SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                               Amendment No. 2 to
                                  FORM 10-KSB/A


 Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
                  for the Fiscal Year Ended December 31, 2000

                         Commission File Number 0-30632

                  SCHIMATIC Cash Transactions Network.com, Inc.
              (Exact name of small business issuer in its charter)

           Florida                                               88-0415947
 (State or other jurisdiction of                              (I.R.S. Employer
  incorporation or organization)                            Identification No.)

            26800 Laguna Hills Drive, Suite 100           92656
                  Aliso Viejo, California
         (Address of principal executive offices)       (Zip Code)

                                 (949) 916-1206
                (Issuer's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

    Title of each class              Name of each exchange on which registered
         None                                         None

Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, Par Value $0.001
                                (Title of Class)

                                       n/a
 (Former name,  former address and former fiscal year,  if  changed since last
  report)


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


Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|

State issuer's revenues for its most recent fiscal year. As of December 31,
2000, issuer had no revenues.


State the aggregate market value of the voting and nonvoting common equity held
by nonaffiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common equity, as of a
specified date within the past 60 days. As of February 22, 2002, the aggregate
market value of the voting and nonvoting common equity held by nonaffiliates of
the issuer was $15,500,033.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of February 22, 2002, issuer had
99,680,678 shares of issued and outstanding common stock, par value $0.001.

DOCUMENTS INCORPORATED BY REFERENCE: None.

Transitional Small Business Disclosure Format:  Yes  |_|     No  |X|


<PAGE>



                                TABLE OF CONTENTS

 Item                              Description                             Page

             Special Note about Forward-Looking Information................   1

                                     Part I
 Item 1     Description of Business........................................   2
 Item 2     Description of Properties......................................  25
 Item 3     Legal Proceedings..............................................  26
 Item 4     Submission of Matters to a Vote of Security Holders............  28

                                     Part II
 Item 5     Market for Common Equity and Related Stockholder Matters.......  29
 Item 6     Management's Discussion and Analysis or Plan of Operation......  37
 Item 7     Financial Statements...........................................  40
 Item 8     Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure...........................  40

                                    Part III
 Item 9     Directors, Executive Officers, Promoters and Control Persons;
             Compliance with Section 16(a) of the Exchange Act.............  41
 Item 10    Executive Compensation.........................................  45
 Item 11    Security Ownership of Certain Beneficial Owners and Management.  48
 Item 12    Certain Relationships and Related Transactions.................  49
 Item 13    Exhibits and Reports on Form 8-K...............................  50

            Signatures.....................................................  54



                                       i
<PAGE>

                 SPECIAL NOTE ABOUT FORWARD-LOOKING INFORMATION

This report includes forward-looking statements because we believe it may be
helpful to investors to communicate our plans and expectations. Forward-looking
statements about what may happen in the future are based on management's
beliefs, assumptions and plans for the future, information currently available
to management, and other statements that are not historical in nature.
Forward-looking statements include statements in which words such as expect,
anticipate, intend, plan, believe, estimate, consider or similar expressions are
used. These forward-looking statements are not guarantees of future performance
and involve risks, uncertainties and assumptions, including among others:

     o   our ability to obtain  substantial amounts  of  additional  capital  in
         order to continue and to implement our business plan;
     o   our ability to market our products and services effectively will depend
         on a number of strategic relationships  that  we  have established and
         that we hope to establish;
     o   the enforceability of our patents, particularly in the United States,
         Canada and Mexico;
     o   our ability to sustain and build on our business alliances; and
     o   our ability to attract development and marketing partners or employees
         capable of completing our marketing and development plans.


Although we believe our plans and expectations stated, reflected in or suggested
by our forward-looking statements are reasonable, our future results and
stockholder values may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond our ability to control or predict. These
statements reflect management's current view of our future events and are
subject to certain risks, uncertainties, assumptions and risks as discussed in
Part I. Item 1. Description of Business: Risk Factors. Any of the factors noted
above or summarized in the Risk Factors section below or elsewhere in this
document, as well as in other materials we subsequently file with the Securities
and Exchange Commission, should be considered before any investor decides to
purchase or retain any of our securities. Any of such factors could have a
material adverse effect on our business and financial condition and prospects,
results of operations and trading price for our common stock.


Our forward-looking statements speak only as of the date they are made and
should not be relied upon as representing our plans and expectations as of any
subsequent date. We do not undertake to update, correct or revise any
forward-looking statements, even if our plans and expectations change. However,
from time to time, we may voluntarily update, correct or revise our previous
forward-looking statements.




<PAGE>


                                     PART I


                         ITEM 1. DESCRIPTION OF BUSINESS

Introduction and Summary

         We have developed and are now marketing and customizing for specific
applications, under the name Smart Chip Technologies, integrated software and
database technologies that can be used by banks, retail merchants, credit/debit
card issuers and the organizations that process their payments to support
loyalty-reward programs. Loyalty programs commonly offer a variety of reward and
incentive credits to establish and maintain customer loyalty based on the amount
or number of purchases that the consumer makes. Some typical examples of loyalty
programs are airline frequent-flyer programs, retailer sponsored discounts
applied to future purchases, and hospitality industry points exchangeable for
merchandise or hotel stays.

         Our loyalty programs feature a portable device, such as a smart card--a
credit card containing an enhanced microchip with both data storage and
computing capabilities--magnetic-strip cards and wireless smart devices, such as
cellular telephones and personal data assistants, or PDAs. These portable
devices interface with a point-of-sale device, or POS device, which in turn
interacts over the Internet or other communications link with the program
sponsor's centralized processing system.

         Our primary focus is on software supporting loyalty programs that are
driven by smart cards and other customer-carried smart devices, such as cellular
telephones and PDAs. Using our integrated software platform with smart cards or
other smart devices enables banks, retail merchants and other enterprises to
process, in real-time, on a single card or device, a variety of reward and
incentive loyalty credits. We believe this feature differentiates our software
from others. Our technology also supports loyalty programs that are driven by
purchasers using cash and magnetic-stripped cards.

         Our software was principally designed and developed for us by IBM, but
is wholly owned by us. It runs on the microchip contained in a smart card or
other wireless smart device, the POS terminal or device that communicates with
the data and programs on the microchip in the smart card or device, and on
centralized processing systems that provide the accounting associated with the
reward and incentive programs. The software that runs on the microchip is highly
secured and is used to define the various loyalty programs and to work with the
terminal to allocate and redeem the loyalty rewards and incentives. It enables
the card owner to accrue rewards and store them on the chip for immediate or
future redemption. For purchases made on the Internet, the rewards can be
downloaded from an on-line merchant onto the card using a smart-card reader tied
to a personal computer.

         The software that runs in the POS device contains the various rules
that define how a specific loyalty program works. This flexible software enables
the merchant to add new loyalty programs to the card dynamically or tailor the
reward program to a specific customer, product, time of day, day of week, number
of visits, or other parameters. The software that runs on the centralized
processing systems is analogous to the software that banks and other firms use
to process credit card transactions. The centralized processing software manages
the account records of the merchants and their customers, performs general
accounting for the rewards and incentives, and provides statements and reports.
Access to the powerful database that is the engine of the accounting system is
provided through a secured Internet portal or other communications link. Our
software is designed to be compatible with the known electronic payments
industry standards, including Europay-MasterCard-VISA, commonly referred to as
EMV, Global Platform, Visa Open Platform, and MULTOS, an open architecture,
secure, multiapplication operating system for smart cards.


                                       2
<PAGE>

         We completed principal development of our software in late 2001 and are
now focused on aggressive market introduction and customization for specific
applications, subject to available funding. Our software will be deployed for
the first time in approximately the second quarter of 2002 for Scotiabank
Canada. We are presently completing modifications to ensure compatibility with
the POS terminals, electronic payment software, Scotiabank's accounting systems
and other system components that are required for Scotiabank's smart-card pilot
program scheduled for market introduction in approximately the third quarter of
2002. This work is presently being performed by our small internal staff and
three strategic development partners:

     o   IBM, which has up to four personnel  working  under  a  joint IBM/Smart
         Chip working arrangement;

     o   RTS NetWorks Group,  PLC,  United Kingdom,  which has approximately 10
         personnel working on the Scotiabank   modifications and the integration
         of our loyalty program with an electronic payments program that runs on
         a Nokia cellular telephone; and

     o   CIT Canada Inc.,  a  subsidiary of Silverline Technologies, Inc., which
         has  approximately  13  personnel  also  working  on  the  Scotiabank
         customization requirements.

Although substantially driven by market acceptance, we currently estimate we
will need to continue to integrate, customize and maintain our software
products, subject to available funding, as our marketing effort continues. See
Part II. Item 6. Management's Discussion and Analysis or Plan of Operation.

         Principal features of our technology are protected by a broad process
patent entitled "Method and System for Allocating and Redeeming Incentive
Credits between a Portable Device and a Base Device." This patent, which dates
back to 1994, has been issued in the United States, Australia and Mexico and is
pending in Canada and Japan. We believe that our patents and related
intellectual properties provide us important protection in processing loyalty
credits between a customer-carried portable device, such as a smart card or
other device, and a base unit, such as a POS device. We also market our products
and services under trademarks:

     o   e-llegiance(tm) for our smart-card-based loyalty applications, and

     o   LoyaltyCentral(tm)  for  our  loyalty program management,  transaction
         processing and accounting, and  centralized processing services.

         Our marketing efforts are directed toward licensing our technology and
intellectual property to the global electronic payments industry, primarily
banks and other financial institutions, retail merchants, loyalty and electronic
payment software developers, and third-party processing organizations. Our
marketing strategy is to build key strategic relationships with a number of
firms with established capabilities in credit card manufacturing, electronic
payment software, card-processing terminals, wireless technologies and
back-office technologies. We believe this will enable us to seek rapid market
penetration while limiting our own funding requirements. Our marketing strategy
will focus on generating revenue from the following:

     o   licensing our e-llegiance(tm),  LoyaltyCentral(tm)  and other software
         and intellectual properties;

     o   providing centralized processing services for customers that may choose
         to engage us to process their loyalty program transactions; and

     o   licensing our intellectual property to various industry organizations.

                                       3
<PAGE>

We intend to provide such centralized processing services through an agreement
that we are now finalizing, based on written drafts prepared by IBM that we are
now reviewing. We are currently negotiating the terms of this arrangement with
IBM and hope to complete this agreement with IBM in the first half of 2002.

         We believe the use of smart cards and other devices and loyalty
programs will increase as international banking and credit industries implement
programs to improve security and automation by issuing new smart cards and smart
devices to replace the existing magnetic-strip credit/debit cards and
non-credit/debit smart cards. We believe the United States payments industry,
following in the footsteps of European and Asian counterparts, is increasingly
recognizing the potential advantages of loyalty programs based on a smart-card
infrastructure as a value-added incentive for the migration to smart cards.

         We also have developed a smart-card-based system that is not directly
tied to a payment card that we offer to institutions and organizations that are
raising money for a unique cause. We believe the primary candidates for this
system are schools, charitable organizations and foundations.

         We are a development-stage company, have had no revenue from
operations, and have no operations from which revenue will be generated until
later in 2002. For the year ended December 31, 2000, we incurred net losses of
approximately $10,486,000. We had an accumulated net loss of approximately
$41,292,000 for the period from February 27, 1997, our date of inception,
through December 31, 2000. At December 31, 2000, we had a net stockholders'
deficit of approximately $4,798,000. Accordingly, the independent auditor's
report accompanying our audited financial statements as of December 31, 2000 and
1999, included below, contains an explanatory paragraph about our ability to
continue as a going concern. See Consolidated Financial Statements and Part II
Item 6. Management's Discussion and Analysis or Plan of Operation.

         Our company, SCHIMATIC Cash Transactions Network.com, Inc., operates
principally through its wholly-owned subsidiary, Smart Chip Technologies, LLC.
We license, market and develop our smart-card loyalty products through our
subsidiary, Smart Chip Technologies, LLC, under the "Smart Chip" name. We expect
that Smart Chip Technologies will also be the principal strategic partner or
funding vehicle in the future. When we use "we," "us," "our" and similar terms
in this document, we mean to include SCHIMATIC Cash Transactions Network.com,
Inc., Smart Chip Technologies, LLC, and our other subsidiary, IC One, Inc.

         In late 2001, we relocated our executive offices to 26800 Laguna Hills
Drive, Suite 100, Aliso Viejo, California 92656, where our telephone number is
(949) 916-1206. We also continue to maintain an office at 740 East 3900 South,
Second Floor, Salt Lake City, Utah 84107, where our telephone number is (801)
685-7676.

History of Corporate Organization

     Apple Tree Capital Corp.

         SCHIMATIC Cash Transactions Network.com, Inc.  was  incorporated  in
Florida  under  the  name  of  Apple Tree Capital Corp. on October 4, 1996, and
issued  5,025,000 shares to 26 stockholders for services pursuant to an October
4, 1996, consent of its sole director.  Apple Tree had no activities or assets.

                                       4
<PAGE>

     Acquisition of STI and R & D Technology

         On November 12, 1998, Apple Tree simultaneously acquired Schimatic
Technologies, Inc., or STI, a privately-held Nevada Corporation, and R & D
Technology Inc., a privately-held Nevada corporation. To complete these
acquisitions, Apple Tree issued 4,400,000 shares of restricted common stock to
John Lamb, in exchange for all of the issued and outstanding stock of STI, and
3,600,000 shares of restricted common stock to David J. Simon, in exchange for
all of the issued and outstanding stock of R & D Technology, Inc. In connection
with the transaction, Eric P. Littman, a principal stockholder of Apple Tree,
agreed to cancel 4,675,000 of the 5,025,000 shares of restricted common stock
then issued and outstanding, leaving 550,000 shares remaining outstanding of the
initial 5,025,000 issued. As a result of the foregoing cancellation and
acquisitions, Apple Tree had an aggregate of 8,550,000 shares issued and
outstanding. On the date of this transaction, there was no trading market for
Apple Tree's common stock. On July 16, 1999, we issued 150,000 shares of
restricted common stock as compensation for financial advisory services provided
in connection with the acquisition of STI, and on November 8, 1999, we issued to
Eric P. Littman 175,000 shares of restricted common stock in satisfaction of
$150,000 due under the agreement for our acquisition of STI and R & D.

         STI had been organized principally by John Lamb based on a business
model for the future development of a free-standing Internet kiosk capable of
economical domestic and international funds transfers similar to small
transactions handled by American Express or Western Union. R & D had been
organized principally by David J. Simon based on a business model for the future
development of technology for the three-dimensional, virtual-reality
presentation of products in a free-standing Internet kiosk for on-line shopping.
In combining STI and R & D with Apple Tree, Messrs. Simon and Lamb sought to
combine their software development resources and kiosk-based future products in
a publicly-held company that they believed might be able to enhance access to
needed capital.

         Following Apple Tree's acquisition of STI and R & D Technology, it
initiated steps to integrate their kiosk-based business plans, but before these
efforts were completed, management became aware of IC One's smart-card-based
loyalty program technology. Accordingly, management determined to table their
kiosk-based business plans and to pursue a combination with IC One and the
commercialization of its technologies. We continue to hold, but do not currently
intend to advance, business models based on a free-standing Internet kiosk
capable of economical domestic and international small funds transfers and
technology for the three-dimensional, virtual-reality presentation of products
in a free-standing Internet kiosk for on-line shopping.

     Acquisition of IC One, Inc.

         In September 1999, SCHIMATIC Cash Transactions Network.com, Inc., the
Florida corporation organized as Apple Tree that had acquired R & D and STI,
acquired the business and assets of IC One, Inc., a developer of smart-card
technologies, pursuant to a merger agreement under which we acquired all of the
outstanding shares of IC One in exchange for an aggregate of 42,400,000 shares
of restricted common stock. With the acquisition of IC One, we commenced efforts
to complete commercialization of smart-chip-based loyalty programs and ancillary
services and products as described in this document.

         The key assets acquired with IC One Inc. were patents and pending
patents in the United States and other countries, which we believe are important
to the application of loyalty incentives to smart card or similar portable
smart-chip devices. In addition, we acquired other key intellectual property,
developed by IC One and its predecessors over several years, consisting of
know-how, operating relationships, business programs and software.

         The acquisition of IC One was treated as a reverse acquisition under
the purchase method of accounting in which the combination was reported as a
recapitalization of IC One, pursuant to which IC One is treated as the
continuing entity for accounting purposes, and the historical financial
statements presented, including the statement of stockholders' equity, are those
of IC One. IC One was deemed the acquirer and successor company. See Note 1 of
Notes to Consolidated Financial Statements.

                                       5
<PAGE>

Our Industry and the Developing Market

     The Electronic Payments Industry

         Our products and services are designed for the retail payments
industry. This industry is comprised of retail merchants and the infrastructure
of banks and other financial institutions, card associations and technology
suppliers that enable them to process payment transactions. Banks and other
financial institutions typically issue credit cards and provide the related
customer credit for charges. Card associations are typically not-for-profit
membership clubs that make the international rules for issuing cards and
processing transactions for their brands. Technology suppliers provide the
centralized systems and services to process the electronic payment transactions.
Large issuing banks frequently process their own charge card and electronic
payments transactions, while smaller banks and other financial institutions
outsource processing. Large processors have established market dominance through
consolidation and subsequent economies of scale. Merchants pay fees to the banks
for the privilege of accepting credit cards.

         Retail merchants have for many years used discounts, points programs
and other incentives to differentiate themselves from their competitors and to
increase loyalty in the form of repeat spending. These programs are typically
tied to the amount or frequency of customer spending, with the most prominent
ones directly tied to a credit or debit card. Examples of these programs include
airline frequent-flyer programs, such as American Airlines/Citigroup AAdvantage
and Delta Airlines/American Express programs. Additionally, many major hotels
have programs designed to award points for each dollar spent at the hotel that
can be redeemed for free lodging or upgrades to a higher quality room. Examples
of these types of programs are the Marriott Honored Guest and Hyatt Gold
Passport programs.

         We believe that this retail industry is in the initial stages of
adopting smart cards and wireless devices to replace the magnetic-stripped cards
that have existed in the market place for nearly 30 years. As this transition
occurs, we believe there is an opportunity to market our loyalty program
software to the various organizations that comprise the industry. We anticipate
the majority of our revenue will come from marketing our software to the
organizations that provide the loyalty-system infrastructure as an adjunct to
the electronic payments process. This includes card manufacturers, POS terminal
providers, banks and other financial institutions, third-party payment
processors, card associations and other software suppliers. In some cases, we
expect that our customers may also include retail merchants that wish to sponsor
their own loyalty programs.

         The electronics payment industry is very mature, and because our
software is compatible with existing magnetic-stripped card technology as well
as smart cards, we believe our software and intellectual property provide a
potential solution for those wishing to migrate seamlessly from magnetic-strip
cards to smart cards or other smart devices in order to grant loyalty rewards
and incentives.

         Currently, we believe that a high percentage of all charge cards issued
in the Americas have some form of loyalty program associated with them. The
bonuses, rewards and incentives of loyalty programs directly address consumers'
core issues of quality service, value and having a voice in the marketplace. We
concur with general industry estimates that indicate that loyalty programs
retain customers longer and have a significant impact on consumer behavior:

     o  loyalty-program consumers spend 30% to 50% more than other consumers
        per transaction;

     o  loyalty-program consumers visit retail stores that grant rewards  three
        times as often;

     o  loyalty-program consumers spend four times more than other consumers per
        year; and

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<PAGE>

     o  loyalty-program consumers account for over 50% of retail sales--despite
        charge cards comprising only 28% of retail sales.


In general, loyalty programs are intended to result in more frequent visits to
merchants and increased sales, capitalizing on the marketing principle that it
is easier to sell to an existing customer than to recruit a new one.

     Credit and Debit Cards

         Credit and debit cards have become a major payment instrument
worldwide, replacing checks and cash. Despite the relatively recent advent of
on-line payments, this physical card base is experiencing year on year
double-digit growth. In addition, there appears to be increasing industry
interest from Visa and MasterCard, as well as a few major banks, in processing
small payments of less than $10, known as micropayments, although to date
micropayments are not processed economically by regular credit and debit card
systems.

     Smart Cards and Smart Chips

         Based on our management's knowledge of the industry and specific
marketing inquiries, we believe that currently the institutions that serve
merchants and issuers of credit and or debit cards are preparing for the
expanded use of smart cards. We believe that the emergence of new technologies
for payment systems will continue over the next several years. Our products and
marketing plans are designed to facilitate the expected migration to smart cards
and the anticipated evolution to contactless and wireless technologies, which we
expect to advance over the next several years.

         The ability of smart cards to store data or value makes them
particularly suited to loyalty programs that track and provide incentives to
repeat customers. Stored value is more convenient and safer than cash. When
combined with a software and hardware system for processing loyalty
transactions, the smart cards and other devices provide an opportunity to
develop loyalty programs that provide users with immediate, dynamically updated
incentives.

         Because of the data storage and interactive functions of smart cards,
smart cards provide increased security over strip cards. Our management believes
that due to the significant potential for reduction in fraud and increased
consumer confidence, the major international credit card issuers have committed
to smart card migration. Our business dealings with the parties or with their
service providers have made us aware that in the United States, American
Express, First USA Bank, Fleet Boston Bank and Providian Bank have all begun to
issue smart cards to replace their customers' existing magnetic-stripped cards,
while Scotiabank and CIBC Bank in Canada, plus US-based retail merchant Target,
intend to begin issuing smart cards in 2002. We believe that the integration of
loyalty programs with existing payment functions may be a critical stimulant to
promote the rapid conversion to smart-card-based financial transactions.

         Growth in the smart-card segment of the electronic payments industry
may result from expected reduced costs of technology resulting in better price
performance, the replacement of traditional methods of payments with new
technology, and the anticipated increased demand for more powerful and effective
loyalty programs.

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<PAGE>

Our Products

     Smart Device and Terminal Software:  e-llegiance(tm)

         We market our software that resides on the microchip in the smart card
or other device and the POS or other terminal with which it interacts under the
name e-llegiance(tm). e-llegiance(tm) establishes a common platform for
integrating loyalty and electronic payment transactions. Designed to be
compliant with the Global Platform, Visa Open Platform, Europay-Mastercard-Visa
(EMV) and MULTOS electronic payments industry standards, e-llegiance(tm) allows
program managers to deliver a multitude of loyalty options to merchants and
consumers simply by selecting user-friendly parameters that define loyalty
programs at various retail levels, whether at physical store locations or on the
Internet.

         The e-llegiance(tm) system uses a flexible system approach, designed by
IBM, that allows a large combination of loyalty program choices and supports
loyalty programs for single retailers as well as groups of merchants, such as
shopping malls. The software enables a base device, such as a merchant terminal,
automatic teller machine or computer processing unit, to interact with
electronic purses and other unique software applications on a smart chip to
electronically allocate and allow consumers to instantly redeem rewards and
incentives. The software can process loyalty credits originating from
magnetic-strip cards, cash, check or smart-chip-based credit/debit transactions.
Because it can support both existing loyalty programs and those that will be
driven using smart cards or other devices, our software enables merchants to
migrate seamlessly from their existing programs to new, more powerful programs
that take advantage of newer technology. It also offers merchants flexibility in
managing customer incentive programs, establishing business continuity between
store and Internet sales. The smart-card-based system captures much more
information that stripped-card-based systems, which can provide merchants with
additional information about customer usage and demographics.

         We believe the e-llegiance(tm) product may have broad interest in the
electronic payments industry as a common loyalty application. Discussions are
underway with smart-card issuers, banks, device manufacturers and payment
service providers for development on additional platforms.

     Centralized Processing Software: LoyaltyCentral(tm)

         We believe that one of the features of our software that differentiates
it from other software in the market is our centralized processing software that
we developed with IBM and are marketing under the name LoyaltyCentral(tm). This
software is used to meet the centralized processing requirements for both
magnetic-stripped-based loyalty programs and those driven using smart cards or
other devices, particularly smart cards used for electronic debit and credit
transactions. Functionally, our software is analogous to the centralized
processing system software that is used by banks or credit card processors to
process credit card payment transactions. Our software provides new account
set-up and account management for consumer and merchant accounts; accounts for
loyalty program rewards and incentives; settles accounts with merchants, banks
and processors; and produces reports and statements for consumers and merchants.
Our software operates in conjunction with our e-llegiance(tm) software on smart
cards or other devices or can be used to support loyalty programs that are
driven by another company's devices. We are presently working jointly with IBM,
under a teaming arrangement discussed below, to interface our software with a
current IBM system that stores and manages information on the microchip in smart
cards. Even though we and IBM will both retain exclusive ownership of our
respective systems, we believe that compatibility of the IBM and our system may
be an important marketing feature for us. We anticipate completing this work to
interface the IBM system with ours by mid-2002. See Part II. Item 6.
Management's Discussion and Analysis or Plan of Operation.

                                       8
<PAGE>

     Loyalty Program Database: LoyaltyCentral(tm)

         The LoyaltyCentral(tm) database represents a repository of data
collected at the point of sale or whenever loyalty rewards are granted or
redeemed. As volume grows, we believe the database will become a key source of
valuable information for merchants and consumers. The Internet portal,
LoyaltyCentral.com(tm), that we are implementing in the second quarter of 2002,
as part of the system implementation for Scotiabank, provides on-line access to
the database. This will enable merchants and ultimately consumers to interact
with the data that is stored in the database. The database is highly secured to
ensure that the data is available only to those who have approved authorization.
Merchants can use this data to determine how effective their loyalty programs
are working, and consumers can access their own accounts to determine the number
of rewards they have accrued.

         To ensure security, availability and scalability, we are negotiating a
teaming agreement with IBM, under which IBM will provide the host computer for
our LoyaltyCentral(tm) centralized processing system. We are now reviewing a
draft of this agreement prepared by IBM that we hope to complete in the first
half of 2002. We believe there may be a significant revenue opportunity from
licensing LoyaltyCentral(tm) centralized processing software or from providing
loyalty program management services as the electronic payments industry re-tools
its centralized processing system to take advantage of the flexibility and power
of smart cards and other devices. As developed, our LoyaltyCentral(tm)
centralized processing software can operate as a stand alone smart-card-based
loyalty program, a fully integrated smart-card-based loyalty/payment solution,
or as a smart-card-based multiple application with additional features for
programs such as transit, security, identification or government benefits
issuance.

