<PAGE>
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                       For the Quarter Ended June 30, 2002

                 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
                               OF THE EXCHANGE ACT

                   For the transition period from to _________

                         Commission file number 0-22190

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

                            VERSO TECHNOLOGIES, INC.
             (Exact name of Registrant as specified in its charter)


         MINNESOTA                                     41-1484525
   (State or other jurisdiction            (I.R.S. Employer Identification No.)
of incorporation or organization)


               400 Galleria Parkway, Suite 300, Atlanta, GA 30339
                    (Address of principal executive offices)

                                 (678) 589-3500
                           (Issuer's telephone number)

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

Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 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[ ].

Shares of the Registrant's Common Stock, par value $.01 per share, outstanding
as of August 13, 2002: 79,005,006.
<PAGE>


                            VERSO TECHNOLOGIES, INC.
                                    FORM 10-Q

                                      INDEX


Part I.  FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                      Page No.
                                                                      --------

Item 1.
<S>                                                                   <C>
  Condensed Consolidated Balance Sheets as of June 30, 2002 and
   December 31, 2001 .................................................        2

  Condensed Consolidated Statements of Operations for the three months
   and the six months ended June 30, 2002 and 2001....................        3

  Condensed Consolidated Statements of Cash Flows for the six months
   ended June 30, 2002 and 2001.......................................        4

  Notes to the Condensed Consolidated Financial Statements............        6

Item 2. Management's Discussion and Analysis of Financial Condition and
         Results of Operations .......................................       21

Item 3. Quantitative and Qualitative Disclosures about Market Risk....       31

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings ............................................      32

Item 2.  Changes in Securities and Use of Proceeds ....................      32

Item 6.  Exhibits and Reports on Form 8-K .............................      33

Signature Page ........................................................      35

Exhibit Index .........................................................      36
</TABLE>


<PAGE>


<PAGE>


                PART I-ITEM 1: FINANCIAL STATEMENTS
                      VERSO TECHNOLOGIES, INC.
               CONDENSED CONSOLIDATED BALANCE SHEETS
                 (IN THOUSANDS, EXCEPT SHARE DATA)
                            (Unaudited)

<TABLE>
<CAPTION>
                                                                               JUNE 30,          DECEMBER 31,
                                                                                 2002              2001
                                                                               ------------------------------
<S>                                                                            <C>                <C>
ASSETS:
Current assets:
    Cash and cash equivalents                                                  $ 3,653            $ 7,745
    Accounts receivable, net                                                    11,924              9,047
    Inventories, net                                                             3,624              3,995
    Other current assets                                                           935              1,104
    Assets of discontinued operations                                                -                582

                                                                             -----------        -------------
       Total current assets                                                     20,136             22,473

Property and equipment, net                                                      6,189              7,337
Intangibles, net                                                                14,702             15,949
                                                                             -----------        -------------

         Total assets                                                         $ 41,027          $  45,759
                                                                             ===========        =============

LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
    Note payable for the purchase of NACT                                      $ 2,750            $ 5,340
    Accounts payable                                                             2,197              1,624
    Accrued compensation                                                         2,293              3,130
    Accrued expenses                                                             5,266              6,127
    Unearned revenue and customer deposits                                       5,558              5,904
    Current portion of liabilities of discontinued operations                    2,773              3,128
                                                                             -----------        -------------

       Total current liabilities                                                20,837             25,253

Liabilities of discontinued operations, net of current portion                   1,503              1,772
Convertible subordinated debentures, net of discount                             3,566              3,428
                                                                             -----------        -------------

       Total liabilities                                                        25,906             30,453
                                                                             -----------        -------------

Shareholders' equity:
    Common stock, $.01 par value, 200,000,000 shares authorized;
       78,906,406 and 77,619,654 shares issued and outstanding                     789                776
    Additional paid-in capital                                                 272,269            271,462
    Notes receivable from shareholders                                          (1,632)            (1,620)
    Accumulated deficit                                                       (253,920)          (252,131)
    Deferred compensation                                                       (2,367)            (3,166)
    Accumulated other comprehensive loss - foreign currency translation            (18)               (15)
                                                                             -----------        -------------

       Total shareholders' equity                                               15,121             15,306
                                                                             -----------        -------------
         Total liabilities and shareholders' equity                           $ 41,027           $ 45,759
                                                                             ===========        =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.

                                      - 2-


<PAGE>
                           VERSO TECHNOLOGIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                        (in thousands, except share data)
<TABLE>
<CAPTION>
                                                        FOR THE THREE MONTHS ENDED JUNE 30,    FOR THE SIX MONTHS ENDED JUNE 30,
                                                              2002            2001                  2002            2001
                                                        -----------------------------------------------------------------------
<S>                                                      <C>    <C>             <C>              <C>              <C>
Revenue:
  Products                                                      $ 6,086         $ 2,088          $ 12,690         $ 2,827
  Services                                                        5,585           3,407            10,975           6,830
                                                               --------        --------          --------          ------
    Total revenue                                                11,671           5,495            23,665           9,657

Cost of revenue:
  Products                                                        2,274           1,778             4,605           2,072
  Services                                                        2,519           2,098             5,137           4,357
                                                               --------        --------          --------          ------
    Total cost of revenue                                         4,793           3,876             9,742           6,429
Gross profit:
  Products                                                        3,812             310             8,085             755
  Services                                                        3,066           1,309             5,838           2,473
                                                               --------        --------          --------          ------
   Gross profit                                                   6,878           1,619            13,923           3,228
Operating expenses:
  General and administrative                                      2,996           2,275             6,108           4,847
  Sales and marketing                                             1,866             352             3,631             833
  Research and development                                        1,464             273             3,139             492
  Depreciation                                                      716             373             1,478             789
  Amortization of intangibles                                       147             375               289             749
  Amortization of deferred compensation                             324             484               648             967
                                                               --------        --------          --------          ------
    Total operating expenses                                      7,513           4,132            15,293           8,677
                                                               --------        --------          --------          ------

   Operating loss from continuing operations                       (635)         (2,513)           (1,370)         (5,449)

Other income                                                        345               -               431               -

Interest expense, net, including $170, $116, $265 and
$353 of amortization of loan fees and discount on
convertible subordinated debentures in the three months and
the six months ended June 30, 2002 and 2001.                       (309)           (164)             (519)           (406)
                                                               --------        --------          --------          ------

Loss from continuing operations before income taxes
   and extraordinary item                                          (599)         (2,677)           (1,458)         (5,855)

Income taxes                                                          -               -                 -               -
                                                               --------        --------          --------          ------
Loss from continuing operations before extraordinary item          (599)         (2,677)           (1,458)         (5,855)

Loss from discontinued operations, net of income taxes                -        (103,024)             (331)       (116,214)
                                                               --------        --------          --------          ------

Loss before extraordinary item                                     (599)       (105,701)           (1,789)       (122,069)

Extraordinary item - loss from debt conversion                        -               -                 -           1,640
                                                               --------        --------          --------          ------

   Net loss                                                      $ (599)     $ (105,701)         $ (1,789)     $ (123,709)
                                                             ==========      ==========        ==========      ==========

Net loss per common share - basic and diluted:
  Loss before discontinued operations and extraordinary item    $ (0.01)        $ (0.05)          $ (0.02)        $ (0.12)
  Loss from discontinued operations                                   -           (2.02)                -           (2.28)
                                                               --------        --------          --------          ------
  Loss before extraordinary item                                  (0.01)          (2.07)            (0.02)          (2.40)
  Extraordinary item - loss from debt conversion                      -               -                 -           (0.03)
                                                               --------        --------          --------          ------

Net loss per common share - basic and diluted                   $ (0.01)        $ (2.07)          $ (0.02)        $ (2.43)
                                                             ==========      ==========        ==========      ==========

Weighted average shares outstanding - basic and diluted      78,254,493      51,120,684        78,069,301      50,829,910
                                                             ==========      ==========        ==========      ==========
</TABLE>

   The accompanying notes are an integral part of these condensed consolidated
   financial statements.
                                        3

<PAGE>
                             VERSO TECHNOLOGIES, INC.
                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (Unaudited)
                                  (in thousands)
<TABLE>
<CAPTION>
                                                                                     FOR THE SIX MONTHS ENDED JUNE 30,
                                                                                         2002                  2001
                                                                                 ------------------------------------------
<S>                                                                                       <C>                   <C>
Operating Activities:
    Continuing operations:
       Net loss from continuing operations                                                $ (1,458)             $ (7,495)
       Adjustments to reconcile net loss from continuing operations to net
         cash used in continuing operating activities:
           Extraordinary item - loss on debt conversion                                          -                 1,640
           Amortization of intangibles                                                         289                   749
           Depreciation                                                                      1,478                   789
           Amortization of deferred compensation                                               648                   967
           Provision for doubtful accounts                                                     804                    93
           Inventory valuation reserve                                                         171                     -
           Amortization of loan fees and discount on convertible subordinated debentures       265                   353
           Other                                                                                86                    (1)
           Changes in current operating items:
             Accounts receivable, net                                                       (3,462)                   14
             Inventories, net                                                                  200                     -
             Other current assets                                                              253                  (739)
             Accounts payable                                                                  573                   720
             Accrued compensation                                                             (837)                 (736)
             Accrued expenses                                                                 (498)               (1,388)
             Unearned revenue and customer deposits                                           (346)                 (276)
                                                                                          --------              --------
           Net cash used in continuing operating activities                                 (1,834)               (5,310)
                                                                                          --------              --------

    Discontinued operations:
       Loss from discontinued operations                                                      (331)             (116,214)
       Adjustment to reconcile loss from discontinued operations
         to net cash (used in) provided by discontinued operating activities                  (127)              110,557
                                                                                          --------              --------
           Net cash used in discontinued operating activities                                 (458)               (5,657)
                                                                                          --------              --------
           Net cash used in operating activities                                            (2,292)              (10,967)
                                                                                          --------              --------

Investing Activities:

    Continuing operations:
         Purchased software development costs                                                 (161)                    -
         Purchases of property and equipment, net                                             (446)                 (947)
                                                                                          --------              --------
           Net cash used in investing activities for continuing operations                    (607)                 (947)

    Discontinued operations -
       Net proceeds from sale of discontinued operations                                         -                 8,158
                                                                                          --------              --------
         Net cash (used in) provided by investing activities                                  (607)                7,211
                                                                                          --------              --------
           Net cash used in operating and investing activities, carried forward             (2,899)               (3,756)
                                                                                         =========               ========
</TABLE>


                                        4


<PAGE>

                             VERSO TECHNOLOGIES, INC.
            CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
                                    (Unaudited)

<TABLE>
<CAPTION>
                                                                                          FOR THE SIX MONTHS ENDED JUNE 30,
                                                                                             2002                  2001
                                                                                          --------               -------
<S>                                                                                         <C>                   <C>
Net cash used in operating and investing activities, carried forward                        (2,899)               (3,756)
                                                                                          --------               -------
Financing Activities:
    Payments of note payable for the purchase of NACT                                       (1,500)                    -
    Payments on convertible subordinated debentures                                              -                (4,500)
    Payments of notes receivable from shareholders                                              15                     -
    Proceeds from issuances of common stock, net                                               292                   182
                                                                                          --------               -------
         Net cash used in financing activities                                              (1,193)               (4,318)
                                                                                          --------               -------

         Decrease in cash and cash equivalents                                              (4,092)               (8,074)
Cash and Cash Equivalents:
Beginning of period                                                                          7,745                11,155
                                                                                          --------               -------
End of period                                                                              $ 3,653               $ 3,081
                                                                                          ========               =======
Supplemental disclosure of cash flow information:
    Cash payments during the period for:
       Interest                                                                              $ 147                  $ 53
                                                                                          ========               =======
       Income taxes                                                                           $ 38                  $ 14
                                                                                          ========               =======
    Non-cash investing and financing activities

       Common stock and compensatory
         options issued in reorganization                                                      $ -                  $ 21
                                                                                          ========               =======
       Issuance of warrants in exchange for services                                         $ 211                  $ 92
                                                                                          ========               =======
       Issuance of common stock in exchange for services                                       $ -                  $ 19
                                                                                          ========               =======
       Conversion of subordinated debentures to common stock - issuance of 1,496,598
         shares of common stock and 945,378 common stock warrants                              $ -               $ 2,877
                                                                                          ========               =======
       Issuance of common stock in arbitration settlement                                    $ 403                   $ -
                                                                                          ========               =======
</TABLE>

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

                                       5


<PAGE>

                            VERSO TECHNOLOGIES, INC.
            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2002

1.       BASIS OF PRESENTATION

         Verso Technologies, Inc. and subsidiaries (the "Company"), is a
         communications technology and solutions provider for communications
         service providers and enterprises seeking to implement
         application-based telephony services, Internet usage management tools
         and outsourced customer support services. The Company's continuing
         operations consist of two separate business segments, Gateway
         Solutions, which includes the Company's subsidiary NACT
         Telecommunications, Inc. ("NACT"), and Applications and Services, which
         includes its customer response center operations and its subsidiary
         Telemate.Net Software, Inc. ("Telemate.Net"). The Gateway Solutions
         segment includes domestic and international sales of hardware and
         software, integration, applications and technical training and support.
         The Applications and Services segment offers primarily domestic network
         management, support and maintenance, customer response center services
         and application services. The Company acquired NACT in July 2001 and
         Telemate.Net in November 2001. The Company's discontinued operations
         include its value-added reseller ("VAR") business and associated
         consulting practice ("legacy VAR business") and its hospitality
         services group, which developed and marketed proprietary software and
         related integration and maintenance services ("HSG").

