SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549

                                  FORM 10-K

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

                 For the fiscal year ended December 31, 2001
                       Commission file number: 0-21683

                             GRAPHON CORPORATION
            (Exact name of registrant as specified in its charter)

                 Delaware                        13-3899021
      (State or other jurisdiction of           (IRS Employer
       incorporation or organization)         Identification No.)

                    11711 Southeast 8th Street, Suite 215
                         Bellevue, Washington 98004
                 (Address of principal executive offices)

           Registrant's telephone number:  (425) 456-0176

   Securities registered pursuant to Section 12(b) of the Act:  None

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

                       Common Stock, $.0001 Par Value
                              (Title of class)

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

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

  The aggregate market value of the voting stock of registrant held by
non-affiliates of the registrant as of March 25, 2002 was approximately
$4,476,700.

  Number of shares of Common Stock outstanding as of March 25,
2002: 17,384,580 shares of Common Stock.

                 DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 2002 Annual Meeting of
Stockholders are incorporated by reference into Part III.

<PAGE>


                               GRAPHON CORPORATION

                                    FORM 10-K

                                Table of Contents

                                                                  Page
PART I.
Item 1.    Business                                                  2
Item 2.    Properties                                               10
Item 3.    Legal Proceedings                                        11
Item 4.    Submission of Matters to a Vote of Security Holders      11

PART II.
Item 5.    Market for Registrant's Common Equity and Related
           Stockholder Matters                                      13
Item 6.    Selected Financial Data                                  13
Item 7.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations                      15
Item 7A.   Quantitative and Qualitative Disclosures About
           Market Risks                                             30
Item 8.    Financial Statements and Supplementary Data              31
Item 9.    Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure                      63

PART III.
Item 10.   Directors and Executive Offices of the Registrant        64
Item 11.   Executive Compensation                                   64
Item 12.   Security Ownership of Certain Beneficial Owners
           and Management                                           64
Item 13.   Certain Relationships and Related Transactions           64

PART IV.
Item 14.   Exhibits, Financial Statement Schedules, and Reports
           on Form 8-K                                              65

SIGNATURES                                                          67

<PAGE>

                           FORWARD LOOKING INFORMATION

This report includes, in addition to historical information, "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. This section provides a "safe harbor" for forward-looking statements to
encourage companies to provide prospective information about themselves so long
as they identify these statements as forward-looking and provide meaningful
cautionary statements identifying important factors that could cause actual
results to differ from the projected results. All statements other than
statements of historical fact we make in this report or in any document
incorporated by reference are forward-looking statements. In particular, the
statements regarding industry prospects and our future results of operations or
financial position are forward-looking statements. Such statements are based on
management's current expectations and are subject to a number of uncertainties
and risks that could cause actual results to differ significantly from those
described in the forward looking statements. Factors that may cause such a
difference include, but are not limited to, those discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as those discussed elsewhere in this report.

                                 PART I

Item 1.    BUSINESS

General

      We are developers of business connectivity software, including
server-based software, with an immediate focus on web-enabling applications for
use by various parties, including independent software vendors (ISVs),
application service providers (ASPs), corporate enterprises, governmental and
educational institutions, and others. Server-based computing, sometimes referred
to as thin-client computing, is a computing model where traditional desktop
software applications are relocated to run entirely on a server, or host
computer. This centralized deployment and management of applications reduces the
complexity and total costs associated with enterprise computing. Our software
architecture provides application developers with the ability to relocate
applications traditionally run on the desktop to a server, or host computer,
where they can be run over a variety of connections from remote locations to the
desktop. Our server-based technology works on today's most powerful personal
computer, or low-end network computer, without application rewrites or changes
to the corporate computing infrastructure.

      With our software, applications can be web enabled, without any
modification to the original application software required, allowing the
applications to be run from browsers or portals. In addition, the ability to
access such applications over the Internet creates new operational models and
sales channels. We provide the technology to access applications over the
Internet.

      We entered both the UNIX and Linux server-based computing and web enabling
markets as early as 1996. We expanded our product offerings by shipping Windows
web-enabling software in early 2000.

      Effective April 1, 2002, we will be headquartered in Bellevue, Washington,
with offices in Concord, New Hampshire and Reading, United Kingdom.

Industry Background

   History

      In the 1970's, software applications were executed on central mainframes
and typically accessed by low-cost display terminals. Information technology


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departments were responsible for deploying, managing and supporting the
applications to create a reliable environment for users. In the 1980's, the PC
became the desktop of choice: empowering the user with flexibility, a graphical
user interface, and a multitude of productive and inexpensive applications. In
the 1990's, the desktop provided access to mainframe applications and databases,
which run on large, server computers. Throughout this computing evolution, the
modern desktop has become increasingly complex and costly to administer and
maintain. This is further exacerbated as organizations become more dispersed
with remote employees, and as their desire increases to become more closely
connected with vendors and customers through the Internet.

   Lowering Total Cost of Ownership

      PC software in general has grown dramatically in size and complexity in
recent years. As a result, the cost of supporting and maintaining PC desktops
has increased substantially. Industry analysts and enterprise users alike have
begun to recognize that the total cost of ownership of a PC, taking into account
the recurring cost of technical support, administration and end-user down time,
has become high; both in absolute terms and relative to the initial hardware
purchase price.

      With increasing demands to control corporate computing costs, industry
leaders are developing technology to address total cost of ownership issues. One
approach, led by Sun Microsystems and IBM, utilizes Java-based network
computers, which operate by downloading small Java programs to the desktop,
which in turn are used for accessing server-based applications. The other
approach is Microsoft's Windows NT(TM), terminal server edition, introduced in
June 1998. It permits server-based Windows applications to be accessed from
Windows-based network computers. Both initiatives are examples of server-based
computing. They simplify the desktop by moving the responsibility of running
applications to a central server, with the promise of lowering total cost of
ownership.

   Enterprise Cross-Platform Computing

      Today's enterprises contain a diverse collection of desktop computers,
each with its particular operating system, processing power and connection type.
Consequently, it is becoming increasingly difficult to provide universal desktop
access to business-critical applications across the enterprise. As a result,
organizations resort to desktop emulation software, new hardware or costly
application rewrites in order to provide universal desktop access.

      A common cross-platform problem for the enterprise is the need to access
UNIX or Linux applications from a PC desktop. While UNIX-based computers
dominate the enterprise applications market, Microsoft Windows-based PCs
dominate the enterprise desktop market. Since the early 1990's, enterprises have
been striving to connect desktop PCs to UNIX applications over all types of
connections, including networks and standard phone lines. This effort, however,
is complex and costly. The primary solution to date is known as PC X Server
software. PC X Server software is a large software program that requires
substantial memory and processing resources on the desktop. Typically, PC X
Server software is difficult to install, configure and maintain. Enterprises are
looking for effective UNIX connectivity software for PCs and non-PC desktops
that is easier and less expensive to administer and maintain.

   Application Service Providers (ASPs)

      With the ubiquitous nature of the Internet, new operational models and
sales channels are emerging. Traditional high-end software packages that were
once too expensive for many companies are now available for rent over the
Internet. By servicing customers through a centralized operation, rather than


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installing and maintaining applications at each customer's site, ASPs play an
important role in addressing an enterprise's computing requirements. Today, ASPs
are faced with the difficult task of creating, or rewriting, applications to
entertain the broader market. Though the ASP industry is just beginning to
emerge, we expect it to develop rapidly, due to the ASPs and their vendors'
desires to expand their markets.

   Remote Computing

      The cost and complexity of contemporary enterprise computing has been
further complicated by the growth in remote access requirements. As business
activities become physically distributed, computer users have looked to portable
computers with remote access capabilities to stay connected in a highly
dispersed work environment. One problem facing remote computing over the
Internet, or direct telephone connections, is the slow speed of communication in
contrast to the high speed of internal corporate networks. Today, applications
requiring remote access must be tailored to the limited speed and lower
reliability of remote connections, further complicating the already significant
challenge of connecting desktop users to business-critical applications.

Our Approach

      Our server-based software deploys, manages, supports and executes
applications entirely on the server computer and distributes them efficiently
and instantaneously to desktop devices. The introduction of the Windows-based
version of our Bridges software, during 2000, enabled us to enter the Windows
market. Additionally, we were able to introduce Bridges for Windows into the ISV
market. This allowed us to leverage Bridges for Windows to the ISVs' customers.

   Our technology consists of three key components:

o  The server component runs alongside the server-based application and is
   responsible for intercepting user-specific information for display at the
   desktop.

o  The desktop component is responsible only for sending keystrokes and mouse
   motion to the server. It also presents the application interface to the
   desktop user. This keeps the desktop simple, or thin, as well as
   independent of application requirements for resources, processing power
   and operating systems.

o  Our protocol enables efficient communication over fast networks or slow
   dial-up connections and allows applications to be accessed from remote
   locations with network-like performance and responsiveness.

We believe that the major benefits of our technology are as follows:

Lowers Total Cost of Ownership. Shrinking recurring costs is a primary goal of
our products. Today, installing enterprise applications typically is
time-consuming, complex and expensive. It typically requires administrators to
manually install and support diverse desktop configurations and interactions.
Our server-based software simplifies application management by enabling
deployment, administration and support from a central location. Installation and
updates are made only on the server, thereby avoiding desktop software and
operating system conflicts and minimizing at-the-desk support.

Connects Diverse Computing Platforms. Today's computing infrastructures are a
mix of desktop devices, network connections and operating systems.
Enterprise-wide communication often requires costly and complex emulation


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software or application rewrites. For example, Windows PCs typically may not
access a company's UNIX applications without installing complex PC X Server
software on each PC. Typical PC X Servers are large and require an information
technology professional to properly install and configure each desktop. For
Macintosh, the choices are even fewer, requiring the addition of yet another
vendor product. For the newer desktop technologies, such as Sun Microsystems'
and IBM's network computers, access to UNIX is impractical without server-based
products.

      To rewrite an application for each different desktop and their many
diverse operating systems is often a difficult and time-consuming task. In
addition to the development expense, issues of desktop performance, data
compatibility and support costs often make this option prohibitive. Our products
provide organizations the ability to access applications from virtually all
desktops, utilizing their existing computing infrastructure, without rewriting a
single line of code or changing or reconfiguring desktop hardware. This means
that enterprises can maximize their investment in existing technology and allow
users to work in their preferred desktop environment.

Leverages Existing PCs and Deploys New Desktop Hardware. Our software brings the
benefits of server-based computing to users of existing PC hardware, while
simultaneously enabling enterprises to begin to take advantage of and deploy
less complex network computers. This assists organizations in maximizing their
current investment in hardware and software while, at the same time,
facilitating a manageable and cost effective transition to newer desktop
devices.

Efficient Protocol. Applications typically are designed for network-connected
desktops, which can put tremendous strain on congested networks and may yield
poor, sometimes unacceptable, performance over remote connections. For ASPs,
bandwidth typically is the top recurring expense when web-enabling, or renting,
access to applications over the Internet. Our protocol sends only keystrokes,
mouse clicks and display updates over the network resulting in minimal impact on
bandwidth for application deployment, thus lowering cost on a per user basis.
Within the enterprise, our protocol can extend the reach of business-critical
applications to many areas, including branch offices, telecommuters and remote
users over the Internet, phone lines or wireless connections. This concept may
be extended further to include vendors and customers for increased manufacturing
flexibility, time-to-market and customer satisfaction.

Products

      We are dedicated to creating business connectivity technology that brings
Windows, UNIX, and Linux applications to the web without modification. Our
customers include ISVs and major enterprises. By employing our technology,
customers benefit from a very quick time to market, overall cost savings via
centralized computing, a client neutral cross-platform solution, and high
performance remote access.

Our product offerings include legacy products, such as Bridges for Windows,
Bridges for UNIX/Linux, and GO Joe, as well as our latest product releases:

o     GO-Global XP allows access to Windows applications from remote
      locations and a variety of connections, including the Internet
      and dial-up connections.  GO-Global XP allows Windows
      applications to be run via a browser from Windows or non-Windows
      devices, over many types of data connections, regardless of the
      bandwidth or operating system.  With GO-Global XP, web enabling
      is achieved without modifying the underlying Windows
      applications' code or requiring costly add-ons.

o     GO-Global UX web-enables UNIX and Linux applications allowing them to be
      run via a browser from many different display devices, over various types


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      of data connections, regardless of the bandwidth or operating systems
      being used. GO-Global UX web-enables individual UNIX applications, or
      entire desktops. When using GO-Global UX and Linux web enabling is
      achieved without modifying the underlying applications' code or requiring
      costly add-ons.

Target Markets

      The target market for our products comprises organizations that need to
access Windows, UNIX and/or Linux applications from a wide variety of desktops,
from remote locations, including over the Internet and dial-up lines. This
includes large organizations, such as Fortune 1000 companies, governmental and
educational institutions, ISVs and ASPs. Our software is designed to allow these
enterprises to tailor the configuration of the desktop for individual PCs for a
particular purpose, rather than following a "one PC fits all," high total cost
of ownership model. Our opportunity within the marketplace is more specifically
broken down as follows:

o  ISVs. By web-enabling their applications, software developers can strengthen
   the value of their product offerings, opening up additional revenue
   opportunities and securing greater satisfaction and loyalty from their
   customers. We believe that ISVs who effectively address the web computing
   needs of customers and the emerging ASP market will have a competitive
   advantage in the marketplace.

   By combining our products with desktop versions of their software
   applications, our ISV customers have been able to accelerate the time to
   market for web-enabled versions of their software applications without the
   risks and delays associated with rewriting applications or using third
   party solutions. Our technology quickly integrates with their existing
   software applications without sacrificing the full-featured look and feel
   of their original software application, thus providing ISVs with
   out-of-the-box web-enabled versions of their software applications with
   their own branding for licensed, volume distribution to their enterprise
   customers or for rent over the Internet.

o  Enterprises Employing a Mix of UNIX and Windows.  Most major enterprises
   employ a mix of UNIX computers and Windows PCs.  Companies that utilize a
   mixed computing environment require cross-platform connectivity solutions,
   like GO-Global UX, that will allow users to access UNIX applications from
   desktop PCs.  It has been estimated that PCs represent over 90% of enterprise
   desktops.  We believe that our products are well positioned to exploit this
   opportunity and that our server-based software products will significantly
   reduce the cost and complexity of connecting PCs to UNIX applications.

o  Enterprises With Remote Computer Users. Remote computer users comprise one
   of the fastest growing market segments in the computing industry. Efficient
   remote access to applications has become an important part of many
   enterprises' computing strategies. Our protocol is designed to enable highly
   efficient low-bandwidth connections.

o  ASPs.  High-end software applications in the fields of human resources,
   enterprise resource planning, enterprise relationship management and others,
   historically have only been available to organizations able to make large
   investments in capital and personnel.  The Internet has opened up global and
   mid-tier markets to vendors of this software who may now offer it to a
   broader market on a rental basis.  Our products enable the vendors to provide
   Internet access to their applications with minimal additional investment in
   development implementation.

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o  Extended Enterprise Software Market. Extended enterprises allow access to
   their computing resources to customers, suppliers, distributors and other
   partners, thereby gaining flexibility in manufacturing and increasing
   speed-to-market and customer satisfaction. For example, extended enterprises
   may maintain decreased inventory via just-in-time, vendor-managed inventory
   and related techniques.

   The early adoption of extended enterprise solutions may be driven in part by
enterprises' need to exchange information over a wide variety of computing
platforms. We believe that our server-based software products, along with our
low-impact protocol, are well positioned to provide enabling solutions for
extended enterprise computing.

Strategic Relationships

      We believe it is important to maintain our current strategic alliances and
to seek suitable new alliances in order to enhance shareholder value, improve
our technology and/or enhance our ability to penetrate relevant target markets.
We also are focusing on strategic relationships that have immediate revenue
generating potential, strengthen our position in the server-based software
market, add complementary capabilities and/or raise awareness of our products
and us.

      In July 1999, we entered into a five-year, non-exclusive agreement with
Alcatel Italia, the Italian Division of Alcatel, the telecommunications, network
systems and services company. Pursuant to this agreement, Alcatel has licensed
our GO-Global thin client PC X server software for inclusion with their Turn-key
Solution software, an optical networking system. Alcatel's customers are using
our server-based solution to access Alcatel's UNIX/X Network Management Systems
applications from T-based PCs. Alcatel has deployed GO-Global internally to
provide their employees with high-speed network access to their own server-based
software over dial-up connections, local area networks (LANs) and wide area
networks (WANs).

      In September 1999, we entered into a three-year, non-exclusive agreement
with Compuware, an international software and services company. Pursuant to this
agreement, we licensed our Bridges for Windows server-based software for
inclusion with Compuware's UNIFACE software, a powerful development and
deployment environment for enterprise customer-facing applications. Compuware's
customers are using our server-based solution to provide enterprise-level
UNIFACE applications over the Internet. Compuware has private labeled and
completely integrate Bridges for Windows into its UNIFACE deployment
architecture as UNIFACE Jti.

      In September 2000, we entered into a three-year, non-exclusive agreement
with Ericsson, an international telecommunications company. Pursuant to this
agreement, we licensed our Go-Global and Go-Joe products for inclusion with
various Ericsson products for resale to their customers and Ericsson's internal
use. In May 2001 and July 2001, two separate three-year amendments were added to
this agreement that expanded the licensing of our products to additional
Ericsson products.

      In December 2000, we entered into a two-year, non-exclusive agreement with
Global Turnkey Systems (Global Turnkey), a software and services company.
Pursuant to this agreement, Global Turnkey sells a branded version of our
Bridges for Windows product, giving its customers fast Internet access to its
full-featured back-office publishing/information provider solution, UNISON6.
Bridges for Windows greatly simplifies UNISON6's software version control,
thereby allowing access on a variety of platforms, including Macintosh, which is
common in the publishing industry.

      In March 2001, we signed a one-year, non-exclusive agreement with Acterna,
an international developer, manufacturer and marketer of communications test


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instruments, systems, software and services. Pursuant to this agreement, we
licensed our UNIX-based web-enabling products to Acterna for inclusion with
various Acterna products for resale to their customers. This agreement was
renewed during March 2002, for one year.

      In November 2001, we signed a five-year, non-exclusive agreement with
Honeywell Enterprise Service Solutions, Germany, a subsidiary of Honeywell,
Incorporated. Pursuant to this agreement, we licensed our GO-Global technology
for inclusion with Honeywell's XFI Integrated Building Management system, which
is used to remotely manage facilities including; airports, military,
manufacturing, education, health care, pharmaceutical and financial.

      In December 2001, we entered into a one-year, exclusive agreement with
KitASP, a Japanese application service provider, which was founded by leading
companies within Japan's electronics and infrastructure industries, including
NTTDATA, Omron, RICS, Toyo engineering and others. Pursuant to this agreement,
KitASP has been granted a one-year exclusive right, within Japan, to distribute
our web-enabling technology, bundled with their ASP services, and to resell our
software. The agreement provides for an optional second year, which is
exercisable at our discretion.