         The first implementation of the new software was scheduled to be
deployed by the Seattle-based Merchant Service Group in late 2001, however, the
Merchant Service Group has revised its schedule for deployment to the third
quarter of 2002. The Merchant Service Group has advised us that it is discussing
with two major card issuers the services that they may wish to offer merchants
that are currently customers of the Merchant Service Group.

     Centralized Processing and Other Services and Products

         In addition to licensing our LoyaltyCentral(tm) centralized processing
software, we also intend to offer loyalty program processing and management
services for companies that choose to outsource that function. Such services
would include setting up new accounts for merchants and their customers,
retrieving loyalty transactions on-line, processing account transactions,
reconciling accounts, settling accounts with the retail merchants, card
associations, banks and other system participants, and producing customer
statements. We do not expect to provide traditional customer service functions
through direct interaction with the clients' consumer. That function will be
performed by the company that offers the loyalty program in an effort to
eliminate customer confusion regarding who to contact about their loyalty
program and enable us to avoid the cost and risk of building a large customer
service center. We believe these services may be useful to small loyalty program
providers that do not have existing centralized processing facilities.
Scotiabank has asked us to make this service available for its merchants.

         As noted above, we are negotiating a teaming agreement with IBM, under
which IBM will provide the host computer for our LoyaltyCentral(tm) centralized
processing system. We are now reviewing a draft of this agreement prepared by
IBM that we hope to complete in the first half of 2002. In general, IBM would
provide the host computer for an agreed fee. We believe that the involvement of
IBM as a strategic partner in providing the host computer for our centralized
processing system may be an important marketing benefit to us. This marketing
benefit may be jeopardized if we continue to be unable to meet our financial
obligations to IBM.

                                       9
<PAGE>

         We also may seek to develop joint ventures with consulting companies
through which we would offer loyalty-program-based consulting services. These
services would be offered under our Loyalty by Design(tm). We believe that there
may be a demand for the services we may offer as electronic payment firms
migrate toward loyalty programs based on smart cards or other devices.

         We may also develop additional specialized products services for
marketing to the financial services and banking industries under the name
SmartBank(tm).

     Loyalty Fundraising

         In 1999, we introduced what we believe to be one of the nation's first
successful smart-card pilot programs, our Kid's Card Program. The Kid's Card
Program involved the distribution of more than 12,000 smart cards, among 110
merchants, four school districts and one state college in two Utah counties as a
pilot test for its software and its proprietary program design. This Kid's Card
Program has demonstrated the ability to use smart-card technology to bring a
cause, such as education, and merchants together to generate new sources of
funds for the beneficiaries, in this case, schools.


         Although we determined to cease development of the Kid's Card Program,
we are now seeking a strategic partner for the purpose of marketing the Kid's
Card Program application to merchant services providers, fundraising
organizations, and card issuers as a loyalty program application for use as part
of merchant or card issuer loyalty programs. This common platform has a broad
application to both cause and commercial loyalty programs. We believe that this
platform can significantly shorten the lead time to market for our customers and
strategic partners.  IBM  sometimes  demonstrates  this  program to  support its
marketing efforts.

Business Plan

     Overview

         Our current plans are focused on:
     o   licensing our software that enables manufacturers and retail
         merchants to increase customer loyalty;
     o   integrating our loyalty software with electronic payment software that
         is used to process debit and credit transactions;
     o   licensing  our  patents  and  related  intellectual  properties   to
         competitors or companies that choose to use  a  competitor's software
         that may infringe our patent; and
     o   performing centralized accounting services for retail  merchants  that
         wish to outsource this function for their loyalty and reward programs.

     Anticipated Sources of Revenues

         Our business plan is built around a royalty model designed to generate
revenue from:
     o   licensing our patents and other intellectual properties;
     o   licensing  our  e-llegiance(tm)  smart-card-based  loyalty applications
         software;
     o   licensing  our  LoyaltyCentral(tm)  centralized processing services for
         loyalty program management, transaction processing and accounting; and
     o   providing centralized processing services and management.

                                       10
<PAGE>

         We expect that our primary customers will be the major issuers of
credit or debit cards and the merchant services organizations that provide
equipment, software technology and payment clearing services to merchants and
payment card associations such as VISA and MasterCard that provide services and
standards for the card issuing industry.

     Marketing and Sales

         We are currently marketing our products and services principally on a
wholesale basis to financial institutions and credit card associations that we
believe may desire to include our loyalty features in their own branded
products. We are also attempting to integrate our offerings with products
marketed by terminal manufacturers, third-party processors, system integrators,
and other firms that provide the system components required to successfully
implement loyalty applications within the electronic payments industry. We
believe this approach provides us the opportunity to address our market during
the anticipated migration from magnetic-strip cards to smart cards and other
devices. In addition, this approach may also provide market opportunities to
assist customers that desire to meet their anticipated future requirements for a
system based on smart cards or other devices but that must also allow for their
current operational obligations based on magnetic-strip cards.

         We are currently introducing our company and its principal products and
services through the following methods to electronic payments industry
businesses:

     o   establishing marketing alliances with industry solution providers,
         as discussed below;
     o   participating in electronic payments industry forums that  promote the
         use of smart devices;
     o   advertising on a limited basis directed to  selected  potential client
         groups;
     o   forming   product   integration  alliances  with  key  industry
         application/technology providers, as discussed below; and
     o   participating in standards committees/activities where appropriate to
         promote smart loyalty implementations.

         Our pricing structure for the products and services we offer is based
upon the number of cards or other portable devices issued, the number of POS
terminals in the system, and the number of transactions processed, both at the
POS and in the centralized processing system. We may generate other revenue
streams for ancillary products or services, such as gathering and selling usage
data and maintaining merchant and customer records.

         The Company's marketing strategy will focus on the following sales
channels:

     o   direct sales of products and services;
     o   indirect sales of products and services through terminal manufacturers,
         electronic payment processors,    smart-card manufacturers and software
         suppliers; and
     o   licensing of intellectual property to various industry organizations.

         Currently, our sales efforts focus primarily within North America.
However, since we have an approved patent in Australia and one pending in Japan,
we expect that we will begin seeking to identify potential strategic partners by
mid-2002 in order to address these markets. Within North America, our main
targeted customers are:

                                       11
<PAGE>

     o   large credit card issuing banks;
     o   large merchant processors;
     o   large retail merchant chains;
     o   major credit card associations; and
     o   large  cause-related  associations  or charitable groups using payment
         cards as a contribution method.

         These efforts led to our agreement to provide for Scotiabank of
Toronto, Canada, part of the loyalty support for Scotiabank's consumer rewards
programs as discussed below. In addition, we have made or have scheduled
executive level, detailed presentations to several of our targeted customers and
have ongoing substantive discussions with three large issuing banks and two
retail merchant groups that offer private labeled credit cards and their own
proprietary loyalty programs. Additionally, in response to a request for a
proposal, in early 2002, we submitted a proposal to a large credit card
processor to license our technology for resale of products and services
globally. We expect, but cannot assure, that our marketing efforts will lead to
further agreements.

Important Strategic Alliances

         We have developed and will continue to seek strategic relationships
with industry participants that may provide an alternate channel to deliver our
products and services by expanding our market reach and creating incentives
through revenue or technology sharing with strategic partners. Our strategy is
to seek strategic alliances with electronic payments industry participants
providing a broad range of types of products or services. To date, we have
established the following strategic alliances in the electronic payments
industry.

     IBM, Inc.

         IBM assisted us between 1997 and 1999, under a standard services
agreement, in developing a series of scalable databases and application software
that relate to capturing loyalty data in connection with an electronic payments
transaction. We are currently negotiating with IBM regarding a teaming
agreement, including joint licensing and revenue sharing, under which both
companies would market IBM's SmartCard Management System and our back-office
system, LoyaltyCentral(tm), as an integrated solution. We are now finalizing
this arrangement with IBM, based on written drafts prepared by IBM that we are
now reviewing. We hope to complete this agreement with IBM in the first half of
2002.

     The Solstice Alliance

         The Solstice Alliance was organized as a marketing and product
development strategic alliance under a general memorandum of understanding in
April 2001 among us and five other industry participants. Subsequently, we have
entered into the following agreements with three of these alliance members to
further our joint marketing efforts:
     o   Oasis Technology Ltd. is a leading provider of software   to facilitate
         payments any time,  any place on any device.  Oasis provides  payment
         software  for  steps  of  the  transaction  process  for  financial
         institutions, retailers, card associations or any   business focused on
         payments. Under our April 2001 teaming  agreement with Oasis, we agreed
         to  provide  our  integrated  loyalty  application  software  as  a
         subcontractor for a new customer loyalty  project being introduced by
         Scotiabank. We then separately negotiated with Oasis and Scotiabank the
         scope of the products and services we are to provide and the prices to
         be charged, as discussed below. See "Scotiabank" below.

                                       12
<PAGE>

     o    CIT Canada Inc.,  North York,  Ontario,  is a subsidiary of Silverline
          Technologies,   Inc.,  an  international   software   development  and
          integration  services  firm with  over  2,600  software  professionals
          worldwide. On June 1, 2001, we appointed this Silverline subsidiary as
          our independent  contractor to adapt our software products to Ingenico
          terminals and Giesecke & Devrient  smart cards.  We have agreed to pay
          CIT Canada in cash or, at our election,  in restricted common stock at
          the closing price for our stock on the applicable invoice date.

     o    Giesecke  &  Devrient  GmbH,  Munich,  Germany,  is  an  international
          technology  group with a range of  international  electronic  payments
          products and services that supplies bank notes and security documents;
          bank note,  security paper and currency automation systems; as well as
          cards, components and complete multifunctional  smart-card systems for
          electronic payments and telecommunications. We and Giesecke & Devrient
          have agreed to cooperatively market its smart-chip cards and operating
          systems and our loyalty  applications.  Details of specific  marketing
          efforts as well as product sharing  arrangements  are to be negotiated
          on a case-by-case basis.

     There are two other members of the Solstice Alliance:
     o    Cardis  Enterprises International B.V.  is an innovation and licensing
          company based  in  Amsterdam,  The Netherlands. Cardis specializes in
          advanced smart-card payment systems and has a portfolio of   patented
          innovations.

     o    Ingenico  Group,  Cedex,  France,  is a  leading  supplier  of  secure
          transaction systems. It designs and produces terminals and systems for
          electronic  payment.  Ingenico  has  invested  heavily in research and
          development  to achieve  technological  advances in both  hardware and
          software,  which have greatly  contributed to setting new standards in
          the industry.

         In each case, the relationship among the various members of the
Solstice Alliance focuses on joint marketing efforts as well as development of
the alliance product. In their joint marketing efforts, the specific terms of
products or services to be provided to individual customers, the
responsibilities of the various participants, pricing, revenue participation,
and other matters are to be negotiated directly between the Solstice Alliance
member and the customer. In some instances where another Solstice Alliance
member is the lead marketing contact or in which we act as a subcontractor,
sales revenues derived from the joint marketing efforts with these Solstice
Alliance companies may result in a 10% to 30% reduction in revenues as compared
to direct sales by us. Nevertheless, we believe these additional sales channels
may allow us to more effectively expand and accelerate our marketing effort.

         All members of the Solstice Alliance are also participating in a
project to develop and market an Internet-capable, multiapplication smart-card
product. This Solstice product will integrate our e-llegiance(tm) loyalty
solutions with micropayments to meet Europay, MasterCard and Visa, or EMV,
industry payment specifications, and is being designed to meet the expanding
demands of the industry. Because of the broad range of alliance participants, we
believe the future introduction of an integrated alliance product as outlined
above may help establish industry standards. Each participant in the Solstice
Alliance is responsible for its portion of the costs for developing and
implementing the finished product, which is scheduled to be introduced by
Scotiabank in a pilot program in Canada discussed below in the summer of 2002.
We also believe the alliance may be able to develop a broad-based,
multiapplication, smart-card product that allows customers to access and choose
credit and debit, micropayments and loyalty programs and other services using
microchip technology.

                                       13
<PAGE>

     Scotiabank

         Through a cooperative marketing effort with Solstice Alliance member
Oasis Technology, Scotiabank of Toronto, Canada, agreed in July 2001 to use our
e-llegiance(tm) loyalty application and LoyaltyCentral(tm) centralized
processing system to provide its customers with consumer rewards programs. This
is the first full-scale commercial deployment of our software. Scotiabank is a
major North America financial institution, with about $275 billion in assets and
approximately 52,000 employees worldwide, including affiliates. It is also
Canada's most international bank with more than 2,000 branches and offices in
over 50 countries.

         We are a subcontractor to Oasis Technology to deliver integrated
loyalty application software to ScotiaBank for use in ScotiaBank's smart-card
issuance program for Canada. In addition, we will provide software under
Scotiabank's loyalty activated smart debit and credit program. We expect this
program will commence testing in the second quarter of 2002 with 20,000-30,000
cards and become operational in approximately the third quarter of 2002 in an
expanded program. Revenues to the Company would accrue when the program enters
testing.

         We are now completing modifications of our software to ensure
compatibility with the POS terminals, electronic payment software, Scotiabank's
accounting systems and other system components that are required for
Scotiabank's smart-card pilot program scheduled for market introduction in
approximately the third quarter of 2002. This work is presently being performed
by our small internal staff and three strategic development partners:

     o  IBM, which has up to four personnel working under a joint IBM/Smart
        Chip working arrangement;

     o  RTS NetWorks Group, PLC,  United Kingdom,  which has approximately 10
        personnel working on the Scotiabank modifications and the integration of
        our loyalty program with an electronic payments program that   runs on a
        Nokia cellular telephone; and

     o  CIT Canada Inc.,  a subsidiary of Silverline Technologies, Inc.,  which
        has approximately 13 personnel  working on the software customization
        required by Scotiabank.

         We anticipate that we will invest approximately $1.6 million to
complete the modifications to our software required for Scotiabank, subject to
available financing. However, we estimate that approximately 90% of this
investment will become incorporated into our base software, which may enhance
its value for future projects.

     Welcome Real-Time

         Welcome Real-Time, of Aix-en Provence, France, reached an understanding
with us in July 2001 to integrate our respective intellectual properties with a
view to collaborating on an industry standard architecture designed to enable
the interoperability of loyalty programs on smart chips. However, the electronic
payment industry's creation of the Visa Open Platform and Global Platform
standards has negated the need for us to work with Welcome Real-Time to create
these standards, so we do not currently expect further collaboration with
Welcome Real-Time on this matter.

     Oasis Technology, Ltd.

         We have signed a letter of intent with Oasis Technology, Ltd., of
Toronto, Canada, that provides for the development and integration of our
next-generation smart-card loyalty application and Oasis's leading ePayment
software for mobile commerce, the Internet and the real world. According to the
letter of intent, the two companies will partner to extend our smart-card
loyalty program and patented loyalty process with Oasis's end-to-end ePayment
technology. Although we have not entered into the definitive agreement
contemplated by the letter of intent, our relationship with Oasis continues and
the Scotiabank project described above is a result of that relationship. In
extending our smart-card loyalty program with a built-in facility for an
unlimited range of real-time on-line payments through the smart-chip card, Oasis

                                       14
<PAGE>

will help to further broaden the opportunity for loyalty program cardholders to
maximize card usage and provide a multiapplication smart card designed to handle
both loyalty and ePayment transactions. With more than ten years experience as a
leading provider of ePayment technology to customers in over 70 countries, Oasis
brings secure, proven and reliable technology that we believe is suited for
smart-card applications and the expanding loyalty program market.

     Cardis Enterprises

         In August 2000, we entered into a memorandum of understanding with
Cardis Enterprises International BV for the exploration of ways of integrating
our patented solutions for smart-card payment and loyalty applications. Cardis
is an innovation and licensing company based in Amsterdam, The Netherlands.
Cardis specializes in advanced smart-card payment systems and has a portfolio of
patented innovations. Cardis's Ultimus Solution is a smart-card-based payment
system that enables the profitable extension of EMV credit and debit card
products into micropayment. In effect, the same card can be used for all
transactions, irrespective of the transaction value, and in all payment
environments--attended, unattended (e.g. vending machines), mobile (e.g. GSM
cellular telephones) and Internet points of sale. Although the memorandum has
expired, our relationship with Cardis has continued and we expect that we will
be working closely with Cardis on joint projects aimed at providing combined
electronic banking services linked to customer loyalty programs throughout North
America.

     Transaction Software

         Transaction Software Inc., or TSI, West Hills, California, is a payment
systems development specialist for VeriFone, a division of Hewlett-Packard. In
February 2001, we engaged TSI as an independent contractor to develop the next
generation of our e-llegiance(tm) smart-chip loyalty applications software to
run on VeriFone Verix(tm)-based POS terminals. We have agreed to pay TSI its
weekly programming fees of $125 per hour in restricted common stock at a price
equal to the week-end closing market price. TSI will use the VeriFone Verix
Developer Toolkit for rapid development of e-llegiance(tm) integrated with
VeriFone's SoftPay(tm) e-payment software running on Omni(tm) 3350 point-of-sale
terminals. Together with the Seattle-based Merchant Service Group, we plan a
third quarter 2002 implementation of the e-llegiance(tm) loyalty application.

     Proton World

         We reached an agreement in October 2001 with Proton World International
S.A., Brussels, Belgium, a smart-card software development and marketing company
with over 35 million smart cards deployed throughout the world, to co-market
each other's products. Under the agreement, both companies agree to cooperate on
the marketing and sale of joint solutions based on both companies' technology,
with the details of the respective products and services offered and the
revenues to be received to be determined on a customer-by-customer basis.

     Consumer Economic Opportunities

         In November 2001, we established a three-year strategic alliance with
Consumer Economic Opportunities, Inc., Toronto, Canada, a marketing and software
development company, to co-market each other's products. The alliance
contemplates that we will integrate into our software the CARDITZ direct mass
marketing and loyalty system developed by Consumer Economic Opportunities and
that Consumer Economic Opportunities will integrate into its software our
e-llegiance(tm) smart-card-based loyalty applications and our LoyaltyCentral(tm)
centralized processing software. Revenue sharing arrangements are to be
negotiated in the future.

                                       15
<PAGE>

     RTS Networks Group

         In November 2001, we also entered into a technical services agreement
with RTS Networks Group PLC, London, England. RTS Networks will assist in
customizing our software for Scotiabank and developing a prototype that
integrates our loyalty program with electronic payment software that runs on a
cellular telephone during the succeeding eight months at agreed contract rates.

     HiTech Consulting

         To derive value from our patents and related intellectual properties,
in June 2001, we retained HiTech Consulting Group, Irvine, California, which has
particular experience marketing and licensing patents that are related to
technology used by the electronic payments industry, under a one-year agreement,
renewable for successive annual periods unless terminated by either party.
Together we have implemented a program designed to identify, notify and interact
with those companies that we believe are or are intending to use the processes
defined in our patents. This program is designed to allow these companies to
continue to market their products while utilizing the protection of our patents
and related intellectual properties. In implementing this program, we may
contact companies that may compete directly, develop their own internal
solutions, or provide assistance in the implementation and/or ongoing
support/administration of those systems. We have agreed to pay HiTech a $6,000
monthly fee plus a share of the revenue generated through its marketing efforts.

         To date, this effort by HiTech Consulting has led to ongoing
negotiations with two competitors with software that we believe infringe our
patents and related intellectual properties. We cannot assure that we will enter
into licensing agreements with either of these or other companies that we may
contact. As part of this proactive approach to expand industry awareness about
our patents and related intellectual properties, we are providing information
about our company, its products and our patent and related intellectual
properties to known major North American companies that we believe have the
potential to use our patent and related intellectual properties.

     Other

         To further implement our strategy of seeking strategic alliances with
principal components of the electronic payments industry, we intend to seek
additional alliances with firms providing the following products and expertise:

     o  payment switch providers; and
     o  terminal (base device) manufacturers.
                                             -

Our Intellectual Property

     General

         Our intellectual property consists of software applications and systems
built around our process and methodology patents and includes application
software for robust common loyalty programs that reside on cards or other smart
payments devices and the terminals for the processing of payments. We also have
a centralized processing system for loyalty program management and accounting
that can be used for our own loyalty customers and licensed to other electronic
payment processors that offer loyalty programs. We developed this system over a
period of three years in conjunction with IBM at an estimated cost of
approximately $10 million. IBM does not have any ownership interest in this
system.

                                       16
<PAGE>

     Patents

         One of our major assets is what we refer to as our loyalty patent, U.S.
Patent No. 5,806,045, issued on September 8, 1998, with prior art dating back to
February  1994.  Since that time,  the patent has also been issued in  Australia
(Patent No.  703349,  October 1999) and Mexico  (Patent No.  96/03161,  November
2000),  and it is  currently  pending  in Canada  and  Japan.  We refer to these
patents issued or pending collectively as the "Patents."

         The Patents are entitled: "Method and System for Allocating and
Redeeming Incentive Credits between a Portable Device and a Base Device." The
Patents contain 36 claims that cover a process or methodology associated with
storing and redeeming loyalty credits and incentives on a portable device and
interacting with a base device to calculate the amount of loyalty units to be
credited or redeemed. A portable device includes smart cards and other devices,
such as cellular telephones or personal data assistants. A base device includes
any device with which the portable device communicates, such as pos terminals,
satellite receivers, automated teller machines, and smart-card readers connected
to personal computers. We believe the Patents may be applicable in the trend to
merge loyalty applications and smart cards on a common loyalty platform. The
Patents and the associated software we have developed are flexibly designed to
meet expected device evolution from current smart-card technology to the next
generations of portable smart-chip devices, including cellular telephones,
personal data assistants or similar devices. We believe that the Patents provide
substantial barriers to those who wish to enter into the loyalty driven,
portable device, smart-chip device payments marketplace without benefit of our
Patents. Part of our business plan is to expand, protect and enforce the
Patents.

         With the assistance of experienced intellectual property legal counsel
and other experts, we are developing and implementing a strategy to protect our
Patents and realize on their long-term potential. In some instances, unknowing
infringement may be an opportunity for business development. In other instances,
infringement may require aggressive legal action. We have reached an agreement
with a law firm under which it will assist us in protecting our Patents and
other intellectual properties and will seek payment only out of any recoveries,
without any initial expenditure by us.

     Trademarks, Copyrights and Trade Secrets

         We also rely on the protections afforded our intellectual property
under copyright, trademark and trade secret laws. We market or may market
products or services under the following trademarks:

     o e-llegiance(tm) for our smart-card-based loyalty applications;

     o LoyaltyCentral(tm)  for  our  loyalty  program management,  transaction
       processing and accounting centralized processing services;

     o  Loyalty by Design(tm) loyalty-program-based consulting services; and

     o  SmartBank(tm) for specialized products services for    marketing to the
        financial services and banking industries.

Research and Development Program

         We spent approximately $3,746,000 and $1,993,000 on research and
development during 2000 and 1999, respectively. We believe our software and
systems technologies are developed to the point where they are readily adaptable
to a broad range of market applications. Further development, with the exception
of the integration of loyalty with payments processing, has been de-emphasized
pending further definition by market and process alliances. We will seek
co-funding of additional development by venture partners based on defined
cost/revenue sharing models. We intend to continue our development program, in

                                       17
<PAGE>

particular for the integration of loyalty with payments processing. Our business
plan calls for the expenditure of approximately $4.7 million for software and
systems development, subject to available funding. To the extent that such
development can be funded in part by venture or alliance partners, our
requirements for this development budget would be reduced. See Part II. Item 6.
Management's Discussion and Analysis or Plan of Operation.

Competition and Regulation

         Today, we believe our main competition is from companies that provide
loyalty programs, which are either paper based or use an electronic payment card
that is imbued with a magnetic strip. There is a substantial business segment
and revenues built around these traditional methods. Our analysis of the
electronic payments industry causes us to believe that over the next few years
there will be a substantial replacement of magnetic-strip payments cards with
smart cards and other smart-chip devices. We also believe that loyalty will be
an important part of the cultural change necessary to cause this conversion and
that smart-chip devices offer significant potential increases in the power and
flexibility of loyalty programs. As a result, we believe those companies
providing loyalty programs may be forced to deal with our Patents in situations
where the Patents apply. Dealing with the Patents will require that such
companies do one of the following: (1) license our Patented technology, (2)
continue to operate in breach of the Patents, or (3) not take full advantage of
the extensive power offered by smart-chip technology for processing of loyalty.

         To the best of our ability to determine, we believe that we are not
subject in any material way to any federal, state or local regulation other than
regulation that uniformly applies to any business of our size and type.

         We have no dependence on any particular customer or category of
customers, and we do not expect to incur such dependence as our business grows.

Employees

         We currently have approximately 15 full-time employees, including
officers and directors, consisting of seven in Salt Lake City, Utah, and eight
in Orange County, California. We anticipate that we will need to hire a
significant number of additional employees, including management, technical and
administrative employees, in order to execute our business plan and to meet the
demands of the growth we anticipate.

Risk Factors

         An investment in our common stock involves significant risks that
should be considered before any investor decides to purchase or retain any of
our securities. In addition to the negative implications of all information and
financial data included or referred to directly in this document, as well as in
other materials filed or to be filed with the Securities and Exchange
Commission, you should carefully consider the following risk factors. This
document contains forward-looking statements and information concerning our
business and its future prospects. Those forward-looking statements should be
read together with these risk factors, because these risk factors could cause
actual results to differ materially from those forward-looking statements.

                                       18
<PAGE>

     Risks Related to our Financial Condition

         We may be unable to continue as a going concern.


         We are a development-stage company, have had no revenue from operations
and have no operations from which revenue will be generated prior to 2002. For
the year ended December 31, 2000, and the nine months ended September 30, 2001,
we incurred net losses of approximately $10,486,000 and $11,743,000,
respectively. We have an accumulated net loss of approximately $53,035,000 for
the period from February 27, 1997, date of inception, through September 30,
2001. At December 31, 2000, we had a total net stockholders' deficit of
approximately $4,798,000. Accordingly, the independent auditor's report
accompanying our audited financial statements as of December 31, 2000 and 1999,
included in this amended report, contains an explanatory paragraph about our
ability to continue as a going concern. See Consolidated Financial Statements.
We cannot assure that we will be successful in the plan we are implementing to
negotiate with creditors to seek reductions in the total amounts owing, payment
of amounts due through the issuance of securities, the extension of payment
dates or other terms acceptable to the Company. See Part II. Item 6.
Management's Discussion and Analysis or Plan of Operation.