         The consolidated financial statements include the accounts of Verso
         Technologies, Inc. and its wholly-owned subsidiaries, including
         Telemate.Net which was acquired by the Company on November 16, 2001,
         NACT which was acquired by the Company on July 27, 2001 and
         MessageClick, Inc. ("MessageClick"), which was acquired by the Company
         on November 22, 2000, each in transactions accounted for as purchases
         (see Note 2).

         Certain prior year amounts in the consolidated financial statements
         have been reclassified to conform with the current year presentation.
         These reclassifications had no effect on previously reported net loss.

         The Company has adopted the consensus of Emerging Issues Task Force
         Issue No. 01-14, "Income Statement Characterization of Reimbursements
         Received for `Out-of-Pocket' Expenses Incurred."("EITF 01-14"). EITF
         01-14 requires that reimbursements received for out-of-pocket expenses
         be reflected as revenues and to reclassify prior period financial
         statements to conform to the current period presentation. Prior to the
         adoption of EITF 01-14, reimbursable out-of-pocket expenses were
         reflected as a reduction to cost of revenue. Reimbursable out-of-pocket
         expenses reclassified as service revenues for the three months and the
         six months ended June 30, 2002 and 2001 were $179,000, $113,000,
         $347,000 and $331,000, respectively.

         The condensed consolidated quarterly financial statements are
         unaudited. These statements include all adjustments (consisting of
         normal recurring accruals) considered necessary by management to
         present a fair statement of the results of operations, financial
         position and cash flows. The results reported in these condensed
         consolidated financial statements should not be regarded as necessarily
         indicative of results that may be expected for the entire year.

         The year-end condensed consolidated balance sheet was derived from
         audited consolidated financial statements, but does not include all
         disclosures required by generally accepted accounting principles. For
         further information, refer to the audited consolidated financial
         statements and footnotes thereto included in the Company's Annual
         Report on Form 10-K for the year ended December 31, 2001.

                                       6
<PAGE>

                            VERSO TECHNOLOGIES, INC.
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 2002

2.       MERGERS AND ACQUISITIONS

         Telemate.Net Software, Inc.

         On November 16, 2001, to increase capital and add patented
         communications billing and reporting for next-generation converged
         Internet protocol and public switched telephone networks to the
         Company's product offering, the Company acquired all of the outstanding
         capital stock of Telemate.Net by means of a subsidiary merger. The
         merger consideration was approximately $4.1 million, consisting of
         24,758,070 shares of the Company's common stock with a fair value of
         $16.6 million, based on a $0.67 average of the Company's common stock
         price for the ten days prior to the date of acquisition, assumed
         options to acquire 5,420,206 shares of the Company's common stock with
         exercise prices ranging from $.20 to $5.42 per share (estimated fair
         value of $1.8 million, using the Black-Scholes option pricing model
         based on the following weighted-average assumptions: expected
         volatility - 128%; expected life - one year; risk-free interest rate -
         3.3%; and expected dividend yield - 0%), deferred compensation of
         $131,000 and acquisition costs of approximately $2.0 million, reduced
         by retirement of Series B redeemable preferred stock ("Series B
         Preferred Stock") of $15.0 million and $438,000 of accrued interest
         thereon and notes receivable from shareholders assumed of $947,000.

         The acquisition was treated as a purchase for accounting purposes, and
         accordingly, the assets and liabilities were recorded at their fair
         value at the date of the acquisition. The excess of the purchase price
         over the estimated fair value of net assets acquired totaled
         approximately $1.3 million and was allocated to goodwill. In accordance
         with Statement of Financial Accounting Standards ("SFAS") No. 142,
         "Goodwill and Other Intangible Assets" ("SFAS 142"), the Company is not
         amortizing this goodwill.

         The Company has prepared an initial allocation of the purchase price
         based on the estimated fair values of certain intangible assets,
         receivables and estimated liabilities. The Company is continuing to
         obtain information as to ultimate valuation, recoverability and
         realization with respect to the fair values of certain contingent
         liabilities and anticipates the allocation of purchase price to be
         finalized prior to the end of the fourth quarter of 2002.

         NACT Telecommunications, Inc.

         On July 27, 2001, the Company acquired all of the outstanding capital
         stock of NACT to enter the next-generation networking and technology
         market. The purchase consideration was approximately $20.6 million,
         consisting of a cash payment of $14.2 million at closing funded
         primarily by the Company's sale of $15 million of the Company's Series
         B Preferred Stock to Telemate.Net, an additional amount payable on
         March 31, 2002 of up to $5.3 million plus interest at prime, a grant to
         NACT employees of in-the-money non-qualified options with a value of
         $625,000 and acquisition costs of approximately $500,000.

         On March 29, 2002, the Company entered into a Settlement Agreement and
         General Release (the "WATP Settlement Agreement") with WA Telcom
         Products Co., Inc. ("WATP") which provided for a restructuring of the
         deferred payment due by the Company to WATP pursuant to that certain
         Stock Purchase Agreement, dated as of June 4, 2001, as amended (the
         "Purchase Agreement"), between the Company and WATP, whereby the
         Company purchased from WATP all of the issued and outstanding capital
         stock of NACT, and NACT became a wholly-owned subsidiary of the
         Company. Pursuant to the WATP Settlement Agreement, the Company's
         obligation to pay to WATP the deferred payment (the "Deferred Amount")
         on the date the Company filed its Annual Report on Form 10-K for the
         year ended December 31, 2001, was restructured pursuant to the terms
         and conditions of a Convertible Secured Promissory Note dated April 25,
         2002, made by the Company in favor of WATP, in the aggregate principal
         amount of $4.25 million, together with interest accrued thereon (the
         "Note"). Pursuant to the WATP Settlement Agreement, the Company paid to
         WATP $1.5 million on April 1, 2002, which payment was applied to the
         $1.5 million payment due on April 25, 2002, by the Company to WATP
         pursuant to the Note. The remainder of the amount due under the Note is
         payable by the Company to WATP as follows: (i) $500,000 on each of July
         1, 2002; October 1, 2002; and January 1, 2003; and (ii) $1.25 million
         plus all interest accrued under the Note since April 1, 2002, on April
         1, 2003. The WATP Settlement Agreement has been approved by the United
         States Bankruptcy Court for the Northern District of Illinois, Eastern
         Division, which has jurisdiction over WATP's pending bankruptcy
         proceeding.

                                       7
<PAGE>

                            VERSO TECHNOLOGIES, INC.
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 2002

2.       MERGERS AND ACQUISITIONS, Continued

         NACT Telecommunications, Inc., Continued

         Furthermore, pursuant to the WATP Settlement Agreement, the Company and
         WATP released each other from claims against each other arising out of
         or related to the Purchase Agreement. Management's estimate of the
         claims against WATP totaled approximately $1.3 million, which equaled
         the reduction of the deferred payment and previously accrued interest
         expense on the deferred payment.

         At WATP's option, WATP may, at any time within the thirty-day period
         before a payment under the Note is due, convert some or all of the
         amount due on such payment date into shares of the Company's common
         stock at a conversion price of $1.36 per share. The Company's
         obligation to pay amounts due under the Note is (i) secured by all the
         assets of the Company, NACT and Telemate.Net and a pledge by the
         Company of all the issued and outstanding common stock of NACT and
         Telemate.Net, and (ii) guaranteed by NACT and Telemate.Net. The Note
         and security interests are subordinate to the rights of the Bank
         arising under the Credit Agreement and other documents executed in
         connection therewith.

         According to the terms of the definitive stock purchase agreement with
         Telemate.Net, on July 27, 2001, Telemate.Net purchased $15 million of
         Series B Preferred Stock to fund the Company's acquisition of NACT.

         The acquisition was treated as a purchase for accounting purposes, and
         accordingly, the assets and liabilities were recorded at their fair
         value at the date of acquisition. The excess of the purchase price over
         the estimated fair value of net assets acquired (including identified
         intangible assets of $1.7 million, which are being amortized over a
         three year life) totaled approximately $10.5 million, as adjusted, and
         was allocated to goodwill. In accordance with SFAS 142, the Company is
         not amortizing this goodwill.

         The Company has prepared an initial allocation of the purchase price
         based on the estimated fair values of certain intangible assets,
         receivables and estimated liabilities, including the deferred payment.
         The Company is continuing to obtain information as to ultimate
         valuation, recoverability and realization with respect to the fair
         values of certain contingent liabilities and anticipates the allocation
         of purchase price to be finalized in the third quarter of 2002.

         Management has subsequently reviewed the liabilities assumed at the
         time of the purchase of NACT and the liabilities assumed in the WATP
         Settlement Agreement and adjusted its estimate of these liabilities.
         Management reduced its estimate of liabilities by $900,000, which was
         recorded as a reduction of goodwill in the previously allocated
         purchase consideration.

         The allocation of the purchase price for Telemate.Net and NACT, as
         adjusted, are as follows:

<Table>
<Caption>
                                              Telemate.Net            NACT
                                              ------------          --------
<S>                                           <C>                   <C>
Cash                                            $ 4,810             $ 2,538
Other current assets                              1,361              10,547
Property and equipment                              563               2,505
Intangibles                                       1,320              12,246
Current liabilities                              (4,079)             (1,919)
Deferred payment on purchase of NACT                 --              (5,340)
Convertible subordinated debentures                  --                  --
Deferred compensation                               131                  --
                                                -------             -------
Purchase consideration                          $ 4,106             $20,577
                                                =======             =======
</TABLE>




                                       8
<PAGE>


                            VERSO TECHNOLOGIES, INC.
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 2002

2.       MERGERS AND ACQUISITIONS, Continued

         Prior to the purchase of NACT, the Company became an NACT reseller in
         the first quarter of 2001. The Company resold NACT soft switching
         systems with product revenues for the six months prior to acquisition
         totaling $2.8 million and cost of product sales of $2.2 million.

         Pro Forma Effect of Telemate.Net and NACT Transactions

         The following unaudited pro forma information presents the results of
         continuing operations of the Company for the six months ended June 30,
         2001, as if the acquisitions of Telemate.Net and NACT had taken place
         on January 1, 2001, (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                                    JUNE 30,
                                                                                      2001
                                                                                    --------
<S>                                                                                 <C>
Revenues                                                                       $     22,582
Loss from continuing operations                                                $    (13,851)
Loss from continuing operations
  per common share - basic and diluted                                         $       (.18)
Loss before extraordinary item
  per common share - basic and diluted                                         $      (1.72)
Net loss per common share - basic and diluted                                  $      (1.74)
Weighted average shares outstanding - basic and diluted                              75,588
</TABLE>

3.       DISCONTINUED OPERATIONS

         Following the acquisition of NACT in July 2001, the Company determined
         that its legacy VAR business was not strategic to the Company's ongoing
         objectives and discontinued capital and human resource investment in
         this business. Accordingly, the Company elected to report its legacy
         VAR business as discontinued operations by early adoption of SFAS No.
         144, "Accounting for the Impairment of Disposal of Long-Lived Assets"
         ("SFAS 144") effective for the fourth quarter of 2001. These businesses
         are included with HSG (which was reported as discontinued operations in
         2001) for a combined presentation of discontinued operations. The
         consolidated financial statements have been reclassified to segregate
         the net assets and operating results of these combined discontinued
         operations for all periods presented.

         During 2000, the Company's board of directors decided to dispose of
         HSG. In December 2000, the Company completed the sale of its domestic
         lodging business and international hospitality business for aggregate
         proceeds of $10.0 million. The Company sold its restaurant solutions
         business for aggregate proceeds of $8.5 million in January 2001.

         The loss on the sale of HSG totaled $11.5 million. A loss of $11.0
         million was recorded in the third and fourth quarters of 2000 and an
         additional $500,000 was recorded in the third quarter of 2001, the
         latter related to winding up the Company's international hospitality
         operations, the assets of which were sold in the fourth quarter of
         2000.