      In March 2002, we entered into a third consecutive one-year, non-exclusive
agreement with FrontRange, an international software and services company.
Pursuant to this agreement, we licensed our Bridges for Windows server-based
software for integration with FrontRange's HEAT software, which is a
state-of-the-art help desk software system. FrontRange has private labeled and
completely integrated Bridges for Windows into its HEAT help desk software as
iHEAT.

Sales, Marketing and Support

      Our customers, to date, include Fortune 1000 enterprises, ISVs and large
governmental organizations. Among our current customers are the following:

           3Com                           IBM
           Alcatel                        Lucent Technologies
           AT&T                           MCI WorldCom
           Bell South                     Qwest
           BP Amoco                       Raytheon
           Cisco Systems                  Shell Oil
           Citrix                         SPAWAR
           Compuware                      United Airlines
           Ericsson Telecommunications B.V.    US Forestry Service
           Frontrange (Goldmine) Software Volvo
           Hewlett-Packard                Xylinx

      Our sales and marketing efforts will be focused on increasing product
awareness and demand among ISVs, large enterprises, and developing formal
distribution relationships with UNIX and Windows oriented resellers. Current
marketing activities include a targeted advertising campaign of insertions in
online newsletters, tradeshows, production of promotional materials, public
relations and maintaining an Internet presence for marketing and sales purposes.

Research and Development

      Our research and development efforts currently are focused on developing
new products and further enhancing the functionality, performance and
reliability of existing products. We invested $4,134,400, $4,060,000, and
$2,466,200 in research and development in 2001, 2000, and 1999, respectively. We
expect expenditures in 2002 to approximate 2001 and 2000 levels. We have made
significant investments in our protocol and in the performance and development


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of our server-based software.

Competition

      The server-based software market in which we participate is
highly-competitive. We believe that we have significant advantages over our
competitors, both in product performance and market positioning. This market
ranges from remote access for a single PC user to server-based software for
large numbers of users over many different types of desktop hardware and
connections. Our competitors include manufacturers of conventional PC X server
software. Competition is expected from these and other companies in the
server-based software market. Competitive factors in our market space include,
price, product quality, functionality, product differentiation and breadth.

      We believe our principal competitors for our current products include
Citrix Systems, Inc., Hummingbird Communications, Ltd., TTLA, WRQ, Network
Computing Devices and NetManage. Citrix is the established leading vendor of
server-based computing software. Hummingbird is the established market leader in
PC X Servers. WRQ, Network Computing Devices, and NetManage also offer
traditional PC X Server software.

Operations

      Our current staffing levels provide us with adequate resources to perform
all purchasing, inventory, order processing and shipping of our products and
accounting functions related to our operations. Production of software masters,
development of documentation, packaging designs, quality control and testing are
also performed by us. CD-ROM and floppy disk duplication, printing of
documentation and packaging are accomplished through outside vendors. We
generally ship products immediately upon receipt of order. As a result, we have
relatively little backlog at any given time, and do not consider backlog a
significant indicator of future performance.

Proprietary Technology

      We rely primarily on trade secret protection, copyright law,
confidentiality and proprietary information agreements to protect our
proprietary technology and registered trademarks. The loss of any material trade
secret, trademark, trade name or copyright could have a material adverse effect
on our results of operations and financial condition. There can be no assurance
that our efforts to protect our proprietary technology rights will be
successful.

      Despite our precautions, it may be possible for unauthorized third parties
to copy portions of our products, or to obtain information we regard as
proprietary. We do not believe our products infringe on the rights of any third
parties, but there can be no assurance that third parties will not assert
infringement claims against us in the future, or that any such assertion will
not result in costly litigation or require us to obtain a license to proprietary
technology rights of such parties.

      In November 1999, we acquired a U.S. patent for the remote display of
Microsoft Windows applications on UNIX and Linux desktops with X Windows. As a
result, we believe that we have acquired patent protection and licensing rights
for the deployment of all Windows applications remoted, or displayed, over a
network or any other type of connection to any X Windows systems. This patent,
which covers our Bridges for Windows (formerly jBridge) technology, was
originally developed by a team of engineers formerly with Exodus Technology and
hired by us in May 1998.

Employees

      As of March 15, 2002, we had a total of 50 employees, including 14 in
marketing, sales and support, 28 in research and development and eight in


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administration and finance. In conjunction with the planned closure of our
Morgan Hill, California corporate office and the relocation of these functions
to our Bellevue, Washington office, to be effective on April 1, 2002, we
anticipate reducing our overall headcount to approximately 46 employees. The
reductions will be due to job responsibility restructurings and will be in the
administration, finance and sales and marketing departments. No employees are
covered by a collective bargaining agreement.

Significant Recent Developments

      During the fourth quarter of the year ended December 31, 2001, as
discussed in Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations below, we wrote down the historical cost of certain
elements of our intangible assets. These write downs totaled approximately
$4,500,900 and were charged primarily against purchased technologies. The
write-downs reflected our application of Generally Accepted Accounting
Principles and appear in our financial statements under the caption "Asset
Impairment Loss".

      In January 2002 we reported on Form 8-K, the departure of our co-founders.
Walter Keller, who had been serving as our Chief Executive Officer and
President, and was a member of our Board of Directors, and Robin Ford, Mr.
Keller's wife, who had been serving as our Executive Vice President Marketing,
and was a member of our Board of Directors, each departed from their positions
and the Board, effective January 10, 2002.

      In January 2002, we appointed our Chairman of the Board of Directors,
Robert Dilworth, to be Interim Chief Executive Officer while a search for a new
Chief Executive Officer was conducted. Additionally, management determined that
it would conduct a thorough review of our operations to determine what
restructurings, if any, were necessary in order to remain competitive in the
current business economy.

      In February 2002 we determined that we would be closing our Morgan Hill,
California corporate offices and moving our corporate functions to our Bellevue,
Washington facilities, effective April 1, 2002. In addition, as part of the
consolidation of our facilities there would be a reduction in our work force, as
discussed in Employees above.

      In February 2002 we determined that we would temporarily shift the focus
of our sales and marketing effort for the balance of 2002 towards our UNIX
products and away from our Windows products, while continuing engineering
efforts to refine the Windows-based product line, particularly the Windows
enterprise edition, GG:XP, so that those products would compete more effectively
in the market place.

Item 2.    PROPERTIES

      We currently occupy approximately 13,000 square feet of office space in
Morgan Hill, California. The office space is rented pursuant to a five-year
lease, which became effective in October 2000. In conjunction with the planned
closure of our Morgan Hill office, to be effective March 31, 2002, we are
currently in negotiations with various third parties to sublet our lease. The
Morgan Hill lease contains provisions outlining our rights and responsibilities
in order to affect a sublease that will meet with our landlord's approval. We
are contractually obligated to continue paying rent on the Morgan Hill space,
whether the space is occupied or not, while we negotiate a sublease. Rent on the
Morgan Hill facility is approximately $18,000 per month, which is inclusive of
various taxes and other fees proportioned to us under the terms of the lease
agreement.

      We will be relocating our corporate headquarters to approximately 5,000
square feet of office space we currently occupy in Bellevue, Washington. The
office space is rented pursuant to a five-year lease, which became effective May
2001.

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<PAGE>

      We also occupy leased facilities in Concord, New Hampshire and Reading,
United Kingdom pursuant to leases expiring at varying dates through 2003.

      The aggregate amount of the annual lease payments made under all of our
leases in the years 2001, 2000 and 1999 was approximately $558,700, $537,100 and
$330,800, respectively. We believe our current facilities will be adequate to
accommodate our needs for the foreseeable future.

Item 3.    LEGAL PROCEEDINGS

      In late 1996, pursuant to a non-disclosure agreement, we disclosed aspects
of our proprietary technology on a confidential basis to Insignia Solutions plc
(Insignia), some of whose assets were later acquired by Citrix Systems, Inc. and
Citrix Systems UK, LTD (collectively and individually "Citrix"). Subsequent to
the this acquisition, we became engaged in litigation in the Superior Court of
the State of California, Santa Clara County, with Insignia and Citrix, which
stemmed from the disclosure of our proprietary technology. On April 3, 2001, we,
Insignia and Citrix agreed to settle this litigation with prejudice by an
exchange of reciprocal releases.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.

      No matters were submitted to a vote of stockholders of the Registrant
during the fourth quarter of the fiscal year ended December 31, 2001.

Executive Officers of the Registrant

      Our executive officers are as follows:

   Name                 Age    Position

Robert Dilworth         60     Chairman of the Board of Directors and
Chief
                               Executive Officer (Interim)
William Swain           61     Chief Financial Officer and Secretary
George Phillips         59     Vice President, Worldwide Sales and
Marketing

      Robert Dilworth has served as one of our directors since July 1998 and was
appointed Chairman in December 1999. In January 2002, Mr. Dilworth was appointed
Interim Chief Executive Officer. From 1987 to 1998 he served as the Chief
Executive Officer and Chairman of the Board of Metricom, Inc., a leading
provider of wireless data communication and network solutions. Prior to joining
Metricom, from 1985 to 1988, Mr. Dilworth served as President of Zenith Data
Systems Corporation, a microcomputer manufacturer. Earlier positions included
Chief Executive Officer and President of Morrow Designs, Chief Executive Officer
of Ultramagnetics, Group Marketing and Sales Director of Varian Associates
Instruments Group, Director of Minicomputer Systems at Sperry Univac and Vice
President of Finance and Administration at Varian Data Machines. Mr. Dilworth is
also a director of eOn Communications, Mobility Electronics, Transcept
Corporation, Yummy Interactive and Get2Chip.com, Inc.

      William Swain has served as our Chief Financial Officer and Secretary
since March 2000. Mr. Swain was a consultant from August 1998 until February
2000, working with entrepreneurs in the technology industry in connection with
the start-up and financing of new business opportunities. Mr. Swain was Chief
Financial Officer and Secretary of Metricom Inc., from January 1988 until June
1997, during which time he was instrumental in private financings as well as
Metricom's initial public offering and subsequent public financing activities.
He continued as Senior Vice President of Administration with Metricom from June
1997 until July 1998. Prior to joining Metricom, Mr. Swain held top financial


                                       11
<PAGE>

positions with leading companies in the computer industry, including Morrow
Designs, Varian Associates and Univac. Mr. Swain holds a Bachelors degree in
Business Administration from California State University of Los Angeles and is a
Certified Public Accountant in the State of California.

      George Phillips has served as our Vice President, Worldwide Sales
since October 2000 and was appointed Vice President, Worldwide Sales
and Marketing in January 2002.  Previously, Mr. Phillips served as Vice
President, Worldwide Sales at HotJobs Software Group, which merged with
Resumix, Inc., where Mr. Phillips was Vice President, North American
Sales and region vice president, since 1997.  Prior to Resumix, Mr.
Phillips was vice president of sales at Covalent Systems Corporation
from 1983 through 1997.  Mr. Phillips has also held various sales and
marketing positions with Fafco, Inc. and Xerox Corporation.

All executive officers serve at the discretion of the Board of Directors.

                                       12
<PAGE>


                                     PART II

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

The following table sets forth, for the periods indicated, the high and low
reported sales price of our common stock. Prior to July 12, 1999, our common
stock was quoted on the OTC Bulleting Board. From July 12, 1999 through August
8, 2000, our common stock was quoted on the Nasdaq SmallCap Market System. Since
August 9, 2000, our common stock has been quoted on the Nasdaq National Market
System under the symbol "GOJO".
<TABLE>
<CAPTION>

                 Fiscal 2000        Fiscal 2001
               ---------------   ---------------
   Quarter      High     Low      High      Low
               ------  -------   ------    -----
<S>   <C>      <C>      <C>      <C>       <C>
      1st      $32.00   $14.88   $ 3.38    $1.00
      2nd      $19.00    $5.50   $ 4.05    $0.81
      3rd       $9.13    $3.69   $ 3.05    $1.00
      4th       $4.47    $1.19   $ 1.26    $0.50
</TABLE>

On March 25, 2002, there were approximately 125 holders of record of our common
stock. On March 25, 2002, the last reported sales price was $0.26.

We have never declared or paid dividends on our common stock. We do not
anticipate paying any cash dividends for the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of our Board of Directors and will be dependent upon the
earnings, financial condition, operating results, capital requirements and other
factors as deemed necessary by the Board of Directors.

ITEM 6.   SELECTED FINANCIAL DATA.

The following selected historical financial data should be read in conjunction
with "Management's Discussion and Analysis" and our historical financial
statements and the notes thereto included elsewhere herein. Our selected
historical financial data as of December 31, 2001, 2000, 1999, 1998, and 1997
and for the years ended December 31, 2001, 2000, 1999, 1998, and 1997 have been
derived from our financial statements which have been audited by BDO Seidman
LLP, independent public accountants.

Statement of Operations Data:
<TABLE>
<CAPTION>
                                           Year Ended December 31,
                                           -----------------------
                                2001       2000      1999       1998        1997
                              --------   --------  --------   --------    --------
                            (Amounts in thousands, except share and per share data)

<S>                           <C>        <C>        <C>        <C>        <C>
Revenues                      $  5,911   $  7,567   $  3,635   $  2,124   $  1,926
Costs of revenues                2,613      1,044      2,800        344        463
                              --------   --------   --------   --------   --------
Gross profit                     3,298      6,523        835      1,780      1,463
                              --------   --------   --------   --------   --------


                                       13
<PAGE>

Operating expenses:
  Selling and marketing          5,989      5,750      3,279      1,440        827
  General and administrative     4,561      4,653      2,265      1,119        325
  Research and development       4,134      4,060      2,467        840        191
  Asset impairment loss          4,501          -          -          -          -
                              --------   --------   --------   --------   --------
   Total operating expenses     19,185     14,463      8,011      3,399      1,343
                              --------   --------   --------   --------   --------
(Loss) income from
  operations                   (15,887)    (7,940)    (7,176)    (1,619)       120

Other income (expense) net         410     (1,434)       144       (529)         5
                              --------   --------   --------   --------   --------
(Loss) income before
  provision for income taxes   (15,477)    (9,374)    (7,032)    (2,148)       125

Provision for income taxes           1          1          1          1          1
                              --------   --------   --------   --------   --------
Net (loss) income             $(15,478)  $ (9,375)  $ (7,033)  $ (2,149)  $    124
                              ========   ========   ========   ========   ========

Basic and diluted (loss)
  income per share            $  (0.97)  $  (0.65)  $  (0.71)  $  (0.57)  $   0.04
                              ========   ========   ========   ========   ========
</TABLE>
<TABLE>
<CAPTION>

Weighted average common
<S>                         <C>        <C>         <C>        <C>        <C>
  shares outstanding        16,007,763 14,396,435  9,950,120  3,770,863  3,345,600
                            ========== ========== ==========  =========  =========
</TABLE>
<TABLE>
<CAPTION>

Balance Sheet Data:
                                    As of December 31,
                                    ------------------
                          2001    2000     1999     1998     1997
                        -------  -------  -------  -------  -------
                                  (Amounts in thousands)

<S>                     <C>      <C>      <C>      <C>      <C>
Working capital         $ 6,173  $12,879  $11,701  $ 1,193  $    23
Total assets             12,986   21,040   15,224    6,545      733
Total liabilities         1,660    1,983      842    1,203      615
Shareholders' equity     11,326   19,057   14,382    5,342      118
</TABLE>



                                       14
<PAGE>



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

The following discussion should be read in conjunction with the consolidated
financial statements provided under Part II, Item 8. of this Annual Report on
Form 10-K.

Critical Accounting Policies. The preparation of financial statements and
related disclosures in conformity with accounting principles generally accepted
in the United States requires management to make judgments, assumptions and
estimates that effect the amounts reported in the Consolidated Financial
Statements and accompanying notes. The Summary of Significant Accounting
Policies appears in Part II, Item 8 - Financial Statements and Supplementary
Data, of this Form 10-K, which describes the significant accounting polices and
methods used in the preparation of the Consolidated Financial Statements.
Estimates are used for, but not limited to, the accounting for the allowance for
doubtful accounts, the impairment of intangible assets, contingencies and other
special charges and taxes. Actual results could differ materially from these
estimates. The following critical accounting policies are impacted significantly
by judgments, assumptions and estimates used in the preparation of the
Consolidated Financial Statements.

The recognition of revenue is based on our assessment of the facts and
circumstances of the sales transaction. We will recognize revenue only when all
four of the following conditions have been met:

o  Persuasive evidence of an arrangement exists;
o  Delivery has occurred or services have been rendered;
o  Our price to the customer is fixed or determinable; and
o  Collectibility is reasonably assured

The allowance for doubtful accounts is based on our assessment of the
collectibility of specific customer accounts and the aging of the accounts
receivable. If there is a deterioration of a major customer's credit worthiness
or actual defaults are higher than our historical experience, our estimates of
the recoverability of amounts due us could be adversely affected.

We have experienced very little market volatility in the market prices of our
available-for-sale securities. These securities are recorded on the balance
sheet at fair value and we would recognize an impairment charge if a decline in
fair value below the cost basis were judged to be other than temporary. We
consider various factors in determining whether we should recognize an
impairment charge including, but not limited to the financial condition and the
near-term prospects of the issuer and our intent and ability to hold the
security until maturity. The ultimate market value realized on these securities
is subject to market volatility until they are sold.

We will perform impairment test on our intangible assets on an annual basis and
between annual tests in certain circumstances. In response to changes in
industry and market conditions, we may strategically realign our resources and
consider restructuring, disposing of, or otherwise exiting businesses, which
could result in an impairment of intangible assets.

We are subject to the possibility of various loss contingencies arising in the
ordinary course of business. We consider the likelihood of the loss or
impairment of an asset or the incurrence of a liability as well as our ability
to reasonably estimate the amount of loss in determining loss contingencies. An
estimated loss contingency is accrued it is probable that a liability has been
incurred or an asset has been impaired and the amount of the loss can be


                                       15
<PAGE>


reasonably estimated. We regularly evaluate current information available to us
to determine whether such accruals should be adjusted.

Significant Recent Developments. During the fourth quarter of the year ended
December 31, 2001, as more fully explained under "Asset Impairment Loss" below,
we wrote down the historical cost of certain elements of our intangible assets.
These write downs totaled approximately $4,500,900 and were charged primarily
against purchased technologies. The write-downs reflected our application of
generally accepted accounting principles and appear in our financial statements
under the caption "Asset Impairment Loss".

Walter Keller, who had been serving as our Chief Executive Officer and
President, and was a member of our Board of Directors, and Robin Ford, Mr.
Keller's wife, who had been serving as our Executive Vice President Marketing,
and was a member of our Board of Directors, each departed from their positions
and the Board, effective January 10, 2002. Mr. Keller and Ms. Ford were our
co-founders.

