SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

 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 0-30544

                  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.)

             740 East 3900 South, Second Floor                    84107
                   Salt Lake City, Utah
         (Address of principal executive offices)               (Zip Code)

                                 (801) 685-7676
                (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)

                         740 East 3900 South, Suite 300
                           Salt Lake City, Utah 84107
(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 |_| No |X|

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 October 11, 2001, 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 September 30, 2001, issuer had
78,799,167 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.................................     20
     Item 3    Legal Proceedings.........................................     20
     Item 4    Submission of Matters to a Vote of Security Holders.......     22

                                     Part II
     Item 5    Market for Common Equity and Related Stockholder Matters..     23
     Item 6    Management's Discussion and Analysis or Plan of Operation.     29
     Item 7    Financial Statements......................................     33
     Item 8    Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure.....................     33

                                    Part III
     Item 9    Directors, Executive Officers, Promoters and Control Persons;
                 Compliance with Section 16(a) of the Exchange Act.......     34
     Item 10   Executive Compensation.....................................    38
     Item 11   Security Ownership of Certain Beneficial Owners and Management.41
     Item 12   Certain Relationships and Related Transactions.............    42
     Item 13   Exhibits and Reports on Form 8-K...........................    44

                   Signatures.................................................46



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                 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
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.


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                                     PART I


                         ITEM 1. DESCRIPTION OF BUSINESS

Introduction

     We are developing and marketing, under the name Smart Chip Technologies,  a
patent-protected, technology-based loyalty program enabler for the multitrillion
dollar electronic payments industry. Our integrated software and database enable
retail merchants,  banks and other enterprises to process instantly a variety of
reward and  incentive  credits for loyalty  programs  designed to establish  and
maintain customer  loyalty.  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--with a point-of-sale device.

     Our technology provides consumers with real-time loyalty program management
and smart  cards  that serve as  electronic  purses for  instant  redemption  of
loyalty  program  rewards and  incentives.  Our  marketing  efforts are directed
toward  licensing  our  loyalty  technology  and  patents  for the  1.5  billion
credit/debit  payment  cards that we believe will migrate  from  magnetic  strip
cards without data storage or computing  capabilities  to smart cards during the
next few years and the 3.1 billion  non-credit/debit smart cards without payment
capabilities that are currently issued throughout the world.

     Our marketing focus 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 hope this will  enable  us to seek  rapid  market
penetration while limiting our own funding requirements.

     Our loyalty 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 loyalty  processing  between a base  unit,  such as a  point-of-sale  device,
automated  teller machine or satellite,  and a customer carried portable device,
such as a smart card, personal digital assistant or cell phone.

     We believe  the use of smart cards and loyalty  programs  will  increase as
international  banking  and  credit  industries  implement  programs  to improve
security and  automation  by issuing new smart cards to replace the existing 1.5
billion credit/debit cards and the 3.1 billion  non-credit/debit smart cards. We
believe the United  States  payments  industry,  following  in the  footsteps of
European and Asian  counterparts,  has  recognized  the potential  advantages of
loyalty programs based on a smart-card infrastructure as a value-added incentive
for the migration to smart cards.

     For the past year, we have been building our products and  management  team
to take advantage of the emerging opportunity to license our patented technology
to payment card issuers,  large merchant card programs and the increasing  array
of  nontraditional  wireless  payment  service  providers  for both Internet and
wireless  payments  devices,  including  personal  digital  assistants  and cell
phones.

     Our business is based on our intellectual properties,  important components
of which are claimed in our  patents.  We also market our  products and services
under trademarks:  e-llegiance(tm) for our smart-card-based loyalty applications
and   LoyaltyCentral(tm)   for  our  loyalty  program  management,   transaction
processing and accounting services.

     We offer  licenses to our  multiplatform  smart-card  loyalty  application,
marketed as  e-llegiance(tm),  which is engineered to comply with  international

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industry engineering standards,  including Europay, MasterCard and Visa, or EMV,
Global  Platform,  Visa Open Platform,  and MULTOS.  The software is designed to
operate on smart  cards,  point-of-sale  terminals  and smart  devices,  such as
personal digital assistants, or PDAs. We offer our Loyalty Inside implementation
strategy as a loyalty program enabler in the electronic  payments  industry.  We
have also developed  systems to provide  complete  loyalty  program  management,
transaction  processing and accounting  services through our  LoyaltyCentral(tm)
software. Our e-llegiance(tm) and  LoyaltyCentral(tm)  solutions are designed to
provide maximum flexibility in managing Internet marketing incentive programs to
help  establish  business  continuity  across the  physical,  mobile and virtual
worlds.

     Important  components of our application  software and database that relate
to capturing loyalty data in connection with an electronic payments  transaction
were  co-developed with IBM, although the software and database are wholly owned
by us. This  software  also manages the dynamic  uploading  and  downloading  of
information between the merchant  point-of-sale or base device, the cardholder's
smart card, and the loyalty program  sponsor's  centralized  processing  system.
With this system  interfaced with an electronic  payments  application,  a smart
card can be used to both process payments and electronically allocate and redeem
rewards and incentives.

     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  funding,  strategic
partner or funding vehicle in the future.

     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,  we  incurred  net losses of  approximately
$8,078,000.  We had an accumulated net loss of approximately $22,602,000 for the
period from February 27, 1997, our date of inception, through December 31, 2000.
At  December  31,  2000,  we had net  stockholders'  deficits  of  approximately
$4,221,000.  Accordingly,  the independent  auditor's  report  accompanying  our
audited financial  statements as of December 31, 2000 and 1999, included in this
report,  contain an  explanatory  paragraph  about our  ability to continue as a
going concern. See Consolidated Financial Statements.

     Our  company,  SCHIMATIC  Cash  Transactions  Network.com,  Inc.,  operates
principally through its wholly-owned subsidiary,  Smart Chip Technologies,  LLC.
When we use "we,"  "us," "our" and similar  terms in this  document,  we mean to
include  both  SCHIMATIC  Cash  Transactions   Network.com,   Inc.,  Smart  Chip
Technologies,  LLC, and our other subsidiary, IC One, Inc. Our executive offices
are located at 740 East 3900 South,  Second Floor,  Salt Lake City,  Utah 84107,
where our telephone  number is (801) 685-7676.  We expect to establish an office
in Orange County, California, commencing in October 2001.

History of Corporate Organization

     Acquisition of STI and R & D Technology

     We were incorporated in October 1996 as a Florida Corporation,  named Apple
Tree Capital Corp. On November 18, 1998, Apple Tree Capital Corp. simultaneously
acquired  Schimatic   Technologies,   Inc.,  or  STI,  a  privately-held  Nevada
Corporation,  and R & D Technology Inc., a privately-held Nevada corporation. On
January  14,  1999,  our  name  was  changed  to  SCHIMATIC  Cash   Transactions
Network.com,  Inc. The acquisition of STI and R & D Technology was  accomplished
by an exchange of our shares for all of the outstanding  shares of STI and R & D
Technology.  As of the  acquisition  date,  we, STI and R & D Technology  had no
significant operations or business assets.  Following our acquisition of STI and
R & D Technology, STI and R & D Technology discontinued all operations.


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     Acquisition of IC One, Inc.

     In September  1999, we 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. With the acquisition of IC
One, we commenced business  operations.  IC One continues to exist as one of our
subsidiaries.  For accounting purposes, our acquisition of IC One was considered
a reverse  merger in which IC One was deemed the acquirer and successor  company
(see Note 1 of Notes to Consolidated Financial Statements).

     A key asset  acquired  with IC One Inc.  was a group of patents and pending
patents in the United  States and other  countries,  which 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.

Our Industry

     The retail payments industry is enormous,  with generally accepted industry
estimates  of $8.7  trillion in  purchases  annually,  with almost 28%, or $2.44
trillion,  comprised  of  credit  and debit  charge  card  purchases.  There are
currently  an  estimated  1.5 billion  charge  cards in  circulation  worldwide.
Payments revenue has experienced double-digit growth since 1991 and accounts for
more than 50% of all banking revenue. In general, the retail electronic payments
industry is split  between  four  sectors:  card  associations,  issuing  banks,
processors and merchants.

