As filed with the
    Securities and Exchange Commission on March 28, 2002
    File No. 0-29625=============================================================================SECURITIES AND EXCHANGE
    COMMISSION
    Washington, D.C. 20549

FORM 10-K

x
        ANNUAL REPORT PURSUANT TO
          SECTION 13 OR 15(d)
          OF THE SECURITIES EXCHANGE ACT OF 1934
          For the Fiscal Year Ended: December 31, 2001OR ̈
        TRANSITION REPORT PURSUANT
          TO SECTION 13 OR 15(d)
          OF THE SECURITIES EXCHANGE ACT OF 1934


For the Transition Period
  from   to
  Commission File Number: 0-29625

SUMMUS, INC. (USA)(Formerly High Speed Net
  Solutions, Inc.)
  (Exact name of registrant as
  specified in its charter)

Florida
        65-0185306(State of incorporation)
        (I.R.S. Employer
          Identification No.)434 Fayetteville Street,
          Suite 600Raleigh, North Carolina
          27601(919) 807-5600(Address, including zip
          code, and telephone number (including area code) ofregistrants principal
          executive offices)Securities
          registered pursuant to Section 12(b) of the Act: NoneSecurities
          registered pursuant to Section 12(g) of the Act:Common Stock, par value
          $.001 per share(Title of Class)


Indicate by check mark whether the
  registrant: (1) has filed all reports required to be filed by Section 13 or
  15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
  (or for such shorter period that the registrant was required to file such
  reports), and (2) has been subject to such filing requirements for the past 90
  days.  YesþNo ̈.

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

The aggregate market value of the
  shares of common stock held by non-affiliates of the registrant was
  approximately $37,805,293 as of March 15, 2002 based on the average of the bid
  and asked price of the stock reported for such date.  For the purpose of
  the foregoing calculation, the shares of common stock held by each officer and
  director and by each person who owns 5% or more of the outstanding common
  stock have been excluded in that such persons may be deemed to be affiliates.
  This determination of affiliate status is not necessarily a conclusive
  determination for other purposes.

The number of shares outstanding of
  the registrants common stock as of March 15, 2002 was 44,897,001.

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SUMMUS, INC. (USA)
  FORM 10-K FOR THE FISCAL YEAR
  ENDED DECEMBER 31, 2001
  TABLE OF CONTENTS



PAGEFORWARD-LOOKING
        STATEMENTS AND RISK FACTORS
      iPART IITEM 1
      BUSINESS
      1ITEM 2
      PROPERTIES
      14ITEM 3
      LEGAL PROCEEDINGS
      14ITEM 4
      SUBMISSION OF MATTERS TO VOTE
        OF SECURITY HOLDERS
      14PART IIITEM 5
      MARKET FOR REGISTRANTS
        COMMON STOCK AND RELATEDSHAREHOLDER MATTERS
      15ITEM 6
      SELECTED FINANCIAL DATA
      18ITEM 7
      MANAGEMENTS DISCUSSION AND
        ANALYSIS OF FINANCIALCONDITION AND RESULTS OF
        OPERATIONS
      20ITEM 7A
      QUANTITATIVE AND QUALITATIVE
        DISCLOSURES ABOUT
        MARKET RISK
      28ITEM 8
      FINANCIAL STATEMENTS AND
        SUPPLEMENTARY DATA
      28ITEM 9
      CHANGES IN AND DISAGREEMENTS
        WITH ACCOUNTANTS
        ON ACCOUNTING AND FINANCIAL
        DISCLOSURE
      28PART IIIITEM 10
      DIRECTORS AND EXECUTIVE
        OFFICERS OF
        THE REGISTRANT
      28ITEM 11
      EXECUTIVE COMPENSATION
      33ITEM 12
      SECURITY OWNERSHIP OF CERTAIN
        BENEFICIAL OWNERS
        AND MANAGEMENT
      44ITEM 13
      CERTAIN RELATIONSHIPS AND
        RELATED TRANSACTIONS
      46PART IVITEM 14
      EXHIBITS, FINANCIAL STATEMENT
        SCHEDULES, AND
        REPORTS ON FORM 8-K
      49






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EXPLANATORY NOTES

On February 16, 2001, Summus, Inc. (USA), whose legal
  name was at the time High Speed Net Solutions, Inc., acquired all the assets
  and operations of Summus, Ltd. under the terms of an asset purchase agreement,
  dated October 30, 2000, as amended.  In legal form, we effected the
  transaction by issuing shares of our common stock and Series B preferred
  stock, and other equity interests, in exchange for the net assets of Summus,
  Ltd.  As explained more fully in Note 2 to our Consolidated Financial
  Statements included in this annual report on Form 10-K, the transaction was
  accounted for as a capital transaction of Summus, Ltd. accompanied by a
  recapitalization.  As a result, the historical financial statements of
  Summus, Ltd. are, for accounting purposes, deemed to be those of Summus, Inc.
  (USA).

On February 27, 2002, our shareholders voted to amend our amended and restated
  certificate of incorporation to change our name to Summus, Inc. (USA). 
  On March 12, 2002, our common stock began trading on the OTC Bulletin Board
  under the trading symbol SUMU.



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FORWARD-LOOKING
  STATEMENTS

This annual report on Form 10-K
  contains certain forward-looking statements that we believe are within the
  meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
  Securities Exchange Act of 1934, which are intended to be covered by the safe
  harbors created by such acts. For this purpose, any statements that are not
  statements of historical fact may be deemed to be forward-looking statements,
  including the statements made in the section of this annual report under the
  caption Item 7. Managements Discussion and Analysis of Financial
  Condition and Results of Operations regarding our strategy, future
  operations, future expectations or future estimates, financial position and
  objectives of management. Those statements in this annual report containing
  the words believes, anticipates, plans, should, expects
  and similar expressions constitute forward-looking statements, although not
  all forward-looking statements contain such identifying words. These
  forward-looking statements are based on our current expectations and are
  subject to a number of risks, uncertainties and assumptions relating to our
  operations, results of operations, competitive factors, shifts in market
  demand and other risks and uncertainties. Some of the most important factors
  that could prevent us from achieving our stated goals include, but are not
  limited to, the following:

- a lack of sufficient financial
      resources to implement our business plan, which has resulted in our
      receiving a going concern opinion from our independent auditors with
      respect to our audited financial statements as of and for the year ended
      December 31, 2001;
- our ability to generate sufficient
      working capital to meet our operating requirements;
- our ability to develop and enter
      into strategic relationships with wireless service providers,
      semiconductor and device designers, mobile and wireless device
      manufacturers and content providers;
- timely deployment by wireless
      service providers, semiconductor and device designers, and wireless device
      manufacturers of our software applications in their networks and mobile
      information devices;
- the continued growth in demand for
      wireless and mobile usage;
- new product development and
      acceleration of commercial deployment of such products;
- technological competition, which
      creates the risk of our technology being rendered obsolete or
      noncompetitive;
- potential infringement of the
      patent rights of third parties.

Although we believe that the assumptions underlying our forward-looking
  statements are reasonable, any of the assumptions could be inaccurate and
  actual results may differ from those indicated by the forward-looking
  statements included in this annual report.  In light of the significant
  uncertainties inherent in the forward-looking statements included in this
  annual report, you should not consider the inclusion of such information as a
  representation by us or anyone else that we will achieve such results.We undertake no obligation to publicly update any forward-looking
  statements, whether as the result of new information, future events, or
  otherwise. You are advised, however, to consult any further disclosures we
  make in our subsequent quarterly reports on Form 10-Q, current reports on Form
  8-K, annual reports on Form 10-K and other reports filed with the SEC. Also
  note that we provide the following cautionary discussion of risks,
  uncertainties, and assumptions relevant to our business in the Risk Factors
  Section of this annual report.  These are factors that we think could
  cause our actual results to differ materially from expected and historical
  results. Other factors besides those listed here could also adversely affect
  us.

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RISK FACTORS

|Ø | If we are unable to obtain substantial
  additional financing we may not be able to remain in business.
|- | -------------------------------------------------------------------------------------------------------

We require substantial
  working capital to fund and sustain our business operations. For us to
  implement our business plan, we anticipate that we will need approximately $20
  million in working capital in the next twelve months.  At present we have
  no arrangements or commitments for any financing.  If adequate funds are
  not available or are not available on acceptable terms, we may be unable to
  develop further or enhance our products and services, take advantage of future
  opportunities, respond to competitive pressures or continue in business.

|Ø | We have been and, in a few cases, remain in
  default for non-payment under several of our material contracts with previous
  and existing vendors and professional service providers and such parties may
  seek payment through litigation or otherwise.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of December 31, 2001, we
  had approximately $6.6 million in current liabilities and were in default in
  the aggregate amount of $2.1 million with certain of our vendors, none of
  which are supplying products or services critical to our current product
  development focus.  As of December 31, 2001, we had entered into
  settlement agreements or arrangements with approximately 26 of our vendors,
  for which we owed roughly $1.3 million, under which such vendors have agreed
  to our payment of less than the amounts due, the extension of payment terms by
  between 9-36 months and/or the satisfaction of amounts due through a
  combination of cash and stock.  In addition to our indebtedness to
  vendors, we are also delinquent in the payment of amounts due legal and other
  advisors, some of whom have suspended rendering any further services to us
  pending payment of amounts due.  There can be no assurance that we will
  be able to generate sufficient funds to satisfy our debts.

If the cash flow from our operating and financing activities is insufficient,
  we may be required to continue to take actions such as delaying or reducing
  capital expenditures, attempting to restructure or refinance debt, seeking to
  have creditors agree to payment in the form of our common stock or other
  equity securities in lieu of cash, selling assets or operations, or taking
  measures to reduce our expenses. Any or all of these actions may not be
  sufficient to allow us to service our debts and other obligations, avoid
  litigation by creditors or continue in business.

|Ø | Our past and potential future issuances of
  equity securities have diluted and may continue to materially dilute the
  interests of holders of our common stock.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

Because of severe liquidity
  constraints, we have issued equity securities in several instances in lieu of
  effecting payment in cash of amounts due (or alleged to be due) vendors,
  current and former officers and directors, and shareholders. By way of example
  only:

- We issued an aggregate of 2,275,000 shares of our
  common stock to William R. Dunavant and his counsel under the terms of several
  settlement agreements entered into following Mr. Dunavants initiation of
  litigation against us in January 2000, as a result of our failure to register
  350,000 shares of its common stock by an agreed-upon date.
- In June 2001, we entered into a settlement
  agreement with entities affiliated with one of our shareholders, Bradford
  Richdale, under which we issued 250,000 shares of our common stock in
  satisfaction of indebtedness to such entities in the aggregate amount of
  $435,301 (representing an effective value per share of $1.74).
- Under the terms of the executive employment
  agreement we entered into with Dr. Bjorn Jawerth, our Chief Executive Officer,
  in February 2001, we were obligated to pay Dr. Jawerth $500,000 in cash as
  compensation for his non-competition covenants. In lieu of such cash

- ii -

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payment,
  we issued to Dr. Jawerth options to purchase 166,667 shares of our common
  stock exercisable for $0.50 per share and options to purchase 333,333 shares
  of our common stock exercisable for $3.75 per share.

- In November 2001, we entered into a settlement
  agreement with Van Ernst Jakobs N.V., a Netherlands-based company, under which
  we issued 80,000 shares of our common stock (in lieu of a cash payment of
  $143,415), and warrants exercisable at various prices for an aggregate of
  550,000 shares of our common stock.
- On December 12,
  2001, we entered into a settlement agreement with ENELF, LLC, under which we
  issued to ENELF 75,000 shares of our common stock.
- We also issued an
  additional 229,512 shares of our common stock in settlement of certain other
  outstanding liabilities.

In addition, we have the ability to issue options and other stock-based awards
  under our 2000 Equity Compensation Plan to directors, officers, employees and
  consultants, and have reserved up to 6,500,000 shares of our common stock
  under the plan. We also have outstanding warrants exercisable for 13,159,879shares of our common stock.

Issuances
  of shares of our common stock or other equity interests have been at (or are
  exercisable for) a price that represents a discount to the then traded value
  of our common stock. In any event, past and anticipated future issuances of
  additional shares of our common stock or other equity interests have and will
  continue to dilute the proportional ownership interests of existing
  shareholders.

|Ø | If we are
  successful in raising additional capital through the issuance of equity
  securities, our shareholders may experience substantial dilution.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------

On February 27, 2002, our shareholders approved an
  amendment to our amended and restated certificate of incorporation to increase
  the number of shares of common stock authorized for issuance from 50,000,000
  to 100,000,000.  This action was taken to ensure that shares of our
  common stock will be available for future issuance in the event our Board of
  Directors deems it necessary or advisable for purposes of, among other things,
  raising additional capital through the sale of equity securities to fund our
  business operations, acquiring other companies or their assets or attracting
  strategic partners and/or candidates for a business combination who can assist
  us in generating a revenue stream from the commercial deployment of our
  technology.  We are, at present, actively seeking to raise capital
  through the issuance of equity securities. If we are successful in our capital
  raising efforts, existing shareholders will almost certainly experience
  dilution of their percentage ownership interests in Summus, Inc.  In
  addition, the new equity securities may have rights, preferences or privileges
  senior to those of existing holders of shares of our common stock.

If we raise additional capital in conjunction with entering into strategic
  alliances or licensing our technology to wireless carriers, wireless and
  mobile device manufacturers, or content providers, we may be required to
  relinquish some rights to our technologies or products, or grant licenses on
  terms that are not favorable to us.

|Ø | We have incurred substantial losses and expect
  to continue to incur substantial net losses for the foreseeable future.
|- | ------------------------------------------------------------------------------------------------------------------------

We have generated (and expect
  to continue to generate in the foreseeable future) operating losses and
  negative cash flow. We had net losses, including non-cash charges for
  stock-based employee compensation, of approximately $10.7 million and $11.5
  million for the fiscal years ended December 31, 2001 and December 31, 2000,
  respectively. As of December 31, 2001, we had an accumulated deficit of $34.3
  million and a working capital deficit of $6.5 million. In light of our
  financial condition and operating results, our auditors have included in their
  report on our consolidated financial statements an explanatory

- iii -

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paragraph which
  expresses substantial doubt about our ability to continue as a going concern.

|Ø | To date, we have
  generated limited revenues from our operations.
|- | ------------------------------------------------------------------

To date, we have generated
  limited revenue from our operations.  Further, our revenue of $749,758
  for the year ended December 31, 2001 and $1,068,658 for the year ended
  December 31, 2000 was derived largely from our government contract work, which
  is no longer the central focus of our business operations.  We will need
  to increase significantly our revenues to achieve and maintain profitability.
  We believe that increasing our revenues will depend in large part on our
  ability to:

- raise additional
  capital;
- finalize the
  commercial design of our BlueFuelsoftware product suite;
- generate significant
  revenue from the sale ofexegoand licensing of BlueFueland related products;
- gain market acceptance
  for our products and then increase our market share based upon the timing,
  strength and success of our sales efforts and our ability to enter into
  strategic and commercial alliances;
- develop effective
  marketing and other promotional activities to penetrate our target customer
  base;
- develop strategic and
  commercial relationships that balance our current and long-term ability to
  capitalize on our technology and solutions approach; and
- generate and sustain
  substantial revenue growth while maintaining reasonable expense levels.

If our revenues grow more
  slowly than anticipated or if operating expenses increase more than expected,
  or are not reduced sufficiently, we may never achieve profitability.  If
  we achieve profitability, we cannot be certain that we will be able to sustain
  or increase that profitability in the future.

|Ø | Our limited operating history makes it
  difficult to evaluate our business and prospects.
|- | ------------------------------------------------------------------------------------------

As of March 15, 2002, we have received no purchase orders for our BlueFueltechnology orexego,our
  first end-user application which is not yet ready for commercial deployment.
  As a result, we have only a limited operating history and no sales of our
  principal planned product line upon which you may evaluate our business and
  prospects. You should consider our prospects in light of the heightened risks
  and unexpected expenses and difficulties frequently encountered by companies
  in an early stage of development.  These risks, expenses and
  difficulties, which are described further in this Risk Factors section,
  particularly apply to us because the mobile and wireless market (i.e., the
  market for remote access and processing of information resources via small
  handheld wireless devices) is very much in its infancy and is likely to
  rapidly evolve.

Successfully commercializing BlueFuel,exegoand our other contemplated products will entail significant sales and
  marketing, competitive, technological and financing risks.  So far our
  operations in this segment of our business have been limited to organizing and
  staffing Summus, Inc., conducting research and development, product
  development and testing.  We believe our efforts to negotiate and enter
  into strategic relationships will enable us to market and deploy our products
  on a commercial basis.  These operations provide limited information for
  you to consider in assessing an investment in our in our common stock.

- iv -

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|Ø | We have issued stock options with exercise
  prices below market value which have resulted and will continue to result in
  the recording of compensation expense and, in turn, an increase in our net
  losses.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In the years ended December
  31, 2001 and 2000, we awarded stock options to our employees and directors
  exercisable for 1,136,346 shares and 1,613,838 shares, respectively, of its
  common stock at exercise prices below market value on the date of grant. For
  the years ended December 31, 2001 and 2000, we incurred compensation expense
  related to the stock option grants and share issuances in the amount of
  $956,321 and $2,127,962, respectively.

As of December 31, 2001, we have deferred compensation of $534,456 that will
  be amortized to expenses over the three years ending December 31, 2004. Our
  earnings/(net loss) will be decreased/(increased) by the corresponding amount
  of compensation expense in each of the stated years. We may also compensate
  our employees and directors through the grant of options or warrants to
  purchase our common stock in the future which may have a dilutive effect on
  our earnings.

|Ø | The sale of a large number of shares of our
  common stock could depress our stock price.
|- | -----------------------------------------------------------------------------------------

Of the 44,897,001 shares of
  our common stock outstanding as of March 15, 2002, an aggregate of 23,354,371
  shares are freely tradable without restriction in the public market unless the
  shares are held by affiliates, as that term is defined in Rule 144(a)(1)
  under the Securities Act of 1933.

In addition, as of March 15, 2002, there were outstanding warrants to purchase
  13,159,879 shares of our common stock and options to purchase 5,132,142 shares
  of our common stock, 2,143,607 of which were fully vested.

We are also contractually
  obligated to register (and intend to do so promptly after raising the
  necessary capital) approximately 9,426,079 shares of restricted common stock
  that were previously not freely tradable and 13,119,879 shares underlying
  warrants and options, such securities to be covered by a registration
  statement on Form S-1 to be filed with the SEC.  The market price of our
  common stock could decline as a result of sales of a large number of shares of
  our common stock in the market after this offering, or the perception that
  such sales could occur. These sales might also make it more difficult for us
  to sell equity securities in the future at a price that we think is
  appropriate, if at all.  A large volume of sales by the selling
  shareholders could have a significant adverse impact on the market price of
  our common stock.

|Ø | The mobile and wireless multimedia industry is
  new and rapidly evolving, and we may not be able to accurately predict its
  size, needs, development or rate of growth.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The market for our software
  and technologies is new and rapidly evolving. Wireless service providers are
  only beginning to offer commercial services that could result in utilization
  of our software and, as a result, we cannot assess current or future demand
  for remote management of resources, the creation and interaction with
  multimedia content via cellular handset and other mobile devices, and enhanced
  quality of remote communications. We also do not know whether this market will
  be large enough to sustain our business. We may not be able to develop and
  introduce software, software enhancements or services that respond to market
  demands, technology developments, increased competition or industry standards
  on a timely basis, or at all. If this market does not evolve in the manner or
  in the timeframe that we anticipate, or if we are unable to respond to new
  market developments promptly, our business and prospects may suffer.

|Ø | The success of our business will greatly
  depend on our ability to develop and enter into strategic relationships with
  wireless service providers, semiconductor and device designers, wireless
  device manufacturers and content providers.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our business will depend on
  our ability to develop relationships and enter into agreements with

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companies
  in key industry groups, including:

- wireless service providers that we
      expect will deploy our technology and products to deliver multimedia
      content and services to their subscribers;
- semiconductor and device designers
      and manufacturers that we expect will embed our technology and products in
      their products to enable the viewing of multimedia content; and
- content providers that we expect
      will rely on our technology and products to deliver multimedia content
      over wireless networks.

We have been endeavoring to
  establish these relationships for some time.  We believe our inability,
  to date,  to accomplish this has been, in large part, the result of not
  having fully developed and tested any of our products targeted for the
  wireless and mobile market. We are currently awaiting final certification by
  Qualcomm and approval from a U.S.-based wireless carrier for the initial
  deployment of our exegoapplication.  Once deployed, we expect to generate revenue.  We will
  need to enter into contractually binding agreements with carriers, device
  manufacturers, and content providers in order to generate any significant
  revenues from our technology and product applications.   Our
  discussions with wireless service providers, device manufacturers and content
  providers have not yet evolved to the negotiation of terms to be memorialized
  in definitive agreements.  If we are unable to establish a sufficient
  number of strategic relationships and enter into contractual arrangements on
  terms commercially favorable to us, our business and prospects are likely to
  be adversely affected.

|Ø | Our business will depend on wireless service
  providers adopting our BlueFuelsoftware and related applications, and on their subscribers demand for
  such applications.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our success will depend
  heavily on timely deployment by wireless service providers of our BlueFuelproduct suite in their networks. Wireless service providers may not deploy, or
  may be slow in deploying, our software due to a number of factors including
  the availability of competing products, lack of subscriber demand, as well as
  interoperability, implementation, support or maintenance concerns. In
  addition, if our current or future field trials with wireless service
  providers are unsatisfactory, they may not deploy our software or may require
  costly or time-consuming modifications to our software before deployment.

Even if wireless service
  providers offer content services based on our software, their subscribers may
  not be willing to buy these services. Subscribers are accustomed to viewing
  content on the comparatively large displays of television screens and PC
  monitors and may not be willing to use mobile information devices, which
  typically have smaller screen sizes, to view content. Additionally,
  subscribers may not be willing to pay to view content on mobile information
  devices because this content can be viewed at a lower cost using other
  connections, such as satellite and wireline connections. Moreover, subscribers
  may not be willing to purchase new devices or upgrade their existing devices to
  include multimedia content viewing capability.

|Ø | If mobile information devices for delivery of
  content are not widely adopted or if semiconductor and device designers and
  manufacturers fail to embed our BlueFueltechnology in their products, our business will be harmed.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We believe that mobile
  information devices will be the principal means for the wireless delivery of
  content. Only a small percentage of these devices are currently capable of
  receiving and displaying content. In order to enhance the viewing of such
  content, new or upgraded devices that offer more advanced displays and support
  higher bandwidth wireless services are required. If semiconductor and device
  designers and manufacturers are unable to design, manufacture and widely
  distribute mobile information devices capable of displaying content in a
  timely manner, our business will suffer.

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We are in the early stages of building relationships with semiconductor and
  device designers and manufacturers. Even if we secure binding agreements with
  these designers and manufacturers, they may not produce, promote or sell
  devices that incorporate our technology and products. If we fail to achieve
  widespread distribution of our technology and products in mobile information
  devices, our business and prospects are likely to be adversely affected.

|Ø | If we fail to commercialize our BlueFuelplatform, or to develop and commercialize additional enhancements to such
  platform, we may not be able to compete effectively and our business will
  suffer.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our BlueFuelplatform is new and has not yet been commercially deployed. Our success
  depends on our ability to commercially release our software based on our
  technology in a timely manner. Our success also depends on our ability to
  develop and commercialize new enhancements to our technology in a timely
  manner. If we fail to commercialize successfully our software and technology,
  or to develop new software and technology, we will not be able to compete
  successfully.

|Ø | We have in the past experienced delays in
  product releases, and we may similarly experience delays in the release of
  products and upgrades in the future.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

We will need to continue to
  introduce, on a timely basis, new products and product upgrades to add new
  features, functionality and technology that our target customer base desires.
  No assurances can be provided that we will be able to successfully complete
  the development of currently planned or future products in a timely and
  efficient manner. Due to the complexity of these products, internal quality
  assurance testing and customer testing of pre-commercial releases may reveal
  product performance issues or desirable feature enhancements that could lead
  us to postpone the release of products or product upgrades. In addition, the
  reallocation of resources associated with any such postponement would likely
  cause delays in the development and release of other future products or
  enhancements to our currently available products. This could have a material
  adverse effect on our results of operations.

|Ø | We face intense competition as a solutions
  provider in the wireless telecommunications industry.
|- | --------------------------------------------------------------------------------------------------

The wireless communications
  market is highly competitive. Our failure to establish a customer base as a
  solutions provider to this industry will adversely affect operating results.
  The competition with other solutions providers to form alliances with wireless
  telecommunications companies and Internet service providers is significant.
  The loyalty of wireless industry customers we may obtain could be easily
  influenced by a competitors new offerings, especially if those offerings
  provide cost savings or new methods of compression and multimedia technology
  applicable to wireless communications. We will face significant competition
  from traditional telecommunications companies, virtually all of which have
  greater market share and financial resources than we do. These traditional
  telecommunications companies are better positioned to finance research and
  development activities relating to compression and multimedia technology. They
  are also able to provide a wider range of products and services for a greater
  spectrum of media and have greater resources with which to purchase additional
  technologies or acquire other companies.

|Ø | We expect that the wireless communications
  industry and its technology will undergo significant change in the foreseeable
  future.  If we do not continuously improve our technology in a timely
  manner, our products could be rendered obsolete.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The wireless communications
  industry is experiencing rapid and significant technological change. This
  change includes the increase in pace of upgrades in existing wireless systems,
  evolving and constantly changing industry standards, ongoing improvements in
  the capacity and quality of digital and compression technologies, and changes
  in consumer needs and preferences. Alternative technologies may develop for
  the provision of wireless services and other compression technologies to
  wireless services that are superior to those that we plan to offer to the
  wireless market. These alternative technologies may render our products and
  technologies obsolete in the future. Accordingly, our success depends on our
  ability to adapt to these changes, particularly to develop or adapt products
  and services or acquire new products and services that can compete
  successfully. There can be no assurance that we will select and develop

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appropriate technology and products on a timely basis. Our failure to develop
  or obtain appropriate technology could adversely affect our ability to be
  competitive.

|Ø | Our products are complex and we may not be
  able to prevent defects that could decrease their market acceptance, result in
  product liability or harm our reputation.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our technology is complex,
  and the steps we take to ensure that such technology is free of errors or
  defects, particularly when first introduced or when new versions or
  enhancements are released, may not be successful. We cannot guarantee that
  current or enhanced versions of our products will be free of significant
  software defects or bugs. Despite our testing, and testing by third parties,
  current or future products may contain serious defects. Serious defects or
  errors could result in lost revenue or delay in market acceptance of our
  products and could seriously harm our credibility and materially affect the
  market acceptance and sales of our products. The occurrence of these types of
  problems could materially adversely affect our business, results of operations
  and financial condition.

Errors in our products may also be caused by defects in third-party hardware
  or software incorporated into our products. If so, we may be unable to fix
  these defects without the cooperation of third-party providers. Because these
  defects may not be as significant to these providers as they are to us, we may
  not receive the rapid cooperation that may be required to avoid serious harm
  to our business and operating results. Errors, defects or other performance
  problems with our products could also harm our customers businesses or
  result in potential product liability claims. Even if unsuccessful, a product
  liability claim brought against us would likely be time-consuming, costly and
  harmful to our reputation.

|Ø | If we endeavor to expand our limited presence
  in international markets we will become subject to additional business risks.
|- | -----------------------------------------------------------------------------------------------------------------------------

We may decide to expand what
  is now a limited presence, through employees, consultants and agents, in
  international operations. To do so we would likely have to enter into
  relationships with foreign business partners. This strategy contains risks,
  including difficulty in managing international operations due to distance,
  language and cultural differences, and an inability to successfully market and
  operate services in foreign markets. There are also risks inherent in doing
  business on an international level, including unexpected changes in regulatory
  requirements, trade barriers, difficulties in staffing and managing foreign
  operations, fluctuations in currency exchange rates, longer payment cycles in
  general, problems in collecting accounts receivable, difficulty in enforcing
  contracts, political and economic instability, and potentially adverse tax
  consequences.

|Ø | Regulations governing the wireless
  communications industry may indirectly adversely affect our business.
|- | ----------------------------------------------------------------------------------------------------------

The wireless communications
  industry is subject to regulation by the Federal Communications Commission and
  various state regulatory agencies. From time to time, legislation and
  regulations could be adopted that could adversely affect this industry.

Changes in regulatory environments governing the wireless telecommunication
  industry could negatively affect our plans to offer products and services. The
  licensing, ownership and operation of wireless communications systems and the
  grant, maintenance or renewal of applicable licenses and radio frequency
  allocations are all subject to significant government regulation. Government
  regulation may have an adverse effect on the wireless telecommunications
  companies to which we plan to market and sell our compression and multimedia
  technology software packages under development. Delays in receiving required
  regulatory approvals and licenses or the enactment of new and adverse
  regulatory requirements may adversely affect our ability to offer our
  technology and other new products and services. In addition, legislative,
  judicial and regulatory agency actions could negatively affect our ability to
  offer new technologies to wireless telecommunications companies.

- viii -

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|Ø | We may acquire technologies or companies in
  the future, and these acquisitions could dilute the value of our stock and
  disrupt our business.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------

We may acquire technologies
  or companies in the future. Entering into an acquisition entails many risks,
  any of which could harm our business, including:

- diversion of managements attention from other
  business concerns;
- failure to integrate the acquired company with
  our pre-existing business;
- failure to motivate, or loss of, key employees
  from either our existing business or the acquired business;
- inability to incorporate acquired technology into
  our software;
- potential impairment of relationships with our
  employees and companies with whom we have strategic relationships;
- additional operating expenses not offset by
  additional revenue;
- incurrence of significant non-recurring charges;
  and
- dilution of our stock as a result of issuing
  equity securities.

|Ø | We may be unable to adequately protect the
  intellectual property used in our software.
|- | ----------------------------------------------------------------------------------------

We have applied for 16 provisional patents with respect to some of our
  technologies, and expect to apply for additional patents in the future. These
  patent applications may not be granted or, if granted, the resulting patents
  may be challenged or invalidated. In addition to patents, we rely on copyright
  and trademark laws, trade secrets, confidentiality provisions and other
  contractual provisions to protect our proprietary rights. These measures,
  which require the expenditure of substantial resources, afford our
  intellectual property only limited protection because our competitors and
  third parties independently may develop similar technologies or may infringe
  our intellectual property.
  Infringement is difficult to detect and costly to prevent. With respect to the
  protection of our proprietary rights internationally, the laws of some foreign
  countries may not protect our proprietary rights adequately. In addition, we
  will not have patent protection in countries where we do not file patent
  applications. Thus, the measures we are taking to protect our proprietary
  rights in the United States and abroad may not be adequate and our business
  may be harmed as a result.

|Ø | We may be sued by third parties for
  infringement of their intellectual property.
|- | ----------------------------------------------------------------------------------

The wireless equipment and
  software industries are subject to frequent intellectual property litigation.
  As the number of entrants into our target market increases, the likelihood of
  infringement claims also increases. We may unknowingly be infringing the
  intellectual property of others. In addition, because patent applications can
  take many years to be approved, there may be one or more patent applications
  now pending that could lead to infringement actions against us if issued in
  the future. If we are unable to successfully defend against a product
  infringement claim, we may be precluded from using the intellectual property
  or may have to license it on commercially disadvantageous terms, either of
  which could harm our business. Even if we successfully defend against an
  infringement claim, we may have to devote significant time and resources to
  litigation, which could also harm our business.

|Ø | The U.S. government has certain rights
  relating to our intellectual property.
|- | -------------------------------------------------------------------------------

Much of our complex imaging
  and object recognition technologies currently or to be incorporated

- ix -

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into our
  existing software development kits are the result of us retaining ownership of
  inventions made under U.S. government-funded research and development
  projects. With respect to any invention made with government assistance, the
  government has a non-exclusive, non-transferable, irrevocable, paid-up license
  to use the technology or have the technology employed for or on its behalf
  throughout the world for government purposes. Under certain conditions, the
  U.S. government has march-in rights. These rights enable the U.S.
  government to require us to grant a non-exclusive, partially exclusive or
  exclusive license in any field of use to responsive applicants, upon terms
  that are reasonable under the circumstances. If we refuse, the government can
  grant the license itself, provided that it determines that such action is
  necessary because we have not achieved practical application of the invention,
  or to alleviate health or safety needs, or to meet requirements for public use
  specified by federal regulations, or because products using such inventions
  are not being produced substantially in the U.S. The exercise of these rights
  by the government could create potential competitors for us in the government
  sector if we later determine to develop the technologies and utilize the
  inventions in which the government has exercised these rights. We otherwise
  retain all commercial rights to our technology.

|Ø | Ownership of our common stock is concentrated
  in certain shareholders, which could make it more difficult to effect or
  prevent a change in control or other transactions.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The interest of management in
  our common stock could conflict with the interest of our other shareholders.
  As of March 15, 2002, our executive officers and directors beneficially own,
  on a fully diluted basis, an aggregate of approximately 38.48% of our
  outstanding shares of common stock. As a result, our executive officers and
  directors will be able to exercise greater control over the election of
  directors and approval of significant corporate transactions. This could have
  the effect of delaying or preventing a change of control, and make some
  transactions more difficult or impossible without the support of these
  shareholders, including proxy contests, mergers, tender offers, and
  open-market share purchase programs that could provide our shareholders with
  the opportunity to realize a premium over the then-prevailing market price for
  shares of our common stock, which, in turn, could reduce the market price of
  such shares.

|Ø | We depend on key
  personnel to operate our business.
|- | -----------------------------------------------------

Our future success depends on
  the continued services and performance of our senior management, in
  particular, our Chief Executive Officer, Dr, Bjorn Jawerth, and other key
  scientific, technical and managerial personnel.  The loss of the services
  of any member of our senior management or other key employees could cause
  significant disruption in our business and have a material adverse effect on
  us.  We have employment agreements with certain members of senior
  management but we do not currently maintain any key person life
  insurance. Our future success also depends on our ability to identify,
  attract, hire, train, retain and motivate other highly skilled technical,
  managerial, operations, sales and marketing and customer service personnel.
  Competition for qualified personnel is intense. If we do not succeed in
  attracting new personnel or retaining and motivating our current personnel,
  our business could be harmed. For information on our key personnel, please see
  Item 10. Directors and Executive Officers of the Registrant.

|Ø | Our common stock is subject to penny stock
  rules that may hamper a shareholders ability to sell shares of such stock
  in the secondary trading market.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

Federal regulations under the
  Securities Exchange Act of 1934 (the Exchange Act) regulate the trading
  of so-called penny stocks, which are generally defined as any security
  not listed on a national securities exchange or Nasdaq, priced at less than
  $5.00 per share and offered by an issuer with limited net tangible assets and
  revenues. Since our common stock currently trades on the OTC Bulletin Board at
  less than $5.00 per share, our common stock is a penny stock and may not
  be traded unless a disclosure schedule explaining the penny stock market
  and the risks associated with such stock is delivered to a potential purchaser
  prior to any trade.

In addition, because our
  common stock is not listed on the Nasdaq Stock Market or any national
  securities exchange and currently trades at less than $5.00 per share, trading
  in our common stock is subject

- x -

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to Rule 15g-9 under the Exchange Act. Under
  this rule, broker-dealers must take certain steps prior to selling a penny
  stock, which include:

- obtaining financial and investment information
  from the investor;
- obtaining a written suitability questionnaire and
  purchase agreement signed by the investor; and
- providing the investor a written identification
  of the shares being offered and the quantity of the shares.

Because of these requirements, many
  broker-dealers are unwilling to sell penny stocks at all.

If these penny stock rules are not followed by the broker-dealer, the
  investor has no obligation to purchase the shares. The application of these
  comprehensive rules will make it more difficult for broker-dealers to sell our
  common stock.  Accordingly, you may have difficulty in selling shares of
  our common stock in the secondary trading market. These rules could also
  hamper our ability to raise funds in the primary market for our common stock.













- xi -

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ITEM
  1.         BUSINESS.

Overview

Our goal is to become a
  leading provider of efficient information processing solutions for the
  emerging mobile and wireless market.  Our solutions will enable the
  evolution of  mobile and wireless devices from communication devices to
  control devices for dynamically changing personal networks.  We have
  designed and developed a compelling end-user service application named exegobuilt on our BlueFuelarchitecture;  see  - Our Products below.  Combined with
  BlueFuel,
  this service application will enable information mobility, management and
  exchange tasks on low-, mid- and high-tier cellular handsets over existing
  second generation (2G) wireless networks.  The exegoapplication is designed to turn a cellular handset into a control device
  through which the user can instantly access, process and deliver information,
  wherever and whenever he wants to.

Although our primary business
  focus is the mobile and wireless market, our historic roots (i.e., that of
  Summus, Ltd.) is that of a company engaged in research and development
  contract work for government agencies in the areas of complex imaging and
  object recognition.  Such contract work represented 67% and 60% of our
  revenues in the years ended December 31, 2001 and 2000, respectively. 
  For the past ten years, we have focused on providing our expertise in the
  fields of mathematics, including wavelets, non-linear partial differential
  equations and dynamical systems, and graph theory and topology, for purposes
  of developing complex imaging and object recognition technologies that have
  been applied by our government agency clients to:

- mine detection (both land and sea);
- automatic target recognition, de-noising and
  image compression and decompression;
- side scan sonar 3D imaging;
- missile imaging software (smart bomb technology);
  and
- 3D (simulation and mapping).

Our government contract work
  will continue to focus on solving specific technical and scientific problems
  in the government sector. The government contract work has led to the
  development of software development kits that allow software developers to
  create new software products that are compatible with and complementary to our
  software and technology, and revenue generation through licensing and sales of
  that technology.  Although we are continuing to pursue new business
  opportunities within the areas of our traditional strength (i.e., with the
  Office of Naval Research and the Air Force Research Lab), in the wake of the
  terrorist actions of September 11, 2001, we are also expanding our efforts to
  pursue homeland security projects. We believe our object recognition and image
  technologies are well suited for security-related applications.

We have entered into several agreements relating to the licensing of our Photo
  ID image compression and decompression technology.  Applications of this
  technology under our current agreements include the following:

- Photo identification
  of images within two-dimensional (2D) barcodes on drivers licenses to
  assist law enforcement officials with on-location identity verification and
  enhanced information collection for accident and traffic violation reports;
- Personal
  identification on boarding passes and baggage claim tickets used in the
  airline industry, as well as personal identification cards.  Widespread
  deployment of our technology in this area is contingent on successful
  completion of field trials currently being conducted and the ability of our
  business partners to procure contracts thereafter.

- 1 -

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We believe that our image technology may have other ID card and
  security-related applications.  Licensing of our Photo ID technology
  represents a low-cost, high-margin business.

In 2001, we initially explored
  applications of our complex imaging and object recognition technologies in the
  medical sector. Our focus is on computerized medical diagnosis solutions for
  the anatomical pathological (AP) market.  We have proposed entering into
  a joint venture or similar arrangement with a company in this market for
  purposes of assessing the viability of a computerized medical diagnosis
  solution and potentially developing a post-screening application.  We
  have a memorandum of understanding which contemplates the formation of a joint
  venture for purposes of seeking to adapt our technology for application in
  this market, but given our limited financial resources we have been unable to
  complete this transaction.  We intend to pursue this opportunity once we
  have secured the necessary working capital.

The Market Opportunity

Market research sources project significant growth in the mobile and wireless
  market.  Revenues in the multi-billions of dollars are predicted over the
  next 2-4 years in several sectors within the mobile and wireless arena. 
  These sectors include streaming media, multimedia services, location-based
  services and multimedia messaging.  Over the next ten years,
  Telecompetition, Inc., projects that the market for advanced mobile and
  wireless services will exceed $300 billion.  Ultimate success in the
  mobile and wireless market will require overcoming two significant challenges:

- developing and delivering
  compelling user experiences; and
- enabling the value chain
  through a strong business model, effective partnering strategies and technical
  expertise.

Compelling End-User Experience

We believe the mobile and
  wireless market is currently underserved.  Most currently offered mobile
  and wireless solutions fail to meet the needs and expectations of the mobile
  end-user due to at least one of the following reasons:

- Functionality focuses on delivering the
  PC/Internet experience to the cellular handset, not on creating functionality
  that extends the reach of the user through information mobility and the on
  the fly decision making.
- Solutions are defined narrowly to meet the needs
  of a specific functional niche (e.g., messaging or alerts), not on solutions
  that personalize the use, access, and processing of information.
- More bandwidth and specialized hardware are
  necessities for delivering solutions, rather than effective and efficient use
  of existing resources.

We believe that a successful
  solution, often referred to as a killer application, will need to
  address the above issues.  We anticipate solutions in the market place to
  address the following functional capabilities:

- dynamic tracking and alert for news, events, and
  activities
- instant messaging
- multimedia management and messaging
- remote decision support (comparative shopping,
  information resources, analysis)
- scheduling and calendar management

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- location-based services
- mobile commerce (m-commerce)

Enabling the Value Chain

The wireless and mobile value chain
  consists of all the elements necessary to bring a solution to market including
  applications, content, network infrastructure, devices and network connection
  service.  No solution for the wireless and mobile environment can be
  developed in isolation  all parts of the value chain must be considered.
  The challenge in creating a successful business model is to synchronize the
  elements of the value chain across companies to deliver the total mobile and
  wireless solution to the end-user.  Critical players in the business
  model include the builders and operators of the global communications
  infrastructure, the information and content providers, and the mobile and
  wireless device manufacturers.

Our Strategy

To realize our goal of becoming a leading provider of efficient information
  processing solutions for the mobile and wireless market, we intend to use our
  technology assets to build solutions that provide a compelling user experience
  for consumers in the mobile and wireless environment, leverage these assets
  and solutions for growth by entering into strategic partnerships and
  commercial alliances, and employ a carefully designed intellectual property
  strategy to protect out market position, once established.

Our strategy is to apply our technology assets with the objectives of:

- being an early market entrant in exploiting the
  market opportunity for mobile and wireless solutions by delivering a new kind
  of compelling end-user application: remote access of and processing of
  information resources via small handheld devices; and
- establishing BlueFuel as a leading
  architecture for efficient information processing through mobile and wireless
  platforms, and establish Summus, Inc. as a leading provider of solutions,
  tools and services supporting BlueFuel.

To achieve these objectives, our
  business model contemplates leveraging our technology assets  to provide
  all participants in the value chain with an economic motivation to provide
  their respective pieces of the solution.  The partnering challenge is to
  recruit and enter into agreements with companies to provide a total solution
  to the end-user.  We are presently seeking to establish relationships
  across the value chain to ensure that our products and services will be
  compelling and available to end-users, as described below.

Semiconductor and Device Designers and Manufacturers

Our relationship with semiconductor and device designers and manufacturers
  will revolve around embedding our products for decoding content in the
  microprocessors or digital signal processors (DSPs) in digital cell phones and
  PDAs.

We have developed ourexego
  application for video and image delivery, instant messaging, resource
  management, as well as 3D graphics delivery and rendering, that is compatible
  with Qualcomms Binary Runtime Environment for Wireless (BREW)
  wireless operating system. BREWis an applications platform for wireless devices using a variety of air
  interfaces.  Among these are Code Division Multiple Access (CDMA), which
  is expected to be the leading standard for third generation, high speed
  wireless voice and data communications (notwithstanding that GSM is currently
  the de facto standard in Europe and Asia, with a reported 662 million
  subscribers worldwide as of February 2002 versus a reported 112.2 million CDMA
  subscribers worldwide as of December 31, 2001).  CDMA has a greater
  network capacity (as a result of adjusting the transmission rate when there is
  no voice or data on the channel), rapid and smooth migration to high speed
  data capability (thus, minimizing service interruptions during technology
  upgrades), growing international coverage, and the highest transmission speed.
  The BREWplatform provides a standard programming environment that gives software
  developers the tools to create

- 3 -

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compelling wireless applications and services
  that can be offered by wireless carriers to their customers.  Qualcomm has
  established a multi-tiered membership program designed to support developers
  of BREW compatible
  wireless applications, and we have become a core developer under that program.
  Neither our participation in nor status of a core developer within the BREWprogram imposes any obligations on Qualcomm to enter into any agreement with
  us related to our products.

The first release of exegois designed to work on any Qualcomm BREWplatform-enabled device, such as a BREW-enabled
  cellular handset. We have received certification of our first BREWapplication (exego)
  from the National Standards Test Laboratory (NSTL) contracted by Qualcomm to
  consistently test applications prior to Qualcomms consideration of such
  applications.  We are currently awaiting final certification by
  Qualcomm.  We anticipate an initial deployment of the exegoapplication, followed by a full-scale deployment by one U.S. carrier before
  the end of the second quarter of 2002.  Our business model for exegois consistent with the Qualcomm BREWmodel, which dictates a revenue sharing agreement in which we would receive
  eighty percent of the negotiated sales price of the application.  The
  deployment of this initial exegoapplication will ultimately be within the control of the carrier.

