduce their requirements
of or terminate their arrangements with the Company; as well as other risks and
uncertainties, including but not limited to those detailed from time to time in
the Company's Securities and Exchange Commission filings. These forward-looking
statements are made only as of the date hereof, and the Company undertakes no
obligation to update or revise the forward-looking statements, whether as a
result of new information, future events or otherwise.

                                     PART I

ITEM 1. BUSINESS

     Introduction

     Catuity provides application software that allows merchants, product
suppliers, transaction processors and payment card issuers to establish and
administer customer incentive and loyalty programs, integrated to the payment
system. Our software is targeted to a broad range of sellers of goods and
services. It is especially useful for merchants who sell both through store
locations and over the Internet. Our software works with magnetic stripe cards
as well as with "smart cards" -- credit, charge or debit cards that have a
computer chip with a portion of our loyalty software loaded on them.

     Our software supports the establishment and administration of a variety of
customer incentive and loyalty programs. Using our software, a merchant may
reward its customers with valuable benefits, hoping to attract and retain
customers and to encourage increased purchases. Due to the flexibility of our
software, reward programs may easily be established, targeted and changed. In
addition, a merchant may select from a wide variety of reward options including
using their own goods and services as a reward option. Our software directly
connects the merchant and its customer so that the customer recognizes the
merchant as the provider of the reward.

                                        2
<PAGE>

     The market for smart cards in the U.S. continued to emerge in 2001. The
number of smart cards issued in the U.S. increased from none in mid 2000, to 15
million at the end of 2001 with a projected 50 million by the end 2002. In
addition, leading companies in the industry undertook substantial work in 2001
to develop the infrastructure that allows loyalty transactions to be integrated
with payment transactions at the point of sale. Catuity has developed many of
the required partnerships and will be the first company to fully integrate
loyalty and incentive program software into the payment system. This integration
will bring the customer's current purchase data together with his/her historical
Customer Relationship Management (CRM) database information at the Point Of Sale
(POS) to deliver instant incentive and loyalty rewards.

INDUSTRY BACKGROUND

     Customer incentive and loyalty programs traditionally have been used by
merchants and card issuing banks to attract and retain customers and to
encourage purchases. Examples of typical customer incentive and loyalty programs
are:

     - paper coupons;

     - airline frequent flyer programs;

     - supermarket clubs that provide discounts and other special offers at the
       check-stand to members;

     - programs of online merchants that reward customers with cash rebates,
       airline mileage and other benefits.

     These programs at retail stores frequently are tied to presenting a coupon,
holding a unique membership card or providing a personal identification number
or customer registration. In the online world, rewards frequently are tied to an
account number or credit card. Loyalty programs generally use either magnetic
stripe cards, or simple paper or plastic card identification and very simple
data recording systems. Few programs can operate across a range of different
identification and very simple data recording systems.

     There are few programs that provide merchants with multiple reward options
or that work both for retail stores and for the Internet environment
interactively. Many programs are linked to a particular payment card but few can
provide multiple programs, such as a short-term incentive program and a
long-term loyalty program, based on a single transaction. Many programs require
paper statements and redemption forms, while few provide instant rewards based
on particular patterns of purchases. Additionally, many existing programs
operate on hardware provided by only one supplier and offer rewards from only
one source. To the best of our knowledge, no other loyalty programs are
integrated to the payment system on a real time basis and provide a combination
of payment and multiple loyalty options using the same card. Consumers receive
many competing credit card offers from card issuers. Few of these offers provide
a value proposition to benefit the consumer, other than from the standpoint of
lower interest rates, reduced annual fees, or other competitive price related
appeals.

     Card associations, issuing banks, product suppliers and retailers are
seeking ways to reduce fraud, increase security and offer their customers a
benefit that differentiates their offerings from their competitors. It has
universally been recognized by merchants and card issuers that it is much more
cost effective and profitable to retain existing customers than it is to obtain
new customers. It is also widely recognized that loyalty and other programs,
such as Internet security, offer benefits to cardholders that can be implemented
through the adoption of smart cards. The cost to manufacture smart cards has
been significantly reduced in the past year, which has made the business case
for the use of smart cards even more attractive.

                                        3
<PAGE>

OUR PRODUCT

     We provide software tools to establish and administer customer loyalty and
incentive programs, whether the customer's purchases occur at a retail store,
gas station, over the telephone or over the Internet. Our product may be used by
a wide variety of businesses, including retailers, manufacturers, Internet
merchants, banks and financial institutions, credit card issuers, sporting and
entertainment venues, public transport providers and membership organizations.
Our software provides a single solution for the creation and administration of
customer incentive and loyalty programs that span retail store and Internet
sales for those merchants who operate in both arenas. This single solution also
helps the merchant establish programs that encourage loyalty of customers who
shop both at retail stores and over the Internet. Our programs provide merchants
with the option of offering different levels of rewards for the same purchase
depending on whether the purchase was made in the store or via the Internet.
This feature allows merchants to "help direct traffic" in ways that best suits
their business needs.

     The combination of incentives and loyalty programs incorporated into our
solution offers a powerful customer acquisition and customer retention solution
for merchants. Incentives are used as short-term, tactical marketing programs to
win new customers while loyalty programs are used as long-term, strategic
marketing programs to retain customers. These programs and rewards, operating
simultaneously, can provide merchants and others (such as payment card issuers
and product suppliers) with an important marketing tool.

     Customer incentive and loyalty programs created with our software are
entirely controlled by the program owner, whether it is a merchant, a card
issuer or a product supplier. Our product provides a software solution that is
easy to use and is flexible. The merchant can reward its customers in ways that
permit the customer to easily recognize the merchant as the provider of the
reward. Merchants can either operate the programs or use one of our value-added
resellers on an out-sourced basis, but still retain control of the programs
themselves. In addition, merchants can establish programs with other
complementary merchants that create incentives for one merchant's customers to
purchase goods from the other merchant. Rewards may be provided in the
merchant's own goods and services, or through rewards provided by third parties.
Corporate retailers who operate more than one division (e.g. Target Corporation
operates Target, Mervyns and Marshall Fields) can encourage "cross-purchases"
between their divisions by offering rewards redemptions in a different division
than the one purchases were made in. This can have benefits to the corporation
in numerous ways.

     Our solution is not dependent upon one type of customer identification or
method of verification. Customers can use more than one existing or new card, a
membership number with a personal identification number (PIN), and the programs
can operate with various payment methods. Customers and merchants can receive
on-line reporting and information services via the Internet.

     Our product is a fully developed and tested software tool. Its features
include:

     - multiple customized reward options to meet the needs of a wide range of
       merchants and issuers;

     - the ability to provide programs that offer instant or delayed rewards;

     - the ability for the merchant to provide rewards using its own goods and
       services, third party goods and services, percentage discounts, cash
       rebates, etc.

     - the ability for multiple merchants or issuers to determine a customer's
       eligibility for rewards based on; purchases from one or multiple
       merchants; using single or multiple cards; and the ability to pool
       points;

     - an easy to operate, complete, off-the-shelf solution;

                                        4
<PAGE>

     - applicability for sales through retail stores and for purchases online;

     - the ability to operate on existing magnetic stripe or smart cards with a
       clear transition path between these technologies

     - on-demand data collection, analysis, customer profiling and behavioral
       reporting;

     - the ability to add, change or eliminate incentive and loyalty programs at
       anytime;

     - support of a broad range of payment methods;

     - scalability to support and upgrade to larger systems;

     - the choice of online or offline processing operations;

     - a completely paperless operation (if desired);

     - security and monitoring systems;

     - support of multi-lingual operations.

     Our product permits the merchant or issuer to offer a broad range of reward
eligibility, including rewards that are:

     - triggered by reaching pre-set spending levels or specified purchase
       activities based on the value, or the frequency, of the activities;

     - based upon short or long term activity;

     - triggered by conducting specified activities at one, or a range of,
       merchants or on a particular card;

     - tiered based upon one, or a range of, activities or activity levels;

     - increased based on achieving certain activity levels;

     The types of rewards that the merchant or issuer may choose to offer the
customer include:

     - fixed or percentage discounts on the immediate, the next, or some future
       transaction;

     - rewards using goods and services provided by the merchant, by a
       complementary merchant, or the issuer;

     - multiple rewards such as:

      - simultaneously offering an immediate incentive for the next purchase and
        a long term loyalty program incentive for repeat purchases;

      - simultaneously offering participation in a local retail store incentive
        program, a national chain loyalty program and a complementary merchant's
        Internet program; or

      - simultaneously offering participation in different programs offered by a
        merchant, a payment card issuer and a product supplier based on the same
        activity.

     In addition to our target market of customer incentive and loyalty
programs, our product also is designed to support other complementary
applications. For example, our product supports ticketing, entertainment and
sporting venues; issuing and tracking memberships in an organization; and
controlling access to facilities.

                                        5
<PAGE>

GENERAL MARKET INFORMATION

     The U.S. payment card market has 4 main segments:

     - Bank issued and card association branded debit or credit cards

     - Bank issued/ card association and merchant co-branded debit or credit
       cards

     - Merchant issued private label (or account) cards

     - Gift and other cards

     In 2000, payments in the United States were $1,052 Billion. The breakdown
was as follows:

     - Visa 17.9%; $189 Billion; 340 Million cards

     - MasterCard 9.2%; $97 Billion; 175 Million cards

     - Discover 3.3%; $35 Billion; 62 Million cards

     - American Express 3.1%; $32 Billion; 58 Million cards

     - Other (Includes Private Label and Cash/Checks) 66.5%; $700 Billion; 1,400
       Million cards

Source: DRI-WEFA 2001, September 2000 (Includes discount, warehouse, department,
apparel, drug, sporting goods, furniture, consumer electronics, building
materials)

     Catuity's access to payment card markets is expected to be primarily driven
by the transition from magnetic stripe cards to smart cards. The payment
industry (card associations, issuers, processors, Point of Sale (POS) device
manufacturers, card manufacturers, etc.) is currently committing millions of
dollars in investment and is expected to continue to do so over the next 5 to 7
years as smart card accepting terminals and other system infrastructure is
upgraded.

     It has been estimated that more than 50,000 POS terminals will have been
upgraded and more than 500,000 households will have smart card accepting
capability on the Internet in the U.S. by the end of 2002. It is estimated that
Visa member banks in the U.S. issued 7.5 million payment smart cards by the end
of 2001, with more than 30 million expected to be issued (approximately 9% of
all Visa cards) by the end of 2002. The total number of smart cards issued in
the U.S. by the end of 2001 is estimated to be in excess of 15 million, with
American Express being the other major issuer.

     While there is no obligation for Visa USA to continue to include Catuity's
loyalty software on all smart cards, studies indicate that loyalty programs are
increasingly important to consumers and that 70% of all U.S. households
currently participate in some form of loyalty program. In addition, 83% of the
participating households use their loyalty programs regularly.

     We anticipate that the private label card market will begin utilizing
Catuity's software with their magnetic stripe payment cards in 2002 and some may
begin converting to smart cards by the end of 2002.

     It is estimated that the small retailer market includes more than 12
million establishments in the U.S. Transaction processors like Electronic
Merchant Services (EMS), CardPlus and DataPro provide payment processing and
value-add services to these small merchants by offering items such as gift and
loyalty cards. Until smart cards become widely accepted, we do not expect these
processors to move into the smart card market in significant numbers, or to
offer fully integrated services. (A list of the major transaction processors was
included in the Company's 2000 Annual Report on Form 10-K).

                                        6
<PAGE>

THE MARKET OPPORTUNITY

     We believe that, in the past, many merchants and card issuers have found it
difficult and costly to create and administer customer incentive and loyalty
programs. As a result, we believe that many merchants and card issuers have:

     - either avoided or introduced very simple, single-reward customer
       incentive and loyalty programs

     - developed, or had developed for them, customized solutions that are
       expensive to develop and maintain

     or

     - participated as one of many companies in customer incentive and loyalty
       programs created and controlled by a sponsoring company. In these cases,
       the rewards may not easily be recognized as having been provided by the
       merchant or the card issuer, and the programs do not typically offer the
       option of using the merchant's own goods and services as rewards.

     We believe that there is significant opportunity for a flexible and easy to
use software tool that permits a merchant or card issuer to create, target and
easily change customer incentive and loyalty programs. The ideal software tool
is one that:

     - Is controlled entirely by that merchant or card issuer

     - Can be used for purchases using any payment system at retail stores, over
       the Internet, or interactively over both

     - Can use the merchant's own goods and services as rewards

     - Can provide instant rewards as well as delayed rewards

     - Accommodates all payment methods

     We believe there is a significant opportunity in providing merchants with
software tools to operate customer incentive and loyalty programs cooperatively
with other merchants or within divisions of a corporation, allowing the merchant
to provide cross-selling programs that share customers.

     There is also a significant opportunity for card issuers to use loyalty and
incentive programs to differentiate their payment card from other payment cards
by providing loyalty benefits specifically attributed to use of their card. Card
issuers can offer their customers a differentiating value proposition as opposed
to simply offering another card that competes on price.

     According to recent published studies from various sources:

     - A 5% increase in customer retention could increase retailer profits
       between 25% and 100%.

     - Building innovative loyalty solutions to develop and retain valuable
       customers is one of 5 emerging trends in a successful Customer
       Relationship Management (CRM) business model.

     - Over 90% of companies that spend on CRM are doing so to increase customer
       loyalty.

     - It is between 6 and 10 times more costly to acquire a new customer than
       to retain an existing customer.

     - Customer loyalty was ranked as the #1 issue facing CEO's.

                                        7
<PAGE>

CATUITY'S STRATEGY AND MARKET FOCUS

     Catuity will continue to focus on the U.S. payment card and retail markets
in 2002. The Company also expects to begin investigating extending its services
further into the CRM market by providing customer support in analyzing and
understanding the data they have available and the impact this data can have in
creating robust marketing programs for retailers and their marketing partners.

     Large card issuers and merchants in the U.S. generally make their own
decisions regarding what software technology to utilize in their programs. At
the smaller end of the market, it is the payment transaction processors that
generally determine the software and hardware platforms they will provide to
their clients. Based on this information, and the marketing efforts the Company
has targeted in the past, in 2002 our sales efforts will focus on:

     - Leveraging current customers and partners to support Visa and its card
       issuers

     - Pursuing large card issuing retailers (private label card) market,
       including large multi-lane retailers

     - Selling to payment transaction processors in order to penetrate the small
       retailer market.

     - Seeking agreements with other card associations and major strategic
       participants in the card issuing and transaction acquiring areas.

     - Continuing to develop and expand relationships with POS terminal
       suppliers, card suppliers and other infrastructure suppliers.

KEY CUSTOMERS

     We continue to have a strong relationship with Visa USA, a major division
within the Visa worldwide organization. During 2001 we signed a significant
agreement with Visa to license our software, provide software development, and
provide consulting services as they continue to move to capture the U.S. market
for smart cards. It is our belief that using an integrated loyalty software
application with payment will be one of the key differentiators that will fuel
the accelerating growth of smart cards and will offer card issuing banks and
merchants a true competitive advantage in gaining more loyal customers. To date,
Catuity is the only approved supplier of loyalty programs for Visa's smart card
initiatives. In 2001, due to the significance of Visa's investment in the U.S.
smart card market, and the size of the Company's involvement in the project,
Visa represented 70% of Catuity's annual net revenues.

