<PAGE>

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

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

                                   FORM 10-K

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



             FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2001




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



             FOR THE TRANSITION PERIOD FROM           TO
</Table>

                         COMMISSION FILE NUMBER 0-22190

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

                            VERSO TECHNOLOGIES, INC.
             (Exact Name of Registrant as Specified in Its Charter)

<Table>
<S>                                            <C>
                  MINNESOTA                                      41-1484525
       (State or Other Jurisdiction of                        (I.R.S. Employer
        Incorporation or Organization)                      Identification No.)
</Table>

                              400 GALLERIA PARKWAY
                                   SUITE 300
                               ATLANTA, GA 30339
                    (Address of Principal Executive Offices)

                                  678-589-3500
                        (Registrant's Telephone Number)

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

  SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT: COMMON
                             STOCK, $0.01 PAR VALUE

     Check 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 [ ]

     Check 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.  [ ]

     As of March 22, 2002, 78,022,842 shares of common stock of the registrant
were outstanding, and the aggregate market value of the common stock of the
registrant as of that date (based upon the last reported sale price of the
common stock reported on that date by The Nasdaq National Market), excluding
outstanding shares beneficially owned by directors and officers, was
$89,736,940.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                     NONE.
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<PAGE>

                                     PART I

                   NOTE REGARDING FORWARD-LOOKING STATEMENTS

     CERTAIN STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K (THE
"ANNUAL REPORT"), INCLUDING, WITHOUT LIMITATION, IN THE SECTIONS HEREIN TITLED
"BUSINESS" AND "MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," OR INCORPORATED HEREIN BY REFERENCE THAT ARE NOT
STATEMENTS OF HISTORICAL FACTS ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE WORDS
"BELIEVE," "EXPECT," "ANTICIPATE," "INTEND," "WILL" AND SIMILAR EXPRESSIONS ARE
EXAMPLES OF WORDS THAT IDENTIFY FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING
STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS REGARDING OUR FUTURE
FINANCIAL POSITION, BUSINESS STRATEGY AND EXPECTED COST SAVINGS. THESE
FORWARD-LOOKING STATEMENTS ARE BASED ON OUR CURRENT BELIEFS, AS WELL AS
ASSUMPTIONS WE HAVE MADE BASED UPON INFORMATION CURRENTLY AVAILABLE TO US.

     EACH FORWARD-LOOKING STATEMENT REFLECTS OUR CURRENT VIEW OF FUTURE EVENTS
AND IS SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM ANY RESULTS EXPRESSED OR IMPLIED BY OUR
FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THE RESULTS EXPRESSED OR IMPLIED BY ANY FORWARD-LOOKING
STATEMENTS INCLUDE: OUR ABILITY TO GROW AND MANAGE OUR BUSINESS UNTIL OUR
OPERATIONS ARE CASH FLOW POSITIVE AND OUR ABILITY TO FUND CONTINUING OPERATING
LOSSES AND CAPITAL REQUIREMENTS UNTIL OUR OPERATIONS ARE GENERATING CASH; OUR
ABILITY TO SUCCESSFULLY ACCESS THE CAPITAL MARKETS TO FUND THE GROWTH OF OUR
BUSINESS AND CONTINUOUS DEVELOPMENT OF OUR PROPRIETARY PRODUCTS; TRENDS FOR THE
CONTINUED GROWTH OF OUR BUSINESS; OUR ABILITY TO ENHANCE AND DIVERSIFY REVENUE
AND EARNINGS GROWTH; OUR ABILITY TO SUCCESSFULLY MARKET EXISTING PRODUCTS AND
SERVICES, WHICH MAY BE ADVERSELY IMPACTED BY COMPETITION; OUR ABILITY TO
INTEGRATE OUR BUSINESS WITH THE BUSINESSES OF ENTITIES THAT WE HAVE RECENTLY
ACQUIRED AND OTHER ENTITIES WE MAY SUBSEQUENTLY ACQUIRE; OUR ABILITY TO
SUCCESSFULLY DEVELOP AND MARKET NEW PRODUCTS AND SERVICES; THE EFFECTS OF OUR
ACCOUNTING POLICIES AND GENERAL CHANGES IN GENERALLY ACCEPTED ACCOUNTING
PRACTICES; GENERAL ECONOMIC AND BUSINESS CONDITIONS; OTHER RISKS AND
UNCERTAINTIES INCLUDED IN THE SECTION OF THIS ANNUAL REPORT TITLED "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- RISK
FACTORS"; AND OTHER FACTORS DISCLOSED IN OUR OTHER FILINGS MADE WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC").

     ALL SUBSEQUENT FORWARD-LOOKING STATEMENTS RELATING TO THE MATTERS DESCRIBED
IN THIS ANNUAL REPORT AND ATTRIBUTABLE TO US OR TO PERSONS ACTING ON OUR BEHALF
ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH FACTORS. WE HAVE NO OBLIGATION
TO PUBLICLY UPDATE OR REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT NEW
INFORMATION, FUTURE EVENTS, OR OTHERWISE, EXCEPT AS REQUIRED BY APPLICABLE
FEDERAL SECURITIES LAWS, AND WE CAUTION YOU NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS.

ITEM 1.  BUSINESS

GENERAL

     Verso Technologies, Inc., a Minnesota corporation (herein referred to as
"Verso," the "Company" or "we"), is a communications technology and solutions
provider for communications service providers and enterprises seeking to
implement application-based telephony services, Internet usage management tools
and outsourced customer support services. Additionally, the Company provides a
turn-key solution for telecommunications carriers that wish to migrate from a
legacy circuit-switched network to a next-generation, packet-based network.

     The Company's headquarters is located at 400 Galleria Parkway, Suite 300,
Atlanta, Georgia 30339, and its telephone number at that location is (678)
589-3500. The Company maintains a worldwide web address at www.verso.com.

     The Company's ongoing, strategic business units consist of the Company's
Gateway Solutions business and the Company's Applications and Services business,
both of which are described below.

                                        1
<PAGE>

GATEWAY SOLUTIONS

     The Company's Gateway Solutions business consists of the operations of the
Company's switching subsidiary, NACT Telecommunications, Inc. ("NACT"). NACT is
a manufacturer of next-generation network gateways, public switched telephone
network ("PSTN") Class 4 Tandem switches and telecommunication provisioning and
billing systems.

     NACT's complete Voice over Internet Protocol ("VoIP") migration solution
includes state-of-the-art hardware and software, operational support system
("OSS") integration, the industry's most widely used applications, and expert
training and technical support. For the fiscal year ended December 31, 2001, the
Company's revenue from the Gateway Solutions business was $15,773,000, or 54% of
the Company's consolidated revenue. Summarized financial information for the
Company's Gateway Solutions business is set forth in Note 14 to the consolidated
financial statements included in this Annual Report.

  VOIP MIGRATION PLATFORM

     The Company's unique VoIP Migration Platform is an integrated
communications server, media gateway and applications server built for service
providers seeking to implement lower cost Internet Protocol ("IP")-based voice
services. The Company's "pay as you grow" platform provides a complete digital
Class 4 switch capable of scaling from 48 ports for small emerging service
providers up to 8 million ports for more established providers. The Company has
successfully completed beta trials of its VoIP product.

     NACT's STX family of Class 4 Tandem Digital Gateway Switches provides
protocol support for T1, E1, Integrated Services Digital Network, Signaling
System 7, C7 and VoIP. Each of the STX, Micro STX and Pico STX switches offers
the same functionality, but differs in number of ports. The applications of the
STX products include long distance, toll-free and calling card applications and
provide comprehensive and feature-rich revenue-generating services over a low
cost IP-based network infrastructure.

  CONVERGED PROVISIONING AND BILLING PLATFORM

     The Company's stand-alone provisioning and billing platform is one of the
first platforms to support a company's customer to receive one bill for all
services, regardless of whether such customer's calls were transported via the
PSTN or over an IP-based network. Additionally, the Company has built the
graphical user interface to support fast, efficient and intuitive provisioning
of new services and users. The platform supports comprehensive international
functionality, including support for 28 languages, simultaneous multiple
currencies and numbering plans. Finally, the platform may be customized to
support the customer's unique billing and reporting needs.

APPLICATIONS AND SERVICES

     The Company's Applications and Services business consists of the operations
of the Company's customer response center services as well as the operations of
the Company's Telemate.Net Software, Inc. ("Telemate.Net") subsidiary. For the
year ended December 31, 2001, revenue from the Company's Applications and
Services business was $13,580,000, or 46% of the Company's consolidated revenue.
Summarized financial information for the Company's Applications and Services
business is set forth in Note 14 to the consolidated financial statements
included in this Annual Report.

  CUSTOMER RESPONSE CENTER SERVICES

     The Company's support team delivers outsourced technical customer response
center services for a customer's network engineers, operational support team and
end-users. Based on the customer's specific business goals, the Company's
flexible and cost-effective programs can be designed to support a variety of
needs, from short-term system upgrades to long-term outsourcing and ongoing
product support.

     The Company's technical support services include: 7 x 24 help desk
outsourcing; Tier I, II and III product support; in-sourcing; on-site deployment
services; hardware and software training; and project management resources.
                                        2
<PAGE>

  CALL ACCOUNTING SOLUTION AND IP-BASED USAGE MANAGEMENT

     Through the Company's Telemate.Net subsidiary, the Company provides
patented communications billing and reporting technology for next generation
converged IP and PSTN networks.

     Telemate.Net's call accounting solution helps enterprises reduce
telecommunication operating expenses and increase telecom cost recovery.
Telemate.Net solutions also provide carrier-class reporting via an original
equipment manufacturer bundle with Cisco Systems Inc.'s CiscoWorks Voice Manager
VoIP solution.

     Telemate.Net's NetSpective products provide Children's Internet Protection
Act compliant Internet filtering and reporting solutions that allow schools,
government and enterprises to filter and monitor Internet usage and better
manage employee productivity.

CUSTOMERS

     Currently, the Company's primary base of customers consists of emerging
domestic and international long-distance providers. These customers are buyers
of NACT's family of STX Class 4 Tandem switches and telecommunications
provisioning and billing systems. Additionally, NACT provides pre-paid long
distance applications to these customers. As the Company continues to develop
next generation communications services, it expects that it will sell its
solutions to larger wholesale and retail telecommunications providers seeking to
develop new packet-based telephony services with PSTN reliability and
scalability. To date, the Company has installed approximately 400 of NACT's
gateways for over 100 customers.

     Currently, the Company services over 21,000 end-users through its customer
response center services. The Company's largest client of these services is Six
Continents PLC, who has been a customer of the Company since 1992.

     Through the Company's Telemate.Net subsidiary, the Company has installed
more than 14,000 of its call accounting and IP-based usage management solutions.
Typical end-user customers of the Company's Telemate.Net solutions are domestic
commercial enterprises or government agencies with 100 to 10,000 employees.

     For the years ended December 31, 2001, and December 31, 2000, Six
Continents PLC was the Company's only customer that accounted for more than 10%
of the Company's consolidated revenues. The revenues from this customer
represented approximately 31% and 75% of the Company's consolidated revenues for
the years ended December 31, 2001, and December 31, 2000, respectively.

SALES AND MARKETING

     The Company's marketing organization is responsible for building brand
awareness, identifying key markets and developing innovative products and
services to meet the evolving demands of the marketplace. Another objective of
the marketing effort is to stimulate the demand for services through a broad
range of marketing communications and public relations activities. Primary
communication vehicles include advertising, tradeshows, direct response
programs, event sponsorship and websites.

     The Company seeks to achieve broader market penetration of its solutions in
primarily three ways: expanding international distribution, pursuing new
markets, including Internet Service Providers, IP telephony service providers
and pre-paid service bureaus, and by selling new, next-generation communication
solutions to its current base of customers. The Company also plans to devote
research and development efforts toward developing features and functionality
that will appeal to larger international and domestic telecommunications carrier
customers. The Company sells its services primarily through a direct sales force
of 24 individuals located in Provo, Utah, Atlanta, Georgia, the New York City
metropolitan area, Miami, Florida and the United Kingdom.

                                        3
<PAGE>

COMPETITION

  GATEWAY SOLUTIONS

     The market for application-based telephony services is intensely
competitive, subject to rapid technological change and significantly affected by
new product introductions and market entrants. In the market for its gateway
solutions, the Company's primary sources of competition include Class 4 solution
providers, vendors of networking and telecommunications equipment, and telephony
applications companies that bundle their offering with third-party equipment.
Some competitors, especially networking and telecommunications equipment
vendors, such as Lucent Technologies Inc., Cisco Systems Inc. and Nortel
Networks Ltd., have significantly greater financial resources and broader
customer relationships than the Company. Other public companies, such as Tekelec
and Sonus Networks, Inc., are focusing on market opportunities similar to the
Company's, as are a number of smaller, private companies, including Nuera
Communications, Inc., Voiceware Systems Corporation and iSoftel Ltd.

  APPLICATIONS AND SERVICES

     The Company's customer response center services compete with those of
companies that provide integrated, multi-channel customer contact centers.
Examples of such companies include APAC Customer Services Inc., ClientLogic
Corporation, Convergys Corporation and SITEL Corporation. The Company also faces
competition from a customer's own in-house information technology staff.

     In the market for the Company's call accounting solutions, the Company
competes with a number of similar sized companies that provide enterprise
communication network usage accounting and billing such as IntegraTrak Inc.,
MicroTel International, Inc. and Veramark Technologies Inc. In the market for
Internet usage reporting and access management, the Company competes with
providers of Internet filtering software such as WebTrends Corporation, Elron
Electronic Industries, Inc., SurfControl PLC, Websense Inc., Symantec
Corporation and Secure Computing Corporation.

INTELLECTUAL PROPERTY RIGHTS

     The Company regards its copyrights, trade secrets and other intellectual
property as critical to its success. Unauthorized use of the Company's
intellectual property by third parties may damage its brand and its reputation.
The Company relies on trademark and copyright law, trade secret protection, and
confidentiality, license and other agreements with its employees, customers,
partners and others to protect its intellectual property rights. Despite
precautions, it may be possible for third parties to obtain and use the
Company's intellectual property without its authorization. Furthermore, the
validity, enforceability and scope of protection of intellectual property in
Internet-related industries is still evolving. The laws of some foreign
countries do not protect intellectual property to the same extent as do the laws
of the United States of America.

     The Company cannot be certain that the services it provides and the
finished products it delivers do not or will not infringe valid patents,
copyrights, trademarks or other intellectual property rights held by third
parties. The Company may be subject to legal proceedings and claims from time to
time relating to the intellectual property of such third parties in the ordinary
course of business. Successful infringement claims against the Company may
result in substantial monetary liability or may materially disrupt the conduct
of its business.

     On September 18, 2001, U.S. Patent No. 6,292,801 was issued to
Telemate.Net. The patent covers technology developed by Telemate.Net for
tracking PBX, VoIP and IP traffic from a variety of network sources and
correlating communications activity with a database of user accounts. The
patented techniques are employed in several of Telemate.Net's products,
including Telemate.Net's call accounting and NetSpective Internet access
management solutions. This technology allows users to combine statistics from
diverse network sources to create cohesive network information and reporting.
This unique technology for aggregating and correlating network data from
different vendors and device types has application to the VoIP softswitch, OSS
and billing markets. The patented processes allow the Company's OSS software to
gather billing, reporting and maintenance information from a variety of data
sources and vendors' products, in addition to its own.

                                        4
<PAGE>

     The Company also has several patent applications pending relating to its
VoIP product.

RESEARCH AND DEVELOPMENT

     The Company's research and development expenses in 2001 were primarily
related to the enhancement of NACT's existing products and development
initiatives associated with NACT's VoIP migration solution. These expenses
totaled $2,755,000 for the year ended December 31, 2001. The Company expects
that further research and development expenses will relate to subsequent product
enhancements as well as the development of additional features and functionality
that will be used to target larger carrier customers.

EMPLOYEES

     As of March 15, 2002, the Company had 338 employees, 221 of whom are
located at the Company's headquarters in Atlanta, Georgia, 109 of whom are
located at the Company's NACT subsidiary in Provo, Utah, and eight of whom are
located in various locations throughout the United States.

BACKGROUND

     The Company was incorporated in Minnesota on March 20, 1984. The Company
has historically operated as a provider of technology infrastructure solutions,
including network performance management systems, OSS integration, and customer
response center services. Over the years, the Company has moved away from this
line of business and now focuses on providing the products and services offered
by its Gateway Solutions business and its Application and Services business.
During the last five years, the Company's business developed as described below.

     In 1997, the Company made five acquisitions, adding service offerings in
the data communications business. Also during 1997, the Company began focusing
its efforts on its end user network systems business, as well as on its entry
into the network monitoring and management business.

     In 1998, the Company acquired Encore Systems, Inc., Global Systems and
Support, Inc. and Five Star Systems, Inc. (collectively, the "Encore Group"). At
the time of such acquisition, the Encore Group provided software and technology
services to the hospitality industry, including industry leading customer
response center services. The customer response center services remain part of
the Company's ongoing business.

     In 1999, the Company merged with Sulcus Hospitality Technologies Corp.
("Sulcus"). Sulcus developed, manufactured, marketed and installed computerized
systems primarily intended to automate hospitality industry property management
systems and the Squirrel point-of-sale system for the restaurant industry. Also
in 1999, the Company merged with Windward Technology Group, Inc. ("Windward").
Windward focused on providing networking and network management services to the
application development market.

     Early in the year 2000, the Company's Board of Directors (the "Board")
decided to explore the sale of all or a portion of the Company's Hospitality
Services Group, which consisted of the Company's lodging business, its
restaurant solutions business and its energy management business. Subsequently,
the operations of the Hospitality Services Group were classified as discontinued
operations, and each of the operating units of the Hospitality Services Group
were sold between late 2000 and early 2001. The sale of these operating units
included all of the operations of Sulcus and the Encore Group, with the
exception of the Company's customer response center services.

     In September 2000, the Company merged with Cereus Technology Partners, Inc.
("Cereus"). Cereus provided end-to-end e-business and B2B technology solutions,
including resale of business applications software, e-business strategy, network
consulting and hosting and application integration. In connection with the
merger with Cereus, the Company changed its name to Verso Technologies, Inc. and
put in place the Company's current management team and all but two of the
directors currently serving on the Board.

     In November 2000, the Company acquired MessageClick, Inc. ("MessageClick")
in a merger transaction. The acquisition of MessageClick provided the Company
with a propriety unified communications

                                        5
<PAGE>

application focused on serving communications service providers, which the
Company identifies as a target market.

     The Company's acquisition of NACT in July 2001 was the Company's first
significant investment in the area of next generation communications. The
acquisition of NACT and its portfolio of products and services allowed the
Company to begin to offer proprietary, integrated switching solutions for
communications service providers that want to develop new packet-based telephony
services with PSTN reliability and scalability. The acquisition of NACT was
funded by a $15 million investment by Telemate.Net, per the Company's merger
agreement with Telemate.Net.

     On November 16, 2001, the Company completed its merger with Telemate.Net,
pursuant to which Telemate.Net became a wholly-owned subsidiary of the Company.
Telemate.Net develops proprietary Internet access, voice and IP network usage
management, and intelligence applications that enable businesses to monitor,
analyze, and manage the use of their internal network resources. As a result of
the merger with Telemate.Net, the Company added next generation applications and
application development competencies to the Company's solutions portfolio.

     During the quarter ended December 31, 2001, and in keeping with the
Company's focus on providing next generation communications solutions, the
Company determined that its value-added reseller ("VAR") business and associated
network performance management consulting and integration practice were not
strategic to the Company's ongoing objectives and, therefore, decided to
discontinue capital and human resource investment in these businesses.
Accordingly, the Company elected to report its VAR and associated consulting and
integration operations as discontinued operations by early adoption of Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"), which is intended to allow a
company to more clearly communicate a change in its business that results from a
decision to dispose of non-strategic operations. This discontinued presentation
includes the operations of Winward and Cereus.

     The Company believes that the presentation of its VAR and associated
consulting practice as discontinued operations will allow for a more meaningful
comparison of the results from the Company's ongoing, strategic business units;
its Gateway Solutions business and its Applications and Services business.

ITEM 2.  DESCRIPTION OF PROPERTY

     The Company is headquartered in Atlanta, Georgia, where it currently leases
its principal executive offices. The leased facility in Atlanta is approximately
45,000 square feet, which is used for offices and for operations. Pursuant to
the lease agreement for the leased facility in Atlanta, which lease agreement
expires in February 2010, the Company is obligated to pay rent of approximately
$110,000 per month, plus a share of operating expenses. Effective February 2002,
the Company is obligated to pay rent with respect to an additional 13,000 square
feet totaling $29,000 per month, the costs of which are included in discontinued
operations. The Company is pursuing a sublease opportunity with respect to this
additional space. The leased facility in Atlanta is used by the Company's
Applications and Services business.

     The Company also leases approximately 40,000 square feet of office space in
Provo, Utah, which is used for offices and operations. Pursuant to the lease
agreement for the leased facility in Provo, which lease agreement expires in
December 2009, the Company is obligated to pay rent of approximately $46,000 per
month. The leased facility in Provo is used by the Company's Gateway Solutions
business.

     The Company is also obligated on leases in a number of other locations in
North America through 2004, which are included in its discontinued operations.
The Company has subleased some of these locations and is attempting to sublease
the remaining locations.

     The Company believes that its leased facilities are adequate to meet its
current needs and that additional facilities are available to the Company to
meet its expansion needs for the foreseeable future.

                                        6
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

     From time to time, the Company is involved in litigation with customers,
vendors, suppliers and others in the ordinary course of business, and a number
of such claims may exist at any given time. All such existing proceedings, taken
together, are not expected to have a material adverse impact on the Company's
results of operations or financial condition. In addition, the Company is a
party to the proceedings discussed below.

     On or about July 6, 2000, RSL Communications, Ltd., together with certain
of its affiliates (collectively, "RSL"), filed with the American Arbitration
Association a demand for arbitration against NACT as previously described in the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
2001. The arbitration proceeding initiated by RSL has been settled pursuant to
that certain Final Settlement Agreement and General Release dated March 13,
2002, among RSL, the Company and NACT.

     On or about May 21, 2001, John M. Good, a former employee of the Company,
filed a lawsuit in the Court of Common Pleas, Cuyahoga County, Ohio, against the
Company claiming, among other things, fraud, negligence, breach of fiduciary
duty, breach of contract and damages resulting from and related to the Company's
alleged failure to deliver 50,000 shares of the Company's common stock, par
value $.01 per share (the "Common Stock"), to Mr. Good upon his exercise of an
option to purchase such shares on or about January 3, 2000. Mr. Good seeks
unspecified damages with respect to such claims. The Company intends to defend
such claims vigorously. This case is in the middle of the discovery period,
which is expected to close in May 2002. Trial for this case has been set for
October 2002. Although no assurances can be given, the Company does not expect
the final outcome of this matter to have a material adverse effect on the
Company.

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

     The Annual Meeting of Shareholders of the Company was held on November 16,
2001, in Atlanta, Georgia (the "Meeting"). The proposals set forth below were
voted on at the Meeting with the following results:

          1. Approval of the Agreement and Plan of Merger, dated as of May 4,
     2001, as amended on June 1, 2001, among the Company, a wholly-owned
     subsidiary of the Company and Telemate.Net and the transactions it
     contemplates, including: the issuance of shares of Common Stock to
     Telemate.Net shareholders in the proposed merger transaction; the
     conversion of Telemate.Net stock options into Company stock options and the
     assumption of Telemate.Net's stock option plans; and the reconfiguration of
     the Board. The results were as follows:

<Table>
<S>             <C>              <C>              <C>
30,169,393 FOR  136,285 AGAINST  181,552 ABSTAIN  17,302,103 BROKER NON-VOTES
</Table>

          2. Election of a Board of eight directors to serve a one-year term.
     The results were as follows:

<Table>
<Caption>
DIRECTOR NOMINEE                                             FOR       AUTHORITY WITHHELD
----------------                                          ----------   ------------------
<S>                                                       <C>          <C>
Max E. Bobbitt..........................................  47,276,981        512,352
Gary H. Heck............................................  47,277,981        511,352
James M. Logsdon........................................  46,991,442        797,891
Amy L. Newmark..........................................  47,260,481        528,852
Steven A. Odom..........................................  47,029,742        759,591
Stephen E. Raville......................................  47,277,481        511,852
Juliet M. Reising.......................................  47,029,842        759,491
Joseph R. Wright, Jr....................................  47,277,981        511,352
</Table>

          There were no abstentions or broker non-votes with respect to the
     election of any of the director nominees listed above.

                                        7
<PAGE>

          3. Approval of an amendment to the Company's Amended and Restated
     Articles of Incorporation to increase the number of authorized shares of
     Common Stock from 100,000,000 to 200,000,000. The results were as follows:

<Table>
<S>             <C>              <C>              <C>
29,738,909 FOR  541,035 AGAINST  207,285 ABSTAIN  17,302,104 BROKER NON-VOTES
</Table>

          4. Approval of an amendment to the Company's 1999 Stock Incentive Plan
     to increase the number of shares of Common Stock underlying the plan from
     10,000,000 to 15,000,000 and to remove the restriction on the exercise
     price of "non-qualified" options that may be granted under the plan. The
     results were as follows:

<Table>
<S>             <C>                <C>              <C>
45,211,707 FOR  2,329,555 AGAINST  248,071 ABSTAIN  0 BROKER NON-VOTES
</Table>

          5. Ratification of separate indemnification agreements that have been
     entered into between the Company and each of its directors and non-director
     officers at the level of Vice President and above. The results were as
     follows:

<Table>
<S>             <C>                <C>              <C>
46,103,644 FOR  1,396,014 AGAINST  289,675 ABSTAIN  0 BROKER NON-VOTES
</Table>

     Each of the foregoing proposals was set forth and described in the Notice
of Annual Meeting and Joint Proxy Statement/Prospectus of the Company dated
October 12, 2001, included in the Company's Registration Statement on Form S-4
(No. 333-62262) filed with the SEC on June 4, 2001, as amended by Amendment No.
1, Amendment No. 2 and Amendment No. 3 thereto, filed with the SEC on August 1,
2001; September 12, 2001; and October 12, 2001, respectively (the "Registration
Statement").

ITEM 4.5  EXECUTIVE OFFICERS OF THE REGISTRANT

     Pursuant to General Instruction G (3) of Form 10-K under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the information regarding
the Company's executive officers required by Item 401 of Regulation S-K is
hereby included in Part I of this Annual Report.

     The following table sets forth the name of each executive officer of the
Company, the office held by such officer and the age, as of March 31, 2002, of
such officer:

<Table>
<Caption>
NAME                                        AGE                    POSITION
----                                        ---                    --------
<S>                                         <C>   <C>
Steven A. Odom............................  48    Chairman of the Board and Chief Executive
                                                  Officer
James M. Logsdon..........................  54    President and Chief Operating Officer
Juliet M. Reising.........................  51    Executive Vice President, Chief Financial
                                                  Officer and Secretary
</Table>

     Certain additional information concerning the individuals named above is
set forth below:

     STEVEN A. ODOM has served as the Chief Executive Officer and a director of
the Company since September 2000 and as the Chairman of the Board since December
2000. From January 2000 to September 2000, Mr. Odom served as the Chairman of
the Board and the Chief Executive Officer of Cereus. From 1994 until June 1998,
Mr. Odom served as Chairman of the Board and Chief Executive Officer of World
Access, Inc., a provider of voice, data and Internet products and services
around the world ("World Access"). Mr. Odom served as Chairman of World Access
from June 1998 to until June 1999. From 1990 until 1994, Mr. Odom was a private
investor in several companies, including World Access and its predecessor. From
1987 until 1990, he served as President of the PCS Division of Executone
Information Systems in Atlanta, a public company that manufactured and
distributed telephone systems. From 1983 until 1987, Mr. Odom was the founder,
Chairman and Chief Executive Officer of Data Contract Company, Inc., a
manufacturer of telephone switching equipment and intelligent pay telephones.
From 1974 until 1983, he served as the Executive Vice President of Instrument
Repair Service, a private company co-founded by Mr. Odom in 1974 that repaired
test instruments for local exchange carriers.