In July 2001 we entered into a master porting agreement with Samsung
  Electronics America, Inc., a subsidiary of Samsung Electronics Co. Ltd., a
  global leader in semiconductors, consumer electronics and digital convergence
  technology, that sets forth the basic terms that would apply to our
  development of technology and solution ports to various Samsung product lines,
  including Samsungs digital signal processors (DSPs). The master porting
  agreement contemplates that the specific obligations of the parties with
  respect to the port of our technology will be set forth in services
  schedules to the agreement. The agreement itself contains provisions that,
  among other things, establish that each party owns their respective
  technologies and subject the parties to mutual confidentiality obligations.
  The agreement expressly provides that Samsung has no obligation to market,
  sell, sublicense or otherwise distribute a deliverable developed by
  Summus, Inc.  However, we continue to pursue a revenue-generating
  relationship with Samsung.

In January of 2002 we entered into a strategic relationship for the wireless
  network and set-top box markets with Samsung Electronics America, Inc., a
  global leader in semiconductors, consumer electronics and digital convergence
  technology, that stipulates that the parties will develop, market and generate
  business opportunities for the wireless network and set-top box markets. 
  We recently submitted a proposal to Samsung for the development of an
  application for the wireless network market.

Content Providers

In seeking to build
  relationships with content providers, our approach will be to provide products
  for encoding and efficient storage, viewing, and manipulation of multimedia
  content for viewing on digital cell phones or PDAs. Content providers are
  accustomed to traditional means of message delivery (i.e., print media and the
  Internet). The mobile and wireless media extend the reach of content
  providers, thereby offering the potential for increased revenue generation. We
  are currently engaged in discussions with various content providers with whom
  we may enter into commercial alliances to deliver, for example, sports and
  entertainment content using our BlueFuelsuite of products. See Our Products below.

Our business development activities have created several opportunities with
  major content brands.  These relationships are evolving as follows:

- Bundling of Content
   We are currently in discussions with several content developers and
  aggregators regarding the bundling of valuable content libraries with our
  wireless and mobile device applications. Bundled content and access to premium
  content are intended to be part of our applications, especially our more
  robust offerings anticipated in the second half of 2002.
- Application
  Development  We are currently negotiating with two worldwide leaders in
  branded media content to develop custom wireless multimedia applications to be
  distributed by cellular operators.

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- Content Distribution
   We are currently negotiating with a major media company to distribute our
  applications directly to the media companys customer base of over 10
  million people.

We have entered into an agreement
  with Iteris, Inc, a wholly-owned subsidiary of Odetics, Inc., a leader in
  traffic information systems focused on the development and distribution of
  wireless mapping and real-time traffic solutions for digital handsets. 
  We expect to market and distribute this service via our exegoapplication targeted at the BREWand J2MEplatforms
  during the second and third quarter of 2002.

Cellular Carriers

In seeking to build relationships with cellular carriers, we will focus on
  providing technology and products to facilitate multimedia content
  transmission via specific carrier air interface networks (e.g., GSM, TDMA,
  CDMA) in conjunction with carrier device manufacturers. We are in discussions
  with several carriers as to how to best meet their requirements for the
  deployment of our exego
  application and BlueFuel
  platform.   We are awaiting approval to participate in a trial with
  one carrier that will be utilizing the BREW
  platform.  In addition, we are participating in a trial with a major
  Scandinavian carrier to utilize our applications and technology to provide
  premium services to their enterprise customers.  We are also in
  discussions with several carriers regarding alternative platforms (such as
  J2ME,
  Symbian OS, Pocket-PC) for our applications.  Our efforts are centered
  around securing contracts with multiple carriers before year-end
  2002.   The anticipated timeframe for rollout will ultimately be
  within the control of the carriers.

Our Products

Existing Products

We have recently developed exego,
  an information management and exchange application.  exegois our first BlueFuel-based end-user application for the mobile and wireless market.  The
  initial release of the application combines the powerful features of e-mail
  addressing and instant messaging with high quality image management and
  rendering to enable end-users to instantly exchange text and images from a
  data repository to a cellular handset or between cellular handsets, and to
  send images and text via e-mail.  The application will be accompanied by
  a PC and web-based product,exegopc,
  that provides image upload and editing features through the data repository
  service.  exegopccurrently offers the following set of core features:

- instant messaging between exegosubscribers, including exchange of both text and media messages,
- e-mail addressing, including the capability to
  send and receive multimedia emails,
- high quality image editing, management, and
  rendering,
- slideshow creation,
- content organization in the users own
  customizable media directory,
- address book for storage of contact information,
- customizable profile and settings for managing
  the users account and customizing features.

In subsequent releases of
  exego,we plan to expand the
  cellular handset platform base to include the J2MEplatform and other mobile and wireless device operating systems, and to extend
  the features to include a wider selection of information resources and mobile
  utilities. We are also exploring opportunities to expand the exegoapplication with other U.S. and international cellular carriers supporting
  BREWor J2ME.

- 5 -

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We intend to act as the application
  service provider and provide the infrastructure to host and deliver the
  transactions for exegosubscribers.  We plan to build out our infrastructure by outsourcing with
  co-location and third-party hosting companies.  The companies we enter
  into strategic alliances with will supply the necessary computer hardware,
  network, facilities, disaster recovery and monitoring required to run a 7/24
  service for a monthly fee.  It is our intent to have our first off-site
  location operational before a contemplated nationwide deployment of exego.

Summus, Inc.s BlueFuel
  architecture is the foundation upon which mobile and wireless activities can
  be effectively and efficiently executed and is the basis for our exego
  application. BlueFuel
  occupies a position in the mobile and wireless infrastructure similar to that
  of the operating system on a PC. BlueFuel
  coordinates the interaction of information resources under the technical
  challenges imposed by devices, networks, information content, and the end-users
  personal preferences. BlueFuel
  is a distributed architecture that operates within information-supplying
  appliances, network servers, storage devices, and end-user devices, including
  PDAs, handsets, and PCs.  Collectively, these are referred to as information
  resources.  BlueFuel
  is designed to bring the far reaches of the network-connected world under the
  control of the end-user in a manner that is as easy as calling a friend on the
  telephone.  The components that comprise the BlueFuel
  architecture are the glue that binds the various elements of the value
  chain into a compelling end-user solution and experience.

The mobile and wireless environment
  invokes several kinds of user activities:

- immediate need (I need the report update now!)
- intersection of planned actions with information
  (I will need the traffic report at 3:00.)
- sharing and collaboration (Ill send you the
  chart.  Please send me your comments.)

These kinds of activities are based on a single basic operation:  the
  connection of two or more information resources via a set of specific
  activities. The interface into the BlueFuelarchitecture begins with a command to carry out a specific operation. The
  attributes of the information resources are then coordinated, and the
  resources are connected to carry out the command in the most efficient way
  possible. To accomplish these tasks the BlueFuelarchitecture depends on three primary components: BlueFuelinformation processing modules, the Efficiency Engine information resource
  manager, and BlueFuelutilities or applications, such as exego. 
  The BlueFuelmodules are computationally very efficient information processing tools
  designed to extend the performance of todays mobile and wireless devices.
  The modules focus on adapting, manipulating, organizing, and encoding
  information in specific hardware and software environments to meet the
  efficiency requirements implied by the end-users request. It is the focused
  purpose of these modules that enables image processing five times faster than
  JPEG-2000, video processing five times faster than MPEG-4, and graphic
  download times 100 times faster than JPEG-2000. The module set currently
  includes BlueFuelVideo, BlueFuelImage, and BlueFuelMap .  We plan to expand the set to include an array of information
  resource tools dealing with many different types of information (text,
  graphics, animation, 3D, etc.) and many different kinds of devices (cameras,
  printers, pointing devices, etc.).  The Efficiency Enginetranslates the basic operation into the language of network connections,
  information formats, user preferences, and device constraints.

The Efficiency Engineis an intelligent resource manager that chooses an efficient way of carrying
  out a particular activity, balancing the requirements of the network, the
  devices involved, and the preferences of the user. The Efficiency Engine
  also saves memory and processing resources by selecting and using only the
  BlueFuelmodules that are necessary for the requested activity.  For instance, if
  an image is transmitted to a BlueFueldevice, the Efficiency Engineonly loads the image decoding component of the architecture, leaving other
  modules alone, thus selecting an optimized use of device resources to display
  the image.

Utilities and applications establish
  the interface between user and solution or function.  They integrate the
  many aspects of a particular solution or basic operation into a mobility
  configured, easy-to-use end-user tool.   Summus first such
  utility/application, exego,
  enables the end-user to remotely access,

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copy and process content between two
  or more information resources.  A defining feature of these applications
  is instant, wherever-whenever access and control of information
  resources.  These applications make possible such activities as using a
  cellular handset to move files from a PC to the local fax machine for
  printing, viewing a personal web-cam from a wireless handset, or finding the
  lowest price for a best-selling novel by surveying local bookstore inventories
  from a pager.

The commercial importance of the
  innovations in BlueFuelis that they create  the market opportunity for carriers, content
  providers, handset makers and chipset providers to deliver wireless multimedia
  sooner (on the current 2G network) and on a much wider range of devices than
  with other competing technologies. By driving a lower cost profile for
  wireless devices (and therefore lower end-user price points), BlueFuelcan drive additional volume opportunities for wireless multimedia services.

Our products address features that
  participants in this market have identified as key to delivering on the
  overall value proposition, including:

- cool processing focused (to address size,
  display, battery life, power dissipation and memory constraints or
  limitations);
- form factor and application adaptive (i.e.,
  enabling multimedia capability on a broad array of mobile and wireless
  devices, such as PDAs, smart phones and cell phones);
- technology agnostic and wireless telephony
  standards sensitive (i.e., compatible with a broad variety of mobile and
  wireless software platforms and hardware devices, irrespective of the wireless
  air interface);
- modular and flexible architecture/framework
  (i.e., able to deliver multiple types of multimedia solutions including video,
  audio, still image, 3D, animation and graphics);
- application-specific end-to-end solutions focused
  (i.e., providing a full suite of software products from the player
  software for the mobile or wireless device, to the server software, to the
  tools for multimedia content creation);
- always-on/on-the-fly decision support (i.e.,
  access to content and information anywhere, any time, which is expected to be
  possible upon the deployment and implementation of the third generation
  wireless network infrastructure);
- privacy vs. individualization (i.e., solutions
  that ensure the privacy of information and security of transactions, yet
  enable the user to get the content in the time and manner desired);
- information sharing networks (i.e., providing
  multimedia messaging capabilities and the ability to share content with
  others); and
- fast, reliable and robust information access
  (i.e., making full use of the capabilities of the greater bandwidth of the
  third generation wireless network).

Although the rapid and significant technological change occurring within the
  wireless communications industry may dictate a change in our product
  development strategy, we anticipate that our current product and technology
  portfolio will provide a solid base from which to grow. This product portfolio
  is as follows:

- The Efficiency Engine system component designed to efficiently route, store and monitor
  information flow (traffic) in a network. The Efficiency Enginesaves memory and processing resources by selecting and using only those
  BlueFuelmodules
  that are necessary for the requested activity.  Our architecture makes it
  possible to efficiently transmit and view content over current and future
  wired or wireless networks.

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- BlueFuelServerThe BlueFuelServer, which is designed for optimized multimedia delivery over wired and
  wireless networks, utilizes the Efficiency Engine to deliver content to
  both wired and wireless end user devices. It is also responsible for
  assembling content, interpreting end-user directives and anticipating their
  wishes. BlueFuelServer supports Summus BlueFuelarchitecture as well as industry standard formats.
- BlueFuelModulesThe BlueFuelModules are pluggable and upgradeable software modules  for processing
  multimedia information such as video, image, graphics, animation, 3D, map, and
  others needed to deliver BlueFuelapplication solutions. BlueFuelmodules allow application developers to build SuperFast-SuperThinmultimedia applications for gaming, enterprise solutions, security and
  surveillance, digital cameras, and m-commerce, to name a few. BlueFuelmodules support multimedia content provided from third-party servers as well
  as MPEG4 and other formats.
- BlueFuelImage software enabling image applications on mobile
  phones and other wireless devices.
- BlueFuelMap The BlueFuelMap module, in conjunction with a third-party mapping source, will provide
  users the ability to access, view and interact with real-time traffic maps for
  metropolitan areas.  This module will enable high quality color or
  monochrome display of street-level and highway-level maps with text and
  landmark icons. In addition, the BlueFuelMap module will enable unlimited panning and zooming of the map as well as the
  ability to click-through specific locations, landmarks or
  points-of-interest to obtain additional information such as address, phone
  number or other relevant information.
- BlueFuelVideo video compression software for multimedia applications. The software will
  enable the delivery of multimedia content faster and more efficiently than
  other methods available today. The BlueFuelVideo software will offer content on existing and next generation devices in
  smaller file sizes and at faster speeds than prevailing technologies. Because
  of its efficiency, mobile handsets will be optimized to deliver exceptional
  video quality  even with low-bandwidth connection speeds  while at the
  same time conserving battery power. We anticipate marketing BlueFuelVideo, in conjunction with wireless carriers and manufacturers of cell phones
  and PDAs, primarily to content providers.
- BlueFuelCreate a content creation tool designed specifically for optimized
  user experience for specific types of devices in both the wired and wireless
  market. BlueFuelCreate will run primarily in a PC environment and take advantage of the
  Efficiency Enginesoperating environment to provide content for devices on both wired and
  wireless networks. In addition, a subset of BlueFuelCreate may be available in specific devices to take advantage of content
  compression within the device. This creation tool will support our proprietary
  technology as well as industry standard formats. We anticipate marketing
  BlueFuelCreate to
  content providers.

In addition to our products aimed at the wireless and mobile market, we
  develop proprietary commercial software for complex imaging, information
  management, object recognition and multimedia compression with existing
  applications in the fields of mobile and wireless communications and
  information processing. Our current product portfolio in the area includes:

- Wavelet Image Software Developers Kit (SDK)
  Version 4.1  This product allows software developers to incorporate our
  wavelet compression technology within their applications. Software developers
  can compress images into smaller file sizes to enable faster downloads without
  significantly degrading image quality. Optimizing limited storage capabilities
  and lower bandwidth connections, products incorporating the Wavelet Image SDK
  can provide viewers with greater viewing enhancement, including image
  magnification or enlargement, the flexibility to control the compression ratio
  which determines speed and quality, and the

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ability to select specific areas
  or regions of interest for greater levels of detail. The Wavelet Image SDK
  will be updated to include support for JPEG2000, an international still image
  compression standard approved in January 2001. The Wavelet Image SDK will be
  updated to support rendering of JPEG2000 images as well as advanced features
  available only through the our wavelet implementations.

- Photo ID Software Developers Kit (SDK) Version
  2.0  This product provides all the standard features of the Wavelet Image
  SDK with the addition of specialized compression technology to handle
  portrait-style images  ideal for smartcard, barcoding and identification
  and security applications.

Future Products

We have targeted J2ME,
  Symbian OS, Pocket-PC and PalmOS as the next wireless operating systems or
  platforms to which to adapt or port BlueFueland the exegoapplication. J2ME is the micro edition of the Java 2
  platformtargeted at consumer electronics and embedded devices. J2ME
  allows developers to use Java and the J2MEwireless toolkit to create applications and programs for wireless and mobile
  devices.  Symbian OS is an applications platform, developed by Ericsson,
  Nokia, Motorola, Panasonic and Psion PLC, for wireless devices using the GSM
  air interface network, which is predominant in Europe.  Pocket PC is the
  mini edition of Microsofts Windows that allows developers to develop
  applications and programs for wireless and mobile devices.  Each
  operating system will require focused engineering resources to execute. In
  addition to adapting our application to other platforms, we have a strong
  focus on adding security features to increase protection for end-user
  data.  We are targeting commercial release of products ported on these
  platforms throughout the 2002 calendar year.

In addition to our mobile and wireless focus, we have explored applications of
  our complex imaging and object recognition technologies in the medical
  sector.  Our current focus is on computerized medical diagnosis solutions
  for the anatomical pathological (AP) market. In August 2000, we entered into a
  master consulting agreement with ADLabs, Inc.  As a result of our
  relationship with ADLabs, we realized that our complex imaging and object
  recognition technologies could be adapted to have application in the AP
  market.  We have reached agreement for a memorandum of understanding
  which contemplates our entering into a joint venture that would seek to adapt
  our existing technology for application in the market, but given our financial
  resources we have been unable to complete this transaction.  We intend to
  pursue this opportunity once we have secured the necessary working capital.

Sales and Marketing

We intend to market our technology primarily through our direct sales force,
  through leading semiconductor and device designers and manufacturers, wireless
  carriers, and programming providers. We are continuing to build a team of
  application and field engineers to support our direct sales force in business
  development and sales activities.

Our lack of financial
  resources, which has dictated that most of our energies be dedicated to
  marketing efforts in the U.S., has hampered our ability to fully capitalize on
  our marketing strategy, which is focused primarily on increasing awareness of
  the capabilities of our technology, developing relationships with content
  providers, wireless carriers and Internet portals. We are also engaged in
  promoting our brand name and creating demand for our software and services. We
  market our products through industry trade shows, press releases, public
  relations initiatives (including through consultants) and our web site. In
  addition, we are actively working with a number of trade publications and
  industry analysts to educate the market on the deployment and benefits of our
  software.

In an effort to expand our operations to Asia, where the wireless network
  infrastructure is currently more developed than it is in North America, we
  have recently entered into a marketing agent agreement with representatives to
  represent us in Korean market. In addition, we have increased our development
  staff in Croatia and have signed marketing agent agreements to market, sell
  and customize our applications in Asia.  As we expand and secure
  relationships in different parts of the world, we will

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consider opening
  regional offices to support our business development, sales and technical
  resources targeted toward the European and Asian markets.

###### Competition

Our financial and operating
  success depends, among other things, on the success of our existing and
  anticipated products and services. If those products and services fail to keep
  pace with the rapid changes in technology and customer and supplier demands,
  we may not become or remain profitable. There can be no assurance that our
  products and services will achieve market acceptance or commercial success. We
  expect competition to persist and intensify in the future.

Our primary competition with respect to theexegoapplication are the existing instant messaging and multimedia messaging
  services currently entering the market place, such as AOLs Instant
  Messenger(AIM), Yahoo Mobile and Nokia and Ericssons multimedia messaging service
  (MMS). exegooffers
  several key advantages such as multimedia versus text and personal creativity
  tools compared to AOLs and Yahoos offerings and faster image
  download/rendering compared to MMS.  More generally, we face competition
  from, among others:

- wireless infrastructure, equipment and device
  manufacturers, including Ericsson, Lucent Technologies, Matsushita
  Communications, Motorola, NEC Corporation, Nokia, Nortel, Samsung Electronics,
  Microsoft Corporation, PacketVideo Corporation and Toshiba, many of which are
  developing or have announced plans to develop competitive products;
- Microsoft Corporation, which has announced that
  it intends to support multimedia capability in its Windows CE operating system
  for mobile information devices;
- developers of streaming media technologies such
  as Apple Computer, Emblaze Systems and RealNetworks, Inc.;
- developers of video compression technology;
- wireless service providers, such as NTT DoCoMo,
  Orange, Sonera and US West;
- semiconductor designers and manufacturers such as
  Intel, Qualcomm and Texas Instruments, which may develop their own software to
  embed on the hardware they already produce; and
- providers of wireless software applications and
  content aggregation, such as Phone.com and InfoSpace, which may capitalize on
  their existing market share and expand their product offerings.
- developers of
  wireless multimedia applications such as Thin Multimedia, Togabi, Oplayo,
  SolidStreaming, and PacketVideo, which are developing competitive streaming
  products and are aggressively entering international markets
  where we plan to have our presence. They also focus upon selling player,
  server, and authoring tools rather than value added applications.

We may not be able to establish or
  maintain any significant competitive position against current and potential
  competitors, especially those with significantly greater financial, marketing,
  service, support, technical and other resources.

Research and Development

The market for our services is, and is likely to remain, characterized by
  rapid technological change and evolving industry standards, making timely
  product innovations critical. The introduction of products embodying new
  technology and the emergence of new industry standards could render existing
  products obsolete and unmarketable. We believe that our future success will
  depend on our ability to provide

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software and technologies to meet specific
  market demands, license and/or develop and market new products and
  enhancements to existing products on a cost-effective and timely basis in
  response to customer requirements, as well as market trends and demand.
  Accordingly, our business plan provides for us to continue to invest
  significantly in research and development.

We will need to continue to introduce, on a timely basis, new products and
  product upgrades to add new features, functionality and technology that our
  target customer base desires. Introducing new technology involves numerous
  technical challenges, substantial amounts of personnel resources and
  frequently requires months to complete.  No assurances can be provided
  that we will be able to successfully complete the development of currently
  planned or future products in a timely and efficient manner, that the
  integration of new technology will not degrade the responsiveness and speed of
  our existing products or that, once integrated, such technology will function
  as expected.

Due to the complexity of our products, internal quality assurance testing and
  customer testing of pre-commercial releases may reveal product performance
  issues or desirable feature enhancements that could lead us to postpone the
  release of products or product upgrades. We cannot guarantee that current or
  enhanced versions of our products will be free of significant software defects
  or bugs. Despite our testing, and testing by third parties, current or future
  products may contain serious defects. Serious defects or errors could result
  in lost revenue or delay in market acceptance of our products and could
  seriously harm our credibility and materially affect the market acceptance and
  sales of our products. In addition, the reallocation of resources associated
  with any postponement of the release of products or product upgrades would
  likely cause delays in the development and release of other future products or
  enhancements to our currently available products. The occurrence of these
  types of problems could materially adversely affect our business, results of
  operations and financial condition.

Errors in our products may also be caused by defects in third-party hardware
  or software incorporated into our products. If so, we may be unable to fix
  these defects without the cooperation of third-party providers. Because these
  defects may not be as significant to these providers as they are to us, we may
  not receive the rapid cooperation that may be required to avoid serious harm
  to our business and operating results. Errors, defects or other performance
  problems with our products could also harm our customers businesses or
  result in potential product liability claims. Even if unsuccessful, a product
  liability claim brought against us would likely be time-consuming, costly and
  harmful to our reputation.

Intellectual Property Rights

We currently have no issued patents but have filed 16 provisional patents and
  are working to develop these into formal patent applications within the
  one-year time period allowed by law. We are also examining whether further
  patent protection will be sought for several of the differentiating ideas and
  concepts in the BlueFueland exegoproduct suite. There can be no assurance that patents will become a
  significant part of our intellectual property in the foreseeable future.We currently have twenty trademarks protected by common law trademark
  marking (tm) and are in the process of securing registered marks in the United
  States for these marks.

Much of our complex imaging and object recognition technology currently or to
  be incorporated into our existing software development kits and products for
  use in the medical sector is the result of  us retaining ownership of
  inventions made under U.S. government-funded research and development
  projects. With respect to any invention made with government assistance, the
  government has a non-exclusive, non-transferable, irrevocable, paid-up license
  to use the technology or have the technology employed for or on its behalf
  throughout the world for government purposes. Under certain conditions, the
  U.S. government has march-in rights. These rights enable the U.S.
  government to require us to grant a non-exclusive, partially exclusive or
  exclusive license in any field of use to responsive applicants, upon terms
  that are reasonable under the circumstances, for governmental purposes. If we
  refuse, the government can grant the license itself, provided that it
  determines that such action is necessary because we have not achieved
  practical application of the invention, or to alleviate health or safety
  needs, or to meet requirements for public use specified by federal
  regulations, or because products using such inventions are not being produced
  substantially in the U.S. The exercise of these rights by the U.S. government
  could create

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potential competitors for us in the government sector if we later
  determine to develop the technologies and utilize the inventions in which the
  government has exercised these rights. Otherwise, we retain all commercial
  rights to our technology.

We regard our copyrights, trademarks, trade secrets and similar intellectual
  property as critical to our success and attempt to protect our rights by
  relying on patent, trademark, service mark, copyright and trade secret laws
  and restrictions on disclosure and transferring title and other methods. We
  have filed a United States trademark application for various components and
  concepts upon which the BlueFuelplatform depends.  There can be no assurances that these steps will be
  adequate to protect our intellectual property completely, that we will be
  granted the patents we submit, that we will be able to secure trademark
  registrations for all of our marks in the United States or other countries or
  that third parties will not infringe upon or misappropriate our copyrights,
  trademarks, service marks and similar proprietary rights.

Effective trademark, service mark, copyright, trade secret and patent
  protection may not be available in every country in which our products may be
  distributed and policing unauthorized use of our proprietary information will
  be difficult, if not impossible.

We generally enter into confidentiality agreements with our employees and
  consultants and generally control access to and distribution of our
  documentation and other proprietary information. However, it may be possible
  for a third party to copy or otherwise obtain and use our proprietary
  information without authorization or to develop similar technology
  independently.

Legal standards relating to the validity, enforceability and scope of
  protection of certain proprietary rights in Internet-related businesses are
  uncertain and still evolving and no assurance can be given as to the future
  viability or value of any of our proprietary rights within this market. There
  can be no assurance that the steps we have taken will prevent misappropriation
  or infringement of our proprietary information or rights. Any such
  misappropriation or infringement could have a materially adverse effect on our
  business, results of operations and financial condition. In addition,
  litigation may be necessary to enforce and protect our intellectual property
  rights, or to determine the validity and scope of the proprietary rights of
  others. Such litigation might result in substantial costs and diversion of
  resources and management attention and could have a materially adverse effect
  on our business, results of operations and financial condition.

From time to time, third parties have asserted and may assert exclusive
  patent, copyright, trademark and other intellectual property rights to
  technologies and related standards that are important to us or to third party
  providers of technology to us. We and/or such third party providers of
  technology may increasingly face infringement claims as the number of
  competitors in our industry segment grows and the functionality of products
  and services in different industry segments overlaps. As of the date of this
  prospectus, we do not have any intellectual property infringement claims or
  suits against us of any kind. However, we may be party to additional
  litigation in the future. Any third-party claims, with or without merit, could
  be time-consuming to defend, result in costly litigation, divert managements
  attention and resources or require us to enter into royalty or licensing
  agreements. Such royalty or licensing agreements, if required, may not be
  available on terms acceptable to us, if at all. A successful claim of
  infringement against us could harm our future competitiveness and
  profitability.

Government Regulation

Because of our contracts with governmental agencies, we are required to comply
  with various government regulations and policies. For instance, we are
  required to maintain employment policies relating to equal employment
  opportunities, and are subject to audit by the government to confirm
  compliance with these policies. If we fail to comply with regulations that
  apply to us, as a government contractor, we may face sanctions, including
  substantial fines and disqualification from future contract awards.

We are not otherwise currently subject to direct federal, state or local
  government regulation, other than regulations that apply to businesses
  generally. The telecommunications industry is subject to

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regulation by federal
  and state agencies, including the Federal Communications Commission (FCC), and
  various state public utility and service commissions. While such regulation
  does not necessarily affect us directly, the effects of these regulations on
  the wireless network operators with whom we are seeking to develop
  relationships may, in turn, negatively affect our business. FCC regulatory
  policies affecting the availability and licensing of bandwidth and other terms
  on which service providers conduct their business may impede our plans for the
  deployment of our technology.

Legislative proposals have been made in the U.S. that, if enacted, would
  afford broader protection to owners of databases of information such as stock
  quotes, weather and traffic information and sports scores. If enacted, this
  legislation could result in an increase in the price of services that provide
  data to wireless communications devices and could create potential liability
  for unauthorized use of this data.

Employees

As of December 31, 2001 we had 38 full-time employees, including 8 in
  marketing and sales, 21 in research and development (including product
  development) and 9 in corporate operations and administration. We also have
  engaged 11 consultants, 1 in marketing, 9 in product development (of which 7
  are in Croatia and 2 in Sweden) and 1 in operations. We are not subject to any
  collective bargaining agreements and believe that our relationship with our
  employees is good. Our success depends to a significant extent upon the
  performance of our executive officers and other key personnel.

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ITEM
  2.         PROPERTIES.

Our principal executive offices are
  located at Two Hannover Square, 434 Fayetteville Street, Suite 600, Raleigh,
  North Carolina 27601.  We occupy an aggregate of 19,100 square feet of
  leased space at such location under two leases.  A lease for 17,189
  square feet, representing our principal executive offices, expires October 31,
  2005.  The current annual base rent for such space is approximately
  $267,000 and will increase to approximately $313,000 by the last year of the
  term.  We were obligated to pay additional rent in the amount of roughly
  $5,900 per month for the seven-month period beginning May 1, 2001, related to
  the buildout of this office space in March 2000.  We also lease 1,911
  square feet of space in the same office building, representing the space
  occupied by Summus, Inc. prior to the Summus, Ltd. asset acquisition. 
  The lease term expires on July 31, 2003.  The current annual base rent
  for this space is approximately $58,600.  We are obligated to pay
  additional rent in the amount of roughly $2,000 per month for the 24-month
  period beginning August 1, 2001.  The additional rent is to be paid in
  connection with our termination of the lease of approximately 4,900 square
  feet of office space at this location.

We believe the terms of these leases are consistent with
  terms in the local market generally and that the space will be adequate for
  our reasonably foreseeable future needs.

ITEM
  3.         LEGAL PROCEEDINGS.

The ENELF Litigation

On March 15, 2001, ENELF, LLC filed a civil lawsuit in the United States
  District Court for the Eastern District of Texas alleging patent infringement
  by Microsoft Corporation, Texas Instruments, Inc., Aware, Inc. and Summus,
  Ltd. ENELF alleged that certain modules of MaxxSystem and the PhotoID SDK
  infringed upon ENELFs U.S. Patent Number 4,599,567 entitled Signal
  Representation Generator. ENELF sought to enjoin Summus, Ltd. from making,
  selling, offering for sale, using or importing its wavelet-based video and
  image processing technology. In addition, ENELF sought an unspecified amount
  of monetary damages.  On December 12, 2001, ENELF, Summus, Inc,
  and Summus, Ltd. entered into a settlement agreement, provided mutual releases
  and filed with the court a stipulated order of dismissal with respect to the
  litigation.  Under the terms of the settlement agreement, we have issued
  to ENELF 75,000 shares of our restricted common stock.

The Alan Kleinmaier
  Litigation

On November 15, 2001,
  Alan Kleinmaier, a former employee and officer of Summus, Inc. and Summus,
  Ltd., filed a civil lawsuit in the General Court of Justice, Superior Court
  Division in Wake County, North Carolina against Summus, Ltd., Bjorn Jawerth,
  Leonard Mygatt, Bradford Silvernail, and Gary Ban.  In our answer and
  counterclaim, a motion was made to substitute Summus, Inc. as a party
  defendant for Summus, Ltd. on the grounds that Summus, Ltd. was merged into
  Summus, Inc. on February 16, 2001.  In this suit Mr. Kleinmaier claims
  that he was entitled to three months severance pay of $30,550 and $1,800 in
  car allowance when he was terminated from Summus, Ltd. Summus,
  Inc. has filed an answer to Mr. Kleinmaiers claim and made several
  counterclaims against him.  We have not recorded a loss contingency
  relating to this lawsuit because, in managements opinion, it is not
  probable that a loss contingency exists

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

During the fourth quarter of the year covered by this
  report, no matter was submitted to a vote of the security holders of Summus,
  Inc.

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PART II

ITEM
  5.         MARKET FOR REGISTRANTS
  COMMON STOCK AND RELATED SHAREHOLDER MATTERS.

Market Information

Our common stock, par value $.001 per
  share, currently trades on the Over-the-Counter Bulletin Board®.  
  For the period of October 24, 2000 through November 15, 2001, our common stock
  was quoted through the Pink Sheets®.  The following table provides
  information about the high and low bid per share quotations of our common
  stock for each full quarterly period during the two years ended December 31,
  2000 and 2001, and for the first quarter of 2002 through March 15, 2002 on the
  OTC Bulletin Board® and on the Pink Sheets®, as provided by the National
  Quotation Bureau, Inc.  These quotations reflect inter-dealer prices
  without markup, markdown or commissions, and may not necessarily represent
  actual transactions.

2000
      Low
      HighFirst
        Quarter
      $  6.75
      $31.88Second
        Quarter
      $  3.00
      $13.25Third
        Quarter
      $  3.94
      $   7.44Fourth
        Quarter
      $  1.30
      $   6.90




2001
      Low
      HighFirst
        Quarter
      $  2.50
      $  4.30Second
        Quarter
      $  2.50
      $  5.75Third
        Quarter
      $  1.30
      $  4.50Fourth
        Quarter
      $ 1.35
      $ 2.602002
      Low
      HighFirst
        Quarter
        (through March 15, 2002)
      $  1.13
      $ 3.05


On March 15 2002, the closing sale price for our
  common stock as reported on the OTC Bulletin Board® was $1.42.  As of
  March 15, 2002, we had approximately 44,897,001 shares of common stock
  outstanding and approximately 421 shareholders of record.

We have never declared or paid any
  cash dividends on our common stock and do not anticipate paying any cash
  dividends in the foreseeable future.  We anticipate that we will retain
  earnings, if any, to finance the growth and development of our business. 
  Therefore, we do not expect to pay cash dividends on our common stock for the
  foreseeable future.  Any future determination to pay cash dividends will
  be at the discretion of our Board of Directors and will depend upon our
  financial condition, operating results, capital requirements, plans for
  expansion, restrictions imposed by any financing arrangements and whatever
  other factors that our Board of Directors determines are relevant.

Summus, Inc.s 8% Series A
  Convertible Preferred Stock accrues semi-annual dividends at a rate of 8% per
  annum of the initial liquidation price of $1000 per share on each of April 1
  and October 1.  These dividends are cumulative from the date of original
  issue, which was February 28, 2000 and shall be payable when, as, and if
  declared by our Board of Directors.  Any dividends payable on the Series
  A preferred stock may be paid in additional shares of Series A preferred stock
  at our option.  We intend to declare all cumulative dividends on the
  Series A preferred stock as of April 1, 2002 and pay all such dividends in
  additional shares of Series A preferred stock.

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Penny Stock

Our common stock is subject to the provisions of Section 15(g) and Rule
  15g-9 of the Securities Exchange Act of 1934 (the Exchange Act),
  commonly referred to as the penny stock rule.  Section 15(g) sets
  forth certain requirements for transactions in penny stocks and Rule
  15g-9(d)(1) incorporates the definition of penny stock that is found in Rule
  3a51-1 of the Exchange Act.

The SEC generally defines penny stock to be any equity security that has a
  market price less than $5.00 per share, subject to certain exceptions. 
  If our common stock is deemed to be a penny stock, trading in the shares will
  be subject to additional sales practice requirements on broker-dealers who
  sell penny stocks to persons other than established customers and accredited
  investors (generally, an individual with a net worth in excess of
  $1,000,000 or an annual income exceeding $200,000 or $300,000 together with
  his or her spouse).  For transactions covered by this rule, a
  broker-dealer must make a special suitability determination for the purchaser
  and have received the purchasers written consent to the transaction prior
  to sale.  The rule also requires the delivery, prior to the transaction,
  of a risk disclosure document mandated by the SEC relating to the penny stock
  market.  The broker-dealer must also disclose the commissions payable for
  the transaction, current quotations for the stock, and, if applicable, the
  fact that it is the sole market maker in the stock.  Consequently, the
  rule may adversely affect the ability of broker-dealers to sell our securities
  and may adversely affect the ability of shareholders to sell their shares in
  the secondary market.

Recent Sales of Unregistered
  Securities

From October 1, 2001 through
  December 31, 2001, we issued an aggregate of  1,107,431 shares of our
  common stock to approximately 39 persons.  These securities were not
  registered under the Securities Act of 1933. Except as noted below, the
  issuances of the securities described below were issued in transactions deemed
  to be exempt from registration under the Securities Act in reliance on Section
  4(2) of the Securities Act as transactions by an issuer not involving any
  public offering. All of such securities, except for those issued in reliance
  upon Rule 504 of Regulation D, promulgated under the Securities Act, are
  deemed to be restricted securities as defined in Rule 144(a)(3) under
  the Securities Act. Except as noted below, no commissions were paid in
  connection with any of the issuances.

Stock Issuances for
  Cash/Satisfaction of Indebtedness

From October 1, 2001 to
  December 31, 2001, we issued an aggregate of 797,919 shares of common stock to
  34 accredited investors, all unaffiliated with Summus, Inc., for a price per
  share ranging from $1.50 to $2.50, and issued warrants to purchase, at an
  exercise price of $2.50 to $3.50 per share, an additional 1,539,082 shares of
  common stock, for aggregate consideration of $1,422,151.  In connection
  with the issuance of these shares, we issued 1,177 shares of our restricted
  common stock, as commissions, to the placement agents involved in such sales.
  The names of the purchasers and the number of shares purchased are as follows:

Name of Purchaser
      Number of
        SharesJames D. Bailey
      5,700William B. Bandy
      75,000Regenboog BV Beheer
      5,000Stephan M. Berthoud
      13,889Thomas Bivens
      186,452Klass Vant Blik
      5,000John Bodolay
      20,000Richard W. Bonenberger
      30,000Brian Boxer
      100,000Hendrika Braam
           5,500


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Harold A Bridges, Jr.
      30,000Gerald Brink & Pamela A.
        Vancil
      5,000C.E. Bryant, Jr.
      15,000Jennifer Catano
      100James L. Devone, Sr.
      2,500Lorraine E. Devone
      2,500Suzanne Harris Gilbert
      12,300Kurt D. Hughes
      27,778Neal Guenther & Nancy
        Jablonski
      30,000Marion and Dorothy J. Jablonski
      10,000Arnold Janickas
      10,000Andrew Jarboe
      11,111Joseph M. Leho
      35,000Martin van Loon
      10,000Pat E. McCoy
      5,000Larry McKenzie
      20,000Geraldine McKenzie
      5,000Emma Mizell
      5,000Gina M. Ness
      200Nico Nieuwenhuizen
      10,000Eric Raeber
      26,111Clayton J. Roberts
      21,000Larry B. Shook
      10,000John Stephanus
      27,778Harvey Underwood
      10,000Herman Veenendaal
      10,000


Stock Issuances for Services
  Rendered

In October 2001, Summus, Inc issued 28,187 shares of common stock to Stuart
  Diamond in full payment of amounts owed to him for outside director fees and
  expenses.

In November 2001, Summus, Inc. issued 96,325 shares of common stock to Alfred
  Williams & Company in full payment of amounts due under office furniture
  leases.

In November 2001, Summus, Inc. issued 45,000 shares of
  common stock to Harry Brown for consulting
  services.

Stock Issuances in Settlement
  of Litigation

In November 2001, Summus, Inc. issued  60,000 shares of its common stock
  in full payment of amounts owed to RPC International L.C. and Ronald P.
  Cropper.

In October 2001, Summus, Inc. entered into a settlement agreement with Van
  Ernst Jakobs N.V. (VEJ).  See Note 15 to the audited financial
  statements included in Item. 14. Exhibits, Financial Statement Schedules,
  and Reports on Form 8-Kof this report.  Under the terms of the
  settlement agreement we issued to VEJ:

- 80,000 shares of common stock;
- a warrant to purchase 250,000 shares of Summus,
  Inc. common stock with an exercise price of $4.00 per share;
- a warrant to purchase 150,000 shares of Summus,
  Inc. common stock with an exercise price of $2.50; and

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- a warrant to purchase 150,000 shares of Summus,
  Inc common stock with an exercise price of $4.50 per share.

On December 12, 2001, Summus, Inc.
  settled a lawsuit brought against us by ENELF, LLC. Under the terms of the
  settlement agreement, we issued 75,000 shares of our common stock to ENELF
  LLC.  See Item 3. Legal Proceedings in this annual report.

ITEM
  6.         SELECTED FINANCIAL
  DATA.

On February 16, 2001, Summus,
  Inc. (formerly High Speed Net Solutions, Inc.) acquired all the assets and
  operations of Summus, Ltd. under the terms of an asset purchase agreement,
  dated October 30, 2000, as amended. In legal form, the transaction was
  effected by Summus, Inc. issuing shares of its common and Series B convertible
  preferred stock, and other equity interests, in exchange for the net assets of
  Summus, Ltd.  This transaction has been accounted for as a capital
  transaction of Summus, Ltd., accompanied by a recapitalization. As a result of
  the transaction, the historical financial statements of Summus, Ltd. are, for
  accounting purposes, deemed to be those of Summus, Inc

The following selected
  historical annual financial data has been derived from the financial
  statements of Summus, Ltd. (notwithstanding that such selected historical
  annual financial data has been labeled as that of Summus, Inc.). The financial
  statements for each of the three years ended December 31, 2001, 2000 and 1999,
  have been audited by Ernst & Young LLP, independent auditors, as indicated
  in their report included elsewhere in this annual report on Form 10-K, which
  includes an explanatory paragraph which expresses substantial doubt about our
  ability to continue as a going concern.

The financial data set forth
  below should be read in conjunction with Item 7. Managements Discussion
  and Analysis of Financial Condition and Results of Operations and our
  audited financial statements and notes, which are contained elsewhere in this
  prospectus.

We have presented all amounts, except per share amounts, in dollars.

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SUMMUS, INC. (USA)
  SELECTED FINANCIAL
  DATA

|                                                                                                                              |                        
|----------------------------------------------------------------------------------------------------------------------------- | -----------------------
|                                                                                                                              | 1997                   
|Consolidated Statement of
        Operations Data:                                                                            |                        
|Revenues                                                                                                                      | $      
        606,633
|Costs of revenues                                                                                                             | 528,346                
|Selling, general and
        administrative expenses                                                                          | 342,833                
|Non-cash compensation                                                                                                         |                       
|Research and development                                                                                                      |                       
|Non-cash settlements                                                                                                          |                        
|                                                                                                                              |                        
|Loss before Other income
        (expense)                                                                                    | (264,546)              
|Other income (expense):                                                                                                       |                        
|Gain on sale of
        stock of equity investee                                                                              |                       
|Participation in
        loss of equity investee                                                                              |                       
|Loss on disposal
        of assets                                                                                            | (262)                  
|Interest income
        (expense), net                                                                                        | (15,617)               
|                                                                                                                              |                        
|Total other income (expense)                                                                                                  | (15,879)               
|                                                                                                                              |                        
|Loss from continuing operations                                                                                               | (280,425)              
|Loss from operations of
           discontinued Rich
        Media Direct business                                            |                       
|Loss on disposal of Rich Media
        Direct
           business                                                             |                       
|                                                                                                                              |                        
|Net loss                                                                                                                      | $   
        (280,425) 
|                                                                                                                              |                        
|                                                                                                                              |                        
|Net loss applicable to common
        shareholders:                                                                           |                        
|Net loss                                                                                                                      | $   
        (280,425) 
|Preferred stock
        dividends                                                                                             |                       
|                                                                                                                              |                        
|Net loss applicable to common
        shareholders                                                                            | $   
        (289,425) 
|                                                                                                                              |                        
|                                                                                                                              |                        
|Per share amounts (basic and
        diluted):                                                                                |                        
|Loss applicable to common
        shareholders from
              continuing operations                                       | $(.010)                
|Loss applicable to common
        shareholders from
           discontinued operations                                        |                       
|                                                                                                                              |                        
|Net loss                                                                                                                      | $(.010)                
|                                                                                                                              |                        
|                                                                                                                              |                        
|Weighted average shares of
        common stock
          outstanding giving effect to
        the
          recapitalization | 31,768,177             
|                                                                                                                              |                        



|                                            | December 31             
|------------------------------------------- | ------------------------
|                                            |                         
|                                            | 1997                    
|                                            |                         
|Balance Sheet Data:                         |                         
|Cash                                        | $        
        11,819
|Total assets.                               | 441,128                 
|Total shareholders equity
        (deficit) | (302,033)               
|                                            |                         

___________________________



|(1) | Gain on sale of stock of investee during 1999 and 2000 reflects the gain
  Summus, Ltd. realized upon the sale of common shares of Summus, Inc. (whose
  legal name was then High Speed Net Solutions, Inc.) it acquired in 1999.                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Participation in loss of equity investee during 1999 and 2000 reflects
  Summus, Ltd.s share of Summus, Inc.s losses for 1999 and 2000. 
  During 1999 and 2000, Summus, Ltd. accounted for its investment in Summus,
  Inc.  using the equity method of accounting.
|(3) | During 2001, Summus, Inc. disposed of its Rich Media Direct business and
  accordingly reported the operating activity as discontinued operations in 2001.                                                                                                            

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

The following discussion
  contains forward-looking statements that involve risks and uncertainties. Our
  actual results could differ materially from those anticipated in these
  forward-looking statements as a result of certain factors, including the risk
  factors included in this report. The following discussion is qualified in its
  entirety by, and should be read in conjunction with, the more detailed
  information in our consolidated financial statements and the notes thereto
  appearing elsewhere in this annual report on Form 10-K.