     Visa continued, in 2001, to give smart cards a high priority in the U.S.
backed by their growing investment to heighten smart card awareness and develop
smart chip products for use by their member banks. Catuity is working to help
create the standards that will allow all payment cards to be easily accepted as
combined loyalty and payment cards. This breakthrough achievement is anticipated
in 2002 and is expected to solve one of the key merchant issues in considering
new point of sale systems relating to smart card acceptance. It is our belief
that Catuity is uniquely positioned to capitalize on this opportunity.

     During 2001, the Company also furthered or established contractual
relationships with Target Corporation, Electronic Merchant Services (EMS),
Providian Bancorp Services, and Fleet Credit Card Services.

SALES BACKLOG

     As of January 1, 2002, the Company had firm agreements estimated to
represent $1.3 Million of revenue in 2002. At January 1, 2001, the Company had
approximately $60,000 of revenue related to

                                        8
<PAGE>

firm agreements for the year. Our 2002 license revenues will ultimately be
determined by the size of, and the speed with which our customers roll out their
smart card programs during the year.

INTERNATIONAL MARKETS

     We are continuing to focus primarily on the North American market because
of its size, the growth opportunity for smart cards and the important role U.S.
companies play in the development of payment systems. We do, however, evaluate
and respond to opportunities and inquiries from other world markets. With the
exception of Canada, which is supported from our U.S. offices, and Australia, we
evaluate the feasibility of each international opportunity using the criteria
that the project must provide critical mass, have the short term prospect of
becoming a profitable self-funding business, involve market-leading companies
and the resources required from Catuity must fall within our existing and future
capacities.

     During 2001 we responded to opportunities in Australia, the U.K. and in
Japan that met our criteria. We continue to be in discussions with these
customers in 2002.

STRATEGY

     Our strategy is to focus on helping merchants, transaction processors and
card issuers create customer incentive and loyalty programs that they can
control, easily customize and use on different platforms. We support the
merchant's desire to acquire new customers and to retain existing customers. Our
objective is to provide a solution that:

     - provides an easy entry, low cost, powerful marketing solution;

     - supports customer incentive and loyalty programs whether the customer
       purchases at a retail store location or over the Internet; and whether
       existing magnetic stripe card technology or smart card technology is
       used;

     - provides merchants with timely data collection, analysis and customer
       information, and provides the cardholder easily accessible and timely
       loyalty and rewards status.

     Our strategy also includes leveraging our sales force by selling our
product through Value Added Resellers (VARs) such as card and terminal
providers, integrators, Independent Sales Organizations (ISO's) and transaction
processors. Some VARs integrate or bundle our product with their products, such
as an e-commerce product or a payment product. Other VARs are interested in
installing our product in their facilities and offering merchants services that
include the functionality provided by our product. By selling through VARs, we
seek to obtain wider market coverage of our potential customers and obtain
access to existing VAR customers.

COMPETITION

     Our product faces competition at two levels. First, we compete with
companies that provide software for customer incentive and loyalty programs for
retail store locations or for Internet merchants. Second, some ISO's,
transaction processors, and others who provide services to merchants may also
provide a basic loyalty application that the merchant can use. We believe the
principal factors upon which we compete include:

     - product functionality and flexibility;

     - product compatibility;

     - price;

     - service and training;

                                        9
<PAGE>

     - reputation and financial strength; and

     - ability to operate on mag-stripe as well as smart card

     - ability to provide other products and services.

     We expect competition to increase as companies expand their offerings of
customer incentive and loyalty programs and provide software for retail stores
and the Internet. Our ability to compete depends upon many factors, including:

     - our ability to successfully market our product's features;

     - the effectiveness of our solution relative to the product offerings of
       our competitors;

     - our ability to continually expand the credibility of our product in the
       marketplace;

     - our ability to sell to strategically important merchants, card issuers
       and processors;

     - our ability to continue to attract and retain VARs who will sell our
       product; and

     - the timeliness of our product enhancements from our product development
       efforts.

     We believe our unique product features and strong North American market
position with the largest companies in the payment industry provides us with
some significant competitive advantages. The broad functionality in our software
provides our customers with flexibility in offering the type(s) of reward
programs that suit their particular needs. Since programs are easily established
and changed with our system, merchants can initiate different programs as their
needs change.

     We believe the market is demanding an open, common platform to operate
loyalty and other programs on the payment infrastructure, and Catuity is well
advanced with the industry infrastructure in fulfilling this market need. Longer
term, as the system is fully integrated and common standards are achieved, other
systems will emerge to participate in this vast opportunity. As the chief
architect of the systems and integration tools, Catuity is well positioned to
continue to be in an advantageous position.

     Our application software has a number of strong competitive advantages that
provide market leadership:

     - Diversity, flexibility and functionality of programs

     - Operating with existing magnetic stripe or smart cards offering seamless
       technology transition

     - Operates in-store and on the Internet interactively

     - Integration with the payment system and a wide range of cards and
       terminals from the world's largest suppliers

     - Scalability and control, tracking and reporting systems

     - Ease of use

     We have positioned our business as a provider of application software,
which means we do not necessarily compete with loyalty program operators, such
as Frequency Marketing, Carlson Marketing and others. Similarly, we do not
provide the traditional Customer Relationship Management (CRM) type of service.
We regard loyalty program operators and the CRM companies as potential partners
and customers for our product. Catuity's focus is on real-time redemption at the
time and place of the payment transaction.

PRODUCT DEVELOPMENT

     During 2001, we continued to enhance the functionality of our software
through four "Releases".

                                        10
<PAGE>

     In January 2001, we completed Release 8 of the system and the associated
new sales and marketing demonstration kit. This release incorporated all the
features developed for the SmartVisa initiative with the existing standard
merchant based loyalty programs and magnetic stripe functions. A number of other
improvements were also added in Release 8;

     - Full support for Microsoft Windows 2000 server

     - Full support for smart card compliant readers

     - "Seamless" support for the Visa Open Platform compliant cards from
       Gemplus, Oberthur and Schlumberger

     - Integration of the Profile Manager, which is the component that manages
       the online profiles of consumers for magnetic-stripe based systems, into
       the Program Manager.

     - Integrated demonstration kit, database, web pages and applets.

     In May 2001, a new version of the product was released to support magnetic
stripe based gift cards. These cards are popular and are issued by merchants as
a replacement for paper-based gift "vouchers" or "certificates". The Catuity
version expands on the traditional gift card functions and adds merchant based
loyalty programs. While the card may be initially used as a gift card, it can
also be "reloaded" and then used as a private label payment/loyalty card. This
product was delivered to our customer Electronic Merchant Services (EMS) for
deployment and is in the process of being deployed in approximately 750
merchants throughout the US.

     In July 2001, we delivered Release 8.2 that included several enhancements
and new functionality:

     - Customer Transaction Interface (CTI) Software Development Kit (SDK)
       The SDK allows webmasters (issuers or merchants) to develop their own
       user interface. Webmasters can use the SDK to perform a Catuity loyalty
       transaction. Prior to this development, unique user interfaces had to be
       developed for each potential client.

     - Open Program Engine (OPE)
       The OPE is intended for use at Web sites and Multilane retail store
       outlets, making it much easier to deploy smart card loyalty solutions
       where high-powered POS devices are not available. The OPE also supports
       product-based loyalty programs, based on the specific products purchased,
       and not just the amount or number of total transactions.

     - Verifone Softpay Integration -- phase 1
       This development was our first attempt to integrate our Catuity smart
       card loyalty POS program engine logic with a standard POS terminal
       payment application -- Verifone's "Softpay". The integration allows a
       single transaction to be conducted for both payment and loyalty. A
       customer simply presents their Catuity enabled smart card to the merchant
       and the terminal will automatically apply the standard Catuity loyalty
       program logic as part of the payment transaction.

     - Multos Support
       This development allows our smart card applet to function in the Multos
       operating environment. We now have an offering for all major smart card
       operating systems available.

     In September 2001, we completed the release of the system designed to meet
the specifications required by Visa USA. This version included some changes to
our security architecture in accordance with Visa's needs. We continue to work
on the development of another significant release for Visa USA to incorporate
changes required for mass-deployment of the SmartVisa system.

                                        11
<PAGE>

     In May 2002, we expect the release for Visa USA and Target Corporation to
be completed. We also anticipate beginning work on some architectural changes to
the system, to provide improved interfaces for third parties and to simplify
future maintenance and support requirements.

BUSINESS MODEL

     Our business model delivers three types of revenues:

     Recurring software license revenue is generally earned on a per transaction
or per card activated with loyalty basis. These fees, which in time are expected
to make up the majority of our revenues, are for the license we grant to our
customer to use our software. License fees generally follow the signing of the
contract by a number of months and begin when loyalty transactions start
occurring or payment cards have been issued and loyalty has been activated by
initial use.

     Software development revenue is generated on a project-by-project basis
from the integration, customization and development fees that normally occur
within several months of the contract date. Software development revenue is
charged at our hourly bill rates on a time and materials basis. Revenue is
earned as the project progresses on a percentage of completion basis.

     Service revenues result from training services, installation support,
post-installation support and annual maintenance fees. Maintenance fees are
recurring and are generally subject to a minimum monthly fee initially, until a
percentage of the license fees earned from use of the software exceeds the
monthly minimum. All of the other service revenues are on a project-by-project
basis and charged using our standard hourly bill rates or a pre-determined fixed
price.

     Software development and service revenues are relatively easy to project
when a contract and the scale of programs are awarded. License fee revenues are
more difficult to project as the rate of rollout and the scale of programs are
controlled by the customer. We believe that license fees represent recurring
revenues and will be significant over time as our software becomes integrated to
the payment system and merchants begin to capture the increased revenue and the
decreased costs afforded by the Catuity system.

REVENUE AND ASSETS BY GEOGRAPHIC LOCATION

     During the years ended December 31, 2001 and 2000, 96% and 83% of our
revenues were derived in the United States, respectively. Prior to 2000, all of
the Company's revenues related to its Australian operations.

     The Company's assets are located at its headquarters in Detroit, Michigan
its product development facility in Sydney, Australia and at its service and
demonstration office in Arlington, Virginia.

EMPLOYEES

     As of February 28, 2002, we had 44 full time employees, comprised of 9 in
sales and marketing, 5 in finance, 4 in administration, 6 in customer
implementation and support and 20 in product development. In 2002, full time
employees are expected to increase to 52 with the main increase occurring in
sales and services. None of our employees is represented by a collective
bargaining agreement. We consider our relations with our employees to be very
good.

FACILITIES

     Our corporate headquarters is located in Detroit, Michigan. Our
implementation and service team is located in Arlington, Virginia. Our
technology and product development facilities are in Sydney, Australia. We have
no other foreign operations. Also see Item 2, Properties, below.

                                        12
<PAGE>

OPERATIONS

     Catuity's U.S. operations are structured to expand as growth opportunities
unfold. Our sales and marketing team is principally located in our Detroit,
Michigan, headquarters with 8 of our 9 sales personnel based there. We also have
1 sales manager located in San Francisco, California. There are 4 finance and
accounting staff in Detroit with 1 full-time and 1 part-time located in Sydney.
Both the Detroit headquarters and Sydney office house 1 full-time and 1
part-time administrative personnel. Our entire customer implementation and
support team is located at our Arlington, Virginia office. In addition, we have
an agreement with Smart Dynamics Inc. in Arlington, Virginia, to be able to
utilize their technical personnel, as we need them on projects for customers.

ITEM 2. PROPERTIES

     Our corporate headquarters and principal executive offices in North America
are located in leased facilities in Detroit, Michigan consisting of
approximately 1,950 square feet of office space. Our lease expires on February
1, 2003 but is renewable at our option. Our current facilities in the United
States should meet our needs for the next 12-24 months, but may not be
sufficient to meet our anticipated growth beyond then.

     Our office and development center is located in leased facilities in
Sydney, Australia, consisting of approximately 2,060 square feet. Our lease
agreement expires on December 14, 2003. We believe that our Australia facilities
are sufficient to meet our foreseeable operating needs.

ITEM 3. LEGAL PROCEEDINGS

     From time to time we may be involved in litigation concerning claims
arising in the ordinary course of our business. We are not presently a party to
any legal proceedings, except for the lawsuit described below.

     On July 20, 2000 Welcome Real-Time S.A. (WRT) filed a lawsuit in the
Federal Court in Australia alleging infringement by the Company of WRT's
Australian patent and claiming damages.

     On May 17, 2001, the judge in the Federal Court of Australia ruled that the
WRT patent was valid and that the Company infringed on the patent in Australia.
The judge ordered the Company to refrain from infringing on the patent in
Australia and deliver any infringing physical devices in its possession, located
in Australia. On October 17, 2001 the Company delivered all infringing devices
in accordance with the judge's orders. This consisted of the POS devices used in
the Transcard systems during the Western Sydney, Australia trials operated by
the Company beginning in 1995. The Company and its Transcard customers had
previously decided to terminate the Transcard system trial operations effective
August 31, 2001. The cessation of the Transcard activities did not have a
material impact on the Company's operating results. Revenues in 2001 from the
Transcard system were $32,000 as of August 31, 2001 when the operation was
discontinued. The judge also ordered that WRT was entitled to damages suffered
or, at its option, a measure of the profitability earned from Catuity's
operations in Australia, and that the Company pay certain of WRT legal costs.
The Company and WRT have accepted the Court's advice that $338,000 represents
the amount of WRT legal costs and this amount will be held in escrow pending the
outcome of the appeal.

     The Company and its attorneys believe that the Company's software does not
infringe on the WRT patent and filed an appeal. The appeal was heard by the Full
Bench of the Federal Court of Australia on February 25-26, 2002 and the Company
is waiting for the Court's ruling. The Company has provided for its best
estimate of all legal costs for this matter in its 2001 Statement of Operations.
In the event the Company's appeal is successful, the Company does not expect to
have to pay the escrowed costs, and may recover certain of its own legal costs.

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

     None

                                        13
<PAGE>

                                    PART II

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

     Catuity ("CTTY") was listed on the Nasdaq Small Cap Market beginning
December 1, 2000. Chip Application Technologies was listed on the Australian
Stock Exchange (ASX) under the trading symbol "CAT" from July 11, 1997 to
November 22, 1999. On November 23, 1999, upon Catuity's acquisition of CAT, we
replaced CAT as the listed entity on the ASX under the same trading symbol. We
continue to be traded on the ASX.

     Our high and low sales prices on the ASX and NASDAQ for each quarter within
the last two fiscal years are shown below, both in Australian dollars and in
U.S. dollars.