     JAMES M. LOGSDON has served as President, Chief Operating Officer and a
director of the Company since September 2000. From January 2000 to September
2000, Mr. Logsdon also served as President, Chief

                                        8
<PAGE>

Operating Officer and a director of Cereus. From January 1998 to January 2000,
Mr. Logsdon served as Vice President and General Manager of Branch
Operations -- East for the Network Services division of GTE Corporation, a
global telecommunications company. From January 1991 to December 1997, he served
as GTE's Vice President, Sales & Marketing -- Commercial Markets.

     JULIET M. REISING has served as Executive Vice President, Chief Financial
Officer, Secretary and a director of the Company since September 2000. Ms.
Reising also served as the Executive Vice President, Chief Financial Officer and
director of Cereus from March 2000 to September 2000. From February 1999 to
March 2000, Ms. Reising served as Chief Financial Officer of MindSpring
Enterprises, Inc., an Internet service provider that merged with EarthLink, Inc.
in February 2000. From September 1998 to February 1999, Ms. Reising served as
Chief Financial Officer of AvData, Inc., a network management services company
acquired by ITC DeltaCom, Inc. in 1999. From September 1997 to September 1998,
Ms. Reising served as Vice President and Chief Financial Officer for Composit
Communications International, Inc., an international software development
company. From August 1995 to September 1997, she served as Vice President and
Chief Financial Officer of InterServ Services Corporation, which was merged with
Aegis Communications, Inc. in 1997. Ms. Reising started her career with Ernst &
Young LLP in Atlanta, Georgia, where she received her certified public
accountant license.

     There are no family relationships among any of the executive officers or
directors of the Company. Except as disclosed in the applicable employment
agreements discussed in the section of this Annual Report titled "Executive
Compensation -- Employment and Consulting Agreements," no arrangement or
understanding exists between any executive officer and any other person pursuant
to which any executive officer was selected to serve as an executive officer. To
the best of the Company's knowledge, (i) there are no material proceedings to
which any executive officer of the Company is a party, or has a material
interest, adverse to the Company, and (ii) there have been no events under any
bankruptcy act, no criminal proceedings and no judgments or injunctions that are
material to the evaluation of the ability or integrity of any executive officer
during the past five years. Executive officers of the Company are elected or
appointed by the Board and hold office until their successors are elected or
until their death, resignation or removal, subject to the terms of applicable
employment agreements.

                                    PART II

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

     The Common Stock is traded on The Nasdaq National Market under the symbol
"VRSO." Prior to October 1, 2000, the Common Stock was traded on The Nasdaq
National Market under the symbol "ELTX." The Common Stock moved from The Nasdaq
Small Cap Market to The Nasdaq National Market on February 17, 2000. The
following table sets forth the quarterly high and low bid sale prices for the
Common Stock for the years ended December 31, 2001, and 2000, as reported by
Nasdaq. The stock prices set forth

                                        9
<PAGE>

below do not include adjustments for retail mark-ups, markdowns or commissions,
and represent inter-dealer prices and do not necessarily represent actual
transactions.

<Table>
<Caption>
                                                               HIGH      LOW
                                                              -------   ------
<S>                                                           <C>       <C>
YEAR ENDED DECEMBER 31, 2001:
  First Quarter.............................................  $ 2.250   $ .688
  Second Quarter............................................    1.690     .469
  Third Quarter.............................................    1.240      600
  Fourth Quarter............................................    1.500     .500
YEAR ENDED DECEMBER 31, 2000:
  First Quarter.............................................  $19.750   $7.625
  Second Quarter............................................   13.750    4.125
  Third Quarter.............................................    6.563    3.750
  Fourth Quarter............................................    5.125    1.063
</Table>

     As of March 22, 2002, there were approximately 1,575 holders of record of
the Common Stock.

     The Company has never declared or paid cash dividends on the Common Stock.
The Company currently intends to retain any earnings for use in its operations
and does not anticipate paying cash dividends in the foreseeable future. In
addition, the Company's current credit facility with Silicon Valley Bank (the
"Bank") prohibits the payment of cash dividends on the Common Stock without the
Bank's prior written consent.

     On November 16, 2001, the Company issued six warrants to purchase, in the
aggregate, 250,000 shares of Common Stock to an investment bank and five of its
affiliates in consideration for investment banking services rendered in
connection with the Company's merger with Telemate.Net, which services had a
fair market value in excess of the fair market value of such warrants. Each of
the warrants may be exercised with respect to all of the underlying shares of
Common Stock at any time from November 16, 2001, until November 16, 2004, at an
exercise price of $1.00 per share of Common Stock, subject to certain
adjustments described in each such warrant. The warrants issued to such
investment bank and its affiliates were issued without registration under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance upon the
exemption from the registration set forth in Section 4(2) of the Securities Act.
The Company based such reliance upon factual representations made to the Company
by each recipient of the warrants as to such recipient's investment intent,
sophistication, and status as an "accredited investor," as that term is defined
in Rule 501 of Regulation D under the Securities Act, among other things.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated financial data should be read in
conjunction with the Company's financial statements and related notes thereto,
set forth in Item 14 hereof, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," set forth in Item 7 hereof. The
statement of operations data and the balance sheet data have been derived from
the audited consolidated financial

                                        10
<PAGE>

statements of the Company. The historical results are not necessarily indicative
of future results. All amounts in thousands except per share data.

<Table>
<Caption>
                                                  YEARS ENDED DECEMBER 31,
                                      -------------------------------------------------
                                      2001(B)    2000(C)    1999(D)    1998     1997(E)
                                      --------   --------   -------   -------   -------
<S>                                   <C>        <C>        <C>       <C>       <C>
STATEMENT OF OPERATIONS DATA (a):
Revenue.............................  $ 29,353   $ 11,988   $10,017   $ 2,914     $--
Loss from Continuing Operations.....    (9,877)   (12,532)   (5,361)   (1,231)    --
Loss from Continuing Operations per
  Common Share -- basic and
  diluted...........................     (0.18)     (0.48)    (0.23)    (0.06)    --

BALANCE SHEET DATA:
Total Assets........................    45,759    175,473    56,054    69,981     --
Long-term Obligations...............     3,428      3,153        --     2,333     --
</Table>

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

(a) Includes the continuing operations of the following companies acquired by
    the Company from their respective dates of acquisition: Customer Response
    Center, a division of Encore Systems, Inc. (September 1, 1998); MessageClick
    (November 22, 2000); NACT (July 27, 2001); and Telemate.Net (November 16,
    2001).

(b) The 2001 loss from continuing operations includes $1.5 million of
    intangibles amortization and $1.8 million in amortization of deferred
    compensation primarily related to acquisitions during 2000, and $606,000 in
    non-cash interest expense related to the amortization of the discount on
    convertible subordinated debentures and loan fees.

(c) The 2000 loss from continuing operations includes $982,000 of goodwill
    amortization and $482,000 in amortization of deferred compensation primarily
    related to acquisitions during 2000, $1.8 million in loss on asset
    abandonment, $511,000 in reorganization costs and $715,000 in non-cash
    interest expense primarily related to the amortization of the discount on
    convertible subordinated debentures and loan fees.

(d) The 1999 loss from continuing operations includes $543,000 in merger-related
    transaction and reorganization costs and $982,000 in goodwill amortization.

(e) The operations of the Customer Response Center were acquired in 1998;
    therefore, no continuing operations existed in 1997.

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

GENERAL

     The Company is a communications technology solutions provider for
communications service providers and enterprises seeking to implement
application-based telephony services, Internet usage management tools and
outsourced customer support services. The Company's continuing operations
include two separate business segments, Gateway Solutions, which includes the
Company's subsidiary NACT, and Applications and Services, which includes its
customer response center operations and its subsidiary Telemate.Net. NACT was
acquired in July 2001 and Telemate.Net was acquired in November 2001. The
Company's discontinued operations include its VAR business and associated
consulting practice and its hospitality services group ("HSG"), which developed
and marketed proprietary software and related integration and maintenance
services.

     The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, including Telemate.Net which merged with the
Company on November 16, 2001, NACT which was acquired by the Company on July 27,
2001, MessageClick which merged with the Company on November 22, 2000, and
Cereus and its subsidiaries, which merged with the Company on September 29,
2000, each in transactions accounted for as purchases, and Sulcus and Windward,
each of which merged with the Company in the first quarter of 1999 in
transactions accounted for as poolings-of-interests. The

                                        11
<PAGE>

consolidated financial statements for 1999 include the results of Sulcus and
Windward for the entire year. Cereus, Sulcus and Windward are included in
discontinued operations.

     The Company believes that the foregoing events significantly affect the
comparability of the Company's results of operations from year to year. You
should read the following discussion of the Company's results of operations and
financial condition in conjunction with the Company's consolidated financial
statements and related notes thereto included in Item 14 of this Annual Report.

RESULTS OF OPERATIONS

  FISCAL YEAR 2001 COMPARED WITH FISCAL YEAR 2000

     For the year ended December 31, 2001, the Company's net loss totaled $147.6
million, or $2.71 per share, compared with net loss of $55.5 million, or $2.14
per share, for 2000. The 2001 results include $1.5 million in amortization of
intangibles, $1.8 million in amortization of deferred compensation primarily
related to acquisitions during 2000, a loss from discontinued operations of
$136.1 million and an extraordinary item -- loss from debt conversion totaling
$1.6 million. The 2000 results include $982,000 in amortization of intangibles,
$482,000 in amortization of deferred compensation primarily related to
acquisitions during 2000, $1.8 million loss on asset abandonment, $511,000 in
reorganization costs and a loss from discontinued operations of $43.0 million.

  Continuing Operations

     For the year ended December 31, 2001, the Company's net loss from
continuing operations totaled $9.9 million, or $.18 per share, compared with a
net loss of $12.5 million, or $.48 per share, for 2000. The 2001 results
included $1.5 million in amortization of intangibles and $1.8 million in
amortization of deferred compensation primarily related to acquisitions during
2000. The 2000 results included $982,000 in amortization of intangibles,
$482,000 in amortization of deferred compensation primarily related to
acquisitions during 2000, $1.8 million loss on asset abandonment and $511,000 in
reorganization costs.

     Total revenue was $29.4 million in the year ended December 31, 2001,
reflecting a 145% increase from 2000. Total revenue in the year ended December
31, 2001 included $15.8 million from NACT and $971,000 from Telemate.Net.
Products revenue was $14.4 million in the year ended December 31, 2001, and was
primarily related to the NACT products. Services revenue was $15.0 million in
the year ended December 31, 2001, reflecting a 25% increase from 2000. Gross
profit increased by $9.0 million in the year ended December 31, 2001, and was
51% of revenue in 2001, compared with 44% of revenue in 2000. The increase in
revenue, gross profit percentage and amount of gross profit resulted primarily
from the acquisition of NACT in 2001.

     Total operating expenses incurred in continuing operations for the year
ended December 31, 2001, were $23.7 million, an increase of $8.1 million
compared to 2000. The increase is primarily attributable to the following items:
$3.5 million increase in sales, general and administrative expenses, $2.8
million increase in research and development expense, $1.3 million increase in
depreciation expense, $529,000 increase in intangible amortization and an
increase in amortization of deferred compensation of $1.3 million offset by $1.8
million decrease in loss on asset abandonment and $511,000 decrease in
reorganization costs.

     The increase in sales, general and administrative expenses resulted from
the addition of personnel and related costs related to the acquisition of NACT
of approximately $3.6 million offset by the reduction of corporate sales,
general and administrative expenses of approximately $1.2 million. The decrease
in corporate sales, general and administrative expenses resulted primarily from
the cost savings from the reorganization during 2000, as well as, on-going cost
reduction initiatives affecting personnel, telecom and other general and
administrative expenses.

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

                                        12
<PAGE>

     The increase in depreciation expense is primarily related to the purchase
of furniture and equipment of approximately $1.4 million and $5.3 million during
2001 and 2000, respectively, as well as the increased depreciation related to
the assets acquired in the NACT acquisition. Capital expenditures are primarily
depreciated on a straight-line basis over an estimated useful life of three
years.

     The $529,000 increase in intangible amortization is primarily related to
the reduction in the remaining estimated life of a previously existing
intangible asset and an intangible asset acquired in the NACT acquisition.

     In 2000, the Company recorded reorganization costs of approximately
$511,000 related to a reorganization announced during the second quarter of
2000.

     The $1.3 million increase in amortization of deferred compensation
primarily related to the Cereus merger in September 2000. The deferred
compensation represents the intrinsic value of the Cereus unvested options
outstanding at the date of the acquisition of Cereus and is amortized over the
remaining vesting period.

     In 2000, the Company decided to replace software used internally and
recorded a loss on asset abandonment of $1.8 million.

     As a percent of revenue, operating expenses from continuing operations were
70% during the year ended December 31, 2001 (excluding the amortization of
intangibles and deferred compensation) down from 107% in 2000 (excluding the
amortization of intangibles and deferred compensation, loss on asset abandonment
and reorganization costs).

                                        13
<PAGE>

  Business Unit Performance

<Table>
<Caption>
                                  GATEWAY         APPLICATIONS
                                 SOLUTIONS        AND SERVICES         CONSOLIDATED
                               --------------   -----------------   -------------------
                                           FOR THE YEAR ENDED DECEMBER 31,
                               --------------------------------------------------------
                                2001     2000    2001      2000       2001       2000
                               -------   ----   -------   -------   --------   --------
                                                (DOLLARS IN THOUSANDS)
<S>                            <C>       <C>    <C>       <C>       <C>        <C>
Revenue......................  $15,773    $--   $13,580   $11,988   $ 29,353   $ 11,988
                               =======    ==    =======   =======   ========   ========
Gross profit.................    9,106    --      5,981     5,330     15,087      5,330
Gross margin.................       58%   --         44%       44%        51%        44%
Research and development.....    1,938    --        817        --      2,755         --
Sales, general and
  administrative.............    3,599    --      2,566     1,462      6,165      1,462
Other income.................      203    --         --        --        203         --
                               -------    --    -------   -------   --------   --------
Contribution before
  unallocated items..........  $ 3,772    $--   $ 2,598   $ 3,868      6,370      3,868
                               =======    ==    =======   =======
Unallocated items
  Corporate, sales, general
     and administrative
     expenses*...............                                          9,349     10,562
  Depreciation expense.......                                          2,160        863
  Amortization expense.......                                          1,511        982
  Reorganization costs.......                                             --        511
  Loss on asset
     abandonment.............                                             --      1,760
  Amortization of deferred
     compensation............                                          1,766        482
                                                                    --------   --------
       Operating loss........                                         (8,416)   (11,292)
Interest expense, net........                                          1,361      1,240
Income taxes.................                                            100         --
                                                                    --------   --------
  Loss from continuing
     operations before
     extraordinary item......                                       $ (9,877)  $(12,532)
                                                                    ========   ========
</Table>

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

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

GATEWAY SOLUTIONS

     Gateway Solutions represents the sales of NACT products and related
services. Prior to the acquisition of NACT on July 27, 2001, the Company became
an NACT reseller in the first quarter of 2001. The Company resold NACT gateway
solutions totaling $2.8 million and cost of product sales totaled $2.2 million
during the first and second quarters of 2001. All other revenue and expenses
represent the operations of NACT subsequent to its acquisition by the Company.

APPLICATIONS AND SERVICES

     Total applications and services revenue was $13.6 million in the year ended
December 31, 2001, a 13% increase from 2000. The $1.6 million increase in
revenue is comprised of an increase in customer response

                                        14
<PAGE>

center revenues of $530,000 and revenue from Telemate.Net subsequent to its
acquisition by the Company on November 16, 2001 of $971,000.

     Gross profit remained constant in the year ended December 31, 2001, and was
44% percent of revenue, compared with 44% of revenue in 2000.

     Allocated operating expenses incurred in Applications and Services for the
year ended December 31, 2001, were $3.4 million, an increase of $1.9 million
compared to 2000. The increase of $817,000 in research and development relates
primarily to MessageClick (which was acquired by the Company in late 2000),
whose operations were substantially eliminated in the second quarter of 2001.
The increase in sales, general and administrative relates to Telemate.Net
subsequent to its acquisition by the Company and MessageClick totaling $823,000.
As a percent of revenue, allocated operating expenses for Applications and
Services were 25% during the year ended December 31, 2001, up from 12% in 2000.

  Discontinued Operations

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

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

     The loss on the sale of HSG totaled $11.5 million. A loss of $11.0 million
was recorded in the third and fourth quarters of 2000. The loss included a
reduction in asset values of approximately $6.7 million and a provision for
anticipated closing costs and operating losses until disposal of approximately
$4.8 million. An additional $500,000 was recorded in the third quarter of 2001,
related to winding up the Company's international hospitality operations, the
assets of which were sold in the fourth quarter of 2000.

     SUMMARY OPERATING RESULTS OF THE DISCONTINUED OPERATIONS (IN THOUSANDS) ARE
AS FOLLOWS:

<Table>
<Caption>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                2001        2000
                                                              ---------   --------
<S>                                                           <C>         <C>
Revenue.....................................................  $  12,762   $ 96,944
                                                              =========   ========
Gross profit................................................        374     23,429
                                                              =========   ========
Operating loss..............................................  $(135,598)   (35,291)
Interest expense............................................         --       (785)
Loss on disposal of assets..................................       (500)    (6,704)
Income tax expense..........................................         --       (170)
                                                              ---------   --------
Loss from discontinued operations...........................  $(136,098)  $(42,950)
                                                              =========   ========
</Table>

     The operating loss in 2001 includes depreciation of $546,000, amortization
of intangibles of $22.7 million, write-down of goodwill of $95.3 million,
reorganization costs of $9.2 million and amortization of deferred compensation
of $267,000. The operating loss in 2000 includes depreciation of $1.8 million,
amortization of intangibles of $11.5 million, loss on asset abandonment of
$218,000, reorganization costs of $1.0 million and amortization of deferred
compensation of $126,000.

                                        15
<PAGE>

     The reorganization costs consist of the following (in thousands):

<Table>
<Caption>
                                                               2001     2000
                                                              ------   ------
<S>                                                           <C>      <C>
Severance costs.............................................  $1,217   $  819
Facilities closings.........................................   6,162      258
Inventory write-down........................................   1,005       --
MessageClick ASP exiting costs..............................     824       --
                                                              ------   ------
                                                              $9,208   $1,077
                                                              ------   ------
</Table>

  Extraordinary Item

     In January 2001, the Company modified the terms of the $7.0 million
outstanding balance of its 5% convertible subordinated debentures as follows:
the Company repurchased $4.5 million, converted $1.5 million into shares of
Common Stock at a price of $1.40 per share, fixed the conversion rate at $1.19
per share for the remaining $1.0 million and issued warrants to purchase 945,378
shares of Common Stock at an exercise price of $2.00 per share. The cost of this
conversion and early retirement of debt totaled $1.6 million.

  FISCAL YEAR 2000 COMPARED WITH FISCAL YEAR 1999

     For the year ended December 31, 2000, the Company's net loss totaled $55.5
million, or $2.14 per share, compared with net loss of $9.8 million, or $.41 per
share, for 1999. The 2000 results include $982,000 in amortization of
intangibles, $482,000 in amortization of deferred compensation primarily related
to acquisitions during 2000, $1.8 million loss on asset abandonment, $511,000 in
reorganization costs and a loss from discontinued operations of $43.0 million.
The 1999 results include $982,000 in amortization of intangibles, $462,000 in
reorganization costs, $81,000 in transaction costs and a loss from discontinued
operations of $4.5 million.

  Continuing Operations

     For the year ended December 31, 2000, the Company's net loss from
continuing operations totaled $12.5 million, or $.48 per share, compared with a
net loss of $5.4 million, or $.23 per share, for 1999. The 2000 results include
$482,000 in amortization of deferred compensation primarily related to purchases
during 2000, $1.8 million loss on asset abandonment and $511,000 in
reorganization costs. The 1999 results include $462,000 in reorganization costs
and $81,000 in transaction costs.

     Total revenue, which was entirely from services, was $12.0 million in the
year ended December 31, 2000, reflecting a 19.7% increase from 1999. Gross
profit increased by $927,000 in the year ended December 31, 2000, and was 44%
percent of revenue, compared with 44% of revenue in 1999.

     Total operating expenses incurred in continuing operations for the year
ended December 31, 2000, were $16.6 million, an increase of $7.0 million
compared to 1999. The increase is primarily attributable to the following items:
$4.0 million increase in sales, general and administrative expenses, $793,000
increase in depreciation expense, an increase in reorganization cost of $49,000,
amortization of deferred compensation of $482,000 and $1.8 million in loss on
asset abandonment.

     The increase in sales, general and administrative expenses resulted from
the addition of personnel and related costs related to the expansion of the
Company's marketing, finance, human resources and facilities costs related to
supporting its plans for growth, which did not materialize. Because the growth
did not materialize, in the second quarter of 2000, the Company announced a
reorganization as part of its effort to improve operational efficiencies and
financial performance. As a result of the reorganization, the Company recorded
reorganization costs of $511,000 (non-cash charges related to common stock
issued and the intrinsic value of options previously issued to employees with
accelerated vesting and extended exercise dates). The increase in depreciation
expense is related to the purchase of furniture and equipment of approximately
$5.3 million during 2000 and the amortization of deferred compensation of
$482,000 related to the purchase of Cereus in September 2000. In 2000, the
Company decided to replace software used internally and recorded a loss on asset
abandonment of $1.8 million.
                                        16
<PAGE>

     In 1999, in connection with the Company's relocation of its headquarters to
Atlanta, Georgia, the Company recorded reorganization costs of $462,000 related
to recruiting and relocation of personnel. Also in 1999, the Company acquired
two businesses in transactions accounted for as poolings-of-interests and the
Company recorded merger-related transaction costs totaling $81,000 in connection
with these acquisitions. As a percent of revenue, operating expenses from
continuing operations were 107% in 2000 (excluding the amortization of
intangibles and deferred compensation, loss on asset abandonment and
reorganization costs), up from 80% in 1999 (excluding the amortization of
intangibles, reorganization costs and transaction costs).

  Business Unit Performance

     During 2000 and 1999, the Company operated only one of the business units
that now comprise its continuing operations.

  Discontinued Operations

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

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

     The loss on the sale of HSG totaled $11.0 million and was recorded in the
third and fourth quarters of 2000. The loss included a reduction in asset values
of approximately $6.7 million and a provision for anticipated closing costs and
operating losses until disposal of approximately $4.8 million.

     SUMMARY OPERATING RESULTS OF THE DISCONTINUED OPERATIONS (IN THOUSANDS) ARE
AS FOLLOWS:

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Revenue.....................................................  $ 96,944   $119,296
                                                              ========   ========
Gross profit................................................    23,429     41,948
                                                              ========   ========
Operating loss..............................................   (35,291)    (3,994)
Interest expense............................................      (785)      (459)
Loss on disposal of assets..................................    (6,704)        --
Income tax expense..........................................      (170)       (24)
                                                              --------   --------
Loss from discontinued operations...........................  $(42,950)  $ (4,477)
                                                              ========   ========
</Table>

     The operating loss in 2000 includes depreciation of $1.8 million,
amortization of intangibles of $11.5 million, loss on asset abandonment of
$218,000, reorganization costs of $1.0 million and amortization of deferred
compensation of $126,000. The operating loss in 1999 includes depreciation of
$1.2 million, amortization of intangibles of $868,000, reorganization costs of
$192,000 and transaction costs of $170,000.

CRITICAL AND SIGNIFICANT ACCOUNTING POLICIES

     The preparation of financial statements and related disclosures in
conformity with generally accepted accounting principles requires management to
make judgments, assumptions and estimates that affect the amounts reported in
the consolidated financial statements and accompanying notes. Factors that could
affect

                                        17
<PAGE>

the Company's future operating results and cause actual results to vary
materially from expectations include, but are not limited to, lower than
anticipated growth from existing customers, an inability to attract new
customers, an inability to successfully integrate acquisitions, technology
changes, or a decline in the financial stability of the Company's customers.
Negative developments in these or other risk factors could have a material
adverse effect on the Company's financial position and results of operations.

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

  ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

  INVENTORY RESERVE

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

  RESTRUCTURING ACCRUALS

     During the second and third quarters of 2001, the Company initiated certain
restructuring plans. In conjunction with these restructuring plans, the Company
established a restructuring reserve account for the estimated costs related to
the plans. These costs primarily related to facilities closings, severance costs
and MessageClick ASP service exiting costs. For the facilities closings cost a
reserve was established for all remaining lease payments due on buildings and
equipment that were no longer being utilized in continuing operations, less
assumptions for sub-leases. The accrual for one lease with total payments
remaining of $2.7 million, assumes that the building will be sub-leased for 50%
of the lease value. As of December 31, 2001, the Company had a remaining reserve
balance of approximately $3.8 million, which is included in current liabilities
of discontinued operations. The Company believes that this remaining estimated
balance is appropriate to cover future obligations associated with the
restructurings.

  FAIR VALUE OF ASSETS AND LIABILITIES ACQUIRED

     During 2001, the Company acquired NACT and Telemate.Net (see further
discussion in Note 3 to the consolidated financial statements). In conjunction
with the acquisitions, the Company was required to estimate the fair value of
assets (including goodwill and other intangibles) and liabilities acquired based
on industry conditions, historical experience and future operational cash flow
projections, option valuation models and evaluation of events subsequent to the
acquisitions. The Company believes that the estimated purchased balances
approximate fair market value.

  DEFERRED TAX ASSET VALUATION ALLOWANCE

     The Company currently has significant deferred tax assets, which are
subject to periodic recoverability assessment. Realization of the Company's
deferred tax assets is principally dependant upon achievement of future taxable
income. The Company's judgments regarding future profitability may change due to
market conditions, its ability to continue to successfully execute its strategic
plan and other factors. These changes, if any, may require possible material
adjustments to these deferred tax asset balances. Due to the uncertainty of the
Company's ability to recognize the entire tax benefit, the Company established
an offsetting provision for the tax benefit recorded.
                                        18
<PAGE>

  LITIGATION AND RELATED CONTINGENCIES

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

  INTANGIBLE ASSETS

     The Company has significant intangible assets related to goodwill and other
acquired intangibles. The determination of related estimated useful lives and
whether or not these assets are impaired involves significant judgments. Changes
in strategy and/or market conditions could significantly impact these judgments
and require adjustments to recorded asset balances. The Company assesses the
recoverability of its intangible assets by determining whether the value of
goodwill and other acquired intangible assets over their remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate reflecting the
Company's average cost of funds. Effective January 1, 2002, the Company adopted
Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and
Other Intangible Assets," which stipulates an impairment test is to be performed
at each reporting date that requires a comparison of the fair value of an
intangible asset with its carrying amount. If the carrying amount of an
intangible asset exceeds its fair value, then an impairment loss shall be
recognized in an amount equal to that excess.