     Card  associations are typically not for profit  membership clubs that make
the international rules for issuing cards and processing  transactions for their
brands.  Large  issuing  banks like  Citigroup and MBNA process their own charge
card transactions,  while smaller banks 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.

         Historically, the banks have worked to cut processing costs in an
effort to distinguish their charge cards and gain market share. The loyalty
component, rather than processing costs, has emerged as a significant
differentiator among charge cards. Currently, more than 70% 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
consumer's core issues of quality service, value and having a voice in the
marketplace. In general, industry estimates 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

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

     In spite of the global adoption and success of loyalty programs, we believe
that current  charge card magnetic  strip  technology is  insufficient  to fully
realize  loyalty's  potential.  Smart cards have  already  established  a strong
market  presence as the foundation of significant  changes within the electronic
payments  industry.   Smart-card  technology  utilizes  a  computer  chip  on  a
customer-carried  portable device (charge card,  personal  digital  assistant or
PDA, cell phone, etc.) to instantly process  transactions with its corresponding

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base unit (point-of-sale,  or POS, device, automatic teller machine,  satellite,
etc.) This robust solution is currently widely used in Europe, comprising 45% of
all electronic payments  processing.  In France,  nearly 100% of all bank charge
cards  are  smart  cards.  The  United  States is  quickly  following  suit with
significant  high-profile smart-card rollouts in a variety of industries:  Mobil
Speed Pass and American  Express Blue are  currently  two of the most  prominent
smart-card  applications.  On August 3,  2001,  the  Chicago  Transit  Authority
announced  plans to offer 300,000 smart cards to its customers next year.  There
are currently  175,000 smart cards in use in Washington,  D.C.'s transit system.
On August 7, 2001,  Minneapolis-based  Target Corp. announced a fall 2001 launch
of a co-branded Visa smart-card  program.  Target stated it will upgrade the POS
terminals in all of its 990 retail  stores to accept smart cards.  The San Diego
Padres and Master Card International  recently began a smart-card-based  loyalty
program for Padres fans.  Popular  musician  Michael  Jackson  recently  issuing
250,000  loyalty  program  smart cards to fans for a fall 2001  promotion of his
upcoming music release.  Additional high profile  smart-card  programs are being
launched in Mexico,  Brazil,  China,  Australia  and other  countries.  Industry
sources  estimate that by 2002,  more than 500 million charge cards will migrate
from magnetic strip to smart-card technology.  Visa and MasterCard have publicly
announced plans to migrate one billion of their cards to smart cards by 2004.

     Loyalty Programs

     As it  relates to  business  plans,  loyalty is defined as the result  from
providing  consumers  incentives to encourage repeat business,  such as a coupon
for  discounts to purchase  price or free goods.  Common  loyalty is a method of
using  incentives  that have a common  nature or  function as a kind of currency
among a diverse group of merchant  participants.  A loyalty  application  is one
where loyalty  incentives are utilized in order to cause a change in shopping or
cultural habits.  Examples include  discounts for future purchases or free goods
or services triggered by a certain action.

     Loyalty and incentive  programs help  businesses  nurture more  profitable,
long-term customer relationships.  Loyalty has become an important ingredient of
the  competitive  digital  payments  industry on magnetic strip debit and credit
cards.

     Our  business  plan is based on the premise that the  introduction  of more
powerful loyalty systems has a significant impact on consumer  behavior.  In the
simplest analysis,  loyalty programs 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.  There are currently around 1.5 billion charge cards
in circulation, generally estimated to account for about 30% of the volume spent
by consumers on purchases of above $10.  Despite the advent of online  payments,
this physical card base is experiencing  year on year  double-digit  growth.  In
addition,  Visa  and  MasterCard,  as well as a  handful  of major  banks,  have
recognized the  opportunity in the estimated $1.8 trillion market of payments of
less  than  $10,  known as  micropayments.  This  potential  cannot  be  reached
economically by the regular credit and debit payment instruments.

     We believe consumers' expectations as to loyalty are increasing.  They want
quality  service,  products  that meet  their  needs,  value for money and added
benefits.  In response to these  expectations,  our management has observed that
retailers  are stepping up their  promotional  activity to the extent that sales
and special offers have become everyday  affairs,  as opposed to the traditional
end of the season stock clearances.


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     Smart Cards and Smart Chips

     Our management's  knowledge of the industry and specific inquiries indicate
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
transition over not only the currently  evolving  smart-card  technologies,  but
also further 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 loyalty  platform,  consisting  of a  software  and  hardware  system for
processing  loyalty  transactions,  the smart cards and smart  chips  provide an
opportunity  to develop  loyalty  programs  that provide  users with  immediate,
dynamically updated incentives.

     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.  We believe that loyalty and
payment  integration is a critical  stimulant to promote the rapid conversion to
smart-card-based financial transactions.

     This  segment of the  electronic  payments  industry  is  expected  to show
explosive growth in the coming years as the cost of firmware reduces with better
price  performance,  as  traditional  methods of  payments  are  replaced by new
technology,  and with increased demand for more powerful and gratifying  loyalty
programs.

Business Plan

     General

         Our business plan is focused on the following key elements:

          1)   obtaining  technical,   marketing,   data  processing  and  other
               complementary  support through strategic  alliances with industry
               participants  that we believe can advance our market  penetration
               and growth;

          2)   integrating our front-end  loyalty  application  with smart debit
               and credit payment cards;

          3)   expanding  common  applications,  including  common  loyalty  and
               Internet  functionality to potential business markets in a manner
               designed to create substantial intellectual property;

          4)   implementing  measures to actively identify  competitors that may
               be infringing  our patent and  intellectual  property  rights and
               take appropriate action to vigorously defend our rights; and

          5)   expanding  our  proven  education-funding  program  to   national
               markets.

     Anticipated Sources of Revenues

     Our  revenue  model is built  around a license  or royalty  model  aimed at
building  wholesale  institutional   relationships  for  marketing  and  product
licensing.  We have succeeded in getting our  applications  integrated  into the

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systems used by key terminal  manufacturers and card providers,  including those
discussed  below.  We have also entered into an  exclusive  loyalty  application
licensing  and  processing  with  a  regional  merchant  services  provider,  as
discussed below.

     We expect that our primary source of revenues will be from the licensing of
our patents and software  technology  and from fees for database  management  of
loyalty information using our developed software programs.

     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 in addition to
payments cards  associations (such as VISA and MasterCard) that provide services
and standards for the card issuing industry.

     Business Model

     We expect to develop business  alliances and marketing  agreements with key
partners and establish distribution of our technology and services through those
alliances. Potential alliance partners include:

     1)       banks;

     2)        merchant services organizations that provide equipment,  software
               technology and payment clearing services to merchants;

     3)        credit and debit card issuers;

     4)        smart-chip  payments  business  solutions  providers such as IBM,
               Oasis Technology Ltd. and Cardis Enterprises International BV;

     5)        manufacturers   of   payments   processing   equipment   such  as
               point-of-sale devices and terminals;

     6)        manufacturers of smart cards;

     7)        manufacturers of wireless  electronic devices such as cell phones
               and personal digital assistants;

     8)        providers of  Internet-based  payments systems used by merchants;
               and

     9)        technical consulting firms with particular focus on payments.

     Development Program

     We spent  approximately  $3.2 and $1.3 million 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
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.  To the extent that such development can be funded in part

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by venture or alliance  partners,  our requirements for this development  budget
would be reduced.

Our Products

     e-llegiance(tm)

     Our  e-llegiance(tm)  product establishes a common platform for integrating
loyalty and electronic payment  transactions.  Designed to be compliant with the
Global Platform,  Visa Open Platform and MULTOS  standards,  e-llegiance(tm)  is
designed to allow program  managers to deliver a multitude of loyalty options to
merchants and consumers simply by selecting user-friendly parameters that define
loyalty programs at all levels of retail, whether physical store locations or on
the Internet.