<Table>
<Caption>
                                            HIGH              LOW                HIGH                  LOW
              PERIOD                   (AUSTRALIAN $)    (AUSTRALIAN $)    (UNITED STATES $)    (UNITED STATES $)
              ------                   --------------    --------------    -----------------    -----------------
<S>                                    <C>               <C>               <C>                  <C>
2001
First Quarter......................        $12.00            $ 5.50             $ 6.75                $2.75
Second Quarter.....................        $ 9.25            $ 4.30             $ 4.72                $2.48
Third Quarter......................        $ 9.45            $ 4.60             $ 4.56                $2.52
Fourth Quarter.....................        $ 7.40            $ 4.00             $ 3.90                $1.93

2000
First Quarter......................        $23.90            $15.50             $14.50                $9.40
Second Quarter.....................        $21.00            $10.00             $12.65                $6.03
Third Quarter......................        $18.45            $14.16             $10.06                $7.72
Fourth Quarter.....................        $19.80            $10.40             $11.09                $5.82
</Table>

     Per share U.S. prices in the first three quarters of 2000, were converted
from Australian prices based on the prevailing exchange rates between the
Australian and U.S. dollar as of the last day of each respective quarter.

     As of February 28, 2002 there were approximately 3,771 shareholders of
record of our common stock as reported to us by Computershare Investor Services,
our transfer agent.

     To date, we have not paid any dividends on our common stock.

                      SUPPLEMENTAL SHAREHOLDER INFORMATION

     The following information is provided voluntarily and is in accordance with
the Australian Stock Exchange (ASX) listing requirements.

SECURITIES ISSUED

     As of February 28, 2002 the Company had issued the following securities:

<Table>
<S>                                                             <C>
Shares of Common Stock......................................    8,069,338
Options as listed...........................................    1,053,900
</Table>

                                        14
<PAGE>

I. STOCK OPTIONS LISTED BY EXPIRATION DATE (AS OF FEBRUARY 28, 2002)

<Table>
<Caption>
                                                      NUMBER OF    EXERCISE       (USD)-U.S. DOLLAR
              OPTION EXPIRATION DATE                   OPTIONS      PRICE      (AUD)-AUSTRALIAN DOLLAR
              ----------------------                  ---------    --------    -----------------------
<S>                                                   <C>          <C>         <C>
03/30/2002........................................        2,000     $9.50                AUD
05/31/2002........................................       75,000      6.31                USD
06/30/2002........................................        1,000      3.00                AUD
06/30/2002........................................       21,500      9.50                AUD
07/31/2002........................................          500     19.25                AUD
09/30/2002........................................        1,000      9.50                AUD
12/31/2002........................................        3,000      9.50                AUD
03/30/2003........................................        5,000      9.50                AUD
03/31/2003........................................        3,000      9.50                AUD
03/31/2003........................................        1,500     19.25                AUD
06/24/2003........................................       50,000     12.00                AUD
06/30/2003........................................       12,500      9.50                AUD
06/30/2003........................................        1,000     19.25                AUD
09/30/2003........................................        1,000      9.50                AUD
03/31/2004........................................        1,000     19.25                AUD
04/30/2004........................................       25,000      4.00                USD
06/24/2004........................................       50,000     16.00                USD
06/30/2004........................................       20,000      9.50                AUD
06/30/2004........................................        1,500     19.25                AUD
09/30/2004........................................        4,000      9.50                AUD
06/30/2006........................................       67,900      8.06                AUD
06/30/2006........................................        6,500      4.11                USD
12/04/2007........................................        2,000      2.40                USD
12/12/2007........................................        2,000      2.30                USD
05/30/2008........................................       50,000      6.18                USD
10/01/2008........................................       30,000     15.86                AUD
10/09/2008........................................       10,000     17.20                AUD
12/31/2008........................................      315,000      9.50                USD
12/31/2008........................................      150,000      7.68                USD
12/31/2008........................................       21,000      9.50                USD
06/01/2009........................................      100,000      7.75                AUD
09/28/2009........................................       10,000      5.70                AUD
09/28/2009........................................       10,000      3.00                USD
                                                      ---------     -----                ---
       Total......................................    1,053,900
</Table>

-------------------------
Note:
- All options are unlisted and are not quoted on either Nasdaq or ASX.

     20 Largest Shareholders and Option Holders (as of February 28, 2002)

                                        15
<PAGE>

II. SHAREHOLDERS

<Table>
<Caption>
                           NAME                               NUMBER OF SHARES    % OF ISSUED CAPITAL
                           ----                               ----------------    -------------------
<S>                                                           <C>                 <C>
L.D. O'Connor.............................................         508,214                6.30
Westpac Custodian Nominees Limited........................         307,008                3.80
Boom Australia Pty Ltd....................................         260,000                3.22
D.L. MacSmith.............................................         251,417                3.12
National Nominees Limited.................................         209,292                2.59
A.S. Dawson...............................................         185,000                2.29
Visa USA..................................................         141,719                1.76
AMP Life Limited..........................................         112,577                1.40
S. Fox....................................................          80,000                0.99
Merrill Lynch Nominees....................................          78,970                0.98
Commonwealth Custodial Services...........................          76,826                0.95
Bellway International Limited.............................          68,150                0.84
Fairlawn Investments Pty, Ltd.............................          63,000                0.78
J.H. Marshall.............................................          50,926                0.63
Pisani Investments Pty....................................          43,000                0.53
C. Mc Courtie.............................................          42,000                0.52
JP Morgan Nominees........................................          41,614                0.52
Henry Pollard.............................................          40,060                0.50
RTR Pty Limited...........................................          40,000                0.50
HSBC Custody Nominees.....................................          37,785                0.47
                                                                 ---------               -----
Total Shares of Common Stock..............................       2,637,558               32.69
Total Shares as of February 28, 2001......................       2,945,703               37.42
</Table>

     The above shareholder information is based on the Australian share register
and where known, includes additional shares held in the United States market.

                                        16
<PAGE>

III. OPTIONHOLDERS

<Table>
<Caption>
                   NAME                        NUMBER OF OPTIONS    % OF OPTIONS ISSUED
                   ----                        -----------------    -------------------
<S>                                            <C>                  <C>
M. Howe....................................          315,000               29.89
D. MacSmith................................          200,000(1)            18.98
J. Lowry...................................          150,000               14.23
R. Kosnik..................................           75,000                7.12
J. Adams...................................           57,000                5.41
B. Garton..................................           35,000                3.32
Greenstone Partners........................           25,000                2.37
A. Gilman..................................           15,000                1.42
D. Mount...................................           15,000                1.42
R. Robins..................................           15,000                1.42
A. S. Dawson...............................           15,000                1.42
L. Schweichler.............................           11,550                1.10
J. & P.A. Gordon...........................           10,000                0.95
A. Peckenpaugh.............................            9,450                0.90
R. Braxton.................................            9,350                0.89
J. Chappell................................            7,500                0.71
J. Otaegui.................................            7,500                0.71
W. Ho......................................            7,000                0.66
E. Leong...................................            6,800                0.65
L. Chang...................................            5,800                0.55
T. Boniecki................................            5,800                0.55
                                                   ---------               -----
     Total Options.........................          997,750               94.67
</Table>

-------------------------
(1) 100,000 shares are subject to shareholder approval at the May 23, 2002
    Annual Shareholders Meeting.

IV. SUBSTANTIAL SHAREHOLDERS (AS OF FEBRUARY 28, 2002)

     As of February 28, 2002 the following individual was recorded as a
substantial shareholder in the Company's Register of Substantial Shareholders:

<Table>
<Caption>
                        SUBSTANTIAL
                        SHAREHOLDER                            NUMBER OF SHARES
                        -----------                            ----------------
<S>                                                            <C>
L.D. O'Connor..............................................        508,214
</Table>

                                        17
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

<Table>
<Caption>
                                                           FOR YEARS ENDED DECEMBER 31
                                           -----------------------------------------------------------
                                            2001         2000         1999         1998         1997
                                            ----         ----         ----         ----         ----
                                                      (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                        <C>          <C>          <C>          <C>          <C>
INCOME STATEMENT DATA:
Gross Revenues.........................    $ 2,020      $   751      $   638      $   292      $   761
Sales Discount (non-cash)(1)...........       (404)          --           --           --           --
                                           -------      -------      -------      -------      -------
Net Revenues...........................      1,616          751          638          292          761
Total Costs and Expenses(2)............      5,735        4,634        6,808        2,499        4,063
                                           -------      -------      -------      -------      -------
Operating Loss.........................     (4,119)      (3,883)      (6,170)      (2,207)      (3,302)
Total Other Income/(Expense)...........        244          199          (41)        (177)        (215)
Extraordinary loss on Early
  Extinguishment of debt...............         --         (127)          --           --           --
                                           -------      -------      -------      -------      -------
Net Loss...............................    $(3,875)     $(3,811)     $(6,211)     $(2,384)     $(3,517)
                                           =======      =======      =======      =======      =======
Loss per share before extraordinary
  item-basic & diluted.................    $ (0.49)     $ (0.52)     $ (1.05)     $ (0.53)     $ (1.15)
Loss per share on extraordinary
  item-basic & diluted.................         --        (0.02)          --           --           --
                                           -------      -------      -------      -------      -------
Net Loss per share-basic & diluted.....    $ (0.49)     $ (0.54)     $ (1.05)     $ (0.53)     $ (1.15)
                                           =======      =======      =======      =======      =======
</Table>

<Table>
<Caption>
                                                                   DECEMBER 31
                                           -----------------------------------------------------------
                                            2001         2000         1999         1998         1997
                                            ----         ----         ----         ----         ----
<S>                                        <C>          <C>          <C>          <C>          <C>
BALANCE SHEET DATA:
Total Assets...........................    $ 5,870      $ 9,500(3)   $ 6,189(4)   $   639      $ 1,336
Long-Term Debt.........................         --           --          854        1,594        1,692
</Table>

-------------------------
(1) Represents the fair market value of shares of common stock issued to Visa as
    part of the Company's contract with them.

(2) Includes variable stock compensation expense (benefit) of ($973,350) in
    2001, (716,192) in 2000, $2,475,175 in 1999.

(3) Includes a private placement of 710,000 shares of common stock which raised
    $6,245,000 in net cash proceeds.

(4) Includes the issuance of shares of common stock which raised $9,521,278 in
    net cash proceeds.

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

     The following is a summary of the consolidated operating results of
Catuity, Inc. and contains forward looking statements based upon current
expectations that involve risks and uncertainties. The Company's actual results
and the timing of certain events could differ materially from those anticipated
in these forward looking statements.

RESULTS OF OPERATIONS

     Overview

     The year 2001 was a year of significant progress for Catuity's operations
in the United States. We signed a major agreement with Visa USA Inc., which
covers licensing and the development of enhancements for the Smart Visa Loyalty
System. In 2001, a majority of our revenue came from this contract in the form
of software development. While we expect this agreement will continue to

                                        18
<PAGE>

provide Catuity with software development revenue in 2002, we expect it will
also provide license revenue in 2002, 2003 and beyond as Visa member banks issue
smart cards that contain loyalty.

     A number of milestones were accomplished during 2001. In addition to
building our U.S. staff and infrastructure and winning a major strategic and
revenue contract, we achieved positive cash flow for the fourth quarter and
attained our first month of profitability in December 2001. In January 2002, we
received a Notice of Allowance from the U.S. patent office that our application
for a patent, filed December 30, 1999, had been examined and was allowed for
issuance as a patent. We anticipate the granting of patent rights within
approximately three to four months from the date of the Notice of Allowance. We
further anticipate that corresponding patents will be issued in other countries.

     There are a number of factors that impacted the smart card market in 2001.
The positive factors include a continued reduction in the price of smart cards,
which has further improved the business case for card issuers, and the strong
commitment by Visa USA to the introduction of smart cards. Additionally, the
integration of payment and loyalty began to be addressed in 2001, and efforts
are continuing in 2002. Catuity has been actively involved in developing
interoperability standards to integrate loyalty transactions with payment
transactions. The pace with which card-issuing banks began issuing smart cards
and merchants began installing POS devices that are smart card compatible also
increased in 2001. The negative factors are the relative slowness of POS device
suppliers to deliver multi-application devices and the slowness of merchants to
adopt POS devices that read smart cards. These factors have resulted in a longer
than anticipated lead-time in implementation.

     Although the smart card market and the Visa smart card program are very
important to us, we also continue to pursue contracts with customers that do not
involve either smart cards or Visa member banks. An example is at Electronic
Merchant Systems (EMS), a transaction processor for the small retailer end of
the market, where we have our system implemented supporting small retailers
using magnetic stripe cards.

     Based on our expected 2002 revenue under contract, recent discussions with
new customers and our understanding of our existing customer's plans to roll-out
smart card initiatives in 2002, we anticipate the Company will achieve
profitability for the year 2002 before the impact of any non-cash charges or
credits for stock based compensation. Based on this information, revenue is
projected to exceed $7 million in 2002. We anticipate our revenue in the first
half of 2002 will be principally from software development and services. We
expect to begin to earn license revenue from our Visa agreement in the fourth
quarter of 2002 and that it will continue at an increasing rate in 2003. Our
operating expenses are anticipated to be approximately $6.9 million before
non-cash stock compensation expenses/(credits) related to our non-recourse loans
with a Director and Officer. The speed with which our customers progress with
their plans and the success they achieve in their product launches could have an
impact on these estimates and impact our actual results from operations in 2002.
We expect to incur losses in both the 1st and 2nd quarters of 2002, but at
significantly reduced levels from 2001.

     During 2001 we established a program for the granting of options to
employees under the provisions of the Employee Stock Option Plan (ESOP) that was
approved in 2000 by our shareholders. The program is designed to help attract
and retain qualified people and to provide incentives to our employees to do
everything within their area of responsibility to help the Company grow and
prosper. Under the program, all employees will be considered for option grants
once each year. The determination of which employees may receive an option
grant, and the number of shares that may be granted are recommended by
management and approved by the compensation committee of the Board of Directors
in May each year. Employees receiving option awards receive them on the last
business day in June at an exercise price which is equal to, or higher than, the
closing price on

                                        19
<PAGE>

Nasdaq (U.S. employees) or the ASX (Australian employees) on the date of grant.
All options have the same vesting provisions (generally ratably over 3 years)
and expiration (generally 5 years from date of grant or 60 days after
termination of employment, whichever occurs first). In 2001, we granted 84,550
option shares to 27 employees who had been with the Company at least 6 months.

FISCAL YEAR ENDED 2001 COMPARED TO 2000

     In 2001, gross revenues were $2,020,000. These revenues were primarily
derived from $1,414,000 in software development (an increase of 164% over 2000)
and from $593,000 in services relating to implementation, training, support and
consulting activities (an increase of 173% over 2000). A majority of the
increase in software development revenue related to the Visa contract signed in
2001. As part of this contract, we issued 141,719 shares of common stock to
Visa, which has been recorded as a non-cash sales discount of $404,000.
Comparatively, 2000 gross revenues totaled $751,000, and were derived from
$534,000 in software development and from $217,000 in services. Gross revenues
increased by $1,269,000, or 169% in 2001.

     Product development expenses increased $93,000, or 8%, to $1,271,000 for
the year ended December 31, 2001 from $1,178,000 for the year ended December 31,
2000. Expenses were positively impacted in 2001 by a decrease in the average
exchange rate for the Australian dollar compared to U.S. dollar. Excluding the
effect of the exchange rate difference, product development expenses would have
reflected an increase of $224,000, or 19%. This increase is due primarily to the
hiring of additional staff.