         We continue to suffer extreme shortages of working capital with
significant past due obligations.


         As of September 30, 2001, we had a working capital deficit of
approximately $3,016,000 and approximately $2,851,000 of our current liabilities
of approximately $3,095,000 were substantially past due. Subsequent to September
30, 2001, we reduced our current liabilities by approximately $236,000 by
issuing options to purchase common stock, negotiating extended payments terms,
and other measures. Notwithstanding our successful efforts to obtain a
conversion to equity, compromise or other agreed reduction in current
liabilities, creditors with past due amounts due them may initiate litigation or
undertake other aggressive collection efforts, which would further impair our
ability to continue and require the reallocation of limited amounts of new
capital to the payment of old liabilities, rather than advancing our business.
We cannot assure that our efforts to obtain the forbearance of creditors,
negotiate reduced payment amounts or reach other arrangements with creditors
will be successful. See Part II. Item 6. Management's Discussion and Analysis or
Plan of Operation.


         We have incurred substantial losses since inception and expect those
losses to continue.


         From February 27, 1997 (inception) through September 30, 2001, during
our development stage, we incurred an accumulated deficit of approximately
$53,035,000, which we expect will continue to increase until at least late 2002,
even though we expect that we may begin to generate revenues from operations
earlier in 2002. See Part I. Item 2. Management's Discussion and Analysis or
Plan of Operation.


         We need additional funds in order to continue.


         We have no revenues from any source and are completely dependent on the
receipt of funds from external sources to be able to continue. Currently, our
recurring expenditures are approximately $750,000 per quarter for general,
administrative and other recurring operating expenses and payment obligations.
We expect that our general, administrative and other recurring operating
expenses will increase substantially as we accelerate and expand our business
activities, satisfy increased reporting and stockholder communications
obligations under the securities laws and seek needed additional capital
required for our proposed business. We cannot assure that we will be able to
obtain funds required to continue. In addition to capital required to continue,
we will need substantial amounts of additional equity capital in order to
implement our business plan fully. We may also rely increasingly on strategic
alliances with others that may assume responsibility for financing specific



                                       19
<PAGE>

required development tasks; thus, reducing our financial requirements for the
exploitation of our intellectual properties. See Part I. Item 2. Management's
Discussion and Analysis or Plan of Operation.

         We are in default in our payment obligations to IBM, an important
strategic partner.

         Since the payment we made for October 2001, we have not made monthly
payments of $70,000 each to IBM under an obligation compromise reached in June
2001. Failure to make these required payments results in interest charges of 2%
per month on the remaining payments. IBM continues to assign programmers to our
work and to bill us for current services under our ongoing working arrangement
to complete work for our Scotiabank project. If IBM were to withhold such
services, we would be required to make alternative arrangements for completing
this required work. Further, IBM has the right to take such action as it deems
warranted to seek collection of the entire $1,060,000 due it under the June 2001
agreement. Notwithstanding the above, IBM continues to negotiate a teaming
agreement, including service and marketing agreements with us, under which IBM
will provide the host computer for our Loyalty Central(tm) centralized
processing system, and has recently provided draft agreements that we are now
reviewing. We believe that the involvement of IBM as a strategic partner in
providing the host computer for our centralized processing system may be an
important marketing benefit to us. This marketing benefit may be jeopardized if
we continue to be unable to meet our financial obligations to IBM.

         Our common stock is subject to substantial dilution.

         Our common stock is subject to substantial dilution because we may
further dilute the interests of our stockholders or impose burdensome financial
restrictions on our business in order to obtain additional capital on
satisfactory terms, if available.

     Risks Related to our Business

         We are dependent on establishing marketing or other relationships
within our industry.

         In order to market our products effectively, we will depend on
establishing marketing and other relationships with other members of our
industry that will distribute smart cards, either as replacement for existing
credit cards or to new users, and provide software to facilitate merchant and
related processing, applications, security, point-of-sale devices and other
support systems. In addition to the limited number of such relationships that we
have established or are currently exploring, we expect that it will be necessary
to identify a number of new industry participants that may enable us to continue
to expand our marketing efforts. Our continuing ability to benefit from our
strategic relationships depends on the financial and technical strength of our
partners, their marketing efforts and our joint abilities to cooperate
effectively. Each of our strategic partners has, and will continue to have,
other activities and opportunities in which we will not participate and which
may compete for the resources and priorities of our partners. The termination or
deterioration of any of our strategic relationships may have an adverse effect
on our operations.

         We are dependent on the rate and extent of widespread adoption of smart
cards and loyalty programs.

         Our ability to generate significant revenues is dependent upon the rate
and extent of widespread acceptance of smart cards, both for newly issued cards
and as replacements for existing credit cards. Such adoption will depend first
on the commitment of credit card issuers, processing firms and merchants to
issue smart cards. Issuing smart cards will require credit card issuers,
transaction processors and merchants to incur additional costs and change their
current method of operations, with attendant risks.

                                       20
<PAGE>

         The widespread adoption of smart cards by credit card users will depend
on their willingness to absorb any increased card issuance and transaction
processing fees that may be passed on to them and to adapt to the additional
features available on a smart card.

         Because we have only limited protection of our proprietary technology
         and intellectual property rights, others may copy them and harm our
         ability to compete.

         Our operations could be materially and adversely affected if we are not
able to protect our Patents, proprietary software and other proprietary
intellectual property rights. We rely on a combination of patents, copyrights,
trademarks, trade secrets, nondisclosure and other contractual arrangements and
technical measures to protect our proprietary rights. Nevertheless, we could be
negatively affected if our competitors were to incorporate this technology into
their products successfully.

         Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or obtain or use information
that we regard as proprietary. We could be negatively affected if our means of
protecting our proprietary information are inadequate. We may also be unable to
deter misappropriation of our proprietary information, detect unauthorized use
or take appropriate steps to enforce our intellectual property rights.
Furthermore, our competitors may also independently develop technologies that
are substantially equivalent or superior to our technology.

         We may not be successful in avoiding claims that we infringe on others'
         proprietary rights and could be required to pay judgments or licensing
         fees.

         Although we believe that our Patents, proprietary software, services
and products do not infringe on the intellectual property rights of others, we
cannot prevent someone else from asserting a claim against us in the future
alleging violations of their proprietary rights. In the ordinary course of our
business, third parties may claim that our services infringe on their patent,
copyright or trademark rights. Third parties making infringement claims may have
significantly greater resources than we do to pursue litigation, and we cannot
be certain that we will prevail in any infringement action.

         Infringement claims, whether with or without merit, could be
time-consuming, distract management, result in costly litigation, delay the
introduction of new products or services or require us to enter into royalty or
licensing agreements. As a result of an infringement claim, we could be required
to discontinue use of a specific technology, trade name or service mark. In
these instances, it could be expensive for us to develop or buy replacement
technology or market a new name. Consequently, whether justified or not,
infringement claims could have a negative effect on our business, financial
condition and results of operations.

         If we cannot keep up with changes in technology, we may be unable to
attract and retain customers.

         The smart card and electronic loyalty business is in an early stage of
its development and changes constantly and substantially. These changes include,
among others:

     o  rapid technological advances;
     o  evolving industry standards in  point-of-sale hardware;
     o  changes in customer requirements; and
     o  frequent new product introduction and enhancements.

                                       21
<PAGE>

To be successful, we must develop and use current technologies effectively and
continue to satisfy customer needs on a timely and cost-effective basis. As we
continue to implement our business plan, including our development program, we
may not successfully keep up with the new products and technological advances of
others. We cannot guarantee that potential customers will accept our products
and technologies or that they will not choose to use our competitors' products
and technologies. If we are unable to develop and market new products and
product enhancements that achieve market acceptance on a timely and
cost-effective basis, it could have a material adverse effect on our business,
financial condition and results of operations.

         Competition in the electronic loyalty industry may prevent us from
         successfully implementing our business plan.

         We expect to face substantial and increasing competition in the
electronic loyalty industry. To penetrate the market and compete successfully,
we will have to respond promptly and effectively to technological changes. We
will also have to respond to our competitors' innovations and provide low cost
products. Some of our potential competitors will be likely to have greater name
recognition and financial, marketing, service, support and technical resources
than we will. As a result, our competitors may be able to respond more quickly
than we will to new or emerging technologies or changes in customer
requirements. They may also be able to devote greater resources to the
development, promotion and sale of products than we will, either alone or
through our strategic relationships. Further, the effect of competitive pricing
pressures on the profit margins we anticipate may have a material adverse effect
on our business, financial condition and results of operations. Our potential
competitors may make acquisitions or establish alliances among themselves. These
acquisitions or alliances could increase the ability of competitors' products to
address the needs of our prospective customers and could have a material adverse
effect on our ability to form strategic alliances in the future.

         If we provide software that is unreliable, we could lose customers and
potential revenue.

         Computer software may contain known and undetected errors or
performance problems. Many serious defects are frequently found during the
period immediately following introduction of new software or of enhancements to
existing software. Although we will attempt to resolve all errors we believe our
customers would consider serious, no technology is error-free. Undetected errors
or performance problems may be discovered after customers begin using our
software. This could result in lost revenues or delays in customer acceptance
and could be detrimental to our reputation, which could harm our business,
operating results and financial condition.

         We will be exposed to the risk of product liability.

         The implementation of our business plan entails risks of product
liability. We will seek to obtain product liability insurance, either alone or
through our strategic relationships, but there can be no assurance that we will
be able to obtain such insurance or, if we are able to do so, that we will be
able to do so at rates that will make it cost effective. Any successful product
liability claim made against us could substantially reduce or eliminate any
economic return to us or our stockholders and could have a significant adverse
impact on our future.

         If we become subject to service-related liability claims, they could be
         time consuming and costly to defend.

         Because our customers will use our products and services for
applications such as data and customer information control, any errors, defects
or other performance problems could result in financial or other damages to our
customers. They could seek damages for losses from us, which, if successful,

                                       22
<PAGE>

could have a material adverse effect on our business, operating results or
financial condition. Although we intend for our agreements with customers to
contain provisions designed to limit exposure to service-related liability
claims, existing or future laws or unfavorable judicial decisions could negate
this limitation of liability provisions. A service-related liability claim
brought against us, even if unsuccessful, could be time consuming and costly to
defend and could harm our reputation.

     Risks Related to our General Proposed Business

         If we are unable to retain our executive officers and attract key
         personnel, we may have to employ less qualified personnel and may
         experience high turnover costs.

         Our success depends on the continued contributions of our executive
officers, particularly James A. Williams, our President and Chief Executive
Officer, David J. Simon, Chairman, and Joe G. Coykendall, Senior Vice President
and Chief Financial Officer. The loss or interruption of services of one or more
of these persons could have a material adverse effect on our business, financial
condition and results of operations.

         Our future financial results will also depend on our ability to attract
and retain highly skilled technical, managerial and marketing personnel.
Competition for qualified personnel is significant and intense and may intensify
in the future. We compete for qualified personnel against numerous companies,
including larger, more established companies with significantly greater
financial resources than our own, and we have experienced and may continue to
experience difficulty recruiting and retaining qualified personnel. If we are
unable to hire and retain qualified personnel in the future, it could materially
and adversely affect our business, financial condition and results of
operations.

         If we are unable to manage our growth effectively, our business could
suffer.

         Our future operating results will depend heavily on our ability to
manage our business and make appropriate changes in the face of our anticipated
growth and changing industry conditions. If we do not respond appropriately to
growth and change, the quality of our services, our ability to retain key
personnel and our business in general could be negatively affected. If we do not
correctly predict our growth, our business, financial condition and results of
operations could be negatively affected.

         There are certain rules applicable to our common stock as a "penny
         stock," and those rules may limit the liquidity and the resale of our
         common stock.

         The Securities and Exchange Commission, or SEC, has promulgated rules
governing over-the-counter trading in penny stocks, defined generally as
securities trading below $5 per share that are not quoted on a securities
exchange or Nasdaq or which do not meet other substantive criteria. Under these
rules, our common stock is currently classified as a penny stock. As a penny
stock, our common stock is currently subject to rules promulgated by the SEC
that impose additional sales practice requirements on broker-dealers that sell
such securities to persons other than established customers and institutional
accredited investors. For transactions covered by the rule, the broker-dealer
must make a special suitability determination for the purchaser and receive the
purchaser's written consent to the transaction prior to sale. Further, if the
price of the stock is below $5 per share and the issuer does not have $2.0
million or more net tangible assets or is not listed on a registered national
securities exchange or Nasdaq, sales of such stock in the secondary trading
market are subject to certain additional rules promulgated by the SEC. These
rules generally require, among other things, that brokers engaged in secondary
trading of penny stocks provide customers with written disclosure documents,
monthly statements of the market value of penny stocks, disclosure of the bid
and asked prices and disclosure of the compensation to the broker-dealer and the
salesperson working for the broker-dealer in connection with the transaction.

                                       23
<PAGE>

These rules and regulations may affect the ability of broker-dealers to sell our
common stock, thereby effectively limiting the liquidity of our common stock.
These rules may also adversely affect the ability of persons who acquire our
common stock to resell their securities in any trading market that may exist at
the time of such intended sale.

         A large number of our shares are currently eligible for public sale,
         which could cause our share price to drop.

         Sales of a substantial number of shares of our common stock in the
public market, or the prospect of those sales, could adversely affect the market
price of our common stock. These sales or the prospect of these sales could also
impair our ability to raise needed funds in the capital markets at a time and
price favorable to us.


         As of September 30, 2001, there were approximately 91.0 million shares
of our common stock issued and outstanding. We believe that approximately 65.0
million of those issued and outstanding shares are eligible for sale in the
public market.


         Our stock price is subject to significant volatility.

         There is currently an extremely limited trading market for our common
stock and there can be no assurance that any regular trading market for our
common stock will develop or, if developed, will be sustained. The trading
prices of our common stock could be subject to wide fluctuations in response to:

     o  quarter-to-quarter variations in our operating results;

     o  material announcements of technological innovations;

     o  establishment of significant  strategic  partnerships  by  us  or  our
        competitors or providers of alternative products or services;

     o  terminations or other adverse changes in our strategic relationships;
        and

     o  other events or factors, many of which are beyond our control.

         In addition, the stock market as a whole and our stock in particular
have experienced extreme price and volume fluctuations. Such fluctuations are
often unrelated to the performance of the related corporations. Our operating
results in future quarters may be below the expectations of market makers,
securities analysts and investors. In any such event, the price of our common
stock will likely decline, perhaps substantially.

         We do not have a history of paying dividends and do not expect to do so
in the future.

         We have not paid any cash dividends in the past. We do not plan to pay
dividends on our stock in the future, even if we were to become profitable.
Earnings, if any, are expected to be used to expand our marketing efforts,
further develop our products and services and fund requirements for general
corporate purposes, rather than for dividends to holders of common stock.


         There are substantial options outstanding that may limit our ability to
         obtain financing in the future and that may be exercised when the
         effect would be to depress the market price of the common stock.


         We have issued and outstanding options to purchase up to an additional
16,129,941 shares of common stock at a weighted average exercise price of $0.23
per share. The existence of such options may prove to be a hindrance to future
financing, and the exercise of options may further dilute the interests of the

                                       24
<PAGE>

stockholders. The possible future resale of common stock issuable on the
exercise of such options could adversely affect the prevailing market price of
our common stock. Further, the holders of options and warrants may exercise them
at a time when we would otherwise be able to obtain additional equity capital on
terms more favorable to us.

         We may have incurred contingent liabilities in connection with our
         previous sales of common stock, in which we may have issued securities
         without an available exemption from registration under the Securities
         Act of 1933.


         Through September 30, 2001, we have issued an aggregate of
approximately 91,068,000 shares of common stock for cash, services and other
consideration, including an aggregate of approximately $5,730,000 from shares
issued for cash, in reliance on exemptions from registration under the
Securities Act of 1933. Unless the sales of the shares qualify for an exemption
from registration, either pursuant to Regulation D promulgated under the
Securities Act or otherwise, the investors would have the right to rescind their
purchase of the common stock if they should desire to do so. Since compliance
with exemptions from registration is highly technical and quite difficult, it is
possible that if an investor should seek rescission, he or she would succeed. A
similar situation prevails under state law in the states where the common stock
may have been offered without registration in reliance on specific exemptions
from registration that require compliance by us with stringent filing
requirements or other conditions, some of which must be satisfied prior to
making an offer in a specific state. If a number of investors were successful in
seeking rescission, we would face their financial demands, which could have an
adverse effect on the nonrescinding investors and us. Inasmuch as the basis for
relying on exemptions from registration is factual, depending on the conduct of
the Company and persons contacting prospective investors and making the
offering, we have not received a legal opinion to the effect that any offer and
sale of securities has been exempt from registration under any federal or state
law. Instead, we have relied on the operative facts, as documented by us, as our
basis for such exemptions. No investor has sought rescission or made a claim for
damages. The applicable statutes of limitations under federal and state
securities laws require that lawsuits seeking rescission be commenced within a
specified time after the date of the sale or the investor's discovery of the
violation. We cannot assure that the applicable statute of limitations would
preclude investors from obtaining rescission should they choose to do so.


         We may also be subject to civil or other enforcement or remedial
actions by federal and state authorities that, upon review, may conclude that an
exemption from registration was not available for various transactions in which
we offered and sold securities. We have not been advised of any inquiry or
investigation by any federal or state securities agency, but we cannot assure
that such investigation may not be initiated in the future. If such inquiry or
investigation were to result in an agency determination that action should be
brought against us, we may incur costs of investigating and defending our
position. Any finding in an administrative action or court proceeding that we
have violated the law would impose on us the obligation to disclose such
violation and may impair our ability to seek financing in reliance on certain
exemptions from registration under applicable federal and state securities laws.

                        ITEM 2. DESCRIPTION OF PROPERTIES


         Our principal executive offices are located at 26800 Laguna Hills
Drive, Suite 100, Aliso Viejo, California, where we sublease approximately 400
square feet of office space and related use of office furniture and equipment as
well as receptionist services on a month-to-month basis from an unrelated party
at $4,800 per month.


         We also have offices at 740 East 3900 South, Second Floor, Salt Lake
City, Utah 84107. Until March 2001, we owned the building jointly with other
unrelated parties. At that time, we were unable to continue with our portion of
payments for the building purchase, and we sold our share of the building to the

                                       25
<PAGE>

other owners for forgiveness of our past-due payments and rent-free continued
tenancy through September 2001. We are currently negotiating for a six-month
lease that would take us through March 2002, at approximately $2,145 per month.
We believe these offices, representing approximately 25% of the space formerly
occupied, are adequate for our near term needs in the Salt Lake City area.


                            ITEM 3. LEGAL PROCEEDINGS

         We are not a party to any material legal proceedings, and to our
knowledge, no such legal proceedings have been threatened against us, except as
follows:

Canopy Group, Inc.

         On March 24, 2000, a judgment against us was entered by the Third
Judicial Court of Salt Lake County, State of Utah, in the matter Canopy Group,
Inc. vs. IC One, Inc. (case no. 990911994CN), in which the Canopy Group sought
collection of a $250,000 note, plus interest, attorney's fees and costs, due by
IC One. On August 7, 2000, the court entered a satisfaction of judgment based on
a settlement agreement reached between us and the Canopy Group. The settlement
agreement called for us to pay the full amount of principal and interest due
under the note. Under the settlement agreement, the Canopy Group bought
1,539,535 shares of common stock for the purchase price of $0.3666 per share,
for an aggregate purchase price of $564,417, paid as follows: $250,000 paid by
check and the balance of $314,417 paid by satisfaction of a judgment in that
amount owed by us.

Joseph and John Diamond

         On October 11, 2000, two attorneys formerly employed by us, one of whom
was legal counsel and chief financial officer and the other of whom was his son,
filed suit in Los Angeles  Superior  Court,  Los Angeles,  California,  alleging
causes of action based upon misrepresentation,  fraud,  intentional interference
with  contractual  relationship,  intentional  breach of contract,  retaliation,
breach of fiduciary  duty of officers and directors,  intentional  violations of
securities laws, and running a racketeering  influenced corrupt organization and
seeking  actual  damages  aggregating  approximately  $2.2 billion plus punitive
damages,  costs and  fees.  Diamond  Law Firm vs.  Schimatic  Cash  Transactions
Network.com, Inc., et al., (Case No. LC053960). On November 15, 2000, we settled
this matter with the issuance of 500,000  shares of restricted  common stock and
the payment of approximately $9,600.

Kennan Beckstrand

         On January 25, 2001, Kennan T. Beckstrand, a former employee, filed a
Confession of Judgment in the Third  Judicial  District  Court,  Salt Lake City,
Utah,  against us for unpaid wages,  benefits and related items,  plus costs and
attorney's  fees  in  Kennan  T.  Beckstrand  vs.  Schimatic  Cash  Transactions
Network.com, Inc., et al. (case no. 010900825).  Following the entry of judgment
against IC One on February 15, 2001, IC One paid $69,742 in satisfaction of this
judgment.

Quint Star Management


         On August 30, 1999, Quint Star Management, Inc. initiated an action in
the Third Judicial District Court, Salt Lake City, Utah, against IC One, Inc.,
Arthur D. Bennett and Peter J. Bennee, for unpaid rent and related charges, plus
costs and attorney's fees, under the lease on our former principal executive
offices in Salt Lake City, Utah. Quint Star Management, Inc. vs. IC One, Inc.,
Arthur D. Bennett, and Peter Bennee (case no. 990908764EV). Following the entry
of judgment against IC One for $50,541.03 on December 7, 2000, IC One reached a
payment arrangement under which we are obligated to pay $5,000 per month, plus

                                       26
<PAGE>

ongoing obligations under the lease. The settlement obligation is guaranteed by
the parent, SCHIMATIC Cash Transactions Network.com, Inc., and is secured by the
furniture and equipment, inventory, accounts, and chattel paper of both the
parent and IC One. We are currently in default in our obligations under this
agreement, but have not received notice of any further action by this creditor.

Marilyn Grish

         On September 18, 2001, the Company was served with a summons and
complaint for an action filed by Marilyn Grish in the Third Judicial District
Court, Salt Lake County, Utah, entitled Grish v. SCHIMATIC Cash Transactions
Network.com aka SCTN dba Smart Chip Technologies, Inc. fka IC One, Inc., civil
no. 010907398, for breach of an independent contractor's contract and seeking
unspecified damages. On October 12, 2001, we filed our answer and a counterclaim
against Ms. Grish and intend to defend this matter vigorously.

James E. Biorge

         We are reviewing, with the advice of legal counsel, whether we have
legal claims that may be asserted against James E. Biorge, a founder and officer
and director of IC One at the time it was acquired in September 1999. At the
time of such acquisition, we set aside in a special trust approximately 7.8
million shares of common stock to be used to resolve claims that may be asserted
against IC One by persons claiming an interest in or claim against IC One as a
successor-in-interest to the assets, operations and liabilities of CardOne,
which Mr. Biorge had also been instrumental in founding and which had been
involved in the initial development of the intellectual properties subsequently
acquired by IC One before IC One was acquired by us. We believe that all or a
portion of the 7.8 million shares then reserved to satisfy such claims, all of
which have subsequently been used for such purpose, should properly be the
responsibility of Mr. Biorge. On the basis of our previous assertion that we may
make such a claim against Mr. Biorge and perhaps other reasons not known to us,
Mr. Biorge has refused to accept certificates for 11,503,138 shares of common
stock of the Company to which he would have been entitled to receive in exchange
for his stock in IC One. We may pursue claims against Mr. Biorge and seek, among
other relief, cancellation of all or a portion of all shares issued to him.

CardOne Development Company and CardOne Corporation


         At the acquisition of IC One in September 1999, 7,800,000 of the shares
issued were placed in a separate trust account to address contingencies in case
they arose as a result of IC One's acquisition from CardOne Development Company
of intellectual property rights that had been licensed to CardOne Corporation,
both organized by affiliates of IC One. Subsequently, 210,800 of those shares
were determined to be in excess of the appropriate conversion calculation and
were returned to us for cancellation. IC One recognized that persons with claims
against or interest in either CardOne Development or CardOne Corporation might
assert claims against IC One. Subsequently, Richard T. Hauge, a founder, officer
and director of CardOne Corporation, together with his associate, John D.
Hipsley, advised that they sought to protect the interest of persons having a
claim against or interest in CardOne Corporation.


         On October 16, 2000, after evaluating the position of Messrs. Hauge and
Hipsley, we entered into a Settlement, Release, Conveyance, and Covenant not to
Sue with Mr. Hauge and CardOne Corporation. Under the agreement, we agreed to
employ Mr. Hauge, and Mr. Hauge agreed to assist us in resolving claims against
the CardOne entities, to convey to us his right, title, or interest to common
stock, preferred stock and any other securities in the CardOne entities, to

                                       27
<PAGE>

waive any further claim to any right, title, or interest in common stock,
preferred stock and any other securities in the CardOne entities, to waive any
indebtedness against the CardOne entities, to convey to us his interest, and
disclaim any further interest, in the intellectual properties formerly held by
the CardOne entities, and to deliver all books and records of the CardOne
entities in his possession to us. Mr. Hauge, CardOne Corporation, and the
Company further agreed to a complete mutual release of claims, waiver, and
covenant not to sue.

         In December 2000, we also entered into a Settlement, Release,
Conveyance, and Covenant not to Sue with John D. Hipsley, we agreed to employ
Mr. Hipsley, and Mr. Hipsley agreed to waive any indebtedness against CardOne
Corporation and CardOne Development Company and to disclaim any further interest
in the intellectual property held by IC One, Inc. Mr. Hipsley and the Company
further agreed to a complete mutual release of claims, waiver, and covenant not
to sue.


