##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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FORM 10-K

(Mark One)



| |     |                                                                                      
| | --- | -------------------------------------------------------------------------------------
| | [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

OR



| |      |                                                                                          
| | ---- | -----------------------------------------------------------------------------------------
| | [  ] | 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: 0-27925

Netzee, Inc.

(Exact name of registrant as specified in its
charter)




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|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|                                                               
|                                                               
|                                                               
|                                                               
|Georgia                                                         |  | 58-2488883                           
|(State or other jurisdiction
	of incorporation or organization) |  | (I.R.S. Employer
	Identification No.)
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|6190 Powers Ferry Road,
	Suite 400                              |  | 30339                                
|Atlanta, Georgia                                                |  | (Zip Code)                           
|(Address of principal executive offices)                        |  |                                      

Registrants telephone number, including area
code:  (770) 850-4000

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

None

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

Common Stock, no par value



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

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. o

The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the Registrant as of
March 25, 2002 is: $919,668

The number of shares of Netzee, Inc. common stock outstanding as
of March 25, 2002 was 3,377,911.

Documents incorporated by reference: The Registrant hereby
incorporates by reference information required by Part III
of this Form 10-K from its proxy statement to be filed with
the Securities and Exchange Commission on or before
April 30, 2002.



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TABLE OF CONTENTS



|                                                  |                                                                                                         |  |  |  |  |  |  | 
|------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|INDEX                                            
|Part I                                           
|                                                  | Item 1. Business                                                                                       
|                                                  | Item 2. Properties                                                                                     
|                                                  | Item 3. Legal Proceedings                                                                              
|                                                  | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II                                          
|                                                  | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                          
|                                                  | Item 6. Selected Financial Data                                                                        
|                                                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                                                  | Item 7A. Qualitative and Quantitative Disclosures Regarding Market Risk                                
|                                                  | Item 8. Financial Statements and Supplementary Data                                                    
|                                                  | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|PART III                                         
|                                                  | Item 10. Directors and Executive Officers of the Registrant                                            
|Item 11. Executive Compensation                  
|                                                  | Item 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder Matters
|                                                  | Item 13. Certain Relationships and Related Transactions                                                
|PART IV                                          
|                                                  | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|SIGNATURES                                       
|REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS         
|CONSOLIDATED FINANCIAL STATEMENTS                
|                                                  | CONSOLIDATED BALANCE SHEETS                                                                            
|                                                  | CONSOLIDATED STATEMENTS OF OPERATIONS                                                                  
|                                                  | CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS (DEFICIT) EQUITY                                   
|                                                  | CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                  
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS       
|2nd Amendment to Registration Rights Agmt 3/29/02
|Amendment  No1 to Amended & Restated Credit Agmt 
|Severance Agreement                              
|Subsidiaries of the Registrant                   
|Consent of Arthur Andersen LLP                   
|Letter Required by Temporary Note 3T             
|Schedule II to Consolidated Financial Statements 
|Report of Independent Public Accountants         