     The e-llegiance(tm) system uses a rules-based engine, designed by IBM, that
allows a large  combination of loyalty program  parameters and supports  loyalty
programs for multiple  merchants in multiple  merchant  groupings.  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 e-llegiance(tm) common
loyalty  platform can process loyalty credits  originating  from magnetic strip,
stored-value,   cash,  check  or  smart-chip-based   credit/debit  transactions,
supporting the  international  banking and credit  industry's  current  magnetic
strip card programs as they migrate to smart-chip-based payments. It also offers
merchants  maximum   flexibility  in  managing  customer   incentive   programs,
establishing  business  continuity  between the  physical  world and the virtual
world of electronic  information.  Features are designed to assist  merchants in
refining  loyalty  programs  to  maximize  their  effectiveness.  These  program
parameters are tracked  electronically,  reducing the administration of specific
loyalty programs. e-llegiance(tm) automatically tracks loyalty program start and
end dates.  Merchants may also benefit by increased  profitability  and customer
retention through heightened understanding of customer usage and demographics.

     LoyaltyCentral(tm)  is  the  back-office  processing,  or  loyalty  program
management software,  within e-llegiance(tm).  LoyaltyCentral(tm) is the loyalty
engine in the same manner as the automated  clearinghouse is the payments engine
for payments clearing. LoyaltyCentral(tm) delivers merchant and consumer account
maintenance, accounting,  reconciliation,  settlement and disbursements. It is a
flexible,  parameter driven platform that is the transaction  processing  system
and database repository for multiple loyalty applications.

     The  LoyaltyCentral(tm)  database represents a repository of data collected
at the point of service.  As volume grows, we believe the database will become a
key source of valuable  information  for  merchants  and  consumers.  We plan to
enhance our Internet portal, LoyaltyCentral.com(tm), to provide online access to
the database.  This will facilitate multiple interactive  functions such as data
collection, online statements and award redemption. LoyaltyCentral(tm) will also
be a  conduit  for  collection  of  licensing  and  other  fees  related  to its
technology. To ensure security, availability and scalability, we are outsourcing
the hosting of the computer  processing  for  LoyaltyCentral(tm)  to IBM. As the
electronic payments industry re-tools its back-office  operating systems to take
advantage of the flexibility  and power of smart devices,  we believe that there
is a  significant  revenue  opportunity  from  licensing  this  software or from
providing loyalty program management services through our back-office operation.

     e-llegiance(tm)  can operate as a stand-alone  smart-card  loyalty program,
offer a fully integrated smart loyalty/payment card solution, or add significant
value to multiapplication smart cards issued alongside programs such as transit,
security,  identification  or  government  benefits  issuance.  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

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smart-card issuers,  banks,  device  manufacturers and payment service providers
for development on additional platforms.

     The first implementation of the new software is scheduled to be deployed by
the Seattle-based  Merchant Service Group in late 2001. The system has also been
selected by ScotiaBank, Canada, for implementation in the summer of 2002.

     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.

     We intend to market the Kid's Card Program  nationwide through providers of
services to United  States  education  systems and to offer the  application  to
merchant  services  providers 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.

     We have  invested  in the  program  jointly  with  IBM to  create  a common
technology and operating  platform for cause-related  loyalty programs.  IBM has
installed  the  program in its Smart  Card  Centers of  Competency  displays  to
support its marketing efforts.

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 backend  processing system for loyalty program  management and accounting that
will 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 estimated of
$10 million. IBM does not have any ownership interest in this system.

     Patents

     One of our major assets is 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
cover  a  process  or  methodology  for  controlling  loyalty  data  collection,
combination and transfer between any smart-chip  device and any base device.  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

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software we have developed are flexibly  designed to meet device  evolution from
current  smart-card  technology to the next  generations of portable  smart-chip
devices, including cell phones, palmtops or similar devices. We believe that the
Patents  provide  substantial  barriers to those who wish entry 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.

     Software

     We own software  related to both the front-end and the back-end  processing
of loyalty programs.  The front-end  software,  co-developed with IBM, enables a
base  device  to  interact  with  the  electronic   purses  or  unique  software
applications on a smart chip to allocate and redeem loyalty currency, rewards or
incentives electronically. The software is also used to manage the uploading and
downloading of information  from the back-end  system to the base device and the
smart chip. LoyaltyCentral(tm) is our integration of the back-end software, data
and  methodology  necessary for the processing of loyalty through smart cards or
similar  devices.  It is a  flexible,  parameter  driven  platform  that  is the
transaction  processing  system and database  repository  for  multiple  loyalty
applications.

     The smart chip  included  in a portable  device,  for example a smart card,
makes  it  possible  to  access  multiple   applications  (which  might  include
information  regarding  payment funds,  multiple  loyalty  storage  programs and
identification  or other programs) stored on an individual device for subsequent
uploading and downloading between the smart-chip device,  through a base device,
to the LoyaltyCentral(tm) database.

     LoyaltyCentral(tm) Database

     The  LoyaltyCentral(tm)  database represents a repository of data collected
at the point of service.  As the volume of our data processing clients grows, we
believe  that our  database  will  become a source of valuable  information  for
merchants  and  consumers.  We plan  to  make  such  information  available  for
purchase.  We also plan to enhance our Internet portal,  LoyaltyCentral.com(tm),
to provide  online  access to the  database.  This will  facilitate  interactive
functions such as data mining,  online statements and award redemption.  We will
also use  LoyaltyCentral(tm)  for collection of licensing and other fees related
to our technology.

     We own other trademarks associated with our core loyalty business.  Loyalty
by  Design(tm)  is the  trademark  under which we develop  joint  ventures  with
significant consulting companies through which loyalty program-based  consulting
would be provided.  We believe that the transition from  traditional  electronic
payment  vehicles  will  accelerate  rapidly  and as  companies  respond to that
change,  opportunities to fill both the knowledge and processing gap will exist.
Joint ventures of this nature  represent a potential  source of fee revenue from
consulting and another distribution arm for our core services.  SmartBank(tm) is
the proposed  product line for loyalty as it applies to the  financial  services
and banking industries.

     Patent Defense

     Our  Patents   are  a  critical   component   of  our  value   proposition.
Consequently,  we must  manage  and  protect  the  Patents.  We  recognize  that
infringement of our Patents will occur  consistently  and frequently in the near
term. We expect that most  infringement will be unknowing;  hence,  infringement
represents a primary  opportunity  for business  development.  However,  we must
devote substantial resources to a defense program.


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<PAGE>

     Our ability to fully  support and defend our Patents is expected to require
significant  financial resources.  We expect to fund a major portion of the cost
of the legal and other resources from licensing revenues,  and initially through
offering  sharing in future  revenues  in order to  accomplish  adequate  Patent
defense.

Important Strategic Alliances

         To date, we have benefited from important strategic alliances in our
industry with:
          o    IBM,  Inc.,  which  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
               joint  licensing and revenue  sharing  agreement under which both
               companies would market IBM's SmartCard  Management System and our
               back-office   system,   LoyaltyCentral(tm),   as  an   integrated
               solution.

          o    The Solstice  Project is a major product  alliance to develop and
               market an Internet-capable,  multiapplication smart-card product.
               The  development  and  marketing   alliance  will  integrate  our
               e-llegiance(tm) loyalty solutions with micropayments and Europay,
               MasterCard  and  Visa,  or EMV,  payment  specifications,  and is
               designed  to meet the  expanding  demands of the  industry.  This
               product development is expected to create industry standards and,
               we  believe,  will be the  first  broad-based,  multiapplication,
               smart-card  product  that allows  customers  to access and choose
               credit  and  debit,  micropayments,  loyalty  programs  and other
               services using  microchip  technology.  We were  instrumental  in
               forming the Solstice Project in May 2001 with the following other
               members of the alliance:

               -    Oasis  Technology Ltd. is a leading  provider of software to
                    facilitate payments any time, any place on any device. Oasis
                    is the only  company  providing  payment  software for every
                    step of the transaction process for financial  institutions,
                    retailers,  card  associations  or any  business  focused on
                    payments.