         In July, August and September 2001, with the assistance of Messrs.
Hauge and Hipsley, the trust distributed the 7,589,200 shares held by it in
consideration of waivers and releases from persons known to have had claims
against or interests in either CardOne Development or CardOne. In the foregoing,
no stock was issued to our executive officers, directors, other affiliates and
founders or their respective affiliates, including Messrs. Hauge and Hipsley.


Utah State Tax Commission

         The State of Utah has filed tax liens against IC One for unpaid
employee withholding taxes and related amounts aggregating approximately
$57,000.

Other Creditors

         From time to time, we are threatened by creditors to initiate
litigation to collect amounts owed by us and reported in our financial
statements. In cases in which litigation is threatened or initiated, we seek to
negotiate a settlement or forbearance agreement.

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

         None.



                                       28
<PAGE>



                                     PART II


                        ITEM 5. MARKET FOR COMMON EQUITY
                         AND RELATED STOCKHOLDER MATTERS

         Since October 1998, our common stock has been traded in the
over-the-counter market and was quoted on the Over-the-Counter Electronic
Bulletin Board until March 2000. Thereafter, it has been quoted in the Pink
Sheets published by Pink Sheets, LLC, under the symbol SCTN. The trading volume
of the common stock is limited. This limited trading volume creates the
potential for significant changes in the trading price of the common stock as a
result of relatively minor changes in the supply and demand. It is likely that
trading prices and volumes for the common stock will fluctuate in the future,
without regard to our business activities.

         The following table sets forth the high and low closing bid quotations
for our common stock as reported on the Over-the-Counter Electronic Bulletin
Board or Pink Sheets, as appropriate, for the periods indicated, based on
interdealer bid quotations, without markup, markdown, commissions or
adjustments, which may not reflect actual transactions:

                                                 High                 Low
                                          -----------------    -----------------
2001


    Quarter ended December 31                  $0.280               $0.155


    Quarter ended September 30.............     0.230                0.160
    Quarter ended June 30..................     0.280                0.140
    Quarter ended March 31.................     0.328                0.165

2000
    Quarter ended December 31..............     1.050                0.230
    Quarter ended September 30.............     1.750                0.290
    Quarter ended June 30..................     2.250                1.281
    Quarter ended March 31.................     3.938                0.875

1999
    Quarter ended December 31..............     4.125                0.875
    Quarter ended September 30.............     4.250                2.752
    Quarter ended June 30..................     2.752                0.472
    Quarter ended March 31.................     3.931                0.635


         As of the date of this filing, we estimate we have approximately 895
stockholders of record.


Penny Stock Regulations

         Our stock is presently regulated as a penny stock and broker-dealers
will be subject to such regulations that impose additional requirements on us
and on broker-dealers that want to publish quotations or make a market in our
common stock. See Item 1. Description of Business: Risk Factors: Risks Related
to our General Proposed Business--There are Certain Rules Applicable to our
Common Stock as a Penny Stock, and those Rules May Limit the Liquidity and the
Resale of our Common Stock.

Dividend Policy

         We have never paid cash dividends on our common stock and do not
anticipate that we will pay dividends in the foreseeable future. We intend to
use any future earnings primarily for the expansion of our business.

                                       29
<PAGE>

Transfer Agent

         Our registrar and transfer agent is Standard Registrar and Transfer
Agency, 673 Bluebird N.E., Albuquerque, New Mexico 87128, telephone number (505)
828-2839.

Recent Sales of Unregistered Securities


         Since December 31, 1999, we issued securities without registration
under the Securities Act of 1933 on the terms and circumstances described in the
following paragraphs.


         Unless otherwise indicated, all transactions were the result of
arm's-length negotiations. Transactions involving the issuances of stock to
persons who, at the time of such transactions, were either executive officers,
directors, principal stockholders, or other affiliates are noted. In each case
of the issuance of stock to affiliates, unless otherwise noted, such affiliates
purchased stock on the same terms at which stock was sold to unrelated parties
in contemporaneous transactions, and such transactions were approved unanimously
by the disinterested directors.

         Certificates for all shares issued in the following transactions bore a
restrictive legend conspicuously on their face and stop transfer instructions
were noted respecting such certificates on our stock transfer records, except as
expressly noted in the case of the issuance of securities under compensatory
benefit plans in reliance on Rule 701 promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as noted below.


     Erroneous Issuances

         In May 1999, 2,000 shares of the Company's stock were erroneously
issued, without restricted legends, by the previous transfer agent. The shares
issued were subsequently canceled on March 31, 2000, with the concurrence of the
recipient.

     The Acquisition

         In May 1999, a group of stockholders representing a substantial
majority of the stockholders of IC One, Inc., then a privately held Delaware
company, entered into negotiations for the possible acquisition of IC One by the
Company. These negotiations led to the execution of a Memorandum of
Understanding on June 2, 1999, and a Reorganization Agreement dated June 30,
1999, as amended July 17, 1999, and September 10, 1999. Pursuant to the
agreement, as amended, and on the approval of stockholders, IC One was merged
with and into a newly-created, wholly-owned subsidiary of the Company effective
September 16, 1999. In the acquisition, the Company issued an aggregate of
42,400,000 shares of restricted common stock in exchange for all of IC One's
common stock then-issued and outstanding or claimed to be issuable under stock
subscriptions or similar arrangements. At the time of the acquisition, IC One,
Inc. had 83 accredited and 85 nonaccredited stockholders, including 45 employees
or their family members as well as a substantial number of personal or business
associates of IC One's founders, officers or directors. The transaction was
approved by IC One stockholders following written notice of a meeting with
related solicitation statement. At the stockholder meeting to approve the
transaction, officers and directors of both the Company and IC One provided
detailed business and financial information about the respective companies as
well as the terms of the transaction. Stockholders were advised both orally at
the meeting and in writing that the shares of restricted common stock of the
Company to be issued in the transaction constituted "restricted securities"
under the Securities Act. All certificates for common stock issued in this
transaction bore a restrictive legend, and stop transfer instructions were

                                       30
<PAGE>

placed with the transfer agent against transfer of the securities. The offering
was limited to the stockholders of record of IC One, and no form of general
solicitation or advertising was employed. No underwriter participated.

         At various times during the period following the acquisition of IC One,
errors in the share registry for IC One were discovered. The Company assumed the
responsibility for issuing equivalent Company shares of restricted common stock
in accordance with the acquisition exchange ratio of 0.7591 shares of Company
stock for each share of IC One stock to correct such errors. As a result, the
Company cancelled 43,198 shares in 1999, issued 119,905 shares in 2000, and
issued 76,527 shares 2001, through September 30, which were returned from or
issued to various IC One stockholders who were able to prove their entitlement,
including 16 additional persons whose names did not appear on the IC One
stockholder list at the time of the acquisition.

         The approximate price of the Company's common stock was between $0.55
and $0.87 per share in May 1999 when negotiations began, $0.83 per share on June
2, 1999, when the Memorandum of Understanding was executed, $2.75 on the June
30, 1999, date of the Reorganization Agreement and $3.94 per share on September
16, 1999, when the acquisition was effective.

     Real Estate Joint Venture

         On December 30, 1999, the Company agreed to issue 420,000 shares of
restricted common stock at an agreed value of $400,000 to three nonaffiliated
entities as a joint venture investment in an office building in which the
Company's principal executive offices are located. As of the date of this
transaction, the market price for the common stock was approximately $0.88 per
share. The recipients were introduced to the Company by a co-worker of one of
the Company's directors, who was aware the Company was looking for office space.
No general solicitation was used, no commission or other remuneration was paid
in connection with such transactions, and no underwriter participated. The
recipients acknowledged in writing that they were receiving restricted
securities and consented to a legend on the certificates issued and stop
transfer instructions with the transfer agent. On March 15 and October 3, 2000,
the Company issued 28,432 and 101,975 shares, respectively, for capital
improvements to the property valued at $56,864 and $33,652, or $2.00 and $0.33
per share, respectively, the approximate market price of our common stock as of
the respective dates of such transaction.

     Stock Tendered as Security for Obligation to IBM

         During June 2001, we revised our previous agreement with IBM to reduce
and extend the payment terms of the balance due it. As part of the negotiated
arrangement, IBM agreed to return to us for cancellation all 2,100,000 shares of
our common stock that had been issued.


     2000 Sales for Assets, Services or Cash

         Miscellaneous

         On January 4, 2000, 8,000 shares of restricted common stock were issued
as the purchase price for $6,800 in capital equipment, or $0.85 per share. On
such date, the market price for the common stock was approximately $1.00 per
share.

         On January 4, 2000, a former STI stockholder returned 286,267 shares of
restricted common stock based on an agreement. The shares were canceled and
returned to the status of authorized and unissued stock.

                                       31
<PAGE>

         Services

         From October 1999 to December 2000, the Company issued 960,713 shares
of restricted common stock to 28 persons, including 21 accredited investors, in
exchange for financial, technical and management services, with a total value of
$950,167, or $1.02 per share. On the dates on which such transactions occurred
during the above period, the trading price of the common stock ranged between
approximately $3.38 and $0.33 per share. The offering was limited to, and each
of the persons receiving stock in the foregoing transactions was, one or more of
the following: a regular employee/consultant, an existing stockholder, or a
family member or personal or business associate of an affiliate. Each was able
to bear the financial risk of the investment. Each transaction was negotiated by
one or more executive officers of the Company. No general solicitation was used,
no commission or other remuneration was paid in connection with such
transactions, and no underwriter participated. The recipients acknowledged in
writing that they were receiving restricted securities and consented to a legend
on the certificates issued and stop transfer instructions with the transfer
agent.

         The above shares issued for services included 17,500 shares of
restricted common stock issued to two key employees as a retention incentive in
April 2000. Both employees were engaged in administrative, technical, legal,
marketing or financial functions within the Company and were fully aware of the
Company's business and financial condition and related risks. The average
trading price of the common stock at the time of the transaction was
approximately $1.68 per share. The recipients acknowledged in writing that they
were receiving restricted securities and consented to a legend on the
certificates issued and stop transfer instructions with the transfer agent.

         The above shares issued for services also included 335,000 shares of
stock that were accrued for issuance to directors of the Company. Beginning in
November 1999 and until December 2000, at which time this policy ceased, all
members of the board of directors, including employees, became entitled to
receive 5,000 shares of restricted common stock of the Company for each month
during which they served as a director. Under this arrangement, the Company
accrued the issuance to directors of 60,000 shares in 1999 and 275,000 shares in
2000. All of these shares were issued as of March 2001. All certificates bore a
restrictive legend and stop transfer instructions were noted on the Company's
stock transfer records.

         Loan Repayments

         On May 1, 2000, we entered into an agreement with the Canopy Group,
Inc. to issue 1,122,918 shares of restricted common stock in consideration of
satisfaction of a $314,417 judgment and an additional 416,667 shares for
$250,000 cash investment, or $0.37 per share. The judgment related to a claim
for collection of the obligation due under a $250,000 promissory note in
default. On the date of this settlement, the market price for the common stock
was approximately $1.90 per share. This venture capital investor was provided
with and had access to full business and financial information about us and
negotiated the transaction with our principal executive officers.


         Between October 27 and December 11, 2000, the Company issued an
aggregate of 135,529 shares of restricted common stock to three persons, each of
whom was an accredited investor, as payment of $56,412 in interest accrued on
outstanding loans to the Company, or an average of $0.42 per share. On the dates
on which such transactions occurred during the above period, the market price
for the common stock ranged between $0.23 and $0.63 per share. The recipients
acknowledged in writing that they were receiving restricted securities and
consented to a legend on the certificates issued and stop transfer instructions
with the transfer agent.


                                       32
<PAGE>

         Cash Sales

         Between December 1999 and December 2000, the Company issued and sold an
aggregate of 3,747,746 shares of restricted common stock for cash of $2,040,397,
or an average of approximately $0.54 per share, to 107 accredited and one
nonaccredited persons. On the dates on which such transactions occurred during
the above period, the market price for the common stock ranged between
approximately $3.94 and $0.23 per share. The offering was limited to, and each
of the persons receiving stock in the foregoing transactions was, one or more of
the following: a regular employee/consultant, an existing stockholder, a family
member or personal or business associate of an affiliate, an employee, or a
then-current stockholder. Each of the 108 persons approached the Company
regarding the investment. Each was able to bear the financial risk of the
investment. Each transaction was negotiated by one or more executive officers of
the Company. No general solicitation was used, no commission or other
remuneration was paid in connection with such transactions, and no underwriter
participated. The recipients acknowledged in writing that they were receiving
restricted securities and consented to a legend on the certificates issued and
stop transfer instructions with the transfer agent.

         Litigation Settlement

         On November 15, 2000, we settled a lawsuit initiated by two attorneys
formerly employed by us, one of whom was legal counsel and chief financial
officer and the other of whom was his son, with the issuance of 500,000 shares
of restricted common stock, 270,000 shares of which were issued as of March 1,
2000, the date on which they were originally issuable by agreement, and 230,000
shares of which were issued as of the November 1, 2000, the date on which we
agreed to the terms of the settlement. The approximate price of the common stock
was $3.13 on March 1, 2000, $0.63 on November 1, 2000, and $0.35 on November 15,
2000. Because of the professional training, positions and responsibilities with
us, relationships with executive officers and between themselves, and bargaining
position, the recipients of stock in this settlement were fully appraised of our
business and financial condition and had received or had access to all
information about us. The recipients acknowledged in writing that they were
receiving restricted securities and consented to a legend on the certificates
issued and stop transfer instructions with the transfer agent. Certificates for
the foregoing shares were issued in March 2001, when the market price was
approximately $0.25 per share.


     Simon Option Exercise

         On April 28, 2000, the Company erroneously recorded the exercise of
stock options by David J. Simon, executive officer, director, founder and
accredited investor with full access to information about the Company. Such
options were to purchase 1,152,260 shares of common stock for $170,000, or $0.15
per share. This transaction was reversed December 11, 2000, based on
clarification of Mr. Simon's intentions.

     Issuance of Limited Recourse Promissory Notes Convertible into Common Stock

         Between October 2000 and December 31, 2001, the Company has issued
$2,295,187 in aggregate principal amount of limited recourse promissory notes
convertible into common stock of the Company. Of this amount, $235,000 was
issued by December 31, 2000. Net proceeds from the sale of these notes are to be
used for specific continuing operating requirements and not to pay past due
liabilities. The convertible notes bear monthly interest payable in additional
shares of common stock computed based on the then-market price for the common
stock in the over-the-counter market. The convertible notes are redeemable at
the option of the Company, unless the investor elects to convert all or any part
of the principal amount of the convertible notes into additional shares of
common stock. As of December 31, 2001, the stated interest on the convertible
notes represents 2.2 million shares of common stock, issuable monthly, subject

                                       33
<PAGE>

to adjustments due to reductions in the market price for the Company's common
stock below $0.20 per share. In certain cases, the Company has agreed not to
redeem the convertible notes until such time as the investors have the right to
convert their interest and principal into an agreed minimum number of shares. As
of December 31, 2001, holders of $313,000 of these notes voluntarily converted
the notes into 3,300,260 shares of common stock. Holders of $1,797,187 in
principal amount of the convertible notes have agreed to convert the notes into
common stock on the occurrence of specific events. The Company estimates that
the issuance of shares for the principal of and accrued interest on the notes
will result in the issuance of a minimum of 24.4 million shares of common stock.
As of January 31, 2002, the Company had issued or committed to issue a total of
29,169,112 shares under these notes, of which 12,189,321 remained as collateral
shares.

         The offering was limited to, and each of the persons, aggregating 35
persons, purchasing notes in the foregoing transactions was, one or more of the
following: a regular employee/consultant, an existing stockholder, or a family
member or personal or business associate of an affiliate, an employee, or a
then-current stockholder. Each was able to bear the financial risk of the
investment. Each transaction was negotiated by one or more executive officers of
the Company. No general solicitation was used, no commission or other
remuneration was paid in connection with such transactions, and no underwriter
participated. The recipients acknowledged in writing that the notes constituted
restricted securities and that any stock received on conversion would constitute
restricted securities and consented to a legend on the certificates to be issued
and stop transfer instructions with the transfer agent. A notice on Form D was
filed with the Securities and Exchange Commission

     2001 Common Stock Issuance

         Between February 20 and September 30, 2001, the Company issued
1,663,476 shares of common stock to a total of 13 purchasers, five of whom were
officers or directors of the Company, two of whom were accredited investors, and
six of whom were nonaccredited investors, in consideration of legal and other
services rendered. The market price on such dates ranged from $0.14 to $0.26. No
general solicitation was used, no commission or other remuneration was paid in
connection with such transactions, and no underwriter participated. The
recipients acknowledged in writing that the securities constituted restricted
securities and consented to a legend on the certificates to be issued and stop
transfer instructions with the transfer agent.

         Between September 30, 2001 and December 31, 2001, the Company issued
1,282,695 shares of common stock to seven purchasers, each of whom was an
accredited investor, in consideration of legal and other services rendered. On
the dates on which such transactions occurred during the above period, the
market price on such dates ranged from $0.28 to $0.16. No general solicitation
was used, no commission or other remuneration was paid in connection with such
transactions, and no underwriter participated. The recipients acknowledged in
writing that the securities constituted restricted securities and consented to a
legend on the certificates to be issued and stop transfer instructions with the
transfer agent.

         Between March and September 2001, the Company issued an aggregate of
2,938,602 shares of common stock to fourteen persons, including nine current or
former employees, each of whom was an accredited investor, and five other
persons, of whom three were accredited investors, for claims regarding services
under their employment agreements at times when the price for the common stock
ranged from $0.14 to $0.26. During this same period, the Company issued 40,000
shares to one individual in settlement of accounts payable. No general
solicitation was used, no commission or other remuneration was paid in
connection with such transactions, and no underwriter participated. The
recipients acknowledged in writing that the securities constituted restricted
securities and consented to a legend on the certificates to be issued and stop
transfer instructions with the transfer agent.

                                       34
<PAGE>

         Included in the above figures are 148,750 shares of common stock issued
to John D. Hipsley and 92,500 shares of common stock issued to Richard T. Hauge,
both of whom were accredited investors, as partial consideration for a
settlement and release agreement entered into with them. See Part II. Item 2.
Legal Proceedings: CardOne Development Company and CardOne Corporation. On such
date, the approximate price of our common stock was $0.14 per share. No general
solicitation was used, no commission or other remuneration was paid in
connection with such transactions, and no underwriter participated. The
recipients acknowledged in writing that the securities constituted restricted
securities and consented to a legend on the certificates to be issued and stop
transfer instructions with the transfer agent.

         On April 16, 2001, the Company issued 110,960 shares of common stock
for remodeling costs of its principal executive offices located at 740 East 3900
South, Salt Lake City, Utah. Such shares were in consideration of ordinary
expenses incurred by the Company as an occupant, and not as part of the real
estate joint venture transactions. No general solicitation was used, no
commission or other remuneration was paid in connection with such transactions,
and no underwriter participated. The recipients, who were accredited investors,
acknowledged in writing that the securities constituted restricted securities
and consented to a legend on the certificates to be issued and stop transfer
instructions with the transfer agent.

         On June 1, 2001, we appointed CIT Canada Inc., North York, Ontario, a
subsidiary of Silverline Technologies, Inc., an international software
development and integration services firm with over 2,600 software professionals
worldwide, as our independent contractor to adapt our software products for a
specific purpose. We agreed to pay CIT Canada in cash or, at our election, in
restricted common stock at the closing price for our stock on the applicable
invoice date. Under this arrangement, we paid $25,000 in cash and have provided
for the issuance of 1,278,615 shares of restricted common stock in the fourth
quarter of 2001, based on statements of work presented by CIT, and to the date
of this filing in 2002. During this period, the price of our stock ranged from
$0.28 to $0.14 per share. No general solicitation was used, no commission or
other remuneration was paid in connection with such transactions, and no
underwriter participated. The recipient, who was an accredited investor,
acknowledged in writing that the securities constituted restricted securities
and consented to a legend on the certificates to be issued.

Options

     Grants

         We have granted options as follows:
<TABLE>
<CAPTION>


                                                                                          Exercise Price
                                                                  Number
             Name               Effective Date    701(1)        of Shares          As Granted      As Repriced(2)
             ----               --------------    ------        ---------          ----------      --------------

Officers and Directors
<S>                               <C>   <C>                        <C>                  <C>              <C>
    James A. Williams             09/06/2000                       800,000              0.48
                                  04/04/2000        Yes            250,000              0.48             0.128
                                  03/01/2000                     2,250,000              0.48             0.128

    Joe G. Coykendall             05/01/2000                       500,000              0.48             0.128
                                  05/01/2000                       500,000              0.48             0.128
                                  05/01/2000                       500,000              0.64

    Peter J. Bennee               09/06/2000                       120,000              0.48
                                  01/13/2000        Yes            600,000              0.48             0.128

                                       35
<PAGE>

    Paul E. Christensen           01/13/2000        Yes            100,000              0.48             0.128

    Richard T. Hauge              04/04/2000                       100,000              0.48             0.128
                                  08/16/2000                     2,000,000              0.48
                                  08/16/2000                     1,000,000              0.48             0.128

    John D. Hipsley               04/04/2000                       100,000              0.48             0.128
                                  08/16/2000                     1,400,000              0.48
                                  08/16/2000                       100,000              0.48             0.128
                                  08/16/2000                       500,000              0.48             0.128

    Philip J. Voelker             10/16/2000                       700,000              0.48             0.128
                                  10/16/2000                       500,000              0.48

    Donna M. Kreutz               01/13/2000        Yes            200,000              0.48             0.128
                                  04/04/2000                       100,000              0.48
                                  04/04/2000        Yes             50,000              0.48

Other Employees                      2000                          928,333         $0.48-0.80
(11 persons)

</TABLE>

(1)  Issued with reliance on Rule 701.
(2)  In an effort to provide incentives for management and employees to continue
     with us, in July 2001, the board of directors approved a plan reducing to
     $0.128 per share the exercise price of options to purchase 12,428,333
     shares held by officers, directors and other employees of the Company,
     provided that those options were exercised immediately. The exercise prices
     for the old options ranged from $0.1475 to $0.48 per share, with a weighted
     average exercise price of $0.347 per share.

     Exercises

         In July 2001, all officers and employees offered the repriced options
exercised their options to purchase an aggregate of 12,428,333 shares with the
delivery of nonrecourse promissory notes with an aggregate principal balance of
$1,335,827, after crediting Mr. Simon $255,000 against the exercise price of his
options resulting from the cancellation of our indebtedness to him. In
consideration of the requirement that the options be exercised immediately, we
authorized the payment of the exercise price by the execution of nonrecourse
promissory notes in the principal amount of the full purchase price. The notes
are due no later than December 31, 2004, and provide that the maker of the note
is required to repay principal only from proceeds from the sale of the stock
issued. Stock issued for options exercised in consideration of the notes is
being held by us as collateral for the note. If a note is not repaid at or
before maturity on December 31, 2004, the subject shares would be returned to us
for cancellation, and the related note would become null and void.

     Exemption for Offers and Sales Pursuant to Compensatory Benefit Plans
     Pursuant to Rule 701

         The options noted were granted in reliance on the exemption from
registration set forth in Rule 701 for certain compensatory benefit plans and
contracts relating to compensation, to certain Company-related individuals. Each
person receiving this compensation was a past or present employee, director,
officer, family member, consultant or advisor. We made the offers and sales
pursuant to written compensatory benefit plans delivered to the investors. In
each fiscal year, less than the maximum allowable amount of $1,000,000 or 15% of
the outstanding amount of the class of securities was offered and sold in
reliance on this section. In no fiscal year have we exceeded the $5,000,000
annual limit that would trigger additional disclosure obligations to the
investors. We also rely on the exemption from registration provided in Section
4(2) for these offers and sales as noted below.

                                       36
<PAGE>

     Exemptions from Registration

         Except as expressly otherwise stated above, each of the above
transactions was effected in reliance on the exemption from registration
provided in Section 4(2) of the Securities Act as transactions not involving any
public offering. In each case, the offering was limited and without any general
solicitation, there were a limited number of investors, and the investors were
sophisticated relative to an investment in us and able to bear the economic
risks of their investment. Each transaction was negotiated with an officer of
the Company to answer questions from the investors and provide additional
material information requested, to the extent it could be provided without
unreasonable effort or expense. The investors had access to material information
of the kind that registration would provide. All certificates contained a
restrictive legend and stop transfer instructions were placed against transfer
of the certificates in the absence of registration or an available exemption.


        ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


         You should read the following discussion and analysis  in  conjunction
with  our  consolidated  financial  statements  included  in  this  filing.  The
following  information  contains  forward-looking  statements.  See Special Note
about  Forward-Looking  Information.  Our  activities are subject to significant
risks. See Part I. Item 1. Description of Business: Risk Factors.

         The following discussion and analysis provides information that
management believes is relevant to an assessment and understanding of our
financial condition. This discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere herein.

Historical Results


     Results of Operations

         We have been in the development stage during the period since
inception. See Note 1 of Notes to Consolidated Financial Statements for a
discussion of the reverse merger accounting. Our results of operation reflect
the operating history of IC One, Inc. for periods prior to the time IC One, Inc.
was acquired in September 1999. From our inception until December 31, 2000, we
incurred total expenses of approximately $39,591,000, including approximately
$14,905,000 for research and development leading to creation of our patents,
software and intellectual property. We expect to achieve technical feasibility
of our software by the end of the first quarter of 2002. Of the approximately
$39,591,000 of expenses, approximately $23,676,000 represents the value of
compensation for services or interest expense paid in kind with common equity.
The balance of the expenses was funded through the sale of securities and
through increases in liabilities.

         During 2000, we incurred total expenses of approximately $9,116,000,
compared to approximately $7,678,000 in 1999. The year 2000 expenses include
approximately $3,568,000 of noncash expense related to accounting for stock
option compensation, as compared to no stock based compensation in 1999.
Comparable other expenses, excluding the stock option compensation, were
approximately $5,548,000 in 2000, as compared to $7,678,000 in 1999. At the
current time, we are operating at a level that requires approximately $250,000
per month, including minimum amounts for reduction in the past-due liabilities
of our subsidiary, IC One, Inc.