Overview

In 2001 we derived our revenues primarily from research and development
  contracts for government agencies in the areas of complex imaging and object
  recognition, the core of Summus, Ltd.s business activities prior to the
  recapitalization transaction in February 2001.  Such revenues represented
  67% of Summus, Inc.s revenues in 2001, and 60% and 76% of Summus, Ltd.s
  revenues in 2000 and 1999, respectively.

Key Developments in 2001

Focus on Mobile and Wireless Market; Development of BlueFuel

Upon acquiring the assets and
  operations of Summus, Ltd., we determined to focus our business operations on
  the wireless and mobile market.  Specifically, we dedicated our efforts
  to the development and commercialization of a multimedia technology platform
  (i.e., our BlueFuelsoftware product suite) designed to address the bandwidth, error constraints,
  contention with voice and data traffic and power challenges associated with
  transmission of content over existing and future wireless networks.  Our
  initial primary business focus was to commercially deploy, through third party
  licensing agreements, various components of the BlueFuelproduct suite, primarily the BlueFuelEfficiency Engine,
  BlueFuelCreate, and Blue FuelServer.  We had anticipated the BlueFuelEfficiency Enginewould have been commercially available in the fourth quarter of 2001 and the
  remaining products would be commercially available in the first quarter of
  2002.  We anticipated these products would have been made commercially
  available through porting to the Qualcomm BREWplatform. In connection with this anticipated rollout, we capitalized internal
  software development costs in the amount of $337,451 during the second and
  third quarter of 2001 for certain BlueFuelcomponents that had reached technological feasibility.

During the fourth quarter of 2001,
  we expanded our product development efforts to include the development of our
  first BlueFuel based
  application for the mobile and wireless market  which we have since named exego.
  The first release of exego
  combines the powerful features of e-mail addressing and instant messaging with
  high quality image management and rendering to enable end-users to instantly
  exchange text and images from a data repository to a cellular handset or
  between cellular handsets, and to send images and text via email.  This
  initial release of exego
  is designed to work on a Qualcomm BREW
  platform-enabled device, such as a BREW
  enabled
  cellular handset. In mid-March 2002, we received certification of exego
  from the National Standards Test Laboratory (NSTL) contracted by Qualcomm to
  consistently test applications prior to Qualcomm acceptance.  We are
  awaiting final certification by Qualcomm.  We anticipate an initial
  deployment of the exego
  application, followed by a full-scale deployment by one U.S. carrier before
  the end of the second quarter of 2002.  Our business model for exego
  is consistent with the Qualcomm BREW
  model, which dictates a revenue sharing agreement in which we would receive
  eighty percent of the negotiated sales price of the application.  We have
  not as yet entered into any agreement with Qualcomm in connection with our exego
  application.

Based on our evaluation of the
  functionality of exego,
  as well as our understanding of the current challenges facing the wireless and
  mobile market, we revised our business plan during the fourth quarter of 2001
  to make our exegoapplication our primary revenue source.  Although we will continue to
  develop and will make available various components of the BlueFuelproduct suite, we are focusing

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all of our efforts on the completion and
  commercial deployment of exego. 
  This refinement in our business model necessitated a revision to our business
  plan and associated projected cash flows.  Based on our evaluation of our
  revised business plan and the associated projected cash flows, we determined
  that the software costs capitalized during the second and third quarter
  related to specific BlueFuelcomponents were impaired. Accordingly, we wrote off the previously capitalized
  software cost of $337,451 to research and development cost in the fourth
  quarter of 2001.

In parallel with our product development efforts, we actively sought to enter
  into revenue-generating business relationships and alliances with cellular
  carriers, wireless and mobile device manufacturers and content providers to
  extend the reach of multimedia applications to wireless and mobile
  devices.  At year-end 2001, we had not entered into any
  revenue-generating contractual agreements with these parties or received any
  product orders for the BlueFuel product
  line.

Divestiture of Douglas May & Co., Inc.; Technology Licensing
  Agreement

In view of our decision to focus on the wireless and mobile market and our
  liquidity constraints, management initiated a review of the Companys rich
  media direct business (including the operations of Douglas May & Co.,
  its then wholly-owned subsidiary) following the recapitalization transaction
  in February 2001.  On September 19, 2001, we entered into a stock
  purchase agreement with Douglas May under which we sold and transferred to Mr.
  May all of our equity interest in Douglas May & Co. and related rich media
  direct assets. The date of the transaction, September 19, 2001, represents the
  measurement date, as defined by Accounting Principles Board Opinion No. 30 (APB
  30), for the disposition of our rich media direct business. For
  the period February 16, 2001 through the date of disposition, September 19,
  2001, the operations of Douglas May & Co. reflected approximately $319,000
  in revenues and a net loss of $135,798. The carrying value of the assets of
  Douglas May & Co. was approximately $62,000 on September 19, 2001.  We recorded a loss of $215,500 on the disposition of these discontinued
  operations.

In connection with the sale
  of our entire equity interest in Douglas May & Co., we entered into a
  technology license agreement (and a related source code escrow agreement) with
  a newly formed corporation and wholly-owned subsidiary of Douglas May &
  Co. Under the technology license agreement, we have granted to this company a
  perpetual, non-exclusive, non-transferable license with respect to some of our
  core software technology for image, video compression and video streaming. The
  technology license agreement provides for the licensees payment to Summus,
  Inc. of royalties, payable on a quarterly basis, equal to the greater of:

(1)a percentage of the
  net revenues derived from the sale or license of end-user products using
  or 
                                       
  incorporating the licensed technology or

(2)specified minimum
  amounts.

This royalty payment plan is to
  remain in effect each year the agreement remains in effect. The agreement can
  be terminated by the licensee at any time following the first to occur of
  payment of $400,000 in royalty payments to Summus, Inc. or ninety days prior
  to the second anniversary of the agreement, provided that $400,000 in royalty
  payments have been received by us.  The first specified minimum royalty
  payment of $100,000 was payable to us on December 31, 2001.  We extended
  the payment of the $100,000 into various installments commencing on March 31,
  2002.  Due to the uncertainty of collection, we will recognize the
  royalty revenue when the cash payments are collected.

Results of Operations

The acquisition of Summus,
  Ltd.s assets and operations in February 2001 was accounted for as a Summus,
  Ltd. capital transaction, accompanied by a recapitalization.  By
  accounting for the transaction as such, the transaction is effectively viewed
  as the issuance of stock by Summus, Ltd. in exchange for the net monetary
  assets of Summus, Inc.  The accounting for the transaction is quite
  similar to that resulting from a

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reverse acquisition, except that no goodwill
  or other intangible assets are recorded.  As a result of the transaction,
  the historical financial statements of Summus, Ltd., for accounting purposes,
  are deemed to be those of Summus, Inc.

The following discussion and analysis of our results of operations and
  financial condition should be read in conjunction with our financial
  statements and related notes included in this report.

Year ended December 31, 2001
  compared to Year ended December 31, 2000

Revenues.Total revenues decreased $318,900 to
  $749,758 in the year ended December 31, 2001, down 29.8% from $1,068,658 in
  the year ended December 31, 2000. The decrease in revenues was due to a
  decrease in license fee revenue as well as a decline in the level of
  governmental contract services rendered.

Costs of Revenues.Total costs of revenues
  decreased $98,772 to $299,554 in the year ended December 31, 2001, down 24.8%
  from $398,326 in the prior year. Costs of contracts and license fees for the
  year ended December 31, 2001 and 2000 were comprised primarily of salaries and
  related costs of providing government contract services.

Total gross profit decreased
  $220,128, or 32.8%, to $450,204 for the year ended December 31, 2001, compared
  with $670,332 for the year ended December 31, 2000. The decrease was primarily
  attributable to less license fee income in the year ended December 31, 2001
  compared to the prior year. License fee income generates a higher gross profit
  percentage compared to contract revenues.

Selling, General and Administrative Expenses.Selling, general and administrative expenses consist primarily of salaries,
  consulting fees, office operations, administrative and general management
  activities, including legal, accounting and other professional fees. Selling,
  general and administrative expenses for the year ended December 31, 2001, were
  $7,835,367, compared to $6,221,362 for the year ended December 31, 2000. The
  increase in selling, general and administrative expenses primarily reflects
  the effects of the Summus, Ltd. asset acquisition in February 2001.

Non-Cash Compensation.Non-cash compensation
  for the year ended December 31, 2001 was $956,321 compared to $2,127,962 for
  the prior year. During the year ended December 31, 2001, stock options, net of
  forfeitures, were granted to employees with exercise prices below the fair
  market value of the underlying common stock resulting in total compensation of
  $864,164, of which $754,164 was charged to expense during the year ended
  December 31, 2001. The remaining amount, $110,000, has been classified as
  deferred compensation and will be charged to expense as future vesting of the
  stock options occurs. The remaining amount of non-cash compensation for the
  year ended December 31, 2001 of $202,157 reflects the amortization of deferred
  compensation resulting from stock options granted during the year ended
  December 31, 2000 with exercise prices below the fair value of the underlying
  common stock. For the year ended December 31, 2000, amortization of deferred
  compensation, resulting from the issuance of stock options with exercise
  prices below the fair value of the underlying common stock, was $2,127,962.
  The decrease in amortization of deferred compensation recorded in the year
  ended December 31, 2001 as compared to the prior year from options granted in
  year 2000 is primarily the result of the reversal of deferred compensation
  from forfeited stock options during 2001, plus the large number of fully
  vested options granted during the year ended December 31, 2000.

Research and Development.Research and
  development costs for the year ended December 31, 2001, were $858,105 compared
  to $1,119,333 for the prior year. The decrease in these costs was due
  primarily to the reduced staffing level in the first half of 2001 compared to
  the prior year.  Included in the research and development costs in 2001,
  is $337,451 in previously capitalized software development costs that were
  written off in the fourth quarter of 2001.

Non-Cash Settlements.Non-cash settlements for
  the year ended December 31, 2001, in the amount of $1,132,352, are
  attributable to the settlement of claims of Van Ernst Jakobs N.V. valued at
  $1,051,915,and the settlement of the ENELF LLC lawsuit value at $80,437. 
  See the disclosure under the caption Item 5. Market For Registrants
  Common Stock and Related Shareholder Matters  Recent Sales

- 22 -

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of Unregistered
  Securities  Stock Issuances in Settlement of Litigation in this report.

Gain on Sale of Stock of Equity Investee.Gain
  on the sale of stock of equity investee for the year ended December 31, 2000
  was $3,680,065. In 1999, Summus, Ltd. acquired shares of Summus, Inc. common
  stock, which it later sold to third parties. During the year ended December
  31, 2000, Summus, Ltd. sold 1,000,000 shares of Summus, Inc. common stock for
  gross proceeds of $4,493,428, resulting in a gain on sale of $3,680,065.

Participation in loss of Equity Investee.Participation in loss of equity investee for the year ended December 31, 2000,
  was $6,356,932. In 1999, Summus, Ltd. acquired a significant ownership
  interest in Summus, Inc. Summus, Ltd. accounted for its investment in Summus,
  Inc. using the equity method of accounting. Under the equity method of
  accounting, Summus, Ltd. adjusted its investment in Summus, Inc. for its share
  of Summus, Inc.s losses subsequent to the date of Summus, Ltd.s initial
  investment. During 2000, Summus, Ltd.s investment in Summus, Inc. was
  reduced to zero as a result of Summus, Ltd.s sales of shares of Summus,
  Inc. common stock and through Summus, Ltd.s share of the losses of Summus,
  Inc.

Net Interest Income (Expense).Net interest
  expense for the year ended December 31, 2001, was $56,570, compared to net
  interest income of $23,911 for the prior year. Net interest expense for the
  year ended December 31, 2001 related to interest costs associated with capital
  lease obligations and note payable agreements. The net interest income in the
  year ended December 31, 2000, resulted from earnings on cash balances
  generated from the sale of shares of Summus, Inc. common stock, net of
  interest costs on capital lease obligations and note payable agreements.

Loss from Discontinued Rich Media Direct Operations. 
  Summus, Inc.recorded a loss from operations of its rich media
  direct business of $135,798, as well as a loss on disposal of these
  operations of $215,500, for the year ended December 31, 2001. Our divestiture
  of this business includes the sale of Douglas May & Co. to Mr. May on
  September 19, 2001.

Net Loss.  As a result of the factors discussed above, the net losses
  for the years ended December 31, 2001 and 2000 were $10,739,809 and
  $11,451,281, respectively.

Year ended December 31, 2000
  Compared to the Year ended December 31, 1999

Revenues.Revenues for the fiscal year ended
  December 31, 2000 were $1,068,658 compared to $515,216 for the fiscal year
  ended December 31, 1999, an increase of 107%. The increase in revenues was
  primarily due to the expansion of governmental research projects with the
  Office of Naval Research and expanded sales efforts with respect to the
  wavelet-based technology licensing of our Photo ID and wavelet-based software
  development kit product lines.

Cost of Revenues.Cost of revenues primarily
  represents costs of providing contract services. The cost of software license
  fee revenue is not separately maintained and historically has not been
  significant. Costs of revenues for the year ended December 31, 2000 were
  $398,326 compared to $281,254 in the prior year.

Gross Profit.Gross profit for the year ended
  December 31, 2000, was $670,332, representing an increase of $436,370 over the
  prior year. The increase in revenues and gross profit was primarily due to the
  expansion of government research projects with the Office of Naval Research,
  specifically Summus, Ltd.s side scan sonar project and expanded sales
  efforts with respect to wavelet-based technology licensing of our Photo ID and
  wavelet-based software development kit product lines.

Selling, General and Administrative Expenses.Selling,
  general and administrative expenses consist primarily of salaries, consulting
  fees, office operations, administrative and general management activities,
  including legal, accounting and other professional fees. Selling, general and
  administrative expenses for the year ended December 31, 2000, were $6,221,362
  compared to $3,797,067 for the year ended December 31, 1999. The increase was
  primarily due to increased staffing in sales, marketing, business development,
  product development and administrative personnel, in connection with Summus,

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Ltd.s efforts to bring to market finished products, including the Photo ID
  and Wavelet Image software development kits, the MaxxSystem suite of products,
  and customer contract work.

Non-Cash Compensation.Non-cash compensation
  for the year ended December 31, 2000 was $2,127,962 compared to $2,670,050 for
  the year ended December 31, 1999. During the year ended December 31, 2000,
  stock options were granted to directors and employees with exercise prices
  below the estimated fair value of the underlying common stock resulting in
  total compensation of $3,106,472, of which $2,127,962 was charged to expense
  in 2000. The remaining amount, $978,510, has been classified as deferred
  compensation and will be charged to expense as future vesting of the stock
  options occurs. Non-cash compensation for the year ended December 31, 1999,
  resulted from the issuance of 53,401 shares of common stock for services
  performed by employees.

Research and Development.Research and
  development costs for the year ended December 31, 2000 were $1,119,333
  compared to $1,356,686 for the year ended December 31, 1999. Such costs
  consist primarily of the salaries of employees devoted to research and
  development activities. The decrease resulted from a reduction of the research
  and development staff that occurred in the second half of 2000. Given Summus,
  Ltd.s financial condition, several research and development personnel
  decided to pursue other opportunities. However, management does not believe
  the attrition had a significant adverse effect on its research and development
  efforts.

Gain on Sale of Stock of Equity Investee.Gain
  on the sale of stock of equity investee for the year ended December 31, 2000
  was $3,680,065 compared to $2,314,390 for the year ended December 31, 1999. In
  1999, Summus, Ltd. acquired 11,042,360 shares of common stock of Summus, Inc.
  Summus, Ltd. acquired 1,500,000 shares of Summus, Inc. common stock in
  connection with Summus, Inc.s issuance of such shares in lieu of a cash
  payment of $750,000 due from Summus, Inc. under the terms of the February 1999
  Marketing License Agreement. Summus, Ltd. acquired an additional 9,542,360
  shares of Summus, Inc. common stock from Mr. Richdale and his affiliates in
  exchange for 132,888 shares of Summus, Ltd. common stock. The initial carrying
  amount of the Summus, Inc. shares was recorded at the estimated fair value of
  the shares, factoring in a discount associated with the shares constituting
  restricted securities that were not freely tradable. During the year
  ended December 31, 2000, Summus, Ltd. sold 1,171,579 shares of Summus, Inc.
  common stock for gross proceeds of $4,492,799 (representing an average price
  per share of $3.83), resulting in a gain on sale of $3,680,065. During the
  year ended December 31, 1999, Summus, Ltd. sold 1,653,000 shares of its
  Summus, Inc. common stock for gross proceeds of $2,977,500 (representing an
  average price per share of $1.80), resulting in a gain on sale of $2,314,390.

Participation in Loss of Equity Investee.Participation
  in loss of equity investee for the year ended December 31, 2000, was
  $6,356,932 compared to $3,447,110 for the year ended December 31, 1999. As
  noted above, in 1999 Summus, Ltd. acquired a majority ownership interest in
  Summus, Inc.  Since the majority ownership was temporary, Summus, Ltd.
  accounted for its investment in Summus, Inc. using the equity method of
  accounting. Under the equity method of accounting, Summus, Ltd. adjusted its
  investment in Summus, Inc. for its share of Summus, Inc.s losses subsequent
  to the date of its initial investment. As of December 31, 1999 and 2000,
  Summus, Ltd.s ownership interest in Summus, Inc. decreased to approximately
  44% and 33%, respectively.

Loss on Disposal of Assets.Loss on disposal
  of assets for the year ended December 31, 1999, was $119,180. The loss for the
  year ended December 31, 1999 was primarily due to the move of Summus, Ltd.s
  headquarters from Columbia, South Carolina to Raleigh, North Carolina, and the
  resulting abandonment of computers, software, furniture and equipment,
  including telephone equipment and leasehold improvements.

Net Interest Income (Expense).Net interest
  income for the year ended December 31, 2000 was $23,911 compared to net
  interest expense of $5,239 for the year ended December 31, 1999. The net
  increase in interest income resulted from earnings on larger cash balances in
  2000, primarily generated by the sale of Summus, Inc. stock. Net interest
  expense in 1999 related to interest costs associated with capital lease
  obligations and note payable agreements.

Net Loss.As a result of the factors discussed
  above, Summus, Ltd.s net losses for the years ended

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December 31, 2000 and
  1999 were $11,451,281 and $8,846,980, respectively.

Liquidity and Capital Resources

As of December 31, 2001, we
  had $115,972 of cash on hand, negative working capital of approximately $6.2
  million, and had approximately $6.6 million in current liabilities. 
  During 2001, we funded our operations primarily through the sale of 2,978,390
  shares of our restricted common stock and warrants to purchase 6,175,658
  shares of common stock to individual accredited investors, for gross cash
  proceeds of $6,396,912.  We anticipate that the sale of our equity
  securities will continue to represent the primary source of our liquidity
  until we obtain funding from institutional sources and generate positive cash
  flow from operations.  We are currently discussing funding with various
  institutional investment groups; however, we cannot guarantee that we will be
  able to raise the necessary capital or that, if we do so, it will be on
  favorable terms. We may have to sell equity at below market rates, and any
  future sales of our capital stock to finance our business plan will dilute our
  existing shareholders ownership. Our continuation as a going concern
  depends on our ability to generate sufficient cash flow to meet our
  obligations on a timely basis, to obtain additional financing as may be
  required and ultimately to attain profitability.  In light of our
  financial condition and operating losses, our auditors have included in their
  report on our audited consolidated financial statements an explanatory
  paragraph which expresses substantial doubt about our ability to continue as a
  going concern.

During the month of December 2001,
  we were unable to pay the salaries of certain executives of our management
  team, and as of March 15, 2002, these amounts remain unpaid. 
  Additionally, due to our liquidity constraints, we have been unable to pay
  certain of our legal service providers.  This has resulted in a delay in
  the filing of a registration statement, which we are contractually obligated
  to file with the Securities and Exchange Commission to register shares of our
  restricted common stock and shares of our restricted common stock underlying
  warrants.  During 2001, we had entered into settlement agreements or
  arrangements with approximately 26 of our vendors, to which we owed
  approximately $1.3 million, under which such vendors have agreed to our
  payment of less than the amounts due, the extension of payment terms by
  between 9-36 months and/or the satisfaction of the amounts due through a
  combination of cash and stock.

The vendor to which Summus,
  Inc. owed the largest amount was Analysts International Corporation (AIC),
  which provided us with computer programming services during the 1999-2000
  period. Summus, Inc. entered into a settlement agreement and release, dated
  August 7, 2001, with AIC. Under the terms of the settlement agreement, we
  agreed to pay the sum of $358,426, plus interest accruing at the rate of 8%
  per annum from March 31, 2000 according to the following payment schedule: (i)
  $20,000 upon execution of the settlement agreement, (ii) $5,000 per month for
  a period of nine months, commencing one month after execution of the
  agreement, and (iii) $10,000 per month thereafter until the balance of the
  indebtedness is paid in full.

The success and growth of our
  business, following the Summus, Ltd. recapitalization, is dependent in large
  part on our ability to partner and develop relationships within the wireless
  industry. In order for us to execute on our business plan, we anticipate that
  it will require approximately $20 million in working capital within the next
  twelve months to complete the domestic rollout of our operations, as well as
  the expansion of our operations to Europe and Asia, where the wireless network
  infrastructure is currently more developed than it is in North America.

Subject to our liquidity
  constraints (including our need to dedicate cash flow to meet our obligations
  on a timely basis), we intend to invest up to approximately 35% of our working
  capital in research and development and personnel to ensure the continued
  development of our technology and its compatibility with new generations of
  hardware and software. Specifically, we intend to improve our multimedia
  technology, including image, graphics and video technology, and build on our
  experience gained in developing our information management technology.

Cash Flow used in Operating Activities.Net
  cash used in operating activities was $6,790,481 in the year ended December
  31, 2001, compared to $5,971,072 in the prior year. The increase in net cash
  used

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in operating activities was primarily due to combining of Summus, Ltd.
  and Summus, Inc. on February 16, 2001, offset by the reduced staffing level in
  the first half of 2001 compared with that during the prior year.

Cash Flow from Investing Activities.Net cash
  provided by investing activities was $36,438 in the year ended December 31,
  2001, representing $43,918 in cash that Summus, Inc. had on the closing of the
  recapitalization transaction on February 16, 2001, offset by $7,480 in
  computer equipment purchases. Net cash provided by investing activities of
  $4,360,566 in the prior year, representing the proceeds from Summus, Ltd.s
  sale of 1,000,000 shares of common stock in Summus, Inc., its equity investee.

Cash Flow from Financing Activities.Net cash
  provided by financing activities was $6,661,520 in the year ended December 31,
  2001 compared to net cash provided by financing activities of $1,171,297in the
  prior year. Net cash provided by financing activities in the year ended
  December 31, 2001 related to:

- the sale of 2,978,390 shares of our common stock,
  along with warrants to purchase an additional 6,175,658 shares of common
  stock, at exercises prices ranging from $2.40 to $5.25 per share (all such
  securities being restricted securities as defined in Rule 144) to
  accredited investors, generating aggregate proceeds of $6,396,912;
- $2,521, representing proceeds from the exercise
  of stock options for 6,043 shares of common stock;
- $540,000, representing the proceeds of a loan
  from Summus, Inc. extended under the terms of the Asset Purchase Agreement.
  Upon the closing of the Summus, Ltd. asset acquisition, the indebtedness was
  cancelled in its entirety;
- $202,913 in principal payments on capital lease
  obligations; and
- $75,000 in cash payments in partial settlement of
  the Dunavant loss contingency.  See the disclosure under Item 13.
  Certain Relationships and Related Party Transactions  Settlement of the
  William R. Dunavant Litigation and Post-Litigation Disputes.

Net cash flow provided by
  financing activities of $1,171,297 in the year ended December 31, 2000,
  represented proceeds of a loan from Summus, Inc. of $1,435,000 and $23 in
  proceeds from a stock option exercise, offset by $263,726 in cash payments on
  capital lease and note agreements.

New Accounting Pronouncements

On September 29, 2001, the Financial Accounting Standards Board (FASB)
  unanimously approved the issuance of Statements of Financial Accounting
  Standards (SFAS) No. 141, Business Combinations and No.
  142, Goodwill and Other Intangible Assets. SFAS 141 eliminates
  the pooling-of-interests method of accounting for business combinations except
  for qualifying business combinations that were initiated prior to July 1,
  2001. SFAS 141 also includes new criteria to recognize intangible assets
  separately from goodwill. The requirements of SFAS 141 are effective for any
  business combination accounted for by the purchase method that is completed
  after June 30, 2001. Under SFAS 142, goodwill and intangible assets with
  indefinite lives are no longer amortized but are reviewed annually, or more
  frequently if impairment indicators arise, for impairment. Separable
  intangible assets that are not deemed to have an indefinite life will continue
  to be amortized over their useful lives. The amortization provisions of SFAS
  142 requiring non-amortization of goodwill and indefinite-lived intangible
  assets apply to goodwill and indefinite-lived intangible assets acquired after
  September 30, 2001.  We adopted  SFAS 142 as of January 1,
  2002.  The effect of adopting SFAS 142 by us beginning January 1, 2002 is
  not expected to have a significant effect on our operating results or
  financial position.

In August 2001, the Financial Accounting Standards Board (FASB) issued
  Statement of Financial Accounting Standards No. 144, Accounting for the
  Impairment or Disposal of Long-Lived Assets,effective for years
  beginning after December 15, 2001.  This Statement addresses financial
  accounting and reporting for the impairmant or disposal of long-live assets
  and supercedes Statement No.

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121, Accounting for the Impairment of
  Long-Lived Assets and for Long-Lived Assets to be Disposed Of,and
  accounting and reporting provisions of APB Opinion No. 30, Reporting the
  Results of Operations for a Disposal of a Segment of a Business.Summus,
  Inc. adopted Statement No. 144 as of January 1, 2002, and we do not expect
  this adoption to have a significant effect on our operating results or our
  financial position.

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ITEM 7A.      
    QUANTITATIVE AND QUALITATIVE
  DISCLOSURES ABOUTMARKET RISK.

We do not use any derivative financial instruments for
  hedging, speculative or trading purposes.  Our exposure to market risk is
  currently immaterial.

ITEM
  8.          FINANCIAL STATEMENTS
  AND SUPPLEMENTARY DATA.

The financial statements and supplementary data
  filed with this report are set forth in the Index to Consolidated Financial
  Statements and Schedule following Part IV of this annual report.

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

Not Applicable.

PART III

ITEM
  10.        DIRECTORS AND EXECUTIVE OFFICERS
  OF THE REGISTRANT.

Board of Directors

The following table provides
  information regarding the members of our Board of Directors including their
  ages, the year they were first elected as directors and the expiration of
  their terms as directors:

Name
      Age
      First Year
        Elected
        AsDirector
      TermExpiresDr. Bjorn D. Jawerth
      49
      2000
      2002Richard F. Seifert
      51
      1999
      2002Herman Rush
      71
      2000
      2002Dr. George H. Simmons
      51
      2002
      2002




## Advisory Board Members

The Board has recently established an advisory board.  The current
  members of the advisory board are Jerome Bailey and Hyun Byun.  Members of the advisory board are appointed through
  resolution of the Board and will consult and advise the Board and our senior
  officers as to, among other things:

> establishing, acquiring and selling other
>   companies or participating interests in other companies;
>       starting or discontinuing a line of business;
>       financing of operations;
>       entering into strategic alliances or other
>   business relationships for purposes of commercially deploying our products and
>   technology.

At the request of the Board, members
  of the advisory board may attend Board meetings and participate in such
  meetings, but will have no vote.  Members of the advisory board will not
  be deemed to be directors of Summus, Inc. and will not be subject to any
  fiduciary or similar duties to Summus, Inc.

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solely by virtue of membership on
  the advisory board.  Each member of the advisory board will be required
  to execute a confidentiality and non-disclosure agreement with Summus, Inc.
  and will be considered an insider of Summus, Inc. subject to our insider
  trading policies.

Executive Officers

The following table provides
  information regarding our executive officers, the capacity in which they serve
  Summus, Inc., when they assumed office and their ages.

Name
      Office
      Officer
        Since
      AgeDr. Bjorn D. Jawerth
      Chief Executive Officer,
        President, Chief Scientist
      2001
      49Gary E. Ban
      Chief Operating Officer
      2001
      38Robert S. Lowrey
      Chief Financial Officer, Vice
        President of Finance
      2000
      41Richard F. Seifert
      Executive Vice President of
        Corporate Development
      1999
      51Christopher E. Kremer
      Executive Vice President of 
        Sales and Marketing
      2001
      44Leonard Mygatt III
      Executive Vice President of
        Advanced Technology
      2001
      41


Business Experience of Directors,
  Officers, Advisory Board Members, and Other Key Employees

Dr. Bjorn D. Jawerthhas been
  on our Board of Directors since February 2000 and has served as Chief
  Executive Officer (initially, as a co-Chief Executive Officer), President and
  Chief Scientist since February 2001.  In 1991, Dr. Jawerth founded Summus
  Ltd. and was its chairman and president until its acquisition by Summus, Inc.
  in February 2001.  With more than 30 years of experience as a consultant
  in the areas of image processing and finite element analysis, Dr. Jawerth has
  more than 90 publications to his credit in books and refereed journals. 
  He has won and administered numerous grant awards from both industry and
  government agencies such as Intel Corporation, the Office of Naval Research,
  the Air Force Office of Scientific Research, the Armys NVESD, the NSF and
  DARPA.  His research interests include computational harmonic analysis
  and partial differential equations, image processing and pattern
  recognition.  Until the fall of 2000, Dr. Jawerth was the David W.
  Robinson Palmetto Professor, professor of mathematics and adjunct professor of
  computer science at the University of South Carolina.  He currently holds
  a part-time position at the professor level at Chalmers University of
  Technology in Gothenburg, Sweden.  Dr. Jawerth received masters
  degrees in mathematics, statistics, technical physics and electrical
  engineering and also a doctorate in mathematics from the University of Lund
  and from the Lund Institute of Technology, Lund, Sweden.

Richard F. Seiferthas been a member of our Board of
  Directors since February 1999. He was our Vice President of Operations from
  March through November 1999.  Upon the closing of the Summus, Ltd. asset
  acquisition, he assumed the position of co-Chief Executive Officer.  In
  November 2001, Mr. Seifert voluntarily stepped aside as co-Chief Executive
  Officer to assume the position of Executive Vice President of Corporate
  Development, a position in which he focuses his energies  on establishing
  strategic alliances and other business relationships which will enable us to
  commercially deploy our technology and generate revenue.  From 1995
  through February 1999, Mr. Seifert was a self-employed marketing consultant.
  Mr. Seifert has a degree in business administration from Montgomery County
  College and Penn State University.

Herman Rushhas been a member of our Board of
  Directors since March 2000. Since 1999, Mr. Rush has been Chairman of the
  Board and Chief Executive Officer of Infotainment International, Inc. and

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related companies that develop and produce content for the Internet. Since
  1998, Mr. Rush has been a partner in Rush Cooperman Associates, LLC, an
  Internet development and production company. In November 2000, he became the
  CEO of Internet Program Providers, Inc., an Internet distribution/syndication
  company. Mr. Rush served as Executive Producer of The Montel Williams
  television program from 1990 through 1997 and currently is a consultant to the
  program. Mr. Rush is a former President and CEO of the Columbia Pictures
  Television Group (1980-1988) and a former CEO of Coca-Cola Telecommunications,
  Inc. (1988-89).

Dr. George H. Simmonswas appointed to our Board of Directors in March 2002.  He is currently
  Vice President and General Manager of the Multiservice Access Technology
  business in Lucent Technologies.  Prior to this assignment, Dr. Simmons
  held the position of R&D Operational Excellence VP in Switching and Access
  Solutions, responsible for R&D process improvement.  He also worked
  in Beijing, China where he held the position of Network Wireless VP,
  responsible for marketing, sales, installation and customer technical support
  of wireless infrastructure equipment.  Dr. Simmons graduated from
  Michigan State University with a Bachelors degree in Electrical Engineering
  in 1973 and a Ph.D. in Electrical Engineering in 1981.  He obtained his
  Masters in Electrical Engineering from the University of Michigan in 1974
  and a Master in Management from J.L. Kellogg, Northwestern University in 1991.

Gary E. Banjoined Summus, Inc. as our Chief
  Operating Officer in February 2001. In his past role as Chief Operating
  Officer/Chief Information Officer of Summus, Ltd., Mr. Ban had supervisory
  responsibility over company operations, information technology and human
  resources. Prior to joining Summus, Ltd. in September 1999, Mr. Ban held a
  variety of executive-level management positions establishing direction and
  operational implementation for business, financial and engineering systems
  integration. From November 1996 through August 1999, Mr. Ban served as
  Director of Customer Integration for ABB Power T&D Inc.s electricity
  metering group, where he was responsible for global systems integration for
  large-scale information management solutions. From June to November 1996, Mr.
  Ban served as Director of Re-Engineering Services for the Pinnacle Group, a
  consulting company, where he was instrumental in establishing a consulting
  business offering re-engineering process management focused on enterprise
  resource planning. Mr. Ban holds an M.B.A. from Duke University, a bachelors
  degree in industrial management and an associate applied science degree in
  computer engineering from the Milwaukee School of Engineering.

Robert S. Lowreyhas been our Chief Financial
  Officer and Vice President of Finance since June 2000. Prior to joining
  Summus, Inc., Mr. Lowrey served as a senior audit manager for Ernst &
  Young LLP in Raleigh, North Carolina from November 1993 to May 2000. In this
  role, Mr. Lowrey had an active role in the accounting work associated with
  initial public offerings, secondary offerings of equity and debt, and merger
  and acquisition transactions.  Prior to his association with Ernst &
  Young, Mr. Lowrey served as the chief financial officer of Florida Dental
  Care, a full-service provider of dental care.  Mr. Lowrey is a certified
  public accountant licensed in the state of North Carolina.  He holds a
  bachelors degree in accounting from Grove City College in Grove City,
  Pennsylvania.

Christopher E. Kremerwas hired as Executive Vice
  President of Sales and Marketing in October 2001. Mr. Kremer heads Summus,
  Inc.s sales and marketing functions. Prior to his association with Summus,
  Inc., Mr. Kremer held various senior level executive positions with Motorola,
  Inc., including Senior Director, Program Management, Cellular Technology and
  Product Realization Group (March 1999 to February 2001); Senior Director,
  Business Operations, CDMA Division (February 1998 to March 1999); and Vice
  President of Sales and Marketing for the Transmission Products Division
  (August 1996 to February 1998). Mr. Kremer is a graduate of Eastern Kentucky
  University, where he received a bachelors degree in business administration
  in 1980.

Leonard Mygatt IIIhas been our Executive Vice
  President, Advanced Technology, since our acquisition of Summus, Ltd.s
  assets in February 2001. In this position, Mr. Mygatt is responsible for
  management of technical and product development, contracts and proposals and
  business development. Mr. Mygatt served in the same capacity with Summus, Ltd.
  beginning in December 1995. Prior to his association with Summus, Ltd., Mr.
  Mygatt was employed by Magnavox Electronic Systems Company, where he served as
  a project leader for the design, development and production of advanced
  tactical data

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link systems and as a project manager and leader for a research
  and development project investigating image and video compression. Mr. Mygatt
  received a bachelors degree in electrical engineering from the University
  of California at San Diego in 1983.

Jerome Baileybrings over 15 years of experience as a senior financial executive in
  top-rated global investment banking and publishing firms. Mr. Bailey most
  recently served as executive vice president and chief financial officer for
  Dow Jones, a global publishing company (1998 to 2001). In this position, he
  was directly responsible for technology and operations, finance, strategic
  planning and investor relations functions. Prior to his association with Dow
  Jones, Mr. Bailey served as chief financial officer for Salomon Inc. and
  Salomon Brothers, a global investment banking firm, now part of Citigroup,
  Inc., where he was responsible for global finance, tax, treasury, risk
  management and strategic planning.  At both Dow Jones and Salomon
  Brothers, Mr. Bailey also initiated and led significant process redesign
  programs. Mr. Bailey has also served as controller and managing director for
  Morgan Stanley and was a partner with Price Waterhouse. Mr. Bailey holds a
  Bachelor of Science degree, with distinction, from the University of Nebraska.

Hyun Byunbrings
  over 20 years of experience in marketing and business development to the board
  working exclusively with Samsung. Mr. Byun currently is the U.S. director of
  new business development for Samsung Electronic Co. Ltd. In this role, he has
  created the office for Samsungs digital convergence team and has been
  instrumental in developing strategic partnerships with America Online (AOL) as
  well as content development partnerships with RealNetworks, BMG and UMG.
  Previously, Mr. Byun served in the Samsung group chairmans office as senior
  manager where he directed 37 Samsung affiliates (including Samsung Electronics
  and Samsung Investment). In 1988, Mr. Byun transferred to the United States
  from Korea to develop Samsung Information Systems America, where he was the
  marketing manager for Samsung Brand Desktop and Notebook and coordinated sales
  and marketing for the network (Novell) product sales.

Dr. Jiangying Zhouwas appointed our Vice President of Research in May
  2001; she had previously served as Director of Research and Development at
  Summus, Inc.and, before that, at Summus, Ltd. Prior to joining Summus, Ltd. in
  March 1998, Dr. Zhou was a research scientist at Panasonic Information and
  Networking Technologies Laboratories, Princeton, New Jersey, where she
  conducted research in the areas of image analysis, information retrieval and
  document processing. Dr. Zhou received her Ph.D. in Electrical Engineering
  from the University of New York at Stony Brook in 1993. She received her M.S.
  degree (1985) and B.S. degree (1982), both in computer science, from Fudan
  University, Shanghai, China. Dr. Zhou has taught in the computer science
  department of Fudan University. She has published 30 papers in international
  journals and conferences and has given many talks at international
  conferences. She is also the owner of five U.S. patents. Dr. Zhou is currently
  the co-chair for the PSIE/IS&T Document Recognition Conference. She also
  served as session chair and as referee for several international conferences
  and journals, including the SPIE Document Recognition Conference, the Fifth
  International Conference on Document Analysis and Information Retrieval, IEEE
  Transaction on Pattern Recognition and Machine Intelligence, Journal of
  Computer Vision, Graphics, and Image Processing, and Journal of Electronic
  Imaging. Dr. Zhous research interests include video/image analysis, pattern
  recognition, information retrieval, character recognition, and document
  processing.

John W. Maxwellwas hired as Vice President of
  Marketing. Prior to joining Summus, Inc., Mr. Maxwell served as director of
  business management within Motorola, Inc.s personal communications sector
  (October 1998 - February 2001). From October 1997 to October 1998, Mr. Maxwell
  served as director of marketing for Motorolas Xtreme Worx, which involved
  the development of new business opportunities within broadband wireless
  networking. From October 1996 to October 1997, Mr. Maxwell served as a
  director of marketing for Motorolas transmission products division. Mr.
  Maxwell holds a bachelors degree in psychology from the University of
  Michigan and a M.B.A. in marketing from Michigan State University.

Andrew L. Foxwas our Chief Executive Officer from
  August 2000 through February 2001 and our acting President and Chief Executive
  Officer from August 1999 through August 2000. Mr. Fox served as a director of
  Summus, Inc. from January 2000 to November 2001. Mr. Fox was Executive Vice
  President of Sales and Marketing for Summus, Ltd. from August 1999 through
  January 2000.  In mid-

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November 2001, Mr. Fox assumed the position as
  Summus, Inc.s Vice President of Strategic Relationships.  From
  December 1996 through June 1999, Mr. Fox was Senior Marketing Manager of
  RealNetworks, a provider of software products and services for Internet media
  delivery and a pioneer of streaming media systems enabling the creation,
  real-time delivery and playback of audio, video and multimedia content on the
  Web. From June 1991 through November 1996, he was a Sales and Marketing
  Manager for IBMs Wireless Data Division and a Product Manager at IBMs
  Networking Hardware Division. Mr. Fox has a M.B.A. from Duke Universitys
  Fuqua School of Business in Durham, North Carolina and an undergraduate degree
  in computer science and electrical engineering from Duke Universitys School
  of Engineering.

Family Relationships

There are no family
  relationships between or among any of our directors and executive officers.

Committees of the Board of
  Directors

Our Board of Directors is
  responsible for establishing broad corporate policies and for our overall
  performance. Our Board of Directors currently has the following committees:

Employment and Compensation Committee.The
  Employment and Compensation Committee reviews and approves our compensation
  plans covering executive officers and other key management employees, reviews
  the competitiveness of our total compensation practices, determines the annual
  base salaries and incentive awards to be paid to executive officers, and
  reviews and approves special hiring and severance arrangements with executive
  officers. The Employment and Compensation Committee currently consists of two
  members, Messrs. Rush and Jawerth.

Audit Committee.The
  Audit Committee recommends to the Board for appointment the independent
  auditors to be selected to audit the financial statements of Summus, Inc. The
  Audit Committee discusses with the auditors their independence and obtains at
  least annually the auditors written statement describing their independent
  status. The Audit Committee reviews with management and the independent
  auditors our financial statements and any financial reports submitted to the
  public. The Audit Committee also has periodic discussions with management and
  the independent auditors regarding the quality and adequacy of our internal
  controls. The Audit Committee currently consists of Mr. Rush.

Section 16(a) Beneficial Ownership
  Reporting Compliance

Section 16(a) of the Exchange Act of 1934, as amended (the Exchange Act),
  and related regulations of the Securities and Exchange Commission, requires
  our directors, officers and beneficial owners of more than 10% of our common
  stock (collectively, reporting persons) to file with the SEC initial
  reports of ownership and reports of changes in ownership of any and all
  classes of equity securities of Summus, Inc.  The reporting persons are
  required by SEC regulations to furnish us with copies of all such
  filings.  Specific due dates for these reports have been established and
  we are required to identify in this annual report on Form 10-K those persons
  who failed to timely file these reports.

Based on our review of the copies of filings received by us with respect to
  the year ended December 31, 2001, we believe that all reporting persons
  complied with the Section 16(a) filing requirements in the year ended December
  31, 2001, except that Richard F. Seifert, our Executive Vice President of
  Corporate Development, failed to file a Form 4 within ten days after the end
  of the month of December 2001 with respect to his sale of 50,000 shares of
  Summus, Inc. common stock.  This deficiency relating to Mr. Seifert was
  cured in his Form 5 filing for the year ended December 31, 2001.

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ITEM 11.              
  EXECUTIVE COMPENSATION.

Executive Compensation

The following table provides
  certain summary information concerning the compensation paid during 2001,
  2000, and 1999, to our Chief Executive Officer and to each of the four other
  most highly compensated executive officers of Summus, Inc. whose aggregate
  direct compensation exceeded $100,000 in 2001 (the Named Executive Officers). 
  Prior to the consummation of the Summus, Ltd. asset acquisition in
  mid-February, 2001, Andrew L. Fox served as our Chief Executive Officer. 
  Following the Summus, Ltd. asset acquisition, Messrs. Jawerth and Seifert
  served as co-Chief Executive Officers until Mr. Seifert assumed the position
  of Executive Vice-President of Corporate Development in November
  2001.