               -    Silverline  is an  international  software  development  and
                    integration   services   firm,   with  over  2,600  software
                    professionals worldwide. Silverline provides a comprehensive
                    set  of  eBusiness  consulting  and IT  services,  including
                    strategic    consulting,    creative   design,    technology
                    integration  and  implementation,  as well as management and
                    maintenance of Internet and legacy applications.


               -    Giesecke  &  Devrient   is  an   internationally   operating
                    technology  group.  With  nearly 150 years of  history,  the
                    Giesecke & Devrient  of today  upholds  its  tradition  as a
                    trusted   leading   supplier  of  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.


               -    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.

               -    Ingenico Group 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.

     o    ScotiaBank   of   Toronto,   Canada,   agreed  in  July  2001  to  our
          e-llegiance(tm) loyalty application and LoyaltyCentral(tm) back-office
          system to  provide  its  customers  with  consumer  rewards  programs.
          ScotiaBank is a major North America financial institution,  with about

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          $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.


     o    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.

     o    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 agreement,  the two companies will partner to
          extend our smart-card  loyalty  program and patented  loyalty  process
          with  Oasis's  end-to-end  ePayment   technology.   In  extending  our
          smart-card  loyalty program with a built-in  facility for an unlimited
          range of real-time  online payments through the smart-chip card, Oasis
          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.

     o    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 cell phones) and Internet  points of sale.  Under the
          agreement,  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.

     o    Transaction  Software  Inc.  (TSI) is a  payment  systems  development
          specialist  for  VeriFone,  a  division  of  Hewlett-Packard.  We have
          entered into a joint  agreement  with TSI to develop  e-llegiance(tm),
          the  next  generation  of  our  patent-protected   smart-chip  loyalty
          applications,  to  run  on  VeriFone  Verix(tm)-based,   point-of-sale
          terminals.  TSI  will  take an  equity  position  in us as part of the
          agreement. 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 2001
          implementation of the e-llegiance(tm) loyalty application.

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 magnetic  strip  imbued.  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

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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.

     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
years ended December 31, 2000 and 1999, we incurred net losses of  approximately
$8,078,000 and  $6,623,000,  respectively.  We have an  accumulated  net loss of
approximately  $22,602,000  for the  period  from  February  27,  1997,  date of
inception,  through  December 31, 2000. At December 31, 2000, we had a total net
stockholders' deficit of approximately $4,221,000.  Accordingly, the independent
auditor's report  accompanying our audited  financial  statements as of December
31, 2000 and 1999,  included in this 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 us.


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

     As of December 31, 2000, we had a working capital deficit of  approximately
$4,076,000  and   approximately   $3,584,000  of  our  current   liabilities  of
approximately  $4,082,000  were  substantially  past  due.  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.

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

     From February 27, 1997 (inception)  through  December 31, 2000,  during our
development  stage,  we  incurred  an  accumulated   stockholders'   deficit  of
approximately  $22,602,000,  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 as early as the first quarter of 2002.

     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  $75,000 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
required  development tasks; thus,  reducing our financial  requirements for the
exploitation of our intellectual properties.

     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

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<PAGE>

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.

     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.


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<PAGE>

     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.

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.


16

<PAGE>

     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,
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.


17
<PAGE>

         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.
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  78.8 million shares of
our common stock issued and  outstanding.  We believe  that  approximately  61.0
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

18
<PAGE>

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
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 December 31, 2001, we have issued  an  aggregate  of  approximately
66,442,000  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 our conduct and the conduct of
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

19
<PAGE>

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 offices are located 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
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.

     Commencing in October 2001, we expect to begin  transacting the majority of
our business from  executive  offices in Southern  California.  We are currently
negotiating  for a potential site we believe would be adequate to meet our needs
in the indefinite future.


                            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

20
<PAGE>

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  pay  $5,000  per  month,  plus  ongoing
obligations under the lease.

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.

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,

21
<PAGE>

both  organized by  affiliates  of IC One. 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
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 and August 2001, with the assistance of Messrs.  Hauge and Hipsley,
the trust issued the 7,800,000 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.



22
<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:
<TABLE>
<CAPTION>

                                                                                     High                 Low
                                                                               -----------------    -----------------
2001
<S>                         <C>                 <C>                                 <C>                  <C>
    Quarter ending December 31 (through October 11)                                 $0.280               $0.210
    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
</TABLE>

         As of the date of this filing, we had approximately 870 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.


23
<PAGE>

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.

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

     During the fiscal  year  ended  December  31,  2000,  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.

     Acquisition of IC One, Inc.

     Effective  September  16,  1999,  we acquired IC One in exchange for common
stock.  The  market  price for our common  stock on such date was  approximately
$3.94 per share. At various times during the period following the acquisition of
IC One, errors in the share registry for IC One were discovered.  We assumed the
responsibility  for issuing equivalent Company shares of restricted common stock
in accordance  with the  acquisition  exchange ratio of 0.7589 shares of Company
stock for each share of IC One stock to correct  such  errors.  As a result,  we
issued an  aggregate of 274,438 and 76,527  additional  shares in 2000 and 2001,
respectively,  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  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
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.


24
<PAGE>

     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 Schimatic  Technologies  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.

     Services

     From  February  3 to  November  14,  2000,  we  issued  628,620  shares  of
restricted  common stock to 23 persons,  including 16 accredited  investors,  in
exchange for financial, technical and management services, with a total value of
$432,628,  or $0.68 per share,  equal to 85% of the trading  price of the common
stock at the times of the  individual  transactions.  Between  such  dates,  the
trading price of the common stock ranged between  approximately  $2.00 and $0.21
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 of our executive
officers.  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.

     In April 2000, we issued an aggregate of 17,500 shares of restricted common
stock to two key employees as a retention incentive. Both employees were engaged
in administrative, technical, legal, marketing or financial functions within the
Company and were fully aware of our business and financial condition and related
risks.  The trading price of the common stock at the time of the transaction was
approximately $0.60 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.

     Loan Repayments

     On May 1, 2000, we entered into an agreement with the Canopy Group, Inc. to
issue  1,539,535   shares  of  restricted   common  stock  in  consideration  of
satisfaction of a $314,417 judgment and an additional  $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  $0.60 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, we issued an aggregate of 135,529
shares  of  restricted  common  stock  to  three  persons,  each of whom  was an
accredited  investor,  as payment of $72,083 in interest  accrued on outstanding
loans to us, or an  average  of $0.50 per  share.  At the time of the  foregoing
transactions,  the market price for the common stock  ranged  between  $0.40 and
$0.82 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.


25
<PAGE>

     Cash Sales

     During  2000,  we  issued  and sold an  aggregate  of  3,006,617  shares of
restricted  common stock for cash of $1,926,397,  or an average of approximately
$0.64 per share, to 107 accredited and one  nonaccredited  persons.  During such
period, the market price for the common stock ranged between approximately $2.00
and $0.21 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 of our executive officers.  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 $3.125 on March 1, 2000,  $0.63 on November  1, 2000,  and $0.36 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, David J. Simon, executive officer, director, founder and
accredited  investor  with full  access to  information  about  us,  elected  to
exercise options to purchase  1,152,260 shares of common stock for $170,000,  or
$0.15 per share, but rescinded such election on December 11, 2000.

     Stock to Directors

     Beginning  in  November  1999,  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 serve as a director.  Under this
arrangement, we accrued the issuance of 20,000 shares in 1999, 265,000 shares in
2000,  and 50,000 shares in 2001 through  March 2001 to  directors.  Since March
2001,  we have  continued to accrue shares to each director at the rate of 5,000
shares per month,  except for Paul  Christensen,  who receives 10,000 shares per
month. Each of such directors was an accredited investor with full access to all
of the information about us that registration  would disclose.  All certificates
bore a restrictive legend and stop transfer instructions were noted on our stock
transfer records.