During January 2002, we appointed our Chairman of the Board of Directors, Robert
Dilworth, to be Interim Chief Executive Officer while a search for a new Chief
Executive Officer was conducted. Additionally, management determined that it
would conduct a thorough review of our operations to determine what
restructurings, if any, were necessary in order to remain competitive in the
current business economy.

In February 2002 we determined that we would be closing our Morgan Hill,
California corporate offices and moving our corporate functions to our Bellevue,
Washington facilities, effective April 1, 2002. In addition, as part of the
consolidation of our facilities there would be a reduction in our work force, as
discussed in Item 1 Business above. We estimate that the ultimate cost of these
restructuring charges, which will be charged against our results of operations
in the first quarter of 2002, will be approximately in the $1,400,000 to
$2,150,000 range. We estimate that these restructurings and the restructurings
that occurred during September 2001 will generate cumulative operational
savings, primarily human resources costs, of approximately $3,000,000 to
$4,000,000 during 2002. However, due to the inherent uncertainties associated
with predicting future operations, there can be no assurances that such
cumulative operational savings will ultimately be realized.

A summary analysis of the estimated restructuring charges, which will be charged
against our results of operations in the first quarter of 2002, is as follows:
<TABLE>
<CAPTION>

       Category                 Low end        High end
       --------               -----------     ----------

<S>                           <C>          <C>
       Fixed assets disposals $   600,000  $     800,000
       Minimum lease payments     100,000        650,000
       Employee severance         700,000        700,000
                              -----------     ----------
                              $ 1,400,000     $2,150,000
                              ===========     ==========
</TABLE>

Included in employee severance are the payments made to Mr. Keller and Ms. Ford,
which aggregated $500,000. The costs associated with fixed assets disposals are
comprised of the estimated net book value of the assets, including furniture and
fixtures, equipment and leasehold improvements, which will be written off upon
the closure of the Morgan Hill corporate office as these assets will have no
future utility. We do not anticipate any material cash disposal costs to be
incurred to dispose of the fixed assets. The minimum lease payments are an
estimate of the cash we may need to disburse in order to fulfill our obligations
under the current Morgan Hill office lease. The high end assumes that we do not
find a suitable sublessee during the remaining three-year lease term and the low
end assumes that we find a suitable sublessee within the next three months.

We also determined during February 2002 that we would be temporarily shifting
the focus of our sales and marketing effort for the balance of 2002 towards our


                                       16
<PAGE>


UNIX products and away from our Windows products, while continuing our
engineering efforts to refine our Windows-based product line, particularly our
Windows enterprise edition, GG:XP, so that those products can compete more
effectively in the market place. We do not expect this shift in sales and
marketing focus to have a material negative impact on our Windows-based revenue
as we will continue to service and support our established Windows-based
customers.

Results of Operations

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Revenues. Our revenues are primarily derived from product and patent technology
licensing fees. Other sources of revenues include service fees from maintenance
contracts and training fees. Total revenues for the year ended December 31, 2001
decreased by approximately $1,655,800, or 21.9%, to approximately $5,910,700
from $7,566,500 for the year ended December 31, 2000. The primary reason for the
decrease was a $2,500,000 decrease in revenue - related party to $0 for the year
ended December 31, 2001 from $2,500,000 for the year ended December 31, 2000.
All revenue - related party recognized during 2000 was derived from transactions
we entered into with our China joint venture, GraphOn China Ltd., which was
discontinued during August 2001. We had no such transactions with our China
joint venture during 2001, prior to its dissolution.

Revenues derived from third parties during the year ended December 31, 2001
increased by approximately $844,200, or 16.7%, to approximately $5,910,700 from
$5,066,500 for the year ended December 31, 2000. The primary reasons for the
increased third party sales were the increased sales and marketing efforts we
conducted throughout the first three quarters of the year, which were reduced in
conjunction with the September 2001 work force reduction, an increased market
for licensing our patented technology, and the introduction of upgraded products
in both our Windows and UNIX product lines during the year. We recorded
approximately $2,249,400 of third party licensing fees from our Windows products
during 2001, as compared with $2,330,300 of third party licensing fees during
2000. We recorded approximately $2,200,000 of third party licensing fees from
our patented technology during 2001 as compared with $1,500,000 of third party
licensing fees during 2000. We recorded approximately $1,461,300 of third party
licensing fees from our UNIX products during 2001 as compared with $1,236,200 of
third party licensing fees during 2000.

Our licensing fees have been realized from a limited number of customers. As
such, revenues from these products have varied from quarter to quarter
reflecting the aggregate demand of the individual customers. We expect our
quarterly licensing fees to continue to vary during 2002.

In 2001, revenues from our three largest customers represented approximately
27.1%, 26.3% and 10.1%, respectively, of total revenues. These three customers'
December 31, 2001 year-end accounts receivable balances represented
approximately 0.0%, 43.5% and 0.0% of reported net accounts receivable. All
amounts outstanding from these three customers as of December 31, 2001 were
collected during February 2002. During 2000, revenues from these three customers
represented approximately 0.0%, 14.4% and 0.0%, respectively, of total revenues.
These three customers' accounts receivable balances as of December 31, 2000
represented approximately 0.0%, 20.0% and 0.0%, respectively, of reported net
accounts receivable. All amounts due from these three customers as of December
31, 2000 were collected during January 2001.

We anticipate that many of our customers will enter into, and periodically
renew, maintenance contracts to ensure continued product updates and support.
Service revenue was approximately $284,700, or 4.8% of revenue in 2001,


                                       17
<PAGE>

$242,600, or 3.2% of revenue in 2000 and approximately $208,800, or 5.7%, of
revenue in 1999.

Cost of Revenues. Cost of revenues consists primarily of the amortization of
acquired technology or capitalized technology developed in-house. Research and
development costs for new product development, after technological feasibility
is established, are recorded as "capitalized software" on our balance sheet and
subsequently amortized as cost of revenues over the shorter of three years or
the remaining estimated life of the products.

Total cost of revenues increased by approximately $1,568,900, or 150.3%, to
$2,612,600 in 2001, from $1,043,700 in 2000, primarily due to an increase in the
amortization of acquired technology. Certain technology assets that were
purchased during the third quarter of fiscal year end December 31, 2000, which
were capitalized with a value of $2,100,000, were charged with a full years'
amortization, or approximately $700,000, during 2001 as compared with a partial
years' amortization, or approximately $204,000, during 2000, the year of
acquisition. Additionally, we recorded approximately $1,083,300 of amortization
during 2001 related to certain technology assets purchased during 2001.

As more fully explained below, during December 2001, we wrote down the
historical cost of various components of our purchased technology assets as part
of our year-end assessment of asset impairment. The amortization of our
technology assets, as explained above, is recorded as a component of Cost of
Revenues. Accordingly, we expect that our Cost of Revenues will be significantly
lower in 2002 as compared with 2001.

Sales and Marketing Expenses. Sales and marketing expenses primarily consist of
salaries, sales commissions, non-cash compensation, travel expenses, trade show
related activities and promotional costs. Sales and marketing expenses increased
by approximately $239,500, or 4.2%, to $5,989,400 in 2001, from $5,749,900 in
2000. The increase was primarily attributable to the increase in sales and
marketing personnel and efforts during the first three quarters of 2001, which
were partially offset by the workforce reduction, which occurred as of September
30, 2001.

We began 2001 with approximately 23 sales and marketing professionals. We
gradually increased our sales and marketing headcount as we increased our
marketing efforts, particularly behind the two products we released during 2001:
GO-Global:UX (GG:UX) and GO-Global:XP (GG:XP), which had their general releases
during July 2001. GG:UX is marketed into the UNIX/Linux market, and GG:XP is
marketed into the Windows market. GG:UX has performed well since its release and
currently is a stable product. GG:XP has required further engineering,
consequently, its performance has not yet reached the level necessary to support
the increased headcount we had made in the sales and marketing department, which
immediately prior to our work force reduction in September 2001 had reached
approximately 37.

We expect that cumulative sales and marketing expenses in 2002 will be lower
than the annualized level of sales and marketing expense we incurred during the
fourth quarter 2001 as a result of our corporate restructuring, which will be
effective as of March 31, 2002, and as a result of the work force reduction,
which occurred as of September 30, 2001. We determined during February 2002 that
we would temporarily shift the focus of our sales and marketing effort for the
balance of 2002 towards our UNIX products and away from our Windows products,
while continuing our efforts to refine our Windows-based product line,
particularly our Windows enterprise edition, GG:XP, so that those products can
compete more effectively in the market place. We do not expect this shift in
sales and marketing focus to have a material negative impact on our
Windows-based revenue as we will continue to service and support our established
Windows-based customers. Sales and marketing expenses were approximately 101.3%
and 76.0% of revenue for the year 2001 and 2000, respectively.

General and Administrative Expenses. General and administrative expenses


                                       18
<PAGE>

primarily consist of salaries, legal and professional services, and non-cash
compensation. General and administrative expenses decreased by approximately
$92,500, or 2.0%, to $4,560,800 in 2001, from $4,653,300 in 2000. The decrease
was primarily due to the lower human resources costs, resulting from the third
quarter work force reduction, which were partially offset by a $250,000 increase
in the allowance for doubtful accounts.

We began 2001 with approximately 15 general and administrative employees. This
figured remained fairly consistent throughout the year until the workforce
reduction in September 2001. At that time, as part of management's initiative to
cut costs and conserve cash, the general and administrative workforce was
reduced to nine employees. Additionally, several of these employees began
reduced workweek schedules. We anticipate that cumulative general and
administrative expense in 2002 will approximate the annualized level of general
and administrative expense we incurred during the fourth quarter of 2001 as a
result of the corporate restructuring, which will be effective as of March 31,
2002, and as a result of the workforce reduction, which occurred as of September
30, 2001. General and administrative expenses were approximately 77.2% and 61.5%
of 2001 and 2000 revenues, respectively.

Research and Development Expenses. Research and development expenses consist
primarily of salaries and benefits paid to software engineers, payments to
contract programmers, and facility expenses related to our remotely located
engineering offices. Research and development expenses increased by $74,400, or
1.8%, to $4,134,400 in 2001, from $4,060,000 in 2000. The increase was primarily
due to increased human resources costs, resulting from increased head count
during the first three quarters, prior to the September work force reduction,
and the relocation of our Seattle office during the second quarter. These
increases were partially offset by lower human resource costs after the
workforce reduction in September.

We began 2001 with approximately 35 employees in research and development. This
number increased slightly, to approximately 40, immediately prior to the work
force reduction in September, and currently numbers 28. We believe that a
significant level of investment for research and development is required to
remain competitive. Accordingly, we anticipate that cumulative research and
development expenses in 2002 will be greater than the annualized level of
research and development expenses we incurred during the fourth quarter 2001.
During 2002 we will continue working towards our goal of full maturity for our
products.

Asset Impairment Loss. During the fourth quarter of 2001 we recorded an
impairment charge of $4,500,900 against several of our intangible assets,
primarily capitalized technology assets. Statement of Financial Accounting
Standards (SFAS) No. 121 - Accounting for the Impairment of Long-Lived Assets
requires that long-lived assets must be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. SFAS No. 121 sets forth examples of events or changes in
circumstances that indicate that the recoverability of the carrying amount of an
asset should be addressed, including the following:

o A significant decrease in the market value of an asset;
o A significant change in the extent or manner in which an asset is
  used;
o A significant adverse change in the business climate that could
  affect the value of an asset; and
o Current and historical operating or cash flow losses.

We believed that a review of our current carrying values to evaluate whether the
value of any of our long-lived technology assets had been impaired was


                                       19
<PAGE>

warranted, due to several factors, including:

o  The challenges we faced in refining our Windows enterprise product;
o  The continued pervasive weakness in the world-wide economy; and
o  How we were incorporating and planning to incorporate each element
   of the purchased technologies into our technology.

Based on a study of the various factors affecting asset impairment, as outlined
above and in SFAS No. 121, the following asset impairment charges were
determined to be necessary in order to reduce the carrying value of these assets
to our current estimate of the present value of the expected future cash flows
to be derived from these assets:
<TABLE>
<CAPTION>

                            Net Book                  Net Book
                        Value Before   Impairment  Value After
                          Impairment   Write Down   Impairment
                         -----------  -----------  -----------
<S>                      <C>          <C>          <C>
Purchased Technology     $ 7,283,300  $ 4,150,900  $ 3,132,400
Patent                       350,000      350,000            -
                         -----------  -----------  -----------
Totals                   $ 7,633,300  $ 4,500,900  $ 3,132,400
                         ===========  ===========  ===========
</TABLE>

Interest and Other Income. Interest and other income decreased by approximately
$665,300, or 56.3%, to $516,100 in 2001 from $1,181,400 in 2000. The principal
component of interest and other income is interest income derived on excess
cash. Our excess cash is held in relatively low-risk, highly liquid investments,
such as U.S. Government obligations, bank and/or corporate obligations rated "A"
or higher by independent rating agencies, such as Standard and Poors, or
interest bearing money market accounts with minimum net assets greater than or
equal to one billion U.S. dollars. The decrease in interest income in 2001 over
2000 was due to lower average cash and cash equivalents, and available-for-sale
securities balances in 2001 as compared with 2000, and a decrease in our
portfolio's average yield rate, which reflected the market's response to the
continued cuts made in interest rates by the Federal Reserve. The lower average
cash and cash equivalents and available-for-sale securities balances in 2001 as
compared with 2000 is primarily due to the outflow of approximately $6,752,700,
resulting from our operations.

Interest and Other Expense. Interest and other expense in 2001 increased by
$58,000, or 852.9%, to $64,800 from $6,800 in 2000. The increase was primarily
due to losses recorded on the disposal of fixed assets, which were partially
offset by cumulative marked-to-market gains recorded on the value of the
securities held in our investment account.

Provision for Income Taxes. At December 31, 2001, we had approximately
$26,225,000 in federal net operating loss carryforwards. The federal net
operating loss carryforwards will expire through 2020, if not utilized. In
addition, the Tax Reform Act of 1986 contains provisions that may limit the net
operating loss carryforwards available for use in any given period upon the
occurrence of various events, including a significant change in ownership
interests. In 1998, we experienced a "change of ownership" as defined by the
provisions of the Tax Reform Act of 1986. As such, our utilization of our net
operating loss carryforwards in the amount of $2.8 million will be limited to
approximately $400,000 per year until such carryforwards are fully utilized or
expire.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Revenues. Total revenues for the year ended December 31, 2000 increased by
approximately $3,932,000, or 108.2%, to approximately $7,566,500 from $3,634,500
for the year ended December 31, 1999. The primary reason for this increase was


                                       20
<PAGE>

the expansion of our product offerings during 2000. During 2000, we launched
Bridges for Windows and Bridges for Unix and we began licensing our patented
technology. We recorded approximately $2,330,200 of third party licensing fees
from our Windows products during 2000, as compared with $0 of third party
licensing fees during 1999. We recorded approximately $1,500,000 of third party
licensing fees from our patented technology during 2000, as compared with $0 of
third party licensing fees during 1999. We recorded approximately $1,236,200 of
third party licensing fees from our UNIX products in 2000 as compared with
$1,955,700 of third party licensing fees during 1999. In 1999, approximately
59.0% of our UNIX licensing fees was derived from two third-party customers. The
rest of 1999's UNIX licensing fees and substantially all of 2000's UNIX
licensing fees were derived from relatively small sales to a large number of
third party customers in diverse industries and geographical locations.

In 2000, revenues from our three largest third-party customers represented
approximately 19.8%, 14.4%, and 10.8%, respectively, of total revenues. These
three customers' year-end 2000 accounts receivable balances represented
approximately 0.0%, 20.0% and 0.0% of reported net accounts receivable. All
outstanding amounts due from these three customers as of December 31, 2000 were
collected during January 2001. We did not have significant sales to any of these
three customers during 1999.

In 1999, revenues from our two largest third-party customers represented
approximately 13.3% and 10.3%, respectively, of total revenues. Neither of these
two customers had a significant outstanding receivable balance as of December
31, 1999. We did not have significant sales to either of these two customers
during 2000.

Included in the increase in 2000 revenue over 1999 revenue was an increase of
approximately $1,045,000, or 71.8%, to $2,500,000 in 2000, from $1,455,000 in
1999, in related party revenue. All related party revenue for the year ended
December 31, 2000 was derived from the licensing of technology to our joint
venture in China, GraphOn China Limited, which was formed in March 2000. All
related party revenue for the year ended December 31, 1999 was derived from
Corel Corporation, who is currently one of our largest shareholders. No revenue
was derived from Corel Corporation during 2000.

Cost of Revenues. Cost of revenues consists primarily of the amortization of
acquired technology or capitalized technology developed in-house. Research and
development costs for new product development, after technological feasibility
is established, are recorded as "capitalized software" on our balance sheet and
subsequently amortized as cost of revenues over the shorter of three years or
the remaining estimated life of the products.

Total cost of revenues decreased by approximately $1,756,200, or 62.7%, to
$1,043,700 in 2000, from $2,799,900 in 1999, primarily due to a reduction in the
amortization of acquired technology. Various identifiable components of the
technology purchased during the fourth quarter of 1998 were determined to have
remaining useful lives of less than one year. Accordingly, all such identified
components were fully amortized during 1999. The total of the components fully
amortized during 1999 was approximately $2,114,000.

Sales and Marketing Expenses. Sales and marketing expenses primarily consist of
salaries, sales commissions, non-cash compensation, travel expenses, trade show
related activities and promotional costs. Sales and marketing expenses increased
by approximately $2,470,800, or 75.3%, to $5,749,900 in 2000, from $3,279,100 in
1999. The increase was primarily attributable to increases in trade show,
promotional and public relations activities, advertising, and amortization of
deferred compensation for options issued to consultants.

                                       21
<PAGE>

During the fourth quarter of 2000 we hired a new Vice President of World Wide
Sales as a key ingredient for our planned focus of expanding our sales efforts.
We expect that sales and marketing expenses will continue to increase in 2001 as
we continue to increase our direct sales force, establish new OEM relationships,
and expand current OEM relationships. Sales and marketing expenses were
approximately 76.0% and 90.2% of revenue for the year 2000 and 1999,
respectively.

General and Administrative Expenses. General and administrative expenses
primarily consist of salaries, legal and professional services, and non-cash
compensation. General and administrative expenses increased by approximately
$2,388,100, or 105.4%, to $4,653,300 in 2000, from $2,265,200 in 1999. Factors
contributing to the increase include increased personnel and benefits, increased
professional and legal fees, costs associated with our movement to the Nasdaq
National Market, and increased amortization of non-cash compensation primarily
related to the issuance of warrants and stock options to various parties. We
anticipate that general and administrative expense in 2001 should approximate
the same level as those incurred during the fourth quarter 2000, annualized.
General and administrative expenses were approximately 61.5% and 62.3% of 2000
and 1999 revenues, respectively.