                                       37
<PAGE>

     Current Liabilities and Debt Reduction Plan

         We have experienced severe cash shortages and inability to pay our
obligations on a timely basis. Through December 31, 2000, we had incurred
approximately $4,660,000 of unpaid current liabilities, including $1,970,000
payable to IBM and $982,000 owed to affiliates who are officers or directors of
the Company. Since December 31, 2000, we reached negotiated settlements to
reduce liabilities by a total of $2,223,000, including certain amounts accrued
after December 31, 2000. See below and Note 16 of Notes to Consolidated
Financial Statements for an additional description of these transactions.
Approximately $2,851,000 of current liabilities reflected at September 30, 2001,
are substantially past due and are not subject to any formal forbearance
agreement. Substantially all of these amounts are liabilities of our subsidiary,
IC One. In the event demands are made upon us or our subsidiary that cannot be
met and the associated creditors successfully pursue collection actions, we or
our subsidiary could be exposed to additional costs of legal fees, interest or
penalties, and may be forced to take other defensive actions, including seeking
protection under the bankruptcy laws.

         We estimate that, at the date of this filing, our current liabilities
total approximately $3,091,000, including approximately $1,060,000 payable to
IBM and $337,000 owed to officers or directors. The remaining approximately
$1,694,000 of current liabilities are to vendors and other unaffiliated
creditors. Substantially all of this amount is past due and represents remedial
liabilities incurred by IC One, Inc., our wholly owned subsidiary acquired in
1999.

     External Funding

         We have been able to raise capital through the issuance of our common
stock and convertible debt securities through private placements. During 2000,
we raised approximately $3,233,000 from the issuance of securities, including
the value of goods and services obtained (other than stock option compensation
amounts) and the amounts of debt and associated interest expense paid by the
issuance of common stock. We obtained cash from financing activities of
$2,195,000 in 2000 and $1,668,000 in 1999.

Plan of Operation

         Our plan of operation focuses primarily on the continued building of
business and marketing alliances and revenue channels for our intellectual
property and products as more fully described in Part I. Item 1. Description of
Business. We will also actively commence increased marketing efforts with
specific customers including smart-card issuers, providers of payments
processing services and providers of hardware and software products to the
industry. We will actively continue our program of integrating and licensing our
software products with other applications related to electronic payments.
Successful completion of contracts for the delivery of software products will
require additional customization and enhancement. Our business plan anticipates
a substantial increase in the demand for software products and services related
to the use of smart-chip devices in electronic payments. At the same time, the
use by electronic payments providers of smart-chip devices will increasingly
come within the bounds of our patented intellectual property. We believe this
may provide substantial opportunity for intellectual property licensing revenues
commencing during 2002.

         In summary, we project substantial expansion of smart-card loyalty
programs in North America that we hope will enable us to complete new marketing
and licensing arrangements that may lead to revenue during 2002. We do not
expect, however, that these arrangements would result in revenues sufficient to
cover operating costs prior to late 2002 or later.

                                       38
<PAGE>

         We believe that in order to adequately pursue our plan of operation and
meet our business and software development needs, we would need to hire up to 20
new employees in the year 2001. Our ability to obtain such people depends on our
ability to obtain necessary capital. We do not expect to purchase or sell any
material plant or equipment in the foreseeable future. See Notes to Consolidated
Financial Statements-Subsequent Events regarding the sale of our interest in a
real estate joint venture acquired in 1999.


         We believe our software and systems technologies are developed to the
point where they are readily adaptable to market applications. Further
development, with the exception of the integration of loyalty with payments
processing, has been delayed pending further definition by market and process
alliances. We expect product integration and enhancements will be partly
co-funded by venture partners based on agreed cost/revenue sharing models and,
in some cases, by the issuance of common stock or other securities. We are
continuing our product enhancement program, in particular for the integration of
loyalty with payments processing. Of the $10.0 million of new capital required
as described below, we expect that as much as $5.0 million would be expended for
the further enhancement of technology, associated patents and for the
integration of application software into customer requirements. To the extent
that such work can be funded in part by venture or alliance partners, this
budget would be reduced.

     Financing Program

         We currently have no revenue from operations and do not expect to
receive significant revenue until late 2002 or later. We currently require
approximately $250,000 per month, or $3.0 million per year, to continue at
current operating levels, including minimum amounts for reduction of past due
liabilities of our subsidiary, IC One. In addition, we estimate that we will
require as much as $7.0 million of funds over the next 12 months in order to
implement our marketing plan, including research and development expenses
associated with integrating and enhancing our technologies and other operating
expenses as contemplated by our plan of operation.

         Based on our analysis of our marketing efforts to date, we believe that
we may begin receiving sufficient revenue in approximately the third or fourth
quarter of 2002 to meet our minimal requirements, but that time may be delayed
if we are unable to raise necessary capital timely or if we experience
unexpected delays in generating revenues. Prior to the time when we have
sufficient internally-generated funds, we expect to raise funds through the sale
of additional securities or through strategic alliances or joint venture
arrangements with established companies in order to meet such needs. We cannot
assure that we will be able to complete such sales of securities or
arrangements. If externally provided capital is not sufficient or if our receipt
of revenue is unexpectedly delayed, we may be unable to continue.

         We are actively seeking to obtain through private placement of equity
and or debt securities at least $10 million of additional capital.

     Investment Banking Group Retained

         We have retained WestPark Capital Partners, LLP, or WestPark, as a
business and financial advisor. WestPark, with offices in California and Hong
Kong, will advise us on organizational and financial matters and will assist us
in pursuing necessary financing and strategic/financial relationships leading to
obtaining capital as described above. Over the next few months, we expect to
evaluate and possibly pursue a small number of selected business combination or
joint venture alternatives identified by WestPark that involve established
companies with business interests that are related to or strategic to our
business.

                                       39
<PAGE>

         Following its engagement, WestPark advised that pursuing these possible
funding/joint venture arrangements may require reorganization of our operations,
including the possible creation of an operating subsidiary. WestPark also
identified the need for us to substantially reduce our liabilities, to provide
improved incentives in order to attract and retain critical management resources
during the period prior to the time when we achieve adequate funding for our
operations, and to create a new context and marketing image for our
smart-card-based loyalty systems. Most of these recommendations have been or are
being implemented.


         Neither WestPark nor any other person or firm has agreed to provide us
with any required external funding,  other than as described in Part II. Item 5.
Market for Common  Equity  and  Related  Stockholder  Matters.  Recent  Sales of
Unregistered Securities.


Going Concern

         As noted in Note 2 of Notes to Consolidated Financial Statements, the
substantial amount of current liabilities, the absence of revenues in the near
term and the need for substantial amounts of capital necessary for our plan of
operation, collectively, raise doubt about our ability to continue as a going
concern.


         Management's plans with respect to these matters include continuing to
restructure or renegotiate current liabilities, issuing additional debt or
equity securities in order to raise additional funds and ultimately generating
revenue from the marketing plan now being implemented. In the event we are
unable to raise necessary funds from external sources, we will seek additional
forbearance agreements, continue to defer executive employee compensation and
seek to obtain necessary services through the issuance of common stock.
Management expects to incur substantial additional losses for the foreseeable
future, even if we are able to begin generating revenue during 2002. We will
also rely increasingly on strategic alliances with others that might assume
responsibility for financing specific required product customization or
enhancement tasks; thus, reducing our financial requirements for the
exploitation of our intellectual properties.

         Based on management's analysis of the rate of advancement of the
smart-chip-based electronic payments industry, the financial and operating plans
described above, our historic ability to obtain capital through the sale of
securities and our successful plan to reduce by negotiation our current
liabilities, we believe that we will be able to continue.


                          ITEM 7. FINANCIAL STATEMENTS

         Our financial statements, including the auditors' report, are included
beginning at page F-1 immediately following the signature page of this report.


              ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                     ON ACCOUNTING AND FINANCIAL DISCLOSURE

         None.


                                       40
<PAGE>



                                    PART III


ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT

Executive Officers and Directors

         Our articles of incorporation provide for the election of the entire
board of directors at each annual meeting of stockholders, with each director to
serve until the next annual meeting and until such director's successor is
elected and qualified. Officers are elected and serve at the pleasure of the
board of directors.

         The following table sets forth the name, age and position of each of
our current directors and executive officers:


          Name         Age                    Title


David J. Simon          53      Chairman of the Board of Directors
James A. Williams       55      Director, President and Chief Executive Officer
Joe G. Coykendall       56      Director, Sr. Vice President, Treasurer/Chief
                                Financial Officer
Peter J. Bennee         49      Director, Sr. Vice President and Secretary
Paul E. Christensen     61      Director
Richard T. Hauge        55      Sr. Vice President
John D. Hipsley         47      Sr. Vice President
Philip J. Voelker       53      Sr. Vice President
Donna M. Kreutz         55      Vice President

        The principal occupation, title and business experience of our executive
officers and directors during the last five years,  including  the  names  and
 locations of employers, are indicated below.

        David J. Simon has been a  director since November 1998 and Chairman of
the Board since May 1999.  He served as Chief  Executive  Officer  from May 1999
until July 1999,  and again from November 1999 until March 1, 2001. He served as
President  and Chief  Executive  Officer for R & D  Technology,  Inc.,  a Nevada
company that he helped found,  from its inception  August 31, 1998, until it was
acquired by us in November  1998. In all of Mr.  Simon's  employment in the past
five  years,  he  was  involved  in  the  architecture,   design,   development,
maintenance  and  management of computer  programs,  software  applications  and
systems.  His career,  including  as an employee and as a  consultant,  has been
involved  with  leading-edge  computing  technology  and  spanned  many  diverse
industries  including  banking,  healthcare,  manufacturing,  stock exchange and
telecommunications.  From May 1997 through  August  1998,  Mr. Simon served as a
contract  consultant to Perot  Systems,  where he was the technical lead for the
development  of  management  systems  related to wholesale  energy  contracts by
Southern  California  Edison Company.  Prior to that and from September 1993, he
served as a contract  consultant to PacificCare  Health  Systems,  leading large
system implementation and research and development proof of concept projects. He
also served as an employee or technical  consultant and project lead for Pacific
Stock Exchange,  Bank of America,  USWest Network System, Seattle First National
Bank,   Electronic   Data  Systems,   and  numerous  U.S.   government   defense
organizations.

                                       41
<PAGE>

        James A. Williams became a director in November 1999 and Chief Executive
Officer  in March  2001.  He has more than 30 years  experience  in  information
technology  management in the financial service and healthcare  industries.  His
information  systems  experience  encompasses  the  design,  implementation  and
support  of  both  large-scale,   high-volume  and  distributed  (client-server)
transaction  processing  systems.  From June 1993 until March 2000, he served as
Chief  Information  Officer and Senior  Vice  President  of one of the  nation's
leading healthcare  services  companies,  PacifiCare Health Systems,  Santa Ana,
California.  PacifiCare is a company with 8,900  employees,  3.7 million members
and annual revenues of $10 billion,  where he directed the activities of Systems
Development,  Data  Center  Operations,  Voice and Data  Telecommunications  and
Office  Services.  He also served as a member of  PacifiCare's  Senior  Council,
which set company direction. Other previous positions include senior information
services  posts with:  Sanwa Bank,  Los Angeles,  California,  June 1992 to June
1993; Security Pacific Bank, Los Angeles,  California,  April 1988 to June 1992;
Citibank,  Sioux  Falls,  South  Dakota,  April  1984 to April  1988;  Merchants
National Bank & Trust  Company,  Indianapolis,  Indiana,  December 1972 to April
1988; RCA Corporation, Indianapolis, Indiana, August 1966 to December 1972.

        Joe G. Coykendall joined us as Sr. Vice President and Chief Financial
Officer in May 2000 and was  appointed  to the board of  directors in July 2000.
Mr.  Coykendall  has more than 25 years of experience in executive and financial
management  positions  for  corporations.  Prior  to  joining  us and  following
September  1999,  Mr.  Coykendall  served  various  clients as a  consultant  in
corporation finance. From June 1998 through September 1999, he served as Manager
and  Chief  Financial  Officer  of  Camber  Flight   Simulation,   L.C.,  a  New
Mexico-based  manufacturer of computing hardware and software for complex flight
training  devices.  He also  served  as a  financial  consultant  to Air  Safety
International  L.C.,  the parent company to Camber Flight  Simulation,  LC. From
July 1995 through June 1998, he was Chief Financial Officer of AlphaMation Inc.,
a Salt Lake City manufacturer of simulation equipment.  Mr. Coykendall served as
Managing Director, a Member of the Management Committee and a corporate director
of Financial Security Assurance,  a New York City-based financial guaranty firm.
Until 1989, he was a Sr. Vice President,  Chief Financial Officer and a director
of Tucson Electric Power Company,  an Arizona utility company. He also served as
President and Chief Executive  Officer of a group of investment  companies owned
by Tucson Electric Company,  Tucson,  Arizona.  Mr. Coykendall has served on the
board of directors of numerous public companies, including Tucson Electric Power
Company Inc.,  Financial  Security  Assurance,  Inc., the Foothill Group,  Inc.,
Tucson Resources Inc., Sierrita Resources Inc., the Arizona Commerce Bank, Inc.,
and Union Planters Bank, Inc.

        Peter J. Bennee is a co-founder of IC One, Inc. and, since its inception
in  February  1997,  has  served  in  various  capacities   including  Corporate
Secretary,  Director and Senior Vice President. Since IC One's acquisition by us
in September  1999,  Mr.  Bennee has been Senior Vice  President  and  Corporate
Secretary.  He also served as a director since November 1999. From November 1995
through  February  1997,  Mr. Bennee was Chief  Executive  Officer of The Regent
Group,  a Salt Lake City,  Utah real estate  company.  From  February 1993 until
November  1995,  Mr.  Bennee was  President  of  AlphaMation,  Inc., a Salt Lake
City-based  manufacturer of  entertainment  and aviation  simulation  equipment,
which he co-founded.  Previously,  Mr. Bennee was President and Chief  Executive
Officer of The  Regent  Group,  in  Honolulu,  Hawaii,  and  Chairman  and Chief
Executive Officer of Hawaii Federal Mortgage  Corporation,  Honolulu,  Hawaii, a
commercial and residential mortgage brokerage company.

        Paul E. Christensen has been a director since September 1999. Prior to
that,  he served as a director  of IC One,  Inc.  from  April 6, 1999,  until we
acquired it in September  1999.  Mr.  Christensen  has had over 30 years of real
estate experience. From July 1995 until July 2001, Mr. Christensen has served as
a Realtor  for  Prudential  Realty  Associates.  In this  position,  he  managed
commercial and investment  brokerage.  He is currently the managing  director of
WESPAC  Holdings  L.C.,  a commercial  real estate  development  and  management
company.  He previously  served as Vice  President of Island  Homes,  one of the
oldest  residential  real estate sales company in Hawaii for over ten years, and
has specialized in all phases of commercial and  residential  real estate in the
United States and around the world.  Mr.  Christensen  has a Master's  Degree in
Accounting with a specialty in taxes from Brigham Young University in 1966.

                                       42
<PAGE>

        Richard T. Hauge joined is in January 2000 in his current capacity. Mr.
Hauge has a long history in the development of the smart-card industry. Prior to
joining us, Mr.  Hauge was  employed by CardOne  Corporation,  a company that he
co-founded,  from  February 1993 through  October 1996.  From October 1996 until
October  1999,  Mr. Hauge was employed by  SmartTrac,  an affiliate of OSI Group
Services U.K. Ltd., which he also co-founded.  At SmartTrac,  he was responsible
for initiating several global electronic payment projects including Visa France,
Visa Canada and the  development of Asia Pacific.  In September  1998, Mr. Hauge
became Chief Executive Officer and Chairman of the Board of Directors of CardOne
Corporation,  positions he held until July 2001.  Since 1993, he has also served
as a representative for and/or consultant to numerous  international  smart-card
projects.  He is a  member  of the  Board of  Directors  for the  Advanced  Card
Technology Association in Canada.

       John D. Hipsley joined us in January 2000 in his current capacity. Prior
to joining us and from September 1998, Mr. Hipsley served as Secretary/Treasurer
and member of the board of CardOne Corporation, a company that he co-founded. He
is also a co-founder of SmartTrac, a consultancy affiliate of OSI Group Services
U.K. Ltd., a consulting  services company.  Mr. Hipsley served with SmartTrac as
its Director of Strategic Planning from February 1996 until October 1999. He has
been  a  consultant   for   international   organizations   including  the  Visa
International  Open Platform Group, a unit involved with creating  standards for
credit and debit card software platforms, where he was a contributor to the Visa
Open  Platform  Guide  published  in March 1999.  Mr.  Hipsley is a barrister in
Australia.

       Philip J. Voelker has over 25  years  of  experience in technical sales,
marketing  and client  management.  He joined us in October  2000 in his current
capacity. Prior to that, he was Sr. Vice President of Sales for the Teleservices
Division  of First  Data  Corp.  (FDC) in Omaha,  Nebraska.  FDC is the  world's
leading processor of credit and debit card  transactions,  supplying services to
more than 260  million  cardholders  and 2  million  merchant  locations.  As an
executive  of FDC  Teleservices,  Mr.  Voelker was  involved in many  aspects of
corporate  operational  planning,   and  annual  and  long-term  strategic  plan
development.  Mr.  Voelker  joined FDC in 1993 and held various  management  and
marketing  positions.  Prior to joining FDC, Voelker has held other senior sales
and marketing positions with Nortel, CCI and Honeywell.

       Donna M. Kreutz  joined  us  as  Vice President  of  Client Services  in
September  1999.  Prior  to  joining  us  as an  employee,  she  served  us as a
consultant to marketing and sales.  From June through  November 1998, she served
as a consultant to R & D Technology, Inc., a company acquired by us in 1998. Ms.
Kreutz was employed as principal  business analyst by PacifiCare Health Systems,
Santa Ana,  California,  from May 1994 to September 1995. In her career, she has
had leadership roles in large-scale,  complex implementations for the telephone,
educational,  healthcare and financial  sectors in the application of technology
in business  environments working for Software Dynamics,  PacifiCare Health Care
Systems, Sequent Computer Systems, Tandem Computers and Computer Consoles, Inc.,
all  in  Southern  California.  While  with  Tandem,  she  successfully  managed
corporate  and  customer  resources  related  to  establishment  of the  largest
relational database benchmark ever performed by the computer industry.

Compliance with Section 16(a) of the Exchange Act

        We are aware that officers, directors and beneficial owners of 10% or
more of our outstanding stock have not filed the required Forms 3, 4 and 5
pursuant to Section 16(a) of the Securities Exchange Act of 1934 following
effectiveness of our registration statement on Form 10-SB on or about June 12,
2000.

                                       43
<PAGE>

        We believe there are 11 individuals who have been directors, officers
or beneficial owners of 10% or more of any class of equity securities since June
12, 2000, and who, therefore, were required to file initial reports of stock
ownership on Form 3. We believe that none of such individuals filed an initial
report of stock ownership on Form 3, which were due for the first 10 individuals
named in the table below on or about June 12, 2000, and for the last individual
named in the table below, who became subject to the obligations in Section 16(a)
of the Securities Exchange Act and was required to file on November 26, 2000.
The table also sets forth the details indicated about delinquent filings of
reports of changes in beneficial ownership on Form 4 for the period from June
2000 to December 31, 2000, to the best of the Company's knowledge:
<TABLE>
<CAPTION>

                                                                                    Number of           Number of
          Reporting Person                            Status                     Required Forms 4      Transactions
          ----------------                            ------                     ----------------      ------------

<S>                                                        <C>                           <C>                  <C>
James E. Biorge                       Principal Stockholder(1)                           0                    0
James A. Williams                     Director and Executive Officer                     7                    8
David J. Simon                        Chairman of the Board                              7                   14
Joe G. Coykendall                     Director and Executive Officer                     7                    7
Peter J. Bennee                       Director and Executive Officer                     7                    9
Paul E. Christensen                   Director                                           7                   13
Richard T. Hauge                      Executive Officer                                  3                    3
John D. Hipsley                       Executive Officer                                  3                    3
Donna M. Kreutz                       Executive Officer                                  1                    1
Joe Diamond                           Executive Officer                                  1                    1
Philip J. Voelker                     Executive Officer                                  2                    2
</TABLE>

(1)  Based on shares owned of record by Mr. Biorge and a family trust and other
     affiliates.  The  Company  has  retained  possession  of  certificates for
     11,503,138 shares pending resolution of claims involving Mr. Biorge.  See
     Item 11. Security Ownership of Certain Beneficial Owners and Management .

To the best of the Company's knowledge, no officer, director or beneficial owner
has filed a Form 5 as a remedial filing, nor have there been any Form 5 filings
from any of the above-mentioned individuals for any other disclosure purpose.



                                       44
<PAGE>



                         ITEM 10. EXECUTIVE COMPENSATION

Summary Compensation

         The following table sets forth for each of the years indicated the
annual and long-term compensation earned by, awarded to or paid to each person
who served as our chief executive officer during either 1999 or 2000 and by each
of the four other highest paid executive officers whose compensation exceeded
$100,000 in either of such years:
<TABLE>
<CAPTION>

                                                                               Long Term Compensation
                                                                        -------------------------------------
                                          Annual Compensation                    Awards             Payouts
                                   -----------------------------------  --------------------------  ---------
                                                            Other       Restricted    Securities               All Other
                          Year                             Annual          Stock      Underlying     LTIP       Compen-
       Name and          Ended                 Bonus       Compen-       Award(s)      Options/     Payouts      sation
  Principal Position    Dec. 31    Salary ($)   ($)      sation ($)      (shares)      SARs (#)       ($)         ($)
----------------------- ---------  -----------------------------------  ------------  ------------  --------   -----------

<S>                       <C>       <C>       <C>        <C>                          <C>
James A. Williams...      2000      $107,500  $71,520(3) $6,424,680(4)         --     3,300,000       --             --
  President (CEO)(1)

David J. Simon......      2000       120,000   71,520(3)      6,615(5)         --            --       --             --
  President (CEO)(2)      1999        75,250   28,905(3)      2,205(5)

</TABLE>

(1)  Served as chief executive officer since March 1, 2000.
(2) Served as chief executive officer between December 1, 1999, and February 28,
2000.
(3)  Consists of the value of 5,000 shares of restricted common stock earned per
     month as director's fees, valued at the market price of the stock on the
     last trading date of the month earned.
(4)  Consists of $8,430 in health insurance premiums paid by us and $6,416,250
     for the amount by which the market price of the common stock exceeded the
     exercise prices of options to purchase an aggregate of 3,300,000 shares of
     common stock at $0.48 per share granted during 2000.
(5)  Consists of health insurance premiums paid by us.

Option/SAR Grants

         The following table sets forth information respecting all individual
grants of options and stock appreciation rights ("SARs") made during 2000 and
1999 to the executive officers named in the summary compensation table above:
<TABLE>
<CAPTION>


                                Individual Grants
                                   % of Total
                                  Number of       Options/SARs
                                 Securities        Granted to
                                 Underlying        Employees
                                Options/SARs     During Fiscal      Exercise or    Market Price at
                   Name          Granted(#)            Year        Base   Price           Grant      Expiration Date
                                                                    ($/share)          Date

2000
<S>                                  <C>                              <C>                <C>            <C>   <C>
    James A. Williams                800,000(1)                       $0.48              $0.64          09/05/10
        President (CEO)              250,000                           0.48               1.94          04/01/10
                                   2,250,000(2)                        0.48               3.00          02/28/10
                                   ------------
           Total                   3,300,000          26.7%

    David J. Simon                        --          --                --               --                --
        President (CEO)

</TABLE>

(1)  Options vest one third per year, commencing December 31, 2000.
(2)  Options vest one fourth each six months, commencing September 1, 2000.

                                       45
<PAGE>

Aggregate Option/SAR Exercises and Fiscal Year-End Option/SAR Values

         The following table sets forth information respecting the exercise of
options and SARs during 2000 and 1999 by the executive officers named in the
summary compensation table above and the fiscal year end values of unexercised
options and SARs:
<TABLE>
<CAPTION>

                                                                                Number of
                                                                                Securities          Value of
                                                                                Underlying         Unexercised
                                                                               Unexercised        In-the-Money
                                                                             Options/SARs at     Options/SARs at
                                                                                FY End (#)         FY End ($)

                                       Shares Acquired                         Exercisable/       Exercisable/
                     Name                    on           Value Realized         Unexercisable       Unexercisable
                                             Exercise           ($)
                                          (#)

2000
<S>                                                                             <C>
  James A. Williams                             --                 --           3,300,000/--
    President (CEO)                                                                                       --/--

  David J. Simon                                --                 --           6,778,000/--      $1,235,985/--
    President and Chairman
</TABLE>

         In July 2001, we granted to executive officers and directors ten-year
options to purchase an aggregate of 9,190,000 shares of common stock at $0.10
per share in consideration of the cancellation of an aggregate of $919,000 in
amounts payable to them, including options to purchase 1,429,970 shares granted
to James A. Williams in cancellation of $142,997 due him and options to purchase
2,055,000 shares granted to David J. Simon in cancellation of $205,500 due him.
As of the date of the foregoing adjustments, the closing price for our common
stock was $0.16.

         In July 2001, our chairman of the board of directors, David J. Simon,
agreed to cancel options to purchase 1,778,000 shares held by him.


         In an effort to provide incentives for management and employees to
continue with us, in July 2001, the board of directors also approved a plan
reducing to $0.128 per share the exercise price of options to purchase
12,428,333 shares, consisting of 11,950,000 shares held by officers and
directors and 478,333 shares held by other employees of the Company, provided
that those options were exercised immediately. The exercise prices for the old
options ranged from $0.1475 to $0.48 per share, with a weighted average exercise
price of $0.347 per share. This repricing reduced the exercise price of options
held by James A. Williams to purchase 2,500,000 shares at $0.80 per share and by
David J. Simon to purchase 5,000,000 shares at $0.15. As of the date of the
foregoing adjustments, the closing price for our common stock was $0.16.