26
<PAGE>

Issuance of Limited Recourse Promissory Notes Convertible into Common Stock

     Between September 2000 and September 30, 2001, we have issued $1,119,000 in
aggregate principal amount of limited recourse promissory notes convertible into
our common stock. 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 our option,
unless the investor elects to convert all or any part of the principal amount of
the  convertible  notes  into  additional  shares of common  stock.  The  stated
interest on the convertible  notes represents  1,190,000 shares of common stock,
issuable  monthly,  subject to adjustments due to reductions in the market price
for our common stock below $0.20 per share. In certain cases, we have 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.
Holders of $843,000 in principal amount of the convertible  notes have agreed to
convert the notes into common stock on the  occurrence  of specific  events.  We
estimate that the issuance of shares for the  principal of and accrued  interest
on the notes will result in the  issuance of a minimum of  11,190,000  shares of
common stock.

     The  offering was limited to, and each of the 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 of our executive officers. 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.


27
<PAGE>



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

    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              0.40             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              0.40             0.128

    Philip J. Voelker             10/16/2000                       700,000              0.48             0.128
                                  10/16/2000                       500,000              0.36

    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(4)      $0.48-0.80
(11 persons)
</TABLE>
-------------------------------------

(1)  Issued with reliance on Rule 701.
(2)  Options originally granted by R & D Technology to purchase 2,000,000 shares
     at $0.50, which is the equivalent to options to purchase 6,778,000 shares
     of the Company at $015 after giving to the exchange ratio applicable to the
     R & D acquisition and to our stock dividend.
(3)  In July 2001, our chairman of the board of directors, David Simon, agreed
     to cancel options to purchase 1,778,000 shares held by him.
(4)  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.


28
<PAGE>

     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.

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 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.


29
<PAGE>

Historical Results

     Results of Operations

     We have been in a 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
ordinary  expenses  of  $22,302,033,   including  $6,258,704  for  research  and
development  leading to  creation  of our  patents,  software  and  intellectual
property.  Of  the  $22.3  million  of  expenses,  approximately  $10.9  million
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  $8,078,013,  compared  to
$6,323,412 in 1999. The year 2000 expenses include  approximately  $3,568,000 of
noncash expense related to accounting for stock option  compensation,  which did
not  occur in  1999.  Comparable  other  expenses  excluding  the  stock  option
compensation  were  $4,510,000  in 2000,  down 29% from 1999.  During the period
following  acquisition of IC One, we have succeeded in scaling back our incurred
expenses.  At the current  time,  we are  operating at a level that will require
approximately  $250,000 per month, including minimum amounts of reduction in the
current liabilities of our subsidiary, IC One, Inc.

     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  $4,082,000 of unpaid current  liabilities,  including  $1,970,000
payable to IBM and  $1,034,000  owed to officers or  directors  of the  Company.
Since  December  31,  2000,  we have reached  negotiated  settlements  to reduce
liabilities by a total of $2,020,000,  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.  We estimate
that,  at  the  date  of  filing  of  this  report,  current  liabilities  total
approximately $2,732,000,  including approximately $1,200,000 payable to IBM and
$293,000 owed to officers or directors.  The remaining approximately  $1,239,000
of  current  liabilities  are  to  vendors  and  other  unaffiliated  creditors.
Substantially all of this amount is past due.

     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  $3,092,000 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.  Cash  proceeds  from the sale of  securities  totaled
approximately $2,161,000.

     Since  December  31,  2000,  we have  issued,  in  exchange  for  cash,  an
additional  $884,000 aggregate  principal amount of limited recourse  promissory
notes,  convertible  into common  stock.  The  convertible  notes bear  interest
payable in  additional  shares of common stock and have no  mandatory  repayment
requirements.


30
<PAGE>

Plan of Operation

     Business Development

     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 acquiring
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  development  resources (see Product  Development Program below). Our
business plan anticipates a very 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 will provide substantial  opportunity for
intellectual property licensing revenues commencing in early 2002.

     In summary, we project substantial expansion of smart-card loyalty programs
in North America starting in late 2001 or early 2002 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.

     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.

     Product Development Program

     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.  The
development  program as it continues is  anticipated  to be partly  co-funded by
venture partners based on carefully defined  cost/revenue sharing models and, in
some cases,  by the issuance of common stock.  We are continuing our development
program, in particular for the integration of loyalty with payments  processing.
Of the $10 million of new capital  required as described  below, as much as $5.0
million  would  be  expected  to be  expended  for the  further  development  of
technology,  associated patents and for the integration of application  software
into customer requirements. To the extent that such development can be funded in
part by venture or alliance partners, this development budget would be reduced.

     Financing Program

     Internal  sources of  liquidity  would  include  cash flow  resulting  from
business  developed  through current or future marketing  agreements and through
the  licensing  of our  Patents.  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.


31
<PAGE>

     We estimate  that we will  require as much as $10 million of funds over the
next 12 months in order to satisfy our  liabilities  and to meet  operating cash
needs,  including research and development expenses and other operating expenses
as  contemplated  by our plan of  operation.  We estimate that  continuation  of
operations at their current level, without the expansion and further development
contemplated  by the plan of  operation  and without  fully  satisfying  current
liabilities, would require approximately $3.0 million over the next 12 months.

     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.

     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.

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,  the issuance of additional debt
or  equity  securities  in  order  to  raise  additional  funds  and  ultimately
developing  a viable  business.  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
additional  losses  for  the  foreseeable  future.  We have  implemented  severe
cost-cutting  measures.  We will also rely  increasingly on strategic  alliances
with others who might assume  responsibility  for  financing  specific  required
development   tasks;   thus,   reducing  our  financial   requirements  for  the
exploitation of our intellectual properties.

     Based on the rapid advancement of the smart-chip-based  electronic payments
industry,  the financial and operating  plans described above and our successful
plan to reduce by negotiation our current liabilities,  we believe that we are a
going concern.

32
<PAGE>

                          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.


33
<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:
<TABLE>
<CAPTION>

          Name                 Age                                       Title
-------------------------  ------------  ----------------------------------------------------------------------

<S>                            <C>
David J. Simon                 53        Chairman of the Board of Directors
James A. Williams              54        Director, President and Chief Executive Officer
Joe G. Coykendall              55        Director, Sr. Vice President, Treasurer/Chief Financial Officer
Peter J. Bennee                49        Director, Sr. Vice President and Secretary
Paul E. Christensen            60        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
</TABLE>

     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 on 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.

     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

34
<PAGE>

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.


35
<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.


36
<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.



37
<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             $0.67           09/05/10
        President (CEO)              250,000                           0.48              0.94           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.


38
<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 ($)
                                                                                Exercisable/       Exercisable/
                Name         Shares Acquired 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 $0.48 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.


39
<PAGE>

Compensation to Directors

     Beginning  in  November  1999,  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 serve as a director.  Under this
arrangement, we accrued the issuance of 20,000 shares in 1999, 265,000 shares in
2000,  and  50,000  shares  in  2001  through  March  to  directors  and  issued
certificates for all of such shares in March 2001, when the market price for the
stock was approximately $0.205 per share. Since March 2001, we have continued to
accrue the  obligation to issue 5,000 shares per month to each  director,  other
than Paul Christensen, who receives options to purchase 10,000 shares per month.

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.