     Customer implementation and support expenses increased $683,000, or 260%,
to $946,000 for the year ended December 31, 2001 from $263,000 for the year
ended December 31, 2000. The customer implementation and support function did
not begin operations until August of 2000. As a result, the significant increase
in 2001 reflects a full year of operation in which staff size increased from two
at the end of 2000 to six by mid 2001 as the Company built its customer service
and support capability.

     Sales and marketing expenses increased $12,000, or 1%, from $1,906,000 for
the year ended December 31, 2000 to $1,918,000 for the year ended December 31,
2001. We expect sales and marketing expenses to increase in 2002 by
approximately 10 to 15% due to additional staff hired at the end of 2001 and in
early 2002 and for higher customer related travel expenses.

     General and administrative expenses increased $570,000, or 28%, from
$2,003,000 for the year ended December 31, 2000 to $2,573,000 for the year ended
December 31, 2001. The increase principally resulted from higher legal costs
related to the Welcome Real-Time patent infringement lawsuit in 2001 than in
2000 and having a higher number of U.S. accounting and administrative staff in
place in 2001, compared to 2000.

     General and administrative -- variable stock compensation expense/(credits)
are due to the Company's 1996 non-recourse loans to a director and officer and
are a non-cash expense. In 2001, credits of ($973,000) were recorded compared to
a credit of ($716,000) for the year ended December 31, 2000. The increase in the
credit is attributable to the decline in our stock price during 2001.

FISCAL YEAR ENDED 2000 COMPARED TO 1999

     Net revenues in 2000 exceeded 1999 net revenues by approximately $113,000
or 18%. Of the $751,000 in 2000 net revenue, 83% was derived from sales
activities in the United States and 17% from sales in Australia. This was the
first time that U.S. revenues had been a majority of the Company's net revenues
and reflects the Company's transformation to becoming a U.S. Company in late
1999 and the subsequent growth in U.S. operations during 2000.

                                        20
<PAGE>

     Of the $751,000 of net revenues in 2000, $534,000 was related to software
development, $92,000 was related to training activities and $125,000 related to
on-going customer activities in Sydney Australia.

     Product development expenses are primarily related to our technical staff
located in Sydney Australia that is responsible for increasing the features and
functionality of our loyalty software based on U.S. customer needs. In addition,
expenses related to our U.S. based service and implementation team were included
in product development costs until August 2000. In 2000, product development
expenses increased $352,000 or 43% over 1999. The increase was primarily due to
the higher costs associated with the establishment of our U.S. based
implementation and service team in the first seven months of 2000. In addition,
product development grant monies were recognized that offset product development
expenses. Grant amounts recognized by the Company decreased in 2000 to $299,000
from $573,000 in 1999.

     Customer implementation and support expenses consist of the costs
associated with the Company's customer implementation and support staff and
facilities located in Arlington, Virginia. Expenses in this area increased from
having no expense for the year ended December 31, 1999 to $263,000 for the year
ended December 31, 2000. The increase in expense for 2000 relates to the five
months in 2000 that these costs were identified separately for the first time.

     Sales and marketing expenses increased $949,000 or 99% from $957,000 in
1999 to $1,906,000 in 2000. The Company used contractors in 1999 to begin
introducing software products in the U.S. As planned, the Company significantly
increased its efforts and investment in the U.S. market in 2000. This investment
included the hiring of a sales force and increasing the travel of these sales
personnel to increase product awareness.

     General and Administrative (G&A) costs relate to finance, administrative,
office overhead, and outside professional fees. G&A costs decreased $546,000 or
21% in 2000 compared to 1999. In 1999, our professional services costs were very
high as the Company extensively used outside legal, accounting and consulting
services to transform itself from an Australian company to become incorporated
in the United States. These costs, which exceeded $1,200,000, were one time U.S.
establishment costs. The decrease primarily relates to outside professional fees
and other costs related to our transition from Australia to the U.S. in 1999. In
2000, our professional fees included costs associated with achieving SEC and
Nasdaq clearance required to begin trading on Nasdaq. In addition, in 2000, we
also incurred increased legal fees related to the Welcome Real-Time Patent
infringement lawsuit described below.

     G&A-variable stock compensation was a credit of $716,000 in 2000 versus and
expense of $2,475,000 in 1999. This non-cash item relates to 1996 non-recourse
loans given to a director and officer of the company. The expense/(credit)
amount is determined by changes in our stock price at the end of each year.

     Other income increased significantly in 2000 to $199,000 compared to a net
expense of $41,000 in 1999. The principle reasons for the increase was the
reduction of interest expense from the early extinguishment of long-term debt
during the year and the interest income earned on higher cash balances
maintained by the Company in 2000.

LIQUIDITY AND CAPITAL RESOURCES

     The Company entered 2001 with sufficient capital to operate its business
for the year and did not need to undertake any capital raising activities.

     As of December 31, 2001 the Company had $835,000 in deferred revenue, an
increase of $768,000 over December 31, 2000. This amount represents amounts
invoiced to customers, and often paid, but not yet earned as revenue. It
principally results from license fees invoiced that will be

                                        21
<PAGE>

recognized as revenue as cards are activated, loyalty transactions occur, or POS
devices are utilized and from software development fee amounts invoiced beyond
the percentage of work completed on a project. The impact of this accounting
treatment is that revenues are delayed from being reflected on the statement of
operations and cash flow is favorably affected. Conversely, work in process
increased from $0 at December 31, 2000 to $209,000 at December 31, 2001. This
reflects work completed on software development projects, on a percentage of
completion basis, that exceeds the amount that can be invoiced for the work. It
principally occurs when a project's invoices are tied to certain milestone
achievements that do not reflect the percentage of work actually completed. The
impact of this accounting treatment is that revenue is recorded on the statement
of operations in advance of when invoicing occurs and with a greater expected
lead-time until cash is received. The net effect of these two items is that, as
of December 31, 2001, the Company had invoiced a net of $626,000 higher than the
amount of revenue recognized, resulting in a positive impact on cash flow from
operations and a delay of revenue recognition into the future. Comparatively, as
of December 31, 2000, the Company had invoiced a net of $67,000 beyond revenue
recognized.

     Operating activities utilized $3,951,000 of cash in 2001 compared to
$3,939,000 in 2000. Prior to working capital changes, cash used in operating
activities remained relatively constant from 2001 as compared to 2000. The
largest components of working capital changes were an accounts receivable
increase of $626,000, which was offset by an increase in deferred revenue of
$768,000.

     Cash used in investing activities in 2001 totaled $88,000 and was related
to the purchase of computer equipment for the Company's U.S. headquarters and
personnel, as well as the updating of computer equipment in Australia. This is a
$24,000 decrease from the investment of $112,000 in 2000.

     Cash obtained from financing activities was $41,000 in 2001 compared to
$8,137,000 in 2000. In 2000, cash obtained from financing was primarily due to
the private placement of 710,000 shares of stock to several accredited
institutional investors that raised $6,245,000. Also, due to lower stock prices
in 2001, cash obtained from the exercise of options was $41,000 compared to
$1,892,000 in 2000.

     We have $4,465,000 in cash and cash equivalents as of December 31, 2001 and
no outstanding debt. We believe that we have sufficient cash and cash
equivalents on hand to fund our operations and anticipated growth in 2002.

     As of December 31, 2001, the Company had operating loss carry-forwards with
a full valuation allowance of $8,345,000 expiring in various amounts in 2020 and
2021 in the United States and $13,787,000 in Australia. Utilization of the net
operating loss carry-forwards in Australia are subject to either the continuity
of ownership test or the continuation of same business test at the time the
losses are utilized in accordance with Subdivision 165 and Subdivision 166 of
the Australian Income Tax Assessment Act of 1997.

     Critical Accounting Policies

     The accompanying consolidated financial statements were prepared in
conformity with accounting principles generally accepted in the United States.
When more than one accounting principle, or the method of its application is
generally accepted, we select the principle or method that is appropriate in our
specific circumstances. (see Note 2 of Notes to Consolidated Financial
Statements). Application of these accounting principles requires us to make
estimates about the future resolution of existing circumstances. As a result,
actual results could differ from these estimates. In preparing these financial
statements, we have made our best estimates and judgments of the amounts and
disclosures included in the consolidated financial statements, giving due regard
to materiality.

                                        22
<PAGE>

     Revenue Recognition

     We have three distinct revenue streams that result from our business
activities. They are license revenue, software development revenue, and service
revenues. License revenue is expected to be earned on a per card issued, per
card activated with loyalty, per loyalty transaction, and/or per POS device
installed basis depending on the customer. License revenue, which is expected to
be our largest source of revenue in the future, is tied to the speed with which
our customers implement and roll-out their projects.

     License revenue recorded on a per transaction basis represents the smallest
unit of pricing, but has the advantage of significant volume potential. As a
result, revenue earned on a per transaction basis is anticipated to start at
lower levels and build as the customer's loyalty program gains momentum. License
revenue on a per card issued/activated basis is at a higher unit price and is
earned as soon as the card is issued or has a loyalty transaction activated on
it. Revenue under this approach is anticipated to be earned at higher levels and
sooner in the customer's implementation cycle than per transaction based
pricing. Revenue is also expected to be earned when cards expire and are
replaced, are lost or are stolen. License revenues are also expected to be
earned on a per POS device installed basis. This is the largest unit price of
the three types of license revenue, but is earned on the smallest volume. Annual
license renewal fees are also expected in certain cases. License revenues are
generally recognized when a user license agreement has been signed, the software
product is being utilized, there are no uncertainties surrounding product
acceptance, the fees are fixed and determinable, and collection is considered
probable.

     Software development revenue is recorded on a project-by-project basis from
the integration, customization and development fees that normally occur within
several months of the contract being signed. Software development revenue is
charged at our standard hourly bill rates on a time and materials basis or on a
fixed price basis. Revenue is earned as the project progresses on a percentage
of completion basis. Revenue from fixed price contracts is generally recognized
over the contract term using the percentage of completion method, based upon
hours incurred as a percentage of estimated total hours of the respective
contract. The cumulative impact of any revisions in estimated total revenues and
direct contract costs are recognized in the period in which they become known.
Revenue in excess of billings is recognized as unbilled receivables and is
included in work in process in the consolidated balance sheet. Billings in
excess of revenue are recorded as deferred revenue until revenue recognition
criteria are met.

     We record service revenues as a result of our training services,
installation support, post-installation support and annual maintenance fees.
Maintenance fees are recurring and are generally contracted for as a percentage
of the license revenue earned from use of the software. All of the other service
revenues are on a project-by-project basis and charged using our standard hourly
bill rates or fixed pricing. Revenue from consulting services, installation
fees, installation support and training are recognized in the period in which
the service is performed and the fee becomes determined and payable. Revenue
from post-customer support includes maintenance revenue, which is recognized
ratably over the maintenance period.

     Software development and service revenues are relatively easy to project
when a contract is signed and the size and scope of the project becomes known.
License revenue, on the other hand, is much more difficult to project since it
is dependent on the speed with which our customers implement their projects,
their timing for roll-out, their approach to rolling out their programs (e.g.
complete a pilot project, followed by a regional roll-out, followed by national
roll-out, verses doing a national roll-out directly), and the scale (size) of
the loyalty programs they offer to their customers. However, we believe that
license fees represent recurring revenues and are expected to be significant
over time as our software becomes integrated to the payment system and merchants
begin to capture the increased revenue and the decreased costs afforded by the
Catuity system.

                                        23
<PAGE>

     Contingent Liabilities

     We record an expense for all contingent liabilities, including legal costs,
when the liability is probable to occur and the amount is reasonably estimable.

     Accounting for Equity Instruments

     The Company accounts for stock-based awards issued to employees under the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock issued to Employees" ("APB 25").

     For all fixed stock-based awards issued to employees, we record an expense
based on the intrinsic value of the awards and amortize the expense over the
vesting period. For variable awards issued to employees and awards issued to
third parties, we record an expense based on the fair value of the award at each
balance sheet date using the Black-Scholes valuation model and amortize the
expense over the vesting period.

     For issuances of stock to third parties for services, we record an expense
at the date of issuance based on the number of shares issued multiplied by the
closing stock price of the date of issuance. For stock issued to customers, we
record a sales discount in a similar manner.

     For non-recourse loans issued to employees to purchase stock, we record an
expense based on the number of loan shares outstanding multiplied by the closing
stock price on the date of the loan. At each balance sheet date, we adjust the
cumulative expense recorded to equal the number of non-recourse loan shares
outstanding multiplied by the closing stock price at each balance sheet date.
Any increase or decrease in the cumulative expense is recorded in the statement
of operations.

LEGAL PROCEEDINGS

     Details of Legal Proceedings are included in Item 3 above and in Note 4 to
the Consolidated Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     We are exposed to foreign currency exchange rate risk inherent in our
sales, expenses, assets and liabilities denominated in the Australian dollar. To
date, we have not utilized any foreign currency hedging or other derivative
instruments to reduce exchange rate risk. We do not expect to employ these or
other strategies to hedge the risk in the foreseeable future.

     As of December 31, 2001, and 2000 the Company's net current assets (defined
as current assets less current liabilities) subject to foreign currency risk are
$162,000 and $95,000. The potential decrease in net assets from a hypothetical
10% adverse change in quoted foreign currency exchange rates would be
approximately $16,200 and $9,500.

     We are also exposed to interest rate risk on deposits of cash, which are
affected by changes in the general level of interest rates in the United States
and Australia. Since we generally invest in very short-term interest bearing
deposits, we do not believe we are subject to any material market risk exposure.

                                        24
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                               TABLE OF CONTENTS

<Table>
<S>                                                             <C>
Report of Independent Auditors..............................     26
Consolidated Balance Sheet..................................     27
Consolidated Statement of Operations........................     28
Consolidated Statement of Cash Flows........................     29
Consolidated Statement of Shareholders' Equity..............     30
Notes to Consolidated Financial Statements..................     31
</Table>

                                        25
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS AND SHAREHOLDERS
CATUITY INC.

     We have audited the accompanying consolidated balance sheets of Catuity
Inc. as of December 31, 2001 and 2000, and the related consolidated statements
of operations, shareholders' equity, and cash flows for each of the three years
in the period ended December 31, 2001. Our audit also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule 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.

     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 consolidated financial position of Catuity Inc. at
December 31, 2001 and 2000, and the consolidated results of its operations and
its 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. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

                                          /s/ ERNST & YOUNG LLP

Detroit, Michigan
March 8, 2002

                                        26
<PAGE>

                                  CATUITY INC.