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##### Table of Contents






INDEX

|          |  |                                                                                                 |  |      |    | 
|--------- |  | ----------------------------------------------------------------------------------------------- |  | ---- | -- | 
|          |  |                                                                                                 |  | Page
|          |  |                                                                                                 |  |     
|         
|         
|         
|         
|Part I:   |  |                                                                                                 |  |     
|         
|         
|         
|         
|Item 1.   |  | Business                                                                                        |  |      | 1  | 
|         
|         
|         
|         
|Item 2.   |  | Properties                                                                                      |  |      | 14 | 
|         
|         
|         
|         
|Item 3.   |  | Legal Proceedings                                                                               |  |      | 14 | 
|         
|         
|         
|         
|Item 4.   |  | Submission of Matters to a Vote of Security
	Holders                                            |  |      | 14 | 
|         
|         
|         
|         
|Part II:  |  |                                                                                                 |  |     
|         
|         
|         
|         
|Item 5.   |  | Market for Registrants Common Equity and
	Related Stockholder Matters                          |  |      | 14 | 
|         
|         
|         
|         
|Item 6.   |  | Selected Financial Data                                                                         |  |      | 16 | 
|         
|         
|         
|         
|Item 7.   |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations          |  |      | 19 | 
|         
|         
|         
|         
|Item 7A   |  | Qualitative and Quantitative Disclosures
	Regarding Market Risk                                 |  |      | 41 | 
|         
|         
|         
|         
|Item 8.   |  | Financial Statements and Supplementary Data                                                     |  |      | 41 | 
|         
|         
|         
|         
|Item 9.   |  | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure           |  |      | 41 | 
|         
|         
|         
|         
|Part III: |  |                                                                                                 |  |     
|         
|         
|         
|         
|Item 10.  |  | Directors and Executive Officers of the Registrant                                              |  |      | 41 | 
|         
|         
|         
|         
|Item 11.  |  | Executive Compensation                                                                          |  |      | 41 | 
|         
|         
|         
|         
|Item 12.  |  | Security Ownership of Certain Beneficial Owners
	and Management and Related Stockholder Matters |  |      | 41 | 
|         
|         
|         
|         
|Item 13.  |  | Certain Relationships and Related Transactions                                                  |  |      | 42 | 
|         
|         
|         
|         
|Part IV:  |  |                                                                                                 |  |     
|         
|         
|         
|         
|Item 14.  |  | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                                |  |      | 42 | 

i



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Item 1.     Business

Forward-Looking Statements

This Form 10-K contains statements which constitute
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the
Securities Act), and Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange
Act). These statements include all statements that are not
statements of historical fact regarding the intent, belief or
expectations of Netzee, Inc. and our management. The words
may, will, anticipate,
believe, intend, expect,
estimate, plan, strategy and
similar expressions are intended to identify forward-looking
statements. These statements are based upon a number of
assumptions and estimates that are subject to significant
uncertainties, many of which are beyond our control. These
forward-looking statements are not guarantees of future
performance, and actual results may differ materially from those
projected in the forward-looking statements as a result of risks
related to our brief operating history and our ability to
achieve or maintain profitability; our ability to achieve,
manage or maintain growth and execute our business strategy
successfully; our ability to achieve our cash flow and
cost-saving objectives; our dependence on developing, testing,
implementing, and our ability to successfully market and sell,
enhanced and new products and services; risks associated with
possible system failures and rapid changes in technology; risks
associated with previous and potential future security breaches;
our ability to retain existing customers and execute agreements
with new customers; our ability to sell our products and
services to financial institution customers and their customers;
our ability to respond to competition; the volatility associated
with Internet-related companies; our ability to maintain our
listing on the Nasdaq National Market; and various other factors
discussed in detail in this Form 10-K, including the risks
described in Managements Discussion and Analysis of
Financial Condition and Results of Operations 
Factors That May Affect Our Future Results of Operations and
Financial Condition, and other periodic reports we file
under the Exchange Act. We do not undertake any obligation to
update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or future
operating results.

General

We provide Internet-enabled software products to community
financial institutions in the United States, generally with
assets of less than $10 billion. Our core Internet banking suite
of products provides community financial institutions with
additional channels to deliver services to their customers. As
of December 31, 2001, we had 662 financial institution
customers contracted for one of our core Internet banking
products, of which 615 financial institution customers were
implemented as of year-end 2001. These implemented financial
institutions had more than 880,000 customers using our Internet
banking products at December 31, 2001.

Our Internet banking products provide a cost-effective, secure
and scalable solution that enables community financial
institutions to offer their customers a wide array of financial
products and services over the Internet, in either an in-house
or fully outsourced environment. Among the services that can be
offered with our suite of Internet banking products are
commercial cash management, bill payment, brokerage, targeted
marketing, portal and e-commerce marketplace services. These
products and services are branded with the financial
institutions own name and contain each institutions
logo, colors and other distinctive branding characteristics.
This branded solution enables community financial institutions
to provide their customers with the convenience of Internet
banking without losing the personal relationship and service
associated with the local community financial institution. We
also offer telephone banking products and services to allow
community financial institutions an additional channel for
communication with their customers. Our broad range of products
and services are designed to enable a community financial
institution to compete effectively with the services offered by
both larger and Internet-based financial institutions.