40
<PAGE>



                     ITEM 11. SECURITY OWNERSHIP OF CERTAIN
                        BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table sets  forth,  as of  September  30,  2001,  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 78,799,167  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)   15.8%
                                                                                      -------------
    888 Heartwood Circle
    Fruit Heights, Utah  84037

  David J. Simon........................................     Common Stock(3)           4,092,839       5.2
    740 E 3900 S, No. 300                                    Exercised Options(4)      3,007,789       3.8
    Salt Lake City, Utah  84107                              Options(3)                2,113,594       2.6
                                                                                       ---------
                                                                                       9,214,222      10.5

  James A. Williams.....................................     Common Stock                110,000       *
    740 E 3900 S, No. 300                                    Exercised Options(4)      2,500,000       3.2
    Salt Lake City, Utah  84107                              Options                   2,229,970       2.8
                                                                                       ---------
                                                                                       4,839,970       5.8

Directors:

  David J. Simon........................................             ----------See above----------

  James A. Williams.....................................             ----------See above----------

  Joe G. Coykendall.....................................     Common Stock                 35,000       *
                                                             Exercised Options(4)      1,000,000       1.3
                                                             Options                   1,962,500       2.4
                                                                                       ---------
                                                                                       2,997,500       3.7

  Peter J. Bennee.......................................     Common Stock(5)           2,165,065       2.7
                                                             Exercised Options(4)        600,000       *
                                                             Options                   1,169,500       1.5
                                                                                       ---------
                                                                                       3,934,565       4.8

  Paul E. Christensen...................................     Common Stock(6)           1,470,000       1.9
                                                           Exercised Options(4)          100,000       *
                                                                                      ----------
                                                                                       1,330,122       2.0

 All Executive Officers and Directors as a Group
      (9 persons):......................................     Common Stock              8,344,469      10.6
                                                             Exercised Options(4)      9,957,789      12.6
                                                             Options                  15,220,564      16.2
                                                                                      ----------
                                                             Total                    33,522,822      29.8
-----------------------------------------------------------
</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 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.

41
<PAGE>

(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 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 our  stock  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.

Company Founder Eric P. Littman

     On November 8, 1999, we issued to Eric P. Littman,  sole director,  officer
and  founder  of our  Company  when it was known as Apple  Tree  Capital  Corp.,
175,000 shares of restricted common stock as reimbursement for $150,000 in costs
associated with our acquisition in 1998 of STI and R & D Technology.  The shares
were issued in agreed reimbursement for $150,000 in such costs, or approximately
$0.86 per share; on such date, the approximate market price for the common stock
was $2.75 per share.

Schimatic Technologies, Inc.

     In  connection  with  organizing  STI in November  1998, it issued stock to
officers,  directors, founders and other affiliates in consideration of services
rendered.  On November  12,  1998,  we agreed to acquire STI in exchange  for an
aggregate of 4,400,000  shares of restricted  common stock.  On the date of this
transaction,  the  market  price for our  common  stock  was  $1.22  per  share.
Thereafter,  between  May and July 1999,  certain of these  founders  returned a
portion of their  shares  based on a  reanalysis  of the  relative  value of the
services provided by the founders.  The following table shows the details of the
above   transactions   with  the  executive   officers,   directors,   principal
stockholders and founders of STI:
<TABLE>
<CAPTION>

                                   STI              Company Stock                Company              Net Shares
           Name               Shares Issued     Issued in Acquisition         Stock Returned           Retained

<S>                            <C>                    <C>                       <C>                     <C>
John Lamb...............       1,285,000              1,285,000                 (1,085,000)             200,000
Anthony Quinn...........         805,000                805,000                         --              805,000
Herb Goldman............         625,750                625,750                   (100,000)             525,750
Bry Behrman.............         629,750                629,750                    (80,000)             549,750
                              ----------             ----------               -------------          ----------
  Total.................       3,345,500              3,345,500                 (1,265,000)           2,080,500
                               =========             ==========               =============          ==========
</TABLE>

On the dates of the above transactions, there was no trading market for the
common stock.

IC One, Inc.

     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


42
<PAGE>

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.

     On April 1, 1999, we agreed to sell to Arthur D.  Bennett,  who then became
president  and a director of IC One and therefore may be deemed a founder of the
Company,  2,500,000 shares of IC One common stock (converted to 1,897,250 shares
of our common stock at the time of its 1999  acquisition  of IC One) for $0.0005
per share at a time when the fair market value of the IC One  restricted  common
stock was approximately  $0.76 per share, based on contemporaneous  arm's-length
transactions with unrelated parties.

     The Company Acquires IC One

     In  September  1999,  we acquired IC One in exchange  for an  aggregate  of
42,679,500 shares of restricted common stock, including shares issued to persons
who were then executive officers,  directors,  other affiliates and founders and
their  respective  affiliates as follows:  James E. Biorge,  11,503,138  shares;
Arthur D. Bennett,  1,897,300  shares;  Paul E.  Christensen,  1,512,622 shares;
Peter J. Bennee, 2,090,065 shares.

Miscellaneous Transactions

     David J. Simon

     In 1999, following the completion of our acquisition of IC One, Inc., David
J.  Simon,  Chairman,  recorded  reimbursable  expenses  totaling  approximately
$263,000,  which  were not  previously  recorded  on our  books.  Such  expenses
included  funds that he advanced in the  interests of our  development.  In July
2001, Mr. Simon agreed to apply $255,000 of the foregoing amounts owed him by us
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 us,
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 us from a nonaffiliated  stockholder.  Mr.
Simon  acquired that note with $50,000 in cash and 70,000 shares of common stock
owned by him.

     In October 1999,  David Simon advanced  $70,000 to us, which is recorded as
an open account payable to Mr. Simon, without interest, payable on demand.

     James A. Williams

     James A. Williams, President, advanced $50,000 to us in July 2000, which is
recorded  as an open  account  payable to Mr.  Williams,  without  interest,  on
demand. In addition, we owe Mr. Williams for reimbursement of travel and similar
expenses  incurred by him on our behalf with outstanding  balances of $1,858 and
$18,536 at December 31, 2000, and August 15, 2001.



43
<PAGE>

Settlement of Amounts Due Officers and Directors

     In July 2001,  we agreed  with all of our  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
-------------- ------------ ------------------------------------------------------------------- -------------------
<S>      <C>          <C>
      Item 2.               Plan of Acquisition, Reorganization, Arrangement, Liquidation or
                            Succession
-------------- ------------ ------------------------------------------------------------------- -------------------

         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)
         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)

      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)

44
<PAGE>

        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)
        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    This filing
        10.17      10       Form of Limited Recourse Convertible Note issued in aggregate of    This filing
                            $1,179,000 as of September 30, 2001
        10.18      10       Form of Stock Pledge Agreement securing obligation under Limited    This filing
                            Recourse Convertible Note

45
<PAGE>

        10.19      10       Form of Accommodation Pledge Agreement securing obligation under    This filing
                            Limited Recourse Convertible Note

     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.

         (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 report has been signed below on the registrant and in the capacities
and on the dates indicated.

                                   SCHIMATIC Cash Transactions Network.com, Inc.


Dated:  October __, 2001           By
                                     -------------------------------------------
                                     James A. Williams, President


     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the date indicated.

Dated:  October __, 2001

                                   ---------------------------------------------
                                   David J. Simon, Director


                                   ---------------------------------------------
                                   James A. Williams, Director and President
                                   (Principal Executive Officer)


                                   ---------------------------------------------
                                   Joe G. Coykendall, Director and Treasurer
                                   (Principal Financial Officer)


                                   ---------------------------------------------
                                   Peter J. Bennee, Director


                                   ---------------------------------------------
                                   Paul E. Christensen, Director

46
<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 Auditor's Report                                                 F-2

Consolidated Balance Sheet                                                   F-3

Consolidated Statements of Operations                                        F-4

Consolidated Statement of Changes in Shareholders' Deficit                   F-5

Consolidated Statements of Cash Flows                                        F-6

Notes to Consolidated Financial Statements                          F-7 - F - 17





                                      F-1
<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 audit.