LIQUIDITY AND CAPITAL RESOURCES

  SUMMARY

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

     At December 31, 2001, the Company had a negative working capital position
(excess of current liabilities over current assets) of $4.6 million compared to
a positive working capital position of $133.4 million at December 31, 2000.
(Included in the positive working capital at December 31, 2000 is $153.9 million
of assets of discontinued operations, including $119.2 million of intangible
assets, $4.5 million of capitalized software and $4.3 million of furniture and
equipment.) Of the negative working capital at December 31, 2001, $5.5 million,
including accrued interest, relates to the deferred payment due for the purchase
of NACT of which $1.8 million is expected to be deferred until 2003 through a
restructuring of this deferred payment (see Note 15 to the consolidated
financial statements). The Company's cash and cash equivalents totaled $7.7
million at December 31, 2001, and $11.0 million at December 31, 2000. Total
long-term debt including current portion, net of discount was $3.4 million at
December 31, 2001 and $9.5 million at December 31, 2000. Borrowings under the
Company's line of credit were zero at December 31, 2001 and 2000.

  CASH FLOW

     Cash used in the Company's continuing operations in the year ended December
31, 2001, totaled approximately $6.8 million compared with $12.3 million in
2000. The Company's use of cash in continuing operations during 2001 resulted
primarily from a net loss of $11.5 million, cash used for changes in current
operating items of approximately $4.6 million and was offset by non-cash charges
totaling $9.4 million (including depreciation and amortization of $5.9 million,
provision for doubtful accounts of $1.5 million and an extraordinary
item -- loss on debt conversion of $1.6 million). The Company's use of cash in
continuing operations during 2000 resulted primarily from a net loss $12.5
million, cash used for changes in current

                                        19
<PAGE>

operating items of approximately $4.8 million and was offset by non-cash charges
totaling $5.0 million (including depreciation and amortization of $3.0 million,
provision for doubtful accounts of $198,000 and loss on asset abandonment of
$1.8 million).

     Cash used in the Company's discontinued operations in the year ended
December 31, 2001, totaled $5.8 million compared with $24.3 million in 2000.

     The Company used cash in investing activities for continuing operations in
the year ended December 31, 2001, of approximately $17.6 million, compared with
$5.7 million in 2000. In 2001, the Company used $16.1 million in cash related to
the acquisitions of NACT and Telemate.Net. The Company spent $1.4 million and
$5.3 million on capital expenditures in 2001 and 2000, respectively.

     Cash provided by discontinued operations from investing activities totaled
$8.1 million in 2001 compared with $2.4 million in 2000. During 2001, the
Company received net proceeds from sale of discontinued operations totaling $8.1
million for the sale of its restaurant solutions business. During 2000, the
Company received net proceeds from sale of discontinued operations totaling $8.6
million for the sale of its lodging and international businesses and the Company
spent approximately $2.3 million on software development costs during 2000 and
approximately $2.0 million on purchases of furniture and equipment during 2000.
The Company used $1.9 million of cash related to the acquisition of Cereus.

     Cash provided by financing activities from continuing operations totaled
approximately $11.3 million in 2001, compared with $29.6 million in 2000.
Proceeds from issuance of redeemable preferred stock totaling $15 million, and
net proceeds from the issuance of common stock totaling $755,000 were offset by
payments on the convertible subordinated debentures totaling $4.5 million in
2001. Proceeds from issuance of convertible subordinated debentures totaling
$11.3 million, an advance from Cereus, prior to the merger, of $10.2 million,
and proceeds from the issuance of common stock totaling $17.7 million were
offset by payments on the borrowing outstanding under the credit facility line
and long-term debt totaling $9.7 million in 2000.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

     The following summarizes the Company's future contractual obligations at
December 31, 2001 (in thousands):

<Table>
<Caption>
                                                        PAYMENTS DUE BY PERIOD
                                          --------------------------------------------------
                                                     LESS
                                                    THAN 1                           AFTER 5
CONTRACTUAL OBLIGATIONS                    TOTAL     YEAR    1-3 YEARS   4-5 YEARS    YEARS
-----------------------                   -------   ------   ---------   ---------   -------
<S>                                       <C>       <C>      <C>         <C>         <C>
Deferred payment due for the purchase of
  NACT*.................................  $ 5,340   $5,340    $   --      $   --     $   --
Convertible subordinated debentures.....       --       --        --       4,500         --
Line of credit..........................       --       --        --          --         --
Operating Leases:
  Continuing operations.................   16,399    2,072     4,021       3,963      6,343
  Discontinued operations...............    3,449      621       902         738      1,188
                                          -------   ------    ------      ------     ------
Total contractual cash obligations......  $29,688   $8,033    $4,923      $9,201     $7,531
                                          =======   ======    ======      ======     ======
</Table>

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

* On March 29, 2002, the Company entered into a Settlement Agreement and General
  Release (the "WATP Settlement Agreement") with WA Telcom Products Co., Inc.
  ("WATP") which provides for a restructuring of the deferred payment due by the
  Company to WATP pursuant to that certain Stock Purchase Agreement, dated as of
  July 4, 2001, as amended, between the Company and WATP, whereby the Company
  purchased from WATP all the issued and outstanding capital stock of NACT.
  Pursuant to the WATP Settlement Agreement, the Company's obligation to pay to
  WATP the deferred payment (the "Deferred Amount") on the date the Company
  files its Annual Report on Form 10-K for the year ended December 31, 2001,
  will be restructured pursuant to the terms and conditions of a Convertible
  Secured Promissory Note to be made by the Company in favor of WATP, in the
  aggregate principal amount of

                                        20
<PAGE>

  $4,250,000, together with interest accrued thereon the ("Note"), pursuant to
  which the aggregate principal amount and accrued interest thereunder is
  payable by the Company as follows: (i) $1.5 million on the date the Note is
  issued; (ii) $500,000 on each of July 1, 2002; October 1, 2002; and January 1,
  2003; and (iii) $1.25 million plus all interest accrued under the Note since
  April 1, 2002, on April 1, 2003. Also pursuant to the WATP Settlement
  Agreement, the Company shall pay to WATP $1.5 million on April 1, 2002. The
  WATP Settlement Agreement is subject to the approval of the United States
  Bankruptcy Court for the Northern District of Illinois, Eastern Division (the
  "Bankruptcy Court"), which has jurisdiction over WATP's pending bankruptcy
  proceeding, and the Company's obligation to pay the Deferred Amount has been
  suspended until the WATP Settlement Agreement is so approved or it terminates
  pursuant to its terms. If the Bankruptcy Court grants such approval by May 31,
  2002, then the $1.5 million payment to be made by the Company to WATP on April
  1, 2002 will be applied to the payment due under the Note on the date the Note
  is issued. If the Bankruptcy Court does not grant such approval by such time,
  then such payment will be applied to the Deferred Amount owed by the Company,
  and the Company will be required to pay to WATP the remainder of the Deferred
  Amount totaling approximately $4.0 million.

     At December 31, 2001, the Company had no borrowings under its $5.0 million
credit facility with Silicon Valley Bank (the "Credit Agreement"). The Credit
Agreement is secured by substantially all of the assets of the Company. The
availability under the Credit Agreement at December 31, 2001 is based on an
analysis of available collateral based on an audit by the Bank, which is being
completed now, and is expected to be determined well in advance of any expected
borrowing needs.

SOURCES OF CASH

     For 2002, the Company expects that its primary sources of cash will be from
cash on hand, working capital provided by operating activities, borrowings under
the Credit Agreement and other possible sources, including issuances of equity
or debt securities. The Company believes that, with its current operations,
which were cash flow positive in the fourth quarter of 2001, and with the
restructuring of the Deferred Amount, it will have sufficient liquidity from
these sources to meet its current financial obligations through 2002. However,
the Credit Agreement contains certain financial covenants and limitations on the
Company's ability to access funds under the Credit Agreement. If the Company is
in violation of the Credit Agreement, or does not have sufficient eligible
accounts receivable and inventory to support the level of borrowings it may
need, the Company may be unable to draw on the Credit Agreement to the extent
necessary. To the extent the Company does not have borrowing availability under
the Credit Agreement, the Company may be required to obtain additional sources
of capital, sell assets, obtain an amendment to the Credit Agreement or
otherwise restructure its outstanding indebtedness.

     In addition, as noted above, the WATP Settlement Agreement is subject to
Bankruptcy Court approval, and, if the Bankruptcy Court does not grant such
approval by May 31, 2002, then the Company will be required to pay to WATP the
remainder of the Deferred Amount totaling approximately $4.0 million.

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

     The Company's short-term cash needs are to cover working capital needs,
including cash operating losses, if any, capital expenditures, the restructured
payments during 2002 for the NACT acquisition and payments related to
discontinued operations. At December 31, 2001, the Company accrued $674,000 for
Telemate.Net related severances and $4.9 million in payments related to
discontinued operations. The Company expects to pay out $1.6 million related to
Telemate.Net severances and discontinued operations in 2002.

     The Company's long-term cash needs are related to the costs of growing its
current business as well as prospective businesses to be acquired, including
capital expenditures and working capital, and funding the deferred payment for
the purchase of NACT. The Company expects to meet these cash needs through cash
from operations, if any, cash on hand, borrowings under the Credit Agreement or
other debt facilities, if available, as well as through possible issuances of
equity or debt securities. If the Company is unable to secure

                                        21
<PAGE>

a working capital line of credit with sufficient borrowing availability (or
restructure its existing line of credit), obtain additional capital or sell
assets, the Company may not be able to meet its obligations and growth plans.

RISK FACTORS

     You should carefully consider the following risk factors as well as other
information included in this Annual Report. If any of the following risks or
uncertainties actually occurs, then our business, financial condition and
results of operations could be materially adversely affected. In that event, the
trading price of our Common Stock could decline.

  WE MAY BE UNABLE TO FUND FUTURE GROWTH.

     Our business strategy calls for growth internally as well as through
acquisitions. This growth will require funding for additional personnel, capital
expenditures and other expenses, as well as for working capital purposes.
Financing may not be available to us on favorable terms or at all. If adequate
funds are not available on acceptable terms, then we may not be able to meet our
business objectives for expansion. This in turn could harm our business, results
of operations and financial condition. In addition, if we raise additional funds
through the issuance of equity or convertible debt securities, then the
percentage of ownership of our existing shareholders will be reduced, and any
new securities could have rights, preferences and privileges senior to those of
our Common Stock. Furthermore, if we raise capital or acquire businesses by
incurring indebtedness, then we will become subject to the risks associated with
indebtedness, including interest rate fluctuations and any financial or other
covenants that our lender may require.

  WE MAY NOT BECOME PROFITABLE.

     We have a history of net losses, including net losses of approximately
$147.6 million for the 2001 fiscal year, $55.5 for the 2000 fiscal year and $9.8
for the 1999 fiscal year. As of December 31, 2001, we had accumulated deficit of
approximately $252.1 million. We have not achieved profitability on a quarterly
or annual basis. Our revenues may not grow and we may never generate sufficient
revenues to achieve or sustain profitability.

  THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE.

     The stock market in general, and the market for technology companies in
particular, has recently experienced extreme volatility that has often been
unrelated to the operating performance of particular companies. During the year
ended December 31, 2001, the per share closing price of our Common Stock on The
Nasdaq National Market fluctuated from a high of $2.25 to a low of $0.50, and
from January 1, 2002 to March 27, 2002, the per share closing price of our
Common Stock fluctuated from a high of $1.79 to a low of $1.18. We believe that
the volatility of the price of our Common Stock does not necessarily relate to
our performance and is broadly consistent with volatility experienced in our
industry. Fluctuations may occur, among other reasons, in response to operating
results; announcements by competitors; regulatory changes; economic changes;
market valuation of technology firms; and general market conditions.
Additionally, our operating results in one or more future quarters may fall
below the expectations of securities analysts and investors, which would likely
cause the trading price our Common Stock to decline. The trading price of our
Common Stock could continue to be subject to wide fluctuations in response to
these or other factors, many of which are beyond our control. If the market
price of our Common Stock decreases, then shareholders may not be able to sell
their shares of Common Stock at a profit.

  A LOW PRICE FOR OUR COMMON STOCK COULD RESULT IN ITS DELISTING FROM THE NASDAQ
  NATIONAL MARKET.

     As noted above, our Common Stock is currently quoted on The Nasdaq National
Market. We must satisfy Nasdaq's minimum listing maintenance requirements to
maintain our listing on The Nasdaq National Market. Nasdaq's listing maintenance
requirements include a series of financial tests relating to shareholders'
equity, public float, number of market makers and shareholders, market
capitalization, and maintaining a minimum bid price of $1.00 per share for
shares of our Common Stock. The minimum bid price of our Common Stock has been
less than $1.00 per share at various times during the year ended December 31,
2001.

                                        22
<PAGE>

If the bid price of our Common Stock falls below $1.00 for a period that exceeds
that allowed by The Nasdaq National Market, or if we are unable to continue to
meet Nasdaq's standards for any reason, then our Common Stock could be delisted
from The Nasdaq National Market.

     If our Common Stock is delisted from The Nasdaq National Market, then it
would trade on either The Nasdaq SmallCap Market or on the Over-the-Counter
Bulletin Board, both of which are viewed by most investors as less desirable and
less liquid marketplaces. Thus, delisting from The Nasdaq National Market could
make trading our shares more difficult for investors, leading to declines in
share price. It would also make it more difficult for us to raise additional
capital and execute our acquisition strategy. In addition, we would incur
additional costs under state blue sky laws to sell equity.

  HISTORICALLY LOW TRADING VOLUME IN OUR COMMON STOCK MAY AFFECT SHAREHOLDER
  LIQUIDITY.

     The trading volume of our Common Stock on The Nasdaq National Market has
been low historically. As of March 22, 2002, there were approximately 78.0
million shares of our Common Stock issued and outstanding, however, there can be
no assurance that there will be an active market for our Common Stock. Low
trading volume may result in shareholders being unable to sell shares of our
Common Stock at the times and at the prices they desire.

  WE ARE EXPOSED TO THE GENERAL CONDITION OF THE TELECOMMUNICATIONS MARKET.

     Our business is subject to global economic conditions, and in particular,
market conditions in the telecommunications industry. Our operations could be
adversely affected if declines in capital spending from telecommunications
service providers continue. If global economic conditions worsen, or if there is
a prolonged slowdown in the telecommunications industry, then we may experience
adverse operating results.

  THE MARKET FOR NEXT GENERATION COMMUNICATIONS SOLUTIONS IS NEW AND EVOLVING
  AND, IF THIS MARKET DOES NOT DEVELOP AS WE EXPECT, IT COULD HAVE A MATERIAL
  ADVERSE EFFECT ON OUR BUSINESS.

     While we believe there is a significant growth opportunity in providing
next generation communications solutions to communications service providers,
there can be no assurances that this technology will be widely accepted or that
a viable market for our products will fully develop or be sustainable. If this
market does not develop, or develops more slowly than we expect, then we may not
be able to sell our products in significant volume, or at all.

     Further, we believe that, with our acquisition of NACT in July 2001, we are
now positioned to succeed in leveraging this opportunity based on our core
competencies in developing solutions for communication service providers.
However, because of the intense competition in the market and the recent
introduction of this technology, there can be no assurance that we will succeed
in this evolving marketplace. Although we intend to penetrate a niche market
within the network convergence technologies sector, we may be unsuccessful in
competing against larger competitors in the market who have greater financial,
operating and human resources and possess greater experience in this marketplace
than we do.

  OUR SUCCESS WILL DEPEND, IN PART, ON OUR DEPLOYMENT OF OUR VOIP PRODUCT.

     We believe that our VoIP product has significant revenue potential. We have
successfully completed beta trials of our VoIP product, but delays in its
general availability or lack of acceptance in the marketplace after its
widespread deployment could have a material adverse effect on our business,
results of operations and financial condition.

  INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS AGAINST US, EVEN WITHOUT MERIT,
  COULD REQUIRE US TO ENTER INTO COSTLY LICENSES OR DEPRIVE US OF THE TECHNOLOGY
  WE NEED.

     Our industry is technology intensive. As the number of competitors in our
target markets increases and the functionality of the products produced by such
competitors further overlap, third parties may claim that the technology we
develop or license infringes their proprietary rights. Any claims against us or
any of our subsidiaries may affect our business, results of operations and
financial conditions. Any infringement claims, even without merit, could require
us to pay damages or settlement amounts or could require us to develop non-
                                        23
<PAGE>

infringing technology or enter into costly royalty or licensing agreements to
avoid service implementation delays. Any litigation or potential litigation
could result in product delays, increased costs or both. In addition, the cost
of litigation and the resulting distraction of our management resources could
have a material adverse effect on our business, results of operations and
financial condition. If successful, a claim of product infringement could
deprive us of the technology we need altogether.

  FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD HAVE A MATERIAL
  ADVERSE EFFECT ON OUR BUSINESS.

     Our success depends in part upon the protection of our proprietary
application software and hardware products. We have taken steps that we believe
are adequate to establish, protect and enforce our intellectual property rights.
We cannot assure you that our efforts to safeguard and maintain our proprietary
rights will be adequate. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise to use our products or
technology.

     We have pending several patent applications related to our VoIP product.
There can be no assurance that these patents will be issued. Even if these
patents are issued, the limited legal protection afforded by patent, trademark,
trade secret and copyright laws may not be sufficient to protect our proprietary
rights to the VoIP product.

     Furthermore, the laws of many foreign countries in which we do business do
not protect intellectual property rights to the same extent or in the same
manner as do the laws of the United States. Although we have implemented and
will continue to implement protective measures in those countries, these efforts
may not be successful. Additionally, even if our U.S. and international efforts
are successful, our competitors may independently develop non-infringing
technologies that are substantially similar or superior to our technologies.

  IF OUR PRODUCTS CONTAIN DEFECTS, THEN OUR SALES ARE LIKELY TO SUFFER AND WE
  MAY BE EXPOSED TO LEGAL CLAIMS.

     Our business strategy calls for the development of new products and product
enhancements which may from time to time contain defects or result in failures
that we did not detect or anticipate when introducing such products or
enhancements to the market. In addition, the markets in which our products are
used are characterized by a wide variety of standard and non-standard
configurations and by errors, failures and bugs in third-party platforms that
can impede proper operation of our products. Despite our testing, defects may
still be discovered in some new products or enhancements after the products or
enhancements are delivered to customers. The occurrence of these defects could
result in product returns; adverse publicity; loss of or delays in market
acceptance of our products; delays or cessation of service to our customers; and
legal claims by customers against us.

     To the extent that contractual provisions that limit our exposure to legal
claims are unenforceable or such claims are not covered by insurance, a
successful products liability claim could have a material adverse effect on our
business, results of operations and financial condition.

  WE MAY BE OBLIGATED TO INDEMNIFY CUSTOMERS WHO PURCHASE OR LEASE EQUIPMENT
  FROM US AGAINST CLAIMS OF PATENT INFRINGEMENT.

     In the course of our business, we may sell or lease certain equipment to
our customers, and, in connection with such sale or lease, we may agree to
indemnify these customers from claims made against them by third parties for
patent infringement related to such equipment. If we are required to make any
payments in respect of these indemnification obligations, then it could have a
material adverse effect on our business, results of operations and financial
condition.

  OUR GROWTH COULD BE LIMITED IF WE ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED
  PERSONNEL.

     We believe that our success depends largely on our ability to attract and
retain highly skilled and qualified technical, managerial and marketing
personnel. Competition for highly skilled engineering, sales, marketing and
support personnel is intense because there is a limited number of people
available with the necessary

                                        24
<PAGE>

technical skills and understanding of our market. Workforce reductions by us
during 2000 and 2001 may adversely affect our ability to retain our current
employees and recruit new employees. The inability to hire or retain qualified
personnel could hinder our ability to implement our business strategy and harm
our business.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET AND INTEREST RATE RISKS

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

     At December 31, 2001, the Company's outstanding debt, primarily consisting
of convertible subordinated debentures (see Note 6 to the consolidated financial
statements), carries interest rates which are fixed.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements required to be filed with this Annual Report are
filed under Item 14 hereof and are listed on the "Index to Consolidated
Financial Statements" on page F-1 hereof.

QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following table presents unaudited quarterly statements of operations
data for each quarter of the Company's last two completed fiscal years. The
unaudited quarterly financial statements have been prepared on substantially the
same basis as the audited financial statements contained elsewhere in this
Annual Report. In the opinion of the Company's management, the unaudited
financial statements include all adjustments, consisting only of normal
recurring adjustments, that management considers to be necessary to fairly
present this information when read in conjunction with the Company's financial
statements and related notes appearing elsewhere in this Annual Report. The
results of operations for any quarter are not necessarily indicative of the
results to be expected for any future period.

<Table>
<Caption>
                                          FIRST         SECOND         THIRD        FOURTH
                                        QUARTER(A)     QUARTER        QUARTER       QUARTER     TOTAL YEAR
                                        ----------   ------------   -----------   -----------   ----------
                                                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                     <C>          <C>            <C>           <C>           <C>
2001
  Revenue.............................   $  3,944     $   5,382         8,265      $ 11,762     $  29,353
  Gross profit........................      1,813         1,415         4,363         7,496        15,087
  Sales, general and administrative...      3,257         2,423         3,814         6,020        15,514
  Research and development(b).........        219           273           904         1,359         2,755
  Operating loss from continuing
     operations.......................     (2,936)       (2,513)       (1,957)       (1,213)       (8,619)
  Loss from continuing operations.....     (3,178)       (2,677)       (2,443)       (1,579)       (9,877)
          Net loss....................   $(18,008)    $(105,701)     $(12,905)     $(11,001)    $(147,615)
                                         ========     =========      ========      ========     =========
  Net loss per common share -- basic
     and diluted:(c)
  Loss from continuing operations.....   $  (0.07)    $   (0.05)     $  (0.05)     $  (0.02)    $   (0.18)
  Loss from discontinued operations...      (0.26)        (2.02)        (0.19)        (0.15)        (2.49)
  Loss on disposal of discontinued
     operations.......................         --            --         (0.01)           --         (0.01)
  Extraordinary item -- loss from debt
     conversion.......................      (0.03)           --            --            --         (0.03)
                                         --------     ---------      --------      --------     ---------
     Net loss per common share........   $  (0.36)    $   (2.07)     $  (0.25)     $  (0.17)    $   (2.71)
                                         ========     =========      ========      ========     =========
</Table>

                                        25
<PAGE>

<Table>
<Caption>
                                          FIRST         SECOND         THIRD        FOURTH
                                        QUARTER(A)     QUARTER        QUARTER       QUARTER     TOTAL YEAR
                                        ----------   ------------   -----------   -----------   ----------
                                                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                     <C>          <C>            <C>           <C>           <C>
2000
  Revenue.............................   $  2,625     $   2,880      $  3,381      $  3,102     $  11,988
  Gross profit........................      1,268         1,054         1,460         1,548         5,330
  Sales, general and administrative...      2,182         3,049         3,449         3,344        12,024
  Research and development(b).........         --            --            --            --            --
  Operating loss from continuing
     operations.......................     (1,267)       (3,099)       (3,333)       (3,593)      (11,292)
  Loss from continuing operations.....     (1,360)       (3,294)       (3,878)       (4,000)      (12,532)
                                         --------     ---------      --------      --------     ---------
          Net loss....................   $ (5,238)    $ (26,336)     $ (6,644)     $(17,264)    $ (55,482)
                                         ========     =========      ========      ========     =========
  Net loss per common share -- basic
     and diluted:(c)
  Loss from continuing operations.....   $  (0.06)    $   (0.13)     $  (0.15)     $  (0.08)    $   (0.48)
  Loss from discontinued operations...      (0.16)        (0.49)        (0.10)        (0.26)        (1.23)
  Loss on disposal of discontinued
     operations.......................         --         (0.41)           --         (0.01)        (0.43)
                                         --------     ---------      --------      --------     ---------
          Net loss per common share...   $  (0.22)    $   (1.03)     $  (0.25)     $  (0.35)    $   (2.14)
                                         ========     =========      ========      ========     =========
</Table>

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

(a) First quarter 2001 net loss includes an extraordinary item -- loss from debt
    conversion totaling $1.6 million.

(b) Research and development expenses in 2001 relate to the operations of NACT,
    Telemate.Net and MessageClick.

(c) Per common share amounts for the quarters and full years have been
    calculated separately. Accordingly, quarterly amounts may not add to the
    annual amounts because of differences in the average common shares
    outstanding during each period.

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

     None.

                                        26
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

BOARD OF DIRECTORS

     Set forth below is certain information, as of March 31, 2002, concerning
each of the directors of the Company. Each of the individuals listed below shall
serve as a director of the Company until the next annual meeting of the
Company's shareholders and until their successors have been elected and
qualified.

<Table>
<Caption>
NAME                                     AGE                  POSITION
----                                     ---                  --------
<S>                                      <C>   <C>
Murali Anantharaman...................   45    Director
Max E. Bobbitt........................   57    Director
Gary H. Heck..........................   57    Director
James M. Logsdon......................   55    Director, President and Chief
                                               Operating Officer
Amy L. Newmark........................   44    Director
Steven A. Odom........................   48    Director, Chairman of the Board and
                                               Chief Executive Officer
Stephen E. Raville....................   54    Director
Juliet M. Reising.....................   51    Director, Executive Vice President,
                                               Chief Financial Officer and Secretary
Joseph R. Wright, Jr..................   63    Director
</Table>

     Certain additional information concerning the individuals named above is
set forth below:

     MURALI ANANTHARAMAN has served as a director of the Company since November
16, 2001, the date Telemate.Net merged with the Company. Mr. Anantharaman also
served as a director of Telemate.Net from October 1999 until November 2001. From
July 1998 until the present, Mr. Anantharaman has served as a Managing Partner
of LiveOak Equity Partners, L.P., a venture capital firm that makes equity
investments in emerging growth companies in the information technology and
healthcare sectors, which firm he co-founded in July 1998. From May 1987 to June
1998, Mr. Anantharaman was a partner in EGL Holdings, an Atlanta-based private
equity investment firm.

     MAX E. BOBBITT has served as a director of the Company since September
2000. From January 2000 to September 2000, Mr. Bobbitt served as a director of
Cereus. Mr. Bobbitt has served as a director of WorldCom, Inc. since 1992 where
he also serves on the compensation and audit committees. Mr. Bobbitt is also
currently a director of Metromedia China Corporation ("Metromedia China"), a
telecommunications company, and Xepiedus Holding Corporation, a competitive
local exchange company. From July 1998 until the present, Mr. Bobbitt has been a
telecommunications consultant. From March 1997 until July 1998, Mr. Bobbitt
served as President and Chief Executive Officer of Metromedia China. From
January 1996 until March 1997, Mr. Bobbitt was President and Chief Executive
Officer of Asian American Telecommunications Corporation, which was acquired by
Metromedia China in February 1997.

     GARY H. HECK has served as a director of the Company since September 2000.
From January 2000 to September 2000, Mr. Heck served as a director of Cereus.
Mr. Heck has been a consultant since 1989, most recently serving as a Managing
Partner and a co-founder of PacifiCom, a consulting services company. From 1987
until 1989, Mr. Heck was President and Chief Executive Officer of Telematics
Products, Inc., a telecommunications products company. From 1983 until 1987, he
held various executive positions at Pacific Telesis Corporation, one of the
nation's largest Regional Bell Operating Companies, and completed his tenure as
a corporate officer of several subsidiaries of Pacific Telesis and as Chief
Executive Officer of PacTel Products Corporation. From 1977 until 1983, Mr. Heck
was a Division Manager and District Manager at AT&T Corporation, where he was
responsible for sales and marketing programs. From 1967 until 1977, Mr. Heck
held various positions at Pacific Telephone & Telegraph.

                                        27
<PAGE>

     AMY L. NEWMARK has served as a director of the Company since September
2000. From January 2000 to September 2000, Ms. Newmark served as a director of
Cereus. Ms. Newmark is a private investor in the technology, Internet and
telecommunications fields. From 1995 to 1997, she served as Executive Vice
President of Strategic Planning at Winstar Communications, Inc. Prior to 1995,
Ms. Newmark served as the general partner of Information Age Partners, LP, a
hedge fund investing primarily in technology and emerging growth companies.
Before that, she was a securities analyst specializing in telecommunications and
technology companies. Ms. Newmark is also a director of U.S. Wireless Data, Inc.
and ParkerVision, Inc.