         All officers, directors and employees offered the repriced options
exercised their options to purchase an aggregate of 12,428,333 shares with the
delivery of nonrecourse promissory notes with an aggregate principal balance of
$1,335,827, after crediting Mr. Simon $255,000 against the exercise price of his
options resulting from the cancellation of our indebtedness to him. In
consideration of the requirement that the options be exercised immediately, we
authorized the payment of the exercise price by the execution of nonrecourse
promissory notes in the principal amount of the full purchase price. The notes
are due no later than December 31, 2004, and provide that the maker of the note
is required to repay principal only from proceeds from the sale of the stock
issued. Stock issued for options exercised in consideration of the notes is
being held by us as collateral for the note. If a note is not repaid at or
before maturity on December 31, 2004, the subject shares would be returned to us
for cancellation, and the related note would become null and void.

                                       46
<PAGE>



Compensation to Directors


         Beginning in November 1999, and through December 2000, when the policy
was canceled, all members of the board of directors, including employees, became
entitled to receive 5,000 shares of our restricted common stock for each month
during which they served as a director. Under this arrangement, we accrued the
issuance of 60,000 shares in 1999 and 275,000 shares in 2000. All of these
shares were issued by the transfer agent in March 2001, when the market price
for the stock was approximately $0.205 per share.


Employment  Contracts,  Termination  of  Employment  Arrangements  and Change of
Control Arrangements

         Mr. Williams, in addition to other executive officers not named above,
has an employment contract that provides for minimum payments of up to two times
his base salary and the immediate vesting of unvested stock options in the event
of involuntary termination. The contract also calls for vesting of unvested
stock options in the event of a change of control defined to include a merger or
consolidation in which an entity acquires in excess of 20% of the Company, a
sale of all or substantially all of our assets and other events.

         Mr. Simon  is  paid  a  salary  of  $150,000  per  year  under an oral
arrangement  to  replace  a  written  agreement with a new agreement containing
substantially the same terms as the agreement with Mr. Williams.



                                       47
<PAGE>



                     ITEM 11. SECURITY OWNERSHIP OF CERTAIN
                        BENEFICIAL OWNERS AND MANAGEMENT


         The following table sets forth, as of January 31, 2002, the name,
stockholdings and address of each person who owns of record, or was known by us
to own beneficially, 5% or more of the 99,680,678 shares of common stock then
issued and outstanding and the name and stockholdings of (1) each director, (2)
each person named as an executive officer in the summary compensation table who
is not now a director, executive officer or principal stockholder, and (3) all
executive officers and directors as a group. Unless otherwise indicated, all
shares consist of common stock and all such shares are owned beneficially and of
record by the named person or group:
<TABLE>
<CAPTION>

                 Name of Person or Group                     Nature of Ownership        Amount        Percent(1)
Principal Stockholders:
<S>                                                                                   <C>               <C>
  James E. Biorge.......................................     Common Stock             12,464,488(2)     12.5%
                                                                                      -------------
    888 Heartwood Circle
    Fruit Heights, Utah  84037

  David J. Simon........................................     Common Stock(3)           4,092,839         4.1
    740 E 3900 S, Second Floor                               Exercised Options(4)      3,007,789         3.0
    Salt Lake City, Utah  84107                              Options(3)                2,113,594         2.1
                                                                                       ---------
                                                                                       9,214,222         8.5

  James A. Williams.....................................     Common Stock                110,000         *
    740 E 3900 S, Second Floor                               Exercised Options(4)      2,500,000         2.5
    Salt Lake City, Utah  84107                              Options                   2,229,970         2.2
                                                                                   ---------
                                                                                   4,839,970             4.6

Directors:
  David J. Simon........................................               ----------See above----------
  James A. Williams.....................................               ----------See above----------
  Joe G. Coykendall.....................................     Common Stock                 35,000         *
                                                             Exercised Options(4)      1,000,000         1.0
                                                             Options                   1,962,500         1.9
                                                                                       ---------
                                                                                       2,997,500         2.9
  Peter J. Bennee.......................................     Common Stock(5)           2,165,065         2.2
                                                             Exercised Options(4)        600,000         *
                                                             Options                   1,169,500         1.2
                                                                                       ---------
                                                                                       3,934,565         3.8
  Paul E. Christensen...................................     Common Stock(6)           1,470,000         1.5
                                                             Exercised Options(4)        100,000         *
                                                                                      ----------
                                                                                       1,570,122         1.6

 Other Named Executive Officer Not Current Director,
    Executive Officer or Principal Stockholder
    Arthur D. Bennett...................................     Common Stock                     --        --

                                       48
<PAGE>

 All Executive Officers and Directors as a Group
      (9 persons):......................................     Common Stock              8,344,469         8.4
                                                             Exercised Options(4)      9,957,789        10.0
                                                             Options                  15,220,564        13.2
                                                                                      ----------
                                                             Total                    33,522,822        29.2
                                                                                      ==========
</TABLE>



*    Less than 1%.
(1)  Calculations of percentages of ownership for each person or group assumes
     the exercise of options held by that person or group to which the
     percentage relates, including options not yet fully vested.
(2)  Includes  shares  in  the names  of Mr. Biorge's  family  trust  and  other
     affiliates.  We have retained possession    of certificates for 11,503,138
     shares pending resolution of claims involving Mr. Biorge.  See Part I. Item
     3. Legal Proceedings.
(3)  Includes 954,220 shares owned by trusts for the benefit of children. Also
     includes 314,730 shares and options to purchase 58,594 shares not in Mr.
     Simon's name, but over which he may be deemed to share voting and
     dispositive power, although Mr. Simon disclaims beneficial ownership of
     such options and shares.
(4)  Consists of shares issued on the exercise of options, with the exercise
     price payable pursuant to a nonrecourse promissory note and with the stock
     held by us pending payment of the note on or before December 31, 2004, at
     which any unpaid shares and any balance due on the notes will be canceled.
     See Part II. Item 10. Executive Compensation: Aggregate Options/SAR
     Exercises and Fiscal Year-End Options/SAR Values.
(5)  Includes 2,090,065 shares not in Mr. Bennee's name but over which he may be
     deemed to share voting and dispositive power.
(6)  Includes 570,000 shares in the name of Mr. Christensen's spouse, over which
     he may be deemed to share voting and dispositive power and 500,000 shares
     being purchased at $1.38 per share pursuant to a nonrecourse promissory
     note payable from the net proceeds from the sale of such shares, but in any
     event by June 30, 2002, in which case the unpurchased shares and the unpaid
     balance of the note will be canceled.


             ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company, including its subsidiaries and predecessors, Schimatic
Technologies, Inc., or STI, R & D Technology, Inc., or R & D, and IC One, Inc.
have entered into the following transactions with persons who were then
executive officers, directors, principal stockholders or founders, who either
alone or with others took the initiative in founding or organizing our business
or who received 10% or more of the stock of the Company or stock sales proceeds
in consideration of property or services. The terms of the following
transactions between related parties were not determined as a result of
arm's-length negotiations.



Revised Agreement with Paul E. Christensen

         During 2001, we revised our previous agreement with Paul E.
Christensen, a director. In February 1999, IC One reached an agreement with Paul
E. Christensen, a director and founder, under which it issued to him 500,000
shares of restricted common stock in consideration of a nonrecourse promissory
note bearing interest at 6% per annum and payable from net proceeds from the
sale of stock being purchased, but in any event, on or before June 30, 2005,
with a covenant to return the unsold stock if not sold by the due date of the
note. In August 2001, Mr. Christensen agreed to pledge the shares purchased by
the note as collateral for the payment of the obligation and delivered the
certificate for such shares to us as custodian of the pledge agreement. In
addition, under the February 1999 agreement, IC One issued to Mr. Christensen
1,493,125 shares of restricted common stock in consideration of the cancellation
of loans and other obligations aggregating $126,898 and services rendered.
During February 1999, IC One sold restricted common stock for cash in
arm's-length transactions for $0.50 per share.



                                       49
<PAGE>

Miscellaneous Transactions

     David J. Simon

         In 1999, following the completion of the Company's acquisition of IC
One, Inc., David J. Simon, Chairman, recorded reimbursable expenses totaling
approximately $263,000, which were not previously recorded on the books of the
Company. Such expenses included funds that he advanced in the interests of the
Company's development. In July 2001, Mr. Simon agreed to apply $255,000 of the
foregoing amounts owed him by the Company as reimbursement of expenses and other
items for the payment of the exercise price of options. As part of the
arrangement with Mr. Simon, he agreed to cancel options to purchase 1,778,000
shares, or approximately 26%, of the options to purchase 6,778,000 shares
previously held. In reaching this agreement with the Company, Mr. Simon
expressed his desire to make the options that he agreed to cancel available for
the attraction and retention of new Company employees.

         In 2000, we recorded a liability to Mr. Simon for $100,000 as a result
of his acquisition of a $100,000 loan to the Company from a nonaffiliated
stockholder. Mr. Simon acquired that note with $50,000 in cash and 70,000 shares
of common stock owned by him.


     James A. Williams

         James A. Williams, President, advanced $50,000 to the Company in July
2000, which is recorded as an open account payable to Mr. Williams, without
interest, on demand. In addition, the Company owes Mr. Williams for
reimbursement of travel and similar expenses incurred by him on behalf of the
Company with outstanding balance of $4,939 at December 31, 2000.

Settlement of Amounts Due Officers and Directors

         In July 2001, the Company agreed with all of its executive officers to
cancel an aggregate of $919,000 in amounts payable to them in exchange for the
grant of options to purchase an aggregate of 9,190,000 shares of common stock at
$0.10 per share. Of these amounts, options to purchase 2,055,000 shares were
granted to David J. Simon in cancellation of $205,000 due him and options to
purchase 1,429,970 were granted to James A. Williams in cancellation of $142,997
due him. The options may be exercised at any time within ten years for cash or
the delivery of a nonrecourse promissory note, secured by the stock purchased.
The issuance of these options is expected to result in a reduction in current
liabilities of $919,000 to be reflected in the second quarter 2001.
<TABLE>
<CAPTION>


                    ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits:
                  --------

                   SEC
   Exhibit      Reference
    Number        Number                            Title of Document                                Location
-------------- ------------ ------------------------------------------------------------------- -------------------

      Item 2.               Plan of Acquisition, Reorganization, Arrangement, Liquidation or
                            Succession
-------------- ------------ ------------------------------------------------------------------- -------------------
<S>      <C>          <C>
         2.02         2     Reorganization Agreement between SCHIMATIC Cash Transactions        Incorporated by
                            Network.com, Inc. and IC One, Inc. dated as of June 30, 1999        Reference(1)

                                       50
<PAGE>

         2.03         2     First Amendment to Reorganization Agreement effective as of         Incorporated by
                            July 17, 1999                                                       Reference(1)
         2.04         2     Second Amendment to Reorganization Agreement made and entered       Incorporated by
                            into as of September 10, 1999                                       Reference(1)

      Item 3.               Articles of Incorporation and Bylaws
-------------- ------------ ------------------------------------------------------------------- -------------------
         3.01         3     Articles of Incorporation of Apple Tree Capital Corp., filed        Incorporated by
                            October 4, 1996                                                     Reference(2)
         3.02         3     Articles of Amendment to Apple Tree Capital Corp. (name change to   Incorporated by
                            Schimatic Technologies, Inc.) filed November 13, 1998               Reference(1)
         3.03         3     Articles of Amendment to Schimatic Technologies, Inc. (name         Incorporated by
                            change to SCHIMATIC Cash Transactions Network.com, Inc.) filed      Reference(2)
                            January 15, 1999
         3.04         3     Bylaws of SCHIMATIC Cash Transactions Network.com, Inc. dated       Incorporated by
                            January 15, 1999                                                    Reference(2)
         3.05         3     Articles of Amendment to Articles of Incorporation of SCHIMATIC     Incorporated by
                            Cash Transactions Network.com, Inc. dated June 30, 1999, filed      Reference(4)
                            June 26, 2000

      Item 4.               Instruments Defining the Rights of Holders, Including Debentures
-------------- ------------ ------------------------------------------------------------------- -------------------
         4.01         4     Specimen stock certificate                                          Incorporated by
                                                                                                Reference(2)

     Item 10.               Material Contracts
-------------- ------------ ------------------------------------------------------------------- -------------------
        10.01        10     Marketing Agreement between IC One, Inc. and Global Capital         Incorporated by
                            Limited, LLC dated effective August 6, 1999                         Reference(2)
        10.02        10     Letter Agreement between IC One, Inc. and IBM                       Incorporated by
                                                                                                Reference(2)
        10.03        10     Settlement and Release Agreement between SCHIMATIC Cash             Incorporated by
                            Transactions Network.com, Inc. and International Business           Reference(1)
                            Machines Corporation dated August 2, 2001
        10.04        10     Marketing Agreement between IC One, Inc. and eExpo, Inc. dated      Incorporated by
                            June 22, 1999                                                       Reference(2)
        10.05        10     Building Purchase and Sale Agreement between Big M Investment &     Incorporated by
                            SCTN, Buyer, and LK Fox Charitable Remainder Unitrust and JK        Reference(2)
                            Family Partnership, Seller, dated December 29, 1999
        10.06      10       IC One, Inc. 1999 Equity Incentive Plan                             Incorporated by
                                                                                                Reference(1)
        10.07               IC One, Inc./CardOne Development Co. Purchase Agreement dated       Incorporated by
                            effective as of December 1, 1998                                    Reference(1)

                                       51
<PAGE>


        10.08      10       Office Building Lease, 740 East 3900 South, Salt Lake City, Utah,   Incorporated by
                            between Big M Investments & MDF 740 E LLC and Schimatic Cash        Reference(1)
                            Transaction Network.com, Inc. dated August 29, 2001
        10.09      10       Employment Agreement between SCTN dba IC One, Inc. and Jim          Incorporated by
                            Williams dated February 9, 2000, effective as of March 1, 2000      Reference(1)
        10.10      10       Form of Summary Term Sheet for Revenue Backed Convertible Note      Incorporated by
                                                                                                Reference(1)
        10.11      10       Form of Convertible Note                                            Incorporated by
                                                                                                Reference(1)
        10.12      10       Collateralized Nonrecourse Loan Agreement (with Letter of Option    Incorporated by
                            Exercise and Stock Power of Attorney), dated May 3, 2001, with      Reference(1)
                            related schedule
        10.13      10       Letter to Officers dated July 1, 2001, relating to options to       Incorporated by
                            purchase shares                                                     Reference(1)
        10.14      10       Notice of Common Stock Option Grants dated January 26, 2001         Incorporated by
                                                                                                Reference(1)
        10.15      10       Non-Statutory Incentive Stock Option Agreement made November 1,     Incorporated by
                            1998                                                                Reference(1)
        10.16      10       Form of Regular Convertible Note issued in aggregate of $516,000    Incorporated by
                                                                                                Reference(3)
        10.17      10       Form of Limited Recourse Convertible Note issued in aggregate of    Incorporated by
                            $1,179,000 as of September 30, 2001                                 Reference(3)
        10.18      10       Form of Stock Pledge Agreement securing obligation under Limited    Incorporated by
                            Recourse Convertible Note                                           Reference(3)
        10.19      10       Form of Accommodation Pledge Agreement securing obligation under    Incorporated by
                            Limited Recourse Convertible Note                                   Reference(3)

        10.20      10       Memorandum of Understanding between Cardis Enterprises              Incorporated by
                            International B.V. and SCTN, dba Smart Chip Technologies, Inc. as   Reference(4)
                            of August 29, 2000
        10.21      10       Agreement for Independent Contractor Services between SCHIMATIC     Incorporated by
                            Cash Transactions Network.com, Inc. and Transaction Software,       Reference(4)
                            Inc. dated February 14, 2001
        10.22      10       Forbearance Agreement between Quint Star Management, Inc., IC       Incorporated by
                            One, Inc. and Schimatic Cash Transactions Network.com, Inc.         Reference(4)
                            effective as of March 26, 2001


                                       52
<PAGE>

        10.23      10       Memorandum of Understanding among CARDIS Enterprises                Incorporated by
                            International B.V., CIT Canada Inc., Giesecke & Devrient Systems    Reference(4)
                            Canada, Inc., Ingenico, Oasis Technology Ltd., and Schimatic Cash
                            Transactions Network.com, Inc. effective as of April 1, 2001

        10.24      10       Teaming Agreement between Oasis Technology Ltd. and Schimatic       Incorporated by
                            Cash Transactions Network.com, Inc. effective as of April 15, 2001  Reference(4)

        10.25      10       WestPark Capital, Inc. Institutional Private Placement Engagement   Incorporated by
                            Agreement between Smart Chip Technologies, Inc. and WestPark        Reference(4)
                            Capital, Inc. agreed to May 9, 2001
        10.26      10       Agreement for Services between Smart Chip Technologies, LLC, and    Incorporated by
                            HiTech Consulting Group, dated June 26, 2001                        Reference(4)
        10.27      10       Memorandum of Understanding between Schimatic Cash Transactions     Incorporated by
                            Network.com, Inc. and Welcome Real-Time effective July 6th, 2001    Reference(4)

        10.28      10       Letter of Intent re Solstice Alliance from Oasis Technology, Ltd.   Incorporated by
                            to The Bank of Nova Scotia dated July 18, 2001                      Reference(4)
        10.29      10       Sublease between Smart Chip Technologies, LLC and e-dn.com, Inc.    Incorporated by
                            dated September 4, 2001                                             Reference(4)
        10.30      10       Co-Marketing Agreement between Proton World International S.A.      Incorporated by
                            and Smart Chip Technologies, Inc. dated October 19, 2001            Reference(4)
        10.31      10       Partnering Agreement between Giesecke & Devrient GmbH and Smart     Incorporated by
                            Chip Technologies, LLC dated October 23, 2001                       Reference(4)
        10.32      10       Alliance Agreement between Smart Chip Technologies, LLC, and        Incorporated by
                            Consumer Economic Opportunities, Inc. entered November 7, 2001      Reference(4)
        10.33      10       Technical Services Agreement dated November 12, 2001, between       Incorporated by
                            Smart Chip Technologies, LLC and RTS Networks Group PLC             Reference(4)
        10.34      10       Amended Agreement for Independent Contractor Services between CIT   Incorporated by
                            Canada Inc. and Schimatic Cash Transactions Network.com, Inc.       Reference(4)
                            dated November 15, 2001
        10.35      10       Letter of Termination of eExpo Marketing Agreement dated April 4,   Incorporated by
                            2000                                                                Reference(4)

                                       53
<PAGE>

        10.36      10       Letter of Intent dated August 21, 2000, from Smart Chip             Incorporated by
                            Technologies to Oasis Technology, Ltd.                              Reference(4)

     Item 21.               Subsidiaries of the Registrant
-------------- ------------ ------------------------------------------------------------------- -------------------
        21.01      21       Schedule of subsidiaries                                            Incorporated by
                                                                                                Reference(1)
</TABLE>


(1)  Incorporated  by  reference  from  Amendment No. 3 to Form 10-SB/A filed on
     September 10, 2001.
(2)  Incorporated  by  reference  from  Amendment No. 2 to Form 10-SB/A filed on
     April 13, 2000.
(3)  Incorporated  by  reference  from  Form 10-KSB for year ended December 31,
     2000, filed October 15, 2001.
(4)  Incorporated  by  reference  from  Amendment No. 5 to Form 10-SB/A filed on
     February 14, 2002.

         (b)      Reports  on  Form  8-K:  We did  not  file  any  reports  on
                  Form  8-K  for  the  quarter  ended December 31, 2000.



                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, this amended report has been signed below on the registrant and in the
capacities and on the dates indicated.

                                   SCHIMATIC Cash Transactions Network.com, Inc.


Dated:  March 5, 2002          By  /s/James A. Williams
                                      ------------------------------------------
                                      James A. Williams, President



























                                       54



<PAGE>
          Schimatic Cash Transactions Network.com, Inc. and Subsidiary
                        (A Development Stage Enterprise)
                   Index to Consolidated Financial Statements

                                                                  Page

Years Ended December 31, 2000 and 1999 and the
Cumulative Period During the Development Stage From
February 27, 1997 (Inception) Through December 31, 2000:

Independent Auditors' Report                                       F-2

Consolidated Balance Sheet                                         F-3

Consolidated Statements of Operations                              F-4

Consolidated Statement of Changes in Shareholders'Deficit    F-5 - F-6

Consolidated Statements of Cash Flows                              F-7

Notes to Consolidated Financial Statements                  F-8 - F-19







<PAGE>





                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
Schimatic Cash Transactions Network.com, Inc. and Subsidiary
Salt Lake City, Utah

We have audited the  accompanying  consolidated  balance sheet of Schimatic Cash
Transactions Network.com,  Inc. and Subsidiary, (A Development Stage Enterprise)
as of December 31, 2000, and the related consolidated  statements of operations,
shareholders'  deficit and cash flows for the years ended  December 31, 2000 and
1999 and for the period February 27, 1997 (Inception) through December 31, 2000.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Schimatic  Cash
Transactions Network.com,  Inc. and Subsidiary, (A Development Stage Enterprise)
as of December  31,  2000,  and the results of their  operations  and their cash
flows for the years ended December 31, 2000 and 1999 and for the period February
27, 1997  (Inception)  through  December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements,  the Company is in the development stage, has
incurred  net losses  since  inception  and  expects to incur net losses for the
foreseeable future. These conditions raise substantial doubt about the Company's
ability to continue as a going  concern.  Management's  plans in regard to these
matters are described in Note 2. The  consolidated  financial  statements do not
include any adjustments that might result from the outcome of this uncertainty.

The consolidated financial statements for the year ended December 31, 1999 have
been restated (see Note 13).



                                                /s/ Feldman Sherb & Co., P.C.
                                                  ------------------------------
                                                    Feldman Sherb & Co., P.C.
                                                    Certified Public Accountants



August 28, 2001
New York, New York






                                       F-2

<PAGE>
          SCHIMATIC CASH TRANSACTIONS NETWORK.COM, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)
                           CONSOLIDATED BALANCE SHEET
                                December 31, 2000



         ASSETS

CASH                                                       $              5,884
PROPERTY AND EQUIPMENT - at cost, net                                    57,246
PATENTS - at cost, net                                                   34,358
                                                              ------------------
                                                           $             97,488
                                                              ==================


            LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES:
      Accounts payable - IBM                               $          1,970,000
      Accounts payable - other                                          896,032
      Accrued wages and payroll taxes                                 1,295,598
      Loans payable - shareholders                                      498,571
                                                              ------------------

        TOTAL CURRENT LIABILITIES                                     4,660,201
                                                              ------------------


CONVERTIBLE NOTES PAYABLE                                               235,000
                                                              ------------------


COMMITMENT AND CONTINGENCIES

SHAREHOLDERS' DEFICIT:
      Common stock, $.001 par value,  200,000,000 shares authorized,
              60,236,723 shares issued and outstanding                   60,237
      Additional paid-in capital                                     38,734,476
      Less: Common stock subscriptions receivable                    (2,300,000)
      Deficit accumulated during the development stage              (41,292,425)
                                                              ------------------

        TOTAL SHAREHOLDERS' DEFICIT                                  (4,797,712)
                                                              ------------------

                                                           $             97,488
                                                              ==================






                 See notes to consolidated financial statements.

                                       F-3

<PAGE>
          SCHIMATIC CASH TRANSACTIONS NETWORK.COM, INC. AND SUBSIDIARY
                       ( A Development Stage Enterprise )
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>


                                                                                                        Cumulative During
                                                                                                      the Development Stage
                                                                   Year Ended December 31,             (February 27, 1997
                                                             ------------------------------------
                                                                  2000                1999            to December 31, 2000)
                                                             ----------------   -----------------   --------------------------
                                                                                (Restated - See
                                                                                    Note 13)

REVENUE                                                    $               -  $                -  $                         -

EXPENSES:
<S>                                                                <C>                 <C>                         <C>
    Research and development                                       3,745,871           1,992,671                   14,904,541
    Selling, general and administrative                            4,301,413           5,360,289                   23,163,747
    Depreciation and amortization                                    130,149              85,811                      301,071
    Loss on impairment of assets                                     675,546                   -                      675,546
    Interest expense                                                 262,996             238,928                      546,310
                                                             ----------------   -----------------   --------------------------
       TOTAL EXPENSES                                              9,115,975           7,677,699                   39,591,215
                                                             ----------------   -----------------   --------------------------

LOSS BEFORE EXTRAORDINARY ITEM                                    (9,115,975)         (7,677,699)                 (39,591,215)

EXTRAORDINARY ITEM - LOSS ON
    EXTINGUISHMENT OF DEBT                                        (1,369,960)           (331,250)                  (1,701,210)
                                                             ----------------   -----------------   --------------------------
NET LOSS                                                   $     (10,485,935) $       (8,008,949) $               (41,292,425)
                                                             ================   =================   ==========================

NET LOSS PER SHARE, BASIC AND DILUTED:
    BEFORE EXTRAORDINARY ITEM                              $           (0.16) $            (0.16)
    EXTRAORDINARY ITEM                                                 (0.02)              (0.01)
                                                             ----------------   -----------------
TOTAL NET LOSS PER SHARE, BASIC AND DILUTED                $           (0.18) $            (0.17)
                                                             ================   =================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND DILUTED                             57,724,794          47,549,818
                                                             ================   =================

</TABLE>






                 See notes to consolidated financial statements.