Research and Development Expenses. Research and development expenses consist
primarily of salaries and benefits paid to software engineers, payments to
contract programmers, and facility expenses related to our remotely located
engineering offices. Research and development expenses increased by $1,593,800,
or 64.6%, to $4,060,000 in 2000, from $2,466,200 in 1999. During 2000 our
primary focus was to bring our products to maturity; consequently, we incurred
significant engineering costs, both internally and through the use of
contractors.

We believe that a significant level of investment for research and development
is required to remain competitive and that such expenses are expected to
continue to increase over the foreseeable future. During 2001 we will continue
working towards our goal of full maturity for our products.

Interest and Other Income. Interest and other income increased by approximately
$1,031,300, or 687.1%, to $1,181,400 in 2000 from $150,100 in 1999. The
principal component of interest and other income is interest income derived on
excess cash. Our excess cash is held in relatively low-risk, highly liquid
investments, such as U.S. Government obligations, bank and/or corporate
obligations rated "A" or higher by independent rating agencies, such as Standard
and Poors, or interest bearing money market accounts with minimum net assets
greater than or equal to one billion U.S. dollars. The increase in interest
income in 2000 over 1999 is due to the higher average cash and cash equivalents,
and available-for-sale securities balances in 2000 as compared with 1999. The
higher average cash and cash equivalents and available-for-sale securities
balances in 2000 as compared with 1999 is due to the inflow of approximately
$12,263,000, primarily during the first quarter of 2000, resulting from the
calling, and subsequent exercise, of various outstanding warrants, options and
underwriter units. Additionally, approximately $8,402,000 was received during
the fourth quarter of 1999 due to the calling, and subsequent exercise, of
various outstanding warrants and underwriter units.

Interest and Other Expense. Interest and other expense in 2000 remained the same
as 1999. Interest expense during 2000 was incurred in connection with a note
payable entered into during the third quarter. The note matures during the
second quarter of 2001. The interest expense charged on the note accounted for
virtually all of the interest and other expense reported during 2000. For 1999,
the entire balance of interest and other expense was interest expense associated
with a convertible note payable, which was fully repaid in January 1999.

Provision for Income Taxes. At December 31, 2000, we had approximately
$17,526,900 in federal net operating loss carryforwards. The federal net
operating loss carryforwards will expire through 2020, if not utilized. In


                                       22
<PAGE>

addition, the Tax Reform Act of 1986 contains provisions that may limit the net
operating loss carryforwards available for use in any given period upon the
occurrence of various events, including a significant change in ownership
interests. In 1998, we experienced a "change of ownership" as defined by the
provisions of the Tax Reform Act of 1986. As such, our utilization of our net
operating loss carryforwards in the amount of $2.8 million will be limited to
approximately $400,000 per year until such carryforwards are fully utilized or
expire.

Liquidity and Capital Resources

On July 12, 1999, we completed a merger with Unity First Acquisition Corporation
(Unity). Pursuant to the terms of the merger, each share of our common stock was
exchanged for 0.5576 shares of Unity common stock and each outstanding option
and warrant to purchase our common stock was exchanged for options or warrants
to purchase 0.5576 shares of Unity common stock. The transaction was a reverse
merger with Unity surviving the merger and changing its name to GraphOn
Corporation. GraphOn's management team continued in their then-existing roles.
The merger provided us with $5,425,000 in net cash proceeds, which was
previously held in trust for Unity until it consummated a merger with an
operating business.

In December 1999, we issued 1,353,028 shares of our common stock in connection
with the exercise of underwriter units and warrants, resulting in net cash
proceeds of $8,402,000.

In June 2001, we issued 2,500,000 shares of our common stock in connection with
the acquisition of software technology, which was assigned an historical cost of
$6,500,000 based on the then fair market value of our common stock.

As of December 31, 2001, cash and cash equivalents and available-for-sale
securities totaled approximately $6,960,600, a decrease of $6,806,500, or 49.4%,
from approximately $13,767,100 as of December 31, 2000. The decrease in cash and
cash equivalents and available-for-sale securities was primarily attributable to
our net loss of $15,478,000. Contributing to the decrease in cash and cash
equivalents and available-for-sale securities was cash used in operating
activities, including an increase in accounts receivable of $121,200 and a
decrease in accrued expenses of $647,000. Offsetting these items were non-cash
transactions such as depreciation and amortization, totaling $4,109,800, a
one-time asset impairment loss of $4,500,900, an increase in the provision for
doubtful accounts of $250,000 and losses on the disposal of various fixed
assets, totaling $110,000.

A customer placed a large order during December 2001, which accounted for
approximately 43.5% of our December 31, 2001 net accounts receivable balance.
The decrease in accrued expense was due to the timing of the items that were
accrued as of December 31, 2000. These items primarily related to payroll costs
and costs associated with our litigation, which were higher as of December 31,
2000 than December 31, 2001. Additionally, due to the September 2001 work force
reduction, overall payroll costs were lower as of December 31, 2001 as compared
with December 31, 2000. Our litigation was settled during the first quarter of
2001; consequently, no costs related to this litigation were accrued as of
December 31, 2001.

Depreciation and amortization primarily relates to our purchased technology, as
outlined above in Costs of Revenues. Also included in depreciation and
amortization is the amortization of deferred compensation expense related to
non-cash compensation paid to various third parties, primarily consultants, who
provide us services. This amortization is recorded as a sales and marketing
expense or a general and administrative expense, depending on the nature of the
underlying services provided.

                                       23
<PAGE>

The decrease in cash and cash equivalents and available-for-sale securities was
partially offset by cash provided by investing activities, including proceeds
from the sale of available-for-sale securities, $7,338,900 and the proceeds from
the dissolution of our China joint venture, $954,500. These items were partially
offset by cash used to purchase available-for-sale securities, $4,779,900,
capital expenditures, including the capitalization of our internal software
development costs, $993,000 and investments made in our China joint venture,
prior to its dissolution, $103,700.

Throughout the year, we buy various high-grade securities for investment
purposes with our excess cash. The securities are usually held until maturity,
at which time any excess cash is used to reinvest in new securities. We treat
the investment as cash used in investing activities and the maturity as cash
provided by investing activities.

Our China joint venture was dissolved during August 2001. The cash we received
upon dissolution approximated the carrying value of our investment. All
contractual obligations we had with, or on behalf of the China joint venture
ceased at that time.

The decrease in cash and cash equivalents and available-for-sale securities was
partially offset by cash provided by financing activities, which included the
net proceeds from the issuance of common stock, $189,900, primarily in
accordance with our employee stock purchase plan and the proceeds from a short
term note payable, $131,200 that we used to finance a portion of our insurance
policies. Offsetting these amounts was the cash we used to repay the previous
short tem note payable, $194,900, whose original proceeds had also been used to
finance some or our insurance policies.

As of December 31, 2001, we had cash and cash equivalents of $3,952,600 as well
as $3,008,000 in available-for-sale securities. We anticipate that our cash and
cash equivalents, and available-for-sale securities balances as of December 31,
2001, together with anticipated revenue from operations and cost savings
anticipated from the restructuring to be effective as of March 31, 2002, will be
sufficient to meet our working capital and capital expenditure needs through the
next twelve months. We have no material capital expenditure commitments for the
next twelve months.

As discussed above, we will be restructuring our operations as of March 31,
2002. We estimate that the restructuring charges will be within the range of
approximately $1,400,000 to $2,150,000. We expect the cash portion of the
charges that will be incurred during the first quarter of 2002 to be between
$500,000 and $700,000 and be solely related to employee severance. We will
continue to make our required monthly lease payment for the Morgan Hill,
California office space, which approximates $18,000, to our landlord until we
successfully sublet the office space. We do not anticipate any material cash
expenditures associated with the cost of the fixed assets disposals as the
disposal costs primarily relate to the write off of the remaining net book value
of the assets to be abandoned, net of any proceeds from the disposal of the
assets.

We believe that the benefits of the March 2002 restructuring, coupled with the
benefits of the September 2001 work force reduction will allow us to reduce our
total cash operating expenses, primarily human resources costs, during 2002 by
approximately $3,000,000 to $4,000,000 as compared with 2001. However, due to
the inherent uncertainties associated with predicting future operations, there
can be no assurances that such cumulative operational savings will ultimately be
realized.

                                       24
<PAGE>

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS Nos. 137
and 138, requires that every derivative instrument, including derivative
instruments embedded in other contracts, be recorded on the balance sheet as
either an asset or liability measured at its fair value. The standard, as
amended, is effective for all fiscal years beginning after June 15, 2000. As we
currently are not a party to any derivative financial instruments and do not
anticipate becoming a party to any derivative instruments, we do not expect this
standard to have a significant impact on our financial statements.

In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44 (FIN 44) Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25. FIN 44 clarifies the
application of Opinion No. 25 for (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
The adoption of FIN 44 did not have a material effect on our financial results.

In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, "Business Combinations" (SFAS 141), and No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that we recognize acquired intangible assets apart from goodwill
if the acquired intangible assets meet certain criteria. SFAS 141 applies to all
business combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS 142 that we reclassify the carrying amounts of intangible assets and
goodwill based on the criteria in SFAS 141. SFAS 142 requires, among other
things, that we no longer amortize goodwill, but instead test goodwill for
impairment at least annually. In addition, SFAS 142 requires that we identify
reporting units for the purposes of assessing potential future impairments of
goodwill, reassess the useful lives of other existing recognized intangible
assets, and cease amortization of intangible assets with an indefinite useful
life. An intangible asset with an indefinite useful life should be tested for
impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to
be applied in fiscal years beginning after December 15, 2001 to all goodwill and
other intangible assets recognized at that date, regardless of when those assets
were initially recognized. SFAS 142 requires us to complete a transitional
goodwill impairment test six months from the date of adoption. We are also
required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.

At present, we are currently assessing but have not yet determined the impact
the adoption of SFAS 141 and SFAS 142 will have on our financial position and
results of operations.

In August 2001, the Financial Accounting Standards Board finalized FASB
Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS 144 retains the determination and measurement criteria for
impairment losses set out in SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets", and adds additional implementation guidelines concerning the
treatment of goodwill; use of the probability-weighted cash flow assumptions;
establishment of a primary-asset approach for grouping assets and liabilities


                                       25
<PAGE>

that represent a unit of accounting; measurement issues for long-lived assets to
be disposed of; reporting results of operations of a component of an entity
(reporting segment, operating segment, subsidiary or an asset group) as
discontinued operations under certain conditions.

SFAS No. 144 will become effective for us, as well as other calendar year
companies, on January 1, 2002. At present, we are currently assessing but have
not yet determined the impact the adoption of SFAS 144 will have on our
financial position and results of operations.

Risk Factors

The risks and uncertainties described below are not the only ones facing our
company. Additional risks and uncertainties not presently known to us, or risks
that we do not consider significant, may also impair our business. This document
also contains forward-looking statements that involve risks and uncertainties,
and actual results may differ materially from the results we discuss in the
forward-looking statements. If any of the following risks actually occur, they
could have a severe negative impact on our financial results and stock price.

We Have A History Of Operating Losses And Expect These Losses To Continue And
Possibly Increase, At Least For The Near Future.

We have experienced significant losses since we began operations. We expect to
continue to incur significant losses for the foreseeable future. We incurred net
losses of approximately $15,478,000, $9,374,700, and $7,033,400 for the years
ended December 31, 2001, 2000, and 1999, respectively. We expect our expenses to
increase as we expand our business but cannot give assurance that revenues will
increase as a result of increased spending. If revenues grow more slowly than
anticipated, or if operating expenses exceed expectations, we may not become
profitable. Even if we become profitable, we may be unable to sustain
profitability.

Our Operating Results In One Or More Future Periods Are Likely To Fluctuate
Significantly And May Fail To Meet Or Exceed The Expectations Of Securities
Analysts Or Investors.

Our operating results are likely to fluctuate significantly in the future on a
quarterly and on an annual basis due to a number of factors, many of which are
outside our control. Factors that could cause our revenues to fluctuate include
the following:

o  The degree of success of our recently introduced products;
o  Variations in the timing of and shipments of our products;
o  Variations in the size of orders by our customers;
o  Increased competition;
o  The proportion of overall revenues derived from different sales channels such
   as distributors, original equipment manufacturers (OEMs) and others;
o  Changes in our pricing policies or those of our competitors;
o  The financial stability of major customers;
o  New product introductions or enhancements by us or by competitors;
o  Delays in the introduction of products or product enhancements by us or by
   competitors;
o  The degree of success of new products;
o  Any changes in operating expenses; and
o  General economic conditions and economic conditions specific to the
   software industry.

                                       26
<PAGE>

In addition, our royalty and license revenues are impacted by fluctuations in
OEM licensing activity from quarter to quarter, which may involve one-time
royalty payments and license fees. Our expense levels are based, in part, on
expected future orders and sales; therefore, if orders and sales levels are
below expectations, our operating results are likely to be materially adversely
affected. Additionally, because significant portions of our expenses are fixed,
a reduction in sales levels may disproportionately affect our net income. Also,
we may reduce prices or increase spending in response to competition or to
pursue new market opportunities. Because of these factors, our operating results
in one or more future periods may fail to meet or exceed the expectations of
securities analysts or investors. In that event, the trading price of our common
stock would likely be affected.

Competition For Key Management And Other Personnel In Our Industry Is Intense,
And We May Not Be Successful In Attracting And Retaining These Personnel.

Walter Keller departed as our Chief Executive Officer and President in January
2002. Robert Dilworth, our Chairman, assumed the position of Chief Executive
Officer on a temporary basis. Although we are currently searching for a new
Chief Executive Officer, we can give no assurance that we will be successful in
attracting and retaining a qualified person, preferably a person with
significant experience in thin-client computing.

Our success and business strategy is also dependent in large part on our ability
to attract and retain other key management and personnel. Such individuals are
in high demand and often have competing employment offers. We currently need to
attract additional sales, marketing, financial and administrative personnel.
Competition for such personnel in the high tech industry is intense. Therefore,
we cannot assure you we will be able to attract or retain such personnel. The
loss of the services of one or more members of our management group or the
inability to hire a qualified Chief Executive Officer and other personnel may
have a material adverse effect on our business.

Our Failure To Adequately Protect Our Proprietary Rights May Adversely
Affect Us

Our commercial success is dependent, in large part, upon our ability to protect
our proprietary rights. We rely on a combination of patent, copyright and
trademark laws, and on trade secrets and confidentiality provisions and other
contractual provisions to protect our proprietary rights. These measures afford
only limited protection. We cannot assure you that measures we have taken will
be adequate to protect us from misappropriation or infringement of our
intellectual property. Despite our efforts to protect proprietary rights, it may
be possible for unauthorized third parties to copy aspects of our products or
obtain and use information that we regard as proprietary. In addition, the laws
of some foreign countries do not protect our intellectual property rights as
fully as do the laws of the United States. Furthermore, we cannot assure you
that the existence of any proprietary rights will prevent the development of
competitive products. The infringement upon, or loss of any proprietary rights,
or the development of competitive products despite such proprietary rights,
could have a material adverse effect on our business.

We Face Risks Of Claims From Third Parties For Intellectual Property
Infringement That Could Adversely Affect Our Business

At any time, we may receive communications from third parties asserting that
features or content of our products may infringe upon their intellectual
property rights. Any such claims, with or without merit, and regardless of their
outcome, may be time consuming and costly to defend. We may not have sufficient
resources to defend such claims and they could divert management's attention and
resources, cause product shipment delays or require us to enter into new royalty
or licensing agreements. New royalty or licensing agreements may not be
available on beneficial terms, and may not be available at all. If a successful
infringement claim is brought against us and we fail to license the infringed or
similar technology, our business could be materially adversely affected.

                                       27
<PAGE>

Our Business Significantly Benefits From Strategic Relationships And
There Can Be No Assurance That Such Relationships Will Continue In The
Future

Our business and strategy relies to a significant extent on our strategic
relationships with other companies. There is no assurance that we will be able
to maintain or develop any of these relationships or to replace them in the
event any of these relationships are terminated. In addition, any failure to
renew or extend any licenses between any third party and us may adversely affect
our business.

Because Our Market Is New And Emerging, We Cannot Accurately Predict
Its Future Growth Rate Or Its Ultimate Size, And Widespread Acceptance
Of Our Products Is Uncertain

The market for business infrastructure software, which enables programs to be
accessed and run with minimal memory resident on a desktop computer or remote
user device, still is emerging, and we cannot assure you that our products will
receive broad-based market acceptance or that this market will continue to grow.
Additionally, we cannot accurately predict our market's future growth rate or
its ultimate size. Even if business infrastructure software products achieve
market acceptance and the market for these products grows, we cannot assure you
that we will have a significant share of that market. If we fail to achieve a
significant share of the business infrastructure software market, or if such
market does not grow as anticipated, our business, results of operations and
financial condition may be adversely affected.

We Rely On Indirect Distribution Channels For Our Products And May Not
Be Able To Retain Existing Reseller Relationships Or To Develop New
Reseller Relationships

Our products primarily are sold through several distribution channels. An
integral part of our strategy is to strengthen our relationships with resellers
such as OEMs, systems integrators, value-added resellers, distributors and other
vendors to encourage these parties to recommend or distribute our products and
to add resellers both domestically and internationally. We currently invest, and
intend to continue to invest, significant resources to expand our sales and
marketing capabilities. We cannot assure you that we will be able to attract
and/or retain resellers to market our products effectively. Our inability to
attract resellers and the loss of any current reseller relationships could have
a material adverse effect on our business, results of operations and financial
condition. Additionally, we cannot assure you that resellers will devote enough
resources to provide effective sales and marketing support to our products.

Our Failure To Manage Expanding Operations Could Adversely Affect Us.

To exploit the emerging business infrastructure software market, we must rapidly
execute our business strategy and further develop products while managing our
anticipated growth in operations. To manage our growth, we must:

o  Continue to implement and improve our operational, financial and
   management information systems;
o  Hire and train additional qualified personnel;
o  Continue to expand and upgrade core technologies; and
o  Effectively manage multiple relationships with various licensees,
   consultants, strategic and technological partners and other third
   parties.

We cannot assure you that our systems, procedures, personnel or controls will be
adequate to support our operations or that management will be able to execute
strategies rapidly enough to exploit the market for our products and services.


                                       28
<PAGE>

Our failure to manage growth effectively or execute strategies rapidly could
have a material adverse effect on our business, financial condition and results
of operations.

The Market In Which We Participate Is Highly Competitive And Has More
Established Competitors.

The market we participate in is intensely competitive, rapidly evolving and
subject to technological changes. We expect competition to increase as other
companies introduce additional competitive products. In order to compete
effectively, we must continually develop and market new and enhanced products
and market those products at competitive prices. As markets for our products
continue to develop, additional companies, including companies in the computer
hardware, software and networking industries with significant market presence,
may enter the markets in which we compete and further intensify competition. A
number of our current and potential competitors have longer operating histories,
greater name recognition and significantly greater financial, sales, technical,
marketing and other resources than we do. We cannot assure you that our
competitors will not develop and market competitive products that will offer
superior price or performance features or that new competitors will not enter
our markets and offer such products. We believe that we will need to invest
increasing financial resources in research and development to remain competitive
in the future. Such financial resources may not be available to us at the time
or times that we need them, or upon terms acceptable to us. We cannot assure you
that we will be able to establish and maintain a significant market position in
the face of our competition and our failure to do so would adversely affect our
business.