                           CONSOLIDATED BALANCE SHEET

<Table>
<Caption>
                                                                        DECEMBER 31
                                                                ----------------------------
                                                                    2001            2000
                                                                    ----            ----
<S>                                                             <C>             <C>
ASSETS
Current Assets:
  Cash and cash equivalents.................................    $  4,464,863    $  8,558,843
  Accounts receivable-trade, less allowance of $114,000 in
     2001, and $44,000 in 2000..............................         668,482         111,698
  Restricted cash...........................................          94,712         222,265
  Work in process...........................................         208,823              --
  Prepaid expenses and other................................         218,416         370,357
                                                                ------------    ------------
Total current assets........................................       5,655,296       9,263,163
Property and equipment, net.................................         215,197         236,832
                                                                ------------    ------------
Total Assets................................................    $  5,870,493    $  9,499,995
                                                                ============    ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Accounts payable..........................................    $    271,435    $    378,983
  Deferred revenue..........................................         834,514          67,000
  Accrued compensation......................................         153,415         122,134
  Other accrued expenses....................................         620,500         483,406
  Trust liability...........................................          78,745         204,243
                                                                ------------    ------------
Total current liabilities...................................       1,958,609       1,255,766
Accrued compensation........................................          54,910          50,231
Commitments and contingencies (Note 4)......................              --              --
Shareholders' equity:
  Common stock -- $.001 par value; Authorized -- 100 million
     shares: issued and outstanding 8,063,338 in 2001 and
     7,869,619 in 2000......................................           8,064           7,870
  Additional paid-in capital................................      32,216,113      32,626,916
  Shareholder loans.........................................        (757,733)       (757,733)
  Foreign currency translation adjustment...................        (316,280)       (265,067)
  Accumulated deficit.......................................     (27,293,190)    (23,417,988)
                                                                ------------    ------------
Total shareholders' equity..................................       3,856,974       8,193,998
                                                                ------------    ------------
Total Liabilities and Shareholders' Equity..................    $  5,870,493    $  9,499,995
                                                                ============    ============
</Table>

                             See accompanying notes

                                        27
<PAGE>

                                  CATUITY INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS

<Table>
<Caption>
                                                                YEAR ENDED DECEMBER 31
                                                     ---------------------------------------------
                                                        2001             2000             1999
                                                        ----             ----             ----
<S>                                                  <C>              <C>              <C>
REVENUES:
Software development revenue.....................    $ 1,414,214      $   534,560      $        --
Service revenue..................................        593,470          216,913           97,623
License revenue..................................         12,600               --          540,759
                                                     -----------      -----------      -----------
Gross revenue....................................      2,020,284          751,473          638,382
Sales discount (non-cash)........................       (403,899)              --               --
                                                     -----------      -----------      -----------
Net revenue......................................      1,616,385          751,473          638,382
Operating costs and expenses:
Product development..............................      1,271,380        1,178,217          825,968
Customer implementation and support..............        946,374          263,094               --
Sales and marketing..............................      1,917,900        1,905,906          956,911
General and administrative.......................      2,573,129        2,003,408        2,549,732
General and administrative-variable stock
  compensation (non-cash)........................       (973,350)        (716,192)       2,475,175
                                                     -----------      -----------      -----------
Total operating costs and expenses...............      5,735,433        4,634,433        6,807,786
                                                     -----------      -----------      -----------
Operating loss...................................     (4,119,048)      (3,882,960)      (6,169,404)

OTHER INCOME/(EXPENSE):
Interest income..................................        243,846          246,200          115,631
Interest expense -- related party................             --          (47,145)        (156,311)
                                                     -----------      -----------      -----------
Total other income/(expense).....................        243,846          199,055          (40,680)
                                                     -----------      -----------      -----------
Loss before income taxes and extraordinary
  item...........................................     (3,875,202)      (3,683,905)      (6,210,084)
Provision for income taxes.......................             --               --               --
                                                     -----------      -----------      -----------
Loss before extraordinary item...................     (3,875,202)      (3,683,905)      (6,210,084)
Extraordinary loss on early extinguishment of
  debt...........................................             --         (127,446)              --
                                                     -----------      -----------      -----------
Net loss.........................................    $(3,875,202)     $(3,811,351)     $(6,210,084)
                                                     ===========      ===========      ===========
Loss per share before extraordinary item -- basic
  & diluted......................................    $     (0.49)     $     (0.52)     $     (1.05)
Loss per share on extraordinary item-basic &
  diluted........................................             --            (0.02)              --
                                                     -----------      -----------      -----------
Net loss per share -basic & diluted..............    $     (0.49)     $     (0.54)     $     (1.05)
                                                     ===========      ===========      ===========
Weighted average shares outstanding-basic &
  diluted........................................      7,935,137        7,020,534        5,913,613
                                                     ===========      ===========      ===========
</Table>

                             See accompanying notes

                                        28
<PAGE>

                                  CATUITY INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<Table>
<Caption>
                                                                YEAR ENDED DECEMBER 31
                                                       -----------------------------------------
                                                          2001           2000           1999
                                                          ----           ----           ----
<S>                                                    <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss...........................................    $(3,875,202)   $(3,811,351)   $(6,210,084)
Adjustments used to reconcile net loss to net cash
  used in operating activities:
  Stock based compensation.........................       (973,350)      (716,192)     2,475,175
  Depreciation and amortization....................        110,096        117,525        101,809
  Non cash sales discount..........................        403,899             --             --
  Non cash services................................        117,800             --             --
  Extraordinary loss on early extinguishment of
     debt..........................................             --        127,446             --
  Provision for doubtful accounts..................        113,550         44,421        157,704
  Provision for obsolete inventory.................             --             --        104,929
Changes in assets and liabilities:
  Accounts receivable..............................       (625,913)       430,854       (576,072)
  Accounts payable.................................       (107,548)      (181,923)       250,840
  Deferred revenue.................................        767,514         67,000             --
  Accrued expenses and other liabilities...........         47,556        281,280        195,278
  Other assets.....................................         70,671       (298,475)       (24,383)
                                                       -----------    -----------    -----------
Net cash used in operating activities..............     (3,950,927)    (3,939,415)    (3,524,804)
                                                       -----------    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment...............        (88,461)      (112,319)      (135,622)
                                                       -----------    -----------    -----------
Net cash used in investing activities..............        (88,461)      (112,319)      (135,622)
                                                       -----------    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of common stock, net of expenses........         41,045      8,193,904      9,521,278
  Net proceeds from sale of option.................             --        924,805             --
  Payments on borrowings from related parties......             --       (854,230)      (839,981)
  Fees paid for early extinguishment of debt.......             --       (127,446)            --
                                                       -----------    -----------    -----------
Net cash provided by financing activities..........         41,045      8,137,033      8,681,297
                                                       -----------    -----------    -----------
Foreign exchange effect on cash....................        (95,637)      (796,213)       100,097
                                                       -----------    -----------    -----------
Net increase/(decrease) in cash and cash
  Equivalents......................................     (4,093,980)     3,289,086      5,120,968
Cash and cash equivalents, beginning of period.....      8,558,843      5,269,757        148,789
                                                       -----------    -----------    -----------
Cash and cash equivalents, end of period...........    $ 4,464,863    $ 8,558,843    $ 5,269,757
                                                       ===========    ===========    ===========
Supplemental disclosure of cash flow information
  Taxes paid.......................................    $        --    $        --    $        --
                                                       ===========    ===========    ===========
  Interest paid....................................    $        --    $    47,145        156,311
                                                       ===========    ===========    ===========
</Table>

                             See accompanying notes

                                        29
<PAGE>

                                  CATUITY INC.
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<Table>
<Caption>
                                     ISSUED CAPITAL       ADDITIONAL                                   FOREIGN         TOTAL
                                 ----------------------      PAID       SHAREHOLDER   ACCUMULATED     CURRENCY     SHAREHOLDERS'
                                  SHARES       AMOUNT     IN CAPITAL       LOANS        DEFICIT      TRANSLATION      EQUITY
                                  ------       ------     ----------    -----------   -----------    -----------   -------------
<S>                              <C>         <C>          <C>           <C>           <C>            <C>           <C>
Balances at January 1, 1999....  4,920,340     $4,920     $12,174,106    $(806,146)   $(13,396,553)   $ 412,716     $(1,610,957)
  Issuance of common stock.....    796,782        797       4,818,084                                                 4,818,881
  Exercise of options..........  1,012,147      1,012       4,730,434                                                 4,731,446
  Stock based compensation.....                             2,475,175                                                 2,475,175
  Shareholder loans............                                             48,413                                       48,413
Net loss.......................                                                         (6,210,084)                  (6,210,084)
Foreign currency translation...                                                                         (11,643)        (11,643)
                                                                                                                    -----------
  Comprehensive loss...........                                                                                      (6,221,727)
                                 ---------     ------     -----------    ---------    ------------    ---------     -----------
Balances at December 31,
  1999.........................  6,729,269      6,729      24,197,799     (757,733)    (19,606,637)     401,073       4,241,231
  Issuance of common stock.....    713,636        714       6,289,812                                                 6,290,526
  Exercise of options..........    426,714        427       1,902,952                                                 1,903,379
  Sale of option right.........                               952,545                                                   952,545
  Stock based compensation.....                              (716,192)                                                 (716,192)
Net loss.......................                                                         (3,811,351)                  (3,811,351)
Foreign currency translation...                                                                        (666,140)       (666,140)
                                                                                                                    -----------
  Comprehensive loss...........                                                                                      (4,477,491)
                                 ---------     ------     -----------    ---------    ------------    ---------     -----------
Balances at December 31,
  2000.........................  7,869,619      7,870      32,626,916     (757,733)    (23,417,988)    (265,067)      8,193,998
  Issuance of common stock.....    165,719        166         480,530                                                   480,696
  Exercise of options..........     28,000         28          41,017                                                    41,045
  Sale of option right.........                                41,000                                                    41,000
  Stock based compensation.....                              (973,350)                                                 (973,350)
Net loss.......................                                                         (3,875,202)                  (3,875,202)
Foreign currency translation...                                                                         (51,213)        (51,213)
                                                                                                                    -----------
  Comprehensive loss...........                                                                                      (3,926,415)
                                 ---------     ------     -----------    ---------    ------------    ---------     -----------
Balances at December 31,
  2001.........................  8,063,338     $8,064     $32,216,113    $(757,733)   $(27,293,190)   $(316,280)    $ 3,856,974
                                 =========     ======     ===========    =========    ============    =========     ===========
</Table>

                             See accompanying notes

                                        30
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. DESCRIPTION OF BUSINESS

     Catuity Inc. and subsidiaries (the "Company") designs, develops, operates
and markets multi-program systems that provide loyalty and incentive marketing
solutions. The Company's principal customers are retailers, card issuing banks
and processors for consumer purchases in stores as well as over the Internet.
These solutions are intended to increase customer retention, increase the
customer base and reduce costs for merchants. The Company provides full program
services and network system software that directly connect the seller and the
buyer across all purchasing channels, irrespective of payment method.

NOTE 2. SUMMARY OF ACCOUNTING POLICIES

     Principles of Consolidation

     The accompanying financial statements include the consolidation of the
accounts of the Company and its wholly owned subsidiaries. All significant
inter-company transactions and balances have been eliminated.

     Revenue Recognition

     The Company generates revenue from three primary sources as follows:

          Software Development Revenues: Revenue from fixed price contracts is
     generally recognized over the contract term using the percentage of
     completion method, based upon hours incurred as a percentage of estimated
     total hours of the respective contract. The cumulative impact of any
     revisions in estimated total revenues and direct contract costs are
     recognized in the period in which they become known. Revenue in excess of
     billings is recognized as unbilled receivables and is included in work in
     process in the consolidated balance sheet. Billings in excess of revenue
     are recorded as deferred revenue until revenue recognition criteria are
     met.

          Service Revenue: Service revenue is derived from consulting services,
     installation fees, installation support, training and post customer support
     (PCS). Revenue from consulting services, installation fees, installation
     support and training are recognized in the period in which the service is
     performed and the fee becomes determined and payable. Revenue from PCS
     includes maintenance revenue, which is recognized ratably over the
     maintenance period.

          In 1999 Australian PCS revenue was recognized as part of the original
     license fee on delivery of the software when it was provided for one year
     or less, the estimated cost of providing the PCS was insignificant and the
     upgrades provided were minimal.

          License Revenue: The Company licenses software under user license
     agreements. License revenues are generally recognized when a user license
     agreement has been signed, the software product is being utilized, there
     are no uncertainties surrounding product acceptance, the fees are fixed and
     determinable, and collection is considered probable.

     Use of Estimates

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

                                        31
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RECLASSIFICATIONS

     Certain prior year amounts have been reclassified to conform to the current
year presentation.

CASH AND CASH EQUIVALENTS

     The Company considers all cash and highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents.

ACCOUNTS RECEIVABLE AND CONCENTRATIONS OF CREDIT RISK

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. The credit
risk associated with trade receivables is limited due to performing on going
credit evaluations. The Company generally does not require collateral for its
trade receivables. The Company generated 70% of net revenue from one U.S.
customer in 2001. The loss of that customer would have a material effect on the
Company's operations.

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost. Depreciation and amortization
expense is recorded using the straight-line method over the estimated useful
lives of the respective assets (which range from three to ten years).

FOREIGN CURRENCY TRANSLATION

     The accounts of the Company's subsidiaries are translated in accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation". All balance sheet accounts for the Australian subsidiaries are
translated at the exchange rates in effect at the balance sheet date. Revenues
and expenses for the Australian subsidiaries are translated at the average
exchange rate during the year. All cumulative translation gains and losses are
included as a separate component of shareholders' equity in the consolidated
balance sheet. Currency transaction gains and losses are included in the
consolidated statement of operations.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amounts of certain financial instruments such as cash and cash
equivalents, accounts receivable-trade, and accounts payable approximate their
fair values.

INCOME TAXES

     The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"), which requires the use of the liability method in accounting for income
taxes. Under SFAS No. 109, deferred tax assets and liabilities are measured
based on differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.

STOCK-BASED COMPENSATION

     The Company accounts for stock-based awards issued to employees under the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and has adopted
the disclosure-only alternative of Statement of

                                        32
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123").

     For all fixed awards, the Company records an expense based on the intrinsic
value at the date of grant and amortizes it over the vesting period. For
variable awards issued to employees or non-employees, the Company records an
expense, or benefit, based on the fair value of the options at each balance
sheet date.

ISSUANCE OF STOCK TO THIRD PARTIES FOR SERVICES

     For issuances of stock to third parties for services, the Company records
an expense at the date of issuance based on the number of shares issued
multiplied by the closing stock price of the date of issuance. For stock issued
to vendors, we record a sales discount in a similar manner.

NEW ACCOUNTING PRONOUNCEMENTS

     Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS No. 144) was issued in July
2001, and addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement replaces Statement of Financial
Accounting Standards No. 121 on the same topic and establishes an accounting
model for the impairment of long-lived assets. The Company will adopt SFAS No.
144 on January 1, 2002 and does not expect the adoption to have a significant
impact on its operations or financial position.

NOTE 3. PROPERTY AND EQUIPMENT

     Property and equipment consists of:

<Table>
<Caption>
                                                             DECEMBER 31
                                                        ----------------------
                                                          2001         2000
                                                          ----         ----
<S>                                                     <C>          <C>
Computer equipment..................................    $ 435,368    $ 383,383
Leasehold improvements..............................       45,840       54,126
Office furniture and equipment......................      114,441      105,238
                                                        ---------    ---------
                                                        $ 595,649    $ 542,747
Less accumulated depreciation.......................     (380,452)    (305,915)
                                                        ---------    ---------
                                                        $ 215,197    $ 236,832
                                                        =========    =========
</Table>

NOTE 4. COMMITMENTS AND CONTINGENCIES

     Lease Commitments -- The Company has commitments under a non-cancelable
office lease expiring December 14, 2003. Minimum future annual lease payments
under this lease as of December 31, 2001 are as follows:

<Table>
<S>                                                             <C>
2002........................................................    $ 69,890
2003........................................................      69,740
                                                                --------
                                                                $139,630
                                                                ========
</Table>

     Total rent expense on all office leases was $99,887, $91,222, and $121,701
for the years ended December 31, 2001, 2000 and 1999, respectively. The higher
expense in 1999 is primarily due to currency adjustments.