                                      F-4



<PAGE>
          SCHIMATIC CASH TRANSACTIONS NETWORK.COM, INC. AND SUBSIDIARY
                        ( A Development Stage Enterprise)
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>

                                                                                     Less:                   Deficit
                                                                                   Common Stock  Plus:     Accumulated
                                                      Common Stock     Additional   Stock       Common      During the    Total
                                                   ------------------  Paid-in    Subscription  Stock      Development Shareholders'
                                                    Shares    Amount   Capital    Receivable   to be Issued   Stage     Deficit
                                                   --------- -------- ----------  ------------ ------------ --------- -------------
<S>                <C> <C>                           <C>        <C>     <C>         <C>        <C>                      <C>
BALANCE,  February 26, 1997 (Inception)              7,815,080  $ 7,816 $   (7,816) $        - $        -            -  $         -
  Issuance of common stock for cash:
    at $1.32 per share, March                           35,676       36     46,964           -          -            -       47,000
    at $0.92 per share, April                           10,032       10      9,207           -          -            -        9,217
    at $0.75 per share, June                            28,085       28     20,972           -          -            -       21,000
    at $0.71 per share, July                           452,223      452    322,434           -          -            -      322,886
    at $0.69 per share, August                         695,447      695    477,005           -          -            -      477,700
    at $0.68 per share, September                       42,128       42     28,487           -          -            -       28,529
    at $0.81 per share, November                        32,715       33     26,517           -          -            -       26,550
   Net loss                                                  -        -          -           -          -   (1,231,738)  (1,231,738)
                                                     ---------  -------- ----------  ------------- --------  ---------   -----------
BALANCE, as previously reported,
   December 31, 1997                                79,111,386    9,112    923,770           -          -   (1,231,738)    (298,856)
   Prior period adjustment -
    Reclassification of February 26, 1997
    (Inception), to legal, financial, development
      and administrative services (see Note 13)     (7,815,080)  (7,816)    17,816           -          -          -              -
    Prior period adjustment - IC One's issuance
    of common stock for legal, financial, development
     and administrative services (see Note 13)
     at $1.32 per share, March                             759        1        999           -          -       (1,000)           -
     at $0.92 per share, April                         379,528      380    349,620           -          -     (350,000)           -
     at $0.92 per share, May                        12,870,501   12,871  11,811,512          -          -  (11,824,383)           -
     at $0.71 per share, July                        3,779,301    3,779  2,684,854           -          -   (2,688,633)           -
     at $0.69 per share, August                      1,479,869    1,480  1,012,322           -          -   (1,013,802)           -
     at $0.68 per share, September                     263,471      263    178,162           -          -     (178,425)           -
     at $0.81 per share, November                       74,957       75     61,150           -          -      (61,225)           -
                                                    ---------  -------- ----------  ------------- --------- ----------- -----------
BALANCE,  restated, December, 1997                  20,144,692   20,145  17,030,205          -          -  (17,349,205)    (298,856)
   Issuance of common stock for cash:
     at $2.63 per share, January                        94,882       95    249,905           -          -            -      250,000
     at $0.87 per share, February                      108,469      108     94,342           -          -            -       94,450
     at $0.69 per share, March                         176,131      176    122,094           -          -            -      122,270
     at $0.70 per share, April                         206,944      207    144,026           -          -            -      144,233
     at $0.67 per share, May                           471,374      471    317,029           -          -            -      317,500
     at $2.45 per share, June                           26,567       27     64,973           -          -            -       65,000
     at $1.24 per share, July                           19,356       19     23,981           -          -            -       24,000
     at $2.63 per share, August                          1,898        2      4,998           -          -            -        5,000
     at $0.68 per share, September                     284,393      284    194,383           -          -            -      194,667
     at $0.66 per share, October                        68,315       68     44,932           -          -            -       45,000
     at $0.65 per share, November                      523,935      524    338,874           -          -            -      339,398
     at $0.66 per share, December                       37,953       38     24,962           -          -            -       25,000
   Net loss                                                  -        -          -           -          -   (3,061,513)  (3,061,513)
                                                     ---------  -------- ---------- ------------- --------- -----------  -----------
BALANCE, as previously reported, December 31, 1998  22,164,909   22,165  18,654,703          -          -  (20,410,718)  (1,733,851)
   Prior period adjustment
    - IC One's issuance of common stock for
      notes at $0.69 per share, July (see Note 13)   1,897,639    1,898   1,298,102 (1,300,000)                      -            -
   Prior period adjustment
    - IC One's accrual for taxes payable                                               (19,865)   (19,865)
   Prior period adjustment
    - IC One's issuance of common stock for
      legal, financial, development
       and administrative services (see Note 13)
     at $0.69 per share, March                           3,795        4      2,631           -          -       (2,635)          -
     at $0.70 per share, April                          67,708       68     47,122           -          -      (47,190)          -
     at $0.67 per share, May                           340,057      340    228,710           -          -     (229,050)          -
     at $2.45 per share, June                          379,528      380    928,191           -          -     (928,571)          -
     at $1.24 per share, July                          815,985      816  1,010,949           -          -   (1,011,765)          -
     at $0.68 per share, September                     152,388      152    104,158           -          -     (104,310)          -
     at $0.66 per share, October                        15,181       15      9,985           -          -      (10,000)          -
     at $0.65 per share, November                       51,616       52     33,384           -          -      (33,436)          -
                                                     ---------  -------- ---------- ------------- ---------- ----------  -----------
BALANCE, restated, December 31, 1998
 and total carried forward                           25,888,80  $25,889 $22,317,936 $(1,300,000)  $     -   (22,797,540)$(1,753,716)
                                                     ---------  -------- ---------- ------------- ---------- ----------  -----------

                 See notes to consolidated financial statements.
                                      F-5
<PAGE>
      SCHIMATIC CASH TRANSACTIONS NETWORK.COM, INC. AND SUBSIDIARY
         ( A Development Stage Enterprise)
      CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
<CAPTION>
                                                                                     Less:                   Deficit
                                                                                   Common Stock  Plus:     Accumulated
                                                      Common Stock     Additional   Stock       Common      During the    Total
                                                   ------------------   Paid-in   Subscription  Stock      Development Shareholders'
                                                    Shares    Amount    Capital    Receivable  to be Issued   Stage     Deficit
                                                   --------- -------- ----------  ------------ ------------ --------- -------------
BALANCE, as restated, December 31, 1998
<S>                                                <C>        <C>      <C>          <C>         <C>        <C>           <C>
 and total brought forward                         25,888,806 $ 25,889 $22,317,936 $(1,300,000) $       -  (22,797,540)$ (1,753,716)
   Issuance of common stock in exchange            19,758,778   19,758     776,355           -                       -      796,113
   Issuance of common stock for cash:
     at $0.66 per share, January                      713,512      714     469,286           -           -           -      470,000
     at $0.68 per share, February                     129,799      130      87,870           -           -           -       88,000
     at $0.66 per share, March                        151,811      152      99,848           -           -           -      100,000
     at $0.68 per share, April                        179,137      179     120,821           -           -           -      121,000
     at $0.66 per share, May                           38,712       39      25,461           -           -           -       25,500
     at $0.23 per share, July                       1,009,905    1,010     232,874           -           -           -      233,884
     at $0.66 per share, September                    325,557      326     214,123           -           -           -      214,449
   Issuance of common stock for:
     IBM Debt  at $3.29 per share, September          700,000      700   2,299,300           -           -           -    2,300,000
     Computer services at $2.34 per share, September   11,357       11      26,572           -           -           -       26,583
     Shareholder's loan at $2.75 per share, November  175,000      175     481,075           -           -           -      481,250
     Investment in real estate joint venture at
        $1.00 per share, December                     420,000      420     419,580           -           -           -      420,000
   Net loss                                                 -        -           -           -           -  (5,534,675   (5,534,675)
                                                    --------- --------- ---------- ------------  ---------- ----------   -----------
BALANCE, as previously reported,
 December 31, 1999                                 49,502,374   49,502  27,571,102  (1,300,000)          - (28,332,215   (2,011,612)
  Prior period adjustments - IC One (see Note 13):
   Reclassification of issuance of common stock in
    exchange to legal, financial, development and
     administrativive services                     (1,160,986)  (1,161)      1,161           -           -           -            -
   Common stock to be issued at $0.54 per
     share, December                                        -        -           -           -     114,000    (114,000)           -
   Issuance of common stock for notes at $1.32
     per share, July                                  759,056      759     999,241  (1,000,000)          -           -            -
   Issuance of common stock for software at $0.66
     per share, August                                174,583      175     114,825           -           -           -      115,000
   IBM Debt at $3.29 per share, September            (700,000)    (700) (2,299,300)          -           -   1,533,333     (766,667)
  Prior period adjustment - IC One's issuance of
   common stock for legal, financial, development
    and  administrative services (see Note 13):
     at $0.68 per share, February                   1,968,326    1,968   1,332,506           -           -  (1,334,474)           -
     at $0.68 per share, April                      1,913,579    1,914   1,290,633           -           -  (1,292,547)           -
     at $0.66 per share, May                          57,157        57      37,593           -           -     (37,650)           -
     at $0.66 per share, September                  1,500,860    1,501     986,242           -           -    (987,743)           -
  Prior period adjustment
   - IC One's accrual for taxes payable                   -          -           -           -           -    (125,393)    (125,393)
  Prior period adjustment
   - IC One's accrual for directors' fees                 -          -           -           -           -    (115,800)    (115,800)
                                                    --------- --------- ---------- ------------  ---------- ----------   -----------
BALANCE, restated, December 31, 1999                54,014,949  54,014  30,034,004  (2,300,000)    114,000 (30,806,489   (2,904,472)
   Issuance of common stock for cash :
     at $0.60 and $1.00 per share, January           120,733       121      82,320           -           -           -       82,441
     at $0.60 and $1.00 per share, February          653,466       653     399,427           -           -           -      400,080
     at $0.60 and $1.00 per share, March             508,567       509     413,392           -           -           -      413,901
     at $0.60 and $1.00 per share, April             512,081       512     355,138           -           -           -      355,650
     at $0.60 per share, May                         475,834       476     285,024           -           -           -      285,500
     at $0.21 and $0.60 per share, June              761,667       762     132,838           -           -           -      133,600
     at $0.60 per share, July                        160,000       160      95,840           -           -           -       96,000
     at $0.60 per share, August                      108,667       109      65,091           -           -           -       65,200
     at $0.40 per share, September                   110,062       110      43,915           -           -           -       44,025
     at $0.40 per share, October                      25,000        25       9,975           -           -           -       10,000
     at $0.40 per share, November                    100,000       100      39,900           -           -           -       40,000
   Issuance of common stock for cash
    received in 1999 at $0.54 per share,January      211,669       212     113,788           -    (114,000)          -            -
   Issuance of common stock for debt and interest:
      at $1.50 per share, April                    1,122,918     1,123   1,683,254           -           -           -    1,684,377
     at $0.60 per share, October                       2,632         3       1,576           -           -           -        1,579
     at $0.43 per share, November                     55,814        56      23,944           -           -           -       24,000
     at $0.40 per share, December                     77,083        77      30,756           -           -           -       30,833
   Issuance of common stock for financial
    and development services:
     at $2.66 per share, February                     22,768        23      60,449           -           -           -       60,472
     at $2.50 per share, March                       139,988       140     349,830           -           -           -      349,970
     at $1.97 per share, April                        28,527        29      56,066           -           -           -       56,095
     at $1.43 per share, May                           3,000         3       4,287           -           -           -        4,290
     at $1.94 per share, June                         90,700        91     175,485           -           -           -      175,576
     at $1.42 per share, July                         28,640        29      40,642           -           -           -       40,671
     at $0.98 per share, August                       16,114        16      15,842           -           -           -       15,858
     at $0.66 per share, September                    40,067        40      26,398           -           -           -       26,438
     at $0.64 per share, October                      58,397        58      37,278           -           -           -       37,336
     at $0.40 per share, November                     21,155        21       8,441           -           -           -        8,462
   Issuance of common stock for legal services
     at $0.35 share, Novembe                         500,000       500     174,500           -           -           -      175,000
   Issuance of common stock for investment in
    real estate joint venture:
     at $2.00 per share, March                        28,432        28      56,836           -           -           -       56,864
     at $0.33 per share, October                     101,975       102      33,550           -           -           -       33,652
   Issuance of common stock to IC One
     shareholders, January                           119,905       120        (120)          -           -           -            -
   Cancellation of shares of common stock issued in
     exchange, January                              (286,267)     (286)        286           -           -           -            -
   Issuance of common stock for equipment at $1.00
     per share, January                                8,000         8       7,992           -           -           -        8,000
   Issuance of common stock to settle CardOne
     potential claims at $1.05 per share, August     294,180       294     308,595           -           -           -      308,889
   Stock option compensation
     January                                               -         -      29,588           -           -           -       29,588
     February                                              -         -      29,588           -           -           -       29,588
     March                                                 -         -      29,588           -           -           -       29,588
     April                                                 -         -     407,476           -           -           -      407,476
     May                                                   -         -     815,726           -           -           -      815,726
     June                                                  -         -     109,334           -           -           -      109,334
     July                                                  -         -     109,335           -           -           -      109,335
     August                                                -         -     109,335           -           -           -      109,335
     September                                             -         -   1,599,960           -           -           -    1,599,960
     October                                               -         -     109,335           -           -           -      109,335
     November                                              -         -     109,335           -           -           -      109,335
     December                                              -         -     109,335           -           -           -      109,335
   Net loss                                                -         -           -           -           - (10,485,935) (10,485,935)
                                                    --------- --------- ---------- ------------  ---------- ----------   -----------
BALANCE,  December  31, 2000                        60,236,723$ 60,237 $38,734,476 $(2,300,000) $        -$(41,292,425) $(4,797,712)
                                                    ========= ========= ========== ============= ========= ============ ============
</TABLE>
                 See notes to consolidated financial statements.


                                      F-6
<PAGE>
                 SCHIMATIC CASH TRANSACTIONS NETWORK.COM, INC. AND SUBSIDIARY
                     ( A Development Stage Enterprise)
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                                           Cumulative During
                                                                           Year Ended December 31,       the Development Stage
                                                                       --------------------------------   (February 27, 1997
                                                                           2000              1999        to December 31, 2000)
                                                                       --------------   ---------------  -----------------------
                                                                                        (Restated - See
                                                                                           Note 13)
        CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                  <C>              <C>              <C>
           Net loss                                                  $   (10,485,935) $     (8,008,949)$            (41,292,425)
           Adjustments to reconcile net loss to net cash
             used in operating activities:
               Depreciation and amortization                                 130,149            85,811                  301,071
               Stock option compensation                                   3,567,935                 -                3,567,935
               Common stock issued for services                              950,167         3,792,997               23,555,667
               Common stock issued for interest expense                      120,829                 -                  120,829
               Common stock issued to settle CardOne claim                   308,889                 -                  308,889
               Loss on extinguishment of debt                              1,369,960           331,250                1,701,210
               Loss on impairment of assets                                  675,546                 -                  675,546
           Changes in current assets and liabilities:
             Other assets                                                          -            30,018                   30,018
             Accounts payable and accrued expenses                         1,208,924         2,139,565                4,629,476
                                                                       --------------   ---------------  -----------------------
        NET CASH USED IN OPERATING ACTIVITIES                             (2,153,536)       (1,629,308)              (6,401,784)
                                                                       --------------   ---------------  -----------------------
        CASH FLOWS FROM INVESTING ACTIVITIES:
             Acquisition of property and equipment                            (4,711)          (48,290)                (347,349)
             Acquisition of patents                                                -           (15,079)                 (46,854)
             Investment in real estate joint venture                         (36,515)                -                  (36,515)
                                                                       --------------   ---------------  -----------------------
        CASH USED IN INVESTING ACTIVITIES                                    (41,226)          (63,369)                (430,718)
                                                                       --------------   ---------------  -----------------------

        CASH FLOWS FROM FINANCING ACTIVITIES:
             Proceeds from loans payable - shareholders                       33,246           290,009                  498,571
             Proceeds from  notes payable                                    235,000           125,000                  610,000
             Sales of common stock                                         1,926,397         1,252,833                5,729,815
                                                                       --------------   ---------------  -----------------------
        CASH PROVIDED BY FINANCING ACTIVITIES                              2,194,643         1,667,842                6,838,386
                                                                       --------------   ---------------  -----------------------
        NET (DECREASE) INCREASE IN CASH                                         (119)          (24,835)                   5,884

        CASH AT BEGINNING OF PERIOD                                            6,002            30,837                        -
                                                                       --------------   ---------------  -----------------------
        CASH AT END OF YEAR                                          $         5,884  $          6,002 $                  5,884
                                                                       ==============   ===============  =======================

              SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

           CASH PAID DURING THE YEAR FOR:
                 Interest                                            $             -  $              - $                      -
                                                                       ==============   ===============  =======================
                 Income taxes                                        $             -  $              - $                      -
                                                                       ==============   ===============  =======================
           NON-CASH FLOW FINANCING AND INVESTING ACTIVITIES:
                 Issuance of common stock for debt                   $       250,000  $              - $                250,000
                                                                       ==============   ===============  =======================

                 Issuance of common stock for investment in
                       real estate joint venture                     $        90,516  $        420,000 $                510,516
                                                                       ==============   ===============  =======================
                 Issuance of common stock for equipment              $         8,000  $              - $                  8,000
                                                                       ==============   ===============  =======================
                 Issuance of common stock for IC One, Inc.           $           120  $         34,809 $                 34,929

                                                                       ==============   ===============  =======================
                 Issuance of common stock for shareholder's loan     $             -  $        150,000 $                150,000
                                                                       ==============   ===============  =======================
                 Issuance of common stock for software               $             -  $        115,000 $                115,000
                                                                       ==============   ===============  =======================
                 Issuance of common stock for notes receivable       $             -  $      1,000,000 $              2,300,000
                                                                       ==============   ===============  =======================

                 See notes to consolidated financial statements.

</TABLE>
                                       F-7
<PAGE>



          SCHIMATIC CASH TRANSACTIONS NETWORK.COM, INC. AND SUBSIDIARY
                        (A Development Stage Enterprise)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   THE COMPANY

     Schimatic Cash  Transactions  Network.com,  Inc.  (the Company)  is in the
     business of research,  development and integration of proprietary processes
     and software technologies for the electronic payment industry,  primarily
     involving consumer loyalty programs.


     The Company was incorporated in Florida as Apple Tree Capital Corp. in
     October 1996 and remained inactive until November 1998 when it acquired
     Schimatic Technologies, Inc. and R & D Technology Inc., following which it
     changed its name to Schimatic Cash Transactions Network.com, Inc. In 1999,
     the Company entered into a reverse acquisition with IC One, which was
     organized on February 27, 1997 (Inception).

     In September 1999, the Company acquired all of the outstanding shares of IC
     One, Inc. (IC One) in exchange for 34,809,443 shares of its common stock.
     The exchange has been accounted for, as a reverse acquisition, under the
     purchase method of accounting, since the former shareholders and members of
     the IC One owned a majority of the outstanding common stock of the Company
     after the acquisition. Accordingly, the combination of IC One and the
     Company is recorded as a recapitalization of IC One, pursuant to which IC
     One is treated, as the continuing entity for accounting purposes and the
     historical financial statements presented is those of IC One. Pro-forma
     information has not been presented since the transaction was deemed a
     capital stock transaction rather than a business combination.

     Included in the total number of shares issued in this exchange were
     1,296,306, 2,020,217, and 2,548,433 shares of common stock that was
     presented in the statement of shareholders' deficit as common stock issued
     for cash in 1997, 1998 and 1999, respectively. In addition, included in
     this total number of shares issued in the exchange were 18,848,386,
     3,723,897, and 6,372,204 shares of common stock that was also presented in
     the statement of shareholders' deficit as common stock issued for services,
     rights to software and common stock subscriptions receivable in 1997, 1998
     and 1999, respectively. Therefore, the total of 34,809,443 shares of common
     stock in the exchange were presented separately and, as a result, no shares
     of common stock were presented in the balance at February 27, 1997
     (Inception) after accounting for the prior period adjustments (see Note
     13). Further, these transactions were completed by IC One prior to the date
     of the reverse acquisition and presented separately in order to provide the
     historical activity of IC One. Further, during January 2000, the number of
     shares of common stock originally issued in the exchange of 34,809,443
     increased by 119,905 to 34,929,348 in order to provide shares to those IC
     One shareholders that had not received stock in the Company.

     In recording the reverse acquisition, the nominal net monetary liabilities
     of the legal acquirer, Schimatic Cash Transactions Network.com, were
     recorded at their net carrying value and consolidated with the net
     liabilities of the accounting acquirer, IC One. Therefore, the accumulated
     deficit of the legal acquirer was adjusted to additional paid in capital,
     while the common stock issued and outstanding continues to be classified as
     common stock. Further, in order to properly present the historical
     financial statements of IC one, the 18,597,792 shares of common stock
     issued by the legal acquirer prior to the date of the reverse acquisition
     has been presented as issuance of common stock in exchange in the statement
     of shareholders' deficit. The 18,597,792 shares of common stock issued by
     the legal acquirer are after accounting for the prior period adjustment of
     1,160,986 (see Note 13). In addition, in January 2000, 286,267 shares of
     common stock issued in the exchange were returned and canceled, resulting
     in an adjusted issuance of common stock in exchange of 18,311,525 shares.

                                      F-8
<PAGE>

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    ------------------------------------------

    Basis of Presentation - The accompanying financial statements have been
    prepared assuming that the Company will continue as a going concern. The
    Company is a development stage enterprise and has incurred net losses of
    $41,292,425 since inception. Additionally, the Company had a net working
    capital deficiency of $4,562,713 at December 31, 2000. The Company has
    experienced cash shortages and inability to pay its obligations from time to
    time in 2000. Of the approximately $4,660,000 of current liabilities,
    approximately $4,161,000 is past due. These amounts include approximately
    $1,970,000 payable to IBM and $848,000 of accrued wages owed to officers and
    employees of the Company. These conditions raise substantial doubt about the
    Company's ability to continue as a going concern.

    Management's plans with respect to these matters include restructuring debt,
    including current liabilities, through the issuance of common stock and
    entering into forbearance agreements, continuing to defer certain employee
    compensation as well as payment of amounts due to affiliates for past due
    obligations and raising additional capital. Management expects to incur
    additional losses for the foreseeable future and recognizes the need to
    raise capital through future issuance of stock and/or debentures in order to
    develop a viable business. The Company has found it necessary to implement
    severe cost cutting measures. It may also rely increasingly on strategic
    alliances with others who will assume responsibility for financing specific
    required development tasks; thus, reducing the Company's financial
    requirements for the exploitation of its intellectual properties.


    Subsequent to December 31, 2000, the aforementioned officers agreed to
    accept stock options as payment for approximately $919,000 in accrued wages
    (including $848,000 at December 31, 2000) (see Note 16). In July 2001, IBM
    agreed to forgive $770,000 and accept a repayment schedule for the balance
    due of $1,200,000 (See Note 16).

    Approximately $1,343,000 of current liabilities reflected at December 31,
    2000 is substantially past due and is not subject to any formal forbearance
    agreement or repayment schedule. All of these amounts are liabilities of IC
    One, Inc. In the event demands are made upon the Company or IC One which
    cannot be met and the associated creditors successfully pursue action
    against the Company or IC One, Inc., the Company could be exposed to
    additional costs of legal fees, interest or penalties, and may be forced to
    take other defensive actions, including filing for bankruptcy.

    The Company has been able to finance its operations by raising capital
    through the private placement of common stock and convertible debt. During
    the year ended December 31, 2000, the Company raised $1,926,397 from the
    sale of common stock, issued common stock for services of $950,167 and for
    debt and interest of $386,500 (see Note 9).

    During 2001, the Company has issued convertible notes of $955,000, which
    bear interest at either 20% or 25% and are payable in shares of common stock
    (see Note 16).

    Principles of Consolidation - The consolidated financial statements include
    the accounts of the Company and its wholly owned subsidiary, IC One. All
    significant intercompany balances and transactions have been eliminated in
    consolidation.

    Software Development Costs - In accordance with SFAS No. 86, Accounting for
    Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,
    software development costs are expensed as incurred until technology
    feasibility has been established. The Company defines the establishment of
    technological feasibility as the completion of all planning, designing,
    coding and testing activities that are necessary to establish products that
    meet design specifications including functions, features and technical
    requirements. As of December 31, 2000, the Company had not established
    technological feasibility.


                                      F-9
<PAGE>

    Property and Equipment - Property and equipment are recorded at cost.
    Expenditures for major additions and betterment's are capitalized.
    Maintenance and repairs are charged to operations as incurred. Depreciation
    of property and equipment is computed by straight-line method over the
    assets estimated lives ranging from three to seven years. Leasehold
    improvements are amortized over the lesser of the lease term or the assets'
    useful lives. Upon sale or retirement of plant and equipment, the related
    cost and accumulated depreciation are removed from the accounts and any gain
    or loss is reflected in operations.


    Intangible Assets - Intangible assets include the legal costs of developing
    and acquiring patents as well as those patents with patent pending status.
    These patents include a loyalty patent, which covers a process or method of
    storing credits and incentives on a portable device, such as smart cards,
    cellular telephones or personal data assistants. This portable device
    interacts with point-of-sale terminals, satellite receivers, automated
    teller machines, and smart-card readers connected to personal computers in
    order to calculate the amount of units to be credited or redeemed toward
    future transactions. These patents expire in various periods from September
    2012 through November 2014 and are amortized ratably over fourteen years.
    Amortization expense charged to operations in 2000 and 1999 was $6,000.


    Stock - Based Compensation - The Company accounts for all transactions under
    which employees, officers and directors receive shares of stock in the
    Company in accordance with the provisions of Accounting Principles Board
    Opinion No. 25, Accounting for Stock Issued to Employees. In accordance with
    Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting
    for Stock-Based Compensation, the Company adopted the pro forma disclosure
    requirements of SFAS 123. Accordingly, no compensation has been recognized
    in the results of operations for the employees, officers and directors stock
    option plan other than for options granted at exercise prices below the
    market price or to non-employees for services.

    Income Taxes - The Company follows Statement of Financial Accounting
    Standards No. 109, Accounting for Income Taxes, which requires recognition
    of deferred tax assets and liabilities for the expected future tax
    consequences of events that have been included in the financial statements
    or tax returns. Under this method, deferred tax assets and liabilities are
    based on the differences between the financial statements and tax bases of
    assets and liabilities using enacted tax rates in effect for the year in
    which the differences are expected to reverse.

    Loss Per Common Shares - Basic loss per share has been calculated based upon
    the weighted average number of common shares outstanding. Stock options have
    been excluded as common stock equivalents in the computation of diluted loss
    per share since they are anti-dilutive, or their effect is not material.

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

    Fair Value of Financial Instruments - The Company's financial instruments
    consist primarily of cash, and accounts payable and accrued expenses, which
    approximate fair value because of their short maturities. The Company's
    notes payable approximate the fair value of such instruments based upon
    management's best estimate of interest rates that would be available to the
    Company for similar financial arrangements at December 31, 2000.