                                       9
<PAGE>

                            VERSO TECHNOLOGIES, INC.
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 2002

3.       DISCONTINUED OPERATIONS, Continued

         Summary operating results of the discontinued operations for the three
         months and six months ended June 30, 2002 and 2001 (in thousands) were
         as follows:

<Table>
<Caption>
                                        Three months ended June 30,         Six months ended June 30,
                                        ---------------------------         -------------------------
                                          2002            2001                2002            2001
                                        ------------  -------------         -----------  ------------
<S>                                     <C>           <C>                   <C>          <C>
Revenue                                   $     --      $   3,503             $   223     $  10,080
                                          ========      =========             =======     =========
Gross profit                              $     --      $     104             $  (331)    $     833
                                          ========      =========             =======     =========
Operating loss                            $     --      $(103,024)            $  (331)    $(116,214)
                                          ========      =========             =======     =========
Loss from discontinued operations         $     --      $(103,024)            $  (331)    $(116,214)
                                          ========      =========             =======     =========
</Table>



         The loss from discontinued operations in the three months ended June
         30, 2001 includes depreciation of $273,000, amortization of intangibles
         of $10.7 million, write-down of goodwill of $85.0 million,
         reorganization costs of $2.8 million and amortization of deferred
         compensation of $124,000. The loss from discontinued operations in the
         six months ended June 30, 2001 includes depreciation of $546,000,
         amortization of intangibles of $21.4 million, write-down of goodwill of
         $85.0 million, reorganization costs of $2.8 million and amortization of
         deferred compensation of $249,000.

         Assets and liabilities of discontinued operations (in thousands) are as
         follows:

<TABLE>
<CAPTION>
                                                JUNE 30,       DECEMBER 31,
                                                  2002            2001
                                                --------       ------------
<S>                                           <C>              <C>
Accounts receivable, net
                                                $     --        $    501
Other current assets                                  --              81
                                                --------        --------
  Assets of discontinued operations             $     --        $    582
                                                ========        ========

Accrued restructuring costs                     $  2,603        $  2,730
Accrued compensation                                  36             210
Other current liabilities                          1,637           1,960
                                                --------        --------
  Liabilities of discontinued operations        $  4,276        $  4,900
                                                ========        ========
</TABLE>

         The restructuring accrual relates to several leases for buildings and
         equipment that are no longer being utilized in continuing operations.
         The accrual is for all remaining payments due on these leases, less
         amounts to be paid by any sublessors. The accrual for one lease with
         total payments remaining of $2.8 million assumes that the building will
         be sub-leased for 50% of the total lease liability over the term of the
         lease.

                                       10
<PAGE>

                            VERSO TECHNOLOGIES, INC.
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 2002

3.       DISCONTINUED OPERATIONS, Continued

         Activity in the restructuring accruals was as follows:

                  Balance December 31, 2001           $2,730
                  Lease payments                        (434)
                  Additional restructuring accrual       307
                                                      ------
                  Balance June 30, 2002               $2,603
                                                      ======

4.       INVENTORIES

         Inventories consist primarily of purchased electronic components for
         its Gateway Solutions segment, and are stated at the lower of cost or
         market. Cost is determined by using the first-in, first-out method.

         Inventories as of June 30, 2002 and December 31, 2001, are comprised of
         the following (in thousands):


                                             June 30,          December 31,
                                               2002                2001
                                             --------          ------------
             Raw materials                    $1,307              $1,677
             Work in process                   1,665               1,376
             Finished goods                    1,171               1,170
                                             --------          ------------
               Total inventories               4,143               4,223
             Inventory reserve                  (519)               (228)
                                             --------          ------------
               Inventories, net               $3,624              $3,995
                                             ========          ============


5.       INTANGIBLES

         Intangible assets represent the excess of cost over the fair value of
         net tangible assets acquired and identified other intangible assets.
         These assets are amortized on a straight-line basis over estimated
         useful lives of three years. Intangibles are evaluated for potential
         impairment of value whenever events or changes in circumstances
         indicate that full asset recoverability is questionable. Such
         evaluations consider current as well as anticipated operating results
         measured on the basis of undiscounted cash flows of the operation
         relative to the asset. Goodwill associated with the acquisitions of
         NACT and Telemate.Net (Note 2) is not being amortized in accordance
         with SFAS 142.

                                       11
<PAGE>

                            VERSO TECHNOLOGIES, INC.
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 2002

5.       INTANGIBLES, Continued

         Intangible assets consist of the following (in thousands):

                                                      JUNE 30,  DECEMBER 31,
                                                        2002       2001
                                                      --------  ------------
         Intangibles subject to amortization
           Purchased software development             $ 1,909     $ 1,748
           Accumulated amortization                      (525)       (236)
                                                      -------     -------
                                                        1,384       1,512

         Intangibles not subject to amortization
           Goodwill                                   $13,318     $14,437
                                                      -------     -------
         Total intangibles                            $14,702     $15,949
                                                      =======     =======

         Estimated annual amortization expense is as follows (in thousands):

                                    AMORTIZATION
                                    ------------
                          2002         $  607
                          2003            636
                          2004            401
                          2005             29
                                        -----
                                       $1,673
                                       ======

         The Company adopted SFAS 142 in the first quarter of 2002. Under the
         provisions of SFAS 142, goodwill is no longer subject to amortization.
         In the three and six months ended June 30, 2001, goodwill amortization
         expense was $208,000 and $415,000, respectively. The impact of goodwill
         amortization on basic and diluted loss per share is as follows (in
         thousands, except per share amounts):

<TABLE>
<CAPTION>
                            FOR THE THREE MONTHS ENDED JUNE 30,     FOR THE SIX MONTHS ENDED JUNE 30,
                                  2002                   2001             2002               2001
                            ------------------------------------    ---------------------------------
<S>                          <C>                      <C>               <C>               <C>
Reported net earnings        $      (599)             $ (105,701)       $ (1,789)         $ (123,709)
  Add: Goodwill amortization          --                     208              --                 415
                             -----------              ----------        --------          ----------
Adjusted net earnings        $      (599)             $ (105,493)       $ (1,789)         $ (123,294)
                             ===========              ==========        ========          ==========

Basic and diluted earnings per share:
  Reported net earnings      $     (0.01)             $    (2.07)       $  (0.02)         $    (2.43)
  Goodwill amortization               --                      --              --                0.01
                             -----------              ----------        --------          ----------
Adjusted net earnings        $     (0.01)             $    (2.07)       $  (0.02)         $    (2.42)
                             ===========              ==========        ========          ==========

</TABLE>

                                       12
<PAGE>

                            VERSO TECHNOLOGIES, INC.
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 2002

6.       LOAN FACILITY WITH SILICON VALLEY BANK

         In December 2001, the Company entered into a $5.0 million revolving
         credit agreement (the "Credit Agreement") with Silicon Valley Bank (the
         "Bank"). The Credit Agreement is secured by substantially all of the
         assets of the Company. The interest rate (6.75% at June 30, 2002) is
         computed at 2% above the Bank's Base Rate. The Credit Agreement
         provides for up to $500,000 in letters of credit. Available borrowing
         under the credit agreement is determined by a formula based on eligible
         receivables, inventory, certain cash balances, outstanding letters of
         credit and certain subjective limitations. Interest payments are due
         monthly, and the Credit Agreement expires December 2002. The Credit
         Agreement includes a loan fee of $50,000 and a fee of .25% on unused
         available borrowings. The Company paid certain loan fees and attorney's
         fees totaling approximately $106,000 in connection with the Credit
         Agreement. Pursuant to the loan commitment letter with the Bank, the
         Company agreed to issue to the Bank a warrant to purchase shares of the
         Company's common stock if the Company did not raise additional equity
         of $10.0 million by April 15, 2002. The Company did not raise such
         additional equity and, as a result, on May 15, 2002, the Company issued
         to the Bank a warrant to purchase 308,641 shares of the Company's
         common stock at an exercise price of $.81 per share. The fair value of
         the warrants issued, totaled approximately $211,000, using the
         Black-Scholes option pricing method based on the following
         weighted-average assumptions: expected volatility - 128%; expected life
         - five years; risk-free interest rate - 3.3%; and expected dividend
         yield - 0%. The loan fees, attorney's fees and fair value of the
         warrants are being amortized to interest expense over the term of the
         Credit Agreement.

         The Company had no borrowings under the Credit Agreement as of June 30,
         2002. The availability under the Credit Agreement at June 30, 2002 was
         $4.6 million. Under the terms of the Credit Agreement, the Company is
         required to maintain a minimum tangible net worth, computed quarterly,
         and cannot declare dividends or incur any additional indebtedness
         without the consent of the Bank, and must maintain other financial
         covenants, as defined. The Company was in compliance with these
         covenants as of June 30, 2002.

7.       CONVERTIBLE SUBORDINATED DEBENTURES

         In connection with the acquisition of MessageClick, certain investors
         of MessageClick purchased $4.5 million of the Company's 7.5%
         convertible subordinated debentures and warrants to purchase an
         aggregate of 1,026,820 shares of the Company's common stock at an
         exercise price of $7.30 per share. The debentures are convertible into
         the Company's common stock at a conversion price of $4.41. The
         convertible subordinated debentures are due November 22, 2005. The
         debentures have been discounted to reflect the fair value of the
         warrants issued, totaling approximately $1.4 million, using the
         Black-Scholes option pricing method based on the following
         weighted-average assumptions: expected volatility - 88%; expected life
         - five years; risk-free interest rate - 5.5%; and expected dividend
         yield - 0%. The unamortized discount totaled approximately $934,000 at
         June 30, 2002. In addition, the Company paid certain private placement
         fees and attorney's fees in connection with the sale of the debentures
         totaling $50,000. The fees are being amortized to interest expense over
         the term of the debentures.

         The Company issued $7.0 million of its 5% convertible subordinated
         debentures during the year ended December 31, 2000. The convertible
         subordinated debentures were issued with warrants to purchase 368,322
         shares of the Company's common stock at an exercise price of $4.98 per
         share. The debentures were discounted to reflect the fair value of the
         warrants issued, totaling approximately $1.0 million, using the
         Black-Scholes option pricing method based on the following
         weighted-average assumptions: expected volatility - 88%; expected life
         - five years; risk-free interest rate - 5.5%; and expected dividend
         yield - 0%. In addition, the Company paid certain private placement
         fees (including 88,712 shares of the Company's common stock with a fair
         value at the date of issuance totaling $350,000) and attorney's fees in
         connection with the sale of the debentures totaling $454,000. The fees
         were amortized to interest expense over the term of the debentures
         until the debentures were retired or converted into the Company's
         common stock.


                                       13
<PAGE>



                            VERSO TECHNOLOGIES, INC.
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 2002

7.       CONVERTIBLE SUBORDINATED DEBENTURES, Continued

         In January 2001, the Company modified the terms of its 5% convertible
         subordinated debentures. According to the modified terms of the
         agreement, the Company repurchased $4.5 million of the outstanding $7.0
         million of its 5% convertible subordinated debentures. Of the remaining
         $2.5 million in outstanding 5% convertible subordinated debentures,
         $1.5 million were converted by the investors into the Company's common
         stock at a price of $1.40 per share. The remaining $1.0 million of 5%
         convertible subordinated debentures was converted at $1.19 per share.
         In connection with this modification, the Company issued warrants to
         purchase 954,455 shares of the Company's common stock at an exercise
         price of $1.98 per share. The fair value of the warrants issued,
         totaled approximately $977,000, using the Black-Scholes option pricing
         method based on the following weighted-average assumptions: expected
         volatility - 91%; expected life - five years; risk-free interest rate -
         5.5%; and expected dividend yield - 0%. The cost of conversion,
         including the warrants issued, totaled $1.6 million in the quarter
         ended March 31, 2001.

         The cost of conversion is reflected as an extraordinary item in the
         statement of operations for the six months ended June 30, 2001 and
         consisted of the following (in thousands):

                  Fair value of warrants issued                $  977
                  Write-off of related discount                   365
                  Write-off of related loan fees                  165
                  Beneficial conversion                           107
                  Legal and other costs                            26
                                                               ------
                                                               $1,640
                                                               ======

8.       OTHER COMPREHENSIVE LOSS

         The Company has adopted SFAS No. 130, "Reporting Comprehensive Income"
         ("SFAS 130"). SFAS 130 establishes new rules for the reporting and
         display of comprehensive income and its components; however, the
         adoption of this Statement had no impact on the Company's net income or
         shareholders' equity. SFAS 130 requires that the Company's change in
         foreign currency translation adjustments be included in other
         comprehensive income. Comprehensive loss is shown in the following
         table (in thousands):


<TABLE>
<CAPTION>
                                THREE MONTHS ENDED JUNE 30,              SIX MONTHS ENDED JUNE 30,
                                  2002                   2001              2002              2001
                             -----------------------------------       ------------------------------
<S>                          <C>                      <C>               <C>               <C>
Net loss                     $      (599)             $ (105,701)       $ (1,789)         $ (123,709)
Other comprehensive loss:
  Foreign currency translation        --                      --              (3)                 --
                             -----------              ----------        --------          ----------
Comprehensive loss           $      (599)             $ (105,701)       $ (1,792)         $ (123,709)
                             ===========              ==========        ========          ==========
</TABLE>

                                       14
<PAGE>

                            VERSO TECHNOLOGIES, INC.
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 2002

9.       SEGMENT INFORMATION

         As a result of the Company's acquisition of NACT, the Company is now
         reporting information for two segments, Gateway Solutions and
         Applications and Services (which the Company formerly referred to as
         its Technology Services Group).