Summary
  Compensation Table(1)



Annual
        Compensation
      Long-term
        CompensationName and
        Principal
        Position
      Year
      Salary ($)
      Bonus ($)
      Securities
        Underlying
        Options/SARs
        (#) (2)
      All Other
        Compensation
        ($)Bjorn D. Jawerth
      2001
      $326,261
      N/A
      512,000
      $3,391Chief ExecutiveOfficer (3)Richard F. Seifert
      2001
      $124,000
      N/A
      10,000
      N/AExecutive Vice-President (4)Andrew L. Fox
      2001
      $163,515
      N/A
      317,500
      N/AV.P. Strategic
      2000
      146,314
      28,500
      N/A
      N/ARelationships
      1999
      66,100
      85,891
      240,000
      N/AGary E. Ban
      2001
      $143,887
      N/A
      18,919
      $1,153Chief OperatingOfficer (5)Robert S. Lowrey
      2001
      $141,459
      N/A
      306,107
      N/AChief Financial
      2000
      76,416
      
      100,000
      N/AOfficer (6)


_______________

|(1) | The aggregate amount of perquisites and other personal benefits, if any, did not exceed the lesser
  of $50,000 or 10% of the total amount of salary and bonus for any year for any
  of the Named Executive Officers and has therefore been omitted.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The options granted are
  without tandem stock appreciation rights, and we did not grant any stock
  appreciation rights to any of the Named Executive Officers.                                                                                     

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|(3) | Dr. Jawerth became Co-Chief
  Executive Officer on February 16, 2001 and Chief Executive Officer in November
  2001.
|--- | --------------------------------------------------------------------------------------------------------------------
|(4) | Mr. Seifert became Co-Chief
  Executive Officer on February 16, 2001.                                               
|(5) | Mr. Ban became Chief Operating
  Officer on February 16, 2001.                                                      
|(6) | Mr. Lowrey became Chief Financial
  Officer on June 1, 2000.                                                        

Option Grants During Last Fiscal
  Year

The following table set forth information concerning options to purchase
  shares of common stock granted during the fiscal year ended December 31, 2001
  to the Named Executive Officers.

|Name               | Number of
        Securities
        Underlying
        Options/SARs
        Granted
        (#) | Percent of
        Total
        Options/SARs
        Granted To
        Employees In
        Fiscal
        Year | Exercise
        Or Base
        Price
        ($/Sh) | Expiration
        Date | Grant Date
        Present Value
        ($) (8)
|------------------ | ------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | ----------------------- | ------------------------------------------------
|                   |                                                                                                  |                                                                                                                   |                                                       |                         |                                                 
|Bjorn D. Jawerth   | 166,667(1)                                                                                       | 5.85%                                                                                                             | $0.50                                                 | 02/16/11                | $625,001                                        
|                   | 333,333(1)                                                                                       | 11.69%                                                                                                            | $3.75                                                 | 02/16/11                | $1,216,665                                      
|                   | 12,000(2,7)                                                                                      | 0.42%                                                                                                             | $3.00                                                 | 02/27/11                | $ 32,610                                        
|                   |                                                                                                  |                                                                                                                   |                                                       |                         |                                                 
|Richard F. Seifert | 10,000(2)(7)                                                                                     | 0.35%                                                                                                             | $3.00                                                 | 02/27/11                | $26,800                                         
|                   |                                                                                                  |                                                                                                                   |                                                       |                         |                                                 
|Andrew L. Fox      | 27,500(3)                                                                                        | 0.96%                                                                                                             | $0.50                                                 | 02/14/11                | $100,375                                        
|                   | 160,000(4)                                                                                       | 5.61%                                                                                                             | $0.50                                                 | 02/15/11                | $560,000                                        
|                   | 10,000(2,7)                                                                                      | 0.35%                                                                                                             | $3.00                                                 | 02/27/11                | $26,800                                         
|                   | 120,000(5)                                                                                       | 4.21%                                                                                                             | $2.10                                                 | 11/14/11                | $242,400                                        
|                   |                                                                                                  |                                                                                                                   |                                                       |                         |                                                 
|Gary E. Ban        | 18,919(6)                                                                                        | 0.66%                                                                                                             | $0.50                                                 | 03/01/11                | $47,487                                         
|                   |                                                                                                  |                                                                                                                   |                                                       |                         |                                                 
|Robert S. Lowrey   | 6,107(3)                                                                                         | 0.21%                                                                                                             | $0.50                                                 | 02/14/11                | $22,291                                         
|                   | 300,000(4)                                                                                       | 10.52%                                                                                                            | $0.50                                                 | 02/15/11                | $1,050,000                                      

____________________

|(1) | Fully vested at grant date of
  February 16, 2001.                                                                                                                                                                                                                                      
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Vests quarterly over a one year
  period from the grant date of February 27, 2001.                                                                                                                                                                                                      
|(3) | Fully vested at grant date of
  February 14, 2001.                                                                                                                                                                                                                                      
|(4) | Fully vested at grant date of
  February 15, 2001.                                                                                                                                                                                                                                      
|(5) | Vests quarterly over a three year
  period from grant date of November 14, 2001.                                                                                                                                                                                                        
|(6) | Fully vested at grant date of
  March 1, 2001.                                                                                                                                                                                                                                          
|(7) | These options were granted to
  these individuals for their role as a Director of Summus, Inc.                                                                                                                                                                                          
|(8) | The values in this column have
  been prepared using the Black-Scholes model.  The calculations made
  pursuant to this model assume (a) a volatility of 1.789; (b) a risk-free rate
  of return of 5.34%, (c) a dividend yield of 0%, and (d)  an expected
  option life of five years.

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Aggregated Options Exercised
  During Last Fiscal Year and Fiscal Year End Option Values

The following table sets
  forth information concerning the number and intrinsic value of stock options
  held by the Named Executive Officers on December 31, 2001. Year-end values are
  based on the closing price of $1.92 per share on December 31, 2001, on the
  NASDAQ OTC Bulletin Board System.  They do not reflect the actual
  amounts, if any, which may be realized upon the future exercise of remaining
  stock options and should not be considered indicative of future stock
  performance.  No Named Executive Officer exercised any options during the
  2001 fiscal year.

Name
      Number of
        Securities
        Underlying
        Unexercised
        Options
        at Fiscal
        Year-End (#) Exercisable/
        Unexercisable
      Value of
        Unexercised
        In-the-Money
        Options at
        Fiscal
        Year-End ($)
        Exercisable/
        UnexercisableBjorn D. Jawerth
      504,000 / 3,000
      $236,667 / $0Richard F. Seifert
      82,500 / 22,500
      0 /0Andrew L. Fox
      195,000 /
        122,500
      266,250 /0Gary E. Ban
      18,919 / 0
      26,865 / 0Robert S. Lowrey
      306,107 / 0
      434,672 / 0




Employment Agreements

Employment Agreement with Dr. Bjorn D. Jawerth

Upon the closing of the
  Summus, Ltd. asset acquisition, Summus, Inc. entered into a three-year
  employment agreement with Dr. Bjorn D. Jawerth.  The terms of Dr. Jawerths
  employment agreement provide him with the right to request that he be elected
  the Chairman of the Board of Summus, Inc.s Board of Directors if Summus,
  Inc. hires a new chief executive officer. Effective immediately following the
  resignations of Stuart Diamond (who served as Chairman of the Board) and Wendi
  Tush as members of Summus, Inc.s Board in July 2001, the remaining members
  of the Board appointed Dr. Jawerth to serve as the Chairman. Dr. Jawerth is
  expected to continue to serve in that capacity through the date of our next
  annual meeting of shareholders, which is to be held in mid-2002, at which time
  all of our director nominees will be subject to election by our shareholders.

Under the employment agreement, Dr. Jawerth is to receive:

- an initial base salary of $350,000 (which is
  subject to increase on an annual basis by at least 10%);
- performance bonuses and options as are generally
  available to other senior management and Board members (including awards under
  our 2000 Equity Compensation Plan), as determined by the Employment and
  Compensation Committee of the Board, and options awarded by resolution of the
  Board outside the Plan for service on the Board;
- a car allowance of $750/month; and
- health insurance, and other benefits.

In addition to the foregoing,
  Dr. Jawerth was to have been paid $500,000 in cash as compensation for his
  non-competition covenants (which have an 18 month term). In lieu of such cash
  payment, we issued to Dr. Jawerth options to purchase 166,667 shares of our
  common stock exercisable for $0.50 per share and options to purchase 333,333
  shares of our common stock exercisable for $3.75 per share.

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Under the terms of the Asset
  Purchase Agreement, Summus, Inc. agreed to use reasonable commercial efforts
  to assist Dr. Jawerth in the private sale of up to 1,666,667 shares of Summus,
  Inc. common stock held by Dr. Jawerth (representing $2.5 million in value) at
  a per share price of not less than $1.50 per share. No assurance can be
  provided that we will be able to attract such an investment or that we will be
  able to provide assistance to Dr. Jawerth to effect a private sale of his
  shares.

In addition, under the terms
  of Dr. Jawerths employment agreement, Summus, Inc. is obligated to issue to
  him options, with an exercise price of $1.50 per share, exercisable for three
  times the number of shares of common stock sold in the private sale as
  described in the preceding paragraph. The options will be exercisable during
  the second through fifth year after issuance.

If Summus, Inc. terminates Dr. Jawerths employment without cause or Dr.
  Jawerth terminates his employment for good reason, he is entitled to a
  severance payment equal to two years of his then current base annual salary,
  to be paid in a lump sum at the time of termination. Further, all options
  issued to him shall immediately vest.

Employment Agreements with Messrs. Ban, Lowrey, and Kremer

Summus, Inc. entered into employment agreements with
  each of Gary E. Ban, Robert S. Lowrey, and Christopher E. Kremer.  Each
  of such employment agreements is dated as of February 16, 2001 except for Mr.
  Kremers, which is dated as of October 1, 2001.  The employment
  agreements name Mr. Ban as the Chief Operating Officer; Mr. Lowrey as Chief
  Financial Officer; and Mr. Kremer as Executive Vice President of Sales and
  Marketing, at annual base salaries as follows:



Name of Executive
        
        Annual Base SalaryGary E. Ban
        
        $175,000Robert S. Lowrey
        
        $150,000Christopher E. Kremer
        
        $200,000




Under the terms of each of the
  employment agreements, the Board of Directors will, on an annual basis, review
  each executives base salary in light of the base salaries paid to other
  executives of Summus, Inc. and the executives performance, and it may, in
  its discretion, increase the executives base salary by an amount deemed
  appropriate by the Board.  In addition to his base salary, the Board, in
  its discretion, may pay the executive a bonus commensurate with other bonuses
  paid to employees of Summus, Inc. and taking into account the total
  compensation paid to executives of other companies which would be competitive
  for the executives services.

Each of Messrs. Ban and Lowrey are also to receive a one-time bonus equal to
  fifty percent of his base salary, payable as mutually agreed between Summus,
  Inc. and Mr. Ban or Mr. Lowrey, as applicable.  As of the date of this
  annual report, this amount has not been determined or paid to either Mr. Ban
  or Mr. Lowery.

Each of the executives employment agreements provide the executive with an
  automobile allowance of $600 per month.

The employment agreements with Messrs. Ban, Lowrey and Kremer each have a term
  of three years. Notwithstanding its stated term, the Board may terminate any
  of the employment agreements at any time (i) after the executives permanent
  disability (as defined in the agreement), (ii) for cause (as defined
  in the agreement), (iii) without cause, or (iv) upon Summus, Inc. ceasing to
  engage in business.  For purposes of each of the employment agreements,
  cause is defined to mean (i) active participation in fraudulent conduct
  against Summus, Inc., a conviction of or a plea of guilty or nolo
  contendere with respect to a felony involving theft or moral turpitude, an
  act or series of deliberate acts which were not taken in good faith by the
  executive and which, in the reasonable judgment of the Board, results or will
  likely result in material injury to the business, operations or business
  reputation of Summus, Inc., or an act or series of

- 36 -

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acts constituting willful
  malfeasance or gross misconduct; a substantial and continual refusal to
  perform the duties assigned to the executive; excessive absenteeism; or the
  executives voluntary resignation without good reason.

If Summus, Inc. terminates the executives employment without cause, or the
  executive terminates the employment for good reason (as defined in the
  agreement), the executive is entitled to receive:

- in the case of Messrs. Ban and Lowrey, a
  severance payment equal to what would have been his base salary, payable at
  such times as his base salary would have been paid if his employment had not
  been terminated (or, at the election of the executive, in a lump sum without
  discount), for up to six months; in the case of Mr. Kremer, he is to receive
  40,000 registered shares of our common stock;
- in the case of Messrs. Ban and Lowrey, a pro
  rata portion of the bonus applicable to the calendar year in which the
  termination occurs, but no less than a pro rata portion of the
  executives bonus for the preceding calendar year;
- in the case of Messrs. Ban and Lowrey,
  acceleration of the vesting of 100% of the unvested portion of his stock
  options or other stock-based awards, together with the right to exercise such
  stock options or awards for a period equal to the greater of the remaining
  term for exercising such options or awards under the applicable agreement
  and/or plan, or one year following the date of termination;
- other benefits, payable within ninety days after
  the date of the termination, accrued by him up to and including the date of
  termination;
- in the case of Messrs. Ban, and Lowrey,
  continuation of the insurance provided by us for up to six months or a lump
  sum payment of an amount equal to the fair value of such insurance; and
- reimbursement of all expenses incurred by the
  executive under the terms of the agreement.

For purposes of each of the employment agreements,good
  reason is defined to include a reduction in the executives base salary
  or incentive compensation; a material reduction in position, duties and
  responsibilities; a change in the location of Summus, Inc.s headquarters;
  and a material breach of the employment agreement.

If Summus, Inc. terminates the executives employment for cause or the
  executive terminates his employment without good reason, Summus, Inc.
  has no further obligations to the executive except:

- as may be provided by the terms of retirement and
  other benefits plans;
- with respect to unpaid base salary and other
  benefits accrued and earned through the date of termination;
- any benefits provided by insurance policies; and
- reimbursement for all expenses incurred in
  accordance with the agreement prior to the date of termination.

In addition, termination for cause
  shall result in the executives immediate forfeiture of all unvested stock
  rights, stock options and other unvested incentives and awards previously
  granted to him.

If Summus, Inc. terminates the executives employment upon a cessation of
  business, Summus, Inc. is obligated to pay the executive his base salary
  and provide the same health insurance benefits to which he is entitled until
  the earlier of (i) the expiration of the remaining portion of the term of the
  agreement, or (ii) the expiration of the three-month period following the date
  of termination.  Summus, Inc. may make such payments in accordance with
  its regular payroll schedule or in a single lump sum payment, at its option.

- 37 -

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If the executives employment is terminated as a result of a change in
  control, the executive is entitled to receive:

in the case of Messrs.
  Ban, Lowrey and Kremer, severance compensation equal to what would have been
  his base salary, payable at such times as his base salary would have been paid
  if his employment had not been terminated (or, at the election of the
  executive, in a lump sum without discount), for the longer of eighteen months
  or the remainder of what would have been the term of the agreement;

- in the case of  Messrs. Ban, Lowrey and Kremer, a pro rata portion of the bonus applicable to
  the calendar year in which such termination occurs, but no less than a pro
  rata portion of the executives bonus for the preceding calendar year;
- in the case of Messrs.
  Ban, Lowrey and Kremer, acceleration of the vesting of 100% of the unvested
  portion of his stock options or other stock-based awards, together with the
  right to exercise such stock options or awards for a period equal to the
  greater of the remaining term for exercising such options or awards under the
  applicable agreement and/or plan, or one year following the date of
  termination;
- other benefits, payable within ninety days after
  the date of the termination, accrued by him up to and including the date of
  termination;
- continuation of the insurance provided by Summus,
  Inc. for up to six months or a lump sum payment of an amount equal to the fair
  value of such insurance; and
- reimbursement of all expenses incurred by the
  executive under the terms of the agreement.

For purposes of each of the
  employment agreements, a change in control is deemed to occur if (i)
  Summus, Inc. is a party to any consolidation or merger in which it is not the
  continuing or surviving corporation, (ii) any person or entity becomes the
  beneficial owner, directly or indirectly, of thirty percent or more of the
  voting power of our capital stock, (iii) Summus, Inc. sells, exchanges or
  other otherwise transfers all or substantially all of its property and
  assets.

During the period of his employment and for a period of six months following
  any termination of such employment, each of the executives is prohibited,
  whether directly or indirectly, from:

- owning, managing or participating in the
  ownership, management or control of, or being employed or engaged by or
  otherwise affiliated as a consultant or independent contractor with, any other
  business entity engaged in the business of information processing of
  multimedia over mobile and wireless networks within the United States in
  competition with Summus, Inc.;
- soliciting any business or contracts from any
  customers of Summus, Inc. or its affiliates, including past or prospective
  customers (other than as necessitated by his position with us and in
  furtherance of the our business interests);
- soliciting or attempting to induce any such
  customer to alter its business relationship with the Summus, Inc.; or
- soliciting or inducing any employee of Summus,
  Inc. to leave the employ of Summus, Inc. or hiring any employee or any person
  who was an employee of Summus, Inc. or its affiliates within the twelve month
  period prior to such hiring.

Each of the employment agreements
  also contains customary covenants with respect to the non-disclosure of
  confidential or proprietary information regarding our business, prospects,
  finances, operations and trade secrets that have no finite
  duration.

- 38 -

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Employment Agreement with Andrew L. Fox

Under an employment letter
  agreement, dated November 19, 2001, we have employed Andrew L. Fox as our Vice
  President of Strategic Relationships.  Under the terms of the agreement,
  Mr. Fox is to receive an annual salary of $120,000 and a car allowance of
  $600/month.  He is also eligible to:

- receive options exercisable for up to 120,000
  shares of Summus, Inc.s common stock, to vest quarterly over a three-year
  period, with the exercise price of the options to be the fair market value of
  the common stock on the date of issuance of the options;
- participate in our performance bonus program;
- participate in our life, health and dental
  insurance and 401(k) plans.

As a condition of employment, Mr. Fox voluntarily
  resigned as a member of the Board of Directors, effective November 30,
  2001.

Stock Option Plan

The following summary
  description of our 2000 Equity Compensation Plan is not intended to be
  complete, and is qualified by reference to the copy of the 2000 Equity
  Compensation Plan, filed as an exhibit to this annual report on Form 10-K.

The 2000 Equity Compensation Plan, adopted by the Board of Directors on
  January 27, 2000, and approved by our shareholders on February 11, 2000 (the
  Plan), is intended to provide incentives:

(a)          
  to the officers and other employees of Summus, Inc. and its subsidiaries by
  providing them with opportunities to purchase shares of common stock in
  Summus, Inc. pursuant to options granted under the Plan which qualify as incentive
  stock options (ISOs) under Section 422(b) of the Internal Revenue
  Code of 1986, as amended (the Code);

(b)          
  to directors, officers, employees and consultants of Summus, Inc.and its 
  subsidiaries by providing them with opportunities to purchase shares of common
  stock in Summus, Inc. pursuant to options granted under the Plan which do not
  qualify as ISOs (non-qualified options) (ISOs and non-qualified options
  being collectively referred to as options); and

(c)          
  to directors, officers, employees and consultants of Summus, Inc. and its
  subsidiaries by providing them with stock appreciation rights, awards of
  restricted stock or deferred stock, stock awards, performance shares or other
  stock-based awards.

The Equity Compensation Plan is administered by the Employment and
  Compensation Committee (the Committee) consisting of two or more members
  of the Board of Directors. The Committee has the exclusive right to interpret,
  construe and administer the Plan, to determine the individuals associated with
  Summus, Inc. and its subsidiaries from among the class of individuals eligible
  to whom options, awards and authorizations to make purchases may be granted in
  accordance with the terms of the Plan, and to determine the number, form,
  terms, conditions and duration of any such grant.

ISOs.ISOs may be granted at any time through
  the tenth anniversary of the effective date of the Plan (which was January 31,
  2000). The ISO exercise price is to be no less than 100% of the Fair Market
  Value (as defined in the Plan) of the common stock on the grant date. No
  ISO may be granted to an individual owning more than 10% of the total combined
  voting power of all classes of stock issued by Summus, Inc. unless the
  purchase price of the underlying shares of common stock is at least 110% of
  the Fair Market Value of the shares issuable on exercise of the ISO determined
  as of the date the ISO is granted. ISOs granted under the Plan may have
  maximum terms of not more than ten years (five years in the case of an
  individual that owns more than 10% of the total combined voting power of all
  classes of Summus, Inc. stock), or such shorter period as the Committee
  specifies in an individual award. Generally,

- 39 -

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ISOs granted under the Plan may
  remain outstanding and may be exercised at any time up to three months after
  the person to whom such ISO was granted is no longer employed. ISOs granted
  under the Plan are subject to the restriction that the aggregate Fair Market
  Value (determined as of the date of grant) of ISOs, which first become
  exercisable in any calendar year, cannot exceed $100,000.

Stock Appreciation Rights.Stock appreciation
  rights may be granted to eligible participants in tandem with an ISO or
  non-qualified option, or may be granted independent of any related option. A
  tandem stock appreciation right entitles the holder of the option, within the
  period specified for exercise of such option, to surrender the unexercised
  option or a portion thereof and receive in exchange a payment in cash or
  shares of common stock having an aggregate value equal to the amount by which
  the Fair Market Value of each share of common stock underlying the option (or
  portion thereof) surrender exceeds the per share option exercise price,
  multiplied by the number of underlying shares of common stock surrendered.
  Each tandem stock appreciation right is subject to the same terms and
  conditions as the related option.

With respect to non-tandem
  stock appreciation rights, the Committee is to specify the number of shares of
  common stock covered by such right and the base price of a share of common
  stock (the Base Price), which is to be no less than 100% of the Fair
  Market Value of a share of common stock on the date of grant. Upon exercise of
  a non-tandem stock appreciation right, the participant is entitled to receive
  from Summus, Inc. cash and/or common stock having an aggregate Fair Market
  Value equal to (i) the excess of (A) the Fair Market Value of one share of
  common stock at the time of exercise, over (B) the Base Price, multiplied by
  (ii) the number of shares of common stock covered by the non-tandem stock
  appreciation right. The Committee has the sole discretion to determine in each
  case whether the payment is to be made in the form of cash or shares of common
  stock.

The maximum number of shares
  of common stock that may be covered by an option and stock appreciation rights
  granted to any one individual during any calendar year is 500,000 shares.

Options and stock appreciation rights granted under the Plan are generally not
  transferable, except by will or the laws of descent and distribution, or under
  the terms of a qualified domestic relations order as defined by the Code or
  ERISA. However, non-qualified options (including a related tandem stock
  appreciation right) may be transferred to the extent determined by the
  Committee to be consistent with securities and other applicable laws and with
  our policy.

Restricted Stock.The Committee may make
  restricted stock awards to participants in the Plan as an incentive for the
  performance of future services that will contribute materially to the
  successful operation of Summus, Inc. Awards of restricted stock may be made
  alone or in addition to or in tandem with other awards made under the Plan.
  The Committee is to determine the purchase price, if any, to be paid for the
  restricted stock, the length of the restriction period, the nature of the
  restrictions (e.g., in terms of the participants service or performance),
  whether the restrictions are to lapse at the end of the restriction period as
  to any or all of the shares covered by the award, and whether dividends and
  other distributions on the restricted stock are to be paid currently to the
  participant or to Summus, Inc. for the account of the participant.

Deferred Stock.The Committee may make
  deferred stock awards, together with cash dividend equivalents, to
  participants in the Plan, conditioned upon the attainment of specified
  performance goals or other factors or criteria as the Committee determines.
  Deferred stock awards may not be sold, transferred, pledged, assigned or
  encumbered during the deferral period, as specified by the Committee. At the
  expiration of the deferral period, share certificates are to be delivered to
  the participant in a number equal to the shares of common stock covered by the
  award. Upon termination of employment during the deferral period, the
  participant shall forfeit the deferred stock. However, the Committee may
  accelerate the vesting of the award in the event of termination of employment
  due to death, disability or retirement, or in the event of hardship or other
  special circumstances.

Stock Awards.Stock awards are to be granted
  only in payment of compensation that has been earned or as compensation to be
  earned. All shares of common stock subject to a stock award are to be valued
  at no less than 100% of the Fair Market Value of such shares on the date of
  the stock awards grant.

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Shares of common stock subject to a stock award may
  be issued or transferred to the participant at the time of grant or at a
  subsequent time, or in installments, as the Committee determines. A stock
  award will be subject to the terms and conditions the Committee determines.
  However, upon issuance of the shares, the participant shall be entitled to
  receive dividends, exercise voting rights and exercise all other rights of a
  shareholder except as otherwise provided in the stock award.

Performance Shares.Performance shares may be
  awarded to participants as an incentive for the performance of future services
  to Summus, Inc.  Awards of performance shares may be made either alone or
  in addition to or in tandem with other awards granted under the Plan. The
  Committee is to determine and designate those participants to whom performance
  shares are to be awarded, the performance period and/or performance objectives
  (e.g., minimum earnings per share or return on equity), and any adjustments to
  be made to such objectives, applicable to such awards, the form of settlement
  of performance shares, and the other terms and conditions of such awards.

Other Stock-Based Awards.The Committee may
  grant other awards that are valued in whole or in part by reference to, or are
  based on, the common stock, including convertible preferred stock, convertible
  debentures, exchangeable securities, phantom stock and stock awards or options
  valued by reference to book value or performance.

Administration.The Plan provides that the
  Committee may make equitable adjustments in the aggregate number of shares of
  common stock that may be awarded under the Plan, the number of shares and
  class of stock that may be subject to an award, the purchase price to be paid
  per share under outstanding options, and the terms, conditions or restrictions
  of any award in the event of any reorganization, recapitalization,
  reclassification, stock split, stock dividend, merger or consolidation or
  separation, including a spin-off, of Summus, Inc., the sale or other
  disposition of all or a portion of its assets and certain other transactions
  involving Summus, Inc. However, the Plan requires that all such adjustments
  shall be made such that ISOs granted under the Plan shall continue to
  constitute ISOs within the meaning of Section 422 of the Code.

Authorized but unissued
  shares of common stock of Summus, Inc., shares of common stock that are not
  delivered or purchased under the Plan, and shares reacquired by Summus, Inc.
  for reasons including a forfeiture, termination of employment, expiration or
  cancellation of an option, can be issued under the Plan. Under the Plan,
  2,000,000 shares of common stock were initially reserved for issuance. On
  February 13, 2001 the Board adopted resolutions to amend the Plan to increase
  that number to 6,500,000 shares, such amendment being subject to shareholder
  approval.  Shareholders representing a majority of the outstanding voting
  shares of our capital stock, by a written consent dated June 13, 2001, adopted
  such amendment.  As of December 31, 2001, we had outstanding options
  exercisable for 2,143,607 shares of common stock. As of that date, options to
  purchase 6,043 shares had been exercised.

Amendment of the Plan.The Plan provides that
  our Board of Directors may amend or terminate the Plan at any time, provided,
  however, that specific types of amendments require approval of our
  shareholders and no such action may be taken which adversely affects any award
  previously granted to a participant under the Plan without the written consent
  of the Participant.

The Board of Directors
  amended the Plan, effective May 1, 2000. The amendment adds a provision that,
  in connection with any underwritten public offering of our equity securities
  covered by an effective registration statement filed under the Securities Act
  of 1933, as amended, including an initial public offering, a participant in
  the Plan may not sell, make any short sale of, loan, hypothecate, pledge,
  grant any option for the purchase of, or otherwise dispose or transfer for
  value or otherwise agree to engage in any of the foregoing transactions with
  respect to any stock acquired under the Plan without the prior written consent
  of Summus, Inc. or its underwriters. This market stand-off  restriction
  will be in effect for whatever period of time from and after the effective
  date of the final prospectus for the offering that Summus, Inc. or its
  underwriters request.

- 41 -

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Inventions Awards Plan

The following summary description of our Inventions Awards Plan is not
  intended to be complete and is qualified by reference to the copy of the
  Inventions Awards Plan, filed as an exhibit to this annual report on Form
  10-K.

Summus, Inc. established the Inventions Awards Plan, effective October 30,
  2000, to provide incentives to eligible employees (such employees being listed
  in a schedule to the plan) by providing them with opportunities to receive
  additional compensation as a result of their development of enhancements or
  new methods involving the business of Summus, Inc. that generate revenue for
  us (New Technology).  New Technology is defined under the plan to
  exclude existing technology of ours or technology acquired from Summus, Ltd.

Under the plan, we are to set aside 5% of the gross revenues derived from the
  licensing or sale of New Technology (or products incorporating such
  technology) for distribution among eligible employees.  Dr. Jawerth and a
  designee of the Board of Directors are, on a quarterly basis, to calculate the
  amount of funds to be set aside and the amounts to be received by eligible
  employees.  Such determinations are subject to being overruled by 70% of
  the members of the Board, excluding Dr. Jawerth.  If Summus, Inc. sells
  the rights to New Technology, eligible employees shall be entitled to an award
  of 10% of the gross proceeds.  If an eligible employee (other than Dr.
  Jawerth) ceases to be employed by Summus, Inc. for any reason, such employees
  right to awards under the plan will also cease.

All eligible employees must execute our standard agreement concerning
  assignment to Summus, Inc. of inventions developed by such employees while
  employed by us.  Eligible employees may also apply to have technology
  that is not owned by Summus, Inc. (defined as Outside Technology)
  commercialized by us.  If we elect to commercialize such technology, the
  eligible employee(s) shall receive an award equal to 5% (10%, if two or more
  eligible employees submit the Outside Technology) of the gross revenues
  derived from the licensing or sale of such technology (or products
  incorporating such technology).

Under the plan, Summus, Inc. may, at its option, initiate a spin-off company
  to develop a New Technology or an accepted Outside Technology.  In such
  event, eligible employees may be selected to join the spin-off company.  If the eligible employee(s) accepts a position in the spin-of company, his or
  her rights to awards under the plan are to be surrendered for 25% of the
  founders equity in the company.

As of the date of this annual report on Form 10-K, Dr. Jawerth is the only
  eligible employee who has been credited with the development of New Technology
  since the establishment of the Inventions Awards Plan.  However, we have
  not yet derived any revenues from such New Technology.  Accordingly, no
  awards have been paid in connection with such New
  Technology.

Compensation of Directors

Prior to February 27, 2001, each member of the Board of Directors not employed
  with us full-time was: (i) reimbursed for reasonable travel expenses incurred
  in attending meetings of the Board of Directors or committees of the Board of
  Directors; (ii) paid a fee of $1,000 for each day on which the Board and/or
  committee met or was in conference, at which such director attended, except
  for committee meetings held on the same date as a Board of Directors meeting
  or conference; and (iii) was eligible for stock option grants under the terms
  of our Equity Compensation Plan.

On February 27, 2001, our Board of
  Directors, by resolution, revised our Board of Directors compensation for
  2001. As of such date, each member of our Board of Directors was entitled to:

- options to purchase 10,000 shares of our common
  stock at a strike price of $3.00;
- an attendance fee of $2,500 per regular meeting attended,
      four of which were to be scheduled per annum;

- 42 -

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- an attendance fee of $1,000 for each special
  meeting attended in excess of two meetings each quarter;
- $2,500 for each assignment as a member of a
  committee; and
- $1,000 for each assignment as a committee chair.

In addition, each officer of
  the Board of Directors was entitled to an option to purchase 2,000 shares of
  our common stock at a strike price of $3.00 per share.

On December 14, 2001, our Board of Directors , by resolution, again revised
  our Board of Directors compensation effective in fiscal year 2002. 
  Under this new compensation structure:

- upon a Directors
  initial appointment, he or she shall receive a one-time grant of options to
  purchase 30,000 shares of our common stock:
- each Director shall
  receive an annual grant of options to purchase 40,000 shares of our common
  stock; and
- each Director who is
  not an employee of Summus, Inc. shall receive a grant of options to purchase
  2,500 shares of common stock for each committee of the Board of Directors
  on which he or she serves.

Each of these grants to members of
  our Board of Directors as described above shall have an exercise  price
  equal to the fair market value of  our common stock on the date of grant
  and shall vest quarterly over a one-year period from the date of grant.

During fiscal year 2001, the outside members of our Board of Directors were
  issued the following number of options opposite their names. Directors who are
  also Named Executive Officers of Summus, Inc. have options they earned as
  Directors listed in the Summary Compensation Table on page 32 of this annual
  report on Form10-K:

|Name        | Options
        Issued | Exercise
        Price/Vesting                                                                        
|----------- | ---------------------- | ------------------------------------------------------------------------------------------------------
|            |                        |                                                                                                       
|Herman Rush | 12,000                 | $3.00 per
        share / Vesting quarterly over one year from grant date of February 27,
        2001
|            |                        |                                                                                                       

Compensation Committee Interlocks
  and Insider Participation

On February 27, 2001, we
  formed, by action of our Board of Directors, an Employment and Compensation
  Committee consisting of Herman Rush, as Chair and Dr. Bjorn Jawerth, our
  current Chief Executive Officer, as committee members.  Dr. Jaweth does
  not participate in deliberations and abstains from voting in connection with
  his own compensation. Prior to such date, all matters were addressed by the
  full Board of Directors which consisted of Herman Rush, Richard Seifert and
  Andrew L. Fox.  However, Mr. Fox, then our Chief Executive Officer and a
  director, did not participate in deliberations and abstained from voting in
  connection with his own compensation.

- 43 -

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ITEM
  12.        SECURITY OWNERSHIP OF CERTAIN
  BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth
  certain information regarding beneficial ownership of our common stock as of
  March 15, 2002, by (i) each of our directors, (ii) each Named Executive
  Officer, (iii) all directors and executive officers as a group, and (iv) each
  person who is known to by us to own beneficially more than 5% of the
  outstanding shares of our common stock.  As of March 15 2002, we had
  44,897,001 shares of common stock issued and outstanding.  As of that
  date, we also had 2,000 shares of non-voting Series A preferred stock issued
  and outstanding.

Beneficial ownership is determined in
  accordance with rules of the Securities and Exchange Commission and includes
  generally voting power and/or investment power with respect to
  securities.  Shares of common stock subject to options and warrants,
  currently exercisable or exercisable within 60 days of March 15, 2002, are
  deemed outstanding for purposes of computing the percentage beneficially owned
  by the person holding the options or warrants, as the case may be, but are not
  deemed outstanding for purposes of computing the percentage beneficially owned
  by any other person.  The persons and entities named in the table have
  sole voting power and sole investment power of the shares reflected by their
  names, except as otherwise noted.

Unless otherwise specified, the
  address for each beneficial owner is c/o Summus, Inc. (USA), 434
  Fayetteville Street, Suite 600, Raleigh, NC 27601.

Name
        and Address ofBeneficial Owner(1)
      Shares
        Beneficially
        Owned(2)
      Percent of
        Shares of
        Common Stock
        OutstandingDr. Bjorn D. Jawerth
      15,919,983(3)
      35.17%Kerstin Jawerth
      5,465,203(4)
      12.21%Andrew L. Fox
      377,500(5)
      *Richard F. Seifert
      235,000(6)
      *Gary E. Ban
      338,135(7)
      *Robert S. Lowrey
      339,440(8)
      *Leonard Mygatt
      542,807(9)
      1.22%Christopher Kremer
    
      29,230(10)
    *Herman Rush
        Rush & Associates
        3340 Ocean Park Blvd., Suite
        3045
        Santa Monica, CA 90405
      28,667(11)
      *Dr. George H. Simmons
      0
      *


- 44 -

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William R. Dunavant and Lucille
        H. Dunavant, as joint tenants
        c/o Richard E. Brodsky, P.A.
        25 Southeast Second Avenue
        Suite 919
        Miami, Florida 33131
      2,275,000(12)
      5.12%All Executive Officers and
        Directors
        As a Group ( 9 persons )
      17,810,762(13)
      38.48%


__________





|*    | Represents beneficial ownership of
  less than one percent (1%) of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)  | Based upon information supplied by
  officers and directors and filings under Section 13 of the Securities and
  Exchange Act of 1934, as amended (the Exchange Act).                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(2)  | Unless otherwise indicated, refers to
  Summus, Inc.s shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(3)  | Includes (i) 5,190,212 shares of
  common stock and 274,991shares of common stock underlying warrants owned by
  Kerstin Jawerth with respect to which Dr. Jawerth has sole voting power, and
  (ii) 512,000 shares of common stock underlying options exercisable within 60
  days of March 15, 2002.                                                                                                                                                                                                                                                                                                                                         
|(4)  | Dr. Bjorn Jawerth has sole voting
  power over these shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(5)  | Includes 377,500 shares of common
  stock underlying options that are exercisable within 60 days of March 15,
  2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(6)  | Includes 85,000 shares of common
  stock underlying options that are exercisable within 60 days of March 15,
  2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(7)  | Includes 18,919 shares of common
  stock underlying options and 12,546 shares of common stock underlying warrants
  that are exercisable within 60 days of March 15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(8)  | Includes 339,440 shares of common
  stock underlying options that are exercisable within 60 days of March 15,
  2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(9)  | Includes 117,186 shares of common
  stock underlying options and 16,728 shares of common stock underlying warrants
  that are exercisable within 60 days of March 15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(10) | Includes 29,230 shares of common
  stock underlying options that are exercisable within 60 days of March 15,
  2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(11) | Includes 28,667
  shares of common stock underlying options that are exercisable within 60 days
  of March 15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(12) | Includes shares of
  common stock issued to Mr. Dunavant in connection with our acquisition of
  shares of common stock of Summus Technologies, Inc. and shares of our common
  stock issued under various settlement agreements entered into with Mr.
  Dunavant. Also includes 175,000 shares with respect to which Richard E.
  Brodsky has sole dispositive power.  Pursuant to a Voting Agreement dated
  as June 29, 2001, Richard Dunavant, Lucille Dunavant, and Richard Brodsky
  agreed to vote all shares of  the Summus, Inc. common stock held by them
  in a manner consistent with the recommendation of our Board of Directors.
|(13) | Includes shares beneficially owned by all
  executive officers and directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

- 45 -

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ITEM
  13.        CERTAIN RELATIONSHIPS AND
  RELATED TRANSACTIONS.

The Summus, Inc. Acquisition of
  Summus, Ltd.s Assets and Operations

On February 16, 2001, pursuant to the terms of the Asset Purchase Agreement,
  Summus, Inc. purchased all the assets and operations of Summus, Ltd.

Prior to the closing of the transaction, Summus, Ltd. was the largest
  shareholder of Summus, Inc. It owned 8,217,781 shares (33.2%) of Summus, Inc.s
  common stock, approximately 27.6% on a fully diluted basis. Immediately after
  the closing, Summus, Ltd.s ownership interest in Summus, Inc. increased to
  20,593,352 shares (55.5%) of Summus, Inc.s common stock on an as-converted
  basis, approximately 53.1% on a fully-diluted basis, as a result of Summus,
  Inc.s issuance to Summus, Ltd. of:

- 20,218,733 shares of Summus, Inc. common stock
  (less 3,604,445 shares of common stock to which Summus, Inc. itself was
  entitled to receive as a shareholder of Summus, Ltd., such shares being
  cancelled along with the 8,217,781 shares of Summus, Inc. common stock held by
  Summus, Ltd. prior to the parties execution of the Asset Purchase
  Agreement.);
- 6,000 shares of Series B convertible preferred
  stock (each share convertible into 1,000 shares of common stock), of which
  2,000 shares were deposited with and held for 12 months by an escrow agent as
  security for any indemnification obligations of Summus, Ltd. and its
  shareholders under the agreement; and
- warrants to purchase 500 shares of Summus, Inc.s
  Series B convertible preferred stock, exercisable for a period of five years
  from the closing date (i.e., February 16, 2001), at an exercise price, subject
  to adjustment, of $5.50 per share of common stock on an as-converted basis.

On March 13, 2001, Summus,
  Ltd. distributed certain of the shares of its common stock received in the
  transaction to the shareholders of Summus, Ltd. in accordance with their pro
  rata interests; the balance of such shares was distributed in mid-July 2001.
  Summus, Inc. distributed 4,000 shares of its Series B convertible preferred
  stock to the shareholders of Summus, Ltd. in January 2002, shortly before
  filing with the SEC a proxy statement with respect to a special meeting of
  shareholders to be held on February 27, 2002.  At this meeting the
  shareholders of Summus, Inc. approved an amendment to our amended and restated
  certificate of incorporation to increase the number of shares of common stock
  authorized for issuance from 50,000,000 to 100,000,000.  The approval of
  this amendment provided for sufficient authorized shares of common stock to
  allow for the issuance of shares of common stock into which the outstanding
  shares of Series B convertible preferred stock are convertible. The warrants
  to purchase 500 shares of Series B convertible preferred stock were also
  distributed on a pro rata basis to the shareholders of Summus, Ltd., other
  than Summus, Inc. and Dr. Bjorn Jawerth, on an as-converted basis as warrants
  to purchase 500,000 shares of Summus, Inc. common stock. Both Summus, Inc. and
  Dr. Jawerth waived their right to participate in the distribution of the
  warrants.  Finally,  on an as-converted basis, Summus, Inc. reduced
  the 2,000,000 shares being held in escrow by 329,661 shares in satisfaction of
  claims against Summus, Ltd.  The remaining 1,670,339 shares of common
  stock, on an as-converted basis, being held in escrow were distributed to the
  shareholders of  Summus, Ltd. on a pro rata basis.

Satisfaction of Indebtedness to
  Bradford Richdale Affiliates

Effective as of June 25,
  2001, we entered into an agreement of settlement and compromise with
  HealthTec, Inc. and Brad Richdale Direct Inc., affiliates of Mr. Richdale.
  Under the terms of that agreement:

- we issued 250,000 shares of our common stock in
  satisfaction of our indebtedness to such entities in the aggregate amount of
  $435,301 (representing an effective value per share of $1.74);

- 46 -

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- we agreed to register the resale of such shares
  upon our filing of a registration statement under the Securities Act of 1933;
- we agreed to provide a release by Summus, Ltd. of
  Summus, Ltd.s claim for additional shares of Summus, Inc. common stock
  under the terms of a stock purchase agreement, dated August 25, 1999, between
  Brad Richdale Direct and Summus, Ltd.; and
- the Richdale affiliates agreed, for a two-year
  period from the date of the agreement, to vote the shares received under the
  agreement in favor of and for the election of the Board nominees nominated by
  the Board.

Settlement of the William R.
  Dunavant Litigation and Post-Litigation Disputes

In August 1999, Summus, Inc. issued to Mr. William R. Dunavant 350,000 shares
  of its common stock (and made a cash payment of $100,000 to Mr. Dunavant) in
  exchange for 250,000 shares of common stock of Summus Technologies, Inc. held
  by Mr. Dunavant. The agreement providing for this exchange of stock
  contemplated Summus, Inc.s filing, as expeditiously as possible (and in any
  event within 60 days of the date of the agreement), a registration statement
  with the SEC covering the resale of Summus, Inc.s shares issued to Mr.
  Dunavant. If such a registration statement was notdeclared
  effective within 120 days of the date of the parties execution of the
  agreement (i.e., by December 11, 1999) Summus, Inc. was obligated to issue an
  additional 25,000 shares of its common stock to Mr. Dunavant 135 days after
  the date of the parties execution of the agreement and an additional 25,000
  shares for each 30-day period thereafter during which a registration statement
  covering all of Mr. Dunavants shares of Summus, Inc.s common stock had
  not been declared effective.

Summus, Inc. failed to file a registration statement covering the resale of
  Mr. Dunavants shares by December 11, 1999. Mr. Dunavant initiated
  litigation against Summus, Inc. in the Circuit Court of the Eleventh Judicial
  Circuit, Miami-Dade County, Florida on January 26, 2000. Mr. Dunavants
  complaint alleged that Summus, Inc. failed to register the shares of Summus,
  Inc. common stock issued to him in breach of an agreement to do so. Summus,
  Inc. entered into a settlement agreement, dated May 4, 2000, with Mr.
  Dunavant. By the terms of an amended and restated settlement agreement, dated
  June 6, 2000 (which superseded the May 2000 agreement in its entirety),
  Summus, Inc. agreed, among other things, to:

- register the 350,000 shares of Summus, Inc.
  common stock then held by Mr. Dunavant;
- issue to Mr. Dunavant, within five business days
  of the date of the agreement, 150,000 shares of Summus, Inc. common stock,
  with registration rights; and
- issue to Mr. Dunavant 25,000 shares of Summus,
  Inc.s common stock each month for the six month period ending December 31,
  2000, and 50,000 shares a month thereafter, and pay $12,750 per month in cash,
  until Summus, Inc. had an effective registration statement covering all of Mr.
  Dunavants shares.

In addition to the foregoing,
  Summus, Inc. agreed that if, on the effective date of the registration
  statement covering Mr. Dunavants shares, the closing price of its common
  stock was less than $23 per share, Summus, Inc. would issue to Mr. Dunavant
  additional shares pursuant to a formula based on the difference between $23
  and the closing price of the common stock.

Summus, Inc. entered into a second amended and restated settlement agreement,
  dated October 26, 2000, supplemented in December 2000, which was to supersede
  the June 2000 agreement in its entirety. Under the terms of the second amended
  and restated settlement agreement, Summus, Inc. agreed to:

- issue to Mr. Dunavant, within five business days
  of the agreement, an additional number

- 47 -

---



of shares of Summus, Inc. common stock
  such that Mr. Dunavant would hold, in the aggregate, 1,000,000 shares of such
  stock;

- issue to Mr. Dunavant 25,000 shares of Summus,
  Inc. common stock each month, such obligation to continue until the closing of
  the capital-raising transaction provided for in the Asset Purchase Agreement
  (such provision ultimately being deleted from the final version of the
  agreement);
- issue to Mr. Dunavant, within five business days
  of the agreement, an additional 1,000,000 shares of Summus, Inc. common stock
  (with Mr. Dunavant agreeing not to sell any of these shares for a period of 12
  months); and
- pay $25,000 in cash each month until a
  registration statement covering Mr. Dunavants shares was declared
  effective.