We currently earn much of our revenues from recurring monthly
service fees, flat monthly per user fees and per transaction
charges. However, in November 2000, we began to offer an
in-house Internet banking product, pursuant to which we earn
up-front software license fees, implementation fees and
recurring monthly fees based on active users and user-generated
transactions. We also sell our in-house products under three- to
five-year subscriptions that include annual subscription and
maintenance fees.

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We are focused on increasing our community financial institution
customer base, expanding relationships with our existing
community financial institution customers, and increasing the
penetration of our products and services within the community
financial institution customer base.

Formation of Netzee

Netzee was formed as a Georgia corporation in August 1999 to be
merged with Direct Access Interactive, Inc. (Direct
Access or the Predecessor), a company that was
formed in October 1996 to provide Internet and telephone banking
products and services. InterCept, Inc. (InterCept)
acquired Direct Access in March 1999 as a wholly-owned
subsidiary. InterCept currently owns approximately 28% of our
common stock.

In August 1999, Direct Access acquired SBS Corporation
(SBS) in a merger. Immediately after the merger,
Direct Access sold all of the assets of SBS, other than its
Internet and telephone banking assets, to our former parent
company, InterCept. Based in Birmingham, Alabama, SBS provided
automated technology products and services, including Internet
and telephone banking systems, to community financial
institutions nationwide.

In September 1999, Direct Access was merged into Netzee, with
Netzee being the surviving corporation. At the same time, Netzee
acquired the Internet banking divisions of each of TIB-The
Independent BankersBank (TIB), a Texas state
chartered and Federal Reserve member bank, and The Bankers Bank,
a Georgia state chartered and Federal Reserve member bank
(collectively, the Divisions). Each of these
entities is a bankers bank, which is a bank
that exclusively serves and is owned by community financial
institutions. Certain of these acquired assets were written down
in 2000.

In September 1999, Netzee also acquired all of the ownership
interests in Call Me Bill, LLC (Call Me Bill). Based
in Elizabethtown, Kentucky, Call Me Bill provided 24-hour
electronic bill payment services to financial institutions
customers. Subsequently, we integrated these services into our
core Internet banking product. In May 2001, we sold a portion of
these assets to iPay, LLC (iPay).

In September 1999, Netzee also acquired Dyad Corporation
(Dyad). Based in Norcross, Georgia, Dyad developed,
among other things, proprietary loan application, approval and
fulfillment software. These acquired assets were written off
during 2000.

In December 1999, a wholly-owned subsidiary of Netzee acquired
certain of the assets and liabilities of DPSC Software, Inc.
(DPSC). Located near Los Angeles, California, DPSC
provided regulatory reporting and support applications designed
to meet the special needs of community financial institutions.
In February 2001, we sold substantially all of these assets to
InterCept.

In March 2000, Netzee acquired certain assets and assumed
certain liabilities of Digital Visions, Inc. (DVI).
Based in Minneapolis, Minnesota, DVI provided Internet based
financial information tools for community financial
institutions. These assets were used to provide certain
wholesale applications to community financial institutions.
Certain of these acquired assets were written down and we
subsequently sold substantially all of the assets we acquired
from DVI to SS&C Technologies, Inc. (SS&C)
in November 2001.

In July 2000, Netzee acquired certain assets and assumed certain
liabilities of Card Plus, Inc. (Card Plus). Based in
Norcross, Georgia, Card Plus provided outsourced software and
systems development and related consulting services. These
acquired assets were written off during 2001.