     STEPHEN E. RAVILLE has served as a director of the Company since October
1997. Since 1996, Mr. Raville served as Chief Executive Officer and Chairman of
the Board of Telscape Communications, Inc. Mr. Raville is also President and
controlling shareholder of First Southeastern Corporation., a private investment
company he formed in 1992. In 1983, Mr. Raville founded TA Communications, a
long-distance telephone company, and served as its President, Chief Executive
Officer and Chairman of the Board. In 1985, in conjunction with a merger between
TA Communications and Advanced Telecommunications Corporation, he became
Chairman and Chief Executive Officer of Advanced Telecommunications until the
merger of Advanced Telecommunications into MCI WorldCom, Inc. in late 1992.

     JOSEPH R. WRIGHT, JR. has served as a director of the Company since
September 2000. From January 2000 to September 2000, Mr. Wright served as a
director of Cereus. Mr. Wright is presently President and Chief Executive
Officer of PanAmSat Inc., a provider of global satellite-based communications
services, servicing news organizations, telecommunication companies, DirectTV
services, Internet networks and others around the globe. In the six years prior
to taking this position in 2001, he served as Vice Chairman of Terramark
Worldwide Inc., a public company that develops and operates Network Access Point
centers in the United States and Brazil. Mr. Wright also served as Chairman and
a director of GRC International, Inc., a public company that provides advanced
Internet and software technologies to government and commercial customers
("GRC"). In March 2000, GRC was acquired by AT&T Corp. From 1989 through 1994,
Mr. Wright also served as Co-Chairman and a director of Baker & Taylor Holdings,
Inc., an international book/video/software distribution and e-commerce company
that is majority owned by the Carlyle Group. Mr. Wright also served as Vice
Chairman, Executive Vice President and a director of W.R. Grace & Company, a
specialty chemicals and healthcare company, Chairman of Grace Energy Company,
and President of Grace Environmental Company. He served as Deputy Director, then
Director, of the Federal Office of Management and Budget under President Reagan,
serving in the Cabinet and the Executive Office of the President from 1982 to
1989. He also served as Deputy Secretary of the Department of Commerce from 1981
to 1982. Mr. Wright previously held positions as President of two of Citibank's
subsidiaries, as a partner of Booze Allen and Hamilton and in various management
and economic positions in the Federal Departments of Commerce and Agriculture.
In addition, Mr. Wright currently serves on the Board of Directors of Terramark
Worldwide, Inc., Titan Corporation, Baker & Taylor Holdings, Inc., Jefferson
Consulting Group and the AT&T Washington Advisory Board.

     The biographical information for Messrs. Odom and Logsdon and Ms. Reising
is set forth in Item 4.5 of Part I of this Annual Report.

     As a condition to completing the Telemate.Net merger, the Board was
required to appoint, as of the effective time of such merger, two additional
directors to serve on the Board who were selected by Telemate.Net and reasonably
acceptable to the Board. In satisfaction of such condition, the Board appointed
Mr. Anantharaman and Richard L. Mauro as directors of the Company effective
November 16, 2001, the date the Telemate.Net merger was consummated. Pursuant to
the terms of the Telemate.Net merger, until the 2004 annual meeting of the
Company's shareholders, any vacancy on the Board arising from the resignation,
removal or death of Messrs. Anantharaman or Mauro, or any nominee selected to
fill a director position occupied by either of the foregoing individuals, shall
be nominated on behalf of the Board and filled or selected by the remaining
Telemate.Net representative on the Board and approved by the Board. On February
19, 2002, Mr. Mauro resigned as a director of the Company, and the vacancy on
the Board created by such resignation has not yet been filled.

                                        28
<PAGE>

     There are no family relationships among any of the executive officers or
directors of the Company. Except as disclosed above, no arrangement or
understanding exists between any director and any other person pursuant to which
any director was selected to serve as a director. To the best of the Company's
knowledge, (i) there are no material proceedings to which any director of the
Company is a party, or has a material interest, adverse to the Company, and (ii)
there have been no events under any bankruptcy act, no criminal proceedings and
no judgments or injunctions that are material to the evaluation of the ability
or integrity of any of the directors during the past five years.

EXECUTIVE OFFICERS

     The information with respect to the Company's executive officers is set
forth in Item 4.5 of Part I of this Annual Report.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and all persons ("Reporting Persons") who beneficially own
more than 10% of the outstanding shares of Common Stock, to file with the SEC
initial reports of ownership and reports of changes in ownership of the Common
Stock and other equity securities of the Company. Reporting Persons are also
required to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely upon a review of the copies of
such forms furnished to the Company for the year ended December 31, 2001, and
the information provided to the Company by Reporting Persons of the Company, no
Reporting Person failed to file the forms required by Section 16(a) of the
Exchange Act on a timely basis, except Ms. Reising did not file a Form 5
reporting the transfer of 56,875 shares of Common Stock to her husband's account
in October 2001 until April 2002.

ITEM 11.  EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

     The Company reimburses directors for out-of-pocket expenses incurred in
attending Board or committee meetings. In addition, directors are eligible to
receive grants of stock options under the Company's 1999 Stock Incentive Plan,
although no such grants were made in 2001.

COMPENSATION OF EXECUTIVE OFFICERS

     The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years awarded to or earned by each person who served as
the Chief Executive Officer of the Company during the year ended December 31,
2001, as well as for other executive officers of the Company and its
subsidiaries whose salary and bonus exceeded $100,000 during the year ended
December 31, 2001 (the "Named Executive Officers").

                           SUMMARY COMPENSATION TABLE

<Table>
<Caption>
                                                              LONG-TERM COMPENSATION
                                       ANNUAL COMPENSATION    ----------------------
                                       --------------------         SECURITIES            ALL OTHER
NAME AND PRINCIPAL POSITION     YEAR   SALARY($)   BONUS($)   UNDERLYING OPTIONS(#)    COMPENSATION($)
---------------------------     ----   ---------   --------   ----------------------   ---------------
<S>                             <C>    <C>         <C>        <C>                      <C>
Steven A. Odom................  2001   $431,250    $225,000               --                 $--
  Chief Executive Officer(1)    2000         --          --          725,000                 --
                                1999         --          --               --                 --
James M. Logsdon..............  2001    270,000      85,000               --                 --
  President and                 2000     58,333          --           95,000                 --
  Chief Operating Officer(2)    1999         --          --               --                 --
Juliet M. Reising.............  2001    225,000     112,500               --                 --
  Executive Vice President and  2000     58,333          --           50,000                 --
  Chief Financial Officer(3)    1999         --          --               --                 --
</Table>

                                        29
<PAGE>

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

(1) Mr. Odom became the Chief Executive Officer of the Company in September
    2000. Pursuant to the terms of Mr. Odom's employment agreement, he received
    stock options in lieu of cash compensation for 2000. See the section of this
    Annual Report titled "-- Employment and Consulting Agreements." Bonus earned
    in 2001 will be paid in the first and second quarters of 2002.

(2) Mr. Logsdon became the President and Chief Operating Officer of the Company
    in September 2000. See the section of this Annual Report titled
    "-- Employment and Consulting Agreements." Bonus earned in 2001 will be paid
    in the first and second quarters of 2002.

(3) Ms. Reising became the Executive Vice President and Chief Financial Officer
    of the Company in September 2000. See the section of this Annual Report
    entitled "-- Employment and Consulting Agreements." Of the bonus amount
    earned in 2001, $75,000 was paid in 2001 and $37,500 will be paid in the
    second quarter of 2002.

                               OPTION GRANT TABLE

     The Company did not grant any options to purchase Common Stock to any of
the Named Executive Officers during 2001.

             AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES

     The following table sets forth information concerning the value at December
31, 2001, of the unexercised options held by each of the Named Executive
Officers. The value of unexercised options reflects the increase in market value
of the Common Stock from the date of grant through December 31, 2001. No Named
Executive Officer exercised any options during the year ended December 31, 2001.

<Table>
<Caption>
                                           NUMBER OF SECURITIES        VALUE OF UNEXERCISED IN-
                                          UNDERLYING UNEXERCISED      THE-MONEY OPTIONS AT FISCAL
                                        OPTIONS AT FISCAL YEAR-END            YEAR-END(1)
                                        ---------------------------   ---------------------------
NAME                                    EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
----                                    -----------   -------------   -----------   -------------
<S>                                     <C>           <C>             <C>           <C>
Steven A. Odom(2).....................   1,765,000      1,375,000         $0             $0
James M. Logsdon(3)...................     676,875        481,250          0              0
Juliet M. Reising(4)..................     941,042        968,333          0              0
</Table>

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

(1) Value of the Company's unexercised, in-the-money options based on the
    average of the high and low price of the Common Stock as of December 31,
    2001, which was $1.34 per share.

(2) Includes options and warrants originally issued by Cereus prior to September
    29, 2000, which were converted into options or warrants to acquire an
    aggregate of 2,415,000 shares of Common Stock, of which options or warrants
    to acquire an aggregate of 1,583,750 shares of Common Stock were exercisable
    at December 31, 2001, and options or warrants to acquire an aggregate of
    831,250 shares of Common Stock were unexercisable at December 31, 2001.

(3) Includes options and warrants originally issued by Cereus prior to September
    29, 2000, which were converted into options or warrants to acquire an
    aggregate of 1,063,125 shares of Common Stock, of which options or warrants
    to acquire an aggregate of 581,875 shares of Common Stock were exercisable
    at December 31, 2001, and options or warrants to acquire an aggregate of
    481,250 shares of Common Stock were unexercisable at December 31, 2001.

(4) Includes options and warrants originally issued by Cereus prior to September
    29, 2000, which were converted into options or warrants to acquire an
    aggregate of 1,859,375 shares of Common Stock, of which options or warrants
    to acquire an aggregate of 891,042 shares of Common Stock were exercisable
    at December 31, 2001, and options or warrants to acquire an aggregate of
    968,333 shares of Common Stock were unexercisable at December 31, 2001.

                                        30
<PAGE>

EMPLOYMENT AND CONSULTING AGREEMENTS

     On September 29, 2000, the Company entered into an Executive Employment
Agreement with Mr. Odom, pursuant to which Mr. Odom has agreed to serve as the
Chief Executive Officer of the Company for a term of three years. The agreement
provides for: (i) a term which will be automatically renewed for an additional
one-year term unless either party gives notice to the other of its intention not
to so renew at least 90 days prior to the termination of the then-current term;
(ii) the payment of a specified base salary and an annual bonus in the
discretion of the Board; (iii) a prohibition against Mr. Odom's disclosure of
confidential information for a period of two years following termination; and
(iv) continuation of Mr. Odom's salary and the benefits for the 24 months
following his termination by the Company without cause or by him for good
reason. Effective January 16, 2001, Mr. Odom's base salary under the agreement
was increased to $450,000.

     On September 29, 2000, the Company entered into an Executive Employment
Agreement with Mr. Logsdon, pursuant to which Mr. Logsdon has agreed to serve as
the President and Chief Operating Officer of the Company for a term of three
years for a base salary at an annual rate per year of $175,000 through and
including February 1, 2001, and at an annual rate per year of $225,000
thereafter. Effective January 1, 2001, Mr. Logsdon's base salary under the
agreement was increased to $270,000. The agreement provides for: (i) a term
which will be automatically renewed for an additional one-year term unless
either party gives notice to the other of its intention not to so renew at least
90 days prior to the termination of the then-current term; (ii) the payment of a
specified base salary and an annual bonus in the discretion of the Board; (iii)
a prohibition against Mr. Logsdon's disclosure of confidential information for a
period of two years following termination; and (iv) continuation of Mr.
Logsdon's salary and the benefits for 24 months following his termination by the
Company without cause or by him for good reason.

     On September 29, 2000, the Company entered into an Executive Employment
Agreement with Ms. Reising, pursuant to which Ms. Reising has agreed to serve as
the Executive Vice President and Chief Financial Officer of the Company for a
term of three years for a base salary at an annual rate per year of $175,000
through and including March 23, 2001, and at an annual rate per year of $200,000
thereafter. Effective January 1, 2001, Ms. Reising's base salary under the
agreement was increased to $225,000. The agreement provides for: (i) a term
which will be automatically renewed for an additional one-year term unless
either party gives notice to the other of its intention not to so renew at least
90 days prior to the termination of the then-current term; (ii) the payment of a
specified base salary and an annual bonus in the discretion of the Board; (iii)
a prohibition against Ms. Reising's disclosure of confidential information for a
period of two years following termination; and (iv) continuation of Ms.
Reising's salary and the benefits for the 24 months following her termination by
the Company without cause or by her for good reason. Effective March 1, 2002,
Ms. Reising's base salary under the agreement was increased to $270,000.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     From January 1, 2001 through December 31, 2001, the Compensation Committee
of the Company was comprised of non-employee directors Ms. Newmark and Mr. Heck.
There were no Compensation Committee Interlocks.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of March 22, 2002, by (a) each
shareholder who is known by the Company to own beneficially

                                        31
<PAGE>

more than 5% of the outstanding Common Stock, (b) each director, (c) each Named
Executive Officer, and (d) all executive officers and directors of the Company
as a group.

<Table>
<Caption>
                                                                    COMMON STOCK
                                                                BENEFICIALLY OWNED(1)
                                                            -----------------------------
                                                                NUMBER
                                                               OF SHARES      PERCENTAGE
NAME OF BENEFICIAL OWNER                                    OF COMMON STOCK   OF CLASS(2)
------------------------                                    ---------------   -----------
<S>                                                         <C>               <C>
David H. Couchman(3)......................................     5,116,561          6.6%
Melanie Noble-Couchman(4).................................     5,116,561          6.6%
Steven A. Odom+++(5)......................................     2,216,350          2.8%
Murali Anantharaman+(6)...................................     1,205,200          1.5%
James M. Logsdon+++(7)....................................       733,750            *
Juliet M. Reising+++(8)...................................       688,750            *
Amy L. Newmark+(9)........................................       612,500            *
Joseph R. Wright, Jr.+(10)................................       392,362            *
Gary H. Heck+(11).........................................       306,250            *
Max E. Bobbitt+(12).......................................       262,500            *
Stephen E. Raville+(13)...................................       165,000            *
All executive officers and directors as a group (nine
  persons)(14)............................................     6,582,662          8.0%
</Table>

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

  +  Director of the Company

  ++  Officer of the Company

  *  Less than 1% of the issued and outstanding shares of the Common Stock.

 (1) Unless otherwise noted, all of the shares shown are held by individuals or
     entities possessing sole voting and investment power with respect to such
     shares. Shares not outstanding but deemed beneficially owned by virtue of
     the right of a person or member of a group to acquire them within 60 days
     of March 22, 2002, are treated as outstanding only when determining the
     amount and percentage owned by such individual or group.

 (2) In accordance with regulations of the SEC, the percentage calculations are
     based on 78,022,842 shares of Common Stock issued and outstanding as of
     March 22, 2002, plus shares of Common Stock which may be acquired within 60
     days of March 22, 2002, by each individual or group listed.

 (3) Includes 94,759 shares of Common Stock held jointly with Melanie
     Noble-Couchman, Mr. Couchman's wife, and 1,761,919 shares of Common Stock
     held by Ms. Nobel-Couchman, with respect to which Mr. Couchman disclaims
     beneficial ownership. Also includes 26,200 shares of Common Stock issuable
     pursuant to an option which is exercisable within 60 days of March 22,
     2002. Mr. Couchman's address is 8890 Huntcliff Trace, Atlanta, Georgia
     30350.

 (4) Includes 94,759 shares of Common Stock held jointly with David H. Couchman,
     Ms. Nobel-Couchman's husband. Also includes 3,233,683 shares of Common
     Stock held by Mr. Couchman and 26,200 shares of Common Stock issuable
     pursuant to an option held by Mr. Couchman, which option is exercisable
     within 60 days of March 22, 2002, with respect to each of which Ms.
     Nobel-Couchman disclaims beneficial ownership. Ms. Noble-Couchman's address
     is 8890 Huntcliff Trace, Atlanta, Georgia 30350.

 (5) Includes (i) 1,300 shares of Common Stock held by Mr. Odom's wife as to
     which Mr. Odom may be deemed to share voting and investment power; (ii)
     14,600 shares of Common Stock held by Mr. Odom's son as to which Mr. Odom
     may be deemed to share voting and investment power; and (iii) 1,896,250
     shares of Common Stock issuable pursuant to options or warrants exercisable
     within 60 days of March 22, 2002.

 (6) Represents 1,179,000 shares of Common Stock held by LiveOak Equity
     Partners, L.P. for which Mr. Anantharaman serves as general partner and
     26,200 shares of Common Stock issuable pursuant to

                                        32
<PAGE>

     an option exercisable within 60 days of March 22, 2002, which option is
     also held by LiveOak Equity Partners, L.P.

 (7) Includes 720,625 shares of Common Stock issuable pursuant to options or
     warrants exercisable within 60 days of March 22, 2002.

 (8) Includes 56,875 shares of Common Stock held in an account owned by Ms.
     Reising's husband as to which Ms. Reising may be deemed to share voting and
     investment power and 631,875 shares of Common Stock issuable pursuant to
     options or warrants exercisable within 60 days of March 22, 2002.

 (9) Includes 437,500 shares of Common Stock issuable pursuant to warrants
     exercisable within 60 days of March 22, 2002.

(10) Includes (i) 17,500 shares of Common Stock held by Cadet, LLC, of which Mr.
     Wright serves as manager and in which he holds an equity interest and over
     which Mr. Wright may be deemed to have sole investment and voting power;
     and (ii) 288,750 shares of Common Stock issuable pursuant to warrants,
     including 17,500 shares of Common Stock issuable pursuant to warrants held
     by Cadet, LLC., all such warrants being exercisable within 60 days of March
     22, 2002.

(11) Includes 284,375 shares of Common Stock issuable pursuant to warrants
     exercisable within 60 days of March 22, 2002.

(12) Includes 262,500 shares of Common Stock issuable pursuant to warrants
     exercisable within 60 days of March 22, 2002.

(13) Includes 60,000 shares of Common Stock issuable pursuant to options
     exercisable within 60 days of March 22, 2002, and 50,000 shares of Common
     Stock owned by the Raville 1994 Family Limited Partnership over which Mr.
     Raville does not have investment or voting power and over which Mr. Raville
     disclaims beneficial ownership.

(14) Includes 4,608,075 shares of Common Stock issuable pursuant to options or
     warrants exercisable within 60 days of March 22, 2002.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Descriptions of the Executive Employment Agreements between the Company and
each of Messrs. Odom and Logsdon and Ms. Reising are set forth in the section of
this Annual Report titled "Executive Compensation -- Employment and Consulting
Agreements."

     In addition, the Company entered into Indemnification Agreements with each
of its directors and non-director officers at the level of Vice President and
above as ratified by the Company's shareholders at the Meeting.

     In connection with the consummation of the Telemate.Net merger, on November
16, 2001, Telemate.Net entered into a Separation Agreement (the "Mauro
Agreement") with Mr. Mauro, who served as a director of the Company from
November 16, 2001, to February 19, 2002, pursuant to which Mr. Mauro's
employment as Chief Executive Officer and President of Telemate.Net was
terminated effective November 23, 2001. Pursuant to the Mauro Agreement (i) in
November 2001, Telemate.Net paid Mr. Mauro $15,769 for accrued but unused time
off and $89,819 for a prorated bonus for the quarter and year ended December
2001; and (ii) Telemate.Net shall pay Mr. Mauro separation pay in the amount of
$308,807 over a 12 month period and continue Mr. Mauro's health insurance
coverage for the same such period at the same cost such coverage is offered to
Telemate.Net employees.

     There are no material relationships between the Company and its directors
or executive officers except as previously discussed herein. In the ordinary
course of business and from time to time, the Company and its affiliates and
subsidiaries may do business with each other.

                                        33
<PAGE>

                                    PART IV

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

     (a) Lists of certain documents filed herewith as part of this Annual Report
may be found as follows:

          (1) A list of the consolidated financial statements required to be
     filed as a part of this Annual Report is shown in the "Index to
     Consolidated Financial Statements" on page F-1.

          (2) Except for Financial Statement Schedule II, "Valuation and
     Qualifying Accounts," which is filed herewith, the financial statement
     schedules required to be filed as a part of this Annual Report are omitted
     from this Annual Report because the information required by such schedules
     is either not applicable or is included in the consolidated financial
     statements and notes thereto, which statements and notes are listed on the
     "Index to Consolidated Financial Statements" on page F-1 and filed
     herewith.

          (3) A list of the exhibits required by Item 601 of Regulation S-K to
     be filed as a part of this Annual Report is shown on the "Exhibit Index"
     filed herewith.

     (b) Reports on Form 8-K.

     During the quarter ended December 31, 2001, the Company filed with the SEC
on November 19, 2001, a Current Report on Form 8-K (the "Current Report") which
reported under Item 2 of such report the Company's acquisition of Telemate.Net
by means of a merger, whereby Telemate.Net became a wholly-owned subsidiary of
the Company. The financial statements and pro forma financial information
required to be filed with the Current Report have been previously filed with the
SEC as part of the Registration Statement.

                                        34
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     The following Consolidated Financial Statements, Financial Statement
Schedule and Independent Accountants' Reports are included herein on the pages
indicated:

<Table>
<Caption>
                                                               PAGE
                                                               ----
<S>                                                            <C>
Reports of Independent Accountants..........................   F-2
Consolidated Balance Sheets as of December 31, 2001 and
  2000......................................................   F-4
Consolidated Statements of Operations for the years ended
  December 31, 2001, 2000 and 1999..........................   F-5
Consolidated Statements of Shareholders' Equity for the
  years ended December 31, 2001, 2000 and 1999..............   F-6
Consolidated Statements of Cash Flows for the years ended
  December 31, 2001, 2000 and 1999..........................   F-7
Notes to Consolidated Financial Statements..................   F-9
Schedule II -- Valuation and Qualifying Accounts............   F-31
</Table>

                                       F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Verso Technologies, Inc. and subsidiaries:

     We have audited the consolidated balance sheets of Verso Technologies, Inc.
and subsidiaries (the "Company") as of December 31, 2001 and 2000, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years then ended. In connection with our audits of the
consolidated financial statements, we have also audited the financial statement
schedule as of December 31, 2001 and 2000 and for the years then ended as listed
in the accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule 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 Verso
Technologies, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein, as of December 31, 2001 and 2000 and for the years then ended.

     As discussed in Note 2 to the consolidated financial statements, effective
July 1, 2001, Verso Technologies, Inc. and subsidiaries adopted the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and certain provisions of SFAS No. 142, "Goodwill and Other
Intangible Assets," as required for goodwill and intangible assets resulting
from business combinations consummated after June 30, 2001.

/s/ KPMG LLP

Atlanta, Georgia
February 23, 2002, except as to
Note 15 which is as of March 29, 2002

                                       F-2
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors
of Verso Technologies, Inc.:

     In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the results of
operations and cash flows of Verso Technologies, Inc. (formerly Eltrax Systems,
Inc.) and its subsidiaries for the year ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. In addition,
in our opinion, the financial statement schedule listed in the accompanying
index presents fairly, in all material respects, the information set forth for
the year ended December 31, 1999, when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan
February 28, 2000, except for discontinued operations
reclassifications and revisions, the dates for which are July 19, 2000
and March 31, 2002

                                       F-3
<PAGE>

                            VERSO TECHNOLOGIES, INC.

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  2001           2000
                                                              ------------   ------------
                                                                    (IN THOUSANDS,
                                                                  EXCEPT SHARE DATA)
<S>                                                           <C>            <C>
                                         ASSETS
Current assets:
  Cash and cash equivalents.................................   $   7,745       $ 10,959
  Accounts receivable, net of allowance for doubtful
     accounts of $2,455 and $401 at December 31, 2001 and
     2000, respectively.....................................       9,333          1,322
  Inventories, net..........................................       3,709             --
  Other current assets......................................       1,104          1,137
  Assets of discontinued operations.........................         582        153,942
                                                               ---------       --------
     Total current assets...................................      22,473        167,360
Property and equipment, net of accumulated depreciation and
  amortization of $2,864 and $751 at December 31, 2001 and
  2000, respectively........................................       7,337          5,386
Intangibles, net of accumulated amortization of $3,931 and
  $2,420 at December 31, 2001 and 2000, respectively........      15,949          2,727
                                                               ---------       --------
     Total assets...........................................   $  45,759       $175,473
                                                               =========       ========
                          LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current portion of convertible subordinated debentures,
     net of discount........................................   $      --       $  6,348
  Deferred payment due for the purchase of NACT.............       5,340             --
  Accounts payable..........................................       1,624          1,834
  Accrued compensation......................................       3,130          1,140
  Accrued expenses..........................................       6,127          2,986
  Unearned revenue and customer deposits....................       5,904          1,677
  Liabilities of discontinued operations....................       4,900         19,959
                                                               ---------       --------
     Total current liabilities..............................      27,025         33,944
Convertible subordinated debentures, net of current portion
  and discount..............................................       3,428          3,153
                                                               ---------       --------
     Total liabilities......................................      30,453         37,097
Commitments (Note 13)
Shareholders' equity:
  Common stock, $.01 par value, 200,000,000 shares
     authorized; 77,619,654 and 49,615,133 shares issued and
     outstanding at December 31, 2001 and 2000,
     respectively...........................................         776            496
  Additional paid-in capital................................     271,462        249,340
  Notes receivable from shareholders........................      (1,620)          (667)
  Accumulated deficit.......................................    (252,131)      (104,516)
  Deferred compensation.....................................      (3,166)        (6,277)
  Accumulated other comprehensive loss -- foreign currency
     translation............................................         (15)            --
                                                               ---------       --------
     Total shareholders' equity.............................      15,306        138,376
                                                               ---------       --------
     Total liabilities and shareholders' equity.............   $  45,759       $175,473
                                                               =========       ========
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-4
<PAGE>