The second amended and
  restated settlement agreement also provided Mr. Dunavant with the right to
  require Summus, Inc., on or before March 31, 2001, to file a registration
  statement with the SEC covering 2,000,000 of his shares. If such registration
  statement was not declared effective by July 15, 2001, Mr. Dunavant had the
  right to immediately commence arbitration proceedings against Summus, Inc.

As of May 31, 2000, Summus, Inc. had issued an aggregate of 2,150,000 shares
  of its common stock to Mr. Dunavant and agreed to register for resale all of
  his shares and any future issuances of shares to Mr. Dunavant until a
  registration statement covering all of his shares was declared effective by
  the SEC.

As of June 29, 2001, we
  entered into a settlement agreement and a voting agreement with Mr. Dunavant
  and his counsel. Under the terms of such agreements:

- we issued an aggregate of 475,000 shares of our
  common stock to Mr. Dunavant and his counsel (300,000 shares to Mr. Dunavant;
  175,000 shares to his counsel);
- Mr. Dunavant agreed to certain resale
  restrictions with respect to all but 350,000 shares of the shares of common
  stock held by him (an aggregate of 2,450,000 shares), specifically, to, in
  general, limit his public resale of such shares to 30,000 shares per calendar
  month until February 15, 2002;
- we agreed to prepare and proceed diligently to
  complete and file a registration statement with the SEC registering the resale
  of all the shares held by Mr. Dunavant, his spouse and his attorney, with Mr.
  Dunavant and his counsel having a right to seek an immediate hearing for
  emergency injunctive relief if such registration statement is not filed before
  July 31, 2001, unless counsel advised us that it was in Summus, Inc.s the
  best interests and its shareholders best imterests to delay the filing of such
  registration statement;
- Mr. Dunavant, his spouse and his counsel agreed,
  for a two-year period from the date of the agreements, to vote the shares held
  by them in favor of and for the election of Board nominees nominated by the
  Summus, Inc. Board and to vote such shares in a manner consistent with the
  recommendation of the Board with respect to certain extraordinary transactions
  (such as a tender offer, an exchange offer, merger or other business
  combination); and
- Summus, Inc., on the one hand, and Mr. Dunavant
  and his counsel, on the other, executed mutual general releases with respect
  to any and all claims against each other, except with respect to the
  obligations and liabilities under such agreements.

At the meeting of our Board
  of Directors held on July 20, 2001, our counsel advised the Board that, in
  counsels opinion, it was in the best interests of Summus, Inc and its
  shareholders to delay the filing

- 48 -

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of a registration statement with the SEC to
  register the resale of all the shares of common stock held by Mr. Dunavant,
  his spouse and his attorney. Counsels views on this subject took cognizance
  of, among other things, the critical importance to Summus, Inc. of:

- becoming timely in its reporting obligations
  under the Securities Exchange Act of 1934, as amended (at the time our
  quarterly report on Form 10-Q for the first quarter of 2001, to have been
  filed on or before May 15, 2001, had not yet been filed); and
- clearing its Form 10 at the earliest opportunity
  possible, since the clearance of the Form 10 was a prerequisite to having our
  common stock made eligible for quotation on the OTC Bulletin Board(R) and
  thereby potentially opening up greater opportunities for us to raise capital.

Summus, Inc. and its counsel, in
  accordance with the June 29, 2001 settlement agreement, have kept Mr. Dunavant
  and his counsel apprised of our contemplated timing with respect to the filing
  of the registration statement in view of these considerations.

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

|(a)(1) | Financial Statements and Financial Statement Schedules.  See Index to
  Financial Statements on page F-1.                                                                                                                           
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)(2) | Financial Statement Schedules have been omitted because of the absence of
  conditions under which they would be required or because the required
  information has been included in the financial statements.                      
|(a)(3) | The following Exhibits are filed as part of this annual report on Form
  10-K.  The Exhibits designated by (*)  have been previously filed
  with the Securities and Exchange Commission and are incorporated by reference
  herein.



|Exhibit
        Number | Exhibit
        Description                                                                                                                                                                                        
|---------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                       |                                                                                                                                                                                                                    
|                       |                                                                                                                                                                                                                    
|3.1                    | Amended and Restated Articles
        of Incorporation, filed February 28, 2000                                                                                                                                    
|                       |                                                                                                                                                                                                                    
|3.2*                   | Second Amended and Restated
        Bylaws (incorporated by reference to Exhibit 3.2 to our Form 10 filed on
        July 5, 2001)                                                                                 
|                       |                                                                                                                                                                                                                    
|3.3                    | Articles of Amendment and
        Statement of Rights and Preferences of the 8% Series A Convertible
        Preferred Stock, filed March 3, 2000                                                                  
|                       |                                                                                                                                                                                                                    
|3.4                    | Articles of Correction filed
        June 23, 2000 to Articles of Amendment, filed March 2, 2000                                                                                                                   
|                       |                                                                                                                                                                                                                    
|3.5                    | Amendment to Amended and
        Restated Articles of Incorporation and Statement of Rights and
        Preferences of the Series B Convertible Preferred Stock                                                    
|                       |                                                                                                                                                                                                                    
|3.6                    | Amendment to Amended and
        Restated Articles of Incorporation , filed  February 27, 2002,
        changing our name to Summus, Inc. (USA)                                                                    
|                       |                                                                                                                                                                                                                    
|3.7                    | Amendment to Amended and
        Restated Articles of Incorporation, filed February 27, 2002, increasing
        our authorized common stock, par value $.001, from 50,000,000 shares to
        100,000,000 shares

- 49 -

---



|       |                                                                                                                                                                                                                                                                                          
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1    | Specimen Common Stock
        Certificate                                                                                                                                                                                                                                                
|       |                                                                                                                                                                                                                                                                                          
|4.2    | Form of  Subscription
        Agreement for private placement sales of our common stock                                                                                                                                                                                                  
|       |                                                                                                                                                                                                                                                                                          
|4.3    | Form of Selling Shareholders
        Agreement in connection with private placement sales of our common stock                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                          
|4.4    | Form of  Warrant Agreement
        for warrants issued in connection with private placement sales of our
        common stock                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                          
|10.1*  | Acquisition Agreement and Plan
        of Merger, dated as of April 19, 2000, between J.S.J. Capital Corp. and
        Summus, Inc. (incorporated by reference to Exhibit 1.1 to our Current
        Report on Form 8-K dated April 21, 2000)                                            
|       |                                                                                                                                                                                                                                                                                          
|10.2*  | Asset Purchase Agreement, dated
        October 30, 2000, among Summus, Inc., Summus, Ltd., and the stockholders
        named therein (incorporated by reference to Exhibit 10.01 to our Current
        Report on Form 8-K dated February 16, 2001)                                    
|       |                                                                                                                                                                                                                                                                                          
|10.3*  | Amendment Number 1 to Asset
        Purchase Agreement, dated as of December 30, 2000, among Summus, Inc.,
        Summus, Ltd. and the stockholders named therein (incorporated by
        reference to Exhibit 10.02 to our Current Report on Form 8-K dated
        February 16, 2001)
|       |                                                                                                                                                                                                                                                                                          
|10.4*  | Amendment to Asset Purchase
        Agreement, dated as of January 30, 2001, among Summus, Inc., Summus,
        Ltd. and the stockholders named therein (incorporated by reference to
        Exhibit 10.03 to our Current Report on Form 8-K dated February 16, 2001)                  
|       |                                                                                                                                                                                                                                                                                          
|10.5*  | Agreement for Transfer of All
        Rights and Reservation of License in Software, dated September 4, 2000,
        between PlusStation, LLC, Niksa Radovic and Summus, Ltd. (incorporated
        by reference to Exhibit 10.9 to our Form 10 filed on July 5, 2001)                  
|       |                                                                                                                                                                                                                                                                                          
|10.6*  | Agreement of Settlement and
        Compromise, dated as June 25, 2001, among Summus, Inc., Health Tec,
        Inc., and Brad Richdale Direct, Inc. (incorporated by reference to
        Exhibit 10.39 to our Form 10 filed on July 5, 2001)                                           
|       |                                                                                                                                                                                                                                                                                          
|10.7*  | Equity Compensation Plan,
        effective January 31, 2000 (incorporated by reference to Exhibit 10.05
        to our Quarterly Report on Form 10-Q filed for the quarter ended March
        31. 2000)                                                                                
|       |                                                                                                                                                                                                                                                                                          
|10.8*  | Amendment to Equity
        Compensation Plan, effective May 1, 2000 (incorporated by reference to
        Exhibit 10.26 to our Form 10 filed on July 5, 2001)                                                                                                                           
|       |                                                                                                                                                                                                                                                                                          
|10.9*  | Amendment to Summus, Inc.
        Equity Compensation Plan, effective February 16, 2001 (incorporated by
        reference to Exhibit 10.09 to our Current Report on Form 8-K dated
        February 16, 2001)                                                                           
|       |                                                                                                                                                                                                                                                                                          
|10.10* | Executive
        Employment Agreement, dated as of February 16, 2001, between Summus,
        Inc. and Bjorn Jawerth (incorporated by reference to Exhibit 10.06 to
        our Current Report on Form 8-K dated February 16, 2001)                                                     
|       |                                                                                                                                                                                                                                                                                          
|10.11  | Amendment to
        Executive Employment Agreement of Bjorn D. Jawerth, dated as of February
        28, 2001                                                                                                                                                                           

- 50 -

---



|10.12  | Executive
        Employment Agreement, dated as of February 16, 2001, between Summus,
        Inc. and Gary E. Ban                                                                                                                                                              
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                  
|10.13  | Executive
        Employment Letter Agreement, dated as of November 19, 2001, between
        Summus, Inc. and Andrew L. Fox                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                  
|10.14  | Executive
        Employment Agreement, dated as of October 1, 2001,  between Summus,
        Inc. and Christopher E. Kremer                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                  
|10.15  | Executive
        Employment Agreement, dated as of February 16, 2001,  between
        Summus, Inc. and Robert S. Lowrey                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                  
|10.16* | Lease Agreement, dated as of
        October 15, 1999, as modified on March 23, 2000 and June 9, 2000,
        between Phoenix Limited Partnership of Raleigh and Summus, Inc.
        (incorporated by reference to Exhibit 10.31 to our Form 10 filed on
        July  5, 2001)
|       |                                                                                                                                                                                                                                                                                  
|10.17* | Lease Agreement, dated as of
        August 12, 1999, between Phoenix Limited Partnership of Raleigh and
        Summus, Ltd. (incorporated by reference to Exhibit 32 to our Form 10
        filed on July 5, 2001)                                                             
|       |                                                                                                                                                                                                                                                                                  
|10.18* | Lease Modification Agreement
        Number 1, dated as of December 22, 1999, between Phoenix Limited
        Partnership of Raleigh and Summus, Ltd. . (incorporated by reference to
        Exhibit 33 to our Form 10 filed on July 5, 2001)                                   
|       |                                                                                                                                                                                                                                                                                  
|10.19* | Summus, Inc. Invention
        Awards Plan, effective October 30, 2000 (incorporated by reference to
        Exhibit 10.40 to Amendment No. 1 to our Form 10 filed on September 28,
        2001)                                                                                
|       |                                                                                                                                                                                                                                                                                  
|10.20* | Master Porting Agreement,
        dated July 27, 2001, between Summus, Inc. and Samsung Electronics
        America (incorporated by reference to Exhibit 10.41  to 
        Amendment No. 2 to our Form 10 filed on October 31, 2001.                                           
|       |                                                                                                                                                                                                                                                                                  
|10.21* | Second Amended and Restated
        Settlement Agreement, dated as of October 26, 2000, between Summus, Inc.
        and William R. Dunavant (incorporated by reference to Exhibit 10.19 to
        our Form 10 filed on July 5, 2001)                                           
|       |                                                                                                                                                                                                                                                                                  
|10.22* | Memo, dated December 5,
        2000, supplementing the Second Amended and Restated Settlement Agreement
        referenced in Exhibit 10.21 of this report (incorporated by reference to
        Exhibit 10.20 to our Form 10 filed on July 5, 2001)                            
|       |                                                                                                                                                                                                                                                                                  
|10.23* | Settlement Agreement, dated
        as of June 29,  2001, among Summus, Inc. Willaim R. Dunavant,
        Lucille Dunavant, and Richard E. Brodsky and Summus, Inc. (incorporated
        by reference to Exhibit 10.37 to Form 10 filed on July 5, 2001)                        
|       |                                                                                                                                                                                                                                                                                  
|10.24* | Voting Agreement, dated as of
        June 29, 2001, among William R. Dunavant, Lucille Dunavant, Richard E.
        Brodsky, P.A., Richard E. Brodsky and Summus, Inc. (incorporated by
        reference to Exhibit 10.38 to our Form 10 filed on July 5, 2001)                
|       |                                                                                                                                                                                                                                                                                  
|21.1   | Subsidiaries of Summus, Inc.
         None                                                                                                                                                                                                                                      

Reports on Form 8-K

During the fourth quarter of the year ended December 31, 2001, we filed with
  the SEC a Current Report on Form 8-K (Item 5) on November 30, 2001. This 8-K
  contained a letter to our shareholders.

- 51 -

---



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.

| | By: | Summus, Inc. (USA)
  /s/ Robert S.
  Lowrey
       Robert S. Lowrey
       Chief Financial Officer
| | --- | --------------------------------------------------------------------------------------------------

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

|Signature                                                      | Title                                                                                                 | Date          
|-------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | --------------
|                                                               |                                                                                                       |               
|/s/ Dr. Bjorn D. Jawerth
        
        Dr. Bjorn D. Jawerth | Principal Executive
        Officer,Chief Executive Officer, and
        Director                     | March 28, 2002
|/s/ Richard F. Seifert
        
        Richard F. Seifert     | Executive Vice-President
        and
        Director                                                 | March 28, 2002
|/s/ Robert S. Lowrey
        
        Robert S.
        Lowrey | Principal Financial
        and
        Principal Accounting Officer,
        Chief Financial Officer | March 28, 2002
|/s/ Herman Rush
        
        Herman Rush                   | Director                                                                                              | March 28, 2002



- 52 -

---



INDEX TO FINANCIAL
  STATEMENTS



PageConsolidated Financial
  Statements of Summus, Inc. (USA)Independent Auditors Report of
  Ernst & Young LLP
        F-2Balance Sheets at December 31, 2001
  and 2000
        F-3Statements of Operations for the
  Years Ended December 31, 2001, 2000 and 1999
        F-5Statements of Shareholders Equity
  (Deficit) for the Years Ended December 31, 2001,   2000, and 1999
        F-6Statements of Cash Flows for the
  Years Ended December 31, 2001, 2000 and 1999
        F-8Notes to the Financial Statements
        F-10Consolidated Financial
  Statements of High Speed Net Solutions, Inc.Independent Auditors Report of
  Ernst & Young LLP
        F-40Balance Sheets at December 31, 2000
  and 1999
        F-41Statements of Operations for the
  Years Ended December 31, 2000, 1999 and 1998
        F-42Statements of Shareholders Equity
  (Deficit) for the Years Ended December 31, 2000,
        F-431999, and 1998Statements of Cash Flows for the
  Years Ended December 31, 2000, 1999 and 1998
        F-45Notes to the Financial Statements
        F-46Financial Statements Of Douglas
  May & Co., Inc.Independent Auditors Report of
  Edwin L. Roberts
        F-70Balance Sheet at December 31, 1999
        F-71Statement of Income and Returned
  Earnings for the Year Ended December 31, 1999
        F-72Statement of Cash Flows for the Year
  Ended December 31, 1999
        F-73Notes to Financial Statements
        F-74




F-1

---



Report of Independent
  Auditors



The Board of Directors and
  Shareholders
  Summus, Inc. (USA)

We have audited the accompanying
  consolidated balance sheets of Summus, Inc. (USA) as of December 31, 2001 and
  2000, and the related consolidated statements of operations, shareholders
  equity (deficit) and cash flows for each of the three years in the period
  ended December 31, 2001. These financial statements are the responsibility of
  Summus, Inc. (USA)s management. Our responsibility is to express an opinion
  on these financial statements based on our audits.

We conducted our audits in accordance
  with auditing standards generally accepted in the United States. 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 financial
  statements referred to above present fairly, in all material respects, the
  consolidated financial position of Summus, Inc. (USA) at December 31, 2001 and
  2000 and the consolidated results of its operations and its cash flows, for
  each of the three years in the period ended December 31, 2001, in conformity
  with accounting principles generally accepted in the United States.

The accompanying financial statements
  have been prepared assuming that Summus, Inc. (USA) will continue as a going
  concern. As more fully described in Note 1, Summus, Inc. (USA) has incurred
  operating losses since inception and will require additional capital in 2002
  to continue operations. These conditions raise substantial doubt about Summus,
  Inc. (USA)s ability to continue as a going concern. Managements plans in
  regard to these matters are also described in Note 1. The financial statements
  do not include any adjustments to reflect the possible future effects on the
  recoverability and classification of assets or the amounts and classification
  of liabilities that may result from the outcome of this uncertainty.

/s/ Ernst & Young LLP

Ernst & Young LLP
  March 15, 2002
  Raleigh, North Carolina

F-2

---



Summus, Inc. (USA)

Consolidated Balance
  Sheets



|                                               | December 31  
|---------------------------------------------- | -------------
|                                               | 2001         
|                                               |              
|Assets                                         |              
|Current assets:                                |              
|Cash                                           | $     115,972
|Accounts receivable                            | 65,089       
|Prepaids and other current
        assets      | 12,428       
|                                               |              
|Total current assets                           | 193,489      
|                                               |              
|Equipment, software and
        furniture, net | 776,977      
|Receivable from related party                  |             
|Other assets                                   | 33,058       
|                                               |              
|                                               |              
|                                               |              
|                                               |              
|                                               |              
|                                               |              
|                                               |              
|                                               |              
|                                               |              
|                                               |              
|Total assets                                   | $  1,003,524 
|                                               |              



F-3

---





|                                                                                                                                                                                                                 | December 31           
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------
|                                                                                                                                                                                                                 | 2001                  
|                                                                                                                                                                                                                 |                       
|Liabilities and shareholders
        deficit                                                                                                                                                                    |                       
|Current liabilities:                                                                                                                                                                                             |                       
|Accounts payable and accrued
        expenses                                                                                                                                                                    | $    4,659,631        
|Accrued salaries and related
        costs                                                                                                                                                                       | 506,147               
|Current portion of notes
        payable                                                                                                                                                                         | 371,613               
|Capital lease obligations,
        current portion                                                                                                                                                               | 221,197               
|Preferred stock dividends
        payable                                                                                                                                                                        | 310,120               
|Deferred redeemable feature                                                                                                                                                                                      | 576,000               
|Loans payable to related party                                                                                                                                                                                   |                      
|                                                                                                                                                                                                                 |                       
|Total current liabilities                                                                                                                                                                                        | 6,644,708             
|                                                                                                                                                                                                                 |                       
|Capital lease obligations, less
        current portion                                                                                                                                                          | 67,311                
|Notes payable, less current
        portion                                                                                                                                                                      |                      
|Deferred software royalty
        revenue                                                                                                                                                                        |                      
|                                                                                                                                                                                                                 |                       
|Shareholders equity
        (deficit):                                                                                                                                                                          |                       
|Convertible preferred stock,
        Series A, $0.001 par value;
             5,000,000 shares authorized, 2,000 shares
        issued and
             outstanding (liquidation preference of $1,000 per share) | 2,000,000             
|Convertible preferred stock,
        Series B, $0.001 par
             value; 6,500 shares authorized, 6,000 and 4,000
             shares issued and outstanding, respectively                                  | 6                     
|Common stock, $.001 par value,
        authorized 50,000,000      shares; issued and outstanding 37,151,478 and
             9,584,938 shares, respectively                                                      | 37,151                
|Additional paid-in capital                                                                                                                                                                                       | 27,399,045            
|Stock subscription receivable                                                                                                                                                                                    | (75,000)              
|Deferred compensation                                                                                                                                                                                            | (534,456)             
|Accumulated deficit                                                                                                                                                                                              | (34,307,622)          
|Treasury stock, at cost (38,500
        shares)                                                                                                                                                                  | (227,619)             
|                                                                                                                                                                                                                 |                       
|Total shareholders deficit                                                                                                                                                                                      | (5,708,495)           
|                                                                                                                                                                                                                 |                       
|Total liabilities and
        shareholders deficit                                                                                                                                                              | $   
        1,003,524
|                                                                                                                                                                                                                 |                       

See accompanying notes.

F-4

---



Summus, Inc. (USA)

Consolidated
  Statements of Operations

|                                                                                                                       | Year ended
        December 31
|---------------------------------------------------------------------------------------------------------------------- | ------------------------------
|                                                                                                                       | 2001                          
|                                                                                                                       |                               
|Revenues:                                                                                                              |                               
|Contracts and
        license fees                                                                                     | $        749,758              
|Cost of revenues:                                                                                                      |                               
|Contracts and license fees                                                                                             | 299,554                       
|                                                                                                                       |                               
|Gross profit                                                                                                           | 450,204                       
|Selling, general and
        administrative expenses                                                                   | 7,835,367*                    
|Non-cash compensation                                                                                                  | 956,321                       
|Research and development                                                                                               | 858,105                       
|Non-cash settlements                                                                                                   | 1,132,352                     
|                                                                                                                       |                               
|Loss before other income
        (expense)                                                                             | (10,331,941)                  
|Other income (expense):                                                                                                |                               
|Gain on sale of stock of equity
        investee                                                                       |                              
|Participation in loss of equity
        investee                                                                       |                              
|Loss on disposal of assets                                                                                             |                              
|Interest income (expense), net                                                                                         | (56,570)                      
|                                                                                                                       |                               
|Total other income (expense)                                                                                           | (56,570)                      
|                                                                                                                       |                               
|Loss from continuing operations                                                                                        | (10,388,511)                  
|Loss from operations of
        discontinued Rich Media
             
        Direct business                          | (135,798)                     
|Loss on disposal of Rich Media
        Direct business                                                                 | (215,500)                     
|                                                                                                                       |                               
|Net loss                                                                                                               | $(10,739,809)                 
|                                                                                                                       |                               
|Net loss applicable to common
        shareholders:                                                                    |                               
|Net loss                                                                                                               | $(10,739,809)                 
|Preferred stock dividends                                                                                              | (153,700)                     
|                                                                                                                       |                               
|Net loss applicable to common
        shareholders                                                                     | $(10,893,509)                 
|                                                                                                                       |                               
|Per share amounts (basic and
        diluted):                                                                         |                               
|Loss applicable to common
        shareholders from continuing       operations                                        | $          
        (0.30)    
|Loss applicable to common
        shareholders from       discontinued operations                                      | $     
             (0.01)    
|                                                                                                                       |                               
|Net loss                                                                                                               | $           (0.31)            
|                                                                                                                       |                               
|                                                                                                                       |                               
|Weighted average common shares
        outstanding                                                                     | 31,806,333                    
|Recapitalization resulting from
        the Summus, Ltd.
             asset
        acquisition                        | 2,924,004                     
|                                                                                                                       |                               
|Weighted average shares of
        common stock
            
        outstanding giving effect to the recapitalization | 34,730,337                    
|                                                                                                                       |                               

*  Selling, general and
  administrative expenses in 2001, 2000 and 1999 exclude $1.0 million, $2.1
  million and
      $2.7 million, respectively, of non-cash compensation charges.

See accompanying notes.

F-5

---



Summus, Inc. (USA)

Consolidated Statement
  of Shareholders Equity (Deficit)

|                                                                                                                    | Preferred
        Stock |                        |              |                    
|------------------------------------------------------------------------------------------------------------------- | ----------------------- | ---------------------- | ------------ | -------------------
|                                                                                                                    |                         |                        |              |                    
|                                                                                                                    | Series A                | Series B               | Common Stock | Additional         
|                                                                                                                    |                         | Paid-In               
|                                                                                                                    | Shares                  | Amount                 | Shares       | Amount             
|                                                                                                                    |                        
|                                                                                                                    |                         |                        |              |                    
|Balance at December 31, 1998                                                                                        |                        | $           
         | 4,000        | $       
        4 
|Repurchase of common stock                                                                                          |                        |                       |             |                   
|Common stock issued in exchange
             for investment in equity investee                                      |                        |                       |             |                   
|Issuance of common stock for
        services                                                                       |                        |                       |             |                   
|Sales of stock by equity
        investee                                                                           |                        |                       |             |                   
|Net loss for 1999                                                                                                   |                        |                       |             |                   
|                                                                                                                    |                        
|Balance at December 31, 1999                                                                                        |                        |                       | 4,000        | 4                  
|Deferred compensation
        recognized in
             connection with the issuance of
             stock options |                        |                       |             |                   
|Exercise of stock options                                                                                           |                        |                       |             |                   
|Amortization of deferred
        compensation                                                                       |                        |                       |             |                   
|Sales of stock by equity
        investee                                                                           |                        |                       |             |                   
|Net loss for 2000                                                                                                   |                        |                       |             |                   
|                                                                                                                    |                        
|Balance at December 31, 2000                                                                                        |                        |                       | 4,000        | 4                  
|Recapitalization resulting from
        the
             Summus, Ltd. asset acquisition                             | 2,000                   | 2,000,000              | 2,000        | 2                  
|Elimination of deferred revenue
             resulting from recapitalization                                        |                        |                       |             |                   
|Common stock options granted
        for
             services                                                      |                        |                       |             |                   
|Common stock and warrants sold
        for
             cash                                                        |                        |                       |             |                   
|Preferred stock dividends                                                                                           |                        |                       |             |                   
|Common stock issued in partial
             settlement of loss contingency                                          |                        |                       |             |                   
|Deferred compensation
        recognized in
             connection with the issuance of
             stock options |                        |                       |             |                   
|Reversal of deferred
        compensation of
             forfeited stock options                                   |                        |                       |             |                   
|Amortization of deferred
        compensation                                                                       |                        |                       |             |                   
|Common stock issued in
        settlement of
             amounts due to related parties                            |                        |                       |             |                   
|Common stock and warrants
        issued in
             partial settlement of vendor
             liabilities      |                        |                       |             |                   
|Stock option exercises                                                                                              |                        |                       |             |                   
|Cash collection on stock
        subscription
             receivable                                               |                        |                       |             |                   
|Net loss for 2001                                                                                                   |                        |                       |             |                   
|                                                                                                                    |                        
|Balance at December 31, 2001                                                                                        | 2,000                   | $2,000,000             | 6,000        | $        
        6
|                                                                                                                    |                        

F-6

---



Summus, Inc. (USA)

Consolidated Statement
  of Shareholders Equity (Deficit)
  (continued)



|                                                                                                                      | Stock                 |                            |               |                     | Total                   
|--------------------------------------------------------------------------------------------------------------------- | --------------------- | -------------------------- | ------------- | ------------------- | ------------------------
|                                                                                                                      | Subscription          | Deferred                   | Accumulated   | Treasury            | Shareholders           
|                                                                                                                      | Receivable            | Compensation               | Deficit       | Stock               | Equity
        (Deficit)
|                                                                                                                      |                      
|                                                                                                                      |                       |                            |               |                     |                         
|Balance at December 31, 1998                                                                                          | $          
         | $               
         | $(3,115,852)  | $        
         | $   316,826             
|Repurchase of common stock                                                                                            |                      |                           |              |                    | (298)                   
|Common stock issued in exchange
             
        for investment in equity investee                               |                      |                           |              |                    | 7,902,267               
|Issuance of common stock for
        services                                                                         |                      |                           |              |                    | 2,670,050               
|Sales of stock by equity
        investee                                                                             |                      |                           |              |                    | 1,303,827               
|Net loss for 1999                                                                                                     |                      |                           | (8,846,980)   |                    | (8,846,980)             
|                                                                                                                      |                      
|Balance at December 31, 1999                                                                                          |                      |                           | (11,962,832)  |                    | 3,345,692               
|Deferred compensation
        recognized in
              connection with the issuance of
              stock options |                      | (3,106,472)                |              |                    |                        
|Exercise of stock options                                                                                             |                      |                           |              |                    | 23                      
|Amortization of deferred
        compensation                                                                         |                      | 2,127,962                  |              |                    | 2,127,962               
|Sales of stock by equity
        investee                                                                             |                      |                           |              |                    | 1,323,792               
|Net loss for 2000                                                                                                     |                      |                           | (11,451,281)  |                    | (11,451,281)            
|                                                                                                                      |                      
|Balance at December 31, 2000                                                                                          |                      | (978,510)                  | (23,414,113)  |                    | (4,653,812)             
|Recapitalization resulting from
        the
              Summus, Ltd. asset acquisition                              |                      |                           |              | (227,619)           | (1,938,245)             
|Elimination of deferred revenue
             
        resulting from recapitalization                                 |                      |                           |              |                    | 1,834,065               
|Common stock options granted
        for
              services                                                       |                      |                           |              |                    | 936,409                 
|Common stock and warrants sold
        for
              cash                                                         | (100,000)             |                           |              |                    | 6,371,912               
|Preferred stock dividends                                                                                             |                      |                           | (153,700)     |                    | (153,700)               
|Common stock issued in partial
             
        settlement of loss contingency                                   |                      |                           |              |                    | 419,986                 
|Deferred compensation
        recognized in
              connection with the issuance of
              stock options |                      | (355,000)                  |              |                    |                        
|Reversal of deferred
        compensation of
              forfeited stock options                                    |                      | 551,897                    |              |                    |                        
|Amortization of deferred
        compensation                                                                         |                      | 247,157                    |              |                    | 247,157                 
|Common stock issued in
        settlement of
              amounts due to related parties                             |                      |                           |              |                    | 435,815                 
|Common stock and warrants
        issued in
              partial settlement of vendor
              liabilities      |                      |                           |              |                    | 1,504,206               
|Stock option exercises                                                                                                |                      |                           |              |                    | 2,521                   
|Cash collection on stock
        subscription
              receivable                                                | 25,000                |                           |              |                    | 25,000                  
|Net loss for 2001                                                                                                     |                      |                           | (10,739,809)  |                    | (10,739,809)            
|                                                                                                                      |                      
|Balance at December 31, 2001                                                                                          | $(75,000)             | $   (534,456)              | $(34,307,622) | $(227,619)          | $(5,708,495)            
|                                                                                                                      |                      

See accompanying notes.

F-7

---



Summus, Inc. (USA)

Consolidated
  Statements of Cash Flows

|                                                                                                                      | Year ended
        December 31
|--------------------------------------------------------------------------------------------------------------------- | ------------------------------
|                                                                                                                      | 2001                          
|                                                                                                                      |                               
|                                                                                                                      |                               
|Operating activities                                                                                                  |                               
|Loss from continuing operations                                                                                       | $(10,388,511)                 
|Adjustments to reconcile loss
        from continuing operations to net cash
           used in operating activities: |                               
|Loss on disposal of assets                                                                                            |                              
|Depreciation and amortization                                                                                         | 439,027                       
|Gain on sale of stock of equity
        investee                                                                      |                              
|Participation in loss of equity
        investee                                                                      |                              
|Non cash compensation                                                                                                 | 956,321                       
|Common stock issued for
        services                                                                              | 61,425                        
|Noncash settlements                                                                                                   | 1,132,352                     
|Changes in operating assets and
        liabilities, net of Summus, Ltd.
            asset acquisition:               |                               
|Accounts receivable                                                                                                   | (66,607)                      
|Receivable from related party                                                                                         |                              
|Other current assets                                                                                                  | (66,657)                      
|Accounts payable and accrued
        expenses                                                                         | 1,292,461                     
|Accrued salaries and related
        costs                                                                            | (119,837)                     
|Deferred software royalty
        revenue                                                                             |                              
|                                                                                                                      |                               
|Net cash used in operating
        activities from continuing operations                                              | (6,760,026)                   
|Net cash used in discontinued
        operations                                                                      | (30,455)                      
|                                                                                                                      |                               
|Net cash used in operating
        activities                                                                         | (6,790,481)                   
|                                                                                                                      |                               
|Investing activities                                                                                                  |                               
|Proceeds from deferred revenue
        collected                                                                      |                              
|Proceeds from sale of stock of
        equity investee                                                                |                              
|Purchases of computer equipment                                                                                       | (7,480)                       
|Cash acquired from the
        acquisition of assets from Summus, Ltd.                                                | 43,918                        
|                                                                                                                      |                               
|Net cash provided by investing
        activities                                                                     | 36,438                        
|                                                                                                                      |                               
|Financing activities                                                                                                  |                               
|Proceeds from exercise of stock
        options                                                                       | 2,521                         
|Net proceeds from sale of
        common stock                                                                        | 6,396,912                     
|Principal payments on capital
        lease obligations                                                               | (202,913)                     
|Principal payments on notes
        payable and short-term borrowings                                                 |                              
|Cash payment on loss
        contingency                                                                              | (75,000)                      
|Increase in notes payable                                                                                             |                              
|Proceeds from loans payable to
        related party                                                                  | 540,000                       
|                                                                                                                      |                               
|Net cash provided by financing
        activities                                                                     | 6,661,520                     
|                                                                                                                      |                               
|Net (decrease) increase in cash                                                                                       | (92,523)                      
|Cash at beginning of year                                                                                             | 208,495                       
|                                                                                                                      |                               
|Cash at end of year                                                                                                   | $    
        115,972         
|                                                                                                                      |                               

F-8

---



Summus, Inc. (USA)

Consolidated
  Statements of Cash Flows (continued)



|                                                                                                          |                         |                            |                      
|--------------------------------------------------------------------------------------------------------- | ----------------------- | -------------------------- | ---------------------
|                                                                                                          | 2001                    | 2000                       | 1999                 
|                                                                                                          |                        
|Supplemental disclosures of
        cash flow information                                                 |                         |                            |                      
|Cash paid for interest                                                                                    | $    
        31,101    | $             
           | $      21,792        
|                                                                                                          |                         |                            |                      
|Non-cash investing and
        financing activities                                                       |                         |                            |                      
|Assets acquired under capital
        leases                                                              | $            
         | $     
        322,890     | $     351,241        
|                                                                                                          |                        
|Acquisition of common stock of
        equity investee in exchange
           for royalty
        payment | $            
         | $               
         | $    
        750,000
|                                                                                                          |                        

















See accompanying notes.





F-9

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements

December 31, 2001



1. Business, Organization and
  Basis of Presentation

Business

Summus, Inc. (USA) (Summus,
  Inc. or the Company), formerly known as High Speed Net
  Solutions, is engaged in development of efficient information processing
  solutions for the mobile and wireless markets. In addition, Summus, Inc. also
  engages in research and development contracts for governmental agencies in the
  areas of complex imaging and object recognition as well as the licensing to
  third parties its Photo ID compression and decompression technology.

The core of the Company's business
  plan is to focus on the emerging wireless and mobile market. Summus, Inc. has
  developed proprietary software, technology and applications to enable
  information processing and resource management to include, but not limited to,
  the creation, transmission, playing and management of content over wireless
  networks. The Company's technology platform, which provides the foundation for
  its current and future products and services, is designed to address the
  bandwidth constraints of existing wireless network infrastructure. This will
  enable mobile, high-speed access to a wide range of telecommunications
  services supported by fixed telecommunications networks and other services to
  mobile users. The Company's plans to launch its first application in this
  market during the first half of 2002.

Organization

On February 16, 2001, High Speed Net
  Solutions, Inc. (High Speed) and Summus, Ltd. entered into a contract
  whereby, in legal form, High Speed acquired all the assets of Summus, Ltd.
  Although the legal form of the transaction was an acquisition of assets, in
  substance the transaction represented a Summus, Ltd. capital transaction
  accompanied by a recapitalization. Since the Summus, Ltd. shareholders were
  the majority owners of the entity after this transaction was completed, the
  transaction was accounted for as an issuance of stock by Summus, Ltd. in
  exchange for the net monetary assets of High Speed accompanied by a
  recapitalization of Summus, Ltd. The accounting for the transaction is
  essentially equivalent to that resulting from a reverse acquisition, except
  that no goodwill or other intangible assets are recorded.

F-10

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



1. Business, Organization and
  Basis of Presentation (continued)

Prior to this recapitalization
  transaction, High Speed was a publicly-traded entity and Summus, Ltd. was a
  privately-held company. Since the legal form of the transaction was an
  acquisition of Summus, Ltd. by High Speed, the legal entity, which represented
  the combined, recapitalized Summus, Ltd., continued to use the High Speed
  trade name and its stock continued to trade in the public markets under the
  High Speed name.

On February 27, 2002, the Company
  officially changed its legal name from High Speed Net Solutions, Inc. to
  Summus, Inc. (USA). Therefore, the financial statements presented herein and
  labeled as the financial statements of Summus, Inc. (USA) represent the
  historical financial statements of Summus, Ltd., now renamed Summus, Inc.
  (USA) and also referred to herein as the Company. References herein to
  High Speed refer to High Speed Net Solutions prior to the February 16,
  2001 recapitalization transaction.

During 1998, shareholders of Summus,
  Ltd. formed Summus Technologies, Inc. (Summus Technologies). Summus
  Technologies was formed for the purpose of marketing Summus, Ltd.s
  products. In August 1999, Summus Ltd. and Summus Technologies merged,
  resulting in Summus, Ltd. being the surviving entity.

The acquisition of Summus
  Technologies was accounted for in a manner similar to a pooling of interests
  since it was acquired from an entity under common control. Approximately
  999,500 shares of common stock of Summus, Ltd. were issued to the shareholders
  of Summus Technologies in exchange for the net assets of Summus Technologies.

Basis of Presentation

The accompanying financial statements
  have been prepared on a going concern basis, which contemplates the
  realization of assets and the satisfaction of liabilities in the normal course
  of business. As shown in the financial statements for the year ended December
  31, 2001, the Company has incurred a net loss of $10.7 million, has
  experienced negative cash flows from operations and has a significant
  deficiency in working capital at December 31, 2001. The Companys
  continuation as a going concern is dependent on its ability to generate
  sufficient cash flow to meet its obligations on a timely basis, to obtain
  additional financing and ultimately to attain profitability. The Company is
  actively promoting and expanding its product line and pursuing additional
  financing from third parties. Management expects to be able to attract
  additional capital to continue to fund operations and also expects that
  increased revenues will reduce its operating losses in future periods.
  However, there can be no assurance that managements plan will be executed
  as anticipated.

F-11

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



1. Business, Organization and
  Basis of Presentation (continued)

The financial statements presented
  herein do not include any adjustments relating to the recoverability of assets
  and classification of liabilities that might be necessary should the Company
  be unable to continue as a going concern.

2.  Recapitalization

As previously noted, on February 16,
  2001, High Speed and Summus, Ltd. entered
  into a merger transaction. The transaction was accounted for as a Summus, Ltd.
  capital transaction, accompanied by a recapitalization.

As a result of the transaction, the
  historical financial statements of Summus, Ltd., for accounting purposes, are
  deemed to be those of the Company. The equity accounts of Summus, Ltd. have
  been adjusted for a recapitalization to reflect the equity structure of High
  Speed, the legal acquirer. Specifically:

- the historical
  shareholders' equity of Summus, Ltd. prior to the transaction has been
  restated for the equivalent number of shares of High Speed common and Series B
  preferred stock, and other equity interests, received in the transaction after
  giving effect to any difference in par value of High Speeds and Summus,
  Ltd.'s common stock, with an offset to additional paid-in capital;
- the accumulated
  deficit of Summus, Ltd. has been carried forward after the transaction;
- loss per share for
  periods prior to the transaction have been restated to reflect the number of
  equivalent shares received by Summus, Ltd. in the transaction; and
- the transaction
  resulted in the net issuance of 23.4 million shares of common stock, 2,000
  shares each of Series A and Series B preferred stock and warrants to purchase
  500 shares of Series B preferred stock.



F-12

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



2.  Recapitalization
  (continued)

In connection with the transaction,
  the Company entered into a three-year employment agreement with Dr. Bjorn
  Jawerth. Under this employment agreement, in exchange for Dr. Jawerth's
  covenant not to compete with the Company for a period of 18 months from and
  after the termination of his employment with the Company, the Company issued
  options to Dr. Jawerth to purchase 166,667 shares of common stock at $0.50 per
  share and 333,333 shares of common stock at $3.75 per share. Non-cash
  compensation expense of $541,688 was recorded upon the issuance of these
  options on February 16, 2001, the closing date of the transaction. The
  issuance of these options was in lieu of a $500,000 cash payment provided for
  in Dr. Jawerth's employment agreement.

Under the terms of the
  recapitalization transaction, Summus, Inc. agreed to use reasonable commercial
  efforts to assist Dr. Jawerth in the private sale of up to 1,666,667 shares of
  Summus, Inc. common stock held by Dr. Jawerth at a per share price of not less
  than $1.50 per share (representing $2.5 million in value). The
  recapitalization does not stipulate a date or time period by which such sale
  is to occur. Under the terms of Dr. Jawerth's employment agreement, the
  Company is obligated to issue to Dr. Jawerth options, with an exercise price
  of $1.50 per share, exercisable for three times the number of shares of common
  stock sold in the private sale. The options will be exercisable during the
  second through the fifth year after the options are issued. Non-cash
  compensation will be recorded upon the issuance of these options. The non-cash
  compensation will be determined under the provisions of APB 25, pursuant to
  which the compensation cost will be based on the difference between the stock
  option exercise price of $1.50 per share and the traded value of the Summus,
  Inc. common stock on the date the options are issued.

The employment agreement provides
  that Dr. Jawerth is to receive a base salary of $350,000 (which is subject to
  an annual increase of at least 10%) plus other benefits including severance
  benefits.



F-13

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



3. Summary of Significant
  Accounting Policies

#### Principles of Consolidation

The consolidated financial statements
  include the accounts of the Company and its former wholly owned subsidiary,
  Douglas May & Company, Inc. Significant intercompany accounts and
  transactions have been eliminated in consolidation.  The results of
  operations of Douglas May & Company, Inc. have been presented as
  discontinued operations for the year ended December 31, 2001.

Estimates

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

Revenue Recognition and Related
  Costs

The Company recognizes revenue on
  time and materials consulting projects, which are primarily for the U.S.
  government, at the time services are rendered based upon the terms of
  individual contracts.

The Company follows the provisions of
  AICPA Statement of Position 97-2, Software Revenue Recognition,
  as amended by AICPA Statement of Position 98-9 Modification of SOP No.
  97-2 Software Revenue Recognition with Respect to Certain Transactions.

Revenue from software license fees is
  generally recognized upon delivery provided that a contract has been executed,
  the vendor fee is fixed or determinable, no significant vendor obligations or
  uncertainties surrounding customer acceptance remain, and collection of the
  resulting receivable is deemed probable.

F-14

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



3. Summary of Significant
  Accounting Policies (continued)

Deferred revenue is recorded for
  amounts received for which the Company has not yet completed its contractual
  obligations.

Costs of revenues primarily represent
  costs of providing contract services.  The costs of license fee revenue
  are not separately maintained and have historically been insignificant.

Segments

Management has structured the
  Company's internal organization as one business segment from which all
  operating decisions and operating results are made and evaluated.

Equipment and Furniture

Equipment and furniture is stated at
  cost. Depreciation is computed over the estimated useful lives of the assets
  (generally three to seven years) using the straight-line method. Amortization
  of capital lease assets is included in depreciation expense.

Investment in Equity Investee

During 1999, Summus, Ltd. acquired a
  majority of the outstanding stock of High Speed. Soon thereafter, Summus, Ltd.
  began to sell a portion of the High Speed shares it had acquired to
  independent third parties for cash such that by December 31, 1999, the
  ownership percentage in High Speed was reduced to approximately 44%. Since
  Summus, Ltd.'s controlling interest in High Speed was temporary, Summus, Ltd.
  accounted for its investment using the equity method of accounting rather than
  consolidating High Speed in the Summus, Ltd. accounts. Summus, Ltd. sold
  additional shares of its High Speed stock in 2000 such that its ownership
  percentage at December 31, 2000 was approximately 33%. Upon the closing of the
  recapitalization transaction on February 16, 2001, Summus, Ltd.s investment
  in High Speed was cancelled.



F-15

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



3. Summary of Significant
  Accounting Policies (continued)

Financial Instruments and
  Significant Concentrations

The Companys financial instruments
  that are exposed to concentrations of credit risk consist primarily of its
  trade accounts receivable. Collateral is generally not required. Management
  provides an estimated allowance for doubtful accounts based on its assessment
  of the likelihood of future collections. No allowance has been recorded as of
  December 31, 2001, as all amounts were subsequently collected.

The carrying amount of cash, accounts
  receivable, accounts payable and debt approximate fair value for these
  financial instruments.