We conducted our audits in accordance with generally accepted auditing standards
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 generally
accepted accounting principles 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                                    56,046
PATENTS - at cost, net                                                   34,358
                                                              ------------------
                                                           $             96,288
                                                              ==================


                      LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES:
      Accounts payable - IBM                               $          1,970,000
      Accounts payable - Other                                          463,332
      Accrued wages and payroll taxes                                 1,150,340
      Loans payable - shareholders                                      498,571
                                                              ------------------
        TOTAL CURRENT LIABILITIES                                     4,082,243
                                                              ------------------

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


COMMITMENT AND CONTINGENCIES

SHAREHOLDERS' DEFICIT:
      Common stock, $.001 par value,  200,000,000 shares authorized,
        68,442,543 shares issued and outstanding                         68,442
      Additional paid-in capital                                     20,612,636
      Less: Common stock subscriptions receivable                    (2,300,000)
      Deficit accumulated during the development stage              (22,602,033)
                                                              ------------------

        TOTAL SHAREHOLDERS' DEFICIT                                  (4,220,955)
                                                              ------------------
                                                           $             96,288
                                                              ==================



                 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
                                                                       Year Ended December 31,             the Development Stage
                                                                --------------------------------------       (February 27, 1997
                                                                      2000                1999             to December 31, 2000)
                                                                -----------------   ------------------   ---------------------------
                                                                                     (Restated - See
                                                                                        Note 13)
<S>                                                                    <C>                  <C>                          <C>
REVENUE                                                       $                -  $                 -  $                          -

EXPENSES:
     Research and development                                          3,244,352            1,313,577                     6,258,704
     Selling, general and administrative                               3,813,409            4,685,096                    14,568,841
     Depreciation and amortization                                       130,149               85,811                       301,071
     Loss on impairment of assets                                        627,107                    -                       627,107
     Interest expense                                                    262,996              238,928                       546,310
                                                                -----------------   ------------------   ---------------------------
        TOTAL EXPENSES                                                 8,078,013            6,323,412                    22,302,033
                                                                -----------------   ------------------   ---------------------------
LOSS BEFORE EXTRAORDINARY ITEM                                        (8,078,013)          (6,323,412)                  (22,302,033)

EXTRAORDINARY ITEM - LOSS ON
     EXTINGUISHMENT OF DEBT                                                    -             (300,000)                     (300,000)
                                                                -----------------   ------------------   ---------------------------
NET LOSS                                                      $       (8,078,013) $        (6,623,412) $                (22,602,033)
                                                                =================   ==================   ===========================
NET LOSS PER SHARE, BASIC AND DILUTED:
     BEFORE EXTRAORDINARY ITEM                                $            (0.13) $             (0.19) $                      (0.86)
     EXTRAORDINARY ITEM                                                        -                (0.01)                        (0.01)
                                                                -----------------   ------------------   ---------------------------
TOTAL NET LOSS PER SHARE, BASIC AND DILUTED                   $            (0.13) $             (0.20) $                      (0.87)
                                                                =================   ==================   ===========================

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND DILUTED                                 60,510,922           33,804,831                    25,969,295
                                                                =================   ==================   ===========================

</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>

                                                                                                           Deficit
                                                                                                         Accumulated
                                                Common Stock          Additional     Less: Common Stock  During the       Total
                                          -------------------------     Paid-in      Stock Subscriptions Development   Shareholders'
                                             Shares       Amount        Capital         Receivable          Stage        Deficit
                                          ------------  -----------  -------------  ------------------  ------------- --------------
<S>                           <C> <C>      <C>              <C>         <C>                <C>            <C>            <C>
BALANCE,  February 27, 1997 (Inception)     7,815,080 $      7,816 $       (7,816)$                 - $            -              -
   Issuance of common stock for cash        1,707,788        1,708        931,174                   -                       932,882
   Net loss                                         -            -              -                   -     (1,231,738)    (1,231,738)
                                          ------------  -----------  -------------  ------------------  ------------- --------------
BALANCE, as previously
        reported,  December 31, 1997        9,522,868        9,524        923,358                   -     (1,231,738)      (298,856)
   Prior period adjustment - IC One
        (see Note 13)                      19,603,433       19,603      2,327,365                   -     (2,346,968)             -
                                          ------------  -----------  -------------  ------------------  ------------- --------------
BALANCE,  restated, December, 1997         29,126,301       29,127      3,250,723                   -     (3,578,706)      (298,856)
   Issuance of common stock for cash        2,661,485        2,661      1,623,857                   -                     1,626,518
   Net loss                                         -            -              -                   -     (3,061,513)    (3,061,513)
                                          ------------  -----------  -------------  ------------------  ------------- --------------
BALANCE, as previously
        reported,  December 31, 1998       31,787,786       31,788      4,874,580                   -     (6,640,219)    (1,733,851)
   Prior period adjustment - IC One
         (see Note 13)                      3,723,228        3,723      2,556,666          (1,300,000)    (1,260,389)             -
                                          ------------  -----------  -------------  ------------------  ------------- --------------
BALANCE,  restated,  December 31, 1998     35,511,014       35,511      7,431,246          (1,300,000)    (7,900,608)    (1,733,851)
   Issuance of common stock in exchange    19,758,778       19,758        776,355                   -              -        796,113
   Issuance of common stock for:
       Cash                                 1,439,431        1,439      1,251,394                   -              -      1,252,833
       IBM Debt                               700,000          700      2,299,300                   -              -      2,300,000
       Shareholder's loan                     175,000          175        449,825                   -              -        450,000
       Services                                 6,500            7         22,743                   -              -         22,750
       Investment in real estate joint
          venture                             420,000          420        399,580                   -              -        400,000
   Net loss                                         -            -              -                   -     (5,499,592)    (5,499,592)
                                          ------------  -----------  -------------  ------------------  ------------- --------------
BALANCE, as previously
        reported,  December 31, 1999       58,010,723       58,010     12,630,443          (1,300,000)   (13,400,200)    (2,011,747)
   Prior period adjustment - IBM
        (see Note 13                         (700,000)        (700)    (2,299,300)                  -      1,533,333       (766,667)
   Prior period adjustment - IC One
        (see Note 13)                       5,723,993        5,724      3,766,429          (1,000,000)    (2,657,153)       115,000
                                          ------------  -----------  -------------  ------------------  ------------- --------------
BALANCE, restated,  December 31, 1999      63,034,716       63,034     14,097,572          (2,300,000)   (14,524,020)    (2,663,414)
   Issuance of common stock for :
       Cash                                 3,006,617        3,007      1,923,390                   -              -      1,926,397
       Debt and interest                    1,258,447        1,258        385,242                   -              -        386,500
       Services                             1,004,356        1,004        542,728                   -              -        543,732
       Investment in real estate
         joint venture                        130,407          131         88,977                   -              -         89,108
       Acquisition of equipment                 8,000            8          6,792                   -              -          6,800
   Stock option compensation                        -            -      3,567,935                   -              -      3,567,935
   Net loss                                         -            -              -                   -     (8,078,013)  $ (8,078,013)
                                          ------------  -----------  -------------  ------------------  ------------- --------------
BALANCE,  December  31, 2000               68,442,543 $     68,442 $   20,612,636 $        (2,300,000)$  (22,602,033)  $ (4,220,955)
                                          ============  ===========  =============  ==================  ============= ==============

</TABLE>


                 See notes to consolidated financial statements.

                                       F-5
<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                                                   $     (8,078,013)$      (6,623,412) $            (22,602,033)
     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 and compensation                543,732         2,679,903                 7,159,069
        Common stock issued for interest expense                         136,500                 -                   136,500
        Loss on extinguishment of debt                                         -           300,000                   300,000
        Loss on impairment of assets                                     627,107                 -                   627,107
     Changes in current assets and liabilities:
      Other assets                                                             -            30,018                    30,018
      Accounts payable and accrued expenses                              882,540         1,898,372                 4,042,034
                                                                  ---------------  ----------------   -----------------------
  NET CASH USED IN OPERATING ACTIVITIES                               (2,190,050)       (1,629,308)               (6,438,299)
                                                                  ---------------  ----------------   -----------------------
  CASH FLOWS FROM INVESTING ACTIVITIES:
      Acquisition of property and equipment                               (4,711)          (48,290)                 (347,349)
      Acquisition of patents                                                   -           (15,079)                  (46,854)
                                                                    ---------------  ----------------   -----------------------

CASH USED IN INVESTING ACTIVITIES                                         (4,711)          (63,369)                 (394,203)
                                                                  ---------------  ----------------   -----------------------
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
                                                                  ---------------  ----------------   -----------------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                              2,194,643         1,667,842                 6,838,386
                                                                  ---------------  ----------------   -----------------------
NET (DECREASE) INCREASE IN CASH                                             (118)          (24,835)                    5,884

CASH AT BEGINNING OF YEAR                                                  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                       $              - $         400,000  $                400,000
                                                                  ===============  ================   =======================
          Issuance of common stock for equipment                $          6,800 $               -  $                  6,800
                                                                  ===============  ================   =======================
          Issuance of common stock for IC One, Inc.             $              - $          42,674  $                 42,674
                                                                  ===============  ================   =======================
          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
                                                                  ===============  ================   =======================
</TABLE>

                 See notes to consolidated financial statements.