In November 2000, Netzee acquired certain assets and assumed
certain liabilities from John H. Harland Company
(Harland). The assets acquired were principally
located in Trumbull, Connecticut and Portland, Oregon and are
used to provide Internet banking and bill payment services. This
acquisition allows us to offer an in-house Internet banking
product to our customers that already have established more
extensive network infrastructures. As a result of this purchase,
Harland currently owns approximately 16% of our common stock.

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In March 2001, we purchased certain assets of HomeCom
Communications, Inc. (HomeCom) Internet banking
business and assumed certain of HomeComs operating
liabilities related to the business. The assets acquired were
principally located in Atlanta, Georgia and are used to provide
Internet banking services.

Nasdaq Delisting

Because our common stock is currently listed on the Nasdaq
National Market, we are subject to financial and market-related
tests and other qualitative standards established by Nasdaq to
maintain our listing. On February 14, 2002 we received
notification from The Nasdaq Stock Market indicating that we
were out of compliance with the $5 million minimum market
value requirement for our publicly held shares. We have been
given 90 calendar days, or until May 15, 2002, to come
into compliance with this requirement, which would require our
publicly held shares to maintain a minimum market value of
$5 million for a minimum of 10 consecutive trading
days during that period. If we fail to meet this requirement, we
will become subject to delisting from The Nasdaq National
Market, at which time we can appeal the delisting to the Nasdaq
Listing Qualifications Panel. It is likely that we will be
delisted from the Nasdaq National Market. In addition, we also
have the option of applying to transfer our common stock to The
Nasdaq SmallCap Market, where we also would have to satisfy
continued inclusion requirements for that market. These
requirements include maintaining certain levels of
shareholders equity, minimum bid price and market value,
which we may not be able to achieve.

Industry Overview



| |                            
| | ---------------------------
| | The Internet and E-Commerce

The Internet has emerged as the fastest growing global
communications and transactional medium in history, and
continues to dramatically change the way people and businesses
share information and conduct commerce. According to eMarketer,
a leading provider of Internet and e-business statistics,
Internet usage is expected to increase in the United States from
116.5 million users in 2000 to 167.0 million users in
2004. This continuing growth in Internet usage is being driven
by a number of factors, including:



| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | an expanding base of personal computers in the home and
	workplace;                                                                       
|
| |  | an increasing general awareness of the Internet and e-commerce
	among consumer and business users;                                        
|
| |  | improvements in network and communications infrastructure and
	security;                                                                  
|
| |  | easier, faster and less expensive access to the Internet and
	commercial on-line services; and                                            
|
| |  | the introduction of alternative Internet-enabled devices, such
	as televisions, hand-held computers and Internet-enabled
	cellular phones.

Businesses have also embraced the Internet as an important means
of communicating and conducting transactions. Many
companies web sites are interactive and transaction-based,
enabling them to provide a wide range of e-commerce
applications. eMarketer estimates that revenue from business to
consumer e-commerce in the United States will increase from
approximately $27.3 billion in 2000 to more than
$109.4 billion in 2005, a compound annual growth rate of
approximately 32%.



| |                 
| | ----------------
| | Internet Banking

Consumers, businesses and financial institutions are recognizing
that the Internet is a powerful and efficient medium for the
delivery of banking services. These services include Internet
banking, bill payment, bill presentment and other services for
individuals, and cash management, payroll and other services for
the commercial customers of financial institutions. Consumers
and small businesses are increasing their demand for Internet
banking as a convenient and cost-effective method to monitor
financial accounts and transact business 24 hours a day,
seven days a week. Additionally, unlike PC banking which
requires the user to load software onto their computers,
Internet banking provides the flexibility to perform a wide
range of transactions from any personal computer or
Internet-enabled device. According to Juniper Media Metrics, a
leading provider of statistical Internet usage information,
there were 14.6 million users of Internet banking services
in