During 2001, 2000 and 1999, revenue
  from the U.S. Government and related entities represented 67%, 60% and 76% of
  total revenue, respectively.

Software Development Costs

Capitalization of software
  development costs begins with the establishment of technological feasibility
  of new or enhanced software products. Technological feasibility of a computer
  software product is established when the Company has completed all planning,
  designing, coding and testing that is necessary to establish that the software
  product can be produced to meet design specifications including functions,
  features and technical performance requirements. All costs incurred prior to
  establishing technological feasibility of a software product are charged to
  research and development expense as incurred.

The Company amortizes capitalized
  software development costs on a product-by-product basis at the greater of the
  amount computed using (a) the ratio of current gross revenues for a product to
  the total of current and anticipated future gross revenues or (b) the
  straight-line method over the estimated remaining economic life of the
  products, generally three years. Amortization begins when the product is
  available for general release to customers. The Company capitalized $337,451
  during 2001 of costs incurred related to product development that met these
  criteria for capitalization.

F-16

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



3. Summary of Significant
  Accounting Policies (continued)

During the fourth quarter of 2001,
  the Company wrote off the $337,451 of software costs that were capitalized
  during the second and third quarters of 2001. During the fourth quarter of
  2001, management changed its business model and its intended use of its
  software products and related technology.  Based on an evaluation of the
  change in the business model and the associated projected cash flows,
  management determined that the software costs capitalized during 2001 were
  impaired and wrote the amount off as research and development costs.

Income Taxes

Income taxes are accounted for using
  the liability method in accordance with Statement of Financial Accounting
  Standards (SFAS) No. 109, Accounting for Income
  Taxes. Under SFAS 109, deferred tax assets or liabilities are
  computed based upon the difference between the financial statement and income
  tax basis of assets and liabilities using the enacted marginal tax rate
  applicable when the related asset or liability is expected to be realized or
  settled. Deferred income tax expenses or benefits are based on the changes in
  the asset or liability from period to period. If available evidence suggests
  that it is more likely than not that some portion or all of the deferred tax
  assets will not be realized, a valuation allowance is required to reduce the
  deferred tax assets to the amount that is more likely than not to be realized.
  Future changes in such valuation allowance would be included in the provision
  for deferred income taxes in the period of change.

Stock-Based Compensation

The Company has adopted the
  disclosure-only provisions of Statement of Financial Accounting Standards
  (SFAS) No. 123, Accounting for Stock-Based
  Compensation. As permitted by the provisions of SFAS No. 123, the
  Company continues to follow Accounting Principles Board (APB)
  Opinion No. 25, Accounting for Stock Issued to Employees
  and related interpretations for its stock-based awards.

In accordance with APB 25, the
  Company has valued employee stock awards and stock issued to employees for
  services performed based on the traded value of the Company's common stock at
  the measurement date of the stock options and awards.



F-17

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



3. Summary of Significant
  Accounting Policies (continued)

Non-cash compensation related to the
  issuance of fully-vested stock options with exercise prices below the fair
  market value of the underlying stock plus the amortization of deferred
  compensation arising from stock option issuances subject to vesting totaled
  $956,321, $2,127,962 and $2,670,050 in 2001, 2000 and 1999, respectively.

The Company accounts for stock-based
  amounts issued to non-employees of the Company, primarily consultants, at fair
  value in accordance with the provisions of SFAS No. 123.

Loss Per Share

Loss per share has been calculated in
  accordance with Statement of Financial Accounting Standards (SFAS)
  No. 128, Earnings Per Share. Basic loss per share was
  computed by dividing the net loss for each period presented by the weighted
  average number of shares of common stock outstanding for such period, as
  adjusted for the recapitalization. Although the Company has potential common
  stock equivalents related to its outstanding stock options, warrants and
  preferred stock, these potential common stock equivalents were not included in
  diluted loss per share for each period presented because the effect would have
  been antidilutive.

Common stock equivalents not included
  in diluted loss per share consist of 5,132,142 outstanding stock options;
  9,654,456 outstanding warrants, 162,228 Series A preferred shares and related
  accrued dividends, as converted; and 6,000,000 Series B preferred shares, as
  converted.



F-18

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



3. Summary of Significant
  Accounting Policies (continued)

New Accounting Pronouncements

On September 29, 2001, the Financial
  Accounting Standards Board (FASB) unanimously approved the
  issuance of Statements of Financial Accounting Standards (SFAS)
  No. 141, Business Combinations and No. 142, Goodwill
  and Other Intangible Assets, SFAS 141 eliminates the
  pooling-of-interests method of accounting for business combinations except for
  qualifying business combinations that were initiated prior to July 1, 2001.
  SFAS 141 also includes new criteria to recognize intangible assets separately
  from goodwill. The requirements of SFAS 141 are effective for any business
  combination accounted for by the purchase method that is completed after June
  30, 2001. Under SFAS 142, goodwill and intangible assets with indefinite lives
  are no longer amortized but are reviewed annually, or more frequently if
  impairment indicators arise, for impairment. Separable intangible assets that
  are not deemed to have an indefinite life will continue to be amortized over
  their useful lives. The amortization provisions of SFAS 142 requiring
  non-amortization of goodwill and indefinite-lived intangible assets apply to
  goodwill and indefinite-lived intangible assets acquired after June 30, 2001.
  The Company adopted SFAS 142 as of January 1, 2002. The effect of adopting
  SFAS 142 by the Company beginning January 1, 2002 is not expected to have a
  significant effect on the operating results or financial position of the
  Company.

In August 2001, the Financial
  Accounting Standards Board (FASB) issued Statement of Financial
  Accounting Standards No. 144, Accounting for the Impairment or Disposal
  of Long-Lived Assets, effective for years beginning after December 15,
  2001. This Statement addresses financial accounting and reporting for the
  impairment or disposal of long-lived assets and supersedes Statement No. 121,
  Accounting for the Impairment of Long-Lived Assets and for Long-Lived
  Assets to be Disposed Of,and the accounting and reporting provisions of
  APB Opinion No. 30, Reporting the Results of Operations for a Disposal
  of a Segment of a Business. The Company adopted Statement No. 144 as of
  January 1, 2002, and the Company does not expect this adoption to have a
  significant effect on the operating results or financial position of the
  Company.

Reclassifications

Certain reclassifications have been
  made to the 1999 and 2000 consolidated financial statements to conform to the
  2001 presentation. These reclassifications had no effect on net loss or
  shareholders equity as previously reported.

F-19

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



4. Equipment and Furniture

Equipment and furniture consists of
  the following at December 31:

|                                                      | 2001          | 2000      
|----------------------------------------------------- | ------------- | ----------
|                                                      |              
|                                                      |               |           
|Computer equipment financed by
        capital leases | $     802,020 | $  802,020
|Computer software and equipment                       | 633,881       | 407,536   
|Furniture and fixtures                                | 79,881        | 81,845    
|                                                      |              
|                                                      | 1,515,782     | 1,291,401 
|Less accumulated depreciation                         | (738,805)     | (300,199) 
|                                                      |              
|                                                      | $     776,977 | $  991,202
|                                                      |              

Depreciation expense totaled
  $439,027, $274,708 and $45,651 for the years ended December 31, 2001, 2000 and
  1999, respectively.

5. Leases

The Company leases equipment and
  office space under long-term capital and operating lease agreements. Rental
  expense amounted to $498,000, $424,000, and $180,000 for the years ended
  December 31, 2001, 2000 and 1999, respectively.

Minimum future lease payments at
  December 31, 2001 are as follows:

|                                                | Capital
        Leases | Operating
        Leases
|----------------------------------------------- | ---------------------- | ------------------------
|                                                |                       
|                                                |                        |                         
|2002                                            | $    
        238,129  | $    
        378,731   
|2003                                            | 69,426                 | 347,207                 
|2004                                            |                       | 310,983                 
|2005                                            |                       | 260,700                 
|                                                |                       
|Total minimum lease payments                    | 307,555                | $  1,297,621            
|Less amounts representing
        interest      | (19,047)               |                         
|                                                |                        |                         
|Present value of minimum lease
        payments | 288,508                |                         
|Less current portion                            | (221,197)              |                         
|                                                |                        |                         
|                                                | $     67,311           |                         
|                                                |                        |                         

F-20

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



6. Income Taxes

No provision for income taxes has
  been recorded during the years presented due to the Companys significant
  operating losses in each year.

Deferred income taxes 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 deferred tax
  assets are as follows:

|                             | December 31               
|---------------------------- | --------------------------
|                             | 2001                      
|                             |                           
|                             |                           
|Deferred revenue             | $              
         
|Accrued expenses and revenue | 2,200,000                 
|NOL carryforward             | 11,900,000                
|Start-up costs               | 1,800,000                 
|Investments                  | 1,600,000                 
|                             |                           
|Total deferred tax assets    | 17,500,000                
|Valuation allowance          | (17,500,000)              
|                             |                           
|Net deferred taxes           | $               
        
|                             |                           

Management has determined that a 100%
  valuation allowance for existing deferred tax assets is appropriate given the
  uncertainty regarding the ultimate realization of any such assets.

At December 31, 2001, the Company had
  federal and state net operating loss carryforwards of approximately $30.0
  million for income tax purposes. The tax benefit of these carryforwards is
  reflected in the above table of deferred tax assets. If not used, these
  carryforwards begin to expire in 2018 for federal tax purposes and in 2013 for
  state tax purposes. U. S. tax rules impose limitations on the use of net
  operating losses following certain changes in ownership. If such a change
  occurs, the limitation could reduce the amount of these benefits that would be
  available to offset future taxable income each year, starting with the year of
  ownership change.



F-21

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



7. Related Party Transactions

In February 1999, Summus, Ltd.
  entered into a Marketing License Agreement with High Speed.  In March
  2000, Summus, Ltd. entered into several agreements with High Speed (see Note
  10).

During 1999, Summus, Ltd. provided
  cash advances to High Speed, its equity investee. The balance outstanding
  related to these advances as of December 31, 2000 and 1999 was $134,677
  and $154,000, respectively. These balances were canceled upon the closing of
  the Summus, Ltd. recapitalization on February 16, 2001 (see Note 2).

During 2001 and 2000, High Speed made
  loans to Summus, Ltd. totaling $540,000 and $1,435,000. These loans accrued
  interest at 8% and were payable within 60 days of issuance. These loans were
  canceled upon the closing of the Summus, Ltd. recapitalization on
  February 16, 2001 (see Note 2).

8. Notes Payable

During 1999, the Company entered into
  an agreement with a shareholder to repurchase 1,533 shares of its common stock
  from that shareholder for an aggregate value of $268,373, of which $268,075
  represented a termination fee for a development contract and $298 represented
  the fair value of the shares repurchased. In connection with this agreement,
  the Company entered into a promissory note with the shareholder whereby the
  Company agreed to pay approximately $10,000 per month over a 27-month period
  to fund this transaction. During 2000, the Company did not make all required
  monthly installments and thus defaulted on the promissory note. Consequently,
  the note is accruing interest at 18% per annum and the total amount has been
  classified as a current liability. The outstanding balance, including accrued
  interest, as of December 31, 2001 and 2000 is $171,613 and $145,112,
  respectively.

On September 4, 2000, the Company
  entered into an agreement to obtain the rights to certain software technology.
  In exchange for these rights, the Company agreed to pay $200,000 in eight
  equal installments of $25,000 beginning in 2001 and continuing over the next
  two years. During 2001, the Company did not make any of the scheduled
  payments.  The first installment of $25,000 was paid in March 2002. The
  outstanding principal balance of this note as of December 31, 2001 and 2000
  was $200,000. Since this amount is in default, the total outstanding balance
  is included as a current liability.

F-22

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



9. Investment in Equity Investee

During 1999, Summus, Ltd. acquired
  1,500,000 shares of common stock of High Speed as partial payment for
  royalties due in connection with a Marketing License Agreement between the
  companies. The shares were not registered with the Securities and Exchange
  Commission and were, thus, restricted securities within the
  meaning of Rule 144 under the Securities Act of 1933. Subsequently, Summus,
  Ltd. acquired an additional 9,542,360 shares of High Speed common stock (such
  shares also being restricted securities) from a significant shareholder of
  High Speed in exchange for the issuance of 132,888 shares of Summus, Ltd.s
  common stock. This resulted in Summus, Ltd. obtaining a majority ownership
  interest in High Speed at that time. As of December 31, 1999 and 2000, Summus,
  Ltd.s ownership percentage decreased to approximately 44% and 33%,
  respectively, as a portion of the shares initially acquired were sold. Summus,
  Ltd. accounted for this investment using the equity method of accounting. The
  initial carrying amount was recorded at the estimated fair value of the stock
  received taking into account the fact that the stock was not registered and
  thus was not freely tradable. Summus, Ltd. adjusted the carrying amount of its
  investment in High Speed for its share of High Speeds losses subsequent to
  the date of investment. Additionally, during 1999 and 2000, Summus, Ltd.s
  investment in High Speed was increased based on sales of additional shares of
  High Speed stock to third parties by High Speed and was decreased based on
  Summus, Ltd. recording its share of High Speeds losses. Based on these
  transactions, the carrying value of Summus, Ltd.s investment was reduced to
  zero at December 31, 2000. At December 31, 2000, Summus, Ltd. owned 8,217,781
  shares of High Speed which represented an approximate 33% ownership
  percentage. On February 16, 2001, Summus, Ltd. sold substantially all of its
  assets to High Speed in a transaction accounted for as a capital transaction,
  accompanied by a recapitalization. (See Note 2).

The condensed results of operations
  and financial position of High Speed at December 31, 2000 and 1999 are
  summarized below:

|                                             | December 31            
|-------------------------------------------- | -----------------------
|                                             | 2000                   
|                                             |                        
|                                             |                        
|Total assets                                 | $    
        4,497,607
|                                             |                        
|Total liabilities                            | $     4,849,259        
|                                             |                        
|Total stockholders equity
        (deficit) | $    
        (351,652)
|                                             |                        
|Net loss                                     | $(12,441,655)          
|                                             |                        



F-23

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



10. Deferred Software Royalty
  Revenue

In February 1999, Summus, Ltd.
  entered into a Marketing License Agreement (MLA) with High Speed.
  In consideration for its grant to High Speed of the right to resell certain
  stand-alone software products specified in the MLA over the three-year term of
  the agreement, Summus, Ltd. received prepaid software royalty payments in the
  aggregate amount of $3,000,000, consisting of cash payments of $2,250,000 and
  1,500,000 shares of High Speed common stock valued at $750,000. The value
  assigned to the 1,500,000 common shares was based on a discounted value of
  High Speeds common stock taking into consideration the restricted nature of
  these shares. This amount was classified as deferred revenue in Summus, Ltd.s
  balance sheet.

In mid-February 2000, Summus, Ltd.
  and High Speed entered into several agreements (i.e., a master agreement,
  software license agreement, software maintenance agreement, revenue sharing
  agreement and software escrow agreement) that superseded the MLA in its
  entirety. Under these agreements, Summus, Ltd. granted to High Speed a
  non-exclusive license to use a suite of software products referred to as
  MaxxSystem. The terms of the software license agreement provided
  for High Speeds payment of a one-time license fee of $1 million (against
  which High Speed received a credit of $1 million, under the terms of the
  master agreement, in recognition of payments High Speed had made under the
  MLA), and a revenue-based fee of the greater of (i) 10% of the gross revenues
  generated by High Speed with MaxxSystem, or (ii) $.03 multiplied by the number
  of rich media messages delivered to recipients (against which High Speed also
  received a credit of $1 million, under the terms of the master agreement, in
  recognition of payments made under the MLA). High Speed received an additional
  credit of approximately $200,000 for other fees due Summus, Ltd. under the
  software license agreement and/or the software maintenance agreement.

The payments received by Summus, Ltd.
  under the MLA, in the aggregate amount of $3 million, were credited against
  the capitalized software development costs of the software covered by the MLA
  and the software license agreement. Summus, Ltd. applied $658,332 and $507,604
  of its deferred revenue balance against such costs during 2000 and 1999,
  respectively.



F-24

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



10. Deferred Software Royalty
  Revenue (continued)

On February 16, 2001, High Speed
  acquired all the assets and operations of Summus, Ltd. in a transaction
  accounted for as a recapitalization of Summus, Ltd. (see Note 2). As of the
  closing date of the transaction, Summus, Ltd. had not delivered to High Speed
  all of the MaxxSystem suite of software products specified in the software
  license agreement and, therefore, was not able to recognize any revenue
  associated with such agreement. Upon the closing of the transaction, the
  agreements between Summus, Ltd. and High Speed entered into in mid-February
  2000 were made null and void. As a result, the deferred revenue associated
  with the mid-February 2000 agreements was reclassified to additional paid-in
  capital as of the closing of the recapitalization.

11. Profit Sharing Plan

The Company has established a 401(k)
  retirement plan for the benefit of employees who have attained the age of 21
  years. The Companys matching contribution to the plan is discretionary and
  is not limited to profits. For the years ended December 31, 2001, 2000, and
  1999, the Company contributed $37,176, $42,303, and $26,000 to the Plan,
  respectively.

12. Common Stock and Warrants

Subsequent to the Companys
  recapitalization in 2001 (see Note 2), Summus, Inc. sold to investors
  2,978,390 shares of its unregistered common stock and warrants to purchase an
  additional 6,175,658 shares of common stock for gross cash proceeds of
  $6,371,912. During 2000 and through the closing of the Summus, Ltd.
  recapitalization transaction on February 16, 2001, the Company issued
  1,997,564 and 428,234 warrants, respectively, to purchase shares of its
  unregistered common stock in connection with sales of its unregistered common
  stock for cash. The warrants have exercise prices ranging from $2.40 to $5.25
  per share, a term of five years and cannot be exercised within five months of
  the date of issuance.

Also in connection with Summus, Ltd.recapitalization
  transaction, the former Summus, Ltd. shareholders were issued warrants to
  purchase 500 shares of Series B preferred stock. On February 27, 2002, these
  warrants were converted into 500,000 warrants exercisable over five years to
  purchase shares of common stock, with an exercise price of $5.50 per share.

F-25

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



12. Common Stock and Warrants
  (continued)

The Company has reserved shares of
  its authorized 100,000,000 shares of common stock for future issuance as
  follows:

|Series A convertible preferred
        stock and related dividends | 162,228   
|------------------------------------------------------------------ | ----------
|Series B convertible preferred
        stock                       | 6,000,000 
|Outstanding common stock
        warrants                          | 9,654,456 
|Outstanding stock options                                          | 5,132,142 
|Possible future issuance under
        stock option plans          | 1,367,858 
|                                                                   |           
|Total                                                              | 22,316,684
|                                                                   |           

13. Preferred Stock

Series A Preferred Stock

The Company has 2,000 shares of
  Series A preferred stock outstanding at December 31, 2001, all of which were
  issued on February 28, 2000. The holders of the Series A preferred stock are
  entitled to receive cumulative cash dividends at a rate of 8% per annum of the
  initial liquidation preference of $1,000 per share (the Liquidation
  Preference). The Company, at its election, can provide for the payment
  of dividends on the Series A preferred stock through the issuance of
  additional shares of Series A preferred stock having an aggregate initial
  liquidation preference equal to the amount of cash dividends otherwise
  payable. Dividends are cumulative from the date of issuance and are payable,
  when, as and if declared by the Board of Directors, on March 31 and
  September 30 of each year, commencing on September 30, 2000. Preferred stock
  dividends of $76.85 per share were recorded by the Company in 2001. As of
  December 31, 2001 cumulative dividends accrued were $310,120.

The holders of the outstanding shares
  of Series A preferred stock are not entitled to vote on matters submitted to
  the Companys shareholders for voting. However, approval of holders of a
  majority of the outstanding shares of Series A preferred stock is required
  prior to the issuance of a new series of preferred stock that ranks senior to
  the Series A preferred stock.

Each share of the Series A preferred
  stock is convertible at the option of the holder, at any time after the date
  of issuance, into shares of common stock equal to the Liquidation Preference
  divided by the initial conversion price of $14.24. The conversion price is
  subject to adjustment in accordance with the Companys articles of
  incorporation.



F-26

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



13. Preferred Stock (continued)

Series B Preferred Stock

During February 2001, the Company
  amended its bylaws to provide for the authorization of 6,500 shares of Series
  B preferred stock. The Company issued 6,000 shares of Series B preferred stock
  (2,000 of which were placed in escrow, see Note 18) in connection with the
  Summus, Ltd. recapitalization. 4,000 of these shares were issued to the former
  Summus, Ltd. shareholders in the first quarter of 2002.

The rights, preferences and
  privileges associated with the Series B stock, upon issuance, were as follows:

- Each share was
  automatically convertible into 1,000 shares of common stock, subject to
  adjustment for stock dividends, stock splits and the like, upon the Companys
  charter being amended to increase the number of authorized shares of common
  stock to at least 60 million shares. Until that occurred, the Series B
  preferred stock was not convertible. Under the terms of the recapitalization
  transaction of Summus, Ltd., the Company was required to seek shareholder
  approval to amend its charter to increase the number of authorized shares of
  common stock so that there would be sufficient shares of common stock
  available and reserved for issuance upon conversion of the Series B preferred
  stock.
- The Series B
  preferred stock is entitled to receive dividends and participate in
  distributions upon liquidation, pro rata, with the common stock on an
  as-converted basis.
- The Series B
  preferred stock is to vote equally with the common stock on an as-converted
  basis.

The above rights applied even if
  there were insufficient authorized shares of common stock to permit conversion
  of the shares of Series B preferred stock. There were no other preferences or
  privileges associated with the Series B preferred stock.

On February 27, 2002, the Company
  obtained shareholder approval of an increase in the number of authorized
  shares of common stock from 50.0 million to 100.0 million which automatically
  triggered the conversion of the outstanding Series B preferred shares (see
  Note 18).

F-27

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



14. Stock Options

During 2000, the Company established
  a stock option plan to provide for the issuance of stock options to employees
  and directors. Options granted in connection with initial employment with the
  Company vest upon issuance. Options granted in connection with ongoing annual
  grants vest 20% immediately, then 5% each three-month period thereafter over
  the next four years. Each stock option generally has a term of ten years.

During 2000, all of the stock options
  were granted with an exercise price of $0.19 per share. This exercise price
  was below the estimated fair value of the Companys underlying common stock.
  Deferred compensation has been recorded for the difference in value between
  exercise price and the estimated fair value of the underlying common stock and
  is being recognized over the vesting period of the stock options. Non-cash
  compensation relating to these grants was $202,157 and $2,127,962 in 2001 and
  2000, respectively.  Additionally, during 2001, stock options exercisable
  for 615,879 shares of common stock were granted with exercise prices below the
  fair market value of the underlying common stock, resulting in total
  compensation expense of $864,164, of which $110,000 has been deferred at
  December 31, 2001 and will be amortized to non-cash compensation through 2004.
  (Of the $864,164 compensation expense attributable to 2001 option grants,
  $541,688 related to options issued to Dr. Jawerth in connection with the
  recapitalization discussed in Note 2.)

The Companys Board of Directors
  authorized an amendment to Summus, Inc.s Equity Compensation Plan (the Plan)
  in February 2001 to increase the aggregate number of shares of its common
  stock available for issuance of stock awards under the Plan to 6,500,000. The
  Plan provides for the issuance of stock options to employees, directors,
  advisors and consultants of the Company. Options granted generally have a
  ten-year term and vest over three years from the date of grant. Certain of the
  stock options granted under the Plan have been granted pursuant to various
  stock option agreements. Each stock option agreement contains specific terms.

Summus, Ltd. has adopted the
  disclosure-only provisions of Statement of Financial Accounting Standards (SFAS)
  No. 123, Accounting for Stock-Based Compensation.  As
  permitted by the provisions of SFAS No. 123, Summus, Ltd. continues to follow
  Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
  to Employees and related interpretations for its stock-based awards.

F-28

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



14. Stock Options (continued)

A summary of the Companys stock
  option activity is as follows:

> Shares
>       Weighted
>         Average
>         Exercise PriceOutstanding  December 31,
>         1999
>       
>       $         Granted
>       1,664,737
>       0.19Exercised
>       (498,104)
>       0.19Outstanding  December 31,
>         2000
>       1,166,633
>       0.19Issuance of options in
>         accordance with terms of the
>              recapitalization transaction
>       1,942,705
>       3.96Granted
>       2,252,901
>       2.24Forfeited
>       (224,054)
>       (4.83)Exercised
>       (6,043)
>       (0.42)Outstanding  December 31, 2001
>       5,132,142
>       $     2.98

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

|Options
        Outstanding             
|----------------------------------------
|                                        
|Range of
        Exercise
        Prices
|                                        
|                                        
|$    
        .01  1.50                
|2.50  7.50                             
|9.65  18.90                            
|                                        
|                                        
|                                        



|                                         | Options
        Exercisable
|---------------------------------------- | ---------------------------
|                                         |                            
|Range of
        Exercise
        Prices | Number
        Exercisable 
|                                        
|                                         |                            
|$      .01  1.50                        | 1,321,373                  
|2.50  6.85                              | 822,234                    
|                                         |                            
|                                         | 2,143,607                  
|                                         |                            



F-29

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



14. Stock Options (continued)

In accordance with SFAS 123, the fair
  value of each option grant was determined by using the Black-Scholes option
  pricing model with the following weighted average assumptions for the twelve
  month period ended December 31, 2001 and 2000: dividend yield of 0%;
  volatility of 1.789; risk free interest rate of 5.34% and 6.20%, respectively,
  and expected option lives of 5 years. The weighted average grant-date fair
  value of options granted during 2001 was $2.90 per option. Had the
  compensation expense for Summus, Inc.s stock options been determined based
  on the fair value at the date of grant consistent with the provisions of SFAS
  123, Summus, Inc.s net loss and net loss per share would have been $15.2
  million and $0.44 for the twelve months ended December 31, 2001 and $14.6
  million and $1.52 for the twelve months ended December 31, 2000.

15.  Settlements of
  Contractual Disputes and Litigation

In June 2001, the Company entered
  into an agreement of settlement and compromise whereby it issued 250,000
  shares of its restricted common stock in full satisfaction of a $435,815
  payable to entities affiliated with a related party. Under the terms of the
  agreement, the Company agreed to register the resale of the shares issued upon
  the Companys filing of a registration statement under the Securities Act of
  1933.

On June 29, 2001, the Company entered
  into a settlement agreement and voting agreement with William R. Dunavant and
  his counsel. Under the terms of such agreements:

- the Company issued an
  aggregate of 475,000 shares of common stock to Mr. Dunavant and his counsel
  which were valued at $352,688. Such amount was determined by applying a
  discount to the traded value of the Companys stock on the date of the revised
  settlement;
- Mr. Dunavant agreed
  to certain resale restrictions with respect to all but 350,000 shares of
  common stock held by him (an aggregate of 2,275,000 shares), specifically, to
  limit his public resale of such shares to 30,000 shares per calendar month
  until February 15, 2002;
- the Company agreed to
  prepare and proceed diligently to complete and file a registration statement
  with the SEC registering the resale of all of the shares held by Mr. Dunavant,
  his spouse and his counsel, with Mr. Dunavant and his counsel having a right
  to seek an immediate hearing for emergency injunctive relief if such
  registration statement was not filed before July 31, 2001, unless counsel to
  the Company advised the Company (as counsel did) that it was in the best
  interests of the Company and its shareholders to delay the filing of such
  registration statement;

F-30

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



15.  Settlements of
  Contractual Disputes and Litigation (continued)

- Mr. Dunavant, his
  spouse and his counsel agreed, for a two-year period from the date of the
  agreements, to vote the shares held by them in favor of and for the election
  of Board nominees by the Company and to vote such shares in a manner
  consistent with the recommendation of the Board with respect to certain
  extraordinary transactions (such as a tender offer, an exchange offer, merger
  or other business combination); and
- the Company, on the
  one hand, and Mr. Dunavant and his counsel, on the other, executed mutual
  general releases with respect to any and all claims against each other, except
  with respect to the obligations and liabilities under such agreements.

At the meeting of the Companys Board
  of Directors held on July 20, 2001, counsel to the Company advised the Board
  that, in counsels opinion, it was in the best interests of the Company and
  its shareholders to delay the filing of a registration statement with the SEC
  to register the resale of all the shares of common stock held by Mr. Dunavant,
  his spouse and his attorney. Counsels views on this subject took cognizance
  of, among other things, the critical importance to the Company of:

- becoming timely in
  its reporting obligations under the Securities Exchange Act of 1934, as
  amended (at the time the Companys quarterly report on Form 10-Q for the first
  quarter of 2001, to have been filed on or before May 15, 2001, had not yet
  been filed); and
- clearing its Form 10
  at the earliest opportunity possible, since the clearance of the Form 10 was a
  prerequisite to having the Companys common stock made eligible for quotation
  on the OTC Bulletin Board and thereby potentially opening up greater
  opportunities for the Company to raise capital.

The Company and its counsel, in
  accordance with the June 29, 2001 settlement agreement, have kept Mr.
  Dunavant, through his counsel, apprised of the Companys contemplated timing
  with respect to the filing of the registration statement in view of these
  considerations.

On November 2, 2001, the Company
  cleared all comments with respect to its Form 10. Subsequent to clearing the
  comments with the SEC, the Company commenced preparation of a registration
  statement on Form S-1. However, due to financial constraints, the Company has
  not been able to complete this process.  The Company plans to file with
  the SEC a registration statement on Form S-1 once sufficient capital has been
  raised.



F-31

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



15.  Settlements of
  Contractual Disputes and Litigation (continued)

The AIC Litigation

On March 30, 2001, Analysts
  International Corporation (AIC) filed a civil summons and
  complaint in General Court of Justice, District Court Division, County of
  Wake, North Carolina, against High Speed Net Solutions, Inc. The complaint
  alleged that the Company breached certain contracts with AIC, dated December
  9, 1999, February 11, 2000, April 25, 2000, May 9, 2000, and May 23, 2000,
  under which AIC provided the Company with computer programming services. AIC
  requested that the court enter judgment in its favor for $358,426, plus
  pre-judgment interest from September 26, 2000, on certain invoices at the rate
  of 18% per annum, post-judgment interest at the rate of 8% per annum,
  reasonable costs of AIC and other relief the court deems equitable.

The Company and AIC entered into a
  settlement agreement and release, dated August 7, 2001, under which the
  Company has agreed to pay the sum of $358,426, plus interest accruing at the
  rate of 8% per annum from March 31, 2000 (the Indebtedness)
  according to the following payment schedule: (i) $20,000 upon execution of the
  settlement agreement, (ii) $5,000 per month for a period of nine months,
  commencing one month after execution of the settlement agreement, and (iii)
  $10,000 per month thereafter until the balance of the Indebtedness is paid in
  full. At December 31, 2001, the Company is current in its obligations under
  this agreement. The remaining amount due, plus accrued interest, is included
  in accounts payable and accrued expenses in the accompanying balance sheet.
  The Company also executed a consent order in favor of AIC providing for AICs
  entry of a judgment by consent in the amount of the Indebtedness, less any
  payments made under the settlement agreement, in the event the Company
  defaults on its obligations under the settlement agreement.



F-32

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



15.  Settlements of
  Contractual Disputes and Litigation (continued)

The ENELF Litigation

On March 15, 2001, ENELF, LLC filed a
  civil lawsuit in the United States District Court for the Eastern District of
  Texas alleging patent infringement by Microsoft Corporation, Texas
  Instruments, Incorporated Aware, Inc. and the Company. ENELF alleged that
  certain modules of MaxxSystem and PhotoID SDK infringed upon ENELFs U.S.
  Patent Number 4,599,567 entitled Signal Representation Generator.
  ENELF sought to enjoin the Company from making, selling, offering for sale,
  using, or importing its wavelet-based video and image processing technology.
  In addition, ENELF sought an unspecified amount of monetary damages. The
  Company has asserted counterclaims for a declaratory judgment of
  noninfringement, invalidity and unenforceability of the ENELF patent.

On December 12, 2001, the Company and
  ENELF entered into a settlement and release agreement to settle all matters
  raised in the lawsuit filed on March 15, 2001 to avoid further expenditure of
  time and resources relating to further litigation and uncertain outcome
  thereof. Under the terms of the settlement and release agreement, the Company
  issued to ENELF 75,000 shares of the Companys restricted common stock which
  were valued at $80,437.

Settlement of Claims of Van
  Ernst Jakobs N.V.

On August 21, 2001, the Company
  commenced negotiations with Van Ernst Jakobs N.V. (VEJ) regarding
  the settlement of disputed amounts claimed by VEJ.

VEJ asserted a claim for services
  rendered in connection with fund raising activities it coordinated and for
  services as a finder in the Companys recapitalization
  transaction. VEJ asserted that certain amounts were due and payable by the
  Company to VEJ, in the form of cash and equity securities of the Company. The
  Companys management was of the view that payment of any amounts to VEJ
  (beyond consideration previously paid in connection with its capital-raising
  efforts on behalf of the Company, consisting of a cash payment of $100,000 and
  the issuance of 32,501 shares of the Companys common stock) was conditioned
  on VEJ raising additional capital for the Company.



F-33

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



15.  Settlements of
  Contractual Disputes and Litigation (continued)

Upon consultation with the Companys
  outside counsel, the Company was advised of the strengths and weaknesses of
  VEJs claims and the uncertain outcome of potential litigation. After
  considering the facts and circumstances, the Companys management agreed to
  settle the claim (for a significantly lower amount than originally claimed and
  with no disbursement of cash) in order to:

> (1)
>         maintain a good
>   relationship with VEJ, as a shareholder of the Company and as a representative
>   of other significant Company shareholders;(2)
>         further induce VEJ to
>   assist with or participate in future capital raising activities (recognizing
>   that VEJ has been involved in significant capital raising transactions on
>   behalf of the Company that have been critical to the financing of its
>   operations and the Company continues to depend upon sales of its equity
>   securities to finance its operations); and(3)
>         avoid costly
>   litigation in connection with the settlement of the asserted claim.

In October 2001, the Company and VEJ
  reached an agreement in principle, which was then memorialized in a definitive
  settlement agreement and release, which provided for the Companys issuance
  to VEJ:

> (1)
>         80,000 shares of its
>   common stock (in lieu of a cash payment of $143,415);(2)
>         a warrant to purchase
>   250,000 shares of the Companys common stock with an exercise price of $4.00
>   per share, valued using the Black-Scholes option pricing model, at
>   approximately $400,000;(3)
>         a warrant to purchase
>   150,000 of the Companys common stock
>   with an exercise price of 2.50 per share, valued, using the Black-Scholes
>   option pricing model, at $256,500; and(4)
>         a warrant to purchase
>   150,000 of the Companys. common stock with an exercise price of 4.50 per
>   share, valued, using the Black-Scholes option pricing model, at $252,000.

The Company has expensed the
  aggregate value of these securities, resulting in a non-cash charge in the
  statement of operations of the year ended December 31, 2001 of $1,051,915.



F-34

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



15.  Settlements of
  Contractual Disputes and Litigation (continued)

The Alan Kleinmaier Litigation

On November 15, 2001, Alan
  Kleinmaier, a former employee and officer of Summus, Inc. and Summus, Ltd.
  filed a civil lawsuit in the General Court of Justice, Superior Court Division
  in Wake County, North Carolina, against the Company and the former officers
  and directors of Summus, Ltd. In this suit, Mr. Kleinmaier claims that he was
  entitled to three months severance pay of $32,350 when he was terminated from
  Summus, Ltd. The Company has filed an answer to Mr. Kleinmaiers claims and
  has made several counterclaims against him. The Company has not recorded a
  loss contingency relating to this lawsuit because, in managements opinion,
  it is not probable that a loss contingency exists.

16.  Discontinued Operations

Divestiture of Rich Media
  Direct (RMD) Business, including Douglas May & Co., Inc.

Upon the closing of the Companys
  recapitalization transaction, management decided to focus the Companys
  efforts on Summus, Ltd.s business operations at the time of the transaction.
  Management chose to focus primarily on Summus, Ltd.s business plan because of
  its perception that this business plan had the potential to create greater
  shareholder value compared to the scope of Summus, Inc.s business operations.
  In addition, the Company did not expect to have the fund-raising capacity to
  continue to fund the business plans of both Summus, Ltd. and Summus, Inc., as
  previously envisioned. The Summus, Inc. business consisted primarily of the
  rich media direct business operated by Douglas May & Co., a
  wholly-owned subsidiary of Summus, Inc. Therefore, management undertook a
  review to determine the appropriate course of action for this portion of its
  business given the existing and anticipated funding constraints.

On September 19, 2001, the Company
  and Douglas May entered into a stock purchase agreement under which the
  Company sold and transferred to Mr. May all of the Companys equity interest
  in Douglas May & Co. and related rich media direct assets. The date of the
  transaction represents the measurement date, as defined by Accounting
  Principles Board Opinion No. 30 (APB 30), for the disposition of
  the Companys rich media direct business. The results of operations of Douglas
  May & Co. have been presented as discontinued operations in the Companys
  statement of operations for the year ended December 31, 2001 in accordance
  with the guidance of APB 30. For the period February 16, 2001 through
  September 19, 2001, the operations of Douglas May & Co. reflected
  approximately $319,000 in revenues and a net loss of $135,798. The Company has
  recorded a loss of $215,500 on this disposition for the year ended December
  31, 2001.

F-35

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



16.  Discontinued
  Operations  (continued)

Under the terms of its acquisition
  agreement with Mr. May, the Company acquired all of the issued and outstanding
  shares of capital stock of Douglas May & Co. from Mr. May in September
  2000. As partial consideration for the Companys sale of Douglas May & Co.
  back to Mr. May, the Company has been released from its obligations with
  respect to two allotments of shares of the Companys common stock issued to
  Mr. May under the terms of the September 2000 share acquisition agreement,
  specifically:

- the obligation to
  repurchase one allotment of 87,498 shares of the Companys common stock for
  $576,000; and
- the commitment to
  issue to Mr. May additional shares of the Companys common stock, which when
  combined with an original 50,000 share allotment, would provide a value of
  $500,000 as of the first anniversary of the date the Company acquired Douglas
  May & Co. This amount was initially recorded at the guaranteed value of
  $500,000. Therefore, if these shares are ultimately issued, the only
  accounting implication would be reclassification of the par value of the
  shares within the shareholders deficit.

The release of the Company of the
  above obligations was expressly made conditional upon the Company not filing
  (or having filed against it) a petition in bankruptcy for a period of one year
  from the closing of the sale of Douglas May & Co. to Mr. May.  Since
  this release is conditional for one year, the Company will continue to reflect
  a liability of $576,000. If the Company does not file a petition in bankruptcy
  during the one-year time period commencing September 19, 2001, the $576,000
  liability will be reclassified to permanent equity.

Under the terms of the stock purchase
  agreement, Mr. May retains his option, issued under his now terminated
  employment agreement with the Company, to purchase 150,000 shares of the
  Companys common stock at an exercise price of $2.50 per share, such options
  being exercisable over a ten-year term.

In connection with the sale of the
  Companys entire equity interest in Douglas May & Co., the Company
  transferred certain technology to Douglas May & Co., including specific
  applications of the Companys MaxxSystem suite of software products developed
  in connection with the Companys previously planned rich media
  direct service offering.



F-36

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



16.  Discontinued Operations
  (continued)

The Company also entered into a
  technology license agreement (and a related source code escrow agreement) with
  a newly formed corporation and wholly-owned subsidiary of Douglas May &
  Co. Under the technology license agreement, the Company has granted to this
  company a perpetual, non-exclusive, non-transferable license with respect to
  some of the Companys core software technology for image, video compression
  and video streaming. The technology license agreement provides for the
  licensees payment to the Company of royalties, payable on a quarterly basis,
  equal to the greater of: (1) a percentage of the net revenues
  derived from the sale or license of end user products using or incorporating
  the licensed technology or (2) specified minimum amounts This royalty payment
  plan will remain in effect each year the agreement remains in effect. The
  agreement can be terminated by the licensee at any time following the first to
  occur: (1) payment of $400,000 in royalty payments to the Company or (2)
  ninety days prior to the second anniversary of the agreement, provided that
  $400,000 in royalty payments have been earned by the Company. The first
  specified minimum royalty payment of $100,000 was payable to the Company on
  December 31, 2001. The Company extended the payment of the $100,000 into
  various installments commencing on March 31, 2002. Due to the uncertainty of
  collection, the Company will recognize the royalty revenue when the cash
  payments are collected.



F-37

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



17. Selected Quarterly Financial
  Data (Unaudited)

Selected quarterly financial data for
  the years ended December 31, 2001 and 2000 is as follows:

|                                                                            | Three Months
        Ended                   
|--------------------------------------------------------------------------- | ---------------------------------------------
|                                                                            | March 31                                     
|                                                                            |                                              
|                                                                            | (in
        thousands, except per share data)
|                                                                            |                                              
|2001                                                                        |                                              
|Revenues                                                                    | $       
        296                         
|Gross profit                                                                | 163                                          
|Noncash settlements (1)                                                     |                                             
|Loss from continuing operations
        (2)                                 | (2,340)                                      
|Loss from discontinued
        operations (2)                               | (35)                                         
|Loss on disposal of
        discontinued
              operations           | (216)                                        
|                                                                            |                                              
|Net loss                                                                    | (2,590)                                      
|Net loss per common share,
        basic and
              diluted          | (0.08)                                       
|                                                                            |                                              
|2000                                                                        |                                              
|Revenues                                                                    | 278                                          
|Gross profit                                                                | 150                                          
|Net income (loss)                                                           | 498                                          
|Net income (loss) per common
        share,
              basic and diluted | 0.02                                         



|(1) | During the third quarter in 2001,
  the Company settled claims of Van Ernst Jakobs N.V.                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | During 2001, the Company
  discontinued its Rich Media Direct business which included the divestiture of
  its wholly-owned subsidiary, Douglas May & Company. The Company recorded a
  loss on disposal of $216.



F-38

---



Summus, Inc. (USA)

Notes to Consolidated
  Financial Statements (continued)



18. Subsequent Events

On February 16, 2002, the escrow
  agreement that was established in connection with the recapitalization
  transaction between the Company and Summus, Ltd. was terminated. 
  Initially, 2,000 Series B preferred shares were placed in escrow as security
  for any indemnification obligations of Summus, Ltd. and its shareholders under
  the recapitalization transaction.  Prior to the termination of the escrow
  agreement, claims were made against the escrowed shares for liabilities of
  Summus, Ltd.  that were identified and paid during the escrow period, but
  were not known at the closing of the recapitalization transaction on February
  16, 2001.  Of the total 2,000 Series B preferred shares placed in escrow,
  329.661 shares were claimed for indemnification of Summus, Ltd.s
  obligations, resulting in 1,670.339 Series B preferred shares available for
  distribution to the former Summus, Ltd. shareholders.  As noted below,
  these shares were automatically converted into common shares based on a
  conversion ratio of 1,000 to 1 and were subsequently distributed to the former
  Summus, Ltd. shareholders.

On February 27, 2002, a majority of
  the Companys shareholders approved the increase in the number of authorized
  common shares from 50.0 million to 100.0 million.  The increase in the
  number of authorized shares triggered the automatic conversion of all of the
  outstanding shares of the Series B preferred stock.  On February 27,
  2002, there were 6,000 shares of Series B preferred stock outstanding that
  converted into 6,000,000 shares of common stock.  Had this conversion
  occurred as of December 31, 2001, the loss per share from continuing
  operations would have been $0.27 for the year ended December 31, 2001.

In addition to the increase in the
  number of authorized shares of common stock, a majority of the Companys
  shareholders also approved the change in the Companys name to Summus, Inc.
  (USA).  Accordingly, this name change has been reflected in these
  financial statements.

From January 1, 2001 through March
  15, 2002, the Company sold to private investors 1.5 million shares of its
  unregistered common stock and warrants to purchase an additional 3.0 million
  shares of common stock for gross cash proceeds of approximately $2.4 million.

F-39

---



Report of Independent
  Auditors

The Board of Directors and
  Shareholders
  High Speed Net Solutions, Inc.

We have audited the accompanying
  consolidated balance sheets of High Speed Net Solutions, Inc. as of December
  31, 1999 and 2000, and the related consolidated statements of operations,
  shareholders equity (deficit) and cash flows for each of the three years in
  the period ended December 31, 2000. These financial statements are the
  responsibility of High Speed Net Solutions, Inc.s management. Our
  responsibility is to express an opinion on these financial statements based on
  our audits.

We conducted our audits in accordance
  with auditing standards generally accepted in the United States. 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 financial
  statements referred to above present fairly, in all material respects, the
  consolidated financial position of High Speed Net Solutions, Inc. at December
  31, 1999 and 2000 and the consolidated results of its operations and its cash
  flows, for each of the three years in the period ended December 31, 2000, in
  conformity with accounting principles generally accepted in the United States.