                                      F-6


<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 it merged in November  1998 with
     and   concurrently   changed  its  name  to  SCHIMATIC  Cash   Transactions
     Network.com, Inc.

     In September 1999, the Company acquired all of the outstanding shares of IC
     One, Inc. ("IC One") in exchange for 42,674,438 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
     1,707,788,  2,661,485,  and  1,439,431  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  19,603,433,
     3,723,228,  and 5,723,993 shares of common stock that was also presented in
     the statement of shareholders' deficit as common stock issued for services,
     compensation  and common stock  subscriptions  receivable in 1997, 1998 and
     1999,  respectively (see Note 13). Therefore,  a total of 34,859,358 shares
     of common stock were  presented  separately  and the  remaining  balance of
     7,815,080  shares of common  stock in the  exchange  was  presented  in the
     balance at February 27, 1997 (Inception).  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 2000 the number of shares of common stock originally issued
     in the exchange of  42,400,000  increased by 274,438 to 42,674,438 in order
     to provide shares to those IC One shareholders  that had not received stock
     in the Company.

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
     $22,602,033  since inception.  Additionally,  the Company had a net working
     capital  deficiency  of  $4,076,359  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  $4,082,000 of current  liabilities,
     approximately  $3,584,000 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.


                                      F-7
<PAGE>


     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 (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).

     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 $543,733 and for
     debt and interest of $386,500.

     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.

     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  Asset - Patents 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

                                      F-8
<PAGE>

     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.

     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.


                                      F-9
<PAGE>

     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.

3.   CONCENTRATION OF CREDIT RISK
     -----------------------------
     The Company maintains cash balances at several banks. Accounts at each
     institution are insured by the Federal Deposit Insurance Corporation up to
     $100,000.

4.   PROPERTY AND EQUIPMENT
     ----------------------

     At December 31, property and equipment consists of:

                                                                       2000
                                                                   -------------
        Office equipment                                        $       227,364
        Furniture and fixtures                                           77,108
                                                                   -------------
                                                                        304,472
        Less: Accumulated depreciation and amortization                (248,426)
                                                                   -------------
                                                                $        56,046
                                                                   =============


                                      F-10
<PAGE>

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 $0.366, $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  approximately  $22,302,000  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                            8,921,000
            Valuation allowance                                      (8,921,000)
                                                                  --------------
        Net deferred tax asset                                                -
                                                                  ==============

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

                                                    2000               1999
                                             ---------------    ----------------
        Statutory federal income tax benefit $     3,231,000    $     2,529,000
        Income tax benefit not utilized           (3,231,000)        (2,529,000)
                                             ---------------    ----------------
        Actual tax benefit                   $        -         $         -
                                             ===============    ================

9.   SHAREHOLDERS' DEFICIENCY
     ------------------------

     During 2000, the Company  issued a total of 3,006,617  shares of restricted
     common stock for  $1,926,390.  Included in this total are 416,617 shares of
     common stock issued to Canopy Group, Inc. ("Canopy") for $250,000 (see Note
     14).


                                      F-11
<PAGE>

     During 2000, the Company issued  1,258,447  shares of common stock 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 $314,417
     to settle an agreement with Canopy (see Note 14).

     In addition  during  October  through  December  2000,  the Company  issued
     135,529  shares of common  stock  valued at $72,083 as payment for interest
     due on convertible notes (see Note 7).

     During 2000, the Company issued  1,004,356 shares of common stock valued at
     $543,733  for  services  and was  recorded  as  consulting  fees except for
     500,000  shares of common stock  valued at $215,000 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
     $6,800 for office equipment.

     In October  through  December  1999,  the Company  issued  229,865 share of
     restricted common stock for $155,650.

     In November  1999, the Company issued 175,000 shares of common stock with a
     market  value of  $450,000  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  $300,000  was  recorded  as an
     extraordinary loss.

     In September  1999,  the Company issued 6,500 shares of common stock valued
     at $22,750 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,  except as
     discussed below.

     Prior to the IC One reverse  acquisition,  the Company's chairman and chief
     executive  officer,  was granted options to purchase 6,778,000 post reverse
     acquisition  shares of the Company's  common stock.  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 through November 30,
     2002 (see Note 16).

     During  2000,  the  Company's  Board of Directors  granted  options for the
     purchase of  12,798,333  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,  which was 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  share  options,
     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).


                                      F-12
<PAGE>

     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
     $4,810,546.

     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                 $      (8,078,013) $    (6,623,412)
     Net loss applicable to common shares- pro forma                    $      (9,320,624) $    (6,623,412)
     Net loss per common share - as reported                            $           (0.13) $         (0.20)
     Net loss per common share - pro forma                              $           (0.15) $         (0.20)
</TABLE>

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

                                              Stock Options
                                  ---------------------------------------
                                                        Weighted Average
                                        Shares           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                        12,798,333                 0.49
        ---------------------------
          Exercised                               -                    -
        ---------------------------
          Cancelled                               -                    -
        --------------------------- ----------------    -----------------
        Outstanding at
        December 31, 2000                19,576,333                 0.35
                                    ================    =================



                                  F-13
<PAGE>


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

                                  Options Outstanding                            Options Exercisable
                --------------------------------------------------------  ----------------------------------
                                        Weight-Average     Weight-Average                      Weight-Average
    Range of            Number             Remaining         Exercise           Number           Exercise
Exercise Prices    Outstanding (In     Contractual life        Price          Exercisable          Price
                      Thousands)          (In Years)                        (In Thousands)
-----------------  -----------------  -------------------- --------------  ------------------  --------------
<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             12,274          9.55              $0.48                   3,725       $0.48
     $0.64-$0.80                524          9.51              $0.65                     185       $0.66
                   -----------------                                       ------------------
                             19,576                                                   10,688
                   =================                                       ==================
</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 $400,000 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 $89,107 to pay for services  related to the  remodeling  of
     the office building and made an additional  investment of $36,515. 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 $512,107 at December 31, 2000 (see Note 16).

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
     consulting,   officers  and  employee   services,   which  were  valued  at
     $6,264,510,  issued common stock for notes receivable of $2,300,000 and the
     rights to software  valued at  $115,000.  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
     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
     and  compensation  performed in 1999 of $2,657,153,  in 1998 of $1,260,389,
     and in 1997 of  $2,346,968.  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.  In 2000,  the
     Company  has  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

                                      F-14
<PAGE>

     stock as additional  shares placed in escrow for the amount due to IBM (see
     Notes 11 and 16).

     The  prior  period  adjustments  for the 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                                                        6,323,412               5,199,592
                                                            ----------------------- -----------------------
         Loss before extraordinary item                                (6,323,412)             (5,199,592)

         Extraordinary item                                              (300,000)               (300,000)
                                                            ----------------------- -----------------------
         Net loss                                          $           (6,323,412) $           (5,499,592)
                                                            ======================= =======================

         Net loss per share, basic and diluted:

             Before extraordinary item                     $                (0.19) $                (0.15)

             Extraordinary item                                             (0.01)                  (0.01)
                                                            ----------------------- -----------------------
         Total Net loss per share, basic and diluted       $                (0.20) $                (0.16)
                                                            ======================= =======================
         Weighted   average   number  of   common   shares
             outstanding, basic and diluted                             33,804,831              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.

     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.  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  $215,000 in legal and
     settlement fees.


                                      F-15
<PAGE>

     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 has 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).

     Total rent expense  charged to operations  for the years ended December 31,
     2000 and 1999 was approximately $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 $512,107 (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  October 1, 2001. The amounts
     expected to be repaid will  increase from $70,000 per month in October 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.


                                      F-16
<PAGE>

     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.

     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).


                                      F-17
<PAGE>