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In addition to customer demand, financial institutions are
motivated to provide Internet banking solutions to retain
existing customers, attract new customers, provide additional
non-interest sources of revenues and reduce costs. Financial
institutions have been faced with the loss of their traditional
customer base due in part to customer demand for comprehensive
financial services from a single provider. The Internet provides
the platform to market traditional banking products and services
and the flexibility to expand into non-traditional banking
services, such as brokerage, insurance and bill presentment
services. Internet banking also allows a financial institution
to collect and analyze customer data for use in targeted
marketing programs.



| |                                                      
| | -----------------------------------------------------
| | Internet Banking for Community Financial Institutions

The Office of the Comptroller of the Currency reported that
every national bank with assets of more than $10 billion
offered Internet banking, as compared to only 7% of the smallest
banks, those with assets less than $100 million. According
to the Federal Deposit Insurance Corporation and the National
Credit Union Administration, there are approximately 8,000
banks, 1,500 thrifts and 10,000 credit unions in the United
States with assets of less than $10 billion each. As a
result of the adoption of Internet banking services by their
larger competitors and the growth of e-commerce, community
financial institutions remain under increasing pressure to offer
Internet-based individual and commercial banking services.
Community financial institutions realize that if their product
and service offerings are inadequate, they risk losing customers
to larger institutions, Internet-only banks, investment and
brokerage companies, retailers, insurance companies or locally
competitive community financial institutions that offer these
services.

Community financial institutions face many hurdles in providing
a comprehensive Internet banking solution to their individual
and commercial banking customers. In particular, competition
from other banks and non-bank financial institutions has eroded
profit margins and has forced community financial institutions
to focus on reducing non-interest related costs. These
institutions often lack the capital and human resources to
develop and maintain the necessary technology and infrastructure
to design the desired on-line banking services in-house and to
provide integrated customer support for these services.

Because of these capital and human resources constraints, we
believe that many community financial institutions require a
low-cost, outsourced Internet-based banking solution. This
solution must be implemented rapidly and cost-effectively and
must interface with the institutions existing core
processing systems. A community financial institutions
Internet banking system must be secure, reliable and scalable.
In addition, the Internet solution must provide the flexibility
to add new products and services, such as e-commerce and other
non-traditional banking service offerings.

The Netzee Solution

We provide products and services that fulfill the Internet-based
needs of community financial institutions. Our suite provides
Internet banking and e-commerce solutions that enable community
financial institutions to offer to their customers a wide array
of financial products and services over the Internet.

Our Internet-based suite gives community financial institutions
the ability to provide the convenience of on-line banking
services while maintaining personal relationships and affording
quality service to their customers. Netzees suite of
products and services consists of our core Internet banking
solution, as well as commercial cash management, bill payment,
brokerage, targeted marketing, portal and e-commerce
functionality. Each community financial institution can choose
the products and services that best fit its customers and
internal requirements and can easily customize our system to add
new or different functions. These software products interface
with a community financial institutions existing computer
hardware and core processing systems. They can be installed and
operated within our data center in a fully outsourced mode, or
installed and operated in-house at a community financial
institution. In connection with our suite, we offer web site
design and hosting, product implementation and continuing
service and support.

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Each community financial institution can create a customized and
branded Internet banking system, with its own trademarks, logo,
colors and other distinctive features. Our web site design team
creates fully interactive and customized web sites for our
community financial institution customers. Working closely with
the customer, the team designs a web site to incorporate the
form and functionality required by the community financial
institution, including the integration of the financial
institutions proprietary and value-added financial
services such as logos and other branding methods, application
forms, financial calculators and links to other web sites. We
offer basic web site development services without additional
charge and provide additional enhancement, customization, web
portal and design services for a fee.

We provide all of the proprietary software and the hardware
necessary to operate our Internet-banking products in an
outsourced, service bureau environment. Community financial
institutions that use our outsourced products do not need to
develop or purchase in-house software, purchase or maintain
expensive equipment, or hire a technical staff. Our data centers
contain the web servers, computers, data storage, retrieval and
security systems, and support personnel necessary to operate our
outsourced Internet-based products. Compared to in-house
products, our outsourced product can significantly reduce the
time and expense necessary for a financial institution to
implement, upgrade and support Internet-based products.