                                        33
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONTINGENCIES

GRANTS

     While the Company received no grants in 2001, research & development and
export market development grants were received in 2000 and 1999. The grants were
recognized using contract accounting when the underlying performance objective
was attained or services were provided. The revenue was offset against the
expenses to which it related.

     Under the terms of a Grant Agreement with the Commonwealth of Australia,
the Company was required to meet certain obligations with regard to the
development and commercialization of the Multi Card Acceptance Device. In the
event that these obligations were not met, the Company would have been required
to repay all or part of the grant monies received. As of December 31, 2001, the
Company had no remaining liability for the repayment of grant monies received.

LEGAL

     On July 20, 2000 Welcome Real-Time S.A. (WRT) filed a lawsuit in the
Federal Court in Australia alleging infringement by the Company of WRT's
Australian patent and claiming damages.

     On May 17, 2001, the judge in the Federal Court of Australia ruled that the
WRT patent was valid and that the Company infringed on the patent in Australia.
The judge ordered the Company to refrain from infringing on the patent in
Australia and deliver any infringing physical devices in its possession, located
in Australia. On October 17, 2001 the Company delivered all infringing devices
in accordance with the judge's orders. This consisted of the POS devices used in
the Transcard systems during the Western Sydney, Australia trials operated by
the Company beginning in 1995. The Company and its Transcard customers had
previously decided to terminate the Transcard system trial operations effective
August 31, 2001. The cessation of the Transcard activities did not have a
material impact on the Company's operating results. Revenues in 2001 from the
Transcard system were $32,000 as of August 31, 2001 when the operation was
discontinued. The judge also ordered that WRT was entitled to damages suffered
or, at its option, a measure of the profitability earned from Catuity's
operations in Australia, and that the Company pay certain of WRT legal costs.
The Company and WRT have accepted the Court's advice that $338,000 represents
the amount of WRT legal costs and this amount will be held in escrow pending the
outcome of the appeal.

     The Company and its attorneys believe that the Company's software does not
infringe on the WRT patent and filed an appeal. The appeal was heard by the Full
Bench of the Federal Court of Australia on February 25-26, 2002 and the Company
is waiting for the Court's ruling. The Company has provided for its best
estimate of all legal costs for this matter in its 2001 Statement of Operations.
In the event the Company's appeal is successful, the Company does not expect to
have to pay the escrowed costs, and may recover certain of its own legal costs.

NOTE 5. SHAREHOLDERS' EQUITY

LIMITED RECOURSE LOANS

     In 1996, the Company issued non-recourse loans to a director and an officer
in the amount of approximately $507,000 for the purpose of purchasing
approximately 281,000 shares of the Company's stock. The loan amount has
remained unchanged since 1999 when $48,263 was repaid. The loans have been
offset against shareholders' equity. The Company's recourse for repayment of the
loans is limited to after-tax dividends and proceeds from the sale of the
shares. As a result, the recoverability of the loan is dependent upon the value
of the shares. The loans do not have a specified repayment date and were
provided interest-free. Consequently, the awards have been treated as a variable
award

                                        34
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and variable accounting has been adopted. The Company has recorded an
expense/(credit) related to these awards based on the change in the price of
common stock from the date of the award to the respective balance sheet dates.
The expense/(credit) was ($973,350), ($716,192) and $2,475,175 for the years
ended December 31, 2001, 2000 and 1999, respectively.

EMPLOYEE STOCK OPTION PLAN

     The Board of Directors approved the establishment of an Employee Stock
Option Plan on December 6, 1999. The Plan was approved at a special meeting of
the shareholders on March 16, 2000. Under the plan the Company grants stock
options at an exercise price that may be determined by the Board of Directors at
the time of issuance, but is generally at the closing price of the stock on the
date of the grant or the average closing price of the stock for the 30 calendar
days preceding the grant date, whichever is higher. Option vesting schedules are
determined by the Board of Directors at the time of issuance, but are generally
over three to five years from the date of the grant. Employees must exercise the
options within two to six months of terminating their employment with the
Company or the options lapse.

     Stock options issued prior to December 31, 1998 generally vested
immediately on the date of grant or within a certain specified time of continued
employment. Options issued subsequent to December 31, 1998, but prior to the
establishment of the Employee Stock Option Plan, vested at the end of a
specified period of time, which was linked to the employees' continuing
employment, generally being from one to five years.

     In the event an option exercise price is less than the closing price on the
date of grant, the Company records an expense based upon the difference between
the exercise price and the closing price of the Company's shares on the date of
the option grant. The Company recorded an expense relating to the grant of stock
options to employees of $15,653 for the year ended December 31, 1999. There were
no such options granted in 2001 or 2000.

DIRECTOR STOCK OPTION PLAN

     On October 24, 2000 the members of the Board of Directors, who are
employees of the Company, approved the establishment of a Director Stock Option
Plan effective October 1, 2000 for outside Directors. The Plan was approved at
the May 24, 2001 annual meeting of shareholders. The Plan is designed to provide
a portion of the outside Director's compensation through stock options. Under
the Plan, outside Directors receive 10,000 non-qualified option shares on the
date they join the Board or on the date the plan became effective, in the case
of existing outside Directors. In addition, each outside Director shall receive
5,000 non-qualified option shares on the last business day in September of each
succeeding year for as long as the Director remains on the Board. The option
issue price will be the closing price on the grant date, or the closing price on
the last trading day preceding the grant date in the event the grant date falls
on a weekend or holiday. The options vest on the date of grant and expire after
eight years, or six months after the Director ceases to be a member of the
Board, whichever shall occur first. The Plan is limited so that no more than
100,000 option shares may be outstanding at any one time.

                                        35
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Had compensation costs for these plans been determined consistent with SFAS
No. 123, "Accounting for Stock Based Compensation," the Company's net loss and
net loss per share would have been reported as follows:

<Table>
<Caption>
                                                  YEAR ENDED DECEMBER 31
                                         -----------------------------------------
                                            2001           2000           1999
                                            ----           ----           ----
<S>                                      <C>            <C>            <C>
Net Loss as Reported.................    $(3,875,202)   $(3,811,351)   $(6,210,084)
                                         ===========    ===========    ===========
  Net loss per share basic &
     diluted.........................    $     (0.49)   $     (0.54)   $     (1.05)
                                         ===========    ===========    ===========
Pro Forma Net Loss...................    $(4,654,732)   $(5,460,084)   $(6,865,434)
                                         ===========    ===========    ===========
  Pro forma basic & diluted loss per
     share...........................    $     (0.59)   $     (0.78)   $     (1.16)
                                         ===========    ===========    ===========
</Table>

     For disclosure purposes, the fair value of stock based compensation was
computed using the Black-Scholes option pricing model with the following
weighted average assumptions used for 2001, 2000, and 1999 grants:

<Table>
<Caption>
                                                               DECEMBER 31
                                                         -----------------------
                                                         2001     2000     1999
                                                         ----     ----     ----
<S>                                                      <C>      <C>      <C>
Risk Free Interest Rate..............................     5.00%    6.00%    5.96%
Expected Dividend Yield..............................       --       --       --
Expected Lives (years)...............................     2.23     4.95     3.04
Expected Volatility..................................    0.789    0.917    0.796
</Table>

OPTIONS ISSUED TO THIRD PARTIES

     The Company granted options to purchase shares of common stock to third
parties during the period January 1, 1999 to December 31, 2001 primarily for
services provided to the Company. The Company valued these options using the
Black-Scholes option-pricing model. Expense relating to these options amounted
to $41,000, $30,000 and $0, for the three years ended December 31, 2001, 2000,
and 1999 respectively. The expense was charged to operations in the year they
were granted as they vested immediately.

                                        36
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following is a summary of stock option activity:

<Table>
<Caption>
                                                                        WEIGHTED
                                                       NUMBER OF        AVERAGE
                                                         OPTION      EXERCISE PRICE
                                                         SHARES        PER SHARE
                                                       ---------     --------------
<S>                                                    <C>           <C>
  Outstanding at January 1, 1999...................     1,487,498        $5.49
  Granted..........................................       352,254        $7.00
  Cancelled/lapsed.................................        (5,982)        4.76
  Exercised........................................    (1,012,147)        5.64
                                                       ----------        -----
  Outstanding at December 31, 1999.................       821,623        $5.96
  Granted..........................................       736,000        $8.25
  Cancelled/lapsed.................................       (56,750)        5.10
  Exercised........................................      (426,714)        4.46
                                                       ----------        -----
  Outstanding at December 31, 2000.................     1,074,159        $7.76
  Granted..........................................       353,550        $4.26
  Cancelled/lapsed.................................      (247,309)        5.11
  Exercised........................................       (28,000)        1.47
                                                       ----------        -----
  Outstanding at December 31, 2001.................     1,152,400        $6.90
                                                       ==========        =====
</Table>

     The weighted average fair value of options granted during the three years
ended December 31, 2001, 2000 and 1999 were $2.79, $4.78 and $3.19,
respectively.

     The following is additional information relating to options outstanding as
of December 31, 2001:

<Table>
<Caption>
                                        OPTIONS OUTSTANDING
                                ------------------------------------     OPTIONS EXERCISABLE
                                                          WEIGHTED      ---------------------
                                             WEIGHTED      AVERAGE                   WEIGHTED
                                             AVERAGE     CONTRACTUAL                 AVERAGE
          EXERCISE              NUMBER OF    EXERCISE       LIFE        NUMBER OF    EXERCISE
        PRICE RANGE              SHARES       PRICE        (YEARS)       SHARES       PRICE
        -----------             ---------    --------    -----------    ---------    --------
<S>                             <C>          <C>         <C>            <C>          <C>
$1.53 - $3.96...............     125,000      $3.73         7.37          59,000      $3.58
$4.00 - $5.00...............     269,400      $4.62         2.64          85,000      $4.61
$6.14 - $8.80...............     415,000      $7.18         5.70         305,000      $7.20
$9.50 - $9.85...............     343,000      $9.51         6.89         196,500      $9.51
</Table>

     The dilutive effect of stock options has not been included in the loss per
share calculation, as the effect would be anti-dilutive.

COMMON STOCK

     On May 1, 2001 the Company entered into an agreement with Greenstone
Partners Inc. whereby the Company agreed to issue shares of common stock, and
options to purchase shares of common stock, in exchange for Greenstone's
investor relations services. Under the terms of the agreement, Greenstone
received a total of 24,000 shares of the Company's common stock, vesting at the
rate of 3,000 shares per month and the option to purchase 25,000 shares of the
Company's common stock at $4.00 per share between August 1, 2001 and May 1, 2004
unless the agreement is terminated prior to its completion. On February 15, 2002
the agreement with Greenstone Partners Inc. was terminated by the Company. As a
result, all performance-based options will not be earned. The issuance of shares
to Greenstone ended effective February 15, 2002.

                                        37
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In 2001 the Company entered into a licensing and services agreement with
Visa USA Inc. that included the Company granting Visa 141,719 unregistered
shares of the Company's common stock. The stock grant was recorded as a non-cash
sales discount of $404,000 in the statement of operations.

PREFERRED STOCK

     The Company's Certificate of Incorporation authorizes 10 million shares of
preferred stock, with a par value of $0.001 per share, none of which is issued
or outstanding. The Board of Directors has the authority to issue the preferred
stock in one or more series and to fix rights, preferences, privileges and
restrictions, including dividends, and the number of shares constituting any
series or the designation of such series, without any further vote or action by
the shareholders.

PRIVATE PLACEMENT

     On November 16, 2000 the Company completed the private placement of 710,000
shares of common stock to six accredited institutional investors at a price of
$9.47 per share. The settlement date of the transaction was November 21, 2000.
Net proceeds from the placement were $6,245,000. The price of the issue was
based on the average closing price for the Company's shares on the Australian
Stock Exchange for the thirty-day period prior to the placement.

SALE OF OPTION RIGHT AND EARLY EXTINGUISHMENT OF DEBT

     On June 30, 2000, Chip Application Technologies Limited (CAT), a wholly
owned subsidiary of the Company, entered into an Option Assignment Agreement
with BNP Paribas Equities (Australia) Limited (BNP) whereby CAT transferred all
its rights, title and interests under the Loan Repayment and Option Agreement as
amended (the "Agreement") it had entered into with Health Group Australia
Limited (HGA) and Industrial Superannuation Administration Services Limited
(ISAS) dated May 4, 1999 for the right to acquire 309,150 and 23,437 shares held
respectively by HGA and ISAS in the Company. The agreement provided the Company
the right to purchase its shares owned by HGA and ISAS at $4.92 per share prior
to July 19, 2000. Also on June 30, 2000 CAT signed a Mandate Letter with BNP for
disposal of the shares at $8.11 per share.

     The transactions were completed on July 14, 2000. In accordance with the
Agreements and Mandate Letter, BNP paid CAT $1,059,672 after deducting $134,867
of fees resulting in $924,805 of net proceeds from the transaction. As a
condition of the option being exercised, CAT repaid the outstanding loans due
HGA of $777,530 plus $127,446 for early repayment.

NOTE 6. INCOME TAXES

     The components of loss before income taxes and extraordinary items
consisted of the following:

<Table>
<Caption>
                                                  YEAR ENDED DECEMBER 31
                                         -----------------------------------------
                                            2001           2000           1999
                                            ----           ----           ----
<S>                                      <C>            <C>            <C>
Domestic.............................    $(4,904,115)   $(3,440,602)   $  (824,664)
Foreign..............................      1,028,913       (243,303)    (5,385,420)
                                         -----------    -----------    -----------
Loss before income taxes and
  extraordinary item.................    $(3,875,202)   $(3,683,905)   $(6,210,084)
                                         ===========    ===========    ===========
</Table>

                                        38
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     There has been no provision for income taxes for any period as the Company
has incurred operating losses and provided a full valuation allowance against
those operating losses. The provision for income taxes at statutory rates is
reconciled to the reported provision for income taxes as follows:

<Table>
<Caption>
                                                  YEAR ENDED DECEMBER 31
                                         -----------------------------------------
                                            2001           2000           1999
                                            ----           ----           ----
<S>                                      <C>            <C>            <C>
Income taxes at statutory tax rate...    $(1,338,147)   $(1,254,961)   $(2,235,630)
Stock compensation...................       (330,939)      (243,505)       891,063
Scheme of arrangement................             --             --        466,478
R&D grant 25% deduction..............             --        (97,405)       (84,678)
Grant revenue........................             --       (101,660)      (206,108)
Effect of change in corporate tax
  rate on losses and FITB not........             --
Recognized...........................             --             --        336,699
Valuation allowance..................      1,669,086      1,697,531        832,176
                                         -----------    -----------    -----------
Provision for income taxes...........    $        --    $        --    $        --
                                         ===========    ===========    ===========
</Table>

     The statutory tax rate was 36% for the year ended December 31, 1999 and was
34% for the years ended December 31, 2001 and 2000. Deferred income taxes
reflect 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. Significant components of the Company's
deferred tax liabilities and assets are as follows:

<Table>
<Caption>
                                                            DECEMBER 31
                                                     --------------------------
                                                        2001           2000
                                                        ----           ----
<S>                                                  <C>            <C>
Deferred tax assets:
Net operating loss carry-forwards................    $ 7,828,225    $ 6,490,078
Other............................................        485,984        130,997
                                                     -----------    -----------
Total deferred tax assets........................      8,314,209      6,621,075
Valuation allowance..............................     (8,314,209)    (6,621,075)
                                                     -----------    -----------
Total net deferred tax assets....................    $        --    $        --
                                                     ===========    ===========
</Table>

     Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully reserved by a valuation allowance.