                            VERSO TECHNOLOGIES, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                                  FOR THE YEAR ENDED DECEMBER 31,
                                                              ---------------------------------------
                                                                 2001          2000          1999
                                                              -----------   -----------   -----------
                                                                 (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                                           <C>           <C>           <C>
Revenue:
  Products..................................................  $    14,367   $        --   $        --
  Services..................................................       14,986        11,988        10,017
                                                              -----------   -----------   -----------
    Total revenue...........................................       29,353        11,988        10,017
Cost of revenue:
  Products..................................................        5,762            --            --
  Services..................................................        8,504         6,658         5,614
                                                              -----------   -----------   -----------
    Total cost of revenue...................................       14,266         6,658         5,614
Gross profit:
  Products..................................................        8,605            --            --
  Services..................................................        6,482         5,330         4,403
                                                              -----------   -----------   -----------
    Total gross profit......................................       15,087         5,330         4,403
Operating expenses:
  Sales, general and administrative.........................       15,514        12,024         7,986
  Research and development..................................        2,755            --            --
  Depreciation..............................................        2,160           863            70
  Amortization of intangibles...............................        1,511           982           982
  Loss on asset abandonment.................................           --         1,760            --
  Reorganization costs......................................           --           511           462
  Transaction costs.........................................           --            --            81
  Deferred compensation.....................................        1,766           482            --
                                                              -----------   -----------   -----------
    Total operating expenses................................       23,706        16,622         9,581
                                                              -----------   -----------   -----------
    Operating loss from continuing operations...............       (8,619)      (11,292)       (5,178)
Other income................................................          203            --            --
Interest expense, net, including $606, $715 and $0 of
  amortization of loan fees and discount on convertible
  subordinated debentures in 2001, 2000 and 1999,
  respectively..............................................       (1,361)       (1,240)         (183)
                                                              -----------   -----------   -----------
    Loss from continuing operations before income taxes and
      extraordinary item....................................       (9,777)      (12,532)       (5,361)
Income taxes................................................         (100)           --            --
                                                              -----------   -----------   -----------
    Loss from continuing operations before extraordinary
      item..................................................       (9,877)      (12,532)       (5,361)
                                                              -----------   -----------   -----------
Discontinued operations:
  Loss from discontinued operations.........................     (135,598)      (31,950)       (4,477)
  Loss on disposal of discontinued operations...............         (500)      (11,000)           --
                                                              -----------   -----------   -----------
    Total discontinued operations...........................     (136,098)      (42,950)       (4,477)
                                                              -----------   -----------   -----------
    Loss before extraordinary item..........................     (145,975)      (55,482)       (9,838)
Extraordinary item -- loss from debt conversion.............       (1,640)           --            --
                                                              -----------   -----------   -----------
    Net loss................................................  $  (147,615)  $   (55,482)  $    (9,838)
                                                              ===========   ===========   ===========
Net loss per common share -- basic and diluted:
  Loss from continuing operations...........................  $     (0.18)  $     (0.48)  $     (0.23)
  Loss from discontinued operations.........................        (2.49)        (1.23)        (0.18)
  Loss on disposal of discontinued operations...............        (0.01)        (0.43)           --
                                                              -----------   -----------   -----------
  Loss before extraordinary item............................        (2.68)        (2.14)        (0.41)
  Extraordinary item -- loss from debt conversion...........        (0.03)           --            --
                                                              -----------   -----------   -----------
Net loss per common share -- basic and diluted..............  $     (2.71)  $     (2.14)  $     (0.41)
                                                              ===========   ===========   ===========
Weighted average shares outstanding -- basic and diluted....   54,431,651    25,903,431    23,728,262
                                                              ===========   ===========   ===========
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-5
<PAGE>

                            VERSO TECHNOLOGIES, INC.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                       (IN THOUSANDS, EXCEPT SHARE DATA)
<Table>
<Caption>
                                                                        NOTES
                                     COMMON STOCK       ADDITIONAL    RECEIVABLE     TREASURY STOCK
                                  -------------------    PAID-IN         FROM       -----------------   ACCUMULATED     DEFERRED
                                    SHARES     AMOUNT    CAPITAL     SHAREHOLDERS    SHARES    AMOUNT     DEFICIT     COMPENSATION
                                  ----------   ------   ----------   ------------   --------   ------   -----------   ------------
<S>                               <C>          <C>      <C>          <C>            <C>        <C>      <C>           <C>
BALANCES, JANUARY 1, 1999.......  23,834,436    $238     $ 75,668      $    --      (144,273)  $(387)    $ (39,196)     $    --
Net loss/comprehensive loss.....          --      --           --           --            --      --        (9,838)          --
Issuance of stock...............     119,829       1          380           --            --      --            --           --
Retirement of treasury stock....    (144,273)     (1)        (386)          --       144,273     387            --           --
Warrants issued in exchange for
 services.......................          --      --           24           --            --      --            --           --
Payment in lieu of issuance of
 fractional shares..............      (1,577)     --           (7)          --            --      --            --           --
                                  ----------    ----     --------      -------      --------   -----     ---------      -------
BALANCES, DECEMBER 31, 1999.....  23,808,415    $238     $ 75,679      $    --            --   $  --     $ (49,034)     $    --
Net loss/comprehensive loss.....          --      --           --           --            --      --       (55,482)          --
Issuance of common stock and
 replacement awards of common
 stock warrants and options in
 Cereus acquisition.............  21,866,600     219      149,102         (667)           --      --            --       (6,885)
Issuance of common stock and
 common stock warrants in
 MessageClick acquisition.......   1,405,923      14        3,530           --            --      --            --           --
Amortization of deferred
 compensation...................          --      --           --           --            --      --            --          608
Exercise of stock options.......   1,005,596      10        3,393           --            --      --            --           --
Issuance of stock through
 Employee Stock Purchase Plan...      60,355       1          297           --            --      --            --           --
Issuance of shares in private
 placement, net of associated
 fees...........................   1,374,532      14       13,991           --            --      --            --           --
Warrants issued in conjunction
 with convertible debentures....          --      --        2,378           --            --      --            --           --
Shares issued in exchange for
 services.......................      88,712      --          350           --            --      --            --           --
Warrants issued in exchange for
 services.......................          --      --           65           --            --      --            --           --
Issuance of common stock and
 compensatory options in
 reorganization.................       5,000      --          556           --            --      --            --           --
                                  ----------    ----     --------      -------      --------   -----     ---------      -------
BALANCES, DECEMBER 31, 2000.....  49,615,133    $496     $249,340      $  (667)           --   $  --     $(104,516)     $(6,277)
Comprehensive loss:
 Net loss.......................          --      --           --           --            --      --      (147,615)          --
 Foreign currency translation
   adjustment...................          --      --           --           --            --      --            --           --
 Comprehensive loss.............          --      --           --           --            --      --            --           --
Issuance of common stock and
 replacement awards of common
 stock options in Telemate.Net
 Software, Inc. acquisition.....  24,758,070     248       18,234         (947)           --      --            --         (131)
Issuance of common stock options
 in NACT Telecommunications,
 Inc. acquisition...............          --      --          625           --            --      --            --           --
Amortization of deferred
 compensation...................          --      --           --           --            --      --            --        2,033
Exercise of stock options.......   1,090,582      11          643           --            --      --            --           --
Issuance of stock through
 Employee Stock Purchase Plan...     211,965       2          199           --            --      --            --           --
Reduction of deferred
 compensation due to
 forfeitures....................          --      --       (1,209)          --            --      --            --        1,209
Accrued interest on notes
 receivable from shareholders...          --      --           --           (6)           --      --            --           --
Shares issued in exchange for
 convertible debentures.........   1,918,675      19        2,266
Warrants issued in conjunction
 with convertible debentures....          --      --          977           --            --      --            --           --
Shares issued in exchange for
 services.......................      11,429      --           19           --            --      --            --           --
Warrants issued in exchange for
 services.......................          --      --          219           --            --      --            --           --
Issuance of common stock and
 compensatory options in
 reorganization.................      13,800      --          150           --            --      --            --           --
                                  ----------    ----     --------      -------      --------   -----     ---------      -------
BALANCES, DECEMBER 31, 2001.....  77,619,654    $776     $271,462      $(1,620)           --   $  --     $(252,131)     $(3,166)
                                  ==========    ====     ========      =======      ========   =====     =========      =======

<Caption>

                                    FOREIGN
                                   CURRENCY
                                  TRANSLATION    TOTAL
                                  -----------   --------
<S>                               <C>           <C>
BALANCES, JANUARY 1, 1999.......     $ --         36,323
Net loss/comprehensive loss.....       --         (9,838)
Issuance of stock...............       --            381
Retirement of treasury stock....       --             --
Warrants issued in exchange for
 services.......................       --             24
Payment in lieu of issuance of
 fractional shares..............       --             (7)
                                     ----       --------
BALANCES, DECEMBER 31, 1999.....     $ --         26,883
Net loss/comprehensive loss.....       --        (55,482)
Issuance of common stock and
 replacement awards of common
 stock warrants and options in
 Cereus acquisition.............       --        141,769
Issuance of common stock and
 common stock warrants in
 MessageClick acquisition.......       --          3,544
Amortization of deferred
 compensation...................       --            608
Exercise of stock options.......       --          3,402
Issuance of stock through
 Employee Stock Purchase Plan...       --            298
Issuance of shares in private
 placement, net of associated
 fees...........................       --         14,005
Warrants issued in conjunction
 with convertible debentures....       --          2,378
Shares issued in exchange for
 services.......................       --            350
Warrants issued in exchange for
 services.......................       --             65
Issuance of common stock and
 compensatory options in
 reorganization.................       --            556
                                     ----       --------
BALANCES, DECEMBER 31, 2000.....     $ --       $138,376
Comprehensive loss:
 Net loss.......................       --       (147,615)
 Foreign currency translation
   adjustment...................      (15)           (15)
                                                --------
 Comprehensive loss.............       --       (147,630)
Issuance of common stock and
 replacement awards of common
 stock options in Telemate.Net
 Software, Inc. acquisition.....       --         17,404
Issuance of common stock options
 in NACT Telecommunications,
 Inc. acquisition...............       --            625
Amortization of deferred
 compensation...................       --          2,033
Exercise of stock options.......       --            654
Issuance of stock through
 Employee Stock Purchase Plan...       --            201
Reduction of deferred
 compensation due to
 forfeitures....................       --             --
Accrued interest on notes
 receivable from shareholders...       --             (6)
Shares issued in exchange for
 convertible debentures.........                   2,285
Warrants issued in conjunction
 with convertible debentures....       --            977
Shares issued in exchange for
 services.......................       --             19
Warrants issued in exchange for
 services.......................       --            219
Issuance of common stock and
 compensatory options in
 reorganization.................       --            150
                                     ----       --------
BALANCES, DECEMBER 31, 2001.....     $(15)      $ 15,306
                                     ====       ========
</Table>

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

                                       F-6
<PAGE>

                            VERSO TECHNOLOGIES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                FOR THE YEAR ENDED DECEMBER 31,
                                                              -----------------------------------
                                                                 2001         2000        1999
                                                              ----------   ----------   ---------
                                                               (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                                           <C>          <C>          <C>
OPERATING ACTIVITIES:
  Continuing operations:
    Net loss from continuing operations.....................   $(11,517)    $(12,532)    $(5,361)
    Adjustments to reconcile net loss from continuing
      operations to net cash used in continuing operating
      activities:
      Extraordinary item -- loss on debt conversion.........      1,640
      Amortization of intangibles...........................      1,511          982         982
      Depreciation..........................................      2,160          863          70
      Loss on asset abandonment.............................         --        1,760          --
      Amortization of deferred compensation.................      1,766          482          --
      Provision for doubtful accounts.......................      1,516          198         658
      Inventory valuation reserve...........................        178           --          --
      Amortization of loan fees and discount on convertible
         subordinated debentures............................        606          715          --
      Other.................................................        (22)          --          24
      Changes in current operating items:
         Accounts receivable, net...........................     (3,676)       1,522      (3,617)
         Inventories, net...................................      1,060           --          --
         Other current assets...............................      1,060       (2,238)        (50)
         Accounts payable...................................     (1,178)      (4,061)      1,129
         Accrued compensation...............................        794          166         902
         Accrued expenses...................................       (821)         637         368
         Unearned revenue and customer deposits.............     (1,838)        (805)      2,440
                                                               --------     --------     -------
      Net cash used in continuing operating activities......     (6,761)     (12,311)     (2,455)
                                                               --------     --------     -------
  Discontinued operations:
    Loss from discontinued operations.......................   (136,098)     (42,950)     (4,477)
    Estimated loss on disposal of discontinued operations...        500       11,000          --
    Adjustment to reconcile loss from discontinued
      operations to net cash (used in) provided by
      discontinued operating activities.....................    129,797        7,622       6,351
                                                               --------     --------     -------
      Net cash (used in) provided by discontinued operating
         activities.........................................     (5,801)     (24,328)      1,874
                                                               --------     --------     -------
      Net cash (used in) provided by operating activities...    (12,562)     (36,639)       (581)
                                                               --------     --------     -------
INVESTING ACTIVITIES:
  Continuing operations:
    Net cash used in investing activities for continuing
      operations --
      Purchases of property and equipment, net..............     (1,429)      (5,256)       (821)
      Software development costs capitalized................        (48)          --          --
      Purchase of NACT Telecommunications, Inc..............    (14,612)          --          --
      Purchase of Telemate.Net Software, Inc................     (1,483)          --          --
      Advance to MessageClick, Inc. prior to purchase.......         --         (300)         --
      Purchase of MessageClick, Inc.........................         --         (137)         --
                                                               --------     --------     -------
         Net cash used in investing activities for
           continuing operations............................    (17,572)      (5,693)       (821)
  Discontinued operations:
    Software development costs capitalized, net.............         --       (2,297)     (2,079)
    Purchases of property and equipment, net................         --       (1,975)     (3,526)
    Purchase of Cereus Technology Partners, Inc.............         --       (1,887)         --
    Net proceeds from sale of discontinued operations.......      8,122        8,566          --
                                                               --------     --------     -------
      Net cash provided by (used in) investing activities
         for discontinued operations........................      8,122        2,407      (5,605)
                                                               --------     --------     -------
      Net cash used in investing activities.................     (9,450)      (3,286)     (6,426)
                                                               --------     --------     -------
         Net cash used in operating and investing
           activities, carried forward......................    (22,012)     (39,925)     (7,007)
                                                               --------     --------     -------
</Table>

                                       F-7
<PAGE>
                            VERSO TECHNOLOGIES, INC.

              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

<Table>
<Caption>
                                                                FOR THE YEAR ENDED DECEMBER 31,
                                                              -----------------------------------
                                                                 2001         2000        1999
                                                              ----------   ----------   ---------
                                                               (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                                           <C>          <C>          <C>
NET CASH USED IN OPERATING AND INVESTING ACTIVITIES, CARRIED
  FORWARD...................................................   $(22,012)    $(39,925)    $(7,007)
                                                               --------     --------     -------
FINANCING ACTIVITIES:
  Continuing operations:
    (Payments) borrowings on credit line, net...............         --       (9,654)      2,325
    Proceeds from issuance of convertible subordinated
      debenture, net........................................         --       11,346          --
    Payments on convertible subordinated debentures.........     (4,500)
    Advance from Cereus Technology Partners, Inc. prior to
      merger................................................         --       10,170          --
    Proceeds from issuances of common stock, net............        755       17,705         382
    Proceeds from issuance of redeemable preferred stock....     15,000           --          --
    Payments issued in lieu of fractional shares............         --           --          (7)
                                                               --------     --------     -------
      Net cash provided by financing activities for
         continuing operations..............................     11,255       29,567       2,700
                                                               --------     --------     -------
  Discontinued operations:
    Net cash used in financing activities for discontinued
      operations --
      Payments on long-term debt............................         --         (493)     (2,320)
                                                               --------     --------     -------
      Net cash provided by financing activities.............     11,255       29,074         380
                                                               --------     --------     -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.....................         (1)          --          --
      Decrease in cash and cash equivalents.................    (10,758)     (10,851)     (6,627)
                                                               --------     --------     -------
CASH AND CASH EQUIVALENTS:
Beginning of period.........................................     11,155          613       7,240
Cash acquired in purchase of NACT Telecommunications,
  Inc.......................................................      2,538           --          --
Cash acquired in purchase of Telemate.Net Software, Inc.....      4,810           --          --
Cash acquired in purchase of Cereus Technology Partners,
  Inc.......................................................         --       21,215          --
Cash acquired in purchase of MessageClick, Inc..............         --          178          --
                                                               --------     --------     -------
End of period...............................................   $  7,745     $ 11,155     $   613
                                                               ========     ========     =======
CASH AND CASH EQUIVALENTS:
  Continuing operations.....................................   $  7,745     $ 10,959     $    --
  Discontinued operations...................................         --          196         613
                                                               --------     --------     -------
    Total cash and cash equivalents.........................   $  7,745     $ 11,155     $   613
                                                               ========     ========     =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  CASH PAYMENTS DURING THE YEAR FOR:
    Interest................................................   $    170     $  1,108     $   743
                                                               ========     ========     =======
    Income taxes............................................   $    101     $    289     $   464
                                                               ========     ========     =======
  NON-CASH INVESTING AND FINANCING ACTIVITIES
    Common stock consideration for acquisitions:
    Telemate.Net Software, Inc. -- issuance of 24,758,070
      shares and assumption of 5,420,206 stock options......   $ 17,404     $     --     $    --
    NACT Telecommunications, Inc. -- issuance of 1,395,089
      stock options.........................................        625           --          --
    MessageClick, Inc. -- issuance of 1,405,923 shares......         --        3,544          --
    Cereus Technology Partners, Inc. -- issuance of
      21,866,600 shares and assumption of 19,571,192 common
      stock warrants and 1,376,708 stock options............         --      141,769          --
  Common stock and compensatory options issued in
    reorganization..........................................        150          556          --
  Common stock issued in exchange for convertible
    subordinated debentures.................................      2,285           --          --
  Warrants issued in conjunction with convertible
    subordinated debentures.................................        977           --          --
  Issuance of warrants in exchange for services.............        219           65          24
  Issuance of common stock in exchange for services.........         19          350           5
  Assets acquired and liabilities assumed in conjunction
    with business acquisitions:
    Fair value of assets acquired, excluding cash...........   $ 33,761     $  8,827     $    --
    Consideration paid......................................     16,095        2,024          --
                                                               --------     --------     -------
      Liabilities assumed...................................   $ 17,666     $  6,803     $    --
                                                               ========     ========     =======
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-8
<PAGE>

                            VERSO TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2001

1.  ORGANIZATION AND BASIS OF PRESENTATION

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

     The consolidated financial statements include the accounts of Verso
Technologies, Inc. and its wholly-owned subsidiaries, including Telemate.Net
which merged with the Company on November 16, 2001, NACT which was acquired by
the Company on July 27, 2001, MessageClick, Inc. ("MessageClick"), which merged
with the Company on November 22, 2000 and Cereus Technology Partners, Inc.
("Cereus") and its subsidiaries, which was acquired by the Company on September
29, 2000, each in transactions accounted for as purchases (see Note 3) and
including Sulcus Hospitality Technologies Corp. ("Sulcus") and Windward
Technology Group, Inc. ("Windward"), which merged with the Company in the first
quarter of 1999 in transactions accounted for as poolings-of-interests (see Note
3). The financial statements for 1999 include the results of Sulcus and Windward
for the entire year. Cereus, Sulcus and Windward are included in discontinued
operations.

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

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

 USE OF ESTIMATES

     The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management of the Company 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 EQUIVALENTS

     The Company considers all investments purchased with an original maturity
of three months or less to be cash equivalents. Cash equivalents at December 31,
2001 and 2000 totaling approximately $6.4 million and $10.1 million
respectively, consist primarily of money market investments, which are recorded
at cost, which approximates market.

                                       F-9
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

 CREDIT, CUSTOMER AND VENDOR CONCENTRATIONS

     The Company's accounts receivable potentially subject the Company to credit
risk. While the Company has purchase-money-security-interests in its equipment
sold on credit terms and generally prepares and files UCC financing statements
with respect thereto, the Company does not seek to perfect or claim a security
interest in small dollar value equipment sales and services. As of December 31,
2001, two customers of the Company's Gateway Solutions segment accounted for
more than 10%, totaling approximately $3.0 million, of the Company's gross
accounts receivable. During the year ended December 31, 2001, one customer of
the Company's Application and Services segment accounted for more than 10%,
totaling approximately $7.1 million, of the Company's total revenue.

 INVENTORIES

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

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

<Table>
<S>                                                           <C>
Raw materials...............................................  $1,677
Work in process.............................................   1,376
Finished goods..............................................     884
                                                              ------
Total inventories...........................................   3,937
Inventory reserve...........................................    (228)
                                                              ------
Total inventories, net......................................  $3,709
                                                              ======
</Table>

     The Company did not have purchased electronic component inventory for the
year ended December 31, 2000.

  PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost or fair value at date of
acquisition, if acquired through a business acquisition. Depreciation and
amortization is computed using the straight-line method over estimated useful
lives or lease term, ranging from three to ten years. Upon retirement or
disposal of property and equipment, the cost and accumulated depreciation are
removed from the accounts, and any gain or loss is included in operating income.
Maintenance and repairs are charged to expense as incurred.

     Property and equipment are summarized as follows (in thousands):

<Table>
<Caption>
                                                               DECEMBER 31,
                                                              ---------------
                                                               2001     2000
                                                              ------   ------
<S>                                                           <C>      <C>
Computers and equipment.....................................  $4,705   $2,353
Purchased software..........................................   1,776      902
Furniture and fixtures......................................   1,402      648
Leasehold improvements......................................   2,318    2,234
                                                              ------   ------
                                                              10,201    6,137
Less accumulated depreciation and amortization..............   2,864      751
                                                              ------   ------
  Net property and equipment................................  $7,337   $5,386
                                                              ======   ======
</Table>

                                       F-10
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

  IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

     The Company accounts for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". This Statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.

  GOODWILL AND OTHER INTANGIBLE ASSETS

     Goodwill and other intangible assets represent the excess of cost over the
fair value of net tangible assets acquired and identified other intangible
assets. These assets are generally being amortized on a straight-line basis over
estimated useful lives of three years. The Company assesses the recoverability
of its goodwill and other intangible assets by determining whether the value of
goodwill and other intangible asset balances over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill and other intangible asset impairment, if any,
is measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. As a result of
current year assessments, the Company reduced the carrying value of goodwill
related to its VAR business operations, recording a goodwill write down of $95.3
million, which is classified in discontinued operations (see Note 4). Goodwill
of approximately $11.4 million and $1.5 million associated with the acquisitions
of NACT and Telemate.Net, respectively (see Note 3), is not being amortized in
accordance with SFAS 142; also in accordance with SFAS 142, no amortization of
goodwill will be recorded beginning in 2002.

     Intangible assets consist of the following (in thousands):

<Table>
<Caption>
                                                       AMORTIZATION
                                                      PERIOD (YEARS)    2001      2000
                                                      --------------   -------   -------
<S>                                                   <C>              <C>       <C>
Goodwill............................................        3          $16,132   $ 3,147
Capitalized software development....................        3            1,748        --
Installed customer base.............................        3            2,000     2,000
                                                                       -------   -------
                                                                        19,879     5,147
Accumulated amortization............................                    (3,931)   (2,420)
                                                                       -------   -------
                                                                       $15,949   $ 2,727
                                                                       =======   =======
</Table>

  PRODUCT RETURNS AND WARRANTIES

     The Company provides warranties for its products for one year with optional
prepaid warranty renewals in increments of either 6-month or one-year terms when
the customer purchases maintenance coverage through the Company. The Company's
sales and service agreements do not permit product returns by its customers. The
Company has not experienced significant warranty claims to date. Accordingly,
the Company has not provided a reserve for warranty costs at December 31, 2001
and 2000.

                                       F-11
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

  FAIR VALUE OF FINANCIAL INSTRUMENTS

     Estimates of fair value are made at a specific point in time, based on
relevant market prices and information about the financial instrument. The
estimated fair values of financial instruments are not necessarily indicative of
the amounts the Company might realize in actual market transactions. The
following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:

     Cash and cash equivalents, accounts receivable, accrued expenses, accounts
payable, and customer deposits: The carrying amounts reported in the balance
sheet approximates their fair value.

     Short and long-term debt: The carrying amount of the Company's borrowings
under floating rate debt approximates fair value. The carrying amount of
convertible subordinated debentures under fixed rate debt approximates their
fair value, as these debentures were issued in a private placement and,
therefore, no market is readily available. However, they were issued in an
arm's-length transaction, which approximates the fair value.

     At December 31, 2001 and 2000, the carrying amounts of all financial
instruments approximate their fair values.

  REVENUE RECOGNITION

  Gateway Solutions

     The Company recognizes revenue from its Gateway Solutions segment from
product sales of its gateway solution systems when: (1) persuasive evidence of
an agreement exists; (2) delivery has occurred and installation has been
substantially complete; (3) the fee is fixed and determinable; and (4)
collection of the resulting receivable, including receivables from customers to
which the Company has provided customer financing, is probable. The
determination of whether the collectibility of receivables is reasonably assured
is based upon an assessment of the creditworthiness of the customers. In
instances where collection of a receivable is not reasonably assured, revenue
and related costs are deferred. Services revenue related to hardware sales are
generally recognized at the time of performance.

  Applications and Services

     The Company recognizes revenue from its Applications and Services segment
from two primary sources, product sales (hardware and software licenses) and
services. Revenue from software licensing and support fees is recognized in
accordance with Statement of Position ("SOP") 97-2, "Software Revenue
Recognition" and SOP 98-9, "Software Revenue Recognition with Respect to Certain
Transactions". Accordingly, the Company recognizes hardware sales and software
license revenue when: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred; (3) the fee is fixed or determinable; and (4)
collectibility is probable. The determination of whether the collectibility of
receivables is reasonably assured is based upon an assessment of the
creditworthiness of the customers. In instances where collection of a receivable
is not reasonably assured, revenue and related costs are deferred.

     SOP No. 97-2 generally requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on the
relative fair values of the elements. The fair value of an element must be based
on the evidence that is specific to the vendor. License revenue allocated to
software products generally is recognized upon delivery of the products or
deferred and recognized in future periods to the extent that an arrangement
includes one or more elements to be delivered at a future date and for which
fair values have not been established. Revenue allocated to maintenance is
recognized ratably over the maintenance term which is typically 12 months and
revenue allocated to training and other service elements, such as implementation
and training, are recognized as the services are performed.

     Amounts that have been received in cash or billed but that do not yet
qualify for revenue recognition are reflected as deferred revenues.

                                       F-12
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

  STOCK-BASED COMPENSATION PLAN

     The Company applies the intrinsic value-based method to account for its
stock option plans in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. As such, compensation expense to be recognized over the
related vesting period is generally recorded only if the current market price of
the underlying stock exceeds the exercise price on the date of grant. SFAS 123,
"Accounting for Stock-Based Compensation", permits entities to recognize as
expense over the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS 123 allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income (loss) and pro
forma income (loss) per share disclosures for employee stock option grants as if
the fair-value-based method defined in SFAS 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosures required by SFAS 123.

  INCOME TAXES

     Income taxes are computed using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current year and
deferred tax assets and liabilities for the future tax consequences of events
that have been recognized in the Company's consolidated financial statements or
tax returns. The measurement of current and deferred tax assets and liabilities
are based on provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.

  NET LOSS PER SHARE

     Basic and diluted net loss per share was computed in accordance with SFAS
No. 128, "Earnings Per Share," using the weighted average number of common
shares outstanding. The diluted net loss per share for the twelve month periods
ended December 31, 2001, 2000 and 1999 does not include the effect of the common
stock equivalents, calculated by the treasury stock method, as their impact
would be antidilutive. Using the weighted average number of common shares,
excluded common stock equivalents are as follows:

<Table>
<Caption>
                                                         2001        2000       1999
                                                       ---------   ---------   -------
<S>                                                    <C>         <C>         <C>
Shares issuable under stock options..................    717,302   1,827,356   635,193
Shares issuable pursuant to warrants to purchase
  common stock.......................................     39,323   3,016,212        --
Shares issuable under convertible subordinated
  debentures.........................................  1,011,236   1,664,351        --
                                                       ---------   ---------   -------
                                                       1,767,861   6,507,919   635,193
                                                       =========   =========   =======
</Table>

  COMPREHENSIVE INCOME (LOSS)

     SFAS No. 130, "Reporting Comprehensive Income", establishes standards for
reporting and presentation of comprehensive income (loss) and its components in
a full set of financial statements. The statement requires only additional
disclosures in the consolidated financial statements; it does not affect the
Company's financial position or results of operations. Comprehensive loss has
been included in the Consolidated Statements of Shareholders' Equity for the
three-year period ended December 31, 2001.

                                       F-13
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

  SEGMENT AND GEOGRAPHIC INFORMATION

     In accordance with the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," the Company has determined,
with the acquisition of NACT, that it has two separately reportable operating
segments, Gateway Solutions and Applications and Services. All of the Company's
continuing operating results and identifiable assets are in the United States of
America.