We also provide an in-house version of our suite of products and
services to allow financial institutions with more extensive
levels of infrastructure to operate, maintain and support our
products and services in the financial institutions own
data center.

We are able to integrate our products and services with a
community financial institutions core processing systems.
Our Internet-banking systems are designed to work with different
types of core processing software and data processing services.
At present, we have successfully installed Internet banking
products and services that interface with over 50 different
core-processing environments. Further, we believe that we have
the ability to interface our products with many other core
processing systems with nominal effort and expense. For a
typical Internet banking system installation, the implementation
period currently averages approximately 60 to 90 days.

Security plays a key role in the successful installation and
operation of both our outsourced and in-house products. Our data
centers employ various data and session security measures,
including data security detection systems, firewalls and
advanced session termination technology. Additionally, access to
our data centers is physically controlled and monitored with
swipe-card door entry and 24-hour video surveillance systems.
The data centers also undergo various penetration and
vulnerability reviews by our full-time security staff, as well
as by outside security consultants. Customers of our in-house
products are responsible for maintaining the network and
physical security of their Internet banking system, although we
recommend that they adopt similar security measures as are used
within our data centers.

Products and Services



| |                 
| | ----------------
| | Internet Banking

Our core Internet banking product is designed to provide our
community financial institution customers an additional channel
to offer products and services to their customers. Through our
Internet banking product, a community financial institution can
offer its customers access to the following services on-line 24
hours per day, seven days per week:



| |   |                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Account Information.Customers can view balance
	information for checking and savings accounts, certificates of
	deposit, lines of credit, and loans. Customers can also view
	year-to-date interest accrued or paid, interest rates and
	deposit maturity dates.
|
| |  | Funds Transfer.Customers can transfer funds among
	accounts.                                                                                                                                                                                                    
|
| |  | Compatibility with Personal Financial Management Software.Customers can download their account information into
	popular personal financial management software, such as
	Quicken® and Microsoft Money®.                                                        

5



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| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | U.S. Patriot Bonds (formerly known as U.S. Series EE
	Savings Bonds). Customers can purchase U.S. Patriot Bonds.                                                           
|
| |  | Secure Messaging.Customers can communicate with a
	financial institution through secure, encrypted message systems.                                                        
|
| |  | Additional Features.Customers can reorder paper checks,
	view images of cleared checks, request an account statement or
	contact financial institution personnel by e-mail.

Cash Management.For the commercial customers of the
financial institution, we also offer a commercial cash
management product. This allows the financial institution to
offer various treasury management functions via the Internet.
Business customers can monitor their accounts, process payroll,
make tax payments, stop payments, execute wire transfers and
order coins and currency. We provide full automated clearing
house, or ACH, capabilities including origination
and importation of National Automated Clearing House
Association, or NACHA, formatted files.

Bill Payment.Our bill payment product allows our
financial institution customers to offer their customers an
electronic bill payment service. Our bill payment products
permit the payment of both recurring and non-recurring bills via
the Internet 24 hours a day, seven days a week. Our bill payment
product provides financial institutions with an additional
mechanism for customer retention, as end users who initially set
up their recurring payments through a financial institution are
less apt to switch financial institutions.

Online Brokerage Services.Through our strategic
relationship with STARfn, a provider of online financial
services, we are able to offer our community financial
institutions an online brokerage product. Community financial
institutions are able to offer their customers brokerage
services linked to their accounts at the community financial
institution. The accounts do not require an initial funding,
allowing the community financial institution to retain their
customers cash balances. Additionally, investment
transactions are settled directly from and to the
customers account at the community financial institution.

Targeted Marketing.With our targeted marketing product,
a financial institution customer can target products and
services to its customers who would most likely buy them by
dynamically classifying and profiling customer subsets in a
real-time environment. This enables financial institutions to
expand their traditional sales techniques in order to market and
sell their products and services more effectively.