         Gateway
         Solutions:        The Company's Gateway Solutions segment consists of
                           the operations of the Company's switching subsidiary,
                           NACT. The Company's Gateway Solutions segment
                           includes hardware and software, integration,
                           applications and technical training and support.
                           Prior to the Company's acquisition of NACT, the
                           Company became an NACT reseller in the first quarter
                           of 2001.

         Applications
         and Services:     The Company's Applications and Services segment
                           consists of the operations of the Company's
                           customer response center services as well as the
                           operations of the Company's Telemate.Net subsidiary.
                           The Applications and Services segment offers network
                           management, support and maintenance, customer
                           response center services and application services.

         Management evaluates the business segment performance based on
         contributions before unallocated items. Inter-segment sales and
         transfers are not significant.

         Summarized financial information concerning the Company's reportable
segments is shown in the following table (in thousands):

<TABLE>
<CAPTION>
                                               GATEWAY             APPLICATIONS
FOR THE THREE MONTHS ENDED JUNE 30,          SOLUTIONS(a)         AND SERVICES(a)          TOTAL
-----------------------------------         -------------         ---------------          -----
<S>                                         <C>                   <C>                      <C>
2002
Revenue                                       $ 7,080                $4,591                $11,671
Contribution before unallocated items           1,096                 1,693                  2,789
Goodwill and other intangibles                 11,929                 2,773                 14,702
Total assets                                   28,422                 3,846                 32,268
Capital expenditures                              222                    --                    222

2001
Revenue                                       $ 2,088                $3,407                $ 5,495
Contribution before unallocated items             310                   459                    769
Goodwill and other intangibles                     --                 1,978                  1,978
Total assets                                       --                 3,193                  3,193
Capital expenditures                               --                    --                     --
</TABLE>


(a)           In 2002, Gateway Solutions includes costs associated with certain
              corporate and administrative functions to support this business
              unit, which functions are located in Utah. Prior to the
              acquisition of NACT in July 2001, the Company became an NACT
              reseller in the first quarter of 2001. The Company resold NACT
              gateway solutions totaling $2.1 million with cost of product sales
              of $1.8 million during the second quarter of 2001. Prior to the
              acquisition of NACT, there were no identifiable assets or
              operating expenses related to the Gateway Solutions segment.
              Applications and Services includes no allocation of corporate
              overhead costs, assets or capital expenditures. See also (b)
              description.



                                       15
<PAGE>
                            VERSO TECHNOLOGIES, INC.
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 2002

9.       SEGMENT INFORMATION, Continued

         The following table reconciles the total contribution before
         unallocated items to the loss from continuing operations before
         extraordinary item (in thousands):

<Table>
<Caption>
                                                           Three Months Ended
                                                                June 30,
                                                          ---------------------
                                                           2002          2001
                                                          -------       -------
<S>                                                       <C>           <C>
Contributions before unallocated items, per above         $ 2,789       $   769
Corporate and administrative expenses (b)                  (2,146)       (2,050)
Depreciation                                                 (716)         (373)
Amortization of intangibles                                  (147)         (375)
Amortization of deferred compensation                        (324)         (484)
Other income                                                  254             -
Interest expense, net                                        (309)         (164)
                                                          -------       -------
Loss from continuing operations before
  taxes and extraordinary item                            $  (599)      $(2,677)
                                                          =======       =======
</Table>


         (b)  All rent, utilities and other corporate office expenses, corporate
              marketing expenses, corporate development costs and corporate
              human resources, accounting and information technology functions
              that support corporate, as well as, the Applications and Services
              segment are reflected in unallocated corporate, sales, general and
              administrative expenses. Office expenses, human resources,
              accounting and information technology costs specifically related
              to the Gateway Solutions segment are reflected in its contribution
              before unallocated items.


<Table>
<Caption>
                                             Gateway         Applications
                                             Solutions(a)    and Services(a)     Total
                                             ------------    ---------------   ---------
<S>                                          <C>             <C>               <C>
For the six months ended June 30,
                 2002

Revenue                                        $14,605           $9,060         $23,665
Contributions before unallocated items           2,446            3,167           5,613
Goodwill and other intangibles                  11,929            2,773          14,702
Total assets                                    28,422            3,846          32,268
Capital expenditures                               403                -             403

                 2001

Revenues                                       $ 2,827           $6,830         $ 9,657
Contributions before unallocated items             753              548           1,301
Goodwill and other intangibles                       -            1,978           1,978
Total assets                                         -            3,193           3,193
Capital expenditures                                 -                -               -
</Table>




         (a)  In 2002, Gateway Solutions includes costs associated with certain
              corporate and administrative functions to support this business
              unit, which functions are located in Utah. Prior to the
              acquisition of NACT in July 2001, the Company became an NACT
              reseller in the first quarter of 2001. The Company resold NACT
              gateway solutions totaling $2.8 million with cost of product sales
              of $2.1 million during the six months ended June 30, 2001. Prior
              to the acquisition of NACT, there were no identifiable assets or
              operating expenses related to the Gateway Solutions segment.
              Applications and Services includes no allocation of corporate
              overhead costs, assets or capital expenditures. See also (b)
              description.


                                       16
<PAGE>

                            VERSO TECHNOLOGIES, INC.
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 2002

9.       SEGMENT INFORMATION, Continued

         The following table reconciles the total contribution before
         unallocated items to the loss from continuing operations before
         extraordinary item (in thousands):


         <TABLE>
         <CAPTION>

                                                                                          SIX MONTHS ENDED
                                                                                              JUNE 30,
                                                                                     --------------------------
                                                                                         2002          2001
                                                                                     ----------      ----------
         <S>                                                                         <C>             <C>
         Contribution before unallocated items, per above                            $    5,613      $    1,301
         Corporate and administrative expenses (b)                                       (4,391)         (4,245)
         Depreciation                                                                    (1,478)           (789)
         Amortization of intangibles                                                       (289)           (749)
         Amortization of deferred compensation                                             (648)           (967)
         Other income                                                                       254              --
         Interest expense, net                                                             (519)           (406)
                                                                                     ----------      ----------
         Loss from continuing operations before
               taxes and extraordinary item                                          $   (1,458)     $   (5,855)
                                                                                     ==========      ==========

         </TABLE>




         (b)  All rent, utilities and other corporate office expenses, corporate
              marketing expenses, corporate development costs and corporate
              human resources, accounting and information technology functions
              that support corporate, as well as, the Applications and Services
              segment are reflected in unallocated corporate, sales, general and
              administrative expenses. Office expenses, human resources,
              accounting and information technology costs specifically related
              to the Gateway Solutions segment are reflected in its contribution
              before unallocated items.

10.      STOCK OPTIONS AND WARRANTS

         The Company has a stock option plan for employees, consultants, and
         other individual contributors to the Company. In addition, in
         connection with various financing and acquisition transactions, and for
         services provided to the Company, the Company has issued warrants to
         purchase the Company's common stock. A summary of stock options and
         warrants outstanding at June 30, 2002, is as follows:

         Options and warrants issued to employees

         <TABLE>
         <CAPTION>

                                 Options and Warrants Outstanding       Options and Warrants Exercisable
                               -----------------------------------    -------------------------------------
         Price of Exercise     Outstanding at     Weighted Average      Exercisable        Weighted Average
               Price           June 30, 2002       Exercise Price     at June 30, 2002      Exercise Price
         -----------------     --------------     ----------------    ----------------     ----------------
         <S>                   <C>                <C>                 <C>                  <C>
         $0.01-$0.33              2,021,308            $0.21              1,803,150             $0.21
         $0.37-$0.52              1,107,819            $0.40                632,436             $0.42
         $0.53-$0.66              1,148,187            $0.58                740,815             $0.60
         $0.68-$1.00                375,197            $0.98                233,667             $0.99
         $1.00-$1.50              2,362,781            $1.25                355,161             $1.20
         $1.51-$2.55              5,015,881            $2.16              4,178,337             $2.16
         $2.56-$5.25              3,347,750            $4.00              1,904,905             $4.11
         $5.31-$18.00               798,558            $8.04                653,904             $8.00
                               --------------     ----------------    ----------------     ----------------
         Total                   16,177,481            $2.19             10,502,375             $2.27
                               ==============     ================    ================     ================
         </TABLE>



         Options and warrants issued to employees generally terminate ten years
         from the date of grant. Termination dates on the options and warrants
         listed above range from July 31, 2002 to June 24, 2012.










                                       17
<PAGE>

                            VERSO TECHNOLOGIES, INC.
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 2002


10.      STOCK OPTIONS AND WARRANTS, Continued

         Warrants issued primarily in connection with financing

<Table>
<Caption>
                                 Number of         Weighted Average
         Exercise Price     Outstanding Warrants    Exercise Price              Expiration Date
         --------------     --------------------   ----------------       ---------------------------

         <S>                <C>                    <C>                    <C>
          $0.01-$0.50               37,532              $0.01             September 2005-October 2006
          $0.80-$1.00              558,641              $0.90             November 2004-May 2007
          $1.50-$2.00            1,046,732              $1.94             August 2005-January 2011
          $2.01-$2.25              140,723              $2.25             February 2003-February 2010
          $3.00-$4.00              484,229              $3.09             February 1, 2003
          $4.01-$5.00              619,691              $4.67             February 2003-July 2010
          $5.01-$5.62            8,086,791              $5.61             February 2003-October 2006
          $5.65-$7.30            5,924,006              $5.96             February 2003-November 2010
                            --------------------   ----------------
          Total                 16,898,345              $5.20
                            ====================   ================
</Table>

         Most warrants are vested when issued.

         Options and warrants outstanding as of June 30, 2002 totaled
         33,075,826.

         The exercise price and number of outstanding warrants for certain
         warrants previously issued have been adjusted according to their
         antidilution provisions.

11.      OTHER EVENTS

         Settlement with RSL Communications, Ltd. and Affiliates

         On or about July 6, 2000, RSL Communications, Ltd. (together with
         certain of its affiliates (collectively, "RSL")) filed with the
         American Arbitration Association a demand for arbitration against NACT,
         which became a wholly-owned subsidiary of the Company on July 27, 2001.
         In the arbitration, RSL claimed that, pursuant to a Sales Agreement
         between RSL and NACT, NACT breached its obligation to indemnify and
         defend RSL against patent infringement claims made against RSL by
         Aerotel, Ltd. in an action pending in the United States District Court
         for the Southern District of New York. RSL sought to recover from NACT
         amounts paid by RSL to defend itself in such patent infringement
         action, which RSL claimed was approximately $2.0 million, together with
         other unspecified damages resulting from NACT's alleged breach. On
         March 13, 2002, the Company entered into a Settlement Agreement and
         General Release (the "RSL Settlement Agreement") with RSL, which
         provided that the Company issue to RSL 523,430 shares of the Company's
         common stock (the "Settlement Shares") and deposit $200,000 in escrow.
         Pursuant to the terms of the RSL Settlement Agreement, the Company
         filed with the Securities and Exchange Commission (the "SEC") a
         Registration Statement on Form S-3 covering the resale of the
         Settlement Shares. On June 17, 2002, the Company issued 523,430 shares
         of the Company's common stock with a market value on the effective date
         of the Form S-3 of approximately $403,000 and the $200,000 plus accrued
         interest held in escrow was released to RSL at that time.


                                       18
<PAGE>


                            VERSO TECHNOLOGIES, INC.
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 2002

12.      LITIGATION

         Except as previously disclosed in the Company's Annual Report on Form
         10-K for the year ended December 31, 2001 or as set forth below, the
         Company is not a party to any material legal proceedings other than
         ordinary routine claims and proceedings incidental to its business, and
         the Company does not expect these claims and proceedings, either
         individually or in the aggregate, to have a material adverse effect on
         the Company.

         As previously disclosed in the Company's Form 10-K for the year ended
         December 31, 2001, on or about May 21, 2001, John M. Good, a former
         employee of the Company, filed a lawsuit in the Court of Common Pleas,
         Cuyahoga County, Ohio, against the Company claiming, among other
         things, fraud, negligence, breach of fiduciary duty, breach of contract
         and damages resulting from and related to the Company's alleged failure
         to deliver 50,000 shares of the Company's common stock to Mr. Good upon
         his exercise of an option to purchase such shares on or about January
         3, 2000. Mr. Good seeks unspecified damages with respect to such
         claims; however, based on the Company's further analysis of Mr. Good's
         claims, in the opinion of the Company's management, the Company's
         exposure to Mr. Good, were he to prevail in this matter, should not
         exceed $550,000. The Company intends to defend such claims vigorously.
         Trial for this case has been set for October 2002. Although no
         assurances can be given as to the outcome of any lawsuit, in the
         opinion of the Company's management, the final outcome in this matter
         should not have a material adverse effect on the Company.