     As of December 31, 2001, the Company had operating loss carry-forwards of
$8,345,000 expiring in various amounts in 2020 and 2021 in the United States and
$13,787,000 in Australia. Utilization of the net operating loss carry-forward in
Australia, is subject to an annual limitation due to the ownership change
limitations in accordance with Division 165 and Division 166 of the Australian
Income Tax Assessment Act 1997. The limitation may result in the expiration of
net operating losses before utilization.

NOTE 7. DEFINED CONTRIBUTION PLAN

     On behalf of its Australian employees, the Company contributes a government
mandated 8% of each employees' gross salary up to a maximum of $110,000
Australian dollars (AUD) to a defined contribution plan. The Company contributed
$79,692, $78,019, and $85,421 for the three years ended

                                        39
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 2001, 2000 and 1999 respectively. There is a 401-K plan available
for employees in the U.S. The Company has not made matching contributions to the
401-K plan to date.

NOTE 8. RESTRICTED CASH

     The Company is the trustee of a bank account related to the use of its
Transcard software product. When consumers using the system transfer funds to
their cards, the funds are deposited into this trust account. The funds are
debited from the account electronically and paid to merchants when transaction
information relating to cardholder usage is downloaded from merchants through a
central host processing system. The Company is not entitled to the funds other
than in specified circumstances such as when cards are inactive or expired.
Consequently, an amount corresponding to the trust account balance is recorded
as a current liability. The trust account had an ending balance of $78,745, and
$204,243, at December 31, 2001 and 2000, respectively.

     On August 31, 2001, in accordance with an agreement between the Company and
Westbus Pty Limited, the Transcard system was discontinued. As of that date, no
additional cards were issued and consumers could no longer use their cards to
purchase goods or services. The Company is serving as the administrator to
refund all requested prepaid balances remaining on consumers' cards as of the
date the system was discontinued.

     In addition, the Company had restricted cash of $15,967, and $18,022 as of
December 31, 2001 and 2000, respectively, related to an amount held as security
for an operating lease.

NOTE 9. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA

     As of December 31, 2001, the Company is organized and operates in one
business segment, providing loyalty software for retailers and card issuing
banks in North America. One U.S. customer represented 70% of net revenue for the
year ended December 31, 2001. Two U.S. customers represented 72% and 10% of net
revenue for the year ended December 31, 2000. Three Australian customers
represented 49%, 30% and 10% of net revenue for the year ended December 31,
1999.

     The following table shows total revenue and long-lived assets by geographic
area.

<Table>
<Caption>
                                   2001                       2000                      1999
                         ------------------------    ----------------------    ----------------------
                         LONG-LIVED       NET        LONG-LIVED      NET       LONG-LIVED      NET
                           ASSETS       REVENUES       ASSETS      REVENUES      ASSETS      REVENUES
                         ----------     --------     ----------    --------    ----------    --------
<S>                      <C>           <C>           <C>           <C>         <C>           <C>
U.S..................     $112,004     $1,546,748     $ 90,883     $626,417     $     --     $     --
Australia............      103,193         69,637      145,949      125,056      242,038      638,382
                          --------     ----------     --------     --------     --------     --------
     Total...........     $215,197     $1,616,385     $236,832     $751,473     $242,038     $638,382
                          ========     ==========     ========     ========     ========     ========
</Table>

                                        40
<PAGE>
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<Table>
<Caption>
                                                             THREE MONTHS ENDED
                                          ---------------------------------------------------------
                                           MARCH 31        JUNE 30      SEPTEMBER 30    DECEMBER 31
                                             2001           2001            2001           2001
                                           --------        -------      ------------    -----------
<S>                                       <C>            <C>            <C>             <C>
Gross revenues........................    $   145,225    $   176,706    $   490,200     $ 1,208,153
Sales discounts.......................             --             --             --        (403,899)
                                          -----------    -----------    -----------     -----------
Net revenues..........................        145,225        176,706        490,200         804,254
Total costs and expenses(1)...........        751,176      2,381,863      1,374,906       1,227,488
                                          -----------    -----------    -----------     -----------
Operating loss........................       (605,951)    (2,205,157)      (884,706)       (423,234)
Total other income....................        105,172         75,110         52,385          11,179
                                          -----------    -----------    -----------     -----------
Net loss..............................    $  (500,779)   $(2,130,047)   $  (832,321)    $  (412,055)
                                          ===========    ===========    ===========     ===========
Net loss per share -- basic &
  diluted.............................    $     (0.06)   $     (0.27)   $     (0.11)    $     (0.05)
                                          ===========    ===========    ===========     ===========
</Table>

<Table>
<Caption>
                                           MARCH 31        JUNE 30      SEPTEMBER 30    DECEMBER 31
                                             2000           2000            2000           2000
                                           --------        -------      ------------    -----------
<S>                                       <C>            <C>            <C>             <C>
Net revenues..........................    $    32,028    $   221,572    $   346,061     $   151,812
Total costs and expenses(2)...........      2,262,157       (357,486)     1,277,847       1,451,915
                                          -----------    -----------    -----------     -----------
Operating income/(loss)...............     (2,230,129)       579,058       (931,786)     (1,300,103)
Total other income....................         34,722         27,432         48,774          88,127
                                          -----------    -----------    -----------     -----------
Income (loss) before Extraordinary
  item................................    $(2,195,407)   $   606,490    $  (883,012)    $(1,211,976)
Extraordinary loss on early
  Extinguishment of debt..............             --             --       (127,446)             --
                                          -----------    -----------    -----------     -----------
Net income/(loss).....................    $(2,195,407)   $   606,490    $(1,010,458)    $(1,211,976)
                                          ===========    ===========    ===========     ===========
Net income (loss) per share -- basic &
  diluted.............................    $     (0.33)   $      0.09    $     (0.14)    $     (0.15)
                                          ===========    ===========    ===========     ===========
</Table>

-------------------------
(1) Includes variable stock compensation expense/(credit) of ($836,272),
    $340,475, ($305,874), and ($171,679) in the three month periods ended March
    31, June 30, September 30, and December 31, 2001, respectively.

(2) Includes variable stock compensation expense/(credit) of $1,154,391
    ($1,369,314), ($6,033), and ($495,236) in the three month periods ended
    March 31, June 30, September 30, and December 31, 2000, respectively.

                                        41
<PAGE>

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

     None

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth our executive officers and directors, and
their ages as of February 28, 2002.

<Table>
<Caption>
                NAME                     AGE                         POSITION(S)
                ----                     ---                         -----------
<S>                                      <C>    <C>
David L. Mac. Smith..................    51     Director and Chairman(2)
Michael V. Howe......................    53     Director, President and Chief Executive Officer(2)
Alexander S. Dawson..................    58     Director(1),(2)
Duncan P.F. Mount....................    54     Director(1)
Alan L. Gilman.......................    58     Director(1),(2)
Robert C. Robins.....................    60     Director
John H. Lowry III....................    54     Vice President, Chief Financial Officer, Treasurer
                                                and Secretary
Jonathan R.E. Adams..................    39     Vice President -- Product Development
Benjamin A. Garton...................    35     Vice President -- Implementation and Technical
                                                Support
</Table>

-------------------------
(1) Member, Audit Committee

(2) Member, Compensation Committee

     David L. Mac. Smith is our founder and currently our Chairman of the Board.
He has been the Chief Executive Officer and Managing Director of CAT, our wholly
owned subsidiary, since November 1992. In December 1999, he became our President
and CEO pending the appointment of a new President and CEO. In January 2000, he
resigned as our President and CEO and became our Chairman. Prior to November
1992, he was the founder and, from 1982 to 1991, CEO of Technology Investment
Management Limited, a funds management company with specific focus on technology
related businesses. He has a Bachelor of Law degree from the Australian National
University.

     Michael V. Howe has served as our President and Chief Executive Officer
since January 2000. From December 1995 through December 1999, he was the
Director of Marketing Communications for United Airlines, responsible for the
United Mileage Plus loyalty rewards program and the United partnership program.
Prior to joining United Airlines, he served as the Chief Executive Officer of
Young and Rubicam Advertising in Detroit, Michigan from October 1990 to November
1995. He has a Bachelor of Business Administration from John Carroll University
and a Master of Business Administration from Michigan State University.

     Alexander S. Dawson is currently one of our non-employee Directors. He
served as the Chairman of CAT, our wholly owned subsidiary, from November 1992
to December 1999. From April 1987 to January 1991, he was Chief Executive
Officer of Arnotts Ltd., Australia's largest biscuit and snack food
manufacturing company. From January 1988 to December 1990, he was a member of
the Business Council of Australia. He served as Chairman of United Distillers
(Australasia) Limited from August 1994 to March 1996. He has a Bachelor of
Commerce degree from the University of New South Wales and a Master of Business
Administration from Columbia University.

     Duncan P.F. Mount is currently one of our non-employee Directors. He served
as a non-employee Director of CAT, our wholly owned subsidiary, from March 1999
to December 1999. From

                                        42
<PAGE>

October 1996 to September 1999, he was the Asian adviser to CEF.TAL Investment
Management Limited, a Hong Kong based joint venture between the Canadian
Imperial Bank of Commerce, Cheung Kong Holdings Limited and TAL Investment
Counsel. He spent 17 years in Hong Kong as the Managing Director of Gartmore
Investment Management Limited, from May 1980 to October 1988, and as managing
director of CEF Investment Management Limited from May 1988 to October 1996,
entities which are fund management and investment companies. From October 1996
to December 1998, he was Managing Director of CEF.TAL Australia Limited. He
holds a Bachelor and Master of Arts degree in Economics and Law (Hons) from
Cambridge University.

     Alan L. Gilman joined the Board of Directors on July 1, 2000 following his
retirement from Arthur Andersen LLP. For 22 years prior to retirement, Mr.
Gilman was a partner with Arthur Andersen LLP and specialized in the retail
industry. Most recently he managed the Arthur Andersen Competency Center,
specializing in retail consulting. From September 1992 to August 1999 he served
as the managing partner of Senn-Delaney, a unit of Arthur Andersen specializing
in the retail industry. In addition to his role with Senn-Delaney, he held
worldwide leadership responsibility for Arthur Andersen's retail industry and
consumer products activities. Prior to September 1992, he was an Audit Partner
at Arthur Andersen focusing primarily on retail distribution and advertising.
Mr. Gilman is also serving as the chairman of the Audit and Compensation
Committees of the Board.

     Robert C. Robins joined the Board of Directors on October 9, 2000 following
his retirement from Visa USA. He is currently an Executive Vice President of
Business Development with National Processing Corporation. Mr. Robins was
Executive Vice President of Visa USA in charge of the bank card association's
division that markets Visa products and services to merchants across the United
States. Prior to that he spent seven years in various sales and marketing
management positions with American Cyanamid Company. He also was with Alba Inc.
and the Nestle Corporation in both field sales and corporate management
positions.

     John H. Lowry III has served as our Vice President and Chief Financial
Officer since May 2000 and since July, has also served as Secretary and
Treasurer. From August 1992 to January 2000, he was Vice President Finance for
Kelly Services, a Michigan based publicly held staffing services company,
responsible for all financial activities for operations of over 500 staffing
offices in 190 cities with annual sales exceeding $800 million. From August 1982
to July 1992 he was Corporate Controller and Senior Financial Officer for Crain
Communications, a magazine publishing company in Michigan. Prior to this he was
a Senior Manager at Arthur Andersen. He holds a Masters degree in Business
Administration and a Bachelor of Engineering degree from the University of
Michigan.

     Jonathan R.E. Adams is our Vice President -- North American Implementation
and Technical Services. From May 1996 to July 1998 he was the Director,
Financial Markets, for Schlumberger Smart Cards and Systems based in New Jersey.
From June 1994 to May 1996 he worked with MBNA America Corporation in strategic
planning, involved with card system implementation and electronic commerce. He
holds a Bachelor of Arts degree from Washington College and Master of Business
Administration from Georgetown University.

     Benjamin A. Garton is currently Vice President -- Product Management &
Development. He served in the same role with CAT, our wholly owned subsidiary,
from March 1999 to December 1999. From November 1996 to February 1999 he was
Manager of Development for CAT and from September 1994 to October 1996 he was a
Senior Systems Analyst for CAT. From October 1992 to August 1994, he was
Development Manager at Citibank Australia with responsibilities for electronic
funds transfer switching systems.

     Each of our directors holds office until the next annual meeting of
shareholders or until his successor has been duly elected or qualified or until
his earlier death, resignation or removal. Executive Officers are appointed by,
and serve at the discretion of, our board of directors.

                                        43
<PAGE>

     Our board of directors has an audit committee. The audit committee, among
other things, makes recommendations to the board of directors concerning the
engagement of independent auditors and monitors the results of our operating and
internal controls as reported by management and the independent auditors.

     Effective February 26, 2001, the board of directors established a
compensation committee. The compensation committee is responsible for
establishing the compensation levels for our executive officers. Members of the
committee who are also executive officers do not participate in discussions or
decisions about their own compensation level or changes in it. In recommending
and determining compensation, the committee considers independent studies of
comparable remuneration packages. Incentives in the form of stock options are
generally offered.

ITEM 11. EXECUTIVE COMPENSATION

     Incorporated by reference to the section entitled "Director Compensation"
and the section entitled "Summary Compensation Table" of the registrant's 2001
Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Incorporated by reference to the section entitled "Ownership of Securities"
of the registrant's 2001 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Incorporated by reference to the section entitled "Certain Relationships
and Related Transactions" of the registrant's 2001 Proxy Statement.

                                        44
<PAGE>

                                    PART IV

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

(a) The following documents are filed as part of the Annual Report on form 10-K:

     1. All Financial Statements:

        The consolidated financial statements are filed as part of this report
        under Item 8 -- "Financial Statements and Supplementary Data."

     2. Financial Statement Schedules:

        All other schedules are omitted as the required information is
        inapplicable or the information is presented in the Consolidated
        Financial statements and notes thereto in Item 8 above.

                                        45
<PAGE>

         SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS CATUITY, INC.