                                       29
<PAGE>

ITEM 7A.  Quantitative And Qualitative Disclosures About Market Risk

We are currently not exposed to any significant financial market risks from
changes in foreign currency exchange rates or changes in interest rates and do
not use derivative financial instruments. A substantial majority of our revenue
and capital spending is transacted in U.S. dollars. However, in the future, we
may enter into transactions in other currencies. An adverse change in exchange
rates would result in a decline in income before taxes, assuming that each
exchange rate would change in the same direction relative to the U.S. dollar. In
addition to the direct effects of changes in exchange rates, such changes
typically affect the volume of sales or foreign currency sales price as
competitors' products become more or less attractive.





                                       30
<PAGE>


ITEM 8.  Financial Statements and Supplementary Data.

                              GraphOn Corporation
                   Index to Consolidated Financial Statements
                   ------------------------------------------
                                                                    Page

Report of Independent Certified Public Accountants                    32

Consolidated Balance Sheets as of December 31, 2001 and 2000          33

Consolidated Statements of Operations and Comprehensive Loss for
the Years Ended December 31, 2001, 2000, and 1999                     34

Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2001, 2000 and 1999                                      35

Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999                                      36

Summary of Significant Accounting Policies                            37

Notes to Consolidated Financial Statements                            42

Report of Independent Certified Public Accountants on
  Supplemental Schedule                                               52

Supplemental Schedule II                                              53


                                       31
<PAGE>

Report of Independent Certified Public Accountants


To the Board of Directors and Shareholders of GraphOn Corporation

We have audited the accompanying consolidated balance sheets of GraphOn
Corporation and Subsidiary as of December 31, 2001 and 2000 and the related
consolidated statements of operations and comprehensive loss, shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GraphOn Corporation
and Subsidairy as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted
in the United States of America.



/x/ BDO Seidman, LLP
San Jose, California
February 5, 2002



                                       32
<PAGE>

<TABLE>
<CAPTION>

                               GraphOn Corporation
                           Consolidated Balance Sheets

December 31,                                               2001         2000
------------                                            ----------   ----------
CURRENT ASSETS
<S>                                                    <C>          <C>
   Cash and cash equivalents                           $ 3,952,600  $ 8,200,100
   Available-for-sale securities                         3,008,000    5,567,000
   Accounts receivable, net of allowance
    for doubtful accounts of $350,000 and
    $100,000                                               620,400      749,200
   Prepaid expenses and other current assets               251,300      345,800
                                                       -----------  -----------
TOTAL CURRENT ASSETS                                     7,832,300   14,862,100
                                                       -----------  -----------
Property and equipment, net                              1,436,100    1,471,700
Purchased technology, net                                3,132,400    3,053,600
Capitalized software, net                                  513,400      351,100
Patent, net                                                      -      375,000
Long term investment - China joint venture                       -      891,900
Other Assets                                                71,600       34,400
                                                       -----------  -----------
TOTAL ASSETS                                           $12,985,800  $21,039,800
                                                       ===========  ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable                                    $   319,900   $  361,500
   Accrued expenses                                        735,500    1,382,500
   Notes payable                                            26,600       90,300
   Deferred revenue                                        577,800      149,000
                                                       -----------   ----------
TOTAL CURRENT LIABILITIES                                1,659,800    1,983,300
                                                       -----------   ----------
Commitments and contingencies

SHAREHOLDERS' EQUITY
   Preferred stock, $0.01 par value, 5,000,000 shares
     authorized, no shares issued and outstanding                -            -
   Common stock, $0.0001 par value, 45,000,000 shares
     authorized, 17,288,332 and 14,671,175 shares
     issued and outstanding                                  1,700        1,500
   Additional paid-in capital                           45,925,900   39,116,000
   Deferred compensation                                  (193,800)  (1,131,600)
   Accumulated other comprehensive gain                      1,500        1,900
   Accumulated deficit                                 (34,409,300) (18,931,300)
                                                       -----------  -----------
TOTAL SHAREHOLDERS' EQUITY                              11,326,000   19,056,500
                                                       -----------  -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY             $12,985,800  $21,039,800
                                                       ===========  ===========
<FN>

        See accompanying summary of significant accounting policies and
                   notes to consolidated financial statements
</FN>
</TABLE>

                                       33
<PAGE>
<TABLE>
<CAPTION>



                               GraphOn Corporation
          Consolidated Statements of Operations and Comprehensive Loss

Years Ended December 31,                2001           2000           1999
------------------------           ------------   ------------   ------------
<S>                                <C>            <C>            <C>
  Revenue                          $  5,910,700   $  5,066,500   $  2,179,500
  Revenue - related party                     -      2,500,000      1,455,000
                                   ------------   ------------   ------------
   Total Revenue                      5,910,700      7,566,500      3,634,500
                                   ------------   ------------   ------------
  Cost of revenue                     2,612,600        945,900      2,678,500
  Cost of revenue - related party             -         97,800        121,400
                                   ------------   ------------   ------------
   Total Cost of Revenue              2,612,600      1,043,700      2,799,900
                                   ------------   ------------   ------------
   Gross Profit                       3,298,100      6,522,800        834,600
                                   ------------   ------------   ------------
Operating Expenses
  Selling and marketing               5,989,400      5,749,900      3,279,100
  General and administrative          4,560,800      4,653,300      2,265,200
  Research and development            4,134,400      4,060,000      2,466,200
  Asset impairment loss               4,500,900              -              -
                                   ------------   ------------   ------------
   Total Operating Expenses          19,185,500     14,463,200      8,010,500
                                   ------------   ------------   ------------
Loss From Operations                (15,887,400)    (7,940,400)    (7,175,900)
                                   ------------   ------------   ------------
Other Income (Expense)
  Interest and other income             516,100      1,181,400        150,100
  Interest and other expense            (64,800)        (6,800)        (6,800)
  Loss on long-term investment -
   China joint venture                  (41,100)    (2,608,100)             -
                                   ------------   ------------   ------------
   Total Other Income (Expense)         410,200     (1,433,500)       143,300
                                   ------------   ------------   ------------
Loss Before Provision for
 Income Taxes                       (15,477,200)    (9,373,900)    (7,032,600)
Provision for Income Taxes                  800            800            800
                                   ------------   ------------   ------------
Net Loss                            (15,478,000)    (9,374,700)    (7,033,400)

Other Comprehensive Income (Loss),
  Net of tax

  Unrealized holding gain (loss)
   on investment                            200          6,900         (4,100)
  Foreign currency translation
   adjustment                              (600)          (600)          (300)
                                   ------------   ------------   ------------
Comprehensive Loss                 $(15,478,400)  $ (9,368,400)  $ (7,037,800)
                                   ============   ============   ============
Basic and Diluted Loss
 per Common Share                  $      (0.97)  $      (0.65)  $      (0.71)
                                   ============   ============   ============
Weighted Average Common Shares
 Outstanding                         16,007,763     14,396,435      9,950,120
                                   ============   ============   ============
<FN>

         See accompanying summary of significant accounting policies and
                   notes to consolidated financial statements
</FN>
</TABLE>


                                       34
<PAGE>

<TABLE>
<CAPTION>


                               GraphOn Corporation
                 Consolidated Statements of Shareholders' Equity

                                          Common Stock      Additional     Deferred    Comprehensive    Accumulated
                                        Shares     Amount   in Capital   Compensation   Income/(Loss)     Deficit         Totals
                                      ----------  -------  ------------  ------------   ------------   ------------  ------------
<S>                                   <C>         <C>      <C>           <C>            <C>            <C>           <C>
Balances, December 31, 1998            7,970,336  $   800  $  8,430,700  $   (566,000)  $          -    $(2,523,200)   $5,342,300

Proceeds from sale of common stock        62,525        -        97,200             -              -              -        97,200
Repurchase and retirement of common
 stock                                   (71,620)       -       (10,000)            -              -              -       (10,000)
Proceeds from sale of common stock
  net of offering costs of $255,300    1,095,053      100     1,708,500             -              -              -     1,708,600
Recapitalization of company through
  merger, net of costs of $255,700     1,875,000      200     5,169,100             -              -              -     5,169,300
Issuance of common stock for patent       58,000        -       400,000             -              -              -       400,000
Issuance of common stock due to the
  exercise of warrants and underwriter
  units, net of costs of $154,300      1,353,028      100     8,401,900             -              -              -     8,402,000
Deferred compensation related to
  stock options                                -        -     1,216,100    (1,216,100)             -              -             -
Amortization of deferred compensation          -        -             -       310,000              -              -       310,000
Change in market value of
  available-for-sale securities                -        -             -             -         (4,100)             -        (4,100)
Foreign currency translation adjustment        -        -             -             -           (300)             -          (300)
Net Loss                                       -        -             -             -              -     (7,033,400)   (7,033,400)
                                      ----------  -------  ------------  ------------   ------------   ------------  ------------
Balances, December 31, 1999           12,342,322    1,200    25,413,500    (1,472,100)        (4,400)    (9,556,600)   14,381,600

Issuance of common stock due to the
  exercise of warrants, options and
  underwriter units, net of costs
  of $177,800                          2,328,853      300    12,262,700             -              -              -    12,263,000
Deferred compensation related to
  stock options                                -        -     1,439,800    (1,439,800)             -              -             -
Amortization of deferred compensation          -        -             -     1,780,300              -              -     1,780,300
Change in market value of
  available-for-sale securities                -        -             -             -          6,900              -         6,900
Foreign currency translation adjustment        -        -             -             -           (600)             -          (600)
Net Loss                                       -        -             -             -              -     (9,374,700)   (9,374,700)
                                      ----------  -------  ------------  ------------   ------------   ------------  ------------
Balances, December 31, 2000           14,671,175    1,500    39,116,000    (1,131,600)         1,900    (18,931,300)   19,056,500

Issuance of common stock due to the
  exercise of options                     52,199        -        37,000             -              -              -        37,000
Proceeds from employee stock
  purchase                                64,958        -       152,900             -              -              -       152,900
Issuance of common stock to
  acquire technology                   2,500,000      200     6,499,800             -              -              -     6,500,000
Deferred compensation related to
  stock options and warrants                   -        -       120,200      (120,200)             -              -             -
Amortization of deferred compensation          -        -             -     1,058,000              -              -     1,058,000
Change in market value of
  available-for-sale securities                -        -             -             -            200              -           200
Foreign currency translation adjustment        -        -             -             -           (600)             -          (600)
Net Loss                                       -        -             -             -              -    (15,478,000)  (15,478,000)
                                      ----------  -------  ------------  ------------   ------------   ------------  ------------
Balances, December 31, 2001           17,288,332  $ 1,700  $ 45,925,900  $   (193,800)  $      1,500   $(34,409,300) $ 11,326,000
                                      ==========  =======  ============  ============   ============   ============  ============

<FN>

    See accompanying summary of significant accounting policies and notes to
                       consolidated financial statements
</FN>
</TABLE>


                                       35
<PAGE>
<TABLE>
<CAPTION>


                               GraphOn Corporation
                      Consolidated Statements of Cash Flows

Years ended December 31,                            2001           2000           1999
------------------------                        ------------   ------------   ------------

Cash Flows From Operating Activities:
<S>                                             <C>            <C>            <C>
  Net loss                                      $(15,478,000)  $ (9,374,700)  $ (7,033,400)
  Adjustments to reconcile net loss to
   net cash used in operating activities:
  Depreciation and amortization                    3,051,800      1,423,900      2,637,200
  Asset impairment loss                            4,500,900              -              -
  Loss on disposal of fixed assets                   110,000          6,900              -
  Amortization of deferred compensation            1,058,000      1,780,300        310,000
  Provision for doubtful accounts                    250,000         75,000              -
  Loss on long-term investment                        41,100      2,608,100              -
  Changes in operating assets and liabilities:
   Accounts receivable                              (121,200)       846,400     (1,105,900)
   Prepaid expenses and other assets                  94,500         18,500       (572,200)
   Accounts payable                                  (41,600)       101,800        144,000
   Accrued expenses                                 (647,000)       918,500        (34,900)
   Deferred revenue                                  428,800         30,000          6,400
                                                ------------   ------------   ------------
Net cash used in operating activities:            (6,752,700)    (1,565,300)    (5,648,800)

Cash Flows From Investing Activities:

  Purchase of available-for-sale securities       (4,779,900)    (7,020,400)    (2,031,700)
  Proceeds from sale of available-
   for-sale securities                             7,338,900      3,481,000              -
  Capitalization of software
   development costs                                (396,500)      (343,400)      (185,300)
  Capital expenditures                              (596,500)    (1,262,000)      (332,600)
  Purchase of technology                                   -     (2,406,300)             -
  Other assets                                       (37,200)       (17,700)       (10,300)
  Investment in related party                       (103,700)    (3,500,000)             -
  Proceeds from dissolution of joint
   venture - related party                           954,500              -              -
                                                ------------   ------------   ------------
Net cash provided by (used in) investing
  activities:                                      2,379,600    (11,068,800)    (2,559,900)

Cash Flows From Financing Activities:

  Repayment of convertible note payable                    -              -       (475,000)
  Proceeds from note payable                         131,200        156,200              -
  Repayment of note payable                         (194,900)       (65,900)             -
  Net proceeds from issuance of
   common stock                                      189,900     12,263,000     15,377,100
  Purchase and retirement of common stock                  -              -        (10,000)
                                                ------------   ------------   ------------
Net cash provided by financing activities:           126,200     12,353,300     14,892,100
                                                ------------   ------------   ------------
Effect of exchange rate fluctuations on
   cash and cash equivalents                            (600)          (600)          (300)

Net Increase (Decrease) in Cash
  and Cash Equivalents                            (4,247,500)      (281,400)     6,683,100

Cash and Cash Equivalents:
   Beginning of year                               8,200,100      8,481,500      1,798,400
                                                ------------   ------------   ------------

   End of year                                  $  3,952,600   $  8,200,100   $  8,481,500
                                                ============   ============   ============

<FN>

        See accompanying summary of significant accounting policies
               and notes to consolidated financial statements
</FN>
</TABLE>

                                       36
<PAGE>


GraphOn Corporation
Summary of Significant Accounting Policies

The Company. The Company was incorporated in the state of California in May
1982. The Company's headquarters have historically been maintained in northern
California, most recently in Morgan Hill. Effective April 1, 2002, the Company
will relocate its headquarters to Bellevue, Washington. The Company develops,
markets, sells and supports business infrastructure software that empowers a
diverse range of desktop computing devices (desktops) to access server-based
Windows, UNIX and LINUX applications from any location, over network or Internet
connections.

Business Combination. On July 12, 1999, GraphOn Corporation ("GraphOn-CA")
merged with and into Unity First Acquisition Corporation ("Unity"), a Delaware
corporation. Unity, as the surviving entity to the merger, and the Registrant,
changed its name to GraphOn Corporation. The GraphOn-CA management team
continued in their existing roles at GraphOn Corporation. For accounting
purposes, the merger was treated as the acquisition of Unity by GraphOn-CA with
GraphOn-CA as the acquiror. Since Unity, prior to the merger, was a publicly
held shell corporation with no significant operations, pro-forma information
giving effect to the merger is not presented. All share and per share data prior
to the merger have been restated to reflect the stock issuance and related stock
split (See Note 5).

As the former shareholders of GraphOn-CA received approximately 82.9% of the
shares in the Company immediately after the acquisition, the financial
statements for periods prior to the reorganization are those of GraphOn-CA.

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 materially from those estimates.

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

Marketable Securities.  Under Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt
and Equity Securities, securities are classified and accounted for as
follows:

o Debt securities that the enterprise has the positive intent and ability to
  hold to maturity are classified as held-to-maturity securities and
  reported at amortized cost.
o Debt and equity securities that are bought and held principally for the
  purpose of selling them in the near term are classified as trading
  securities and reported at fair value, with unrealized gains and losses
  included in earnings.
o Debt and equity securities not classified as either held-to-maturity
  securities or trading securities are classified as available-for-sale
  securities and reported at fair value, with unrealized gains and losses
  excluded from earnings and reported in a separate component of
  shareholders' equity.

Property and Equipment. Property and equipment are stated at cost. Depreciation
is calculated using the straight-line method over the estimated useful lives of
the respective assets, generally three to seven years. Amortization of leasehold
improvements is calculated using the straight-line method over the lesser of the
lease term or useful lives of the respective assets, generally seven years.

                                       37
<PAGE>

Purchased Technology.  Purchased technology is amortized on a
straight-line basis over the expected life of the related technology or
five years, whichever is less.

Capitalized Software Costs. Costs incurred internally in creating computer
software products to be sold, leased, or otherwise marketed are charged to
expense when incurred, as research and development, until technological
feasibility has been established for the product. Thereafter, such costs are
capitalized until the product is available for general release to customers.
Capitalized costs are amortized based on either estimated current and future
revenue for each product or straight-line amortization over the shorter of three
years or the remaining estimated life of the product, whichever produces the
higher expense for the period. As of December 31, 2001 and 2000, capitalized
costs aggregated $1,038,600 and $642,000, with accumulated amortization of
$525,200 and $290,900, respectively.

Patent.  Patent cost is amortized on a straight-line basis over the
estimated remaining useful life of the patent, not to exceed 16 years.

Revenue. Under Statement of Position (SOP) 97-2, Software Revenue Recognition,
revenue earned on software arrangements involving multiple elements is allocated
to each element arrangement based on the relative fair values of the elements.
If there is no evidence of the fair value for all the elements in a multiple
element arrangement, all revenue from the arrangement is deferred until such
evidence exists or until all elements are delivered. In accordance with SOP
97-2, the Company recognizes revenue from the sale of software licenses when all
the following conditions are met:

o Persuasive evidence of an arrangement exists,
o Delivery has occurred, or services have been rendered, and no
  significant obligations remain,
o The price to the buyer is fixed or determinable, and o Collectibility is
  reasonably assured.

Revenue from the sale of maintenance agreements is recognized ratably over the
term of the agreement. OEM license revenues are generally recognized as
deliveries are made or at the completion of contractual billing milestones.
Deferred revenue, resulting from maintenance and license agreements, and from
transactions which have yet to meet all of the above-listed conditions,
aggregated $577,800 and $149,000 as of December 31, 2001 and 2000, respectively.

Advertising Costs.  The cost of advertising is expensed as incurred.
Advertising costs for the years ended December 31, 2001, 2000, and 1999
were approximately $94,900 $353,500 and $557,400, respectively.
Advertising consists primarily of various printed material.