         On or about February 8, 2002, William P. O'Reilly, a former executive
         officer and director of the Company; Montana Corporation, Mr.
         O'Reilly's consulting company; Clunet R. Lewis, a former officer of the
         Company; and CLR Enterprises, Inc., Mr. Lewis' consulting company,
         filed with the American Arbitration Association ("AAA") a demand for
         arbitration against the Company. Messrs. O'Reilly and Lewis and their
         respective consulting companies seek to have enforced the Consulting
         Agreements dated April 1, 1999, as amended, to which they and the
         Company are parties (the "Consulting Agreements"). Messrs. O'Reilly and
         Lewis have claimed that the Company's attempt by written notice dated
         June 1, 2001, to terminate the Consulting Agreements effective March
         31, 2002, was ineffective and, as a result, such Consulting Agreements
         have automatically renewed for additional two-year terms, which terms
         expire on March 31, 2004. Under the terms of the Consulting Agreements,
         Messrs. O'Reilly and Lewis are to receive, among other things,
         consulting fees of $250,000 and $240,000 per year, respectively.
         Messrs. O'Reilly and Lewis claim that such fees for the two-year
         extension period shall become immediately due and payable in the event
         Messrs. O'Reilly and Lewis prevail in the arbitration proceeding. The
         Company intends to vigorously defend itself in this arbitration, and
         although no assurances can be given as to the outcome of any
         arbitration proceeding, in the opinion of the Company's management, the
         final outcome in this matter should not have a material adverse effect
         on the Company.

         On or about April 29, 2002, Omni Systems of Georgia, Inc. ("Omni") and
         Joseph T. Dyer ("Dyer") filed with the AAA a demand for arbitration
         against the Company. Omni and Dyer claim that the Company breached the
         Assignment dated as of August 31, 1998, by and among a subsidiary of
         the Company, Dyer and Omni (the "Assignment") pursuant to which Omni
         and Dyer assigned and transferred to a subsidiary of the Company all of
         their right, title and interest in and to a certain computer software
         property management system in exchange for a lump sum royalty payment
         and certain monthly royalty payments equal to a percentage of the
         maintenance and licensing net revenues received by the Company from
         certain customers. Omni and Dyer claim that the Company has not paid to
         them the monthly royalty payments owed to them pursuant to the
         Assignment beginning in June 2002. Omni and Dyer further claim that,
         due to the alleged breach of the Assignment, the Company is no longer
         permitted to use the software. Omni and Dyer are seeking unspecified
         monetary damages and to enjoin the Company's use of the software. The
         Company believes that no amounts are owing under the Assignment and the
         Company intends to vigorously defend itself in this arbitration, and
         although no assurances can be given as to the outcome of any
         arbitration proceeding, in the opinion of the Company's management, the
         final outcome in this matter should not have a material adverse effect
         on the Company.


                                       19
<PAGE>
                            VERSO TECHNOLOGIES, INC.
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  June 30, 2002

13.      RECENT ACCOUNTING PRONOUNCEMENTS

         In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
         Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
         Technical Corrections", which eliminates the requirement to report
         gains and losses related to extinguishments of debt as extraordinary
         items. The statement also included other amendments and technical
         corrections which will not have a material impact on the Company. The
         provisions of the statement related to the treatment of debt
         extinguishments are required to be applied in fiscal years beginning
         after May 15, 2002

         In June 2002, the Financial Accounting Standards Board issued Statement
         of Financial Accounting Standards (SFAS) No. 146, "Accounting for Costs
         Associated with Exit or Disposal Activities." SFAS No. 146 addresses
         financial accounting and reporting for costs associated with exit or
         disposal activities and nullifies Emerging Issues Task Force Issue No.
         94-3, "Liability Recognition for Certain Employee Termination Benefits
         and Other Costs to Exit an Activity (including Certain Costs Incurred
         in a Restructuring)." SFAS 146 requires that a liability for costs
         associated with an exit or disposal activity be recognized when the
         liability is incurred rather than when a company commits to such an
         activity and also establishes fair value as the objective for initial
         measurement of the liability. SFAS No. 146 will be adopted by the
         Company for exit or disposal activities that are initiated after
         December 31, 2002. Adoption will not have a material impact on the
         consolidated financial statements of the Company.



                                       20
<PAGE>

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

Certain statements in this Quarterly Report on Form 10-Q and in future filings
by the Company with the SEC and in the Company's written and oral statements
that are not statements of historical facts are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. The
words "believe," "expect," "anticipate," "intend," "will" and similar
expressions are examples of words that identify forward-looking statements.
Forward-looking statements include, without limitation, statements regarding our
future financial position, business strategy and expected cost savings. These
forward-looking statements are based on our current beliefs, as well as
assumptions we have made based upon information currently available to us.

Each forward-looking statement reflects our current view of future events and is
subject to risks, uncertainties and other factors that could cause actual
results to differ materially from any results expressed or implied by our
forward-looking statements. Important factors that could cause actual results to
differ materially from the results expressed or implied by any forward-looking
statements include:

-        our ability to grow and manage the business and continue to have
         positive operating cash flow and our ability to fund cash needed for
         working capital including acquisition-related liabilities and capital
         expenditures until the business is generating cash;

-        our ability to successfully access the capital markets to fund the
         growth of our business and continuous development of our proprietary
         products;

-        our ability to integrate our business with other entities we may
         subsequently acquire;

-        trends for the continued growth of our business;

-        the effects of our accounting policies and general changes in generally
         accepted accounting practices;

-        our ability to successfully market existing products and services,
         which may be adversely impacted by competition and the general economy;

-        our ability to successfully develop and market new products and
         services; and

-        other factors disclosed in our Form 10-K for the year ended December
         31, 2001 and in our other filings with the SEC.

All subsequent forward-looking statements relating to the matters described in
this document and attributable to us or to persons acting on our behalf are
expressly qualified in their entirety by such factors. We have no obligation to
publicly update or revise these forward-looking statements to reflect new
information, future events, or otherwise, except as required by applicable
Federal securities laws, and we caution you not to place undue reliance on these
forward-looking statements.


                                       21
<PAGE>

GENERAL

The Company is a communications technology solutions provider for communications
service providers and enterprises seeking to implement application-based
telephony services, Internet usage management tools and outsourced customer
support services. The Company's continuing operations include two separate
business segments, Gateway Solutions, which includes the Company's subsidiary
NACT and Applications and Services, which includes its customer response center
operations and its subsidiary Telemate.Net. The Company acquired NACT in July
2001 and Telemate.Net in November 2001. The Company's discontinued operations
include its legacy VAR business and HSG.

The consolidated financial statements include the accounts of Verso
Technologies, Inc. and its wholly-owned subsidiaries, including Telemate.Net
which the Company acquired on November 17, 2001, NACT which the Company acquired
on July 27, 2001 and MessageClick, which the Company acquired on November 22,
2000, each in transactions accounted for as purchases.

The Company believes that the foregoing events significantly affect the
comparability of the Company's results of operations from year to year. You
should read the following discussion of the Company's results of operations and
financial condition in conjunction with the Company's consolidated financial
statements and related notes thereto included in Item 14 of the Company's Annual
Report on Form 10-K for the year ended December 31, 2001.

RESULTS OF OPERATIONS

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

For the three months ended June 30, 2002, the Company's net loss totaled
$599,000, or $.01 per share, compared with net loss of $105.7 million, or $2.07
per share, for the same period in 2001. The 2001 results included a loss from
discontinued operations of $103.0 million.

Continuing Operations

For the three months ended June 30, 2002, the Company's net loss from continuing
operations totaled $599,000, or $.01 per share, compared with a net loss of $2.7
million, or $.05 per share, for the same period in 2001.

Total revenue was $11.7 million in the three months ended June 30, 2002,
reflecting a 112% increase from the same period in 2001. Products revenue was
$6.1 million in the three months ended June 30, 2002, and was primarily related
to the sale of NACT products. Services revenue was $5.6 million in the three
months ended June 30, 2002, reflecting a 64% increase from the same period in
2001. Gross profit increased by $5.3 million in the three months ended June 30,
2002, and was 59% of revenue in 2002, compared with 29% of revenue in the same
period of 2001. The increase in revenue, gross profit percentage and gross
profit dollars resulted primarily from the acquisition of NACT in July 2001.

Total operating expenses incurred in continuing operations for the three months
ended June 30, 2002, were $7.5 million, an increase of $3.4 million compared to
the same period of 2001. The increase is primarily attributable to the following
items: $721,000 increase in general and administrative expenses, $1.5 million
increase in sales and marketing expenses, $1.2 million increase in research and
development and $343,000 increase in depreciation expense offset by decreases in
intangible amortization of $228,000 and amortization of deferred compensation of
$160,000.

The increase in general and administrative expenses resulted from the addition
of personnel and related costs related to the acquisition of NACT offset by the
reduction of corporate general and administrative expenses. The decrease in
corporate general and administrative expenses resulted primarily from on-going
cost reduction initiatives resulting in reduced personnel, telecom and other
general and administrative expenses.

The increase in sales and marketing expenses resulted from the addition of
personnel and related costs related to the acquisitions of NACT and Telemate.Net
in July 2001 and November 2001, respectively.

The increase in research and development is primarily related to the acquisition
of NACT in July 2001.

The increase in depreciation expense is primarily related to the purchase of
furniture and equipment of approximately $400,000 and $500,000 during the first
six months of 2002 and for the last six months of 2001, respectively, as well as
the increased depreciation related to the assets acquired in the NACT and
Telemate.Net acquisitions. Capital expenditures are primarily depreciated on a
straight-line basis over their estimated useful lives of three years.

The $228,000 decrease in intangible amortization is primarily related to the
adoption of SFAS 142, which eliminated amortization of goodwill beginning
January 1, 2002.

                                       22
<PAGE>

The $160,000 decrease in amortization of deferred compensation primarily related
to the full vesting of certain options outstanding since the Company's
acquisition of Cereus Technology Partners, Inc. in September 2001. The deferred
compensation represents the intrinsic value of the Cereus unvested options
outstanding at the date of the acquisition of Cereus and is amortized over the
remaining vesting period of the options.

As a percent of revenue, operating expenses from continuing operations,
excluding the amortization of intangibles and deferred compensation, were 60%
during the three months ended June 30, 2002 and 2001.

Other income was $345,000 during the three months ended June 30, 2002 compared
with zero for the same period in 2001. Included in other income during the three
months ended June 30, 2002 was $254,000 of non-recurring transactions related to
insurance proceeds and the sale of non-operating assets.

Interest expense was $309,000 during the three months ended June 30, 2002, an
increase of $145,000 compared to the same period of 2001. The increase was
attributable to interest on the note payable for the purchase of NACT and the
amortization of the fair value of warrants issued to Silicon Valley Bank.

Business Unit Performance

<Table>
<Caption>
                                                                            Applications
Dollars in thousands                               Gateway Solutions        and Services             Consolidated
                                                   -----------------      -----------------       ------------------
For the Three Months Ended
        June 30,                                    2002       2001        2002       2001          2002       2001
--------------------------                         -------    ------      ------     ------       -------     ------
<S>                                                <C>        <C>        <C>         <C>          <C>        <C>
Revenue                                            $7,080     $2,088      $4,591     $3,407       $11,671     $5,495
                                                   ======     ======      ======     ======       =======     ======
Gross profit                                        4,346        310       2,532      1,309         6,878      1,619
Gross margin                                           61%        15%         55%        38%           59%        29%
General and administrative                          1,045          -         139        326         1,184        326
Sales and marketing                                   912          -         619        251         1,531        251
Research and development                            1,383          -          81        273         1,464        273
Other income                                          (90)         -           -          -           (90)         -
                                                   ------      -----      ------     ------       -------     ------

  Contribution before unallocated items(a)         $1,096       $310      $1,693       $459         2,789        769
                                                   ======      =====      ======     ======
Unallocated items:
  Corporate, sales, general and
    administrative expenses(b)                                                                      2,146      2,050
  Depreciation expense                                                                                716        373
  Amortization expense                                                                                147        375
  Amortization of deferred compensation                                                               324        484
                                                                                                  -------     ------
      Operating loss                                                                                 (544)    (2,513)

Other income                                                                                          254          -
Interest expense, net                                                                                (309)      (164)
                                                                                                  -------     ------
  Loss from continuing operations
    before extraordinary item                                                                       $(599)   $(2,677)
                                                                                                  =======     ======
</Table>




(a) In 2002, Gateway Solutions includes costs associated with certain corporate
and administrative functions to support this business unit, which functions are
located in Utah. Prior to the acquisition of NACT in July 2001, the Company
became an NACT reseller in the first quarter of 2001. The Company resold NACT
gateway solutions totaling $2.1 million with cost of product sales of $1.8
million during the second quarter of 2001. Prior to the acquisition of NACT,
there were no identifiable assets or operating expenses related to the Gateway
Solutions segment. Applications and Services includes no allocation of corporate
overhead costs. See also (b) description


                                       23
<PAGE>

(b) All rent, utilities and other corporate office expenses, corporate marketing
expenses, corporate development costs and corporate human resources, accounting
and information technology functions that support corporate, as well as, the
Applications and Services segment are reflected in unallocated corporate, sales,
general and administrative expenses. Office expenses, human resources,
accounting and information technology costs specifically related to the Gateway
Solutions segment are reflected in its contribution before unallocated items.