                                      F-10
<PAGE>

    Impairment of Long - Lived Assets - The Company reviews long-lived assets
    for impairment whenever circumstances and situations change such that there
    is an indication that the carrying amounts may not be recovered. At December
    31, 2000, the Company believes that there has been no impairment of its
    long-lived assets, except for the investment in a real estate joint venture
    and an intangible asset (see Notes 12 and 13).

    Comprehensive Income - Statement of Financial Accounting Standard No. 130,
    Reporting Comprehensive Income, establishes standards for reporting and
    displaying comprehensive income, comprising net income and other non-owner
    changes in equity, in the financial statements. For all periods presented,
    comprehensive income was the same as net income.

    Segment Information - Statement of Financial Accounting Standard No. 131,
    Disclosure About Segments of an Enterprise and Related Information, defines
    operating segments as components of an enterprise for which separate
    financial information is available that is evaluated regularly by the chief
    operating decision maker in deciding how to allocate resources and in
    assessing performance. Based on the way it organizes its business for making
    operating decisions and assessing performance, the Company has determined
    that it has a single reportable operating segment.

    Reclassifications - Certain reclassifications have been made to the 1999
    financial statements to conform to the 2000 presentation.

    Recent Accounting Pronouncements - The Company will adopt Statement of
    Financial Accounting Standard No. 133 (SFAS No. 133), Accounting for
    Derivative Instruments and Hedging Activities as amended by SFAS No. 137 and
    SFAS No.138 on January 1, 2001. SFAS No. 133 requires all derivative
    financial instruments and certain embedded derivatives to be recorded at
    fair value. To the extent that the special hedge accounting criteria are
    met, changes in fair value are either recognized periodically in earnings or
    other comprehensive income, depending on whether the derivative is being
    used to hedge changes in fair value or cash flows. The Company does not
    expect the adoption of SFAS No. 133 as amended by SFAS No. 137 and SFAS No.
    138 to have a material impact on the financial statements.

    In December 1999, the Securities and Exchange Commission (SEC) issued Staff
    Accounting Bulletin No. 101, Revenue Recognition (SAB 101), which is
    effective for the Company on January 1, 2000. SAB 101 will have no impact on
    the Company's financial statements.

    In July 2001, the Financial Accounting Standards Board issued Statement of
    Financial Accounting Standards (SFAS) No. 141 Business Combinations and SFAS
    No. 142 Goodwill and Intangible Assets (SFAS No. 142). SFAS No. 141 requires
    that all business combinations initiated after June 30, 2001 be accounted
    for using the purchase method of accounting and prohibits the use of the
    pooling-of-interests method for such transactions. SFAS No. 142 applies to
    all goodwill and intangible assets acquired in a business combination. Under
    the new standard, all goodwill, including goodwill acquired before initial
    application of the standard, should not be amortized but should be tested
    for impairment at least annually at the reporting level, as defined in the
    standard. Intangible assets other than goodwill should be amortized over
    their useful lives and reviewed for impairment in accordance with SFAS no.
    121. The new standard is effective for fiscal years beginning after December
    15, 2001. The Company must adopt this standard on January 1, 2002.


                                      F-11
<PAGE>

3.       CONCENTRATION OF CREDIT RISK

The Company maintains cash balances at several banks. The Federal Deposit
Insurance Corporation up to $100,000 insures accounts at each institution.


4.       PROPERTY AND EQUIPMENT

At December 31, property and equipment consists of:

                                                                      2000
                                                                 -------------
Office equipment                                              $        228,564
Furniture and fixtures                                                  77,108
                                                                 -------------
                                                                       305,672
Less: Accumulated depreciation and amortization                       (248,426)
                                                                 -------------
                                                              $         57,246
                                                                 =============

5.       INTANGIBLE ASSET

At December 31, intangible asset consists of:

                                             Useful Life              2000
                                            -----------------    -------------
Patents                                       14 years          $        46,854
Less: Accumulated amortization                                          (12,496)
                                                                 -------------
                                                                $        34,358
                                                                 =============

6.       LOANS PAYABLE - SHAREHOLDERS

Loans payable to officers are non-interest bearing advances made on behalf of
the Company that are unsecured and payable on demand.

7.       CONVERTIBLE NOTES PAYABLE


At December 31, 2000, convertible notes payable of $235,000 bear interest at
rates ranging from 10 to 20% per month, which is payable in common stock at a
conversion price of either $0.40 or the traded market price on the tenth of each
month. The Company has the option to repay the notes or convert them into common
stock based on the conversion prices stated above. In addition, the holder can
only elect to convert the notes to common stock based on the above stated
conversion prices.

8.       INCOME TAXES

At December 31, 2000, the Company has available unused net operating loss
carryovers of approximately $41,292,000 that may be applied against future
taxable income and expire at various dates through 2020. The Company has a
deferred tax asset arising from such net operating loss deductions and has
recorded a valuation allowance for the full amount of such deferred tax asset
since the likelihood of realization of the tax benefits cannot be determined.

                                                                 2000
                                                            ----------------
Deferred tax asset:
    Net operating loss carryfoward                               16,517,000
    Valuation allowance                                        (16,517,000)
                                                            ----------------
Net deferred tax asset                                                    -
                                                            ================


                                      F-12
<PAGE>

A reconciliation of the statutory federal income tax benefit to actual tax
benefit is as follows:

                                                    2000              1999
                                               -------------     -------------
Statutory federal income tax benefit          $     4,194,000   $     3,204,000
Income tax benefit not utilized                    (4,194,000)       (3,204,000)
                                               -------------     -------------
Actual tax benefit                            $       -         $       -
                                               =============     =============

9.       SHAREHOLDERS' DEFICIENCY

The Company has valued common stock issued for services, prior to the date of
the reverse acquisition, based on the common stock sold for cash (see Note 13).
After the date of the reverse acquisition, issuances of common stock for goods
and services were valued based on the traded market price on the date of
issuance. The Company has considered the traded market price on the date of
issuance as a more reliable measure than the value of goods or services
received.

During 2000, the Company issued a total of 3,536,077 shares of restricted common
stock for $1,926,397. Included in this total are 416,617 shares of common stock
issued to Canopy Group, Inc. ("Canopy") for $250,000 (see Note 14).

During 2000, the Company issued 1,258,447 shares of common stock with a market
value of $1,740,789 for debt and payment of interest of $386,500. Included in
this total is 1,122,918 shares of common stock issued in April 2000, which was
valued at $1,684,377 to settle an agreement with Canopy (see Note 14). The
excess of market value over the debt of $1,369,960 was recorded as an
extraordinary loss. In addition, during October through December 2000, the
Company issued 135,529 shares of common stock valued at $56,412 as payment for
interest due on convertible notes (see Note 7).

In January 2000, the Company issued 211,669 shares of common stock for $114,000
received in 1999 for common stock to be issued.

During 2000, the Company issued 949,356 shares of common stock valued at
$950,167 for services which was recorded as consulting fees except for 500,000
shares of common stock valued at $175,000 to attorneys which was recorded as
legal and settlement fees (see Note 14).

In January 2000, the Company issued 8,000 shares of common stock valued at
$8,000 for office equipment.

In 1999, the Company issued 2,548,433 share of restricted common stock for
$1,252,833.

In November 1999, the Company issued 175,000 shares of common stock with a
market value of $481,250 to repay a loan of $150,000 received from a minority
shareholder prior to the reverse acquisition (see Note 1). The excess of market
value over the debt of $331,250 was recorded as an extraordinary loss.

In September 1999, the Company issued 11,357 shares of common stock valued at
$26,583 for services and was recorded to consulting fees.

10.      STOCK OPTION PLAN

On December 8, 1999, the Company adopted the 1999 Employee Stock Option Plan
(the "Plan"). The Board of Directors administers the Plan. Under the Plan, the
Company may grant stock options, which may be incentive stock options ("ISO") as
defined in the Internal Revenue Code, and stock awards or options which do not
qualify as ISO's to employees and officers. All employees of the Company are
eligible to participate in the Plan. During 1999, the Company did not grant any
shares under the Plan.


                                      F-13
<PAGE>

Prior to the IC One reverse acquisition, the Company's chairman and chief
executive officer, was granted options in November 1998 to purchase 6,778,000
post reverse acquisition shares of the Company's common stock. In addition, the
options were fully vested on the date of grant. The Board of Directors ratified
the original agreement, dated November 1, 1998 on November 11, 1999. The options
are exercisable at $0.1475 per share, which was the traded market price on the
date of grant, and expire on November 30, 2002 (see Note 16).

During 2000, the Company's Board of Directors granted options for the purchase
of 13,298,333 shares of its common stock to officers, directors and employees of
the Company. The exercise prices for such options ranged from $0.48 to $0.80 per
share, of which 8,298,333 options were granted below the traded market price on
the date of grant. Vesting of the right to exercise such stock options will
occur over periods until the year 2010. All of the stock options expire at the
end of 10 years from the date of grant. Of these stock options granted below the
traded market price, 2,909,256 vested during the year ended December 31, 2000,
and therefore, the Company recorded stock option compensation of $3,567,935 (see
Note 16).

For disclosure purposes of employees, officers and directors stock option
compensation, the fair value of options is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
stock options granted during the years 2000 and 1999: annual dividends of $0;
expected volatility of 167%; risk-free interest rate of 5.5%; and expected life
of either 1 or 5 years. The estimated weighted - average fair values of stock
options granted to employees, officers and directors during the year 2000 was
approximately $1.65 or a total value of $4,480,546.

The Company's pro forma loss and net loss per share would have been as follows:
<TABLE>
<CAPTION>


                                                                             2000                1999
                                                                        ---------------    -----------------
<S>                                                                 <C>                 <C>
Net loss applicable to common shares - as reported                  $      (10,485,935) $       (8,008,949)
Net loss applicable to common shares- pro forma                     $      (11,389,546) $       (8,008,949)
Net loss per common share - as reported                             $            (0.16) $            (0.15)
Net loss per common share - pro forma                               $            (0.17) $            (0.15)
</TABLE>


The following table summarizes the Company's stock option activity:

                                      Stock Options
                          --------------------------------------
                                    Weighted
                                 Shares              Average
                                 Exercise Price
                             ---------------     ----------------
Outstanding at
January 1, 1999                   6,778,000                 0.15
  Granted                                 -                    -
  Exercised                               -                    -
  Cancelled                               -                    -
                             ---------------     ----------------
Outstanding at
December 31, 1999                 6,778,000                 0.15
  Granted                        13,298,333                 0.49
  Exercised                               -                    -
  Cancelled                               -                    -
                             ---------------     ----------------
Outstanding at
December 31, 2000                20,076,333                 0.37
                             ===============     ================

                                      F-14
<PAGE>

The following table summarizes the Company's stock options outstanding and
exercisable at December 31, 2000:
<TABLE>
<CAPTION>

                                    Options Outstanding                              Options Exercisable
                  ---------------------------------------------------------    ---------------------------------
                                          Weighted Average       Weighted                             Weighted
    Range of              Number              Remaining           Average            Number            Average
Exercise Prices      Outstanding (In      Contractual life       Exercise         Exercisable         Exercise
                        Thousands)           (In Years)            Price         (In Thousands)         Price
-----------------    -----------------    ------------------    ------------    -----------------    ------------
<S>  <C>   <C>                  <C>             <C>                <C>                     <C>          <C>
     $0.00-$0.15                6,778           1.92               $0.15                   6,778        $0.15
     $0.48-$0.49               12,774           9.56               $0.48                   2,725        $0.48
     $0.64-$0.80                  524           9.51               $0.65                     185        $0.66
                     -----------------                                          -----------------
                               20,076                                                      9,688
                     =================                                          =================
</TABLE>

11.      OUTSIDE RESEARCH AND DEVELOPMENT SERVICES

The Company retained IBM in 1997 to perform certain research and development
services relating to the Company's database technology. As of December 31, 1999,
cumulative costs incurred for such services approximated $2,170,000; of which
$1,970,000 remains unpaid according to IBM. During 1999, the Company made cash
payments of $200,000 as partial payments for such services. Also in 1999, the
Company issued 700,000 shares of stock intended as partial payment of $766,667.
The market value of such shares exceeded the liquidated portion of the intended
payment by $1,533,333 and was included in the results of operations in 1999 as a
loss on settlement of vendor liabilities. Additionally, the Company placed
1,400,000 shares in escrow for the remaining unpaid debt. During 2000, the
Company restated the balance due to IBM to $1,970,000 and placed the common
stock issued in an escrow account (see Note 13). In July 2001, the Company
reached agreement for a reduction of the liability and the return of all shares
of common stock held in escrow (see Note 16).

12.      INVESTMENT IN REAL ESTATE JOINT VENTURE


On December 30, 1999, the Company issued 420,000 shares of restricted common
stock valued at $420,000 for a thirty-four percent interest in a real estate
joint venture, which acquired land and a three-story office building in Salt
Lake City, Utah.

The Company's interest in the joint venture during 2000 resulted in other income
of $13,515. During 2000, the Company issued 130,407 shares of common stock
valued at $90,516 and made an additional investment of $36,515 to pay for
services related to the remodeling of the office building. In March 2001, the
Company sold their thirty-four percent interest in the real estate joint venture
and as a result has recorded a loss on impairment of investment in joint venture
of $560,546 at December 31, 2000 (see Note 16).

The investment has been accounted for in accordance with the equity method of
accounting and the common stock issued has been valued based on the traded
market price on the date of issuance. The traded market price was used to value
the common stock, as it was determined to be a more reliable measure than the
value of the goods or services received.

13.      PRIOR PERIOD ADJUSTMENTS

During 2000, the Company identified certain transactions that should have been
recorded by IC One prior to September 1999, the date of the reverse acquisition
(see Note 1). IC One had issued common stock for certain legal, financial,
development and administrative services, which were valued at $22,136,838,
issued common stock for notes receivable of $2,300,000 and the rights to
software valued at $115,000. In addition, in 1999 IC One had received $114,000

                                      F-15
<PAGE>

for common stock to be issued and had incorrectly recorded the amount as a
reduction in operating expenses. In 1997, the Company had incorrectly included
7,815,080 shares of common stock as outstanding from February 26, 1997
(Inception) and included 1,160,986 shares in issuance of common stock in
exchange in 1999. The common stock issued for services and software in 1999,
1998 and 1997 was valued based on the common stock sold for cash in 1999, 1998
and 1997 as this was a more reliable measure than the value of the goods or
services received. Since IC One is treated, as the continuing entity for reverse
acquisition accounting purposes and the historical financial statements
presented are those of IC One, the Company has recorded prior period adjustments
for the years ended December 31, 1999, 1998 and 1997. Therefore, the Company has
recorded an adjustment to common stock, additional paid-in capital and
accumulated deficit for the services performed in 1999, 1998 and 1997. In 1999,
the adjustment totaled $3,652,414, which included the 1,160,986 shares of common
stock reclassified from issuance of common stock in exchange in 1999. In 1998
the adjustment totaled $2,366,957 and in 1997 the adjustment totaled
$16,117,467, which included the 7,815,080 shares of common stock reclassified
from February 26, 1997 (Inception). Further, in 1999 and 1998 the Company has
recorded a prior period adjustment for accrual of taxes payable of $125,393 and
$19,865, respectively, and in 1999 recorded an accrual for directors' fees of
$115,800. In addition, in 1999 and 1998, IC One recorded adjustments for the
issuance of common stock for notes receivable and in 1999 recorded an adjustment
for the purchase of software including the common stock to be issued. In 2000,
the Company issued 211,669 shares of common stock for cash received in 1999 for
common stock to be issued and determined that there is no future recoverability
of the software and has recorded a loss on impairment of $115,000.

During 2000, the Company adjusted the amount due to IBM from $1,203,333 to
$1,970,000 and reversed the loss of $1,533,333 recorded in 1999, as the
information available at the time that the transaction was originally recorded
was incorrectly understood. IBM had not accepted the 700,000 shares of common
stock as partial payment, but had considered the common stock as additional
shares placed in escrow for the amount due to IBM (see Notes 11 and 16).

The prior period adjustments for IC One and IBM for the year ended December 31,
1999, have been reflected in the Company's statement of operations as follows:
<TABLE>
<CAPTION>

                                                                                         As Previously
                                                                As Restated                 Reported
                                                           ----------------------    -----------------------
<S>                                                    <C>                        <C>
Revenue                                                $                       -  $                       -
Expenses                                                               7,677,699                  5,203,425
                                                           ----------------------    -----------------------
Loss before extraordinary item                                       (7,677,699)                (5,203,425)
Extraordinary item                                                     (331,250)                  (331,250)
                                                           ----------------------    -----------------------
Net loss                                               $             (8,008,949)  $             (5,534,675)
                                                           ======================    =======================

Net loss per share, basic and diluted:
    Before extraordinary item                          $                  (0.16)  $                  (0.15)
    Extraordinary item                                                    (0.01)                     (0.01)
                                                           ----------------------    -----------------------
Total Net loss per share, basic and diluted            $                  (0.17)  $                  (0.16)
                                                           ======================    =======================

Weighted    average    number   of   common    shares
    outstanding, basic and diluted                                    47,549,818                 33,966,498
                                                           ======================    =======================
</TABLE>

14.      LITIGATION AND SETTLEMENT OF CLAIMS

At December 31, 2000, the Company is a defendant in a lawsuit where the creditor
is seeking recovery of less than $30,000 of amounts past due. In this case, the
Company is seeking to negotiate a settlement or forbearance agreement.


                                      F-16
<PAGE>

In October 2000, the Company entered into a settlement agreement and confession
of judgement regarding a lawsuit by a former employee for back wages and
penalties related thereto. Under terms of the settlement agreement, the Company
agreed to make regular monthly payments of $6,000, totaling $60,000.

On April 13, 2000, the third judicial court of Salt Lake City County, State of
Utah (the Court) entered a judgement against the Company. The judgement related
to a claim for enforcement of a defaulted note agreement with the Canopy Group,
Inc. (the Canopy) pursuant to which Canopy lent to the Company $250,000 under an
interest-bearing note. On May 31, 2000, the Court entered a satisfaction of
judgement based on a settlement agreement reached between the Company and
Canopy. The settlement agreement called for the Company to pay the full amount
of principal and interest due under the note by the issuance of its common
stock. Under the settlement agreement the Company issued 1,122,918 shares of its
common stock in full settlement of $314,417 owed to Canopy (see Note 9). Also in
connection with the settlement agreement, Canopy invested an additional $250,000
in exchange for 416,617 shares of common stock.


In March 2000, the Company entered into agreements with attorneys to obtain
certain legal services. These agreements required the Company to issue certain
securities and pay specified compensation and other amounts. Such attorneys left
the Company in July 2000, and the Company took the position that no securities
or payments in cash were due to the attorneys. On November 15, 2000, the Company
agreed to issue 500,000 shares of common stock to the attorneys as settlement
and recorded $175,000 in legal and settlement fees.

In September 1999, IC One recognized that persons with claims against or
interest in either CardOne Development or CardOne Corporation might assert
claims against IC One as a result of IC One's acquisition from CardOne
Development of intellectual property rights that had been licensed to CardOne
Corporation. CardOne Development and CardOne Corporation were both organized by
affiliates of IC One. Subsequently a founder, officer and director of CardOne
Corporation, together with an associate (collectively, the "CardOne Executives")
advised that they sought to protect the interest of persons having a claim
against or interest in CardOne Corporation. In October and December 2000, after
evaluating the position of the CardOne Executives, the Company entered into an
agreement to employ the CardOne Executives as well as entered into a covenant
not to sue. In addition, the CardOne Executives agreed to assist the Company in
resolving any potential claims that might be asserted against the Company by
persons known to having a claim against or interest in CardOne Corporation. In
August 2000, the Company issued a total of 294,180 shares of common stock in
consideration of waiver and release from persons known to have had potential
claims against IC One in 1999. The Company has valued the common stock based on
the traded market price on the date of issuance and recorded $308,889 of legal
and settlement fees. In 2001, with the help of the CardOne Executives the
Company resolved the remaining potential claims (see Note 16).

In August 1999, the Company was a defendant in a lawsuit filed by a landlord
seeking payment for past due rent under a lease agreement. In this case, the
Company is seeking to negotiate a settlement or forbearance agreement (see Note
16).

15.      LEASE COMMITMENT

The Company leases office space under an operating lease expiring in 2001. In
addition, the Company had, at December 31, 2000, a 34% interest in the real
estate joint venture that leases the office space to the Company. The lease
agreement requires annual lease payments of approximately $79,000 (see Notes 12
and 16).

                                      F-17
<PAGE>

Total rent expense charged to operations for the years ended December 31, 2000
and 1999 was $214,979 and $104,639, respectively.

16.      SUBSEQUENT EVENTS

Lease Forbearance Agreement - In March 2001, the Company entered in a
forbearance agreement with a landlord for unpaid rent. The agreement requires
that the Company make monthly payments of $5,000 per month until the amount of
$50,541 plus interest at 24% per annum is paid in full. The forbearance
agreement is secured by all the assets of the Company (see Note 14).

Sale of Real Estate Joint Venture Interest - In March 2001, the Company arranged
to sell and convey its entire interest in the building and the associated real
estate joint venture to a third party. The sale price by the joint venture was
$895,000, in addition to $98,925 of forgiven rental expenditures. The Company
did not receive any proceeds from the sale and therefore incurred a loss of
$560,546 (see Notes 12 and 15).

Agreement with Creditor - Effective June 2001, the Company reached agreement
with IBM to reduce the balance of accounts payable to them by $770,000, a 39%
reduction to the $1.97 million owed at December 31, 2000. The unpaid obligation
stems from services provided to IC One prior to the time of the reverse
acquisition (see Note 11).


The agreement also forgives any penalties or interest, which may have accrued,
and calls for the return to the Company of 2,100,000 shares of common stock
placed in escrow as collateral for the IBM obligation. The agreement permits the
Company to repay the remaining amount over a period of time as long as fifteen
months, starting no later than September 30, 2001. The amounts expected to be
repaid will increase from $70,000 per month in September 2001 to as much as
$90,000 per month through December 2002. The agreement will result in an
extraordinary gain from settlement of $770,000 in 2001.


Stock Options Plan - In March 2001, the Company's Board of Directors authorized
the reduction of the exercise prices of 7,428,333 options granted during 2000,
from exercise prices ranging from $0.48 to $0.80 per share to $0.128 per share,
which was the market price on the date of repricing (see Note 10). In addition,
the options immediately vested provided that the optionee exercised the options
in exchange for a note payable secured by the common stock received from the
exercise.

In July 2001, the Chairman of the Board voluntarily agreed to reduce the number
of stock options previously granted to him by 1,778,000 options to 5,000,000
options in exchange for a reduction in the exercise price from $0.1475 to $0.128
per share, which was the market price on the date of repricing (see Note 10).
Further, the Chairman of the board agreed to use $255,000 owed to him by the
Company as partial payment toward the exercise of these options. The Board of
Directors also agreed to accept the same non-recourse note terms as discussed
below for executive officers.

In consideration of the requirement that the options be exercised immediately,
the Company authorized the payment of the exercise price by the execution of
non-recourse promissory notes. The notes are due no later than December 31,
2004, and provide that the holder of the note is required to repay the notes
from proceeds received from the sale of the common stock. The Company as
collateral is holding the common stock issued from the exercise of these
options. If a note were not repaid at or before maturity on December 31, 2004,
the subject shares would be returned to the Company.

                                      F-18
<PAGE>

In July 2001, the officers, including the Chairman of the Board, and employees
have exercised their options to purchase 12,428,333 shares of common stock. In
connection with the exercise, the optionees issued non-recourse promissory notes
of $1,335,827, after crediting the $255,000 owed the Chairman of the Board.

Agreement with Executive Officers - Effective July 1, 2001, the Company reached
agreement with all of its executive officers to forgive wages owed to them by
the Company totaling $919,000 (including $848,000 of accrued wages at December
31,2000), in exchange for options to purchase common stock (see Note 2). Under
this agreement, the officers will receive options to purchase common stock at a
price equal to $.10 per share. If all such options were exercised, 9,190,000
shares of common stock would be issued. In addition, the Board of Directors has
agreed to provide the recipients of these stock options the opportunity to
exercise these options using non-recourse notes (Notes). The Notes mature no
later than December 31, 2004 and the executive officers exercising these options
are required to repay the Notes from the proceeds received from the sale of the
common stock. Upon the exercise of these options, the Company will hold as
collateral for the Notes the common stock issued and retain voting rights until
the Notes are paid. If the Notes are not repaid at or before maturity, the
subject shares will be returned to treasury.

Issuance of Convertible Notes - During the first seven months of 2001, the
Company issued convertible notes of $955,000 that bear interest at either 20% or
25%, and the interest is payable in common stock at conversion prices of the
lesser of the traded market price or either $0.20 or $0.366. The Company has the
option to repay the notes, unless the holder elects to convert the notes into
common stock at a conversion price of $0.366. In some cases the convertible
notes can not be completely convert into common stock until the holder has
received a minimum number of shares of common stock to pay interest and/or
convert a portion of the notes into common stock. At such time that the holder
has received a minimum number of shares of common stock they have agreed to
convert the notes into common stock (see Note 2).


Settlement of Common Stock Subscriptions Receivable - In July 2001, the Company
reached an agreement with a former employee in settlement of disputed terms of a
note receivable pursuant to a stock purchase agreement entered into by IC One,
Inc. in 1998. Under this agreement, the Company agreed to accept payments
totaling $175,000, of which $100,000 was received in July 2001, and the balance
is due by December 31, 2001, in full satisfaction of the $1,300,000 in common
stock subscriptions receivable. Therefore, the Company will record a write-off
of $1,125,000 in common stock subscriptions receivable in the nine months ended
September 31, 2001.

CardOne Settlement - In July, August and September 2001, the Company issued a
total of 7,295,020 shares of common stock in consideration of waiver and release
from persons known to have had potential claims against IC One in 1999. The
Company has valued the common stock based on the traded market price on the date
of issuance and recorded $1,333,980 of legal and settlement fees (see Note 14).

                                      F-19