  NEW ACCOUNTING PRONOUNCEMENTS

     In September 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement was amended in September
2000 by Statement No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities." Statement No. 138 is effective for the Company
beginning January 2001. The new Statement requires all derivatives to be
recorded on the balance sheet at fair value and establishes accounting treatment
for three types of hedges: hedges of changes in the fair value of assets,
liabilities or firm commitments; hedges of the variable cash flows of forecasted
transactions; and hedges of foreign currency exposures of net investments in
foreign operations. To date, the Company has not invested in derivative
instruments nor participated in hedging activities and, therefore, there will be
no impact on the result of operations or financial position from Statements No.
133 or No. 138.

     In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SAFS 141"), which is effective for all business combinations initiated after
June 30, 2001. SFAS 141 requires companies to account for all business
combinations using the purchase method of accounting, recognize intangible
assets if certain criteria are met, as well as provide additional disclosures
regarding business combinations and allocation of purchase price. The Company
adopted SFAS No. 141 as of July 1, 2001, for its acquisitions completed during
the third and fourth fiscal quarters of 2001.

     In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which requires
non-amortization of goodwill and intangible assets that have indefinite useful
lives and annual tests of impairments of those assets. The statement also
provides specific guidance about how to determine and measure goodwill and
intangible asset impairments, and requires additional disclosure of information
about goodwill and other intangible assets. The provisions of this statement are
required to be applied starting with fiscal years beginning after December 15,
2001 and applied to all goodwill and other intangible assets recognized in its
financial statements at that date. Goodwill and intangible assets acquired after
June 30, 2001 will be subject to the non-amortization provisions of the
statement at the date of acquisition. The Company adopted SFAS No. 142 for its
acquisitions in the third and fourth fiscal quarters of 2001.

     In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS 144 extends the requirement of
APB Opinion No. 30 of reporting separately discontinued operations to a
component of an entity that either has been disposed of (by sale, abandonment,
or in a distribution to owners) or is classified as held for sale. The Company
adopted SFAS 144 in the fourth quarter of 2001 to reclassify its abandoned VAR
business and consulting practice as discontinued operations for all periods
presented in the consolidated financial statements.

                                       F-14
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

3.  MERGERS AND ACQUISITIONS

  TELEMATE.NET SOFTWARE, INC.

     On November 16, 2001, to increase capital which provided the means for the
Company to acquire NACT Telecommunicomms, Inc., and to add patented
communications billing & reporting for next-generation converged IP and PSTN
networks to the Company's market offering, the Company acquired all of the
outstanding capital stock of Telemate.Net, by means of a subsidiary merger. The
merger consideration was approximately $4.1 million, consisting of 24,758,070
shares of the Company's common stock with a fair market value of $16.6 million,
based on a $0.67 average of the Company's common stock price for the ten days
prior to the date of purchase, assumed options to acquire 5,420,206 shares of
the Company's common stock with exercise prices ranging from $.20 to $5.42 per
share (estimated fair value of $1.8 million, using the Black-Scholes option
pricing model based on the following weighted-average assumptions: expected
volatility -- 128%; expected life -- one year; risk-free interest rate -- 3.3%;
and expected dividend yield -- 0%), deferred compensation of $131,000 discussed
in Note 9 and acquisition costs of approximately $2.0 million, reduced by
retirement of Series B redeemable preferred stock ("Series B Preferred Stock")
of $15.0 million and $438,000 of accrued interest thereon and notes receivable
from shareholders assumed of $947,000.

     The acquisition was treated as a purchase for accounting purposes, and
accordingly, the assets and liabilities were recorded at their fair value at the
date of the acquisition. The excess of the purchase price over the estimated
fair value of net assets acquired totaled approximately $1.5 million and was
allocated to goodwill. In accordance with Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), the
Company is not amortizing this goodwill.

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

  NACT TELECOMMUNICATIONS, INC.

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

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

     The acquisition was treated as a purchase for accounting purposes, and
accordingly, the assets and liabilities were recorded at their fair value at the
date of the acquisition. The excess of the purchase price over the estimated
fair value of net assets acquired (including identified intangible assets of
$1.7 million, which are being amortized over a three year life) totaled
approximately $11.4 million and was allocated to goodwill. In accordance SFAS
142, the Company is not amortizing this goodwill.

     The Company has prepared an initial allocation of purchase price based on
the estimated fair values of certain intangible assets, receivables and
contingent liabilities, including a deferred payment (see note 15). The Company
is continuing to obtain information as to ultimate valuation, recoverability and
realization with respect to the fair values of these items and anticipates the
allocation of purchase price is expected to be finalized during the first
quarter of 2002.

                                       F-15
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

3.  MERGERS AND ACQUISITIONS -- (CONTINUED)

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

  MESSAGECLICK, INC.

     On November 22, 2000, the Company acquired all of the outstanding capital
stock of MessageClick, Inc. by means of a subsidiary merger. The merger
consideration was approximately $4.2 million, consisting of 1,405,923 shares of
the Company's common stock with a fair value of $3.2 million, warrants to
acquire 181,901 shares of the Company's common stock with an exercise price of
$4.03 per share (estimated fair value of $301,000 using the Black-Scholes option
pricing model based on the following weighted-average assumptions: expected
volatility -- 88%; expected life -- five years; risk-free interest rate -- 5.5%;
and expected dividend yield -- 0%), cash of $5,000 and acquisition costs of
approximately $417,000.

     The acquisition was treated as a purchase for accounting purposes, and
accordingly, the assets and liabilities were recorded at their fair value at the
date of the acquisition. The excess of the purchase price over the estimated
fair value of net liabilities acquired totaled approximately $9.9 million and
was allocated to goodwill. The goodwill has historically been amortized over
three years. In the second quarter of 2001, the Company decided to discontinue
offering its MessageClick ASP service and refocus the development of this
proprietary application to be offered as a licensed software product. As a
result of this decision, the remaining unamortized balance of goodwill related
to MessageClick totaling $7.9 million was written off.

     Prior to the Company's mergers with Cereus in September 2000 (as described
below) and MessageClick in November 2000, Cereus purchased 3,000,000 shares of
MessageClick's Series E Preferred Stock for an aggregate purchase price of
$1,500,000. In addition, in November 2000, the Company loaned MessageClick
$300,000 pursuant to a 90-day promissory note.

  ALLOCATION OF PURCHASE PRICE

<Table>
<Caption>
                                                    TELEMATE.NET    NACT     MESSAGECLICK
                                                    ------------   -------   ------------
<S>                                                 <C>            <C>       <C>
Cash..............................................    $ 4,810      $ 2,538     $   176
Other current assets..............................      1,142       10,547         192
Property and equipment............................        563        2,505       1,273
Intangibles.......................................      1,539       13,146       9,874
Current liabilities...............................     (4,079)      (2,819)     (4,207)
Deferred payment on purchase of NACT..............         --       (5,340)         --
Convertible subordinated debentures...............         --           --      (3,124)
Deferred compensation.............................        131           --          --
                                                      -------      -------     -------
Purchase consideration............................    $ 4,106      $20,577     $ 4,184
                                                      =======      =======     =======
</Table>

                                       F-16
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

3.  MERGERS AND ACQUISITIONS -- (CONTINUED)

  PRO FORMA EFFECT OF TELEMATE.NET, NACT AND MESSAGECLICK

     The following unaudited pro forma information presents the results of
continuing operations of the Company as if the acquisitions of Telemate.Net,
NACT and MessageClick had taken place on January 1, 2000 (in thousands, except
per share amounts):

<Table>
<Caption>
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Revenues....................................................  $ 47,567   $ 46,506
Net loss from continuing operations.........................  $(17,623)  $(40,830)
Net loss from continuing operations per common share
  -- basic and diluted......................................  $   (.22)  $   (.81)
Loss before extraordinary item per common share -- basic and
  diluted...................................................     (1.94)     (1.70)
Net loss per common share -- basic and diluted..............     (1.96)     (1.70)
Weighted average shares outstanding
  -- basic and diluted......................................    79,190     50,662
</Table>

  CEREUS TECHNOLOGY PARTNERS, INC.

     On September 29, 2000, the Company acquired all of the outstanding capital
stock of Cereus, a reseller of business applications and consulting practice, by
means of a subsidiary merger. The merger consideration was approximately $133.6
million, consisting of 21,866,600 shares of the Company's common stock with a
fair value of $106.6 million, assumed options and warrants to acquire 20,947,900
shares of the Company's common stock with exercise prices ranging from $.51 to
$10.14 per share (estimated fair value of $35.8 million, net of $6.9 million of
deferred compensation discussed in Note 9, using the Black-Scholes option
pricing model based on the following weighted-average assumptions: expected
volatility -- 88%; expected life -- five years; risk-free interest rate -- 5.5%;
and expected dividend yield -- 0%) and acquisition costs of approximately $1.9
million, reduced by notes receivable from shareholders of $667,000 and a $10.2
million bridge facility advanced to the Company by Cereus prior to closing.

     The acquisition was treated as a purchase for accounting purposes, and
accordingly, the assets and liabilities were recorded at their fair value at the
date of the acquisition. The excess of the purchase price over the estimated
fair value of net assets acquired totaled approximately $113.0 million and was
allocated to goodwill. The goodwill has historically been amortized over three
years.

     During the second quarter of 2001, the Company changed its strategic
direction from primarily acting as a value-added reseller of prepackaged
software to pursue opportunities in the next generation networking and
softswitch technology market. As a result of its change in strategy, the Company
re-evaluated its operations obtained through prior acquisition transactions, and
determined that several operations, including its Cereus business, did not add
value to the new strategic direction. Management evaluated its net intangibles
associated with these non-strategic operations, and based upon its consolidated
operating projections of expected future cash flows over a three-year period,
discounted using a 8.0% interest rate, determined that the related net
intangibles were impaired. Accordingly, the Company recognized a write-down of
goodwill of $77.1 million during the quarter ended June 30, 2001.

     The Company decided to discontinue investment in its legacy value-added
reseller business and associated consulting practice during the fourth quarter
of 2001. As a result, the Company has accounted for the operations of Cereus as
discontinued operations for all periods presented.

                                       F-17
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

3.  MERGERS AND ACQUISITIONS -- (CONTINUED)

  WINDWARD TECHNOLOGY GROUP, INC.

     On March 31, 1999, the Company acquired all of the outstanding capital
stock of Windward by means of a subsidiary merger by issuing 1,375,000 shares of
the Company's common stock. Windward focused on the application development
service market, with added networking and network management solutions. The
merger with Windward was accounted for as a pooling-of-interests and,
accordingly, the Company's consolidated financial statements have been restated
to include the accounts and operations of Windward for all periods prior to the
merger. The Company decided to discontinue investment in its legacy value-added
reseller business and associated consulting practice during the fourth quarter
of 2001. As a result, the Company has accounted for the operations of Windward
as discontinued operations for all periods presented.

4.  DISCONTINUED OPERATIONS

     Following the purchase of NACT in July of 2001, the Company determined that
its legacy value-added reseller business and associated consulting practices
were not strategic to the Company's ongoing objectives and discontinued capital
and human resource investment in these businesses. Accordingly, the Company has
elected to report its legacy value-added reseller and associated consulting
practices as discontinued operations by early adopting SFAS 144. These
businesses are included with HSG (which was reported as discontinued operations
in 2000) for a combined presentation of discontinued operations. The
consolidated financial statements have been reclassified to segregate the net
assets and operating results of these combined discontinued operations for all
periods presented.

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

     The loss on the sale of HSG totaled $11.5 million. A loss of $11.0 million
was recorded in the third and fourth quarters of 2000 and an additional $500,000
was recorded in the third quarter of 2001, the latter related to winding up the
Company's international hospitality operations, the assets of which were sold in
the fourth quarter of 2000. The 2000 loss included a reduction in asset values
of approximately $6.7 million and a provision for anticipated closing costs and
operating losses until disposal of approximately $4.8 million.

     Summary operating results of the discontinued operations (in thousands) are
as follows:

<Table>
<Caption>
                                                      FOR THE YEAR ENDED DECEMBER 31,
                                                      -------------------------------
                                                        2001        2000       1999
                                                      ---------   --------   --------
<S>                                                   <C>         <C>        <C>
Revenue.............................................  $  12,762   $ 96,944   $119,296
                                                      =========   ========   ========
Gross profit........................................        374     23,429     41,948
                                                      =========   ========   ========
Operating loss......................................   (135,598)   (35,291)    (3,994)
Interest expense....................................         --       (785)      (459)
Loss on disposal of assets..........................       (500)    (6,704)        --
Income tax expense..................................         --       (170)       (24)
                                                      ---------   --------   --------
Loss from discontinued operations...................  $(136,098)  $(42,950)  $ (4,477)
                                                      =========   ========   ========
</Table>

                                       F-18
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

4.  DISCONTINUED OPERATIONS -- (CONTINUED)

     The operating loss in 2001 includes depreciation of $546,000, amortization
of intangibles of $22.7 million, write-down of goodwill of $95.3 million,
reorganization costs of $9.2 million and amortization of deferred compensation
of $267,000. The operating loss in 2000 includes depreciation of $1.8 million,
amortization of intangibles of $11.5 million, loss on asset abandonment of
$218,000, reorganization costs of $1.0 million and amortization of deferred
compensation of $126,000. The operating loss in 1999 includes depreciation of
$1.2 million, amortization of intangibles of $868,000, reorganization costs of
$192,000 and transaction costs of $170,000.

     The reorganization costs consist of the following (in thousands):

<Table>
<Caption>
                                                               2001    2000   1999
                                                              ------   ----   ----
<S>                                                           <C>      <C>    <C>
Severance costs.............................................  $1,217   $731   $192
Facilities closings.........................................   6,162    258     --
Inventory write-down........................................   1,005     --     --
MessageClick ASP existing costs.............................     824     --     --
                                                              ------   ----   ----
                                                              $9,208   $989   $192
                                                              ======   ====   ====
</Table>

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

<Table>
<Caption>
                                                                DECEMBER 31,
                                                              -----------------
                                                               2001      2000
                                                              ------   --------
<S>                                                           <C>      <C>
Cash and cash equivalents...................................  $   --   $    196
Other current assets........................................     582     25,669
Furniture and equipment, net................................      --      4,344
Capitalized software, net...................................      --      4,532
Intangibles, net............................................      --    119,201
                                                              ------   --------
Assets of discontinued operations...........................  $  582   $153,942
                                                              ======   ========
Current liabilities.........................................   4,900     14,376
Reserve for loss on sale and operating losses...............              5,784
Accumulated other comprehensive loss........................               (201)
                                                              ------   --------
Liabilities of discontinued operations......................  $4,900   $ 19,959
                                                              ======   ========
</Table>

     Included in current liabilities of discontinued operations at December 31,
2001 are accrued restructuring costs totaling $2.7 million. This accrual relates
to several leases for buildings and equipment that are no longer being utilizing
in continuing operations. The accrual is for all remaining payments due on these
leases, less amounts to be paid by any sublessors. The accrual for one lease
with total payments remaining of $2.7 million, assumes that the building will be
sub-leased for 50% of the lease value.

                                       F-19
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

5.  FINANCING ARRANGEMENTS

     In December 2001, the Company entered into a $5.0 million revolving credit
agreement (the "Credit Agreement") with Silicon Valley Bank (the "Bank"). The
Credit Agreement is secured by substantially all of the assets of the Company.
Interest is computed at 2% above the Bank's Base Rate (6.75% at December 31,
2001). The Credit Agreement provides for up to $500,000 in letters of credit.
Advances are limited by a formula based on eligible receivables, inventory,
certain cash balances, outstanding letters of credit and certain subjective
limitations. Interest payments are due monthly, and the Credit Agreement expires
December 2002. The Credit Agreement includes an annual loan fee of $50,000 and
..25% on unused available borrowings. The Company paid certain loan fees and
attorney's fees totaling approximately $94,000 in connection with the Credit
Agreement, which fees are being amortized to interest expense over the term of
the Credit Agreement.

     The Company had no borrowings under the Credit Agreement as of December 31,
2001. The availability under the Credit Agreement at December 31, 2001 is based
on an analysis of available collateral based on an audit by the Bank, which is
being completed now, and will be determined well in advance of any expected
borrowing needs. Under the terms of the Credit Agreement, the Company is
required to maintain a minimum tangible net worth, computed quarterly, and
cannot declare dividends or incur any additional indebtedness without the
consent of the Bank, and maintain other financial covenants, as defined. The
Company was in compliance with these covenants as of December 31, 2001.

6.  CONVERTIBLE SUBORDINATED DEBENTURES

     In connection with the acquisition of MessageClick, certain investors of
MessageClick purchased $4.5 million of the Company's 7.5% convertible
subordinated debentures and warrants to purchase an aggregate of 1,000,000
shares of the Company's common stock at an exercise price of $7.39 per share.
The debentures are convertible into the Company's common stock at a conversion
price of $4.45. The convertible subordinated debentures are due November 22,
2005. The debentures have been discounted to reflect the fair value of the
warrants issued, totaling approximately $1.4 million, using the Black-Scholes
option pricing method based on the following weighted-average assumptions:
expected volatility -- 88%; expected life -- five years; risk-free interest
rate -- 5.5%; and expected dividend yield -- 0%. The unamortized discount
totaled approximately $1.1 million at December 31, 2001. In addition, the
Company paid certain private placement fees and attorney's fees in connection
with the sale of the debentures totaling $50,000. The fees are being amortized
to interest expense over the term of the debentures.

     The Company issued $7.0 million of its 5% convertible subordinated
debentures during the year ended December 31, 2000. The convertible subordinated
debentures were issued with warrants to purchase 364,584 shares of the Company's
common stock at an exercise price of $5.03 per share. The debentures were
discounted to reflect the fair value of the warrants issued, totaling
approximately $1.0 million, using the Black-Scholes option pricing method based
on the following weighted-average assumptions: expected volatility -- 88%;
expected life -- five years; risk-free interest rate -- 5.5%; and expected
dividend yield -- 0%. There is no unamortized discount at December 31, 2001. In
addition, the Company paid certain private placement fees (including 88,712
shares of the Company's common stock with a fair value at the date of issuance
totaling $350,000) and attorney's fees in connection with the sale of the
debentures totaling $454,000. The fees were amortized to interest expense over
the term of the debentures until the debentures were retired or converted into
the Company's common stock.

                                       F-20
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

6.  CONVERTIBLE SUBORDINATED DEBENTURES -- (CONTINUED)

     In January 2001, the Company modified the terms of its 5% convertible
subordinated debentures. According to the modified terms of the agreement, the
Company repurchased $4.5 million of the outstanding $7.0 million of its 5%
convertible subordinated debentures. Of the remaining $2.5 million in
outstanding 5% convertible subordinated debentures, $1.5 million were converted
by the investors into the Company's common stock at a price of $1.40 per share.
The remaining $1.0 million of 5% convertible subordinated debentures was
converted at $1.19 per share. In connection with this modification, the Company
issued warrants to purchase 945,378 shares of the Company's common stock at an
exercise price of $2.00 per share. The fair value of the warrants issued,
totaled approximately $977,000, using the Black-Scholes option pricing method
based on the following weighted-average assumptions: expected volatility -- 91%;
expected life -- five years; risk-free interest rate -- 5.5%; and expected
dividend yield -- 0%. The cost of conversion, including the warrants issued,
totaled $1.6 million in the year ended December 31, 2001.

     The cost of conversion is reflected as an extraordinary item in the
statement of operations and consisted of the following (in thousands):

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

7.  REORGANIZATION COSTS

     In the second quarter 2000, the Company announced a reorganization and
accelerated the vesting of options for certain board members and executives who
were going to be terminated with the Cereus merger. The costs associated with
these eliminations included the fair value of 5,000 shares of the Company's
common stock issued to an employee and the intrinsic value of accelerated
vesting and extended exercise dates on options previously issued to employees
and directors totaling approximately $511,000.

     In connection with the Company's relocation of its headquarters to Atlanta,
Georgia the Company recorded reorganization costs in 1999 totaling approximately
$462,000 related to recruiting and relocation of personnel.

8.  SHAREHOLDERS' EQUITY

 PREFERRED STOCK

     The Company originally authorized 1,000,000 shares of Preferred Stock,
30,000 of which were designated as Series A convertible Preferred Stock ("Series
A Preferred" Stock). All 30,000 shares of the Series A convertible Preferred
Stock have been converted into 300,000 shares of the Company's common stock.

     In 2001, concurrent with the closing of the NACT Stock Purchase, the
Company issued and sold to Telemate.Net an aggregate of $15.0 million of the
Company's Series B Preferred Stock at a price of $20.00 per share. Upon the
merger between the Company and Telemate.Net, these shares were retired. There
were no outstanding shares of the Preferred Stock at December 31, 2001 and 2000.
Currently, there are 220,000 shares of undesignated Preferred Stock, which are
authorized but unissued.

                                       F-21
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

8.  SHAREHOLDERS' EQUITY -- (CONTINUED)

  PRIVATE PLACEMENTS

     On March 29, 2000, the Company sold 1,194,532 shares of its common stock to
accredited investors in a private placement for aggregate proceeds of
approximately $13.3 million less issuance costs of $240,000.

     On June 29, 2000, the Company sold 180,000 shares of its common stock to an
accredited investor in a private placement for aggregate proceeds of $990,000.

  STOCK WARRANTS

     In connection with various financing and acquisition transactions, and
related services provided to the Company, the Company has issued warrants to
purchase the Company's common stock. During 2001, the Company issued 945,378
warrants in connection with the modification of the terms of its 5% convertible
subordinated debt agreement. The fair value of the warrants issued, totaled
approximately $977,000, using the Black-Scholes option pricing method based on
the following weighted-average assumptions: expected volatility -- 88%; expected
life -- five years; risk-free interest rate -- 5.5%; and expected dividend
yield -- 0%.

     During 2000, the Company issued 364,584 warrants in connection with its 5%
convertible subordinated debentures and 181,901 in connection with its 7.5%
convertible subordinated debentures. In addition, warrants issued by Cereus to
purchase Cereus common stock were assumed by the Company and converted at a rate
of 1.75 shares of the Company's common stock per share of Cereus common stock at
the time of the Company's merger with Cereus. These warrants, after conversion,
totaled 13,131,192 and were issued to employees and non-employees related to
financing transactions of Cereus. The fair value of these warrants at the time
of merger, estimated to be $17.5 million using the Black-Scholes option pricing
model based on the following weighted-average assumptions: expected
volatility -- 88%; expected life -- five years; risk-free interest rate -- 5.5%;
and expected dividend yield -- 0%, is included in the cost of the acquisition. A
summary of warrants outstanding at December 31, 2001, is as follows:

<Table>
<Caption>
                                  NUMBER OF     EXERCISE
YEAR ISSUED                        WARRANTS      PRICE             EXPIRATION DATE
-----------                       ----------   ----------   -----------------------------
<S>                               <C>          <C>          <C>
Year ended December 31, 1996....     275,000   $5.25-6.00   September 2003 - October 2006
Year ended December 31, 1997....     265,000   $5.00-6.00   January 2004 - September 2007
Year ended December 31, 2000....  14,547,573   $0.01-7.39      April 2002 - November 2005
Year ended December 31, 2001....   1,303,712   $0.01-2.00    November 2004 - October 2006
                                  ----------
                                  16,391,285
                                  ==========
</Table>

     As of December 31, 2001, all of the warrants are exercisable.

                                       F-22
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

9.  STOCK OPTION PLAN

     The Company has a stock option plan for employees, consultants, and other
individual contributors to the Company which enables the Company to grant up to
10 million qualified and nonqualified incentive stock options (the "1999 Plan").
In 2001, the Plan was amended to increase the amount of stock options available
for grant by five million shares. The Company adopted the 1999 Plan in the
second quarter of 1999 and aggregated the Company's prior plans. The qualified
options are to be granted at an exercise price not less than the fair market
value at the date of grant. Subject to certain exceptions, the aggregate number
of shares of common stock that may be granted through awards under the 1999 Plan
to any employee in any calendar year may not exceed 300,000 shares. The
Company's compensation committee determines the period within which options may
be exercised, but no option may be exercised more than ten years from the date
of grant. The compensation committee also determines the period over which the
options vest. Options are generally exercisable for ten years from the grant
date and generally vest over a four year period from the date of grant.

     The 1999 Plan also provides for stock purchase authorizations and stock
bonus awards. As of December 31, 2000, stock bonus awards totaling 5,000 have
been granted under the 1999 Plan. None were awarded for 2001. Total options
available for grant under the 1999 Plan as of December 31, 2001 were 4,782,969.

     Upon the acquisition of Telemate.Net in November 2001, the Company assumed
the Telemate Stock Incentive Plan and the Telemate.Net Software, Inc., 1999
Stock Incentive Plan, and the options outstanding thereunder. The options
outstanding under the Plans were converted at a rate of 2.62 shares of the
Company's common stock per share of Telemate.Net common stock at the time of the
merger and totaled 5,420,206 shares. These options, at the time of merger, had
an estimated fair value of $1.8 million using the Black-Scholes option pricing
model based on the following weighted-average assumptions: expected
volatility -- 128%; expected life -- one year; risk-free interest rate -- 3.3%;
and expected dividend yield -- 0% and are included in goodwill. The Company does
not plan to issue any additional shares under the Plans.

     Upon the acquisition of Cereus in September 2000, the Company assumed the
Cereus Technology Partners, Inc. 1997 Stock Option Plan (the "Cereus Plan"), and
the options outstanding. The options outstanding under the Cereus Plan were
converted at a rate of 1.75 shares of the Company's common stock per share of
Cereus common stock at the time of the merger and totaled 1,376,708. These
options, at the time of merger, had an estimated fair value of $2.8 million
using the Black-Scholes option pricing model based on the following
weighted-average assumptions: expected volatility -- 88%; expected life -- five
years; risk-free interest rate -- 5.5%; and expected dividend yield -- 0% and
are included in goodwill. The Company does not plan to issue any additional
shares under the Cereus Plan.

     In connection with the merger with Telemate.Net, the Company recorded
deferred compensation of approximately $131,000 for the aforementioned options
granted by Telemate.Net prior to the merger which were exchanged for the
Company's options. The Company amortizes deferred compensation over three years,
the weighted-average vesting period of the options. The Company amortized to
non-cash compensation expense approximately $8,000 of the deferred compensation
related to these option grants for the year ended December 31, 2001.

     In connection with the merger with Cereus, the Company recorded deferred
compensation of approximately $6.9 million for the aforementioned options
granted by Cereus prior to the merger which were exchanged for the Company's
options. The Company amortizes deferred compensation over four years, the
vesting period of the options. The Company amortized to non-cash compensation
expense approximately $1.8 million and $500,000 of the deferred compensation
related to these option grants for the years ended December 31, 2001 and 2000.

                                       F-23
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

9.  STOCK OPTION PLAN -- (CONTINUED)

     Prior to the merger, Cereus granted stock warrants totaling 3,680,000 in
2000 to certain employees and directors outside of its stock option plan in
addition to the warrants discussed in Note 8. These stock warrants have
contractual terms of 5-10 years. The majority of these warrants have an exercise
price equal to the fair market value of Cereus's stock at the grant date. The
warrants granted in 2000 vest over various terms not to exceed 5 years,
beginning on the date of the grant. These warrants were assumed by the Company
and converted based on the merger agreement to 6,440,000 warrants at the time of
the merger with Cereus. The fair value of these warrants at the time of merger,
estimated to be $15.5 million using the Black-Scholes option pricing model based
on the following weighted-average assumptions: expected volatility -- 88%;
expected life -- five years; risk-free interest rate -- 5.5%; and expected
dividend yield -- 0%, is included in the cost of the acquisition.

     During 2000, the Company accelerated vesting and extended exercise dates on
options for certain terminated individuals. The Company recorded a non-cash
charge of approximately $482,000 for the year ended December 31, 2000,
representing the value of the accelerated vesting and extended exercise dates
for certain terminated employees. The expense is included in reorganization
costs.