Income Taxes. Under SFAS No. 109, Accounting for Income Taxes, deferred income
taxes are recognized for the tax consequences of temporary differences between
the financial statement and income tax bases of assets, liabilities and
carryforwards using enacted tax rates. Valuation allowances are established when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Realization is dependent upon future pre-tax earnings, the reversal of temporary
differences between book and tax income, and the expected tax rates in effect in
future periods.

Fair Value of Financial Instruments. The Company used the following methods and
assumptions in estimating the fair value disclosures for financial instruments:

                                       38
<PAGE>

    Cash and cash equivalents: The carrying amount reported on the balance sheet
    for cash and cash equivalents approximates fair value.

    Available-for-sale securities: The fair values of available-for-sale
    securities are based on quoted market prices.

    Short-term debt: The fair value of short-term debt is estimated based on
    current interest notes available to the Company for debt instruments with
    similar terms and maturities.

As of December 31, 2001 and 2000, the fair values of the Company's financial
instruments approximate their historical carrying amounts.

Investments in Joint Venture: Investments in the China joint venture are
accounted for by using the equity method under which the Company's share of
earnings (loss) from the joint venture is reflected as income (loss) against the
investment account. Dividends are credited against the investment account as
received.

The Company's investment of $3,500,000 in the China joint venture was reduced by
the Company's proportionate share of the joint venture's operating loss. On
August 27, 2001, the China joint venture was dissolved. Accordingly, as of
December 31, 2001, the carrying value of the joint venture was $0.

Long-Lived Assets. Long-lived assets are assessed for possible impairment
whenever events or changes in circumstances indicate that the carrying amounts
may not be recoverable, or whenever the Company has committed to a plan to
dispose of the assets. Such assets are carried at the lower of book value or
fair value as estimated by the Company based on appraisals, current market
value, comparable sales value, and undiscounted future cash flows as
appropriate. Assets to be held and used affected by such impairment loss are
depreciated or amortized at their new carrying amount over the remaining
estimated life; assets to be sold or otherwise disposed of are not subject to
further depreciation or amortization.

Stock-Based Incentive Programs. SFAS No. 123, Accounting for Stock-Based
Compensation, encourages entities to recognize compensation costs for
stock-based employee compensation plans using the fair value-based method of
accounting defined in SFAS No. 123, but allows for the continued use of the
intrinsic value based method of accounting prescribed by Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. The
Company continues to use the accounting prescribed by APB Opinion No. 25 and, as
such, is required to disclose pro forma net income and earnings per share as if
the fair value-based method of accounting had been applied throughout the year.

Earnings Per Share of Common Stock. SFAS No. 128 Earnings Per Share, provides
for the calculation of basic and diluted earnings per share. Basic earnings per
share includes no dilution and is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
securities by adding other common stock equivalents, including common stock
options, warrants and redeemable convertible preferred stock, in the weighted
average number of common shares outstanding for a period, if dilutive.
Potentially dilutive securities have been excluded from the computation, as
their effect is antidilutive. For the years ended December 31, 2001, 2000, and
1999, 3,765,232, 2,528,461, and 2,078,391 shares, respectively, of common stock
equivalents were excluded from the computation of diluted earnings per share
since their effect would be antidilutive.

Comprehensive Income. SFAS No. 130, Reporting Comprehensive Income, establishes
standards for reporting comprehensive income and its components in a financial
statement that is displayed with the same prominence as other financial
statements. Comprehensive income, as defined, includes all changes in equity


                                       39
<PAGE>

(net assets) during the period from non-owner sources. Examples of items to be
included in comprehensive income, which are excluded from net income, include
foreign currency translation adjustments and unrealizable gain/loss of
available-for-sale securities. The individual components of comprehensive income
(loss) are reflected in the statements of shareholders' equity. As of December
31, 2001, 2000 and 1999, accumulated other comprehensive loss was comprised of
foreign currency translation loss and unrealized losses on available-for-sale
securities.

Adoption of New Accounting Pronouncements. In June 1998, the FASB issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133, as amended by SFAS Nos. 137 and 138, requires companies to recognize all
derivatives contracts as either assets or liabilities on the balance sheet and
to measure them at fair value. If certain conditions are met, a derivative may
be specifically designated as a hedge, the objective of which is to match the
timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized as income in the period of
change. SFAS No. 133, as amended, is effective for all fiscal years beginning
after June 15, 2000.

Historically, the Company has not entered into derivative contracts either to
hedge existing risks or for speculative purposes. Accordingly, adoption of the
new standard on January 1, 2001 did not have a material impact on results from
operations, financial position or cash flows.

In March 2000, the FASB issued Interpretation No. 44 (FIN No. 44)
Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of APB Opinion No. 25 (APB No. 25).  FIN No. 44
clarifies the application of APB No. 25 for (a) the definition of
employee for purposes of applying APB No. 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequences of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination.  FIN
No. 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January
12, 2000.  The adoption of FIN No. 44 did not have a material effect on
the Company's financial results.

In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations (SFAS No. 141), and No. 142,
Goodwill and Other Intangible Assets (SFAS No. 142).  SFAS No. 141
requires the use of the purchase method of accounting and prohibits the
use of the pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001.  SFAS No. 141 also requires
that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria.  SFAS
No. 141 applies to all business combinations initiated after June 30,
2001 and for purchase business combinations completed on or after July
1, 2001.  It also requires, upon adoption of SFAS No. 142 that the
Company reclassify the carrying amounts of intangible assets and
goodwill based on the criteria in SFAS No. 141.

SFAS No. 142 requires, among other things, that the Company no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS No. 142 requires that the Company identify reporting units for
the purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS No. 142. SFAS No. 142 is required to be


                                       40
<PAGE>

applied in fiscal years beginning after December 15, 2001 to all goodwill and
other intangible assets recognized at that date, regardless of when those assets
were initially recognized. SFAS No. 142 requires the Company to complete a
transitional goodwill impairment test six months from the date of adoption. The
Company is also required to reassess the useful lives of other intangible assets
within the first interim quarter after adoption of SFAS No. 142.

At present, the Company is currently assessing but has not yet
determined the impact the adoption of SFAS No. 141 and SFAS No. 142
will have on the Company's financial position and results of operations.

In August 2001, the Financial Accounting Standards Board finalized FASB
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS No. 144). SFAS No. 144 retains the determination and measurement
criteria for impairment losses set out in SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets, and adds additional implementation guidelines
concerning the treatment of goodwill; use of the probability-weighted cash flow
assumptions; establishment of a primary-asset approach for grouping assets and
liabilities that represent a unit of accounting; measurement issues for
long-lived assets to be disposed of; reporting results of operations of a
component of an entity (reporting segment, operating segment, subsidiary or an
asset group) as discontinued operations under certain conditions.

SFAS No. 144 will become effective for the Company, as well as other calendar
year companies, on January 1, 2002. At present, the Company is currently
assessing but has not yet determined the impact the adoption of SFAS No. 144
will have on the Company's financial position and results of operations.

Reclassifications.  Certain amounts in the prior years' financial
statements have been reclassified to conform to the current year's
presentation.


                                       41
<PAGE>

Notes to Consolidated Financial Statements

1.    Significant Recent Developments.

During the fourth quarter of 2001 the Company recorded an impairment charge of
$4,500,900 against several of its intangible assets, primarily capitalized
technology assets. Statement of Financial Accounting Standards (SFAS) No. 121 -
Accounting for the Impairment of Long-Lived Assets requires that long-lived
assets must be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS No. 121 sets forth examples of events or changes in
circumstances that indicate that the recoverability of the carrying amount of an
asset should be addressed, including the following:

o  A significant decrease in the market value of an asset;
o  A significant change in the extent or manner in which an asset is
   used;
o  A significant adverse change in the business climate that could
   affect the value of an asset; and
o  Current and historical operating or cash flow losses.

The Company believed that a review of its current carrying values to evaluate
whether the value of any long-lived technology assets had been impaired was
warranted, due to several factors, including:

o  The challenges faced in bringing the Windows enterprise product to
   maturity;
o  The continued pervasive weakness in the world-wide economy; and
o  How the Company was incorporating and planning to incorporate each
   element of the technologies purchased into its technology.

Based on a study of the various factors affecting asset impairment, as outlined
above and in SFAS No. 121, the following asset impairment charges were
determined to be necessary in order to reduce the carrying value of these assets
to the Company's current estimate of the present value of the expected future
cash flows to be derived from these assets:
<TABLE>
<CAPTION>

                             Net Book                           Net Book
                           Value Before       Impairment      Value After
                            Impairment        Write Down       Impairment
                         ---------------   ---------------  ---------------
<S>                      <C>               <C>              <C>
Purchased Technology     $     7,283,300   $     4,150,900  $     3,132,400
Patent                           350,000           350,000                -
                         ---------------   ---------------  ---------------
Totals                   $     7,633,300   $     4,500,900  $     3,132,400
                         ===============   ===============  ===============
</TABLE>

Walter Keller, who had been serving as the Company's Chief Executive Officer and
President, and was a member of the Board of Directors, and Robin Ford, Mr.
Keller's wife, who had been serving as the Company's Executive Vice President
Marketing, and was a member of the Board of Directors, each departed from their
positions and the Board, effective January 10, 2002. The Company paid $337,500
and $162,500 to Mr. Keller and Ms. Ford, respectively, in exchange for their
release of any and claims against the Company, including but not limited to
those relating to their employment agreements dated February 7, 2001. Mr. Keller
and Ms. Ford were co-founders of the Company.

During January 2002, the Company appointed its Chairman of the Board of
Directors, Robert Dilworth, Interim Chief Executive Officer while a search for a
new Chief Executive Officer was commenced. Additionally, the Company determined


                                       42
<PAGE>

that management would be conducting a thorough review of operations to determine
what restructurings, if any, were necessary to remain competitive in the current
business economy.

During February 2002, the Company determined that it would be closing its Morgan
Hill, California corporate offices, effective March 31, 2002, as part of the
corporate restructuring, and relocating its corporate offices to its Bellevue,
Washington offices. The closure of the Morgan Hill, California corporate offices
would also coincide with a work force reduction, primarily in general and
administrative and sales and marketing areas. The Company estimates that the
ultimate cost of these 2002 restructuring charges, which include severance,
lease termination and asset abandonment costs, will be approximately in the
range of $1,400,000 to $2,150,000 and will be charged against the Company's
results of operations in the first quarter of 2002.

The Company determined during February 2002 that it would temporarily shift the
focus of its sales and marketing effort for the balance of 2002 towards its UNIX
products and away from its Windows products, while continuing engineering
efforts to refine the Windows-based product line, particularly the Windows
enterprise edition, GG:XP, so that those products would compete more effectively
in the market place. The Company does not expect this shift in sales and
marketing focus to have a material negative impact on its Windows-based revenue
as the Company will continue to service and support previously established
Windows-based customers.

2.  Available-For-Sale Securities.

As of December 31, 2001 available-for-sale securities consisted of investments
in corporate debt securities (bonds) with an aggregate par value of $2,950,000.
The bonds bear interest in the range of 1.98% to 6.44% and mature at various
times in 2002. In 2001, 2000, and 1999, proceeds from the sale of securities
were $7,338,900, $3,481,000 and $0, respectively. Realized gains and losses were
not material in 2001, 2000, and 1999. A summary of available-for-sale securities
follows:
<TABLE>
<CAPTION>

      December 31,                 2001                 2000
      ------------             -----------          ----------
<S>                            <C>                  <C>
      Cost of securities       $ 3,007,800          $5,565,100
      Unrealized gain/(loss)           200               1,900
                               -----------          ----------
                               $ 3,008,000          $5,567,000
                               ===========          ==========
</TABLE>

3.  Property and Equipment.

Property and equipment consisted of the following:
<TABLE>
<CAPTION>

      December 31,                        2001                 2000
      ------------                     -----------          ----------
<S>                                    <C>                  <C>
      Equipment                        $ 1,430,700          $1,108,000
      Furniture and fixtures               644,700             617,900
      Leasehold improvements               337,300             300,600
                                       -----------          ----------
                                         2,412,700           2,026,500
      Less: accumulated depreciation
        and amortization                   976,600             554,800
                                       -----------          ----------
                                       $ 1,436,100          $1,471,700
                                       ===========          ==========
</TABLE>

                                       43
<PAGE>

4.  Purchased Technology.

Purchased technology consisted of the following:
<TABLE>
<CAPTION>

      December 31,                       2001             2000
      ------------                    -----------     -----------

<S>                                   <C>             <C>
      Purchased technology            $ 8,690,800     $ 6,341,700
      Less: accumulated amortization    5,558,400       3,288,100
                                      -----------     -----------
                                      $ 3,132,400     $ 3,053,600
                                      ===========     ===========
</TABLE>

5.  Accrued Expenses.

Accrued expenses consisted of the following:
<TABLE>
<CAPTION>

      December 31,                    2001        2000
      ------------                 ---------  -----------
<S>                                <C>        <C>
      Payroll and related expenses $ 392,300  $   614,600
      Professional fees              220,100      581,300
      Accrued taxes                   31,900       40,000
      Other                           91,200      146,600
                                   ---------  -----------
                                   $ 735,500  $ 1,382,500
                                   =========  ===========
</TABLE>

6.  Stockholders' Equity.

Common Stock

On July 12, 1999, GraphOn Corporation (GraphOn-CA) merged (the "merger") with
and into Unity First Acquisition Corporation ("Unity"). Unity, as the surviving
entity of the merger, then changed its name to GraphOn. Pursuant to the merger,
each outstanding share of GraphOn common stock was exchanged for 0.5576 shares
of Unity common stock and each outstanding option and warrant to purchase shares
of GraphOn common stock was exchanged for 0.5576 options or warrants to purchase
shares of Unity common stock.

Additionally, GraphOn received $5,425,000 in cash, which was placed into trust
upon Unity's initial public offering in November 1996 and released from trust
upon consummation of the merger. As of July 12, 1999, GraphOn-CA had 16,296,559
shares (pre-split basis) of common stock outstanding. As a result of the merger,
the GraphOn-CA shareholders acquired approximately 9,086,961 shares of Unity
common stock, or approximately 82.9% of the then outstanding Unity common stock.
The merger was accounted for as a capital transaction, which is equivalent to
the issuance of stock by GraphOn-CA for Unity's monetary assets of approximately
$5,425,000, accompanied by a recapitalization of GraphOn-CA. All references to
number of shares and per share data in the financial statements have been
adjusted to reflect the exchange of stock on a retroactive basis.

In November 1999, the Company issued 58,000 shares of common stock in exchange
for a U.S. Patent entitled "Method and System for Dynamic Translation Between
Different Graphical User Interface Systems". Based on the then fair market value
of the shares issued, the purchase price was $400,000.

Effective with the merger, the Company had the right to establish a redemption
date for various redeemable warrants and then to call for redemption of all such
redeemable warrants. Upon exercise of this right, the Company would have to
provide sufficient written notice to allow the warrant holders the right to
exercise the warrants prior to the redemption date so established. The Company
could only exercise its call privileges if the reported high price for the
Company's common stock equaled, or exceeded, certain price levels as set forth
by the respective warrants. During December 1999 and January 2000 the


                                       44
<PAGE>

established price levels were exceeded. Consequently, the Company chose to
exercise its call privileges for all such redeemable warrants.

In December 1999, the Company issued 1,353,028 shares of common stock in
connection with the exercise of underwriter units and warrants, resulting in net
cash proceeds of $8,402,000.

In the first quarter of 2000, the Company issued 2,273,156 shares of common
stock in connection with the exercise of warrants and underwriter units,
resulting in net cash proceeds of $12,171,400. During the remainder of 2000, the
Company issued 55,697 shares of the Company common stock in connection with the
exercise of warrants, options, and underwriter units resulting in net cash
proceeds of $91,600.

During 2000 and 1999, the Company issued options to various third parties in
exchange for services provided. Using the Black-Scholes option-pricing model,
the Company capitalized $1,439,800 and $1,216,100 during 2000 and 1999,
respectively, as deferred compensation, using the following assumptions:
dividend yield of 0, expected volatility of 70%, risk-free interest rate of
5.25%, and expected life of five years. Such deferred compensation is amortized
over the life of the underlying service agreements. The Company amortized
$1,780,300 and $310,000, in 2000 and 1999, respectively, of deferred
compensation related to options that had been issued to various third parties.

During 2001, the Company issued options and warrants to various third parties in
exchange for services provided. Using the Black-Scholes option-pricing model,
the Company capitalized $120,200 as deferred compensation. The following
assumptions were used for pricing the options and warrants: dividend yield of 0,
expected volatility of 60%, risk-free interest rate of 5.25%, and expected life
of one year. During 2001, the Company amortized $96,300 of deferred compensation
related to the issuance of the options and warrants to these various third
parties.

During 2001, the Company issued 2,500,000 shares of common stock in exchange for
exclusive rights to Menta Software's web-based technology. Based on the then
fair market value of the Company's common stock, the technology was valued at
$6,500,000.

During 2001, the Company issued 64,958 shares of common stock to employees in
connection with the Employee Stock Purchase Plan resulting in net cash proceeds
of $152,900.

Stock Purchase Warrants

As of December 31, 2001, the following common stock warrants were issued and
outstanding:
<TABLE>
<CAPTION>

                         Shares subject    Exercise    Expiration
Issued with respect to:      to Warrant       Price          Date
-----------------------      ----------       -----          ----
<S>                             <C>          <C>            <C>
Convertible notes                83,640      $ 1.79         01/06
Private placement               373,049      $ 1.79         01/06
Financing                           676      $ 1.79         12/03
IPO Directors Class A           111,667      $ 5.50         07/04
IPO Directors Class B           180,000      $ 7.50         07/04
Consulting Services             300,000      $ 5.25         12/03
Consulting Services              50,000      $ 1.00         04/04
Consulting Services             125,000      $ 1.75         04/04

</TABLE>

                                       45
<PAGE>


Stock Grant Program

In June 1998, the Company adopted a stock grant program (Stock Grant Program),
which is restricted to employees, officers and consultants. The Company had
authorized the issuance of up to 724,880 shares of its common stock in
connection with the Stock Grant Program and the Stock Option Plan (discussed
below). In May 1999, the number of shares authorized under the Plan was
increased by 1,505,520 shares to 2,230,400 shares. In June 2000, the number of
shares authorized under the Plan was increased by 700,000 shares to 2,930,400
shares.

Under the Stock Grant Program, eligible individuals may, at the Plan
Administrator's discretion, be issued shares of common stock directly, either
through (a) the purchase of shares at a price not less than 85% of the estimated
fair market value of the stock at the time of the issuance, or (b) as a bonus
for past services rendered. Ownership of such shares generally vests over a
four-year period. As of December 31, 2001, 283,540 shares have been issued under
the Stock Grant Program. No shares were issued in 2001, 2000 or 1999.