<Table>
<Caption>
               COLUMN A                    COLUMN B      COLUMN C       COLUMN D             COLUMN E
               --------                   ----------    ----------    -------------         ----------
                                                        ADDITIONS
                                          BALANCE AT    CHARGED TO                           BALANCE
                                          BEGINNING     COSTS AND     DEDUCTIONS --           AT END
             DESCRIPTION                  OF PERIOD      EXPENSES       DESCRIBE            OF PERIOD
             -----------                  ----------    ----------    -------------         ---------
<S>                                       <C>           <C>           <C>                   <C>
Year Ended December 31, 2001
  Valuation allowance for trade
     receivable.......................    $   44,421    $  113,550      $ (44,421)(1)       $  113,550
  Valuation allowance for deferred tax
     assets...........................     6,621,075     1,693,134                           8,314,209
Year Ended December 31, 2000
  Valuation allowance for trade
     receivable.......................    $  157,704    $   44,421      $(157,704)(1)       $   44,421
  Valuation allowance for deferred tax
     assets...........................     5,378,595     1,242,480                           6,621,075
Year Ended December 31, 1999
  Valuation allowance for trade
     receivable.......................            --       157,704             --              157,704
  Valuation allowance for deferred tax
     assets...........................     4,546,419       832,176                           5,378,595
</Table>

-------------------------
(1) uncollectible accounts written off

                                        46
<PAGE>

3. EXHIBITS

     The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the SEC. Catuity shall furnish copies of
exhibits for a reasonable fee (covering the expense of furnishing copies) upon
request.

<Table>
<Caption>
EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<S>        <C>
 3(a)      Registrant's Certificate of Incorporation, which appears as
           Exhibit 3.3 to Registrant's Form 10-12G filed March 21,
           2000, which is incorporated herein by reference.
 3(b)      Registrant's Certificate of Amendment to the Certificate of
           Incorporation, which appears as Exhibit 3.4 to Registrant's
           Form 10-12G filed March 21, 2000, which is incorporated
           herein by reference.
 3(c)      Registrant's By-Laws, which appears as Exhibit 3.5 to
           Registrant's Form 10-12G filed March 21, 2000, which is
           incorporated herein by reference.
 3(d)      Certificate of Registration of Card Technologies Australia
           Limited, which appears as Exhibit 3.1 to Registrant's Form
           10-12G filed March 21, 2000, which is incorporated herein by
           reference.
 3(e)      Certificate of Registration on change of name from Card
           Technologies Australia Limited to Chip Application
           Technologies Limited, which appears as Exhibit 3.2 to
           Registrant's Form 10-12G filed March 21, 2000, which is
           incorporated herein by reference.
 3(f)      Bylaws of Catuity, Inc. (formerly Novatec Inc.) as amended
           June 25, 2001, which appears as Exhibit 3(ii) to
           Registrant's Form 10-Q for the quarter ended June 30, 2001,
           which is incorporated herein by reference.
10(a)      Registrant's 2000 Director Stock Option Plan, which appears
           as Exhibit 4.2 to Registrant's Form S-8 filed December 20,
           2000, which is incorporated herein by reference.
10(b)      Employment agreement of Michael V. Howe, which appears as
           Exhibit 10.3 to Registrant's Form 10-12G filed March 21,
           2000, which is incorporated herein by reference.
10(c)      Services agreement of Jonathan Adams, which appears as
           Exhibit 10.8 to Registrant's Form 10-12G filed March 21,
           2000, which is incorporated herein by reference.
10(d)      Employment agreement of John H. Lowry III, which appears as
           Exhibit 10.10 to Registrant's Form 10-12G filed March 21,
           2000, which is incorporated herein by reference.
10(e)      Employment agreement of Robert Kosnik, which appears as
           Exhibit 10.26 to Registrant's Form 10-12G filed August 11,
           2000, which is incorporated herein by reference.
10(f)      Put and Call Option Deed of A.S. Dawson in Respect of Shares
           of Chip Application Technologies Limited, which appears as
           Exhibit 10.1 to Registrant's Form 10-12G filed March 21,
           2000, which is incorporated herein by reference.
10(g)      Share Option Deed of A.S. Dawson in Respect of Shares of
           NovaTec Inc.,which appears as Exhibit 10.2 to Registrant's
           Form 10-12G filed March 21, 2000, which is incorporated
           herein by reference.
10(h)      Lease for premises located at 68-72 Wentworth Avenue Surry
           Hills, New South Wales, Australia, which appears as Exhibit
           10.11 to Registrant's Form 10-12G filed March 21, 2000,
           which is incorporated herein by reference.
10(i)      Lease for premises located at 2711 East Jefferson Avenue,
           Detroit, Michigan, which appears as Exhibit 10.12 to
           Registrant's Form 10-12G filed March 21, 2000, which is
           incorporated herein by reference.
</Table>

                                        47
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<S>        <C>
10(j)      Research and Development Start Grant for Chip Application
           Technologies Limited, which appears as Exhibit 10.13 to
           Registrant's Form 10-12G filed March 21, 2000, which is
           incorporated herein by reference.
10(k)      Smart Loyalty Technical Work Group Agreement between Visa
           U.S.A. and Chip Application Technologies limited, which
           appears as Exhibit 10.14 to Registrant's Form 10-12G filed
           March 21, 2000, which is incorporated herein by reference.
10(l)      Partner Program Loyalty Services Agreement between Visa
           International Service Association and Chip Application,
           Technologies Limited, which appears as Exhibit 10.15 to
           Registrant's Form 10-12G filed March 21, 2000, which is
           incorporated herein by reference.
10(m)      Loan Repayment and Option Agreement among Chip Application
           Technologies Limited, Health Group Australia Pty Limited and
           Industrial Superannuation Administration Services Limited,
           which appears as Exhibit 10.23 to Registrant's Form 10-12G
           filed March 21, 2000, which is incorporated herein by
           reference.
10(n)      Form of Indemnification Agreement, which appears as Exhibit
           10.24 to Registrant's Form 10-12G filed March 21, 2000,
           which is incorporated herein by reference.
10(o)      Form of Stock option Plan and Form of Stock Option Agreement
           under Plan, which appears as Exhibit 10.25 to Registrant's
           Form 10-12G filed March 21, 2000, which is incorporated
           herein by reference.
10(p)      Catuity, Inc. 2000 Director Stock Option Plan as approved by
           the Shareholders of Catuity, Inc. on May 23, 2001, which
           appears as Exhibit 10.2(bb) to Registrant's Form 10-Q for
           the quarter ended June 30, 2001, which is incorporated
           herein by reference.
10(q)      Executive Services Agreement between Catuity, Inc. and David
           Machattie Smith dated June 1, 2001 and Executed September
           10, 2001, which appears as Exhibit 10.2(cc) to Registrant's
           Form 10-Q for the quarter ended September 30, 2001, which is
           incorporated herein by reference.
10(r)      Employment agreement between Benjamin Garton and Catuity,
           Inc., signed December 6, 2001.
10(s)      Amendment to Stock Option Plan, as approved by the
           Shareholders of Catuity, Inc. on May 24, 2001.
10(t)      Consulting agreement between Visa U.S.A. and Catuity, Inc.,
           signed November 17, 2000.
21         Subsidiaries of Registrant as of March 15, 2002
23.1       Consent of Independent Auditors
24         Powers of Attorney Contained on Page 41 of this Annual
           Report on Form 10-K and incorporated herein by reference.
99.1       Audit Committee Charter, which appears as Exhibit
           Registrants 99.1 to Registrant's Form 10-Q filed November
           14, 2000, which is incorporated herein by reference.
99.2       Catuity, Inc. Audit Committee charter as amended October 22,
           2001, which appears as exhibit 99.2 to Registrant's Form
           10-Q for the quarter ended September 30, 2001, which is
           incorporated herein by reference.
</Table>

b) Reports on Form 8-K None

                                        48
<PAGE>

                                   SIGNATURES

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

Date: March 19, 2002                      CATUITY INC.

                                          By:       /s/ JOHN H. LOWRY
                                            ------------------------------------
                                                       John H. Lowry
                                             Vice President, CFO and Secretary

                               POWER OF ATTORNEY

     Know All Persons By These Presents, that each person whose signature
appears below constitutes and appoints John H. Lowry his or her
attorneys-in-fact, for such person in any and all capacities, to sign any
amendments to this report and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that either of said attorney-in-fact, or
substitute or substitutes, may do or cause to be done by virtue hereof.

     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                                  TITLE(S)                      DATE
                  ---------                                  --------                      ----
<C>                                              <S>                                  <C>

           /s/ DAVID L. MAC. SMITH               Chairman and Director                March 19, 2002
---------------------------------------------
             David L. Mac. Smith

             /s/ MICHAEL V. HOWE                 President, CEO and Director          March 19, 2002
---------------------------------------------
               Michael V. Howe

           /s/ ALEXANDER S. DAWSON               Director                             March 19, 2002
---------------------------------------------
             Alexander S. Dawson

           /s/ DUNCAN P. F. MOUNT                Director                             March 19, 2002
---------------------------------------------
             Duncan P. F. Mount

             /s/ ALAN L. GILMAN                  Director                             March 19, 2002
---------------------------------------------
               Alan L. Gilman

            /s/ ROBERT C. ROBINS                 Director                             March 19, 2002
---------------------------------------------
              Robert C. Robins

              /s/ JOHN H. LOWRY                  Vice President, CFO and Secretary    March 19, 2002
---------------------------------------------
                John H. Lowry
</Table>

                                        49
<PAGE>
                                 EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<S>        <C>
 3(a)      Registrant's Certificate of Incorporation, which appears as
           Exhibit 3.3 to Registrant's Form 10-12G filed March 21,
           2000, which is incorporated herein by reference.
 3(b)      Registrant's Certificate of Amendment to the Certificate of
           Incorporation, which appears as Exhibit 3.4 to Registrant's
           Form 10-12G filed March 21, 2000, which is incorporated
           herein by reference.
 3(c)      Registrant's By-Laws, which appears as Exhibit 3.5 to
           Registrant's Form 10-12G filed March 21, 2000, which is
           incorporated herein by reference.
 3(d)      Certificate of Registration of Card Technologies Australia
           Limited, which appears as Exhibit 3.1 to Registrant's Form
           10-12G filed March 21, 2000, which is incorporated herein by
           reference.
 3(e)      Certificate of Registration on change of name from Card
           Technologies Australia Limited to Chip Application
           Technologies Limited, which appears as Exhibit 3.2 to
           Registrant's Form 10-12G filed March 21, 2000, which is
           incorporated herein by reference.
 3(f)      Bylaws of Catuity, Inc. (formerly Novatec Inc.) as amended
           June 25, 2001, which appears as Exhibit 3(ii) to
           Registrant's Form 10-Q for the quarter ended June 30, 2001,
           which is incorporated herein by reference.
10(a)      Registrant's 2000 Director Stock Option Plan, which appears
           as Exhibit 4.2 to Registrant's Form S-8 filed December 20,
           2000, which is incorporated herein by reference.
10(b)      Employment agreement of Michael V. Howe, which appears as
           Exhibit 10.3 to Registrant's Form 10-12G filed March 21,
           2000, which is incorporated herein by reference.
10(c)      Services agreement of Jonathan Adams, which appears as
           Exhibit 10.8 to Registrant's Form 10-12G filed March 21,
           2000, which is incorporated herein by reference.
10(d)      Employment agreement of John H. Lowry III, which appears as
           Exhibit 10.10 to Registrant's Form 10-12G filed March 21,
           2000, which is incorporated herein by reference.
10(e)      Employment agreement of Robert Kosnik, which appears as
           Exhibit 10.26 to Registrant's Form 10-12G filed August 11,
           2000, which is incorporated herein by reference.
10(f)      Put and Call Option Deed of A.S. Dawson in Respect of Shares
           of Chip Application Technologies Limited, which appears as
           Exhibit 10.1 to Registrant's Form 10-12G filed March 21,
           2000, which is incorporated herein by reference.
10(g)      Share Option Deed of A.S. Dawson in Respect of Shares of
           NovaTec Inc.,which appears as Exhibit 10.2 to Registrant's
           Form 10-12G filed March 21, 2000, which is incorporated
           herein by reference.
10(h)      Lease for premises located at 68-72 Wentworth Avenue Surry
           Hills, New South Wales, Australia, which appears as Exhibit
           10.11 to Registrant's Form 10-12G filed March 21, 2000,
           which is incorporated herein by reference.
10(i)      Lease for premises located at 2711 East Jefferson Avenue,
           Detroit, Michigan, which appears as Exhibit 10.12 to
           Registrant's Form 10-12G filed March 21, 2000, which is
           incorporated herein by reference.
</Table>

<PAGE>
10(j)      Research and Development Start Grant for Chip Application
           Technologies Limited, which appears as Exhibit 10.13 to
           Registrant's Form 10-12G filed March 21, 2000, which is
           incorporated herein by reference.
10(k)      Smart Loyalty Technical Work Group Agreement between Visa
           U.S.A. and Chip Application Technologies limited, which
           appears as Exhibit 10.14 to Registrant's Form 10-12G filed
           March 21, 2000, which is incorporated herein by reference.
10(l)      Partner Program Loyalty Services Agreement between Visa
           International Service Association and Chip Application,
           Technologies Limited, which appears as Exhibit 10.15 to
           Registrant's Form 10-12G filed March 21, 2000, which is
           incorporated herein by reference.
10(m)      Loan Repayment and Option Agreement among Chip Application
           Technologies Limited, Health Group Australia Pty Limited and
           Industrial Superannuation Administration Services Limited,
           which appears as Exhibit 10.23 to Registrant's Form 10-12G
           filed March 21, 2000, which is incorporated herein by
           reference.
10(n)      Form of Indemnification Agreement, which appears as Exhibit
           10.24 to Registrant's Form 10-12G filed March 21, 2000,
           which is incorporated herein by reference.
10(o)      Form of Stock option Plan and Form of Stock Option Agreement
           under Plan, which appears as Exhibit 10.25 to Registrant's
           Form 10-12G filed March 21, 2000, which is incorporated
           herein by reference.
10(p)      Catuity, Inc. 2000 Director Stock Option Plan as approved by
           the Shareholders of Catuity, Inc. on May 23, 2001, which
           appears as Exhibit 10.2(bb) to Registrant's Form 10-Q for
           the quarter ended June 30, 2001, which is incorporated
           herein by reference.
10(q)      Executive Services Agreement between Catuity, Inc. and David
           Machattie Smith dated June 1, 2001 and Executed September
           10, 2001, which appears as Exhibit 10.2(cc) to Registrant's
           Form 10-Q for the quarter ended September 30, 2001, which is
           incorporated herein by reference.
10(r)      Employment agreement between Benjamin Garton and Catuity,
           Inc., signed December 6, 2001.
10(s)      Amendment to Stock Option Plan, as approved by the
           Shareholders of Catuity, Inc. on May 24, 2001.
10(t)      Consulting agreement between Visa U.S.A. and Catuity, Inc.,
           signed November 17, 2000.
21         Subsidiaries of Registrant as of March 15, 2002
23.1       Consent of Independent Auditors
24         Powers of Attorney Contained on Page 41 of this Annual
           Report on Form 10-K and incorporated herein by reference.
99.1       Audit Committee Charter, which appears as Exhibit
           Registrants 99.1 to Registrant's Form 10-Q filed November
           14, 2000, which is incorporated herein by reference.
99.2       Catuity, Inc. Audit Committee charter as amended October 22,
           2001, which appears as exhibit 99.2 to Registrant's Form
           10-Q for the quarter ended September 30, 2001, which is
           incorporated herein by reference.

b) Reports on Form 8-K None