     A summary of the status of the Company's stock options granted to
employees, and the above warrants granted by Cereus, prior to the merger, as of
December 31, 2001, December 31, 2000, and December 31, 1999 and the changes
during the year ended on these dates is presented below:

  EMPLOYEE STOCK OPTIONS AND WARRANTS

<Table>
<Caption>
                                      2001                    2000                    1999
                              ---------------------   ---------------------   ---------------------
                              NUMBER OF    WEIGHTED   NUMBER OF    WEIGHTED   NUMBER OF    WEIGHTED
                              SHARES OF    AVERAGE    SHARES OF    AVERAGE    SHARES OF    AVERAGE
                              UNDERLYING   EXERCISE   UNDERLYING   EXERCISE   UNDERLYING   EXERCISE
                               OPTIONS      PRICES     OPTIONS      PRICES     OPTIONS      PRICES
                              ----------   --------   ----------   --------   ----------   --------
<S>                           <C>          <C>        <C>          <C>        <C>          <C>
Outstanding at beginning of
  the year..................  14,599,370    $4.19      4,058,207    $4.05      3,356,637    $4.17
Granted and assumed.........   9,547,453     0.90     12,665,797     4.35      1,834,500     4.00
Exercised...................  (1,090,582)    0.60     (1,005,596)    3.41       (116,268)    3.24
Forfeited...................  (5,026,763)    4.53     (1,119,038)    6.25     (1,010,910)    4.39
Expired.....................          --       --             --       --         (5,752)   17.39
                              ----------              ----------              ----------
Outstanding at end of
  year......................  18,029,478     2.57     14,599,370     4.19      4,058,207     3.07
                              ==========              ==========              ==========
Exercisable at end of
  year......................   8,210,833     2.49      5,670,100     3.92      2,314,801     3.43
                              ==========              ==========              ==========
Weighted-average fair value
  of all options granted....                 0.75                    4.19                    2.47
</Table>

     The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:

<Table>
<Caption>
ASSUMPTION                                                  2001      2000      1999
----------                                                 ------     -----     -----
<S>                                                        <C>        <C>       <C>
Expected Term............................................    4.00      4.00      5.00
Expected Volatility......................................  130.00%    91.00%    69.16%
Expected Dividend Yield..................................    0.00%     0.00%     0.00%
Risk-Free Interest Rate..................................    3.32%     5.50%     5.53%
</Table>

                                       F-24
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

9.  STOCK OPTION PLAN -- (CONTINUED)

     The following table summarizes information about employee stock options
outstanding at December 31, 2001:

<Table>
<Caption>
                                              OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
                                   ------------------------------------------   ----------------------------
                                     NUMBER                       WGTD. AVG.      NUMBER
RANGE OF EXERCISE                  OUTSTANDING     WGTD. AVG.      REMAINING    EXERCISABLE     WGTD. AVG.
PRICES                             AT 12/31/01   EXERCISE PRICE   CONTR. LIFE   AT 12/31/01   EXERCISE PRICE
-----------------                  -----------   --------------   -----------   -----------   --------------
<S>                                <C>           <C>              <C>           <C>           <C>
$0.19 to 0.37....................   4,352,187        $ 0.32          7.23        2,793,072        $ 0.26
0.62 to 1.19.....................   2,728,807          1.07          8.71          774,086          0.88
1.22 to 2.14.....................   4,540,452          2.12          7.89        1,205,452          2.11
2.14 to 3.75.....................   2,213,315          3.05          7.07        1,466,169          2.98
3.81 to 10.14....................   4,153,867          6.05          7.65        1,951,641          6.03
10.31 to 18.00...................      40,850         14.95          5.38           20,413         15.09
                                   ----------        ------          ----        ---------        ------
$0.19 to $18.00..................  18,029,478        $ 2.57          7.69        8,210,833        $ 2.49
                                   ==========        ======          ====        =========        ======
</Table>

     Had the Company used the fair value-based method of accounting for its
stock option and incentive plans and charged compensation cost against income,
over the vesting period, based on the fair value of options at the date of
grant, the net loss and net loss per common share would have been increased to
the following pro forma amounts (in thousands, except for per share amounts):

<Table>
<Caption>
                                                         YEARS ENDED DECEMBER 31,
                                                      -------------------------------
                                                        2001        2000       1999
                                                      ---------   --------   --------
<S>                                                   <C>         <C>        <C>
Net Loss
  As reported.......................................  $(147,615)  $(55,482)  $ (9,838)
  Pro forma.........................................   (149,963)   (59,466)   (11,139)
Net Loss per Common Share
  As reported.......................................  $   (2.71)  $  (2.14)  $  (0.41)
  Pro forma.........................................      (2.76)     (2.30)     (0.47)
</Table>

10.  INCOME TAXES

     The significant components of income taxes, for continuing operations are
as follows (in thousands):

<Table>
<Caption>
                                                               YEARS ENDED DECEMBER 31,
                                                              --------------------------
                                                               2001      2000      1999
                                                              ------    ------    ------
<S>                                                           <C>       <C>       <C>
Income Taxes
  Currently Payable.........................................   $100      $ --      $ --
  Deferred..................................................     --        --        --
                                                               ----      ----      ----
Income Tax Expense..........................................   $100      $ --      $ --
                                                               ====      ====      ====
</Table>

                                       F-25
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

10.  INCOME TAXES -- (CONTINUED)

     A reconciliation of the statutory U.S. federal income tax rate to the
Company's effective tax was as follows:

<Table>
<Caption>
                                                              YEARS ENDED DECEMBER 31,
                                                              ------------------------
                                                               2001     2000     1999
                                                              ------   ------   ------
<S>                                                           <C>      <C>      <C>
Statutory U.S. rate.........................................  (34.0)%  (34.0)%  (34.0)%
State income taxes, net of federal benefit..................   (3.9)    (3.8)    (3.4)
Non-deductible goodwill.....................................   29.5      7.1      4.5
Non-deductible merger costs.................................     --       --      8.7
Effect of acquisitions......................................   (8.5)   (22.1)      --
Effect of valuation allowance...............................   13.1     52.8     24.2
Other permanent differences.................................    4.7       --       --
                                                              -----    -----    -----
                                                                0.9%     0.0%     0.0%
                                                              =====    =====    =====
</Table>

     Deferred income taxes are recognized to reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's net deferred tax assets are as follows
(in thousands):

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Deferred tax assets and (liabilities):
  Net operating loss carryforwards..........................  $ 48,046   $ 35,241
  Capital loss carryforwards................................       269        269
  Research and development credits..........................     1,248      1,248
  Unearned revenue..........................................     1,500      1,412
  Reserves..................................................     3,543      2,272
  Compensation accruals.....................................     1,995      1,335
  Discontinued operations...................................     5,494      4,625
  Intangible assets.........................................     2,318         --
  Depreciable assets........................................     1,281         --
  Valuation allowance.......................................   (65,694)   (46,402)
                                                              --------   --------
     Net deferred tax asset.................................  $     --   $     --
                                                              ========   ========
</Table>

     The valuation allowance for deferred tax assets as of December 31, 2001,
was approximately $65.7 million. The change of $19.3 million and $29.3 million
in the total valuation allowance for 2001 and 2000, respectively, resulted
primarily from increases in the above described temporary differences on which a
valuation allowance was provided. Based on the level of historical taxable
income and projections for future taxable income over the periods in which the
deferred tax assets are deductible, Management believes it is more likely than
not the Company will not realize the benefits of the deferred tax assets, and
accordingly has recorded a full valuation allowance as of December 31, 2001 and
2000.

     At December 31, 2001, the Company had net operating loss ("NOL")
carry-forwards of approximately $126.6 million, a portion of which are subject
to certain limitations under the Internal Revenue Code Section 382, and other
business tax credits of approximately $1.2 million. If not utilized, the NOLs
will begin expiring in years 2002 through 2022.

                                       F-26
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

11.  SAVINGS AND RETIREMENT PLAN

     The Company sponsors a 401(k) savings and retirement plan which is
available to all eligible employees. Under the plan, the Company may make a
discretionary matching contribution. Discretionary matching contributions were
approximately $132,000, $151,000 and $99,000 for the years ended December 31,
2001, 2000 and 1999, respectively.

12.  EMPLOYEE STOCK PURCHASE PLAN

     On November 16, 1999, the Company adopted the Verso Technologies, Inc. 1999
Employee Stock Purchase Plan (the "Plan") which offers employees the right to
purchase shares of the Company's common stock at 85% of the market price, as
defined. Under the Plan, full-time or part-time employees, except persons owning
5% or more of the Company's stock, who have worked for the Company for at least
15 consecutive days before the beginning of the offering period are eligible to
participate in the Plan. Employees may elect to have withheld up to 10% of their
annual salary up to a maximum of $25,000 per year to be applied to the purchase
of the Company's unissued common stock. The purchase price is generally the
lesser of the market price on the beginning or ending date of the offering
periods under the Plan. A maximum of 1,000,000 shares of common stock may be
purchased under the Plan. Shares issued under the Plan were 211,965 and 60,355
for the years ended December 31, 2001 and 2000, respectively.

13.  COMMITMENTS

  LEASES

     The Company leases office space and certain equipment under operating
leases which expire at various dates through 2010 with some leases containing
options for renewal. Rent expense for continuing operations under these leases
was $1.9 million, $1.3 million and $163,000 for the years ended December 31,
2001, 2000 and 1999, respectively.

     As of December 31, 2001, approximate future commitments under operating
leases in excess of one year are as follows (in thousands):

<Table>
<Caption>
                                                              CONTINUING   DISCONTINUED
                                                              OPERATIONS    OPERATIONS
                                                              ----------   ------------
<S>                                                           <C>          <C>
2002........................................................   $ 2,072        $  621
2003........................................................     2,018           475
2004........................................................     2,003           427
2005........................................................     1,973           368
2006........................................................     1,990           370
Thereafter..................................................     6,343         1,188
                                                               -------        ------
Total.......................................................   $16,399        $3,449
                                                               =======        ======
</Table>

                                       F-27
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

14.  SEGMENT INFORMATION

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

  GATEWAY SOLUTIONS:

     The Company's Gateway Solutions segment consists of the operations of the
Company's switching subsidiary, NACT. The Company's Gateway Solutions segment
includes hardware and software, integration, applications and technical training
and support.

  APPLICATIONS AND SERVICES:

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

     Management evaluates the business segment performance based on
contributions before unallocated items. Inter-segment sales and transfers are
not significant. The Company began offering Gateway Solutions in 2001.

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

<Table>
<Caption>
                                                             GATEWAY       APPLICATIONS
                                                           SOLUTIONS(A)   AND SERVICES(A)    TOTAL
                                                           ------------   ---------------   -------
<S>                                                        <C>            <C>               <C>
FOR THE YEARS ENDED DECEMBER 31,
       2001
  Revenue................................................    $15,773          $13,580       $29,353
  Contribution before unallocated items..................      3,772            2,598         6,370
  Goodwill and other intangibles.........................     12,957            2,992        15,949
  Total assets...........................................     26,205               --        26,205
  Capital expenditures...................................        377               --           377

       2000
  Revenue................................................    $    --          $11,988       $11,988
  Contribution before unallocated items..................         --            3,868         3,868
  Goodwill and other intangibles.........................         --            2,727         2,727
  Total assets...........................................         --               --            --
  Capital expenditures...................................         --               --            --

       1999
  Revenue................................................    $    --          $10,017       $10,017
  Contribution before unallocated items..................         --            2,297         2,297
  Goodwill and other intangibles.........................         --            3,839         3,839
  Total assets...........................................         --               --            --
  Capital expenditures...................................         --               --            --
</Table>

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

(a) Gateway Solutions includes costs associated with certain corporate and
    administrative functions to support this business unit which are located in
    Utah. Applications and Services includes no allocation of corporate overhead
    costs, total assets and capital expenditures.

                                       F-28
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

14.  SEGMENT INFORMATION -- (CONTINUED)

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

<Table>
<Caption>
                                                          YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                          2001       2000      1999
                                                        --------   --------   -------
<S>                                                     <C>        <C>        <C>
Contribution before unallocated items, per above......  $  6,370   $  3,868   $ 2,297
Corporate and administrative expenses(b)..............    (9,349)   (10,562)   (5,880)
Depreciation..........................................    (2,160)      (863)      (70)
Amortization of intangibles...........................    (1,511)      (982)     (982)
Loss on asset abandonment.............................        --     (1,760)       --
Reorganization costs..................................        --       (511)     (462)
Transaction costs.....................................        --         --       (81)
Amortization of deferred compensation.................    (1,766)      (482)       --
Interest expense, net.................................    (1,361)    (1,240)     (183)
                                                        --------   --------   -------
Loss from continuing operations before taxes and
  extraordinary item..................................  $ (9,777)  $(12,532)  $(5,361)
                                                        ========   ========   =======
</Table>

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

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

15.  SUBSEQUENT EVENTS

     On March 29, 2002, the Company entered into a Settlement Agreement and
General Release (the "WATP Settlement Agreement") with WA Telcom Products Co.,
Inc. ("WATP") which provides for a restructuring of the deferred payment due by
the Company to WATP pursuant to that certain Stock Purchase Agreement, dated as
of July 4, 2001, as amended, between the Company and WATP, whereby the Company
purchased from WATP all the issued and outstanding capital stock of NACT (the
"Purchase Agreement"). Pursuant to the WATP Settlement Agreement, the Company's
obligation to pay to WATP the deferred payment (the "Deferred Amount") on the
date the Company files its Annual Report on Form 10-K for the year ended
December 31, 2001, will be restructured pursuant to the terms and conditions of
a Convertible Secured Promissory Note to be made by the Company in favor of
WATP, in the aggregate principal amount of $4,250,000, together with interest
accrued thereon the ("Note"), pursuant to which the aggregate principal amount
and accrued interest thereunder is payable by the Company as follows: (i) $1.5
million on the date the Note is issued; (ii) $500,000 on each of July 1, 2002;
October 1, 2002; and January 1, 2003; and (iii) $1.25 million plus all interest
accrued under the Note since April 1, 2002, on April 1, 2003. Also pursuant to
the Settlement Agreement, the Company shall pay to WATP $1.5 million on April 1,
2002. The WATP Settlement Agreement is subject to the approval of the United
States Bankruptcy Court for the Northern District of Illinois, Eastern Division
(the "Bankruptcy Court"), which has jurisdiction over WATP's pending bankruptcy
proceeding, and the Company's obligation to pay the Deferred Amount has been
suspended until the WATP Settlement Agreement is so approved or it terminates
pursuant to its terms. If the Bankruptcy Court grants such approval, then the
$1.5 million payment to be made by the Company to WATP on April 1, 2002, will be
applied to the payment due under the Note on the date the Note is issued. If the
Bankruptcy
                                       F-29
<PAGE>
                            VERSO TECHNOLOGIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                               DECEMBER 31, 2001

15.  SUBSEQUENT EVENTS -- (CONTINUED)

Court does not grant such approval, then such payment will be applied to the
Deferred Amount owed by the Company, and the Company will be required to pay to
WATP the remainder of the Deferred Amount totaling approximately $4.0 million.

     Furthermore, pursuant to the WATP Settlement Agreement, the Company and
WATP will release each other from claims against each other arising out of or
related to the Purchase Agreement.

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

                                       F-30
<PAGE>

                 SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS

<Table>
<Caption>
                                             ADDITIONS
                             -----------------------------------------
                              BALANCE AT     CHARGED TO
                             BEGINNING OF    COSTS AND     ALLOWANCES                 BALANCE AT END
DESCRIPTION                     PERIOD        EXPENSES      ACQUIRED     DEDUCTIONS     OF PERIOD
-----------                  ------------   ------------   -----------   ----------   --------------
<S>                          <C>            <C>            <C>           <C>          <C>
Allowances for doubtful accounts:
  2001.....................  $   (401,000)  $ (1,516,000)  $(1,454,000)   $916,000     $ (2,455,000)
  2000.....................      (658,000)      (198,000)           --     455,000         (401,000)
  1999.....................            --       (658,000)           --          --         (658,000)
Inventory valuation reserve:
  2001.....................  $         --   $   (178,000)  $  (300,000)   $250,000     $   (228,000)
Deferred tax valuation allowance:
  2001.....................  $(46,402,000)  $(19,292,000)  $        --    $     --     $(65,694,000)
  2000.....................  $(17,125,000)  $(29,277,000)  $        --    $     --     $(46,402,000)
  1999.....................  $(15,240,000)  $ (1,885,000)  $        --    $     --     $(17,125,000)
</Table>

                                       F-31
<PAGE>

                                   SIGNATURES

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

                                          VERSO TECHNOLOGIES, INC.

                                          BY:      /s/ STEVEN A. ODOM
                                            ------------------------------------
                                                       STEVEN A. ODOM
                                                 Chairman of the Board and
                                                  Chief Executive 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.

<Table>
<Caption>
                       NAME                                         TITLE                       DATE
                       ----                                         -----                       ----
<S>     <C>                                          <C>                                    <C>

             /s/ MURALI ANANTHARAMAN                               Director                 April 1, 2002
 ------------------------------------------------
               Murali Anantharaman


                /s/ MAX E. BOBBITT                                 Director                 April 1, 2002
 ------------------------------------------------
                  Max E. Bobbitt


                 /s/ GARY H. HECK                                  Director                 April 1, 2002
 ------------------------------------------------
                   Gary H. Heck


               /s/ JAMES M. LOGSDON                   President, Chief Operating Officer    April 1, 2002
 ------------------------------------------------                and Director
                 James M. Logsdon


                /s/ AMY L. NEWMARK                                 Director                 April 1, 2002
 ------------------------------------------------
                  Amy L. Newmark


                /s/ STEVEN A. ODOM                   Chief Executive Officer and Chairman   April 1, 2002
 ------------------------------------------------                of the Board
                  Steven A. Odom                        (Principal Executive Officer)


              /s/ STEPHEN E. RAVILLE                               Director                 April 1, 2002
 ------------------------------------------------
                Stephen E. Raville


              /s/ JULIET M. REISING                    Executive Vice President, Chief      April 1, 2002
 ------------------------------------------------       Financial Officer, Secretary,
                Juliet M. Reising                     Treasurer and Director (Principal
                                                      Accounting and Financial Officer)


            /s/ JOSEPH R. WRIGHT, JR.                              Director                 April 1, 2002
 ------------------------------------------------
              Joseph R. Wright, Jr.
</Table>
<PAGE>

                                 EXHIBIT INDEX

<Table>
<Caption>
EXHIBIT
  NO.                               EXHIBIT                                      METHOD OF FILING
-------                             -------                                      ----------------
<C>       <S>                                                           <C>
  2.1     Second Amended and Restated Agreement and Plan of Merger      Incorporated by reference to
          dated as of July 27, 2000, among the Registrant, Solemn       Appendix A to the Registrant's
          Acquisition Corporation and Cereus Technology Partners,       Registration Statement on Form S-4
          Inc.                                                          filed August 7, 2000 (File No.
                                                                        333-43224).

  2.2     Agreement and Plan of Merger dated as of August 31, 1998,     Incorporated by reference to
          among the Registrant, Encore Acquiring Corporation, Encore    Exhibit 2.1 to the Registrant's
          Systems, Inc., Global Systems and Support, Inc., Five Star    Current Report on Form 8-K filed
          Systems, Inc., Penelope A. Sellers and Joseph T. Dyer.        September 10, 1998.

  2.3     Agreement and Plan of Merger dated as of November 11, 1998,   Incorporated by reference to
          among the Registrant, Sulcus Hospitality Technologies Corp.   Exhibit 2.1 to the Registrant's
          and Sulcus Acquiring Corporation.                             Registration Statement on Form S-4
                                                                        filed February 16, 1999 (File No.
                                                                        333-68699).

  2.4     Stock Purchase Agreement dated as of October 26, 2000,        Incorporated by reference to Ex-
          among Squirrel Systems, Inc., a wholly-owned subsidiary of    hibit 10.15 to the Registrant's
          the Registrant, Squirrel Systems of Canada Ltd. and SQS       Quarterly Report on Form 10-Q for
          Acquisitions Inc.                                             the quarter ended September 30,
                                                                        2000.

  2.5     Agreement and Plan of Merger dated October 31, 2000, among    Incorporated by reference to
          the Registrant, MessageClick, Inc. and MCLICK Acquisition     Exhibit 2.1 to the Registrant's
          Corporation (the "MessageClick Merger Agreement").            Current Report on Form 8-K filed
                                                                        December 6, 2000.

  2.6     First Amendment to the Agreement and Plan of Merger dated     Incorporated by reference to
          as of November 9, 2000, among the Registrant, MCLICK          Exhibit 2.2 to the Registrant's
          Acquisition Corporation and MessageClick, Inc.                Current Report on Form 8-K filed
                                                                        December 6, 2000.

  2.7     Second Amendment to the Agreement and Plan of Merger dated    Incorporated by reference to
          as of November 10, 2000, among the Registrant, MCLICK         Exhibit 2.3 to the Registrant's
          Acquisition Corporation and MessageClick, Inc.                Current Report on Form 8-K filed
                                                                        December 6, 2000.

  2.8     Agreement for the Purchase and Sale of Assets dated as of     Incorporated by reference to
          September 28, 2000, among the Registrant, AremisSoft          Exhibit 2.2 to the Registrant's
          Corporation and Eltrax Hospitality Group, Inc. (the           Current Report on Form 8-K filed
          "AremisSoft Agreement").                                      December 29, 2000.

  2.9     Letter amending the AremisSoft Agreement dated as of          Incorporated by reference to
          October 18, 2000.                                             Exhibit 2.2 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        December 29, 2000.

  2.10    Letter amending the AremisSoft Agreement dated as of          Incorporated by reference to
          November 22, 2000.                                            Exhibit 2.3 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        December 29, 2000.

  2.11    Form of Agreement between AremisSoft Norway AS and Eltrax     Incorporated by reference to
          System Scandinavia AS.                                        Exhibit 2.4 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        December 29, 2000.

  2.12    Form of Agreement among the Registrant, AremisSoft            Incorporated by reference to
          Corporation, AremisSoft Hospitality (Switzerland) GmbH,       Exhibit 2.5 to the Registrant's
          Eltrax AG and Eltrax Holdings AG.                             Current Report on Form 8-K filed
                                                                        December 29, 2000.
</Table>

                                        1
<PAGE>

<Table>
<Caption>
EXHIBIT
  NO.                               EXHIBIT                                      METHOD OF FILING
-------                             -------                                      ----------------
<C>       <S>                                                           <C>
  2.13    Form of Agreement among the Registrant, AremisSoft            Incorporated by reference to
          Corporation, AremisSoft Australia Pty Limited, Eltrax         Exhibit 2.6 to the Registrant's
          Systems Pty Ltd., and Eltrax International Group, Inc.        Current Report on Form 8-K filed
                                                                        December 29, 2000.

  2.14    Form of Agreement among the Registrant, AremisSoft            Incorporated by reference to
          Corporation, AremisSoft Hospitality (UK) Limited, and         Exhibit 2.7 to the Registrant's
          Eltrax Hospitality UK Ltd.                                    Current Report on Form 8-K filed
                                                                        December 29, 2000.

  2.15    Form of Agreement among the Registrant, AremisSoft            Incorporated by reference to
          Corporation, Impact Level (M) Sdn. Bhd., Eltrax Systems       Exhibit 2.8 to the Registrant's
          Sdn. Bhd. and Eltrax International Inc.                       Current Report on Form 8-K filed
                                                                        December 29, 2000.

  2.16    Form of Agreement among the Registrant, AremisSoft            Incorporated by reference to
          Hospitality Group (US), Inc. and Eltrax Group, Inc.           Exhibit 2.9 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        December 29, 2000.

  2.17    Form of Agreement among the Registrant, AremisSoft            Incorporated by reference to Ex-
          Corporation, AremisSoft (HK) Corporation Limited, Eltrax      hibit 2.10 to the Registrant's
          Systems Pty Limited and Eltrax International Inc.             Current Report on Form 8-K filed
                                                                        December 29, 2000.

  2.18    Form of Agreement among the Registrant, AremisSoft            Incorporated by reference to Ex-
          Corporation, Latin America One Pte Ltd. and Eltrax Systems    hibit 2.11 to the Registrant's
          Pte Ltd.                                                      Current Report on Form 8-K filed
                                                                        December 29, 2000.

  2.19    Agreement and Plan of Merger dated as of May 4, 2001, among   Incorporated by reference to
          the Registrant, Telemate.Net Software, Inc. and Titan         Exhibit 2.1 to the Registrant's
          Acquiring Sub, Inc. (the "Telemate.Net Merger Agreement").    Current Report on Form 8-K filed on
                                                                        May 16, 2001.

  2.20    First Amendment to the Telemate.Net Merger Agreement dated    Incorporated by reference to
          as of June 1, 2001.                                           Exhibit 2.2 to Amendment No. 1 to
                                                                        the Registrant's Current Report on
                                                                        Form 8-K/A filed on June 5, 2001.

  2.21    Stock Purchase Agreement dated as of May 4, 2001, between     Incorporated by reference to
          the Registrant and WA Telcom Products Co., Inc.               Exhibit 2.1 to the Registrant's
                                                                        Current Report on Form 8-K filed on
                                                                        June 5, 2001.

  2.22    Series B Preferred Stock Purchase Agreement dated as of May   Incorporated by reference to Ex-
          4, 2001, between the Registrant and Telemate.Net Software,    hibit 99.1 to the Registrant's
          Inc. (the "Series B Stock Purchase Agreement").               Current Report on Form 8-K filed on
                                                                        May 16, 2001.

  2.23    First Amendment to the Series B Stock Purchase Agreement      Incorporated by reference to Ex-
          dated as of June 1, 2001, between the Registrant and          hibit 99.2 to Amendment No. 1 to
          Telemate.Net Software, Inc.                                   the Registrant's Current Report on
                                                                        Form 8-K/A filed on June 5, 2001.

  2.24    Second Amendment to the Series B Stock Purchase Agreement     Incorporated by reference to Ex-
          dated as of July 27, 2001, between the Registrant and         hibit 99.3 to the Registrant's
          Telemate.Net Software, Inc.                                   Current Report on Form 8-K filed on
                                                                        August 10, 2001.

  2.25    Agreement and Plan of Merger dated as of January 10, 2001,    Incorporated by reference to
          by and among the Registrant, SS & Co., Inc. and Senercomm,    Exhibit 2.1 to the Registrant's
          Inc.                                                          Quarterly Report on Form 10-Q for
                                                                        the quarter ended March 31, 2001.
</Table>

                                        2
<PAGE>

<Table>
<Caption>
EXHIBIT
  NO.                               EXHIBIT                                      METHOD OF FILING
-------                             -------                                      ----------------
<C>       <S>                                                           <C>
  3.1     Amended and Restated Articles of Incorporation of the         Incorporated by reference to
          Registrant, as amended.                                       Exhibit 3.1 to the Registrant's
                                                                        Registration Statement on Form S-18
                                                                        (File No. 33-51456).

  3.2     Amendment to the Amended and Restated Articles of             Incorporated by reference to
          Incorporation of the Registrant, as amended.                  Exhibit 3.1 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        October 2, 2000.

  3.3     Amendment to the Amended and Restated Articles of             Incorporated by reference to
          Incorporation of the Registrant, as amended.                  Exhibit 4.1 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        November 19, 2001.

  3.4     Bylaws of the Registrant, as amended.                         Incorporated by reference to
                                                                        Exhibit 3.2 to the Registrant's
                                                                        Registration Statement on Form S-4
                                                                        filed August 7, 2000 (File No.
                                                                        333-43224).

  3.5     Amendment to the Bylaws of the Registrant, as amended.        Incorporated by reference to
                                                                        Exhibit 4.2 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        November 19, 2001.