Stock Option Plan

In June 1998, the Company adopted a Stock Option Plan (the Plan). The Plan is
restricted to employees, officers, and consultants. Options granted under the
Plan generally vest over three to four years and are exercisable over ten years.
Non-statutory options are granted at prices not less than 85% of the estimated
fair value of the stock on the date of grant as determined by the Board of
Directors. Incentive options are granted at prices not less than 100% of the
estimated fair value of stock on the date of grant. However, options granted to
shareholders who own greater than 10% of the outstanding stock are established
at no less than 110% of the estimated fair value of the stock on the date of
grant.

A summary of the status of the Company's stock option plan as of December 31,
2001, 2000, and 1999, and changes during the years then ended is presented in
the following table:
<TABLE>
<CAPTION>

                                   Options Outstanding
                                   -------------------
                 December 31, 2001  December 31, 2000   December 31, 1999
                 -----------------  -----------------   -----------------
                      Wtd. Avg.          Wtd. Avg.            Wtd. Avg.
                 SharesEx.  Price   SharesEx.   Price    Shares Ex.  Price
                ---------  -------  ---------  -------  ----------   -----

<S>             <C>        <C>      <C>        <C>       <C>         <C>
Beginning       2,179,489  $  5.42  1,830,234  $  4.99      11,152   $0.14
Granted         1,045,150  $  1.30    825,750  $  5.65   1,826,379   $5.02
Exercised         (23,627) $  1.51   (100,815) $  1.99           -   $   -
Forfeited        (659,812) $  3.27   (375,680) $  4.72      (7,297)  $5.28
                ---------  -------  ---------  -------   ---------   -----
Ending          2,541,200  $  4.33  2,179,489  $  5.42   1,830,234   $4.99
                =========  =======  =========  =======   =========   =====

Exercisable at
  year-end      2,541,200             873,535              126,234
                =========             =======              =======

Weighted-average fair value of options granted during the period:

                           $  0.73             $  3.72               $4.02
                           =======             =======               =====
</TABLE>


                                       46
<PAGE>


The following table summarizes information about stock options outstanding as of
December 31, 2001:

<TABLE>
<CAPTION>
                        Options Outstanding         Options Exercisable
                        -------------------         -------------------
                            Wtd. Avg.
                   No.      Remaining               Number
  Range of     Outstanding Contractual Wtd. Avg.  Exercisable  Wtd. Avg.
  Ex. Price    at 12/31/01     Life    Ex. Price  at 12/31/01  Ex. Price
  ---------    -----------     ----    ---------  -----------  ---------
<S>     <C>    <C>           <C>       <C>        <C>          <C>
$0.01 -  3.00    1,269,632   8.80 yrs. $    1.43    1,269,632  $    1.43
$3.01 -  6.00       61,282   7.72 yrs. $    5.28       61,282  $    5.28
$6.01 -  9.00    1,075,286   7.89 yrs. $    6.27    1,075,286  $    6.27
$9.01 - 16.00      135,000   8.13 yrs. $   15.62      135,000  $   15.62
               -----------             ---------  -----------  ---------
                 2,541,200             $    4.33    2,541,200  $    4.33
               ===========             =========  ===========  =========
</TABLE>

SFAS No. 123 requires the Company to provide pro forma information regarding net
(loss) income and (loss) earnings per share as if compensation cost for the
stock option plan had been determined in accordance with the fair value-based
method prescribed in SFAS No.123 throughout the year. The Company estimated the
fair value of stock options at the grant date by using the Black-Scholes option
pricing-model with the following weighted average assumptions used for grants in
2001, 2000, and 1999, respectively: dividend yield (all years) of 0; expected
volatility of 60%, 70%, and 130%; risk-free interest rate of 5.25 %, 5.25%, and
5.60%; and expected lives of five, five, and five years, respectively, for all
plan options.

Under SFAS No. 123, the Company's pro forma net loss and the basic and
diluted net loss per common share would have been adjusted to the pro
forma amounts below.
<TABLE>
<CAPTION>

                                 2001          2000         1999
                             ------------  ------------  -----------
Net loss:
<S>                          <C>           <C>           <C>
   As reported               $(15,478,000) $ (9,374,700) $(7,033,400)
   Pro forma                 $(18,172,000) $(12,435,700) $(7,405,400)

Basic and diluted loss
   per share
   As reported               $      (0.97) $     (0.65)  $     (0.71)
   Pro forma                 $      (1.05) $     (0.86)  $     (0.74)
</TABLE>

7.  Income Taxes.

The provision for income taxes for the years ended December 31, 2001, 2000, and
1999 consist of minimum state taxes.

The following summarizes the differences between income tax expense and the
amount computed applying the federal income tax rate of 34%:
<TABLE>
<CAPTION>

December 31,                     2001         2000          1999
------------                -----------  ------------   -----------
Federal income tax at
<S>                         <C>          <C>            <C>
 statutory rate             $(5,262,500) $ (3,187,200)  $(2,392,900)
State income taxes, net
 of federal benefit            (902,400)     (544,400)     (422,300)
Tax benefit not
  currently recognizable      6,260,300     3,717,200     2,811,800
Research and development
  Credit                       (100,000)            -             -
Other                             5,400        15,200         4,200
                            -----------   -----------   -----------
Provision for income taxes  $       800   $       800   $       800
                            ===========   ===========   ===========
</TABLE>

                                       47
<PAGE>

Deferred income taxes and benefits result from temporary timing differences in
the recognition of certain expense and income items for tax and financial
reporting purposes, as follows:
<TABLE>
<CAPTION>

December 31,                             2001           2000
------------                        ------------    -----------
<S>                                 <C>             <C>
Net operating loss carryforwards    $  9,586,500    $ 5,980,400
Tax credit carryforwards                 443,800        360,000
Capitalized software                    (204,500)      (115,900)
Depreciation and amortization          2,517,900        957,800
Reserves not currently deductible        407,800        405,800
Deferred compensation                  1,125,400              -
                                    ------------    -----------
Total deferred tax asset              13,876,900      7,588,100
Valuation allowance                  (13,876,900)    (7,588,100)
                                    ------------    -----------
Net deferred tax asset              $          -    $         -
                                    ============    ===========
</TABLE>

The Company has net operating loss carryforwards available to reduce future
taxable income, if any, of approximately $26,225,000 and $11,266,500 for Federal
and California income tax purposes, respectively. The benefits from these
carryforwards expire at various times from 2007 through 2021. As of December 31,
2001, the Company cannot determine that it is more likely than not that these
carryforwards and other deferred tax assets will be realized, and accordingly,
the Company has fully reserved for these deferred tax assets. Furthermore,
approximately $1,125,400 of the valuation allowance related to the amortization
of deferred compensation will be credited to equity upon its reversal.

In 1998 the Company experienced a "change of ownership" as defined by the
provisions of the Tax Reform Act of 1986. As such, utilization of the Company's
net operating loss carryforwards through 1998 will be limited to approximately
$400,000 per year until such carryforwards are fully utilized or expire.

8.  Concentration of Credit Risk.

Financial instruments, which potentially subject the Company to concentration of
credit risk, consist principally of cash and cash equivalents,
available-for-sale securities and trade receivables. The Company places cash and
cash equivalents with high quality financial institutions and, by policy, limits
the amount of credit exposure to any one financial institution.
Available-for-sale securities are held in public companies for which there are
ready markets. As of December 31, 2001, the Company had approximately $6,417,400
of cash and cash equivalents and available-for-sale securities with financial
institutions, in excess of FDIC insurance limits.

For the year ended December 31, 2001, our three largest third-party customers
accounted for approximately 27.1%, 26.3% and 10.1% of total revenues,
respectively, with related accounts receivable as of December 31, 2001 of $0,
$270,000 and $0, respectively. The outstanding balance was collected during
February 2002. For the year ended December 31, 2000, these three third-party
customers accounted for approximately 0.0%, 14.4% and 0.0% of total revenues,
respectively, with related accounts receivable as of December 31, 2000 of $0,
$150,000, and $0, respectively. The outstanding balance was collected during
January 2001.

For the year ended December 31, 2000, our three largest third-party customers
accounted for approximately 19.8%, 14.4% and 10.8% of total revenues,
respectively, with related accounts receivable as of December 31, 2000 of $0,
$150,000, and $0, respectively. All outstanding amounts as of December 31, 2000
were collected during January 2001. There were no significant sales to any of
these three customers during 1999.

For the year ended December 31, 1999, our two largest third-party customers
accounted for approximately 13.3% and 10.3% of total revenues, respectively. No


                                       48
<PAGE>

other third-party customer accounted for 10.0% or more of total revenues.
Neither of these two third party customers had a significant outstanding
receivable balance as of December 31, 9999. We did not have significant sales to
either of these two third party customers during 2000 or 2001.

Accounts receivable are derived from many customers in various industries. The
Company believes any risk of loss is reduced due to the diversity of customers
and geographic sales areas. The Company performs credit evaluations of
customers' financial condition whenever necessary, and generally does not
require cash collateral or other security to support customer receivables.

9.  Related Party Transactions.

In connection with the December 1998 asset purchase from Corel Corporation
(Corel), Corel obtained approximately a 27% ownership interest in the Company.
Corel's ownership interest was approximately 7%, 8% and 18% as of December 31,
2001, 2000 and 1999, respectively. Corel was also a significant customer in
1999. Sales to Corel represented 40% of total revenues for the year ended
December 31, 1999. There were no sales to Corel during 2001 or 2000.

At December 31, 1999, accounts receivable from Corel totaled $1,500,000, or
approximately 90% of net receivables. This amount was collected in its entirety,
when due, during the third quarter of 2000. No accounts receivable were due from
Corel as of either December 31, 2001 or 2000.

In March 2000, the Company invested $3,500,000 for a 50% interest in GraphOn
China Limited, (the joint venture) a joint venture in China. Also during 2000,
the Company licensed a total of $2,500,000 of technology to the joint venture.
Payment in full for the licensed technology was received prior to year-end 2000.
Additionally, the Company has recognized 50% of the joint venture's operating
loss since inception, in proportion with the Company's ownership interest.

On August 27, 2001, the Company dissolved the joint venture. There were no
transactions with the joint venture during 2001. Summarized financial data of
the joint venture, as of inception, March 8, 2000 through year-end December 31,
2000 and for the period from January 1, 2001 through dissolution, August 27,
2001, is as follows:

<TABLE>
<CAPTION>
                                          2001
       (US $)                         (unaudited)         2000
                                      -----------    ------------
<S>                                   <C>            <C>
       Current assets                 $         -    $  1,949,600
       Other assets                             -          15,000
                                      -----------    ------------
       Total assets                   $         -    $  1,964,600
                                      ===========    ============

       Current liabilities            $         -    $    181,000
       Other liabilities                        -               -
                                      -----------    ------------
       Total liabilities              $         -    $    181,000
                                      -----------    ------------

       Total joint venturers' equity            -       1,783,600
                                      -----------    ------------
       Total liabilities and equity   $         -    $  1,964,600
                                      ===========    ============

       Net revenues                   $         -    $          -
                                      -----------    ------------
       Net loss                       $   (82,200)   $ (5,216,300)
                                      ===========    ============
</TABLE>

The Company believes that the transactions with Corel and the joint venture,
which occurred in 1999 and 2000, respectively, were at arms length and were
under terms no less favorable than those with other customers.


                                       49
<PAGE>

10.  Contingencies and Commitments.

Operating Leases

In December 1998, the Company entered into a five-year operating lease for a
facility in New Hampshire, which became cancelable, by the Company, as of
October 31, 2001. In October 2000, the Company sublet approximately 6,300 square
feet of the New Hampshire facility, which was otherwise idle, for a term of
three years, which ends in October 2003.

In October 1999, the Company entered into an 18 months operating lease for a
facility in London, United Kingdom, which provided for month-to-month tenancy
upon expiration of the initial lease term.

In February 2000, the Company entered into a five-year operating lease
for the Company's then corporate headquarters in Morgan Hill,
California.  (See Note 13 - Significant Year-End and Subsequent Events)

In May 2001, the Company entered into a five year operating lease for a facility
in Bellevue, Washington.

The facility leases require payment of certain maintenance and operating
expenses, such as taxes, insurance and utilities. Rent expense for the years
ended December 31, 2001, 2000 and 1999 aggregated $558,700, $537,100, and
$330,800, respectively.

Future minimum annual lease payments for these leases, assuming that no
sublessee is found to sublet the Company's Morgan Hill, California office space
before expiration of the lease in 2005, are as follows:
<TABLE>
<CAPTION>

Year ending December 31,
<S>        <C>                      <C>
           2002                     $   565,100
           2003                         583,600
           2004                         395,400
           2005                         328,100
           2006                          55,000
                                    -----------
                                    $ 1,927,200
                                    ===========
</TABLE>

Prior Bankruptcy

GraphOn Corporation (the predecessor company) filed a Voluntary Petition for
Relief under Chapter 11 of the Bankruptcy Code in November 1991 and may be
required to pay up to $964,000 to a creditor. To date, the Company has not
received any claims related to the bankruptcy. There can be no assurance that
future claims will not arise from the predecessor company's creditors or that a
former creditor may assert a claim relating to royalties earned from subsequent
licenses, which could be costly and could have a material effect on the
Company's business, financial condition and/or results of operations.

Legal Proceedings

During 2001, 2000 and 1999, the Company had been engaged in litigation in the
Superior Court of the State of California, Santa Clara County, with Insignia
Solutions plc and Citrix Systems, Inc., which stemmed from the Company's
disclosure in late 1996 of certain aspects of the Company's proprietary
technology on a confidential basis to Insignia Solutions, plc, some of whose
assets were later acquired by Citrix Systems, Inc. On April 3, 2001, the
Company, Citrix and Insignia agreed to settle this litigation with prejudice, by
an exchange of reciprocal agreements.

                                       50
<PAGE>

11.  Employee 401(k) Plan.

In December 1998, the Company adopted a 401(k) Plan ("the Plan") to provide
retirement benefits for employees. As allowed under Section 401(k) of the
Internal Revenue Code, the Plan provides tax-deferred salary deductions for
eligible employees.

Employees may contribute up to 15% of their annual compensation to the Plan,
limited to a maximum annual amount as set periodically by the Internal Revenue
Service. During 2001, 2000 and 1999, the Company contributed a total of $44,700,
$11,000 and $0 to the Plan, respectively.

12.  Supplemental Disclosure of Cash Flow Information.

The following is supplemental disclosure for the statements of cash flows.
<TABLE>
<CAPTION>

Years Ended December 31,             2001        2000       1999
------------------------          ---------   ---------  ---------
Cash Paid:
----------
<S>                               <C>         <C>        <C>
Income Taxes                      $     800   $     800  $     800
Interest                          $   5,800   $   6,800  $  42,400
Noncash Investing and Financing
-------------------------------
Activities:
-----------
Stock and warrants issued for
   purchased technology and
   other assets                   $6,500,000  $       -  $       -
Stock issued for patent           $       -   $       -  $ 400,000
</TABLE>

13.  Quarterly Information (Unaudited).

The summarized quarterly financial data presented below reflect all adjustments,
which, except as discussed below, in the opinion of management, are of a normal
and recurring nature necessary to present fairly the results of operations for
the periods presented. In the fourth quarter of 2001, the Company recorded a
non-recurring impairment charge of $4,500,000 against several of its intangible
assets as discussed Note 1.

In thousands, except per share data.
<TABLE>
<CAPTION>

Year ended                First     Second    Third    Fourth     Full
December 31, 2001        Quarter   Quarter   Quarter   Quarter    Year
-----------------        -------   -------   -------   -------   -------

<S>                      <C>       <C>       <C>       <C>       <C>
Net revenues             $ 2,321   $ 1,936   $ 1,018   $   636   $ 5,911
Gross profit (loss)        1,939     1,568        85      (293)    3,298
Asset impairment charge        -         -         -    (4,501)   (4,501)
Operating loss            (2,347)   (2,440)   (4,412)   (6,689)  (15,887)
Net loss                  (2,171)   (2,327)   (4,344)   (6,636)  (15,478)
Basic and diluted
  loss per common share    (0.15)    (0.16)    (0.25)    (0.38)    (0.97)

Year ended
December 31, 2000

Net revenues             $ 1,802   $ 1,842   $ 2,733   $ 1,190   $ 7,567
Gross profit               1,633     1,588     2,456       846     6,523
Operating loss            (1,310)   (1,585)   (1,279)   (3,766)   (7,940)
Net loss                  (1,174)   (2,240)   (2,019)   (3,942)   (9,375)
Basic and diluted
  loss per common share    (0.08)    (0.15)    (0.14)    (0.28)    (0.65)

</TABLE>

                                       51
<PAGE>


  Report of Independent  Certified  Public  Accountants on  Supplemental
  Schedule



  To the Board of Directors and Shareholders of GraphOn Corporation

  The audits referred to in our report dated February 5, 2002 relating to the
  consolidated financial statements of GraphOn Corporation and Subsidiary,
  which is contained in Item 8 of this Form 10-K, included the audit of the
  financial statement schedule listed in the accompanying index. This financial
  statement schedule is the responsibility of the Company's management. Our
  responsibility is to express an opinion on this financial statement schedule
  based upon our audits.

  In our opinion such financial statement schedule presents fairly, in all
  material respects, the information set forth therein.



  /x / BDO Seidman, LLP
  San Jose, California
  February 5, 2002


                                       52
<PAGE>


SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                      Balance     Charged
                        At        to costs                   Balance
                     Beginning      and                      at end of
Description          of period    expenses      Deductions    period
-----------          ---------    ---------     ---------   ----------

Allowance for
  Doubtful accounts

2001                 $ 100,000    $ 250,000     $       -    $ 350,000

2000                 $  25,000    $  75,000     $       -    $ 100,000

1999                 $  25,000    $       -     $       -    $  25,000



                                       53
<PAGE>

                     GraphOn China Limited
                 Index to Financial Statements


                                                            Page

 Report of Independent Certified Public Accountants           55

 Balance Sheet as of December 31, 2000                        56

 Statement of Operations and Comprehensive Loss for
 the Period From Inception (March 8, 2000) through
 December 31, 2000 and the Period January  1, 2001
 through Dissolution (August 27, 2001)                        57

 Statement of Joint Venturers' Equity for the Period From
 Inception (March 8,2000) through December 31, 2000 and
 The Period from January 1, 2001 Through Dissolution
 (August 27, 2001)                                            58

 Statement of Cash Flows for the Period From Inception
 (March 8,2000) through December 31, 2000 and The Period
 from January 1, 2001 Through Dissolution (August 27, 2001)   59

 Summary of Significant Accounting Policies                   60

 Notes to Financial Statements                                62



                                       54
<PAGE>


Report of Independent Certified Public Accountants


To the Board of Directors and Shareholders
GraphOn China Limited

We have audited the accompanying balance sheet of GraphOn China Limited as of
December 31, 2000, and the related statements of operations and comprehensive
loss, joint venturers' equity, and cash flows for the period from inception
(March 8, 2000) through December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GraphOn China Limited as of
December 31, 2000, and the results of its operations and its cash flows for the
period from inception (March 8, 2000) through December 31, 2000 in conformity
with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in the Summary of Significant
Accounting Policies, the Company's recurring losses and accumulated deficit
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regards to these matters are also described in
Note 1. The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might result from the
outcome of this uncertainty.