The accompanying financial statements
  have been prepared assuming that High Speed Net Solutions, Inc. will continue
  as a going concern. As more fully described in Note 1, High Speed Net
  Solutions, Inc. has incurred operating losses since inception and will require
  additional capital in 2001 to continue operations. These conditions raise
  substantial doubt about High Speed Net Solutions, Inc.s ability to continue
  as a going concern. Managements plans in regard to these matters are also
  described in Note 1. The financial statements do not include any adjustments
  to reflect the possible future effects on the recoverability and
  classification of assets or the amounts and classification of liabilities that
  may result from the outcome of this uncertainty.

Ernst & Young LLP
  May 22, 2001,
  except for Note 13
  as to which the date is June 27, 2001
  Raleigh, North Carolina

F-40

---



High Speed Net
  Solutions, Inc.

Consolidated Balance
  Sheets

December 311999
      
      2000AssetsCurrent assets:Cash and cash equivalents
      $
      248,740
      $
      326,622Restricted cash
      
      
      
      300,000Accounts receivable
      
      
      
      167,459Other current assets
      
      
      
      26,674Total current assets
      
      248,740
      
      820,755Equipment, software and
        furniture, net
      
      3,720
      
      385,915Investment in common stock of
        related party
      
      1,855,937
      
      1,855,937Prepaid software royalties
      
      2,166,667
      
      Loans due from related party
      
      
      
      1,435,000Total assets
      $
      4,275,064
      $
      4,497,607Liabilities, redeemable
        common stock and shareholders equity (deficit)Current liabilities:Payables to related parties
      $
      589,815
      $
      570,492Accounts payable and accrued
        expenses
      
      99,876
      
      2,528,765Loss contingency accrual
      
      800,000
      
      544,960Preferred stock dividends
        payable
      
      
      
      133,333Capital lease obligations,
        current portion
      
      
      
      94,936Total current liabilities
      
      1,489,691
      
      3,872,486Capital lease obligation, less
        current portion
      
      
      
      100,773Redeemable common stock
      
      
      
      876,000Shareholders equity
        (deficit):Preferred Stock, $0.001 par
        value; 5,000,000 shares
             authorized, 2,000 shares issued and outstanding
        (liquidation
              preference of $1,000 per share)
      
      
      
      2,000,000Common stock, $.001 par value,
        authorized 50,000,000 shares;
             issued and outstanding 21,112,149 and
        24,422,927 shares,
              respectively
      
      21,112
      
      24,423Additional paid-in capital
      
      14,386,105
      
      22,115,657Accumulated deficit
      
      (11,394,225)
      
      (24,264,113)Treasury stock, at cost (38,500
        shares)
      
      (227,619)
      
      (227,619)Total shareholders equity
        (deficit)
      
      2,785,373
      
      (351,652)Total liabilities, redeemable
        common stock and shareholders
             equity (deficit)
      $
      4,275,064
      $
      4,497,607


See accompanying notes.

F-41

---



High Speed Net
  Solutions, Inc.

Consolidated
  Statements of Operations

Year ended
        December 311998
      1999
      2000Revenue
    
      $
      
    $
      
      $
      599,054Costs of revenue
      
      
      476,280Gross profit
      
      
      122,774Selling, general and
        administrative expenses
      374,841
      2,582,447*
      6,864,159*Non-cash compensation
      
      2,813,000
      333,750Interest expense
      
      2,655,749
      15,192Amortization expense
      
      833,333
      116,200Impairment charges
      
      
      3,953,182Loss contingency charges
      
      800,000
      1,281,946Loss from continuing operations
      (374,841)
      (9,684,529)
      (12,441,655)Loss from discontinued
        operations
      (1,334,855)
      
      Net loss
      $
      (1,709,696)
      $
      (9,684,529)
      $
      (12,441,655)Net loss applicable to common
        shareholders:Net loss
      $
      (1,709,696)
      $
      (9,684,529)
      $
      (12,441,655)Beneficial conversion feature
        of preferred stock
      
      
      (294,900)Preferred stock dividends
      
      
      (133,333)Net loss applicable to common
        shareholders
      $
      (1,709,696)
      $
      (9,684,529)
      $
      (12,869,888)Per share amounts (basic and
        diluted):Loss applicable to common
        shareholders from
             continuing operations
      $
      (0.03)
      $
      (0.51)
      $
      (0.60)Loss applicable to common
        shareholders from
             discontinued operations
      $
      (0.11)
      $
      
      $
      Net loss
      $
      (0.14)
      $
      (0.51)
      $
      (0.60)Weighted average common shares
        outstanding
      11,868,867
      19,080,492
      21,619,618


*  Selling, general and
  administrative expenses in 1999 and 2000 exclude $2.8 million and $0.3
  million, respectively, of non-cash compensation charges.

See accompanying notes.

F-42

---



High Speed Net
  Solutions, Inc.

Consolidated Statement
  of Shareholders Equity (Deficit)

|                                                                                                                                       | Preferred
        Stock | Common
        Stock | Additional
        Paid-in | Accumulated | Treasury     | Total
        Shareholders
        Equity
|-------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | -------------------- | -------------------------- | ----------- | ------------ | ------------------------------------------
|                                                                                                                                       | Shares                  | Amount               | Shares                     | Amount      | Capital      | Deficit                                   
|                                                                                                                                       |                        
|Balance January
        2, 1998 (inception)
           reflecting the MWI and JSJ
            recapitalizations of the
        Company |                        | $  
                | 10,325,000                 | $   10,325  | $   (10,325) | $                                        
|Founders shares
        issued for no
           consideration                                                                         |                        |                     | 100                        |            |             |                                          
|Shareholders
        capital contributions                                                                                            |                        |                     |                           |            | 1,091,648    |                                          
|Common stock sold
        for cash                                                                                                     |                        |                     | 3,766,600                  | 3,767       | 313,233      |                                          
|Common stock
        issued for payment
            of debt to a shareholder                                                           |                        |                     | 1,550,000                  | 1,550       | 148,270      |                                          
|Treasury stock
        acquired for cash                                                                                               |                        |                     |                           |            |             |                                          
|Common stock
        issued for licensing
           rights                                                                            |                        |                     | 775,000                    | 775         | 76,725       |                                          
|Common stock
        issued for employee
           compensation and to non-
           employees                                      |                        |                     | 765,000                    | 765         | 75,735       |                                          
|Cancellation of
        compensatory and
           other stock                                                                        |                        |                     | (530,000)                  | (530)       | (52,470)     |                                          
|Net loss for 1998                                                                                                                      |                        |                     |                           |            |             | (1,709,696)                               
|                                                                                                                                       |                        
|Balance at
        December 31, 1998                                                                                                   |                        |                     | 16,651,700                 | 16,652      | 1,642,816    | (1,709,696)                               
|Compensation and
        other expense
           related to grants of stock options                                                   |                        |                     |                           |            | 3,397,250    |                                          
|Common stock sold
        for cash                                                                                                     |                        |                     | 338,188                    | 338         | 347,162      |                                          
|Common stock
        issued for investment
           in a related party                                                               |                        |                     | 795,001                    | 795         | 643,156      |                                          
|Capital
        contribution received for
           investment in related party                                                       |                        |                     |                           |            | 1,109,986    |                                          
|Common stock
        issued for services                                                                                               |                        |                     | 85,500                     | 85          | 130,729      |                                          





F-43

---



High Speed Net
  Solutions, Inc.

Consolidated Statement
  of Shareholders Equity (Deficit) (continued)

|                                                                                                                                                                            | Preferred
        Stock | Common
        Stock | Additional
        Paid-in | Accumulated | Treasury    | Total
        Shareholders
        Equity
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | -------------------- | -------------------------- | ----------- | ----------- | ------------------------------------------
|                                                                                                                                                                            | Shares                  | Amount               | Shares                     | Amount      | Capital     | Deficit                                   
|                                                                                                                                                                            |                        
|                                                                                                                                                                            |                         |                      |                            |             |             |                                           
|Common stock
        issued for prepaid
           royalties                                                                                                                |                        |                     | 1,500,000                  | 1,500       | 748,500     |                                          
|Beneficial
        conversion feature related    to convertible debentures                                                                                                  |                        |                     |                           |            | 2,655,749   |                                          
|Common stock
        issued in exchange 
           for convertible debentures                                                                                              |                        |                     | 4,852,860                  | 4,853       | 2,650,896   |                                          
|Common stock
        canceled in
           connection with the merger
           between High Speed Net
           Solutions
        and  Marketers
           World, Inc. |                        |                     | (5,161,100)                | (5,161)     | 5,161       |                                          
|Cancellation of
        compensatory stock                                                                                                                                  |                        |                     | (25,000)                   | (25)        | (38,225)    |                                          
|Stock option
        exercises                                                                                                                                              |                        |                     | 1,825,000                  | 1,825       | (1,825)     |                                          
|Common stock sold
        to a related
           party                                                                                                                     |                        |                     | 250,000                    | 250         | 1,094,750   |                                          
|Net loss for 1999                                                                                                                                                           |                        |                     |                           |            |            | (9,684,529)                               
|                                                                                                                                                                            |                        
|Balance at
        December 31, 1999                                                                                                                                        |                        |                     | 21,112,149                 | 21,112      | 14,386,105  | (11,394,225)                              
|Preferred stock
        sold for cash,
           net of  issuance costs                                                                                                    | 2,000                   | 2,000,000            |                           |            | (149,048)   |                                          
|Beneficial
        conversion feature of
           preferred stock                                                                                                         |                        |                     |                           |            | 294,900     | (294,900)                                 
|Common stock and
        options issued
            for services                                                                                                            |                        |                     | 7,500                      | 8           | 884,028     |                                          
|Issuance of
        common stock in
           partial  settlement of loss
           contingency                                                                           |                        |                     | 1,700,000                  | 1,700       | 1,408,611   |                                          
|Common stock
        issued to acquire
           equipment                                                                                                                 |                        |                     | 8,988                      | 9           | 15,102      |                                          
|Common stock
        issued to acquire
           Douglas May & Co.                                                                                                         |                        |                     | 50,000                     | 50          | 499,950     |                                          
|Common stock sold
        for cash                                                                                                                                          |                        |                     | 1,544,290                  | 1,544       | 4,776,009   |                                          
|Preferred stock
        dividends                                                                                                                                           |                        |                     |                           |            |            | (133,333)                                 
|Net loss for 2000                                                                                                                                                           |                        |                     |                           |            |            | (12,441,655)                              
|                                                                                                                                                                            |                        
|Balance at
        December 31, 2000                                                                                                                                        | 2,000                   | $2,000,000           | 24,422,927                 | $ 24,423    | $22,115,157 | $(24,264,113)                             
|                                                                                                                                                                            |                        



F-44

---



High Speed Net
  Solutions, Inc.

Consolidated
  Statements of Cash Flows

|                                                                                                               | Year ended
        December 31
|-------------------------------------------------------------------------------------------------------------- | ------------------------------
|                                                                                                               | 1998                          
|                                                                                                               |                               
|Operating activities                                                                                           |                               
|Loss from continuing operations                                                                                | $     (374,841)               
|Adjustments to reconcile loss
        from continuing operations to net cash used in     operating activities: |                               
|Loss on disposal of equipment                                                                                  | 36,858                        
|Impairment charge                                                                                              |                              
|Non cash compensation                                                                                          |                              
|Stock issued for partial
        settlement of loss contingency                                                |                              
|Depreciation and amortization                                                                                  | 21,900                        
|Common stock issued to
        non-employees                                                                   | 23,500                        
|Interest expense relating to
        beneficial conversion feature of convertible     debt                     |                              
|Changes in operating assets and
        liabilities, net of acquisitions:                                      |                               
|Accounts receivable                                                                                            | (7,559)                       
|Prepaid royalties                                                                                              |                              
|Increase in other current
        assets                                                                       |                              
|Accounts payable and accrued
        expenses                                                                  | 8,457                         
|Loss contingency accrual                                                                                       |                              
|                                                                                                               |                               
|Net cash used in operating
        activities from continuing operations                                       | (291,685)                     
|Net cash used in discontinued
        operations                                                               | (1,265,965)                   
|                                                                                                               |                               
|Net cash used in operating
        activities                                                                  | (1,557,650)                   
|                                                                                                               |                               
|Investing activities                                                                                           |                               
|Capital expenditures, net of
        acquisitions                                                              | (50,148)                      
|Cash invested in common stock
        of related party                                                         |                              
|Cash received in acquisition                                                                                   |                              
|                                                                                                               |                               
|Net cash used in investing
        activities                                                                  | (50,148)                      
|                                                                                                               |                               
|Financing activities                                                                                           |                               
|Funds loaned to related party                                                                                  |                              
|Net proceeds from sale of
        common stock                                                                 | 317,000                       
|Payments on capital leases                                                                                     |                              
|Increase in restricted cash                                                                                    |                              
|Net proceeds from sale of
        preferred stock                                                              |                              
|Shareholder capital
        contributions                                                                      | 1,091,648                     
|Advances from stockholders                                                                                     | 445,378                       
|Repayments to stockholders                                                                                     |                              
|Proceeds from issuance of
        convertible debentures                                                       |                              
|Purchase of treasury stock                                                                                     | (227,619)                     
|                                                                                                               |                               
|Net cash provided by financing
        activities                                                              | 1,626,407                     
|                                                                                                               |                               
|Net increase in cash and cash
        equivalents                                                              | 18,609                        
|Cash and cash equivalents at
        beginning of year                                                         |                              
|                                                                                                               |                               
|Cash and cash equivalents at
        end of year                                                               | $        18,609               
|                                                                                                               |                               
|                                                                                                               |                               
|Supplemental disclosures of
        cash flow information                                                      |                               
|Cash paid for interest                                                                                         | $                
           
|                                                                                                               |                               
|Non-cash investing and
        financing activities                                                            |                               
|Debentures issued for
        shareholder advances on behalf of Company                                        | $                
           
|                                                                                                               |                               
|Assets acquired under capital
        leases                                                                   | $                
           
|                                                                                                               |                               

See accompanying notes.

F-45

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements

December 31, 2000

1.        
  Business and Organization and Basis of Presentation

In 1984, High Speed Net Solutions,
  Inc. (HSNS) was incorporated under the name EMN Enterprises, Inc.
  HSNS was inactive from the time of its incorporation in 1984 until it acquired
  all of the assets of Marketers World, Inc. (MWI) on August 24,
  1998. In September 1998, in conjunction with the MWI asset acquisition, HSNS
  changed its name to ZZAP.NET, Inc. and in January 1999 changed its name to
  High Speed Net Solutions, Inc. Prior to the MWI asset acquisition, HSNS was a
  non-operating shell corporation and MWI was a private operating company. In
  legal form, the asset acquisition was effected by HSNS issuing its shares in
  exchange for the net assets of MWI. Total outstanding shares of HSNS common
  stock subsequent to the transaction were 10,275,000. At the time of the
  transaction, HSNS had no assets or liabilities, and accordingly, the
  transaction was accounted for as a recapitalization of HSNS, and the
  outstanding shares are recorded accordingly.

MWI was incorporated in January 1998
  and its planned principal operations were to lease computer systems to
  businesses. For the period prior to August 24, 1998 the historical amounts are
  those of MWI. During 1998, HSNS was not able to execute its planned activities
  in connection with the asset acquisition, other than the sale of pilot
  products and services, and consequently ceased all operating activities in
  December 1998. MWI was subsequently legally dissolved in September 1999.
  Accordingly, the operating results of the MWI business have been presented as
  discontinued operations for the year ended December 31, 1998. Revenues of MWI
  during the year ended December 31, 1998 were approximately $1,335,300, and the
  loss totaled $1,334,855. As of December 31, 1998, HSNS had completed its
  disposal of the discontinued operations of the MWI business. There were no
  remaining assets or liabilities related to such business at December 31, 1998.
  Results for the year ended December 31, 1999 represent solely the activity of
  HSNS, which primarily related to raising capital and establishing strategic
  relationships.

On April 24, 2000, HSNS acquired 100%
  of the issued and outstanding shares of common stock of JSJ Capital Corp., a
  non-operating shell company incorporated in Nevada (JSJ), in exchange
  for 50,000 shares of common stock of HSNS. The shares were issued in a
  transaction exempt from registration under the Securities Act of 1933 and, as
  such, were restricted securities as defined in Rule 144 under the
  Securities Act of 1933. JSJ was then merged into HSNS, with HSNS being the
  surviving corporation. The acquisition was accounted for as an issuance of
  HSNS common stock in exchange for the net monetary assets of JSJ, accompanied
  by a recapitalization.

F-46

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

1.        
  Business and Organization and Basis of Presentation (continued)

The 50,000 shares issued by HSNS in
  connection with the acquisition of JSJ are considered a nominal issuance to
  effect the acquisition. All share and per share data presented herein have
  been restated to reflect the issuance of these shares. The pro forma impact of
  the JSJ acquisition is a $400,000 charge to retained earnings on HSNSs
  balance sheet, representing cash legal fees paid in excess of the net assets
  acquired. This charge was recognized in earnings upon consummation of the
  acquisition.

In August 1999, Summus Ltd. acquired
  a majority of the outstanding common stock of HSNS. Subsequently, Summus, Ltd.
  sold certain of the shares it acquired and at December 31, 1999, Summus,
  Ltd. owned 44.5% of HSNSs outstanding common stock. This ownership percentage
  was 33.6% at December 31, 2000.

On July 10, 2000, HSNS acquired all
  of the issued and outstanding common stock of Douglas May & Co., Inc.
  (Douglas May & Co.) in a business combination accounted for as
  a purchase (see Note 3).  HSNS had been a development stage company since
  its inception and ceased being a development stage company in the third
  quarter of 2000 upon its acquisition of Douglas May & Co.  HSNS
  provides media creation services through Douglas May & Co., a wholly owned
  and fully operational subsidiary, which include creative design assistance and
  commercial content development, development of audio and video images and
  animation, as well as web site design and construction (see Note 3).

Effective  February 16, 2001,
  HSNS acquired all the assets and operations of  Summus, Ltd. under the
  terms of an asset purchase agreement, dated October 30, 2000, as amended (the
  Asset Purchase Agreement).  The transaction was accounted for as a
  capital transaction, accompanied by a recapitalization.  As a result of
  the transaction, the historical financial statements of Summus, Ltd., for
  accounting purposes, are deemed that of the Company (see Note 13).

The accompanying financial statements
  have been prepared on a going concern basis, which contemplates the
  realization of assets and the satisfaction of liabilities in the normal course
  of business. As shown in the financial statements presented herein, for the
  year ended December 31, 2000, HSNS incurred a net loss of $12,441,655 and had
  negative cash flows from operations. These factors, among others, indicate
  HSNS may be unable to continue as a going concern for a reasonable period of
  time. The financial statements presented herein do not include any adjustments
  relating to the recoverability of assets and classification of liabilities
  that might be necessary should HSNS be unable to continue as a going concern.

F-47

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

1.        
  Business and Organization and Basis of Presentation
  (continued)

Following the HSNSSummus, Ltd.
  asset acquisition,  the post-transaction  company (which, for
  clarity of reference, is referred to as the Company) will actively
  seek to expand business opportunities and pursue additional financing from
  third parties.  The Companys management anticipates that it will be able
  to attract additional capital to continue to fund operations.  However,
  there can be no assurance that managements plans will be executed as
  anticipated.  The Companys continuation as a going concern is dependent
  on its ability to generate sufficient cash flow to meet its obligations on a
  timely basis, to obtain additional financing or refinancing as required, and
  ultimately to attain profitability.

2.        
  Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements
  include the accounts of HSNS and its wholly owned subsidiary, Douglas May
  & Co.  Significant intercompany accounts and transactions have been
  eliminated in consolidation.

Use of Estimates

The preparation of financial
  statements in conformity with generally accepted accounting principles
  requires management to make estimates and assumptions that affect the amounts
  reported in the financial statements and accompanying notes. Actual results
  could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of
  unrestricted cash accounts and highly liquid investments with an original
  maturity of three months or less when purchased.

Restricted Cash

Restricted cash at December 31, 2000
  of $300,000 represents funds held in escrow related to HSNSs obligation to
  repurchase 45,572 shares of its common stock issued in connection with the
  acquisition of Douglas May & Co. (see Notes 3 and 13.)  These shares
  were repurchased and retired by HSNS in January 2001 using the funds from the
  escrow account.

F-48

---





High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

2.        
  Significant Accounting Policies (continued)

Equipment, Software and Furniture

Equipment, software and furniture are
  stated at cost. Depreciation, as recorded by MWI, was computed using the
  straight-line method over the estimated useful lives of the assets beginning
  when assets were placed in service. Depreciation expense amounted to $13,290
  for the year ended December 31, 1998.  Based on HSNSs
  discontinuance of the MWI business operations in 1998, along with no future
  alternative use, the net book value of the equipment and furniture acquired in
  connection with the MWI asset acquisition at December 31, 1998, totaling
  $36,858, was written off and is included as part of the loss from discontinued
  operations.

Depreciation expense in 1999 and 2000
  was $332 and $166,294, respectively. Depreciation expense was calculated on a
  straight-line basis over the estimated useful lives of the assets ranging from
  three to five years.

Stock-Based Compensation

HSNS has adopted the disclosure-only
  provisions of Statement of Financial Accounting Standards (SFAS) No.
  123, Accounting for Stock-Based Compensation.  As permitted
  by the provisions of SFAS No. 123, HSNS continues to follow Accounting
  Principles Board Opinion No. 25, Accounting for Stock Issued to
  Employees and related interpretations for its stock-based awards.

In accordance with APB 25, HSNS has
  valued employee stock option awards and shares of HSNS common stock issued to
  employees and directors for services performed based on the traded value of
  HSNSs common stock, or its estimated fair value prior to it becoming traded,
  at the measurement date of the stock options and awards.

HSNS accounts for stock-based amounts
  issued to non-employees of HSNS at fair value in accordance with the
  provisions of SFAS No. 123.

Income Taxes

Income taxes are accounted for using
  the liability method in accordance with Statement of Financial Accounting
  Standards No. 109, Accounting for Income Taxes (see Note
  11).

Loss Per Share

Loss per share has been calculated in
  accordance with Statement of Financial Accounting Standards No. 128, Earnings
  per Share. HSNS has potential common stock equivalents related to its
  outstanding stock options, preferred stock and common stock warrants. These
  potential common stock equivalents were not included as outstanding for loss
  per share purposes for all periods presented because the effect would have
  been anti-dilutive.

F-49

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

2.        
  Significant Accounting Policies (continued)

Investment in Common Stock of Related Party

Investment in common stock of related
  party represents HSNSs 16.7% and 13.5% ownership interest in Summus, Ltd. at
  December 31, 1999 and 2000, respectively (see Note 9). HSNS accounted for its
  investment in Summus, Ltd. using the cost method. Under this method, the
  investment is recorded at its historical cost. Although the market value of
  this investment is not readily determinable, management believes its fair
  value is not less than its carrying amount. On February 16, 2001, HSNS
  acquired all of the assets and operations of Summus, Ltd. (see Note 13).

Valuation of Long-Lived Assets

HSNS periodically reviews its
  long-lived assets, including goodwill, to determine if events or changes in
  circumstances indicate that the carrying amount of an asset may be impaired
  and not recoverable. Adjustments are made when the sum of the expected future
  undiscounted cash flows is less than the carrying value of the asset.

Financial Instruments

The carrying amount of cash and cash
  equivalents, accounts receivable and accounts payable approximates fair value
  for these financial instruments.

Financial instruments that
  potentially subject HSNS to concentrations of credit risk consist of cash and
  cash equivalents and trade accounts receivable. HSNS maintains cash and cash
  equivalents with financial institutions. HSNS periodically performs
  evaluations of the credit standings of those financial institutions. HSNSs
  customer base consists of companies operating in the United States. HSNSs
  exposure to credit risk with respect to its trade accounts receivable is
  limited to the carrying amount of the receivables. HSNS does not require
  collateral on these financial instruments.

Revenue Recognition

Revenue from media creation services,
  which includes creative design assistance and commercial content development,
  is recognized at the time the services are rendered based on the terms of the
  individual contracts.

Advertising

The cost of advertising is expensed
  when incurred. HSNS incurred $128,000 in advertising costs in 1998. No
  advertising costs were incurred in 1999 or 2000.

F-50

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)



2.        
  Significant Accounting Policies (continued)

New Accounting Pronouncements

In June 1998, the Financial
  Accounting Standards Board issued Statement No. 133 Accounting for
  Derivative Instruments and Hedging Activities (SFAS 133), which
  is required to be adopted in years beginning after June 15, 2000. Because HSNS
  has not historically used derivative instruments, management does not
  anticipate that the adoption of this statement will have a significant effect
  on its operations, financial position or cash flows.

In December 1999, the Securities and
  Exchange Commission released Staff Accounting Bulletin No. 101 (SAB No. 101),
  Revenue Recognition in Financial Statements, which provides
  guidance on the recognition, presentation, and disclosure of revenue in
  financial statements. SAB No. 101 provides guidance on a variety of
  revenue recognition issues, including gross versus net income statement
  presentation. HSNS adopted the provisions of SAB No. 101 during 2000.

On June 29, 2001, the Financial
  Accounting Standards Board (FASB) unanimously approved the
  issuance of Statements of Financial Accounting Standards (SFAS)
  No. 141, Business Combinations and No. 142, Goodwill and
  Other Intangible Assets, SFAS 141 eliminates the pooling-of-interests
  method of accounting for business combinations except for qualifying business
  combinations that were initiated prior to July 1, 2001.  SFAS 141 also
  includes new criteria to recognize intangible assets separately from
  goodwill.  The requirements of SFAS 141 are effective for any business
  combination accounted for by the purchase method that is completed after June
  30, 2001. Under SFAS 142, goodwill and intangible assets with indefinite lives
  are no longer amortized but are reviewed annually, or more frequently if
  impairment indicators arise, for impairment.  Separable intangible assets
  that are not deemed to have an indefinite life will continue to be amortized
  over their useful lives. The amortization provisions of SFAS 142 requiring
  non-amortization of goodwill and indefinite-lived intangible assets apply to
  goodwill and indefinite-lived intangible assets acquired after June 30,
  2001.  The Company will adopt SFAS 142 in the fiscal year beginning
  January 1, 2002.  The effect of adopting SFAS 142 by the Company
  beginning January 1, 2002, is not expected to have significant effect on the
  operating results or financial condition of the company.

3.        
  Business Combination

On July 10, 2000, under the terms of
  a share acquisition agreement dated as of June 30, 2000, by and between HSNS
  and Douglas May, HSNS acquired all of the issued and outstanding capital stock
  of Douglas May & Co. by issuing to Mr. May 183,070 shares of HSNS common
  stock in a business combination accounted for as a purchase.

The acquisition of Douglas May &
  Co. was made in order to supplement HSNSs planned rich media direct
  business.  This acquisition was expected to create synergies with HSNSs
  planned rich media direct service offering.

F-51

---



High Speed Net Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)



3.        
  Business Combinations (continued)

The shares of HSNS common stock
  issued in the transaction were valued at $1,376,000. Under the terms of the
  share acquisition agreement, the 183,070 shares of HSNS common stock were
  issued in three allotments. The first allotment corresponded to $500,000 of
  value. At closing, HSNS issued 50,000 shares of common stock, the number of
  such shares being subject to adjustment if the Over-the-Counter Bulletin Board
  trading price of the common stock on the first anniversary of the closing date
  of the transaction was less than $10.00 per share. Under such circumstances,
  HSNS was obligated to issue additional shares of common stock that, when added
  to the 50,000 shares, and multiplied by the per share trading price on the
  first anniversary of the closing date, equaled $500,000 in value.  
  The issuance of the 50,000 shares was recorded at the guaranteed
  amount of $10.00 per share on the date of issuance, July 10, 2000. Payment or
  issuance of any additional shares under the terms of the share acquisition
  agreement will not change the recorded cost of the acquisition of Douglas May
  & Co.High Speed Net Solutions, Inc.

The second allotment of shares of
  common stock (87,498 shares) issued at closing corresponded to $576,000 of
  value. HSNS committed to file a registration statement with the SEC to
  register the resale of these shares. If the shares were not freely tradable on
  or before January 1, 2001, Mr. May has the right to cause HSNS to repurchase
  these shares from him by making six cash installment payments totaling
  $576,000., Mr. May has not yet elected to have HSNS repurchase these shares.

The third allotment of shares of
  common stock (45,572 shares) issued at closing corresponded to $300,000 of
  value. HSNS committed to file a registration statement with the SEC to
  register the resale of these shares.  If the shares were not freely
  tradable on or before the expiration of 90 days from the closing date, Mr. May
  had the right to cause HSNS to repurchase these shares from him by releasing
  funds, in the amount of $300,000, which the share acquisition agreement
  provided be placed into an escrow account, the funds being from certain
  accounts receivable of Douglas May & Co. that were collected subsequent to
  the acquisition date. In January 2001, based on the election of Mr. May, HSNS
  repurchased and retired these shares for $300,000 using the funds from the
  escrow account. These shares were treated as outstanding for loss per share
  purposes in accordance with the guidance set forth in SFAS No. 128. All shares
  issued that are subject to repurchase by HSNS have been presented on HSNSs
  balance sheet as redeemable stock outside of shareholders equity.

The results of operations of Douglas
  May & Co. are included in HSNSs operations from the date of acquisition.
  HSNS recorded goodwill in the amount of $1,174,437 related to this
  acquisition.

During 2000 Douglas May & Co.
  produced negative cash flows. Because of the decision made in the fourth
  quarter of 2000 not to further pursue the planned rich media direct business
  due to funding constraints, management determined there was no basis upon
  which to project positive future cash flows from Douglas May & Co. since
  the basis for making the acquisition was originally related to expected
  synergies and expected future prospects by incorporating the business of
  Douglas May & Co. into the planned rich media direct business. Thus, in
  accordance with the provisions of SFAS 121, HSNS concluded that the
  unamortized portion of the goodwill recorded in connection with the
  acquisition of Douglas May & Co. ($1,058,177, net of the previously
  amortized amount of $116,260) had become fully impaired and should be written
  off. HSNS recorded an impairment charge of $1,058,177 in the fourth quarter of
  2000 to recognize the unamortized balance of goodwill written-off.

F-52

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

3.        
  Business Combinations (continued)

The following unaudited pro forma
  summary information presents consolidated results of operations for HSNS as if
  the acquisition of Douglas May & Co. had been consummated on January 1,
  1999. The pro forma information does not necessarily reflect the actual
  results that would have been achieved, nor is it necessarily indicative of
  future consolidated results for HSNS.

|                                                         | Year ended
        December 31
|-------------------------------------------------------- | ------------------------------
|                                                         | 1999                          
|                                                         |                               
|                                                         |                               
|Revenue                                                  | $    
        880,432         
|Net loss                                                 | 9,899,011                     
|Loss per share applicable to
        common shareholders | $         
        (0.51)     



4.        
  Equipment, Software and Furniture

Equipment, software and furniture
  consists of the following:

|                                                       | 1999                     | 2000                   
|------------------------------------------------------ | ------------------------ | -----------------------
|                                                       |                         
|Furniture and fixtures                                 | $         
        4,052 | $      
        258,220
|Equipment under capital lease                          |                         | 201,157                
|Computer equipment and software                        |                         | 93,104                 
|                                                       |                         
|                                                       | 4,052                    | 552,481                
|Less accumulated depreciation
        and amortization | (332)                    | (166,566)              
|                                                       |                         
|                                                       | $         
        3,720 | $      
        385,915
|                                                       |                         

5.        
  Prepaid Software Royalties

In February 1999, HSNS entered into a
  Marketing License Agreement (MLA) with Summus, Ltd., a related party
  (see Note 8). Under the MLA, HSNS became obligated to pay Summus, Ltd. an
  up-front fee of $3,000,000, payable in four installments of $750,000 each. The
  first three installments consisted of cash payments in the aggregate amount of
  $2,250,000. Of this amount, $2,190,000 was made by a shareholder on behalf of
  HSNS. The final installment was satisfied by HSNSs issuance of 1.5 million
  shares of its restricted common stock.

HSNS determined the value of the 1.5
  million shares issued in lieu of the final cash payment due under the MLA by
  applying a discount to the traded value of HSNSs common stock at the time of
  issuance based on the discount associated with private sales of shares of its
  common stock (such shares being restricted securities as defined
  in Rule 144 under the Securities Act of 1933) within close proximity of the
  time of the issuance of such shares.

F-53

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

5.        
  Prepaid Royalties (continued)

Under the terms of the MLA, HSNS had
  the right to resell stand-alone software products specified in the MLA. Since
  the specified products were completed and ready for resale, HSNS capitalized
  the $3.0 million value of the up-front fees under the MLA as prepaid software
  royalties (essentially license fees) in accordance with the provisions of
  Statement of Financial Accounting Standards No. 86, Accounting for
  the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed,
  as each of the four software products specifically referred to in the MLA had
  reached technological feasibility within the meaning of Paragraphs
  4 and 38 of that statement.

HSNS reduced the recorded value of
  the prepaid royalties by $833,333 to reflect amortization of the prepaid
  software royalties in 1999 in accordance with the provisions of SFAS No. 86.
  The amount amortized was derived by applying the straight-line method over a
  three-year estimated economic life of the products licensed under the MLA.

In August 1999, Summus, Ltd. acquired
  a majority of the outstanding shares of HSNS (this percentage was subsequently
  reduced to 44% by December 31, 1999 as Summus, Ltd. sold a portion of the
  shares it acquired to third parties). In connection with this transaction,
  HSNSs existing management team was replaced with new management. Over the
  next several months, the new management team determined to revise HSNSs
  business plan. Rather than function as a reseller of Summus, Ltd. software
  products, management determined that HSNS should function as a service bureau
  or application service provider, utilizing Summus Ltd.s wavelet-based
  technology for delivery of multimedia services over the Internet. As a result
  of this change in business plan, HSNS entered into negotiations with Summus,
  Ltd., beginning in December 1999, to modify the companies contractual
  relationship under the MLA. These negotiations resulted in the execution of
  several agreements (i.e. a master agreement, software license agreement,
  software maintenance agreement, revenue sharing agreement and software escrow
  agreement) in mid-February 2000, which superseded in its entirety the MLA.

Under the new agreements, HSNS did
  not become obligated to make any additional payments, in cash or other
  consideration, to Summus, Ltd. for the software products to be provided
  thereunder. In fact, HSNS received approximately $2.2 million in credits
  toward future fees due and payable to Summus, Ltd. Therefore, HSNS determined
  that, in the absence of information that would have caused management to
  conclude that the net realizable value of any of the products licensed under
  the MLA had been adversely affected by HSNSs change in business plan or
  that the unamortized capitalized costs exceeded the net realizable value of
  such products, no impairment-related write off under SFAS No. 86 was
  appropriate as of December 31, 1999. As of that date, HSNS fully expected to
  generate future revenues, in its contemplated service bureau business, through
  the use of the Summus, Ltd. software products covered by the several
  agreements then being negotiated, sufficient to recover the carrying value of
  the prepayments under the MLA.

F-54

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

5.        
  Prepaid Software Royalties (continued)

The software license agreement
  provided HSNS with rights to the use of Summus, Ltd.s MaxxSystem suite of
  products in its planned rich media direct service bureau business. The
  agreement did not permit HSNS to resell any of the software products
  constituting MaxxSystem.As such, HSNS determined that the MaxxSystem
  suite of software products constituted internal use software
  subject to Statement of Position 98-1, Accounting for the Costs of
  Computer Software Developed or Obtained for Internal Use.

The agreements were executed in
  mid-February 2000. However, the terms of such agreement had been substantially
  negotiated and agreed to at the time HSNSs financial statements as of and for
  the year ended December 31, 1999 were issued. SOP 98-1 requires an evaluation
  of capitalized software costs for impairment in accordance with FASB Statement
  No. 121. Statement No. 121 requires an estimate of future cash flows to
  determine if an asset that is in use is impaired. The change in HSNSs
  business plan was driven primarily by the view that delivery of multimedia
  over the Internet through the use of the MaxxSystem suite of software products
  offered greater future cash flows than the resale of the software products
  licensed under the MLA. In view of these considerations, HSNS determined that
  an impairment-related write off of the prepaid royalties was not appropriate
  as of December 31, 1999 under SOP 98-1 and SFAS 121.

During 2000, HSNS observed a
  combination of market conditions and potential government regulatory actions
  that caused it to modify its short-term and long-term plans for revenue
  generation as a service provider of rich media content over the Internet.
  Market resistance developed to the delivery of Internet services via
  .exe file types following the delivery of certain of such files
  with viruses. Indeed, this prompted many companies to configure firewalls to
  block all files with an .exe extension. This limited the market for e-mail
  distribution using the MaxxNote (i.e., the video e-mail) module of MaxxSystem.
  At about the same time, the Federal Trade Commission initiated an
  investigation of the use of information gathered by permission-based marketing
  through e-mails and banner ads.

Management determined in the fourth
  quarter of 2000 that it was unlikely that funding would be available to
  develop and rollout the service bureau business model as previously planned.
  Under FASB 121, when it is no longer probable that computer software will be
  placed in service, the software should be reported at the lower of its
  carrying amount or fair value. Therefore, during the fourth quarter of 2000,
  management determined that all of the assets associated with HSNSs rich
  media direct service bureau business were impaired. Accordingly, an impairment
  charge of $2.9 million was recorded consisting of the net carrying value of
  the capitalized amounts associated with MaxxSystem of approximately $2.2
  million and other capitalized costs incurred in the development of the service
  bureau business of approximately $0.7 million.

F-55

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

6.        
  Licensing Rights

In September 1998, HSNS issued
  775,000 shares of its common stock, valued at $77,500, for all of the issued
  and outstanding common stock of Brad Richdale Direct, Inc. (BRD). The
  primary purpose of this transaction was to obtain licensing and marketing
  rights held by BRD for certain products to be developed by Summus, Ltd. Since
  BRD had nominal assets and operations, this transaction was accounted for as
  an acquisition of licensing rights, rather than as a business combination. The
  value of this transaction was based on recent transactions in HSNSs common
  stock near the date of the transaction. The products to be delivered by Summus, Ltd. under these licensing rights were to be used in the planned
  operations of MWI. Since these products were not completed by the end of 1998
  and HSNS had determined to discontinue MWIs operations, HSNS abandoned its
  rights to these yet-to-be-delivered products. Accordingly, the net book value
  of these assets $68,890 was written off at December 31, 1998 and is
  included as part of the loss on discontinued operations.

7.        
  Convertible Debentures

During 1999, HSNS issued convertible
  debentures (the debentures) in the principal amount of $2,655,749 to Mr.
  Richdale, entities affiliated with Mr. Richdale and third parties.  These
  debentures were issued in exchange for both cash of $558,640 and in partial
  satisfaction of payments made by Mr. Richdale on behalf of HSNS in the
  aggregate amount of $2,097,109.  Prior to the issuance of these
  debentures, HSNS owed $2,190,000 to Mr. Richdale for amounts he paid on behalf
  of HSNS (See Note 5).  This liability was reduced to $92,891 through the
  issuance of the convertible debentures valued at $2,097,109.  The
  remaining amount of the liability, $92,891, plus other amounts owed to
  entities affiliated with Mr. Richdale in connection with funds advanced to
  HSNS, totaling $342,924, are included in Payable to related
  parties in HSNSs balance sheet. The debentures were convertible at the
  date of issuance into HSNSs common stock at conversion prices ranging from
  $0.25 to $1.33 per share (all of which were substantially in-the-money
  at the date of issuance).

Since the conversion price of the
  debentures was below the fair market value of the common stock, HSNS recorded
  a $2,655,749 beneficial conversion feature as debt discount and additional
  paid-in-capital on the date the debentures were issued. The resulting interest
  expense was immediately recognized because the debentures were convertible
  upon issuance.

Shortly after the issuance of the
  debentures, the debenture holders exercised the conversion feature and
  converted all outstanding debentures into 4,852,860 shares of HSNSs common
  stock. As of December 31, 1999, all debentures had been converted.

8.        
  Related Party Transactions

As of December 31, 2000, Summus, Ltd.
  held a 33.6% ownership interest in HSNS. On February 16, 2001, HSNS purchased
  all the assets and operations of Summus, Ltd.  The transaction was
  accounted for as a capital transaction, accompanied by a
  recapitalization   (see Note 13).

F-56

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

8.        
  Related Party Transactions (continued)

During 2000, in connection with the
  negotiations of the Asset Purchase Agreement with Summus, Ltd., HSNS advanced
  certain funds to Summus, Ltd. to assist Summus, Ltd. in funding its operating
  expenses. These advances, which were evidenced by a promissory note in favor
  of HSNS, totaled $1,435,000 as of December 31, 2000. This balance accrued
  interest compounded monthly at 8%, was collateralized by Summus, Ltd.s
  investment in HSNSs stock and was payable within 60 days. Upon the closing
  of the Asset Purchase Agreement on February 16, 2001, the entire balance of
  this note plus accrued interest was canceled.

During 1999, Summus, Ltd. funded
  certain expenses of HSNS. The balance outstanding related to these advances as
  of December 31, 2000 and 1999 was $134,677 and $154,000, respectively.

Payables to Related Parties also
  includes an unpaid balance of $435,815 for advances made to HSNS by a former
  majority shareholder during 1998 and 1999. These amounts are unsecured and are
  payable on demand. These amounts have subsequently been satisfied in full (see
  Note 13).

9.        
  Shareholders Equity

On June 20, 1998, HSNS amended its
  articles of incorporation to increase the number of authorized shares of its
  common stock, par value $.001 per share, to 50,000,000 and to effect a
  200-for-1 stock split, thereby increasing its issued and outstanding shares to
  1,000,000. HSNS also has 5,000,000 authorized shares of preferred stock, par
  value $.001 per share.

Preferred stock

On February 28, 2000, HSNS issued
  2,000 shares of its Series A Convertible Preferred Stock, par value $.001 per
  share  (the Series A Preferred Stock), at a price of $1,000 per
  share. Proceeds, net of issuance costs of $149,048, were $1,850,952. The
  holders of the Series A Preferred Stock are entitled to receive cumulative
  cash dividends at a rate of 8% per annum of the initial liquidation preference
  of $1,000 per share (the Liquidation Preference). Dividends are
  cumulative from the date of issuance and are payable, when, as and if declared
  by the Board of Directors on June 30 and September 30 of each year commencing
  on September 30, 2000. As of December 31, 2000 cumulative dividends accrued
  were $133,333. The holders of the Series A Preferred Stock are not entitled to
  vote on matters submitted to HSNSs shareholders for voting. However,
  approval of holders of a majority of the Series A Preferred Stock is required
  prior to the issuance of a new series of preferred stock that ranks senior to
  the Series A Preferred Stock.

Each share of the Series A Preferred
  Stock is convertible at the option of the holder, at any time after the date
  of issuance, into shares of common stock equal to the Liquidation Preference
  divided by an initial conversion price of $14.24. The conversion price is
  subject to adjustment as defined in HSNSs articles of incorporation. Since
  the Series A Preferred Stock was convertible at the date of issuance and since
  the conversion price was below the fair value of the common stock at the time
  of issuance, HSNS recorded a beneficial conversion feature in the amount of
  $294,900. The beneficial conversion feature has been added to the historical
  net loss for the year ended December 31, 2000, for purposes of computing the
  net loss applicable to common shareholders.

F-57

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

9.        
  Shareholders Equity (continued)

Common stock

During the year ended December 31,
  1998, HSNS issued 465,000 shares of its common stock to employees and
  consultants for services rendered. It also issued 100,000 shares to a
  non-employee shareholder in connection with potential business combinations.
  These shares were valued at $46,500 based on the estimated fair value of the
  common stock, as determined by a sale of HSNSs common stock near the time of
  such issuances. At the time of such issuances, HSNSs common stock was not
  publicly traded. During the year ended December 31, 1999, HSNS issued 85,500
  shares of common stock to consultants for services rendered. These shares were
  valued at $130,814 based on the fair value of the common stock at the time of
  such issuances.

During 1998, HSNS acquired 38,500
  shares of its common stock for $227,619 in cash and currently holds these
  shares as treasury stock.