GATEWAY SOLUTIONS

Gateway Solutions represents the sales of NACT products. Prior to the
acquisition of NACT in July 2001, the Company became an NACT reseller in the
first quarter of 2001. The Company resold NACT gateway solutions totaling $2.1
million with cost of product sales of $1.8 million during the second quarter of
2001. Prior to the acquisition of NACT, there were no identifiable assets or
operating expenses related to the Gateway Solutions segment.

APPLICATIONS AND SERVICES

Total applications and services revenue was $4.6 million in the three months
ended June 30, 2002, a 35% increase from the same period in 2001. The increase
in revenue is primarily related to the Company's acquisition of Telemate.Net in
November 2001.

Gross profit increased by $1.2 million in the three months ended June 30, 2002,
and was 55% percent of revenue, compared with 38% of revenue in the same period
in 2001. The improvement in gross profit dollars and margin was attributable to
the Company's customer response center operations and the addition of its
Telemate.Net operations.

Allocated operating expenses incurred in Applications and Services for the three
months ended June 30, 2002, were $839,000, a decrease of $11,000 compared to the
same period in 2001. The decrease in general and administrative expenses and
research and development expenses relates to the operations of MessageClick's
ASP operations, which were substantially eliminated in the second quarter of
2001. The increase in sales and marketing expenses relates to Telemate.Net,
which was acquired in November 2001. As a percent of revenue, operating expenses
for Applications and Services were 18% during the three months ended June 30,
2002 down from 25% during the same period in 2001.

Discontinued Operations

Following the acquisition of NACT in July of 2001, the Company determined that
its legacy VAR business was not strategic to the Company's ongoing objectives
and discontinued capital and human resource investment in these businesses.
Accordingly, the Company elected to report its legacy VAR business as
discontinued operations by early adoption of SFAS 144. These businesses were
added to HSG (which was reported as discontinued operations in 2000) for a
combined presentation of discontinued operations, and the condensed consolidated
financial statements have been reclassified to segregate the net assets and
operating results of these business segments.

There were no results of discontinued operations for the three months ended June
30, 2002. Summary operating results of the discontinued operations for the three
months ended June 30, 2001 (in thousands) were as follows:

   Revenue                                $    3,503
                                        ===============
   Gross profit                           $      104
                                        ===============
   Operating loss                         $ (103,024)
                                        ===============
  Loss from discontinued operations       $ (103,024)
                                        ===============

The loss from discontinued operations in the three months ended June 30, 2001
includes depreciation of $273,000, amortization of intangibles of $10.7 million,
write-down of goodwill of $85.0 million, reorganization costs of $2.8 million
and amortization of deferred compensation of $124,000.

                                       24
<PAGE>

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

For the six months ended June 30, 2002, the Company's net loss totaled $1.8
million, or $.02 per share, compared with net loss of $123.7 million, or $2.43
per share, for the same period in 2001. The 2002 results include a loss from
discontinued operations of $331,000. The 2001 results included a loss from
discontinued operations of $116.2 million and an extraordinary item - loss from
debt conversion totaling $1.6 million.

Continuing Operations

For the six months ended June 30, 2002, the Company's net loss from continuing
operations totaled $1.5 million, or $.02 per share, compared with a net loss of
$5.9 million, or $.12 per share, for the same period in 2001.

Total revenue was $23.7 million in the six months ended June 30, 2002,
reflecting a 145% increase from the same period in 2001. Products revenue was
$12.7 million in the six months ended June 30, 2002, and was primarily related
to the sale of NACT products. Services revenue was $11.0 million in the six
months ended June 30, 2002, reflecting a 61% increase from the same period in
2001. Gross profit increased by $10.7 million in the six months ended June 30,
2002, and was 59% of revenue in 2002, compared with 33% of revenue in the same
period of 2001. The increase in revenue, gross profit percentage and gross
profit dollars resulted primarily from the acquisition of NACT in July 2001.

Total operating expenses incurred in continuing operations for the six months
ended June 30, 2002, were $15.3 million, an increase of $6.6 million compared to
the same period of 2001. The increase is primarily attributable to the following
items: $1.3 million increase in general and administrative expenses, $2.8
million increase in sales and marketing expenses, $2.6 million increase in
research and development and $689,000 increase in depreciation expense offset by
decreases in intangible amortization of $460,000 and amortization of deferred
compensation of $319,000.

The increase in general and administrative expenses resulted from the addition
of personnel and related costs related to the acquisition of NACT offset by the
reduction of corporate general and administrative expenses. The decrease in
corporate general and administrative expenses resulted primarily from on-going
cost reduction initiatives resulting in reduced personnel, telecom and other
general and administrative expenses.

The increase in sales and marketing expenses resulted from the addition of
personnel and related costs related to the acquisitions of NACT and Telemate.Net
in July 2001 and November 2001, respectively.

The increase in research and development is primarily related to the acquisition
of NACT in July 2001.

The increase in depreciation expense is primarily related to the purchase of
furniture and equipment of approximately $400,000 and $500,000 during the first
six months of 2002 and for the last six months of 2001, respectively, as well as
the increased depreciation related to the assets acquired in the NACT and
Telemate.Net acquisitions. Capital expenditures are primarily depreciated on a
straight-line basis over their estimated useful lives of three years.

The $460,000 decrease in intangible amortization is primarily related to the
adoption of SFAS 142, which eliminated amortization of goodwill beginning
January 1, 2002.

The $319,000 decrease in amortization of deferred compensation primarily related
to the full vesting of certain options outstanding since the Company's
acquisition of Cereus Technology Partners, Inc. in September 2001. The deferred
compensation represents the intrinsic value of the Cereus unvested options
outstanding at the date of the acquisition of Cereus and is amortized over the
remaining vesting period of the options.

As a percent of revenue, operating expenses from continuing operations,
excluding the amortization of intangibles and deferred compensation, were 61%
during the six months ended June 30, 2002, down from 72% for the same period in
2001.

Other income was $431,000 during the six months ended June 30, 2002 compared
with zero for the same period in 2001. Included in other income during the six
months ended June 30, 2002 was $254,000 of non-recurring transactions related to
insurance proceeds and sale of non-operating assets.

Interest expense was $519,000 during the six months ended June 30, 2002, an
increase of $113,000 compared to the same period of 2001. The increase was
attributable to interest on the note payable for the purchase of NACT and the
amortization of the fair value of warrants issued to Silicon Valley Bank, offset
by the reduction of interest on the Company's 5% convertible subordinated
debentures, which were paid or converted to common stock in 2001.


                                       25
<PAGE>

BUSINESS UNIT PERFORMANCE
<TABLE>
Dollars in thousands                                                   APPLICATIONS
                                              GATEWAY SOLUTIONS        AND SERVICES         CONSOLIDATED
                                              --------------------------------------------------------------
FOR THE SIX MONTHS ENDED
         JUNE 30                               2002       2001        2002       2001       2002       2001
------------------------------             -----------------------------------------------------------------
<S>                                           <C>       <C>          <C>        <C>       <C>        <C>
REVENUE                                       $14,605   $ 2,827      $9,060     $6,830    $ 23,665   $ 9,657
                                              =======   =======      ======     ======    ========   =======
Gross profit                                    9,021       753       4,902      2,475      13,923     3,228

Gross margin                                       62%       27%         54%        36%         59%       33%
General and administrative                      2,020        --         344        870       2,364       870
Sales and marketing                             1,816        --       1,169        565       2,985       565
Research and development                        2,915        --         224        492       3,139       492
Other income                                     (177)       --          --         --        (177)       --
                                              -------   -------      ------     ------     -------   -------
  Contribution before unallocated items (a)   $ 2,447   $   753      $3,165     $  548       5,612     1,301
                                              =======   =======      ======     ======

Unallocated items:
  Corporate, sales, general and
   administrative expenses(b)                                                                4,390     4,245
  Depreciation expense                                                                       1,478       789
  Amortization expense                                                                         289       749
  Amortization of deferred compensation                                                        648       967
                                                                                           -------   -------
    Operating loss                                                                          (1,193)   (5,449)

Other income                                                                                   254        --
Interest expense, net                                                                         (519)     (406)
                                                                                           -------   -------
  Loss from continuing operations
   before extraordinary item                                                               $(1,458)  $(5,855)
                                                                                           =======   =======

</TABLE>

(a) In 2002, Gateway Solutions includes costs associated with certain corporate
and administrative functions to support this business unit, which functions are
located in Utah. Prior to the acquisition of NACT in July 2001, the Company
became an NACT reseller in the first quarter of 2001. The Company resold NACT
gateway solutions totaling $2.8 million with cost of product sales of $2.1
million during the second quarter of 2001. Prior to the acquisition of NACT,
there were no identifiable assets or operating expenses related to the Gateway
Solutions segment. Applications and Services includes no allocation of corporate
overhead costs. See also (b) description.

(b) All rent, utilities and other corporate office expenses, corporate marketing
expenses, corporate development costs and corporate human resources, accounting
and information technology functions that support corporate, as well as, the
Applications and Services segment are reflected in unallocated corporate, sales,
general and administrative expenses. Office expenses, human resources,
accounting and information technology costs specifically related to the Gateway
Solutions segment are reflected in its contribution before unallocated items.

GATEWAY SOLUTIONS

Gateway Solutions represents the sales of NACT products. Prior to the
acquisition of NACT in July 2001, the Company became an NACT reseller in the
first quarter of 2001. The Company resold NACT gateway solutions totaling $2.8
million with cost of product sales of $2.1 million during the six months ended
June 30, 2001. Prior to the acquisition of NACT, there were no identifiable
assets or operating expenses related to the Gateway Solutions segment.


                                       26
<PAGE>

APPLICATIONS AND SERVICES

Total applications and services revenue was $9.1 million in the six months ended
June 30, 2002, a 33% increase from the same period in 2001. The increase in
revenue is primarily related to the Company's acquisition of Telemate.Net in
November 2001.

Gross profit increased by $2.4 million in the six months ended June 30, 2002,
and was 54% percent of revenue, compared with 36% of revenue in the same period
in 2001. The improvement in gross profit dollars and margin was attributable to
the Company's customer response center operations and the addition of its
Telemate.Net operations.

Allocated operating expenses incurred in Applications and Services for the six
months ended June 30, 2002, were $1.7 million, a decrease of $191,000 compared
to the same period in 2001. The decrease in general and administrative expenses
and research and development expenses relates to the operations of
MessageClick's ASP operations, which were substantially eliminated in the second
quarter of 2001. The increase in sales and marketing expenses relates to
Telemate.Net, which was acquired in November 2001. As a percent of revenue,
operating expenses for Applications and Services were 19% during the six months
ended June 30, 2002 down from 28% during the same period in 2001.

Discontinued Operations

Following the acquisition of NACT in July of 2001, the Company determined that
its legacy VAR business was not strategic to the Company's ongoing objectives
and discontinued capital and human resource investment in these businesses.
Accordingly, the Company elected to report its legacy VAR business as
discontinued operations by early adoption of SFAS 144. These businesses were
added to HSG (which was reported as discontinued operations in 2000) for a
combined presentation of discontinued operations, and the condensed consolidated
financial statements have been reclassified to segregate the net assets and
operating results of these business segments.

Summary operating results of the discontinued operations for the six months
ended June 30, 2002 and 2001 (in thousands) were as follows:

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

 Revenue                              $   223             $  10,080
                                    ===============  ===================
 Gross profit                         $  (331)            $     833
                                    ===============  ===================
 Operating loss                       $  (331)            $ (116,214)
                                    ===============  ===================
Loss from discontinued operations     $  (331)            $ (116,214)
                                    ===============  ===================

The loss from discontinued operations in the six months ended June 30, 2001
includes depreciation of $546,000, amortization of intangibles of $21.4 million,
write-down of goodwill of $85.0 million, reorganization costs of $2.8 million
and amortization of deferred compensation of $249,000.

Extraordinary Item

In January 2001, the Company modified the terms of the $7.0 million outstanding
balance of its 5% convertible subordinated debentures as follows: the Company
repurchased $4.5 million, converted $1.5 million into the Company's common stock
at a price of $1.40 per share, fixed the conversion rate at $1.19 per share for
the remaining $1.0 million and issued warrants to purchase 954,455 shares of the
Company's common stock at an exercise price of $1.98 per share. The cost of this
conversion and early retirement of debt totaled $1.6 million.

CRITICAL AND SIGNIFICANT ACCOUNTING POLICIES

The preparation of financial statements and related disclosures in conformity
with generally accepted accounting principles requires management to make
judgments, assumptions and estimates that affect the amounts reported in the
condensed consolidated financial statements and accompanying notes. Factors that
could affect the Company's future operating results and cause actual results to
vary from expectations include, but are not limited to, lower than anticipated
growth from existing customers, an inability to attract new customers, and
inability to successfully integrate acquisitions, technology changes, or a
decline in the financial stability of the Company's customers. Negative
developments in these or other risk factors could have a material adverse affect
on the Company's financial position and results of operations.