  4.1     Specimen form of the Registrant's common stock certifi-       Incorporated by reference to
          cate.                                                         Exhibit 4.1 to the Registrant's
                                                                        Registration Statement on Form S-18
                                                                        (File No. 33-51456).

  4.2     Warrant dated as of October 31, 1996, to purchase 106,250     Incorporated by reference to Ex-
          shares of the Registrant's common stock granted to Walter     hibit 10.4 to the Registrant's
          C. Lovett.                                                    Current Report on Form 8-K filed
                                                                        November 12, 1996.

  4.3     Warrant dated as of October 31, 1996, to purchase 106,250     Incorporated by reference to Ex-
          shares of the Registrant's common stock granted to Douglas    hibit 10.5 to the Registrant's
          L. Roberson.                                                  Current Report on Form 8-K filed
                                                                        November 12, 1996.

  4.4     Warrant dated as of September 23, 1997, to purchase 240,000   Incorporated by reference to
          shares of the Registrant's common stock granted to Morgan     Exhibit 4.5 to the Registrant's
          Q. Payne.                                                     Annual Report on Form 10-K the year
                                                                        ended December 31, 1997.

  4.5     Convertible Debenture dated as of July 27, 2000, executed     Incorporated by reference to
          by the Registrant in favor of Strong River Investments,       Exhibit 4.5 to the Registrant's
          Inc.                                                          Registration Statement on Form S-4
                                                                        filed August 7, 2000 (File No.
                                                                        333-43224).

  4.6     Convertible Debenture dated as of July 27, 2000, executed     Incorporated by reference to
          by the Registrant in favor of Bay Harbor Investments, Inc.    Exhibit 4.6 to the Registrant's
                                                                        Registration Statement on Form S-4
                                                                        filed August 7, 2000 (File No.
                                                                        333-43224).

  4.7     Registration Rights Agreement dated as of July 27, 2000,      Incorporated by reference to
          among the Registrant, Strong River Investments, Inc. and      Exhibit 4.7 to the Registrant's
          Bay Harbor Investments, Inc.                                  Registration Statement on Form S-4
                                                                        filed August 7, 2000 (File No.
                                                                        333-43224).

  4.8     Registration Rights Agreement dated as of June 29, 2000,      Incorporated by reference to
          between the Registrant and E.piphany, Inc.                    Exhibit 4.8 to the Registrant's
                                                                        Registration Statement on Form S-4
                                                                        filed August 7, 2000 (File No.
                                                                        333-43224).
</Table>

                                        3
<PAGE>

<Table>
<Caption>
EXHIBIT
  NO.                               EXHIBIT                                      METHOD OF FILING
-------                             -------                                      ----------------
<C>       <S>                                                           <C>
  4.9     Warrant dated as of July 27, 2000, to purchase 104,168        Incorporated by reference to Ex-
          shares of the Registrant's common stock granted to Strong     hibit 4.10 to the Registrant's
          River Investments, Inc.                                       Registration Statement on Form S-4
                                                                        filed August 7, 2000 (File No.
                                                                        333-43224).

  4.10    Warrant dated as of July 27, 2000, to purchase 104,168        Incorporated by reference to Ex-
          shares of the Registrant's common stock granted to Bay        hibit 4.11 to the Registrant's
          Harbor Investments, Inc.                                      Registration Statement on Form S-4
                                                                        filed August 7, 2000 (File No.
                                                                        333-43224).

  4.11    Warrant dated as of July 27, 2000, to purchase 26,041         Incorporated by reference to Ex-
          shares of the Registrant's common stock granted to Strong     hibit 4.12 to the Registrant's
          River Investments, Inc.                                       Registration Statement on Form S-4
                                                                        filed August 7, 2000 (File No.
                                                                        333-43224).

  4.12    Warrant dated as of July 27, 2000, to purchase 26,041         Incorporated by reference to Ex-
          shares of the Registrant's common stock granted to Bay        hibit 4.13 to the Registrant's
          Harbor Investments, Inc.                                      Registration Statement on Form S-4
                                                                        filed August 7, 2000 (File No.
                                                                        333-43224).

  4.13    Warrant dated as of July 27, 2000, to purchase 52,083         Incorporated by reference to Ex-
          shares of the Registrant's common stock granted to Strong     hibit 4.14 to the Registrant's
          River Investments, Inc.                                       Registration Statement on Form S-4
                                                                        filed August 7, 2000 (File No.
                                                                        333-43224).

  4.14    Warrant dated as of July 27, 2000, to purchase 52,083         Incorporated by reference to Ex-
          shares of the Registrant's common stock granted to Bay        hibit 4.15 to the Registrant's
          Harbor Investments, Inc.                                      Registration Statement on Form S-4
                                                                        filed August 7, 2000 (File No.
                                                                        333-43224).

  4.15    Warrant dated as of September 29, 2000, to purchase           Incorporated by reference to Ex-
          1,750,000 shares of the Registrant's common stock granted     hibit 10.7 to the Registrant's
          to Steven A. Odom. Represents an executive compensation       Quarterly Report on Form 10-Q for
          plan or arrangement.                                          the quarter ended September 30,
                                                                        2000.

  4.16    Warrant dated as of September 29, 2000, to purchase 875,000   Incorporated by reference to Ex-
          shares of the Registrant's common stock granted to James M.   hibit 10.8 to the Registrant's
          Logsdon. Represents an executive compensation plan or         Quarterly Report on Form 10-Q for
          arrangement.                                                  the quarter ended September 30,
                                                                        2000.

  4.17    Warrant dated as of September 29, 2000, to purchase 665,000   Incorporated by reference to Ex-
          shares of the Registrant's common stock granted to Juliet     hibit 10.9 to the Registrant's
          M. Reising. Represents an executive compensation plan or      Quarterly Report on Form 10-Q for
          arrangement.                                                  the quarter ended September 30,
                                                                        2000.

  4.18    Warrant dated as of August 21, 2000, to purchase 300,000      Incorporated by reference to Ex-
          shares of Cereus Technology Partners, Inc.'s common stock     hibit 10.10 to the Registrant's
          granted to Steven A. Odom. Represents an executive            Quarterly Report on Form 10-Q for
          compensation plan or arrangement.                             the quarter ended September 30,
                                                                        2000.

  4.19    Warrant dated as of August 21, 2000, to purchase 100,000      Incorporated by reference to Ex-
          shares of Cereus Technology Partners, Inc.'s common stock     hibit 10.11 to the Registrant's
          granted to James M. Logsdon. Represents an executive          Quarterly Report on Form 10-Q for
          compensation plan or arrangement.                             the quarter ended September 30,
                                                                        2000.

  4.20    Warrant dated as of August 21, 2000, to purchase 350,000      Incorporated by reference to Ex-
          shares of Cereus Technology Partners, Inc.'s common stock     hibit 10.12 to the Registrant's
          granted to Juliet M. Reising. Represents an executive         Quarterly Report on Form 10-Q for
          compensation plan or arrangement.                             the quarter ended September 30,
                                                                        2000.
</Table>

                                        4
<PAGE>

<Table>
<Caption>
EXHIBIT
  NO.                               EXHIBIT                                      METHOD OF FILING
-------                             -------                                      ----------------
<C>       <S>                                                           <C>
  4.21    Warrant dated as of August 21, 2000, to purchase 250,000      Incorporated by reference to Ex-
          shares of Cereus Technology Partners, Inc.'s common stock     hibit 10.13 to the Registrant's
          granted to Juliet M. Reising. Represents an executive         Quarterly Report on Form 10-Q for
          compensation plan or arrangement.                             the quarter ended September 30,
                                                                        2000.

  4.22    Warrant dated as of August 21, 2000, to purchase 50,000       Incorporated by reference to Ex-
          shares of Cereus Technology Partners, Inc.'s common stock     hibit 10.14 to the Registrant's
          granted to Peter Pamplin. Represents an executive             Quarterly Report on Form 10-Q for
          compensation plan or arrangement.                             the quarter ended September 30,
                                                                        2000.

  4.23    Warrant dated as of January 30, 2001, to purchase 83,334      Incorporated by reference to
          shares of the Registrant's common stock granted to PNC        Exhibit 4.1 to the Registrant's
          Bank, National Association.                                   Quarterly Report on Form 10-Q for
                                                                        the quarter ended March 31, 2001.

  4.24    Warrant dated as of January 30, 2001, to purchase 472,689     Incorporated by reference to
          shares of the Registrant's common stock granted to Strong     Exhibit 4.2 to the Registrant's
          River Investments, Inc.                                       Quarterly Report on Form 10-Q for
                                                                        the quarter ended March 31, 2001.

  4.25    Warrant dated as of January 30, 2001, to purchase 472,689     Incorporated by reference to
          shares of the Registrant's common stock granted to Bay        Exhibit 4.3 to the Registrant's
          Harbor Investments, Inc.                                      Quarterly Report on Form 10-Q for
                                                                        the quarter ended March 31, 2001.

  4.26    Form of Warrant issued in connection with the MessageClick    Incorporated by reference to
          Merger Agreement.                                             Exhibit 4.1 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        December 6, 2000.

  4.27    Form of Registration Rights Agreement entered into in         Incorporated by reference to
          connection with the MessageClick Merger Agreement.            Exhibit 4.2 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        December 6, 2000.

  4.28    Form of 7.5% Convertible Debenture issued in connection       Incorporated by reference to
          with the Convertible Debenture and Warrant Purchase           Exhibit 4.5 to the Registrant's
          Agreement between the Registrant and the Purchasers named     Current Report on Form 8-K filed
          therein (the "Debenture Purchase Agreement").                 December 6, 2000.

  4.29    Form of Warrant issued in connection with the Debenture       Incorporated by reference to
          Purchase Agreement.                                           Exhibit 4.6 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        December 6, 2000.

  4.30    Form of Registration Rights Agreement entered into in         Incorporated by reference to
          connection with the Debenture Purchase Agreement.             Exhibit 4.7 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        December 6, 2000.

  4.31    Registration Rights Agreement dated as of February 8, 2000,   Incorporated by reference to Ex-
          among Cereus Technology Partners, Inc. and the stockholders   hibit 4(e) to Cereus Technology
          party thereto.                                                Partners, Inc.'s Annual Report on
                                                                        Form 10-KSB for the year ended De-
                                                                        cember 31, 1999.

  4.32    Registration Rights Agreement dated as of August 18, 2000,    Incorporated by reference to Ex-
          among Cereus Technology Partners, Inc. and the stockholders   hibit 4.32 of the Registrant's
          party thereto.                                                Annual Report for the year ended
                                                                        December 31, 2000.

  4.33    Registration Rights Agreement dated as of September 15,       Incorporated by reference to Ex-
          2000, among Cereus Technology Partners, Inc. and the          hibit 4.31 to the Registrant's
          stockholders party thereto.                                   Annual Report on Form 10-K for the
                                                                        year ended December 31, 2000.
</Table>

                                        5
<PAGE>

<Table>
<Caption>
EXHIBIT
  NO.                               EXHIBIT                                      METHOD OF FILING
-------                             -------                                      ----------------
<C>       <S>                                                           <C>
  4.34    Registration Rights Agreement dated as of September 27,       Incorporated by reference to Ex-
          2000, among Cereus Technology Partners, Inc. and the          hibit 4.32 to the Registrant's
          stockholders party thereto.                                   Annual Report on Form 10-K for the
                                                                        year ended December 31, 2000.

  4.35    Registration Rights Agreement dated as of July 27, 2001       Incorporated by reference to
          entered into in connection with the Series B Preferred        Exhibit 4.1 to the Registrant's
          Stock Purchase Agreement.                                     Current Report on Form 8-K filed on
                                                                        August 10, 2001.

  4.36    Convertible Debenture dated as of January 30, 2001,           Incorporated by reference to
          executed by the Registrant in favor of Strong River           Exhibit 4.4 to the Registrant's
          Investments, Inc.                                             Quarterly Report on Form 10-Q for
                                                                        the quarter ended March 31, 2001.

  4.37    Convertible Debenture dated as of January 30, 2001,           Incorporated by reference to
          executed by the Registrant in favor of Bay Harbor Invest-     Exhibit 4.5 to the Registrant's
          ments, Inc.                                                   Quarterly Report on Form 10-Q for
                                                                        the quarter ended March 31, 2001.

  4.38    Purchase Agreement dated as of January 18, 2001, among the    Incorporated by reference to Ex-
          Registrant, Strong River Investments, Inc. and Bay Harbor     hibit 10.2 to the Registrant's
          Investments, Inc. (the "Strong River Debenture Purchase       Quarterly Report on Form 10-Q for
          Agreement").                                                  the quarter ended March 31, 2001.

  4.39    Amendment dated as of January 23, 2001, to the Strong River   Incorporated by reference to Ex-
          Debenture Purchase Agreement.                                 hibit 10.4 to the Registrant's
                                                                        Quarterly Report on Form 10-Q for
                                                                        the quarter ended March 31, 2001.

  4.40    Amendment dated as of January 25, 2001, to the Strong River   Incorporated by reference to Ex-
          Debenture Purchase Agreement.                                 hibit 10.5 to the Registrant's
                                                                        Quarterly Report on Form 10-Q for
                                                                        the quarter ended March 31, 2001.

  4.41    Registration Rights Agreement dated as of January 30, 2001,   Incorporated by reference to Ex-
          among the Registrant, Strong River Investments, Inc. and      hibit 10.3 to the Registrant's
          Bay Harbor Investments, Inc.                                  Quarterly Report on Form 10-Q for
                                                                        the quarter ended March 31, 2001.

  4.42    Form of Warrant issued in connection with Telemate.Net        Filed herewith.
          Software, Inc.'s merger with the Registrant.

 10.1     Form of Incentive Stock Option Agreement.                     Incorporated by reference to Ex-
                                                                        hibit 10.6 to the Registrant's
                                                                        Registration Statement on Form S-18
                                                                        (File 33-51456).

 10.2     Form of Non-Statutory Option Agreement.                       Incorporated by reference to Ex-
                                                                        hibit 10.7 to the Registrant's
                                                                        Registration Statement on Form S-18
                                                                        (File 33-51456).

 10.3     Form of Non-Employee Director Stock Option Agreement.         Incorporated by reference to Ex-
                                                                        hibit 10.10 to the Registrant's
                                                                        Annual Report on Form 10-KSB for
                                                                        the year ended March 31, 1993.

 10.4     1992 Stock Incentive Plan.                                    Incorporated by reference to Ex-
                                                                        hibit 10.4 to the Registrant's
                                                                        Registration Statement on Form S-18
                                                                        (File No. 33-51456).
</Table>

                                        6
<PAGE>

<Table>
<Caption>
EXHIBIT
  NO.                               EXHIBIT                                      METHOD OF FILING
-------                             -------                                      ----------------
<C>       <S>                                                           <C>
 10.5     1995 Stock Incentive Plan.                                    Incorporated by reference to Ex-
                                                                        hibit 10.12 to the Registrant's
                                                                        Annual Report on Form 10-KSB for
                                                                        the year ended March 31, 1995.

 10.6     1997 Stock Incentive Plan.                                    Incorporated by reference to the
                                                                        Registrant's Proxy Statement for
                                                                        its 1997 Annual Meeting of
                                                                        Stockholders.

 10.7     1998 Stock Incentive Plan.                                    Incorporated by reference to Ex-
                                                                        hibit 10.27 to the Registrant's
                                                                        Registration Statement on Form S-4
                                                                        filed February 16, 1999 (File No.
                                                                        333-68699).

 10.8     1999 Stock Incentive Plan.                                    Incorporated by reference to
                                                                        Exhibit 4.4 to the Registrant's
                                                                        Registration Statement on Form S-8
                                                                        filed August 13, 1999.

 10.9     First Amendment to the 1999 Stock Incentive Plan.             Incorporated by reference to Ex-
                                                                        hibit 10.9 to the Registrant's
                                                                        Registration Statement on Form S-4
                                                                        filed August 7, 2000 (File No.
                                                                        333-43224).

 10.10    1999 Employee Stock Purchase Plan.                            Incorporated by reference to Ex-
                                                                        hibit 10.1 to the Registrant's
                                                                        Registration Statement on Form S-8
                                                                        filed December 8, 1999 (File No.
                                                                        333-92337).

 10.11    Employment and Noncompetition Agreement dated as of May 14,   Incorporated by reference to Ex-
          1997, between the Registrant and Edward J. Gorlitz.           hibit 10.2 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        May 15, 1997.

 10.12    Employment and Noncompetition Agreement dated as of July 1,   Incorporated by reference to Ex-
          1997, between the Registrant and Joel J. Blickenstaff.        hibit 10.2 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        July 1, 1997.

 10.13    Employment and Noncompetition Agreement dated as of July 1,   Incorporated by reference to Ex-
          1997, between the Registrant and Robert A. Hughes.            hibit 10.1 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        July 1, 1997.

 10.14    Employment and Noncompetition Agreement dated as of August    Incorporated by reference to Ex-
          15, 1997, between the Registrant and Edward C. Barrett.       hibit 10.1 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        August 15, 1997.

 10.15    Employment and Noncompetition Agreement dated as of August    Incorporated by reference to Ex-
          15, 1997, between the Registrant and Daniel M. Christy.       hibit 10.1 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        August 15, 1997.

 10.16    Employment and Noncompetition Agreement dated as of August    Incorporated by reference to Ex-
          15, 1997, between the Registrant and David R. Hurlbrink.      hibit 10.3 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        August 15, 1997.
</Table>

                                        7
<PAGE>

<Table>
<Caption>
EXHIBIT
  NO.                               EXHIBIT                                      METHOD OF FILING
-------                             -------                                      ----------------
<C>       <S>                                                           <C>
 10.17    Consulting Agreement dated as of April 1, 1999, between the   Incorporated by reference to Ex-
          Registrant and Montana Corp.                                  hibit 10.18 to the Registrant's
                                                                        Annual Report on Form 10-K for the
                                                                        year ended December 31, 1999.

 10.18    Consulting Agreement dated as of April 1, 1999, between the   Incorporated by reference to Ex-
          Registrant and CRL Enterprises.                               hibit 10.19 to the Registrant's
                                                                        Annual Report on Form 10-K for the
                                                                        year ended December 31, 1999.

 10.19    Real Estate Lease dated as of June 1, 1996, among Walt        Incorporated by reference to Ex-
          Lovett, Doug and Lisa Roberson, and Atlantic Network          hibit 10.11 to the Registrant's
          Systems, Inc.                                                 Annual Report on Form 10-KSB for
                                                                        the nine-month transition period
                                                                        ended December 31, 1996.

 10.20    Lease Agreement dated as of September 15, 1996, among         Incorporated by reference to Ex-
          Burgoe/Wyomissing Partners and Hi-Tech Connections, Inc.      hibit 10.30 to the Registrant's
                                                                        Annual Report on Form 10-KSB for
                                                                        the year ended December 31, 1997.

 10.21    Lease Agreement dated as of December 1, 1996, among JMG       Incorporated by reference to Ex-
          Development Co. Ltd. and DataComm Associates, Inc.            hibit 10.31 to the Registrant's
                                                                        Annual Report on Form 10-KSB for
                                                                        the year ended December 31, 1997.

 10.22    Amended and Restated Preferred Vendor Arrangement dated as    Incorporated by reference to Ex-
          of May 15, 1992, between Holiday Hospitality Corporation      hibit 10.29 to the Registrant's
          and Encore Systems, Inc.                                      Registration Statement on Form S-4
                                                                        filed February 16, 1999 (File No.
                                                                        333-68699).

 10.23    Office Lease Agreement dated as of September 20, 1999,        Incorporated by reference to Ex-
          between the Registrant and Galleria 400 LLC.                  hibit 10.51 to the Registrant's
                                                                        Registration Statement on Form S-4
                                                                        filed August 7, 2000 (File No.
                                                                        333-43224).

 10.24    First Amendment to Office Lease Agreement dated as of March   Incorporated by reference to Ex-
          31, 2000, between the Registrant and Galleria 400 LLC.        hibit 10.52 to the Registrant's
                                                                        Registration Statement on Form S-4
                                                                        filed August 7, 2000 (File No.
                                                                        333-43224).

 10.25    Convertible Debenture Purchase Agreement dated as of July     Incorporated by reference to Ex-
          27, 2000, among the Registrant, Strong River Investments,     hibit 10.53 to the Registrant's
          Inc. and Bay Harbor Investments, Inc.                         Registration Statement on Form S-4
                                                                        filed August 7, 2000 (File No.
                                                                        333-43224).

 10.26    Subscription Agreement dated as of June 29, 2000, between     Incorporated by reference to Ex-
          the Registrant and E.piphany, Inc.                            hibit 10.54 to the Registrant's
                                                                        Registration Statement on Form S-4
                                                                        filed August 7, 2000 (File No.
                                                                        333-43224).

 10.27    Executive Employment Agreement dated as of September 29,      Incorporated by reference to Ex-
          2000, between the Registrant and Steven A. Odom. Represents   hibit 10.4 to the Registrant's
          an executive compensation plan or arrangement.                Quarterly Report on Form 10-Q for
                                                                        the quarter ended September 30,
                                                                        2000.
</Table>

                                        8
<PAGE>

<Table>
<Caption>
EXHIBIT
  NO.                               EXHIBIT                                      METHOD OF FILING
-------                             -------                                      ----------------
<C>       <S>                                                           <C>
 10.28    Executive Employment Agreement dated as of September 29,      Incorporated by reference to Ex-
          2000, between the Registrant and James M. Logsdon.            hibit 10.5 to the Registrant's
          Represents an executive compensation plan or arrangement.     Quarterly Report on Form 10-Q for
                                                                        the quarter ended September 30,
                                                                        2000.

 10.29    Executive Employment Agreement dated as of September 29,      Incorporated by reference to Ex-
          2000, between the Registrant and Juliet M. Reising.           hibit 10.6 to the Registrant's
          Represents an executive compensation plan or arrangement.     Quarterly Report on Form 10-Q for
                                                                        the quarter ended September 30,
                                                                        2000.

 10.30    Form of Escrow Agreement entered into in connection with      Incorporated by reference to
          the MessageClick Merger Agreement.                            Exhibit 4.3 to the Registrant's
                                                                        Current Report on Form 8-K filed
                                                                        December 6, 2000.

 10.31    Convertible Debenture and Warrant Purchase Agreement dated    Incorporated by reference to
          as of October 31, 2000, between the Registrant and the        Exhibit 4.4 to the Registrant's
          Purchasers.                                                   Current Report on Form 8-K filed
                                                                        December 6, 2000.

 10.32    Cereus Technology Partners, Inc. Directors' Warrant In-       Incorporated by reference to Ex-
          centive Plan. Represents an executive compensation plan or    hibit 10(cc) to Cereus Technology
          arrangement.                                                  Partners, Inc.'s Annual Report on
                                                                        Form 10-KSB40 for the year ended
                                                                        December 31, 1999.

 10.33    Cereus Technology Partners, Inc. Outside Directors' Warrant   Incorporated by reference to Ex-
          Plan. Represents an executive compensation plan or            hibit 10(dd) to Cereus Technology
          arrangement.                                                  Partners, Inc.'s Annual Report on
                                                                        Form 10-KSB40 for the year ended
                                                                        December 31, 1999.

 10.34    Assignment and Assumption Agreement dated as of September     Incorporated by reference to Ex-
          29, 2000, between Cereus Technology Partners, Inc. and the    hibit 10.40 to the Registrant's
          Registrant assigning rights under the Registration Rights     Annual Report on Form 10-K for the
          Agreements dated February 8, 2000, August 18, 2000,           year ended December 31, 2000.
          September 15, 2000, and September 27, 2000.

 10.35    Loan and Security Agreement dated December 14, 2001, among    Filed herewith.
          the Registrant, NACT Telecommunications, Inc., Telemate.Net
          Software, Inc., and Silicon Valley Bank, Commercial Finance
          Division.

 10.36    Final Settlement Agreement and General Release dated as of    Filed herewith.
          March 13, 2002, among the Registrant, NACT
          Telecommunications, Inc., RSL COM U.S.A., Inc., and RSL COM
          Primecall, Inc.

 10.37    Separation Agreement dated as of November 16, 2001, between   Filed herewith.
          Telemate.Net Software, Inc. and Richard L. Mauro.
          Represents an executive compensation plan or arrangement.

 10.38    Separation Agreement dated as of November 16, 2001, between   Filed herewith.
          Telemate.Net Software, Inc. and Janet Van Pelt. Represents
          an executive compensation plan or arrangement.

 10.39    Lease Agreement dated as of December 30, 1999, between        Filed herewith.
          Boggess-Riverwoods Company, L.L.C. and NACT
          Telecommunications, Inc.
</Table>

                                        9
<PAGE>

<Table>
<Caption>
EXHIBIT
  NO.                               EXHIBIT                                      METHOD OF FILING
-------                             -------                                      ----------------
<C>       <S>                                                           <C>
 10.40    Instrument of Assumption and Substitution of Guarantor of     Filed herewith.
          Lease dated as of July 27, 2001, among the Registrant,
          World Access, Inc., Boggess Holdings, L.L.C. and NACT
          Telecommunications, Inc.

 10.41    Intellectual Property Security Agreement dated as of          Filed herewith.
          December 14, 2001, between the Registrant and Silicon
          Valley Bank.

 10.42    Intellectual Property Security Agreement dated as of          Filed herewith.
          December 14, 2001, between NACT Telecommunications, Inc.
          and Silicon Valley Bank.

 10.43    Intellectual Property Security Agreement dated as of          Filed herewith.
          December 14, 2001, between Telemate.Net Software, Inc. and
          Silicon Valley Bank.

 10.44    Form of Affiliate Agreement executed in connection with the   Incorporated by reference to Ex-
          Telemate.Net Merger Agreement.                                hibit 99.4 to the Registrant's
                                                                        Current Report on Form 8-K dated
                                                                        May 16, 2001.

 10.45    Telemate.Net Software, Inc. 1999 Stock Incentive Plan.        Incorporated by reference to Ex-
                                                                        hibit 10.13 to Telemate.Net
                                                                        Software, Inc.'s Registration
                                                                        Statement on Form S-1 filed June
                                                                        24, 1999 (File No. 333-81443).

 10.46    Amendment to the Telemate.Net Inc. 1999 Stock Incentive       Incorporated by reference to Ex-
          Plan.                                                         hibit 10.18 to Telemate.Net
                                                                        Software, Inc.'s Registration
                                                                        Statement on Form S-1 filed June
                                                                        24, 1999 (File No. 333-81443).

 10.47    Telemate Stock Incentive Plan.                                Incorporated by reference to Ex-
                                                                        hibit 10.10 to Telemate.Net
                                                                        Software, Inc.'s Registration
                                                                        Statement on Form S-1 filed June
                                                                        24, 1999 (File No. 333-81443).

 10.48    Amendment to Telemate Stock Incentive Plan.                   Incorporated by reference to Ex-
                                                                        hibit 10.14 to Telemate.Net
                                                                        Software, Inc.'s Registration
                                                                        Statement on Form S-1 filed June
                                                                        24, 1999 (File No. 333-81443).

 10.49    Form of Indemnification Agreement entered into as of          Incorporated by reference to Appen-
          October 12, 2001, between the Registrant and each of its      dix F-1 to the Registrant's
          directors and non-director officers at the level of Vice-     Registration Statement on Form
          President and above.                                          S-4/A filed October 12, 2001 (File
                                                                        No. 333-62262).

 10.50    Cross-Corporate Continuing Guaranty dated as of December      Filed herewith.
          14, 2001, among the Registrant, NACT Telecommunications,
          Inc., Telemate.Net Software, Inc., and Silicon Valley Bank.

 21.1     Subsidiaries of the Registrant.                               Filed herewith.

 23.1     Consent of KPMG LLP.                                          Filed herewith.

 23.2     Consent of PricewaterhouseCoopers LLP.                        Filed herewith.
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