In August 1999, HSNS issued 795,001
  shares of its common stock valued at $643,951, along with a cash payment of
  $102,000, to acquire 402,000 shares of common stock of Summus Technologies,
  Inc., the marketing arm of Summus, Ltd. The value assigned to the shares
  issued by HSNS was recorded at a discount from the traded value of HSNSs
  common stock. An additional 598,182 shares of Summus Technologies, Inc. stock,
  valued at $1,109,986, was contributed to HSNS by a significant shareholder,
  bringing HSNSs total holdings of Summus Technologies, Inc. stock to
  1,000,182 shares or 19%. The value assigned to the shares received by HSNS was
  recorded based on the derived value of the per share amounts purchased from
  the other Summus Technologies, Inc. shareholders. Subsequently, Summus
  Technologies, Inc. and Summus, Ltd. merged with Summus, Ltd. being the
  surviving entity. The companys ownership in Summus, Ltd. after the merger
  was 16.7% and as of December 31, 2000 was 13.5%. On February 16, 2001, HSNS
  acquired substantially all of the assets and operations of Summus, Ltd., under
  the terms of an asset purchase agreement dated October 30, 2000, as amended
  (the Asset Purchase Agreement).  The transaction was accounted for
  as a capital transaction, accompanied by a recapitalization.  As a result
  of the transaction, the historical financial statements of Summus, Ltd., for
  accounting purposes, are deemed that of the Company (see Note 13).

In August 1999, former management of
  HSNS entered into an agreement to sell shares of common stock to family
  members of a Director. The agreement provided for HSNS to sell 250,000 shares
  of its common stock for $1.00 per share. Since the stock price was below the
  fair market value of the underlying stock on the date of the agreement,
  $845,000 of expense related to this transaction has been charged to non-cash
  compensation in the statement of operations in 1999. The business purpose of
  this transaction was to provide financing to HSNS at a critical time.

F-58

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

9.        
  Shareholders Equity (continued)

During 2000, HSNS issued 1,544,291
  shares of its unregistered common stock and issued warrants to purchase an
  additional 1,997,564 shares of common stock for gross cash proceeds of
  $4,777,553. The warrants have exercise prices ranging from $4.00 to $4.625 per
  share, a term of five years, and cannot be exercised within five months from
  the date of issuance.

Stock Options

HSNSs Board of Directors authorized
  an amendment of HSNSs Equity Compensation Plan (the Plan) in February
  2001 to increase the aggregate number of shares of its common stock available
  for issuance of stock awards under the Plan to 6,500,000. The Plan provides
  for the issuance of stock options to employees, directors, advisors and
  consultants of and to HSNS. Options granted generally have a ten-year term and
  vest over three years from the date of grant. Certain of the stock options
  granted under the Plan have been pursuant to various stock option agreements.
  Each stock option agreement contains specific terms.

During 1999, HSNS granted to certain
  employees and directors options exercisable for 1,050,000 shares of common
  stock that had exercise prices below the fair value of the underlying common
  stock. Non-cash compensation expense of $2,006,250 has been recognized based
  upon the difference between the exercise price and the traded value of the
  common stock on the date of grant. In addition, HSNS granted options to
  purchase 1,140,000 shares of HSNSs common stock to non-employees. Non-cash
  expense of $1,391,000 related to these options was recognized based upon the
  fair value of these options on the date of grant. Each of these option grants
  vested immediately upon issuance and options to acquire 1,825,000 shares of
  common stock were exercised during 1999. Unexercised options expire between 5
  and 10 years from date of grant.

During 2000, HSNS granted options to
  purchase 50,000 shares of HSNSs common stock to non-employees. Non-cash
  expense of $468,171 related to these options was recognized based on the fair
  value of these options in accordance with SFAS No. 123.

In addition, HSNS granted options to
  purchase 15,000 shares of HSNSs common stock to a Director that had an
  exercise price below the fair value of the underlying common stock. 
  Non-cash compensation expense of $333,750 has been recognized based on the
  difference between the exercise price and the traded value of the common stock
  on the date of grant.

F-59

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

9.        
  Shareholders Equity (continued)

A summary of HSNSs stock option
  activity is as follows:

|                                        | Shares      | Weighted
        Average Exercise Price
|--------------------------------------- | ----------- | ---------------------------------------
|                                        |            
|                                        |             |                                        
|Outstanding  December 31,
        1998 |            | $                                     
|Granted                                 | 2,455,000   | 1.26                                   
|Exercised                               | (1,825,000) | 0.01                                   
|                                        |            
|Outstanding  December 31,
        1999 | 630,000     | 4.54                                   
|Granted                                 | 830,800     | 6.41                                   
|Exercised                               |            |                                       
|                                        |            
|Outstanding-December 31, 2000           | 1,460,800   | $   5.52                               
|                                        |            

The following table summarizes
  information about stock options outstanding at December 31, 2000:

|Options
        Outstanding             
|----------------------------------------
|                                        
|Range of
        Exercise
        Prices
|                                        
|                                        
|$      .01 .25                         
|2.50  7.50                             
|9.65  18.90                            
|                                        
|                                        
|                                        
|                                        



|                                         | Options
        Exercisable
|---------------------------------------- | ---------------------------
|                                         |                            
|Range of
        Exercise
        Prices | Number
        Exercisable 
|                                        
|                                         |                            
|$      .01                               | 282,000                    
|2.50  7.50                              | 180,000                    
|                                         |                            
|                                         | 462,000                    
|                                         |                            

In accordance with SFAS 123, the fair
  value of each option grant was determined by using the Black-Scholes option
  pricing model with the following weighted average assumptions for the twelve
  month period ended December 31, 2000: dividend yield of 0%; volatility of
  2.054; risk free interest rate of 6.20% and expected option lives of 5 years.
  The weighted average fair value at the date of grant was $6.36 per option. Had
  the compensation expense for HSNSs stock options been determined based on
  the fair value at the date of grant consistent with the provisions of SFAS
  123, HSNSs net loss and net loss per share would have been $(15.4) million
  and $(0.71) for the twelve months ended December 31, 2000.

F-60

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

9.        
  Shareholders Equity (continued)

During August 1999, HSNS negotiated,
  on an individual basis, with each of the holders of the shares issued in
  connection with HSNSs acquisition of the Marketers World assets, and as a
  result of such negotiations an aggregate of 5,161,100 shares of HSNSs common
  stock issued in connection with the transaction were surrendered for
  cancellation. This followed HSNSs decision to cease all operations associated
  with the MWI business in 1998. Since no value was ascribed to the initial
  shares issued in connection with the MWI asset acquisition, no value was
  ascribed to the subsequent cancellation. Also during 1999, HSNS canceled
  555,000 shares of its common stock, 530,000 of which were originally issued in
  1998 and 25,000 issued in 1999. In August 1999, HSNS canceled 300,000 shares
  issued in September 1998 in connection with the unwinding of the proposed
  acquisitions of HealthTec, Inc. and National Direct Corporation. An additional
  230,000 shares were canceled upon HSNSs determination not to pursue certain
  other acquisitions. In August 1999, HSNS canceled 25,000 shares issued to Mr.
  Richdale and his spouse in consideration for his assistance in HSNSs
  acquisition of shares of Summus Technologies, Inc.s stock.

HSNS has reserved shares of its
  authorized 50,000,000 shares of common stock for future issuance as follows:

|Convertible preferred stock and
        related dividends | 149,812  
|--------------------------------------------------------- | ---------
|Outstanding common stock
        warrants                 | 1,997,564
|Outstanding stock options                                 | 1,460,800
|Possible future issuance under
        stock option plans | 5,039,200
|                                                          |          
|Total                                                     | 8,647,376
|                                                          |          

10.       
  Leases

During 1999, HSNS established it
  headquarters in Raleigh, North Carolina and entered into a noncancelable
  operating lease for office space and also entered into certain capital leases
  for office equipment. HSNS also leases office space and certain office
  equipment in Dallas, Texas relating to the operations of its subsidiary,
  Douglas May & Co. Rent expense incurred during the years ended December
  31, 1999 and 2000 was approximately $11,000 and $124,000, respectively.

F-61

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

10.       
  Leases (continued)

The following is a schedule of future
  minimum lease payments for capital and operating leases:

|                                                | Capital
        Leases | Operating
        Leases
|----------------------------------------------- | ---------------------- | ------------------------
|                                                |                       
|                                                |                        |                         
|2001                                            | $     115,332          | $     
        108,452  
|2002                                            | 92,265                 | 78,468                  
|2003                                            | 15,378                 | 81,252                  
|2004                                            |                       | 36,240                  
|2005                                            |                       | 37,200                  
|                                                |                       
|Total minimum lease payments                    | 222,975                | $      341,612          
|Less amounts representing
        interest      | (27,266)               |                         
|                                                |                        |                         
|Present value of minimum lease
        payments | 195,709                |                         
|Less current portion                            | 94,936                 |                         
|                                                |                        |                         
|                                                | $     100,773          |                         
|                                                |                        |                         

Amortization of capital leases is
  included in depreciation and amortization expense.

During 1998, MWI leased its office
  facility and certain office equipment under noncancelable operating leases,
  all which were terminated in 1998. Total rent expense incurred in 1998 by MWI
  was approximately $40,000.

11.       
  Income Taxes

No provision for income taxes has
  been recorded during the years presented due to HSNSs significant operating
  losses in each year.

Deferred income taxes 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 HSNSs deferred tax assets
  are as follows:

F-62

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

11.       
  Income Taxes (continued)

|                                               | December 31               
|---------------------------------------------- | --------------------------
|                                               | 1999                      
|                                               |                           
|                                               |                           
|Deferred tax assets:                           |                           
|Start-up expenses                              | $   1,386,000             
|Royalty amortization                           | 333,000                   
|Loss contingency accrual                       | 320,000                   
|Depreciation                                   |                          
|NOL carryforward                               |                          
|                                               |                           
|Total deferred tax assets                      | 2,039,000                 
|Deferred tax asset valuation
        allowance | (2,039,000)               
|                                               |                           
|Net deferred taxes                             | $               
        
|                                               |                           

Management has determined that a 100%
  valuation allowance for existing deferred tax assets is appropriate given the
  uncertainty regarding the ultimate realization of any such assets.

At December 31, 2000, HSNS had
  federal and state net operating loss carryforwards of approximately
  $15,400,000 for income tax purposes. The tax benefit of these carryforwards is
  reflected in the above table of deferred tax assets. If not used, these
  carryforwards begin to expire in 2020 for federal tax purposes and in 2015 for
  state tax purposes. U. S. tax rules impose limitations on the use of net
  operating losses following certain changes in ownership. If such a change
  occurs, the limitation could reduce the amount of these benefits that would be
  available to offset future taxable income each year, starting with the year of
  ownership change.

12.       
  Loss Contingencies

Settlement with William R. Dunavant

In January 2000, William R. Dunavant
  (Dunavant), a former shareholder of Summus Technologies, Inc. who
  received 350,000 shares of HSNS common stock and $100,000 in cash in exchange
  for his shares of Summus Technologies, Inc. stock, filed a lawsuit against
  HSNS. Former management of HSNS had entered into an agreement with Dunavant
  which obligated HSNS to register the 350,000 shares of HSNS common stock under
  the Securities Act of 1933 (the Securities Act) within a specified time
  period. HSNSs failure to register such shares resulted in a lawsuit against
  HSNS seeking damages of $13,300,000.

F-63

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

12.       
  Loss Contingencies (continued)

In June 2000, HSNS entered into a
  settlement agreement with Dunavant to resolve the lawsuit. This settlement
  agreement was amended on October 26, 2000 and then again on December 5, 2000.
  Under the terms of the settlement agreement, as amended, HSNS issued to
  Dunavant 1,700,000 shares of its restricted common stock in 2000. The value of
  these shares, totaling $1.4 million, was based on a discount applied to the
  traded value of HSNSs common stock on the date of issuance. The number of
  common shares held by Dunavant at December 31, 2000, totaled 2,050,000.
  Additionally, HSNS became obligated to issue 25,000 shares of restricted
  common stock per month and pay $25,000 in cash per month to Dunavant until a
  registration statement on Form S-1, covering the resale of Dunavants shares,
  is declared effective by the SEC, which will result in the HSNS shares owned
  by Dunavant becoming freely tradable. The loss contingency accrual as of
  December 31, 2000, represents managements best estimate of the monthly
  obligations subsequent to December 31, 2000 that HSNS would incur under the
  terms of the agreement with Dunavant through completion of the registration
  process. The estimated value of the monthly share allotment was determined by
  applying an appropriate discount to the traded value of HSNSs common stock as
  of December 31, 2000.

The AIC Litigation

On March 30, 2001, Analysts
  International Corporation (AIC) filed a civil summons and
  complaint in General Court of Justice, District Court Division, County of
  Wake, North Carolina, against High Speed Net Solutions, Inc. The complaint
  alleged that the Company breached certain contracts with AIC, dated December
  9, 1999, February 11, 2000, April 25, 2000, May 9, 2000, and May 23,
  2000, under which AIC provided HSNS with computer programming services. AIC
  has requested that the court enter judgment in its favor for $358,426, plus
  pre-judgment interest from September 26, 2000 on certain invoices at the rate
  of 18% per annum, post-judgment interest at the rate of 8% per annum,
  reasonable costs of AIC and other relief the court deems equitable. The
  Company and AIC are negotiating to resolve the matter. The principal amount of
  $358,426 is included in accounts payable at December 31, 2000.

Cale Yarborough Litigation

On April 25, 2001, Cale Yarborough, a
  Company shareholder, filed a summons and complaint against HSNS, David Gordon,
  Bear Steams Securities Corp., MidSouth Capital, Inc., and Interwest Stock
  Transfer Co. in the United States District Court, District of South Carolina,
  Florence Division, alleging, among other things, (i) breach of an agreement
  Mr. Yarborough entered into with David Gordon under which Mr. Gordon was
  to provide an opinion letter as to Mr. Yarboroughs ability to resell shares
  of our common stock in accordance with Rule 144 promulgated under the
  Securities Act of 1933, (ii) violation of Rule 144, (iii) professional
  negligence and breach of fiduciary duty, and (iv) violation of federal and
  state securities laws. All of the causes of action in the complaint stem from
  the alleged failure to properly advise Mr. Yarborough as to when the shares of
  our common stock could properly be resold under Rule 144. On May 17, 2001, the
  complaint was dismissed without prejudice. As such, it is subject to being
  reopened upon the showing of good cause within the 60-day period following the
  issuance of the dismissal order. It is the Companys understanding that
  Mr. Yarborough and Mr. Gordon are in the process of reaching a settlement
  of this matter.  The Company has not recorded a loss contingency relating
  to this complaint because, in managements opinion, it is not probable that a
  loss contingency exists and an amount cannot be reasonable estimated.



F-64

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High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

13.       
  Subsequent Events

Summus, Ltd. Asset Acquisition

On February 16, 2001, HSNS acquired
  all the assets and operations of Summus, Ltd. Prior to the transaction,
  Summus, Ltd. was a technology company located in Raleigh, North Carolina that
  provided contract engineering, research and development in applications
  related to image and video compression and communication, and provided
  commercial technology in digital media through various methods, including
  generating software development kits for resale, licensing technology, and
  developing commercial software products. Its intellectual property included
  capabilities in encoding, manipulating, compressing, managing and distributing
  digital content. Its core technology for compression, partially derived from a
  field of mathematics known as wavelets, used the brand name of Dynamic WaveletTM.
  Under this brand, Summus. Ltd. developed and supplied low-complexity, low
  bandwidth wavelet technology for compression applications.

From HSNSs perspective, the primary
  business purpose of entering into the transaction with Summus, Ltd. was to
  acquire Summus, Ltd.s compression technology.  Further, HSNS perceived
  the combination of the two companies as offering the potential to create more
  growth opportunities for the Company based on the expected enhanced access to
  capital resources, plus it provided the opportunity for HSNS to capitalize on
  its prior investment in Summus, Ltd.

Prior to the closing of the
  transaction, Summus, Ltd. was the largest shareholder of HSNS. It owned
  8,217,781 shares (33.2%) of HSNSs common stock, approximately 27.6% on a
  fully diluted basis. Immediately after the closing, Summus, Ltd.s ownership
  interest in the Company increased to 20,593,352 shares (55.5%) of the
  Companys common stock on an as-converted basis, approximately (53.1%) on a
  fully-diluted basis. The Asset Purchase Agreement contemplates that Summus,
  Ltd. will liquidate following the completion of its distribution of the
  Companys securities received in the transaction to the shareholders of
  Summus, Ltd.  On March 13, 2001, Summus, Ltd. distributed certain of the
  shares of the Companys common stock received in the transaction to the
  shareholders of Summus, Ltd. in accordance with their pro rata interests; the
  balance of such shares was distributed in mid-July 2001.

The transaction will be accounted for
  as a capital transaction, accompanied by a recapitalization. By accounting for
  the transaction as a capital transaction, the transaction is effectively
  viewed as the issuance of stock by Summus, Ltd. in exchange for the cash of
  HSNS, accompanied by a recapitalization of Summus, Ltd.  The accounting
  for the transaction is quite similar to that resulting from a reverse
  acquisition, except that no goodwill or other intangible assets are recorded.

As a result of the transaction, the
  historical financial statements of Summus, Ltd. for accounting purposes, are
  deemed to be those of High Speed Net Solutions, Inc.  The equity accounts
  of Summus, Ltd. have been adjusted for a recapitalization to reflect the
  equity structure of HSNS, the legal acquirer.  Specifically:

F-65

---





High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

13.       
  Subsequent Events (continued)

- The historical shareholders
      equity of Summus, Ltd. prior to the transaction has been restated for the
      equivalent number of shares of HSNS common and Series B preferred stock,
      and other equity interests, received in the transaction after giving
      effect to any difference in par value of HSNSs and Summus, Ltd.s
      common stock, with an offset to additional paid-in capital;
- The accumulated deficit of Summus,
      Ltd. has been carried forward after the transaction; and
- Loss per share for periods prior
      to the transaction have been restated to reflect the number of equivalent
      shares received by Summus, Ltd. in the transaction.

In legal form, the transaction was
  effected by HSNS issuing shares of its common and Series B preferred stock,
  and other equity interests, in exchange for the net assets of Summus, Ltd. The
  consideration paid by HSNS to acquire the assets of Summus, Ltd. is described
  below:

- HSNS issued to Summus,
  Ltd. for distribution to the shareholders of Summus, Ltd. a total of
  20,218,733 shares of HSNS common stock and 6,000 shares of Series B preferred
  stock.  As a shareholder of Summus, Ltd., HSNS was entitled to receive
  3,604,445 of the total number of shares of common stock issued in the
  transaction.  However, under the terms of the Asset Purchase Agreement
  these shares were canceled, resulting in a net issuance of 16,614,288 shares
  of HSNS common stock.  In addition, the Asset Purchase Agreement provided
  for the cancellation of 8,217,781 shares of HSNS common stock owned by Summus,
  Ltd. prior to the parties execution of the agreement.
- HSNS issued to Summus,
  Ltd. 6,000 shares of newly created Series B preferred stock, of which 2,000
  shares were deposited with an escrow agent as security for any indemnification
  obligations of Summus, Ltd. and its shareholders under the Asset Purchase
  Agreement.
- HSNS has authorized the
  issuance of up to 6,500 shares of Series B Preferred Stock.  The rights
  of the Series B Preferred are as follows: each share of Series B Preferred
  Stock will be automatically converted into 1,000 shares of common stock,
  subject to adjustment for stock dividends, stock splits and the like, after
  the Companys charter is amended to increase the number of authorized shares
  of common stock to at least 60 million shares.  Until then, the Series B
  Preferred Stock will be entitled to receive dividends and participate in
  distributions upon liquidation pro rata with the common stock on an
  as-converted basis, and will vote equally with the common stock on an
  as-converted basis.  These rights apply even if there is insufficient
  authorized common stock to permit conversion of the Series B Preferred
  Stock.  There are no other preferences or privileges associated with the
  Series B Preferred Stock. Under the terms of the Asset Purchase Agreement,
  HSNS is required to seek shareholder approval to amend its charter to increase
  the number of authorized shares of common stock so that there will be
  sufficient shares of common stock available and reserved for issuance upon
  conversion of the Series B Preferred Stock.

F-66

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

13.       
  Subsequent Events (continued)

- HSNS issued to Summus,
  Ltd. warrants to purchase a total of 500 shares of its Series B preferred
  stock, exercisable for a period of 5 years from February 16, 2001.  The
  exercise price of the warrants is $5,500.00 per share of Series B preferred
  stock ($5.50 per share of the Companys common stock on an as-converted
  basis), and was calculated based on the closing market price of the HSNS
  common stock on February 16, 2001, on an as-converted basis (HSNS common stock
  currently trades in a public market on the Pink Sheets).

In addition to the items described
  above, the terms of the Asset Purchase Agreement provided for  HSNSs
  assumption of approximately $2.8 million of liabilities of Summus, Ltd. to
  third parties.  All amounts owed by and between HSNS and Summus, Ltd.
  were cancelled upon the closing of the transaction.

In connection with the transaction,
  the Company entered into a three-year employment agreement with Dr. Bjorn
  Jawerth. Under this employment agreement, in exchange for Dr. Jawerths
  covenant not to compete with the Company for a period of 18 months from and
  after the termination of his employment with the Company, the Company issued
  options to Dr. Jawerth to purchase 166,667 shares of common stock at $0.50 per
  share and 333,333 shares of common stock at $3.75 per share.  Non-cash
  compensation expense of $541,688 was recorded upon the issuance of these
  options as of February 16, 2001, the closing date of the transaction. 
  The issuance of these options was in lieu of a $500,000 cash payment provided
  for in Dr. Jawerths employment agreement.

Under the Asset Purchase Agreement
  HSNS agreed to use reasonable commercial efforts to assist Dr. Jawerth in the
  private sale of up to 1,666,667 shares of HSNS common stock held by Dr.
  Jawerth (representing $2.5 million in value) at a per share price of not less
  than $1.50 per share.  The Asset Purchase Agreement does not stipulate a
  date or time period by which such sale is to occur.  Under the terms of
  Dr. Jawerths employment agreement, the Company is obligated to issue to Dr.
  Jawerth options, with an exercise price of $1.50 per share, exercisable for
  three times the number of shares of common stock sold in the private sale. The
  options will be exercisable during the second through the fifth year after the
  options are issued.  Non-cash compensation will be recorded upon the
  issuance of these options. The non-cash compensation will be determined under
  the provisions of APB 25, pursuant to which the compensation cost will be
  based on the difference between the stock option exercise price of $1.50 per
  share and the traded value of the HSNS common stock on the date the options
  are issued.

During the term of the employment
  agreement, Dr. Jawerth will receive a base salary of $350,000 (which is
  subject to an annual increase of at least 10%) plus other benefits including
  severance benefits.

F-67

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)



13.       
  Subsequent Events (continued)

The Dunavant Settlement

On June 29, 2001, the Company entered
  into a revised settlement agreement and voting agreement with William R.
  Dunavant and his counsel.  Under the terms of such agreements:

- the Company issued an
  aggregate of 475,000 shares of common stock to Mr. Dunavant and his counsel
  which were valued at $352,688.  Such amount was determined by applying a
  discount to the traded value of the Companys stock on the date of the
  revised settlement;
- Mr. Dunavant agreed to
  certain resale restrictions with respect to all but 350,000 shares of common
  stock held by him (an aggregate of 2,275,000 shares), specifically, to limit
  his public resale of such shares to 30,000 shares per calendar month until
  February 15, 2002;
- the Company agreed to
  prepare and proceed diligently to complete and file a registration statement
  with the SEC registering the resale of all of the shares held by Mr. Dunavant,
  his spouse and his counsel, with Mr. Dunavant and his counsel having a right
  to seek an immediate hearing for emergency injunctive relief if such
  registration statement is not filed before July 31, 2001, unless counsel to
  the Company advised the Company (as counsel has) that it is in the best
  interests of the Company and its shareholders to delay the filing of such
  registration statement;
- Mr. Dunavant, his spouse
  and his counsel agreed, for a two-year period from the date of the agreements,
  to vote the shares held by them in favor of and for the election of Board
  nominees by the Company and to vote such shares in a manner consistent with
  the recommendation of the Board with respect to certain extraordinary
  transactions (such as a tender offer, an exchange offer, merger or other
  business combination); and
- the Company, on the one
  hand, and Mr. Dunavant and his counsel, on the other, executed mutual general
  releases with respect to any and all claims against each other, except with
  respect to the obligations and liabilities under such agreements.

At the meeting of the Companys Board
  of Directors held on July 20, 2001, counsel to the Company advised the Board
  that, in counsels opinion, it was in the best interests of the Company and
  its shareholders to delay the filing of a registration statement with the SEC
  to register the resale of all the shares of common stock held by Mr. Dunavant,
  his spouse and his attorney.  Counsels views on this subject took
  cognizance of, among other things, the critical importance to the Company of:

- becoming timely in its
  reporting obligations under the Securities Exchange Act of 1934, as amended
  (at the time the Companys quarterly report on Form 10-Q for the first quarter
  of 2001, to have been filed on or before May 15, 2001, had not yet been
  filed); and
- clearing its Form 10 at
  the earliest opportunity possible, since the clearance of the Form 10 is a
  prerequisite to having the Companys common stock made eligible for quotation
  on the OTC Bulletin Board and thereby potentially opening up greater
  opportunities for the Company to raise capital.

F-68

---



High Speed Net
  Solutions, Inc.

Notes to Consolidated
  Financial Statements (continued)

13.       
  Subsequent Events (continued)

The Company and its counsel, in
  accordance with the June 29, 2001 settlement agreement, have kept Mr.
  Dunavant, through his counsel, apprised of the Companys contemplated timing
  with respect to the filing of the registration statement in view of these
  considerations.  Further, the Company has initiated the process by which
  all of its shareholders with registration rights, including Mr. Dunavant, have
  been sent a notice seeking an indication from such shareholders of their
  desire to have their shares subject to such registration rights covered by the
  registration statement, the number of such shares and their intended plan of
  distribution.  The Company currently anticipates that it will file the
  registration statement with the SEC within a matter of days after clearing the
  Form 10.

Settlement of the AIC Litigation

The Company and AIC entered into a
  settlement agreement and release, dated August 7, 2001, under which the
  Company has agreed to pay the sum of $358,426, plus interest accruing at the
  rate of 8% per annum from March 31, 2000 (the Indebtedness)
  according to the following payment schedule: (i) $20,000 upon execution of the
  settlement agreement, (ii) $5,000 per month for a period of six months,
  commencing one month after execution of the settlement agreement, and (iii)
  $10,000 per month until the balance of the Indebtedness is paid in full. 
  The Company also executed a consent order in favor of AIC providing for AICs
  entry of a judgment by consent in the amount of the Indebtedness, less any
  payments made under the settlement agreement, in the event the Company
  defaults on its obligations under the settlement agreement.

The ENELF Litigation

On March 15, 2001, ENELF, LLC filed a
  civil lawsuit in the United States District Court for Eastern District of
  Texas alleging patent infringement by Microsoft Corporation, Texas
  Instruments, Incorporated Aware, Inc. and Summus, Ltd. ENELF alleged that
  MaxxNote, MaxxShow and PhotoID SDK infringed upon ENELFs U.S. Patent Number
  4,599,567 entitled Signal Representation Generator. ENELF sought to
  enjoin Summus, Ltd. from making, selling, offering for sale, using, or
  importing its wavelet-based video and image processing technology. In
  addition, ENELF sought an unspecified amount of monetary damages. The Company
  has filed an answer denying ENELFs allegations, and seeking a declaratory
  judgment of non-infringement, invalidity, and unenforceability.  The
  Company has recently entered into settlement discussions with ENELF, but is
  prepared to provide a vigorous defense to this lawsuit.  The Company has
  not recorded a loss contingency relating to this complaint because, in
  managements opinion, it is not probable that a loss contingency exists and an
  amount cannot be reasonably estimated.

Settlement Agreement with Brad Richdale Affiliates

In June 2001, the Company entered
  into a settlement agreement whereby it issued 250,000 shares of its restricted
  common stock in full satisfaction of a $435,815 payable to related parties. As
  a part of the settlement agreement, the Company agreed to include these
  restricted common shares in its next registration statement with the SEC
  covering the resale of the shares. Also, as a part of the settlement
  agreement, the Company obtained the voting rights of these shares over the
  next two-year period.

F-69

---



---





Report of
    Independent Auditor



The Board of Directors and
    Shareholder
    Douglas May & Co., Inc.



I have audited the accompanying
    balance sheet of Douglas May & Co., Inc. as of December 31, 1999 and the
    related statement of income and retained earnings and cash flows for the
    year then ended.  These financial statements are the responsibility of
    the Companys management. My responsibility is to express an opinion on
    these financial statements based on my audit.

I conducted the audit in accordance
    with auditing standards generally accepted in the United States. Those
    standards require that I 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. I believe that my audit provides a reasonable basis
    for my opinion.

In my opinion, the financial
    statements referred to above present fairly, in all material respects, the
    financial position of Douglas May & Co., Inc. at December 31, 1999 and
    the results of its operations and cash flows for the year then ended, in
    conformity with accounting principles generally accepted in the United
    States.



/s/ Edwin L.
    Roberts

May 31, 2001
    Edwin L. Roberts
    Irving, Texas

F-70

---



Douglas May &
    Co., Inc.

Balance Sheet

December 31, 1999

AssetsCurrent assets:Cash
          $
          72,496Advances
            to shareholder
          
          51,859Accounts
            receivable
          
          54,105Total current assets
          
          178,460Property and equipment:Furniture,
            fixtures and equipment
          
          82,025Less
            accumulated depreciation
          
          (59,653)22,372Deposits
          
          2,345Total assets
          $
          230,177Liabilities and
            shareholders equityCurrent liabilities:Accounts
            payable
          $
          30,093Line
            of credit
          
          73,500Deferred
            tax liabilities
          
          22,000Total current liabilities
          
          125,593Shareholders equity:Common
            stock, $.05 par value; 1,000 shares authorized,
                 issued and outstanding at December 31,
            1999
          
          50Additional
            paid-in capital
          
          46,447Retained
            earnings
          
          31,087Total shareholders
            equity
          
          77,584Total liabilities and
            shareholders equity
          $
          203,177




See accompanying
    notes.

F-71

---



Douglas May &
    Co., Inc.

Statement of Income
    and Retained Earnings

Year
    ended December 31, 1999



Revenue
          $
          880,432Cost of revenues
          
          567,937Gross profit
          
          312,495General and administrative
            expenses
          
          304,082Interest expense
          
          4,903Income before taxes
          
          3,510Income tax expense
          
          1,092Net income
          
          2,418Retained earnings at
            beginning of year
          
          28,669Retained earnings at end of
            year
          $
          31,087








See accompanying notes.

F-72

---



Douglas May &
    Co., Inc.

Statement of Cash
    Flows

Year ended December
    31, 1999



Operating activitiesNet income
          $
          2,418Adjustments to reconcile
            net income to net cash
                 provided by operating activities:Depreciation
          
          7,214Changes
            in operating assets and liabilities:Accounts
            receivable
          
          32,367Accounts
            payable
          
          (2,701)Deferred
            taxes
          
          1,092Net cash provided by
            operating activities
          
          40,390Investing activitiesPurchases of property and
            equipment
          
          (7,017)Net cash used in investing
            activities
          
          (7,017)Financing activities/Increase in advances to
            shareholder
          
          (599)Net proceeds from line of
            credit
          
          23,500Net cash provided by
            financing activities
          
          22,901Net increase in cash
          
          56,274Cash at beginning of year
          
          16,222Cash at end of year
          $
          72,496Supplemental disclosures
            of cash flows informationCash paid for interest
          $
          4,903




See accompanying notes.

F-73

---



Douglas May &
    Co., Inc.

Notes to Financial
    Statements

December 31, 1999



1.  Business and
    Organization

Douglas May & Co., Inc.
    (May or the Company) provides media creation services that
    include creative design assistance and commercial content development,
    development of audio and video images, as well as web site design and
    construction. May was incorporated in 1992 and is headquartered in Dallas
    Texas.

2. Summary of Significant
    Accounting Policies

Use of Estimates

The preparation of financial
    statements in conformity with general accepted accounting principals
    requires management to make estimate and assumptions that effect the amounts
    reported in the financial statements and accompanying notes.  Actual
    results could differ from those estimates.

Property and equipment

Property and equipment are stated
    at cost.  Depreciation was calculated using the straight-line basis
    over the estimate useful lives of the assets.

Income Taxes

Income taxes are accounted for
    using the liability method in accordance with Statement of Financial
    Accounting Standards No. 109, Accounting for Income Taxes.

Financial Instruments

The carrying amount of cash,
    accounts receivable and accounts payable approximates fair value for these
    financial instruments.  Financial instruments that potentially subject
    the Company to concentrations of credit risk consist of cash and accounts
    receivable.  The Company maintains its cash with financial institutions
    and periodically performs evaluations of the credit standings of those
    financial institutions. The Companys customer base consists of companies
    operating in the United States.  The Companys exposure to credit
    risk with respect to its trade accounts receivable is limited to the
    carrying amount of the receivables. The Company does not require collateral
    on these financial instruments.



F-74

---



Douglas May &
    Co., Inc.

Notes to Financial
    Statements (continued)



2. Summary of Significant
    Accounting Policies (continued)

Revenue Recognition

Revenue is recognized at the time
    the services are rendered based on the terms of the individual contracts.

3.  Leases

The Company leases office space
    under a noncancelable operating lease.  The lease is for 65 months. 
    Total rent expense under the lease for the 1999 was $33,360.

The following is a schedule of
    future minimum lease payments as of December 31:

|2000 | $ | 40,032 
|---- | - | -------
|2001 |   | 40,032 
|2002 |   | 43,772 
|2003 |   | 46,384 
|2004 |   | 46,572 
|2005 |   | 3,881  
|     |   |        
|     | $ | 220,673
|     |   |        

4.Line
    of Credit

The Company maintains a line of
    credit with a bank that matures on January 9, 2000.  Interest is
    payable monthly at prime plus 2%.  The line of credit is collateralized
    by all accounts receivable and property and equipment and is guaranteed by
    the sole shareholder of the Company. The outstanding balance at December 31,
    1999 was $73,500.



F-75

---



Douglas May &
    Co., Inc.

Notes to Financial
    Statements (continued)



5.  Income Taxes

The Company accounts for income
    taxes under FASB Statement No. 109, Accounting for Income Taxes (FASB
    109). Deferred income tax assets and liabilities are determined based
    upon differences between financial reporting and tax bases of assets and
    liabilities and are measured using the enacted tax rates and laws that will
    be in effect when the differences are expected to reverse.

The components of the income tax
    provision (benefit) are as follows:

|Current  | $ | 1,092  
|-------- | - | -------
|Deferred |   | (1,300)
|         |   |        
|Total    | $ | (208)  
|         |   |        

Deferred income taxes reflect the
    net tax effects of temporary differences between the carrying amount of
    assets and liabilities for financial reporting purposes and the amounts used
    for income tax purposes. Significant components of the Companys net
    deferred income taxes are as follows:

|Deferred
          tax liabilities | $ | (22,000)
|---------------------------------- | - | --------
|Cash
          to accrual          |   |        
|                                   |   | (22,000)
|                                   |   |         
|Total
          net deferred taxes | $ | (22,000)
|                                   |   |         

7.Subsequent Event

On July 10, 2000, High Speed Net
    Solutions, Inc. (High Speed) acquired all of the issued and
    outstanding common stock of the Company through the issuance of 183,070
    shares of High Speed common stock valued at $1,376,000.



F-76

---



EXHIBIT INDEX

|Exhibit
        Number | Exhibit
        Description                                                                                                                                                                                                                                                              
|---------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                       |                                                                                                                                                                                                                                                                                          
|                       |                                                                                                                                                                                                                                                                                          
|3.1                    | Amended and Restated Articles
        of Incorporation, filed February 28, 2000                                                                                                                                                                                                          
|                       |                                                                                                                                                                                                                                                                                          
|3.2*                   | Second Amended and Restated
        Bylaws (incorporated by reference to Exhibit 3.2 to our Form 10 filed on
        July 5, 2001)                                                                                                                                                       
|                       |                                                                                                                                                                                                                                                                                          
|3.3                    | Articles of Amendment and
        Statement of Rights and Preferences of the 8% Series A Convertible
        Preferred Stock, filed March 3, 2000                                                                                                                                        
|                       |                                                                                                                                                                                                                                                                                          
|3.4                    | Articles of Correction filed
        June 23, 2000 to Articles of Amendment, filed March 2, 2000                                                                                                                                                                                         
|                       |                                                                                                                                                                                                                                                                                          
|3.5                    | Amendment to Amended and
        Restated Articles of Incorporation and Statement of Rights and
        Preferences of the Series B Convertible Preferred Stock                                                                                                                          
|                       |                                                                                                                                                                                                                                                                                          
|3.6                    | Amendment to Amended and
        Restated Articles of Incorporation , filed  February 27, 2002,
        changing our name to Summus, Inc. (USA)                                                                                                                                          
|                       |                                                                                                                                                                                                                                                                                          
|3.7                    | Amendment to Amended and
        Restated Articles of Incorporation, filed February 27, 2002, increasing
        our authorized common stock, par value $.001, from 50,000,000 shares to
        100,000,000 shares                                                                      
|                       |                                                                                                                                                                                                                                                                                          
|4.1                    | Specimen Common Stock
        Certificate                                                                                                                                                                                                                                                
|                       |                                                                                                                                                                                                                                                                                          
|4.2                    | Form of  Subscription
        Agreement for private placement sales of our common stock                                                                                                                                                                                                  
|                       |                                                                                                                                                                                                                                                                                          
|4.3                    | Form of Selling Shareholders
        Agreement in connection with private placement sales of our common stock                                                                                                                                                                            
|                       |                                                                                                                                                                                                                                                                                          
|4.4                    | Form of  Warrant Agreement
        for warrants issued in connection with private placement sales of our
        common stock                                                                                                                                                            
|                       |                                                                                                                                                                                                                                                                                          
|10.1*                  | Acquisition Agreement and Plan
        of Merger, dated as of April 19, 2000, between J.S.J. Capital Corp. and
        Summus, Inc. (incorporated by reference to Exhibit 1.1 to our Current
        Report on Form 8-K dated April 21, 2000)                                            
|                       |                                                                                                                                                                                                                                                                                          
|10.2*                  | Asset Purchase Agreement, dated
        October 30, 2000, among Summus, Inc., Summus, Ltd., and the stockholders
        named therein (incorporated by reference to Exhibit 10.01 to our Current
        Report on Form 8-K dated February 16, 2001)                                    
|                       |                                                                                                                                                                                                                                                                                          
|10.3*                  | Amendment Number 1 to Asset
        Purchase Agreement, dated as of December 30, 2000, among Summus, Inc.,
        Summus, Ltd. and the stockholders named therein (incorporated by
        reference to Exhibit 10.02 to our Current Report on Form 8-K dated
        February 16, 2001)
|                       |                                                                                                                                                                                                                                                                                          
|10.4*                  | Amendment to Asset Purchase
        Agreement, dated as of January 30, 2001, among Summus, Inc., Summus,
        Ltd. and the stockholders named therein (incorporated by reference to
        Exhibit 10.03 to our Current Report on Form 8-K dated February 16, 2001)                  
|                       |                                                                                                                                                                                                                                                                                          
|10.5*                  | Agreement for Transfer of All
        Rights and Reservation of License in Software, dated September 4, 2000,
        between PlusStation, LLC, Niksa Radovic and Summus, Ltd. (incorporated
        by reference to Exhibit 10.9 to our Form 10 filed on July 5, 2001)                  
|                       |                                                                                                                                                                                                                                                                                          
|10.6*                  | Agreement of Settlement and
        Compromise, dated as June 25, 2001, among Summus, Inc., Health Tec,
        Inc., and Brad Richdale Direct, Inc. (incorporated by reference to
        Exhibit 10.39 to our Form 10 filed on July 5, 2001)                                           
|                       |                                                                                                                                                                                                                                                                                          
|10.7*                  | Equity Compensation Plan,
        effective January 31, 2000 (incorporated by reference to Exhibit 10.05
        to our Quarterly Report on Form 10-Q filed for the quarter ended March
        31. 2000)                                                                                
|                       |                                                                                                                                                                                                                                                                                          
|10.8*                  | Amendment to Equity
        Compensation Plan, effective May 1, 2000 (incorporated by reference to
        Exhibit 10.26 to our Form 10 filed on July 5, 2001)                                                                                                                           
|                       |                                                                                                                                                                                                                                                                                          
|10.9*                  | Amendment to Summus, Inc.
        Equity Compensation Plan, effective February 16, 2001 (incorporated by
        reference to Exhibit 10.09 to our Current Report on Form 8-K dated
        February 16, 2001)                                                                           
|                       |                                                                                                                                                                                                                                                                                          
|10.10*                 | Executive
        Employment Agreement, dated as of February 16, 2001, between Summus,
        Inc. and Bjorn Jawerth (incorporated by reference to Exhibit 10.06 to
        our Current Report on Form 8-K dated February 16, 2001)                                                     
|                       |                                                                                                                                                                                                                                                                                          
|10.11                  | Amendment to
        Executive Employment Agreement of Bjorn D. Jawerth, dated as of February
        28, 2001                                                                                                                                                                           
|                       |                                                                                                                                                                                                                                                                                          
|10.12                  | Executive
        Employment Agreement, dated as of February 16, 2001, between Summus,
        Inc. and Gary E. Ban                                                                                                                                                                      
|                       |                                                                                                                                                                                                                                                                                          
|10.13                  | Executive
        Employment Letter Agreement, dated as of November 19, 2001, between
        Summus, Inc. and Andrew L. Fox                                                                                                                                                             
|                       |                                                                                                                                                                                                                                                                                          
|10.14                  | Executive
        Employment Agreement, dated as of October 1, 2001,  between Summus,
        Inc. and Christopher E. Kremer                                                                                                                                                             
|                       |                                                                                                                                                                                                                                                                                          
|10.15                  | Executive
        Employment Agreement, dated as of February 16, 2001,  between
        Summus, Inc. and Robert S. Lowrey                                                                                                                                                                
|                       |                                                                                                                                                                                                                                                                                          
|10.16*                 | Lease Agreement, dated as of
        October 15, 1999, as modified on March 23, 2000 and June 9, 2000,
        between Phoenix Limited Partnership of Raleigh and Summus, Inc.
        (incorporated by reference to Exhibit 10.31 to our Form 10 filed on
        July  5, 2001)        
|                       |                                                                                                                                                                                                                                                                                          
|10.17*                 | Lease Agreement, dated as of
        August 12, 1999, between Phoenix Limited Partnership of Raleigh and
        Summus, Ltd. (incorporated by reference to Exhibit 32 to our Form 10
        filed on July 5, 2001)                                                                     
|                       |                                                                                                                                                                                                                                                                                          
|10.18*                 | Lease Modification Agreement
        Number 1, dated as of December 22, 1999, between Phoenix Limited
        Partnership of Raleigh and Summus, Ltd. . (incorporated by reference to
        Exhibit 33 to our Form 10 filed on July 5, 2001)                                           
|                       |                                                                                                                                                                                                                                                                                          
|10.19*                 | Summus, Inc. Invention
        Awards Plan, effective October 30, 2000 (incorporated by reference to
        Exhibit 10.40 to Amendment No. 1 to our Form 10 filed on September 28,
        2001)                                                                                        
|                       |                                                                                                                                                                                                                                                                                          
|10.20*                 | Master Porting Agreement,
        dated July 27, 2001, between Summus, Inc. and Samsung Electronics
        America (incorporated by reference to Exhibit 10.41  to 
        Amendment No. 2 to our Form 10 filed on October 31, 2001.                                                   
|                       |                                                                                                                                                                                                                                                                                          
|10.21*                 | Second Amended and Restated
        Settlement Agreement, dated as of October 26, 2000, between Summus, Inc.
        and William R. Dunavant (incorporated by reference to Exhibit 10.19 to
        our Form 10 filed on July 5, 2001)                                                   
|                       |                                                                                                                                                                                                                                                                                          
|10.22*                 | Memo, dated December 5,
        2000, supplementing the Second Amended and Restated Settlement Agreement
        referenced in Exhibit 10.21 of this report (incorporated by reference to
        Exhibit 10.20 to our Form 10 filed on July 5, 2001)                                    
|                       |                                                                                                                                                                                                                                                                                          
|10.23*                 | Settlement Agreement, dated
        as of June 29,  2001, among Summus, Inc. Willaim R. Dunavant,
        Lucille Dunavant, and Richard E. Brodsky and Summus, Inc. (incorporated
        by reference to Exhibit 10.37 to Form 10 filed on July 5, 2001)                                
|                       |                                                                                                                                                                                                                                                                                          
|10.24*                 | Voting Agreement, dated as of
        June 29, 2001, among William R. Dunavant, Lucille Dunavant, Richard E.
        Brodsky, P.A., Richard E. Brodsky and Summus, Inc. (incorporated by
        reference to Exhibit 10.38 to our Form 10 filed on July 5, 2001)                        
|                       |                                                                                                                                                                                                                                                                                          
|21.1                   | Subsidiaries of Summus, Inc.
         None