                                       27
<PAGE>


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

Allowance for Doubtful Accounts

The Company is required to estimate the collectibility of its trade receivables.
Considerable judgment is required in assessing the ultimate realization of these
receivables including the creditworthiness of each customer. Significant changes
in required reserves have been recorded in recent periods and may occur in the
future due to the current market environment.

Inventory Reserve

The Company is required to state its inventories at the lower of cost or market.
In assessing the ultimate realization of inventories, the Company is required to
make judgments as to future demand requirements and compare that with the
current or committed inventory levels. The Company has recorded changes in
required reserves in recent periods due to impact of current and future
technology trends and changes in strategic direction, such as discontinuances of
product lines, as well as, changes in market conditions due to changes in demand
requirements. It is possible that changes in required inventory reserves may
continue to occur in the future due to the current market conditions.

Restructuring Accruals

During the second and third quarters of 2001, the Company initiated certain
restructuring plans. In conjunction with these restructuring plans, the Company
established a restructuring reserve account for the estimated costs related to
the plans. These costs primarily related to facilities closings, severance costs
and MessageClick ASP service exiting costs. For the facilities closings cost, a
reserve was established for all remaining lease payments due on buildings and
equipment that were no longer being utilized in continuing operations, less
assumptions for sub-leases. The accrual for one lease with total payments
remaining of $2.8 million, assumes that the building will be sub-leased for 50%
of the total lease liability over the term of the lease. As of June 30, 2002,
the Company had a remaining reserve balance of approximately $2.6 million, which
is included in liabilities of discontinued operations. The Company currently
believes that this remaining estimated balance is appropriate to cover future
obligations associated with the restructurings. Activity in the restructuring
accruals was as follows:

                  Balance December 31, 2001           $  2,730
                  Lease payments                          (434)
                  Additional restructuring accrual         307
                                                      --------
                  Balance June 30, 2002               $  2,603
                                                      ========
Fair Value of Assets and Liabilities Acquired

During 2001, the Company acquired NACT and Telemate.Net (see further discussion
in Note 2 to the consolidated financial statements). In conjunction with the
acquisitions, the Company was required to estimate the fair value of assets
(including goodwill and other intangibles) and liabilities acquired based on
industry conditions, historical experience and future operational cash flow
projections, option valuation models and evaluation of events subsequent to the
acquisitions. The Company believes that the estimated purchased balances
approximate fair market value.

Deferred Tax Asset Valuation Allowance

The Company currently has significant deferred tax assets, which are subject to
periodic recoverability assessment. Realization of the Company's deferred tax
assets is principally dependant upon achievement of projected future taxable
income. The Company's judgments regarding future profitability may change due to
market conditions, its ability to continue to successfully execute its strategic
plan and other factors. These changes, if any, may require possible material
adjustments to these deferred tax asset balances. Due to the uncertainty of the
Company's ability to recognize the entire tax benefit, the Company established
an offsetting provision for the tax benefit recorded.

                                       28
<PAGE>

Litigation and Related Contingencies

The Company is subject to proceedings, lawsuits and other claims related to
labor, product and other matters. The Company is required to assess the
likelihood of any adverse judgments or outcomes to these matters, as well as,
potential ranges of probable losses. A determination of the amount of reserves
required, if any, for these contingencies is made after careful analysis of each
individual issue based upon the then current facts and circumstances. The
required reserves may change in the future due to new developments in each
matter or changes in approach such as a change in settlement strategy in dealing
with these matters.

Intangible Assets

The Company has significant intangible assets related to goodwill and other
acquired intangibles. The determination of related estimated useful lives and
whether or not these assets are impaired involves significant judgments. Changes
in strategy and/or market conditions could significantly impact these judgments
and require adjustments to recorded asset balances. The Company assesses the
recoverability of its intangible assets by determining whether the value of
goodwill and other acquired intangible assets over their remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate reflecting the
Company's average cost of funds. Effective January 1, 2002, the Company adopted
SFAS 142, which stipulates an impairment test is to be performed at each
reporting date that requires a comparison of the fair value of an intangible
asset with its carrying amount. If the carrying amount of an intangible asset
exceeds its fair value, then an impairment loss shall be recognized in an amount
equal to that excess.

LIQUIDITY AND CAPITAL RESOURCES

Summary

Liquidity is the measurement of the Company's ability to have adequate cash or
access to cash at all times in order to meet financial obligations when due, as
well as to fund corporate expansion and other activities. Historically, the
Company has met its liquidity requirements through a combination of working
capital provided by debt from third party lenders, issuances of debt and equity
securities and sale of discontinued businesses.

At June 30, 2002, the Company had a negative working capital position (excess of
current liabilities over current assets) of $701,000 compared to a negative
working capital position of $2.8 million at December 31, 2001. The Company's
cash and cash equivalents totaled $3.7 million at June 30, 2002, and $7.7
million at December 31, 2001. Total long-term debt, including current portion,
net of discount, was $3.6 million at June 30, 2002 and $3.4 million at December
31, 2001. At June 30, 2002, the Company had no borrowings under its $5.0 million
Credit Agreement with the Bank. The Credit Agreement is secured by substantially
all of the assets of the Company. The availability under the Credit Agreement at
June 30, 2002 was $4.6 million.

Cash Flow

Cash used in the Company's continuing operations in the six months ended June
30, 2002 totaled approximately $1.8 million compared with cash used in
continuing operations of $5.3 million in the same period in 2001. The Company's
use of cash in continuing operations during the six months ended June 30, 2002
resulted primarily from cash used for changes in current operating items of
approximately $4.1 million and was offset by cash from continuing operations of
$2.3 million (net loss from continuing operations of $1.5 million reduced by
non-cash charges totaling $3.8 million, including depreciation and amortization
of $2.7 million, a provision for doubtful accounts of $804,000 and an inventory
valuation reserve of $171,000).

Cash used in the Company's discontinued operations in the six months ended June
30, 2002 totaled $458,000 compared with cash used in discontinued operations of
$5.6 million in the same period in 2001.

The Company used cash in investing activities for continuing operations in the
six months ended June 30, 2002 of approximately $607,000, compared to $947,000
in the same period of 2001. Of these amounts, the Company spent $446,000 and
$947,000 on capital expenditures in the six months ended June 30, 2002 and 2001,
respectively. The Company also invested $161,000 on purchased software
development costs in the six months ended June 30, 2002.

During the six months ended June 30, 2001, the Company received net proceeds
from sale of discontinued operations totaling $8.2 million for the sale of its
restaurant solutions business.


                                       29
<PAGE>

Cash used in financing activities from continuing operations totaled
approximately $1.2 million in the six months ended June 30, 2002, compared to
$4.3 million used in financing activities in the same period of 2001. Payments
of note payable for the purchase of NACT totaled $1.5 million and proceeds from
the issuance of the Company's common stock totaled $292,000 in the six months
ended June 30, 2002. Payments to repurchase convertible subordinated debentures
totaled $4.5 million and proceeds from the issuance of common stock totaled
$182,000 in the six months ended June 30, 2001.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following summarizes the Company's future contractual obligations at June
30, 2002 (in thousands):
<TABLE>

                                                                Payments Due By Period
                                                         -------------------------------------------------------------
                                                                      Less than                                 After
Contractual Obligations                                  Total          1 year     1-3 years     4-5 years     5 years
----------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>          <C>          <C>           <C>           <C>
Deferred payment due for the purchase of NACT            $ 2,750      $2,750       $    --       $   --        $    --
Convertible subordinated debentures                        4,500          --            --        4,500             --
Operating leases:
  Continuing operations                                   15,363       2,045         4,023        3,981          5,314
  Discontinued operations                                  2,168         665           559          357            587
                                                         -------      ------        ------       ------         ------
Total contractual cash obligations                       $24,781      $5,460        $4,582       $8,838         $5,901
                                                         =======      ======        ======       ======         ======
</TABLE>

SOURCES OF CASH

For 2002, the Company expects that its primary sources of cash will be from cash
on hand, working capital provided by operating activities, borrowings under the
Credit Agreement and other possible sources, including issuances of equity or
debt securities. The Company believes that, with its current operations, which
were cash flow positive for the last three quarters, it will have sufficient
liquidity from these sources to meet its current financial obligations through
2002. However, the Credit Agreement contains certain financial covenants and
limitations on the Company's ability to access funds under the Credit Agreement.
If the Company is in violation of the Credit Agreement, or does not have
sufficient eligible accounts receivable and inventory to support the level of
borrowings it may need, the Company may be unable to draw on the Credit
Agreement to the extent necessary. To the extent the Company does not have
borrowing availability under the Credit Agreement, the Company may be required
to obtain additional sources of capital, sell assets, obtain an amendment to the
Credit Agreement or otherwise restructure its outstanding indebtedness.

If the Company is unable to obtain additional capital, sell assets, obtain an
amendment to the Credit Agreement or otherwise restructure its outstanding
indebtedness, the Company may not be able to meet its obligations.

The Company's short-term cash needs are to cover working capital needs,
including cash operating losses, if any, capital expenditures, the restructured
payments during 2002 for the NACT acquisition and other acquisition-related
liabilities related to NACT, payments related to discontinued operations and,
assuming the Company's acquisition of 51% of Shanghai Betrue Infotech Co. Ltd.
closes before the end of the third quarter, $150,000 related to such
acquisition. At June 30, 2002, included in accrued compensation and current
portion of liabilities of discontinued operations is $130,000 for Telemate.Net
related severance costs and $2.8 million in payments related to discontinued
operations. The Company expects to pay out approximately $875,000 related to
Telemate.Net severance costs and discontinued operations for the remainder of
2002, and approximately $1.6 million related to the satisfaction of certain
liabilities relating to NACT for the remainder of 2002.

The Company's long-term cash needs are related to the costs of growing its
current business as well as prospective businesses to be acquired, including
capital expenditures and working capital, and funding the restructured payments
for the acquisition of NACT and other acquisition-related liabilities related to
NACT. The Company expects to meet these cash needs through cash from operations,
if any, cash on hand, borrowings under the Credit Agreement or other debt
facilities, if available, as well as through possible issuances of equity or
debt securities. If the Company is unable to secure a working capital line of
credit with sufficient borrowing availability (or restructure its existing line
of credit), obtain additional capital or sell assets, then the Company may not
be able to meet its obligations and growth plans.


                                       30
<PAGE>

ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

The Company is exposed to various market risks, including changes in interest
rates. Market risk is the potential loss arising from adverse changes in market
rates and prices, such as interest rates. The Company does not enter into
derivatives or other financial instruments for trading or speculative purposes.
The Company has also not entered into financial instruments to manage and reduce
the impact of changes in interest rates. The Company may enter into such
transactions in the future.

Interest Rate Risks

The Company's debt at June 30, 2002, carries interest rates, which are fixed.


                                       31
<PAGE>

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         Except as previously disclosed in the Company's Annual Report on Form
         10-K for the year ended December 31, 2001 or as set forth below, the
         Company is not a party to any material legal proceedings other than
         ordinary routine claims and proceedings incidental to its business, and
         the Company does not expect these claims and proceedings, either
         individually or in the aggregate, to have a material adverse effect on
         the Company.

         As previously disclosed in the Company's Form 10-K for the year ended
         December 31, 2001, on or about May 21, 2001, John M. Good, a former
         employee of the Company, filed a lawsuit in the Court of Common Pleas,
         Cuyahoga County, Ohio, against the Company claiming, among other
         things, fraud, negligence, breach of fiduciary duty, breach of contract
         and damages resulting from and related to the Company's alleged failure
         to deliver 50,000 shares of the Company's common stock to Mr. Good upon
         his exercise of an option to purchase such shares on or about January
         3, 2000. Mr. Good seeks unspecified damages with respect to such
         claims; however, based on the Company's further analysis of Mr. Good's
         claims, in the opinion of the Company's management, the Company's
         exposure to Mr. Good, were he to prevail in this matter, should not
         exceed $550,000. The Company intends to defend such claims vigorously.
         Trial for this case has been set for October 2002. Although no
         assurances can be given as to the outcome of any lawsuit, in the
         opinion of the Company's management, the final outcome in this matter
         should not have a material adverse effect on the Company.

         On or about February 8, 2002, William P. O'Reilly, a former executive
         officer and director of the Company; Montana Corporation, Mr.
         O'Reilly's consulting company; Clunet R. Lewis, a former officer of the
         Company; and CLR Enterprises, Inc., Mr. Lewis' consulting company,
         filed with the American Arbitration Association ("AAA") a demand for
         arbitration against the Company. Messrs. O'Reilly and Lewis and their
         respective consulting companies seek to have enforced the Consulting
         Agreements dated April 1, 1999, as amended, to which they and the
         Company are parties (the "Consulting Agreements"). Messrs. O'Reilly and
         Lewis have claimed that the Company's attempt by written notice dated
         June 1, 2001, to terminate the Consulting Agreements effective March
         31, 2002, was ineffective and, as a result, such Consulting Agreements
         have automatically renewed for additional two-year terms, which terms
         expire on March 31, 2004. Under the terms of the Consulting Agreements,
         Messrs. O'Reilly and Lewis are to receive, among other things,
         consulting fees of $250,000 and $240,000 per year, respectively.
         Messrs. O'Reilly and Lewis claim that such fees for the two-year
         extension period shall become immediately due and payable in the event
         Messrs. O'Reilly and Lewis prevail in the arbitration proceeding. The
         Company intends to vigorously defend itself in this arbitration, and
         although no assurances can be given as to the outcome of any
         arbitration proceeding, in the opinion of the Company's management, the
         final outcome in this matter should not have a material adverse effect
         on the Company.