/x / BDO Seidman, LLP
San Jose, California
February 2, 2001





                                       55
<PAGE>

<TABLE>
<CAPTION>


                              GraphOn China Limited
                             A Dissolved Corporation
                                  Balance Sheet

(USD)
                                                        2001
December 31,                                         (Unaudited)      2000
------------                                          ---------   ------------

ASSETS

CURRENT ASSETS:
<S>                                                   <C>          <C>
   Cash and cash equivalents                          $       -    $ 1,817,100
   Due from related party                                     -        132,500
                                                      ---------    -----------
TOTAL CURRENT ASSETS                                          -      1,949,600
                                                      ---------    -----------
Office equipment, net                                         -         15,000
                                                      ---------    -----------
TOTAL ASSETS                                          $       -    $ 1,964,600
                                                      =========    ===========

LIABILITIES AND JOINT VENTURERS' EQUITY

CURRENT LIABILITIES:
   Accrued expenses                                   $       -    $   181,000
                                                      ---------    -----------
TOTAL CURRENT LIABILITIES                                     -        181,000
                                                      ---------    -----------
Commitments and contingencies

JOINT VENTURERS' EQUITY:
   Common stock, $0.01 par value, 7,500,000 shares
     authorized, 7,000,000 issued and outstanding             -         70,000
   Additional paid-in capital                                 -      6,930,000
   Accumulated other comprehensive loss                       -           (100)
   Accumulated deficit                                        -     (5,216,300)
                                                      ---------    -----------
TOTAL JOINT VENTURERS' EQUITY                                 -      1,783,600
                                                      ---------    -----------
TOTAL LIABILITIES AND JOINT VENTURERS' EQUITY         $       -    $ 1,964,600
                                                      =========    ===========
<FN>
    See accompanying summary of significant accounting policies and notes to
                              financial statements
</FN>
</TABLE>


                                       56
<PAGE>
<TABLE>
<CAPTION>


                             GraphOn China Limited
                            A Dissolved Corporation
                Statements of Operations and Comprehensive Loss
            Inception (March 8, 2000) Through December 31, 2000 and
             January 1, 2001 through Dissolution (August 27, 2001)

(USD)
                                       (Unaudited)
                                     January 1, 2001    Inception (March
                                   Through Dissolution  8, 2000) through
                                    (August 27, 2001)   December 31, 2000

                                           2001                 2000
                                      -------------        -------------
<S>                                   <C>                  <C>
Total Revenue                                     -                    -
                                      -------------        -------------
Total Cost of Revenue                             -                    -
                                      -------------        -------------
Gross Profit                                      -                    -
                                      -------------        -------------
Operating Expenses
  Selling and marketing                     100,000              360,600
  General and administrative                  4,500            2,988,700
  Research and development                        -            2,000,000
                                      -------------        -------------
   Total Operating Expenses                 104,500            5,349,300
                                      -------------        -------------
Loss From Operations                       (104,500)          (5,349,300)
                                      ------------         -------------
Other Income (Expense):
  Interest and other income                  22,300              133,000
  Interest and other expense                      -                    -
                                      -------------        -------------
   Total Other Income (Expense)              22,300              133,000
                                      -------------        -------------
Net Loss                                   (82,200)           (5,216,300)
Other Comprehensive Income (Loss),
  net of tax:
  Foreign currency translation
   adjustment                                    -                  (100)
                                      ------------         -------------
Comprehensive Loss                    $    (82,200)        $  (5,216,400)
                                      ============         =============

Basic and Diluted Loss per Common Share   $  (0.01)             $  (0.75)
                                          ========              ========

Weighted Average Common Shares
 Outstanding                             7,000,000             7,000,000
                                         =========             =========
<FN>

    See accompanying summary of significant accounting policies and notes to
                              financial statements

</FN>
</TABLE>


                                       57
<PAGE>

<TABLE>
<CAPTION>

                              GraphOn China Limited
                             A Dissolved Corporation
                      Statement of Joint Venturers' Equity

                                                                           Deficit
                                                                          Accumulted
                              Common Stock      Additional                   During
                           -----------------     Paid in    Comprehensive  Development
                           Shares     Amount     Capital       (Loss)         Stage         Totals
                          ---------  --------  ----------    ---------   -------------  ------------
<S>                      <C>         <C>       <C>           <C>         <C>            <C>
Balances, March 8, 2000           -  $      -  $        -    $       -   $          -   $          -

Issuance of common stock
 to founders, March 2000  7,000,000    70,000   6,930,000            -              -      7,000,000

Foreign currency
 translation adjustment           -         -           -         (100)             -           (100)

Net loss                          -         -           -            -     (5,216,300)    (5,216,300)
                          ---------  --------  ----------    ---------   ------------   ------------
Balances,
  December 31, 2000       7,000,000    70,000   6,930,000         (100)    (5,216,300)     1,783,600
                          ---------  --------  ----------    ---------   ------------   ------------
(Following
balances
unaudited)

Net loss                          -         -           -            -        (82,200)       (82,200)

Dissolution              (7,000,000)  (70,000) (6,930,000)         100      5,298,500      1,701,400
                          ---------  --------  ----------    ---------   ------------   ------------
Balances,
  August 27, 2001                 -  $      -  $        -    $       -   $          -   $          -
                          =========  ========  ==========    =========   ============   ============

<FN>

    See accompanying summary of significant accounting policies and notes to
                              financial statements
</FN>
</TABLE>


                                       58
<PAGE>
<TABLE>
<CAPTION>


                              GraphOn China Limited
                             A Dissolved Corporation
                             Statement of Cash Flows
            From Inception (March 8, 2000) Through December 31, 2000
              January 1, 2001 Through Dissolution (August 27, 2001)


                                                         (Unaudited)
                                                       January 1, 2001      Inception (March
                                                     Through Dissolution   8, 2000) Through
                                                      (August 27, 2001)    December 31, 2000
                                                              2001                2000
                                                        -------------      ---------------

Cash Flows From Operating Activities:
<S>                                                     <C>                <C>
  Net loss                                              $     (82,200)     $    (5,216,300)
  Adjustments to reconcile net loss to
   net cash used in operating activities:
  Depreciation and amortization                                 2,700                1,100
  Foreign currency translation                                      -                  100
  Changes in operating assets and liabilities:
   Due from related party                                     132,500             (132,500)
   Accrued expenses                                          (181,000)             181,000
                                                        -------------      ---------------
Net cash used in operating activities                        (128,000)          (1,565,300)
                                                        -------------      ---------------
Cash Flows From Investing Activities:
  Capital expenditures                                              -           (1,262,000)
                                                        -------------      ---------------
Net cash used in investing activities                               -           (1,262,000)
                                                        -------------      ---------------
Cash Flows From Financing Activities:
  Proceeds from issuance of common stock                            -            7,000,000
  Dissolution proceeds to joint venturers                  (1,689,100)                   -
                                                        -------------      ---------------
Net cash provided (used in) by financing
 activities                                                (1,689,100)           7,000,000
                                                        -------------      ---------------
Net Increase (Decrease) in Cash
  and Cash Equivalents                                     (1,817,100)           1,817,100

Cash and Cash Equivalents:
   Beginning of period                                      1,817,100                    -
                                                        -------------      ---------------
   End of period                                        $           -      $     1,817,100
                                                        =============      ===============

<FN>

 See accompanying summary of significant accounting policies and notes to
                           financial statements
</FN>
</TABLE>

                                       59
<PAGE>


GraphOn China, Ltd.
Summary of Significant Accounting Policies

The Company. GraphOn China, Ltd. (the Company) was formed in March 2000 as a
joint venture between GraphOn Corporation (GraphOn) and Tianjin Development
Holdings, Ltd. (Tianjin) with each of the two parties owning 50% of the Company.
The purpose of the joint venture was to bring GraphOn's Bridges software and
other technology solutions to China's business-to-business internet and software
market. Upon inception of the Company, GraphOn and Tianjin invested $3,500,000
each, in exchange for 3,500,000 shares, each, of the Company's common stock.

On August 27, 2001, the Company was dissolved and all net assets of the Company
were equitably returned to GraphOn and Tianjin in accordance with the then
current balances of their equity accounts.

Going Concern. As indicated in the accompanying financial statements, the
Company has incurred a net loss since inception and as of December 31, 2000, has
an accumulated deficit of $5,216,300. This factor, as well as the uncertainty
regarding the Company's ability to obtain additional financing, creates an
uncertainty about the Company's ability to continue as a going concern.
Management is developing a plan to continue development of technology and to
obtain continued financing. The financial statements do not include any
adjustments that might be necessary should the Company be unable to continue as
a going concern. As discussed above, on August 27, 2001, the Company was
dissolved.

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.

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

Property and Equipment. Property and equipment are stated at cost. Depreciation
is calculated using the straight-line method over the estimated useful lives of
the respective assets, generally three to seven years. Amortization of leasehold
improvements is calculated using the straight-line method over the lesser of the
lease term or useful lives of the respective assets, generally seven years.
Property and equipment as of December 31, 2000 consisted of office equipment of
$16,100 with related accumulated depreciation of $1,100.

Advertising Costs.  The cost of advertising is expensed as incurred.
Advertising consists primarily of various printed material and was
insignificant during 2000.

Income Taxes. Under SFAS No. 109, Accounting for Income Taxes, deferred income
taxes are recognized for the tax consequences of temporary differences between
the financial statement and income tax bases of assets, liabilities and
carryforwards using enacted tax rates. Valuation allowances are established when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Realization is dependent upon future pre-tax earnings, the reversal of temporary
differences between book and tax income, and the expected tax rates in effect in
future periods.

Fair Value of Financial Instruments. The Company used the following methods and
assumptions in estimating the fair value disclosures for financial instruments:

                                       60
<PAGE>

    Cash and cash equivalents: The carrying amount reported on the balance sheet
    for cash and cash equivalents approximates fair value.

As of December 31, 2000, the fair value of the Company's financial instruments
approximated their historical carrying amounts.

Long-Lived Assets. Long-lived assets are assessed for possible impairment
whenever events or changes in circumstances indicate that the carrying amounts
may not be recoverable, or whenever the Company has committed to a plan to
dispose of the assets. Such assets are carried at the lower of book value or
fair value as estimated by the Company based on appraisals, current market
value, comparable sales value, and undiscounted future cash flows as
appropriate. Assets to be held and used affected by such impairment loss are
depreciated or amortized at their new carrying amount over the remaining
estimated life; assets to be sold or otherwise disposed of are not subject to
further depreciation or amortization.

Earnings Per Share of Common Stock. The Company has adopted the provisions of
SFAS No. 128, Earnings Per Share. SFAS No. 128 provides for the calculation of
basic and diluted earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income available to common shareholders by
the weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities by adding other
common stock equivalents, including common stock options, warrants and
redeemable convertible preferred stock, in the weighted average number of common
shares outstanding for a period, if dilutive. For 2000, there were no
potentially dilutive securities.

Comprehensive Income. SFAS No. 130, Reporting Comprehensive Income, establishes
standards for reporting comprehensive income and its components in a financial
statement that is displayed with the same prominence as other financial
statements. Comprehensive income, as defined, includes all changes in equity
(net assets) during the period from non-owner sources. Examples of items to be
included in comprehensive income, which are excluded from net income, include
foreign currency translation adjustments and unrealizable gain/loss of
available-for-sale securities. The individual components of comprehensive income
(loss) are reflected in the statements of shareholders' equity. As of December
31, 2000 accumulated other comprehensive loss was comprised of foreign currency
translation loss.


                                       61
<PAGE>


Notes to Financial Statements

1.  Related Party Transactions.

In addition to the initial investments by GraphOn and Tianjin in March 2000, the
Company has had various transactions with these related parties, as follows:

GraphOn

During 2000, the Company incurred $ 11,300 selling and marketing, $488,700
general and administrative, and $2,000,000 research and development expenses
from GraphOn.

Tianjin

During 2000, the Company incurred $2,500,000 general and administrative expenses
from Tianjin. Additionally, the Company transferred funds to Tianjin during
2000, in order for Tianjin to make payments on the Company's behalf. As of
December 31, 2000, the Company had a balance of $132,500 due from Tianjin,
representing payments made by the Company to Tianjin during 2000, which Tianjin
will pay on the Company's behalf during 2001. These amounts were paid by Tianjin
to various third party vendors during 2001, prior to dissolution.

2.  Commitments.

Leases

Effective November 2000, the Company leases office space under an operating
lease, which requires monthly payments through October 2001. Minimum rental
payments for 2001 are $10,000. Rent expense during 2000 was $2,000. Immediately
prior to dissolution in August 2001, all amounts outstanding under the lease
were paid in full to the landlord and the lease was cancelled.

Employment Agreements

Effective September 1, 2000, the Company entered into an employment agreement
with an officer of the Company. Under the terms of the agreement, the Company is
obligated to pay an initial annual salary of $102,600 with future increases to
be determined by management. For the annual periods ending December 31, 2001 and
2002, the employee is eligible to receive a bonus equal to 3% of net sales. For
periods after December 31, 2002, the bonus percentage will be based on profit
after tax and is to be negotiated between the Board of Directors of the Company
and the employee.

The Company or the employee may terminate the employment agreement on not less
than 180 days written notice. The Company may terminate the agreement without
180 days written notice, however, the employee shall be entitled to compensation
for 180 days on the date of termination notice in such event.

Effective with the dissolution of the Company, on August 27, 2001, the officer
of the Company became an employee of one of the two joint venture owners of the
Company, GraphOn Corporation, and agreed to release the Company from all present
and future claims arising form the original employment agreement with the
Company.

3.  Supplemental Disclosure of Cash Flow Information

During 2000, the Company made no payments for interest or income taxes.


                                       62
<PAGE>


Item 9.  Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.

None.


                                       63
<PAGE>

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

      (a) Information called for by Item 10 concerning our directors is set
forth under the heading "Election of Directors" in our Proxy Statement related
to the 2002 Annual Meeting of Stockholders (the "2002 Proxy Statement"), which
is incorporated herein by reference.

      (b) The information required by this Item concerning our executive
officers is set forth at the end of Part I of this Form 10-K.

Item 11.  Executive Compensation

      Information called for by Item 11 is set forth under the heading
"Executive Compensation" in the 2002 Proxy Statement, which is incorporated
herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and
Management.

      Information called for by Item 12 is set forth under the heading "Security
Ownership of Certain Beneficial Owners and Management" in the 2002 Proxy
Statement, which is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions.

      Information called for by Item 13 is set forth under the heading "Certain
Relationships and Related Transactions" in the 2002 Proxy Statement, which is
incorporated herein by reference.


                                       64
<PAGE>


                                     PART IV

ITEM 14.  Exhibits, Financial Statement Schedules, and Reports on Form
8-K.

(a)  The following documents are filed as part of this report:

      (1)    Financial statements filed as part of this report are listed on the
             "Index to Consolidated Financial Statements" at page 31 herein.

      (2)    Financial Statement Schedules. The applicable financial statement
             schedules required under Regulation S-X have been included
             beginning on page 52 of this report, as follows:

             i. Report of Independent Certified Public Accountants on Financial
                Statement Schedule:  page 52
            ii. Schedule II - Valuation and Qualifying Accounts:  page 53

      (3     Financial statements of GraphOn China Limited, a 50% owned venture
             not consolidated by the registrant, are listed on the "Index to
             Financial Statements" at page 54 herein.


(b)  Reports on Form 8-K: The Company filed the following report on Form 8-K
     during the fourth quarter of the year ended December 31, 2001:
     On October 17, 2001, the Company reported under Item 5, of Form 8-K,
     dated October 4, 2001, that the Company's revenue for the fourth quarter
     of 2001, ended December 31, 2001 would fall short of previously provided
     guidance by approximately 30%. Additionally, the Company reported that in
     order to reduce operating costs, management compensation had been lowered
     and the Company's workforce was going to be reduced by 30%.

(c)  Exhibits.  The exhibits required by Item 601 of Regulation S-K are
     listed below.


                                       65
<PAGE>


                                    EXHIBITS

Exhibit
Number     Description of exhibit
2.1        Agreement and Plan of Merger and Reorganization dated as of
           February 1, 1999, between registrant and GraphOn
           Corporation, a California corporation (1)
3.1        Amended and Restated Certificate of Incorporation of
           Registrant (1)
3.2        Amended and Restated Bylaws of Registrant (1)
4.1        Form of certificate evidencing shares of common stock of
           Registrant (2)
4.2        Warrant Agreement dated November 12, 1996 between Registrant
           and GKN Securities Corp. and Gaines, Berland, Inc. (2)
4.3        Registration Rights Agreement dated October 28, 1998 between
           Registrant, Spencer Trask Investors, Walter Keller and the investors
           purchasing units in Registrant's private placement (1)
4.4        Amendment to Registration Rights Agreement (1)
10.1       1996 Stock Option Plan of Registrant (2)
10.2       1998 Stock Option/Stock Issuance Plan of Registrant (1)
10.3       Securities Purchase Agreement by and among Registrant and Menta
           Software Limited, dated as of May 31, 2001 (4)
10.4       Technology License Agreement by and among Registrant and Menta
           software Limited, dated as of May 31, 2001 (4)
10.5       Lease Agreement between Corel Inc., and CML realty Corp., dated
           September 1998 and assumed by Registrant on December 31,
           1998 (1)
10.6       Lease Agreement between Registrant and Thoits Brothers, Inc., dated
           February 24, 2000 (3)
23.1       Consent of BDO Seidman, LLP


(1)   Incorporated by reference from Registrant's Form S-4, file number
      333-76333.

(2)   Incorporated by reference from Registrant's Form S-1, file number
      333-11165.

(3)   Incorporated by reference from Registrant's annual report on Form 10-K for
      the year ended December 31, 1999.

(4)   Incorporated by reference from Registrant's current report on Form 8-K,
      dated July 20, 2001.


                                       66
<PAGE>


                                   SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Morgan Hill, State of
California, on March 29, 2002.

                               GRAPHON CORPORATION


                                          By:  /s/ William Swain
                                             ---------------------
                                                 William Swain
                                            Chief Financial Officer

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


Name                                Title

/s/ Robert Dilworth                 Chairman of the Board and
-------------------                 Interim Chief Executive Officer
Robert Dilworth                     (Principal Executive Officer)
March 29, 2002


/s/ William Swain                   Chief Financial Officer and
-----------------                   Secretary
William Swain                       (Principal Financial Officer and
March 29, 2002                       Principal Accounting Officer)


/s/ August P. Klein                 Director
-------------------
August P. Klein
March 29, 2002


/s/ Michael Volker                  Director
------------------
Michael Volker
March 29, 2002


                                       67