         On or about April 29, 2002, Omni Systems of Georgia, Inc. ("Omni") and
         Joseph T. Dyer ("Dyer") filed with the AAA a demand for arbitration
         against the Company. Omni and Dyer claim that the Company breached the
         Assignment dated as of August 31, 1998, by and among a subsidiary of
         the Company, Dyer and Omni (the "Assignment") pursuant to which Omni
         and Dyer assigned and transferred to a subsidiary of the Company all of
         their right, title and interest in and to a certain computer software
         property management system in exchange for a lump sum royalty payment
         and certain monthly royalty payments equal to a percentage of the
         maintenance and licensing net revenues received by the Company from
         certain customers. Omni and Dyer claim that the Company has not paid to
         them the monthly royalty payments owed to them pursuant to the
         Assignment beginning in June 2002. Omni and Dyer further claim that,
         due to the alleged breach of the Assignment, the Company is no longer
         permitted to use the software. Omni and Dyer are seeking unspecified
         monetary damages and to enjoin the Company's use of the software. The
         Company believes that no amounts are owing under the Assignment and the
         Company intends to vigorously defend itself in this arbitration, and
         although no assurances can be given as to the outcome of any
         arbitration proceeding, in the opinion of the Company's management, the
         final outcome in this matter should not have a material adverse effect
         on the Company.

Item 2.  Changes in Securities

         On June 17, 2002, the Company issued to RSL COM U.S.A., Inc. 523,430
         shares of the Company's common stock. Pursuant to the RSL Settlement
         Agreement, the Company paid a cash amount and issued such shares in
         exchange for settlement of the claims made by RSL against NACT set
         forth in that certain demand for arbitration filed by RSL with the
         American Arbitration Association on July 6, 2000, which claims are
         described in Note 10 of the Notes to the Condensed Consolidated
         Financial Statements set forth in Item 1 of this Report. Such shares
         were issued without registration under the Securities Act of 1933, as
         amended (the "Securities Act"), in reliance upon the exemption in
         Section 4(2) of the Securities Act and Rule 506 of Regulation D
         promulgated thereunder ("Regulation D"). The Company based such
         reliance on representations made by RSL as to its investment intent,
         sophistication and status as an accredited investor, as defined in Rule
         501 of Regulation D.

                                       32
<PAGE>

         On April 25, 2002, the Company issued the Note to WATP pursuant to the
         WATP Settlement Agreement, as more fully described in Note 2 of the
         Notes to the Condensed Consolidated Financial Statements set forth in
         Item 1 of this Report. At WATP's option, WATP may, at any time within
         the thirty-day period before a payment under the Note is due, convert
         some or all of the amount due on such payment date into shares of the
         Company's common stock at a conversion price of $1.36 per share. The
         Note is convertible into an aggregate of up to 2,367,774 shares of the
         Company's common stock. The Note was issued without registration under
         the Securities Act in reliance upon the exemption in Section 4(2) of
         the Securities Act. The Company based such reliance on representations
         made by WATP as to its investment intent and sophistication.

         On August 2, 2002, the Company issued 65,000 shares of the Company's
         common stock to SoftBrands, Inc. ("SoftBrands") pursuant to that
         certain Stipulation for Settlement and Mutual Release dated as of May
         30, 2002, by and among the Company, AremisSoft Corporation
         ("AremisSoft"), SoftBrands and certain other parties (the "Stipulation
         for Settlement"). Pursuant to the Stipulation for Settlement, the
         Company paid a cash amount and issued such shares in exchange for
         settlement of certain claims made by AremisSoft and certain other
         parties against the Company relating to the Company's sale of its
         hospitality division in the fourth quarter of 2000. These shares were
         issued without registration under the Securities Act in reliance upon
         the exemption in Section 4(2) of the Securities Act and Regulation D.
         The Company based such reliance on representations made by SoftBrands
         as to its investment intent, sophistication and status as an accredited
         investor, as defined in Rule 501 of Regulation D.

         On May 15, 2002, the Company issued to the Bank a warrant to purchase
         308,641 shares of the Company's common stock at an initial exercise
         price of $0.81 per share. The warrant is exercisable until May 15,
         2007. The warrant was issued without registration under the Securities
         Act in reliance upon the exemption in Section 4(2) of the Securities
         Act and Regulation D. The Company based such reliance on
         representations made by the Bank as to its investment intent,
         sophistication and status as an accredited investor, as defined in Rule
         501 of Regulation D.

Item 3.  Defaults Upon Senior Securities

         None.

Item 4.  Submission of Matters to a Vote of Security Holders

         None.

Item 5.  Other Information

         None.

Item 6.  Exhibits and Reports on Form 8-K


         (a)      Exhibits
<TABLE>

                  <S>               <C>
                  4.1      Convertible Secured Promissory Note dated April 25,
                           2002, executed by the Company in favor of WATP in
                           connection with the WATP Settlement Agreement.
                           (Incorporated by reference to Exhibit 4.1 to the
                           Company's Current Report on Form 8-K filed on May 1,
                           2002.)

                  4.2      Warrant dated as of May 15, 2002, to purchase 308,641
                           shares of the Company's common stock granted to
                           Silicon Valley Bank.

                  4.3      Antidilution Agreement dated May 15, 2002, between
                           the Company and Silicon Valley Bank.

                  4.4      Registration Rights Agreement dated May 15, 2002,
                           between the Company and Silicon Valley Bank.

                  10.1     Settlement Agreement and General Release dated March
                           29, 2002, between WATP and the Company. (Incorporated
                           by reference to Exhibit 99.1 to the Company's Current
                           Report on Form 8-K filed on May 1, 2002.)
</TABLE>

                                       33
<PAGE>
<TABLE>
                  <S>      <C>
                  10.2     Security Agreement dated April 25, 2002, between the
                           Company and WATP entered into in connection with the
                           WATP Settlement Agreement. (Incorporated by reference
                           to Exhibit 99.2 to the Company's Current Report on
                           Form 8-K filed on May 1, 2002.)

                  10.3     Security Agreement dated April 25, 2002, among
                           Telemate.Net, NACT and WATP entered into in
                           connection with the WATP Settlement Agreement.
                           (Incorporated by reference to Exhibit 99.3 to the
                           Company's Current Report on Form 8-K filed on May 1,
                           2002.)

                  10.4     Pledge Agreement dated April 25, 2002, between the
                           Company and WATP entered into in connection with the
                           WATP Settlement Agreement. (Incorporated by reference
                           to Exhibit 99.4 to the Company's Current Report on
                           Form 8-K filed on May 1, 2002.)

                  10.5     Guaranty dated April 25, 2002, among Telemate.Net,
                           NACT and WATP entered into in connection with the
                           WATP Settlement Agreement. (Incorporated by reference
                           to Exhibit 99.5 to the Company's Current Report on
                           Form 8-K filed on May 1, 2002.)

                  10.6     Subordination Agreement dated April 25, 2002, among
                           the Company, NACT, Telemate.Net and Silicon Valley
                           Bank entered into in connection with the WATP
                           Settlement Agreement. (Incorporated by reference to
                           Exhibit 99.6 to the Company's Current Report on Form
                           8-K filed on May 1, 2002.)

                  10.7     Form of Deposit Account Control Agreement among
                           the Company, Silicon Valley Bank and WATP entered
                           into in connection with the WATP Settlement Agreement.
                           (Incorporated by reference to Exhibit 99.7 to the
                           Company's Current Report on Form 8-K filed on May
                           1, 2002.)

                  10.8     Stipulation for Settlement and Mutual Release dated
                           as of July 19, 2002, by and among the Company,
                           AremisSoft Corporation, SoftBrands, Inc. and others.

                  10.9     Interest Purchase Agreement dated as of June 4, 2002,
                           by and between the Company and NeTrue Communications,
                           Inc.

                  99.1     Certification of the Company's Chief Executive
                           Officer pursuant to Section 906 of the Sarbanes-Oxley
                           Act of 2002.

                  99.2     Certification of the Company's Chief Financial Office
                           pursuant to Section 906 of the Sarbanes-Oxley Act of
                           2002.
</TABLE>



         (b)      Reports on Form 8-K.

                  On May 1, 2002, the Company filed a Current Report on Form 8-K
                  with the Securities and Exchange Commission which reported
                  under Item 5 of such report the Company's execution of the
                  WATP Settlement Agreement and the Note made in connection with
                  the WATP Settlement Agreement by the Company in favor of WATP
                  dated April 25, 2002, which restructures a deferred payment
                  due by the Company to WATP pursuant to a certain Stock
                  Purchase Agreement between the Company and WATP dated June 4,
                  2001. The Company did not file any other Current Report on
                  Form 8-K during the quarter ended June 30, 2002.

                                       34
<PAGE>

                                   SIGNATURES


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

                            VERSO TECHNOLOGIES, INC.




Date: August 13, 2002

                           /s/ Juliet M. Reising
                           ----------------------------------------------------

                           Executive Vice President and Chief Financial Officer
                           (duly authorized signatory and
                           Principal Financial and Accounting Officer)

                                       35
<PAGE>
                                 EXHIBIT INDEX

         4.1      Convertible Secured Promissory Note dated April 25, 2002,
                  executed by the Company in favor of WA Telcom Products Co.,
                  Inc. in connection with the WATP Settlement Agreement, as
                  defined below. (Incorporated by reference to Exhibit 4.1 to
                  the Company's Current Report on Form 8-K filed on May 1,
                  2002.)

         4.2      Warrant dated as of May 15, 2002, to purchase 308,641 shares
                  of the Company's common stock granted to Silicon Valley Bank.

         4.3      Antidilution Agreement dated May 15, 2002, between the Company
                  and Silicon Valley Bank.

         4.4      Registration Rights Agreement dated May 15, 2002, between the
                  Company and Silicon Valley Bank.

         10.1     Settlement Agreement and General Release dated March 29, 2002,
                  between WA Telcom Products Co., Inc. and the Company (the
                  "WATP Settlement Agreement"). (Incorporated by reference to
                  Exhibit 99.1 to the Company's Current Report on Form 8-K filed
                  on May 1, 2002.)

         10.2     Security Agreement dated April 25, 2002, between the Company
                  and WA Telcom Products Co., Inc. entered into in connection
                  with the WATP Settlement Agreement. (Incorporated by reference
                  to Exhibit 99.2 to the Company's Current Report on Form 8-K
                  filed on May 1, 2002.)

         10.3     Security Agreement dated April 25, 2002, among Telemate.Net
                  Software, Inc., NACT Telecommunications, Inc. and WA Telcom
                  Products Co., Inc. entered into in connection with the WATP
                  Settlement Agreement. (Incorporated by reference to Exhibit
                  99.3 to the Company's Current Report on Form 8-K filed on May
                  1, 2002.)

         10.4     Pledge Agreement dated April 25, 2002, between the Company and
                  WA Telcom Products Co., Inc. entered into in connection with
                  the WATP Settlement Agreement. (Incorporated by reference to
                  Exhibit 99.4 to the Company's Current Report on Form 8-K filed
                  on May 1, 2002.)

         10.5     Guaranty dated April 25, 2002, among Telemate.Net Software,
                  Inc., NACT Telecommunications, Inc. and WA Telcom Products
                  Co., Inc. entered into in connection with the WATP Settlement
                  Agreement. (Incorporated by reference to Exhibit 99.5 to the
                  Company's Current Report on Form 8-K filed on May 1, 2002.)

         10.6     Subordination Agreement dated April 25, 2002, among the
                  Company, NACT, Telemate.Net Software, Inc. and Silicon Valley
                  Bank entered into in connection with the WATP Settlement
                  Agreement. (Incorporated by reference to Exhibit 99.6 to the
                  Company's Current Report on Form 8-K filed on May 1, 2002.)

         10.7     Form of Deposit Account Control Agreement among the Company,
                  Silicon Valley Bank and WA Telcom Products Co., Inc. entered
                  into in connection with the WATP Settlement Agreement.
                  (Incorporated by reference to Exhibit 99.7 to the Company's
                  Current Report on Form 8-K filed on May 1, 2002.)

         10.8     Stipulation for Settlement and Mutual Release dated as of July
                  19, 2002, by and among the Company, AremisSoft Corporation,
                  SoftBrands, Inc. and others.

         10.9     Interest Purchase Agreement dated as of June 4, 2002, by and
                  between the Company and NeTrue Communications, Inc.

         99.1     Certification of the Company's Chief Executive Officer
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

         99.2     Certification of the Company's Chief Financial Office pursuant
                  to Section 906 of the Sarbanes-Oxley Act of 2002.


                                       36