Web Portal.With our web portal product, a customer can
make its home page look like a branded Internet portal by
offering local news, weather, stock information and certain
other content selections determined by the community financial
institution. Additionally, the community financial
institutions customers perceive that they are interacting
with their community financial institution, rather than with a
third party content provider. This allows the community
financial institution to compete more effectively in its market,
to improve its customer relations and to increase its customer
base.

E-commerce Marketplace.Our e-commerce Marketplace
product enables community financial institutions to create a
branded virtual marketplace consisting of its commercial
customers that agree to participate. Commercial customers are
able to a create a customized web page and list their goods and
services for sale in a community environment centered around the
community financial institutions Internet banking web
site. This service provides an additional product offering for
community financial institutions and an additional retention
mechanism for a financial institutions commercial
customers.

Telephone Banking Product.We offer a telephone banking
product to provide a community financial institutions
customers with convenient and safe access to information
regarding their accounts from their homes or businesses at any
time of day or night. Our telephone banking product provides
functions similar to our core Internet banking product. This
product also allows the community financial institution to spend
less time responding to routine account information requests.

Community financial institutions typically enter into three- to
five-year contracts for our outsourced suite of products and
services. Customers pay a monthly fee under these contracts,
based upon the level of usage by their customers and the types
of optional products and services utilized. We may charge
additional fees for optional products and services that our
customers elect to receive, such as consulting and marketing
services.

6



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Marketing Services

We provide our financial institution customers with a marketing
package designed to increase the number of their customers who
use our Internet products and services. We generally charge fees
for these services based upon the type and length of engagement.
This marketing package includes the following services:



| |   |                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Strategic Consulting Services.We offer customized
	consulting services to community financial institutions to
	assist them in conducting effective in-branch and community-wide
	promotions of our Internet banking services.                     
|
| |  | Advertising and Promotional Efforts.We assist customers
	in advertising their on-line services. We also provide customers
	with in-branch marketing materials, such as brochures, banners,
	statement stuffers and other promotional items.       
|
| |  | Employee Training.We assist our customers in educating
	their employees about the uses and benefits of Internet banking
	and Internet commerce. Our employee training guide also explains
	the financial and security features of on-line systems.

The Netzee Strategy

We provide an innovative gateway to the Internet by combining
Internet banking products and services with e-commerce
capabilities and other Internet based products. Community
financial institutions can utilize these products and services
to create new banking relationships and enhance relationships
with their existing customers. Our goal is to become the leading
provider of Internet banking and e-commerce products and
services to community financial institutions. Our growth will be
driven by both the adoption of our products by community
financial institutions and the use of our suite by the customers
of our community financial institution customers. Our strategy
includes:

Capitalizing on Strategic Marketing Alliances with InterCept,
Harland and Other Partners.We plan to increase our customer
base through our strategic marketing alliances. Our existing
strategic partners have business relationships with numerous
financial institutions to which they assist us in marketing our
Internet based products.

We have formed an exclusive strategic marketing alliance with
InterCept, the owner of approximately 28% of our common stock
and a provider of integrated electronic commerce products and
services for community financial institutions. We also seek to
leverage our relationship with Harland, the owner of
approximately 16% of our common stock and the provider of one of
the industrys leading platform automation and loan
decision applications. We also have relationships with vendors
of core processing software, vendors of outsourced data
processing services and various bankers banks, which also
assist bankers in marketing our products and services to their
customers.

Cross-Selling Additional Products and Services to Existing
Customers.We currently provide at least one of our products
to over 900 financial institution customers. The majority of our
customers do not contract with us for all of the products
offered in our product suite. We actively market our other
products and services to our existing customer base.

Increasing Community Financial Institution End User Adoption.Our future revenues will be driven in part by an increase in
the number of customers of community financial institutions that
use our products and services and the number and type of
transactions processed by those customers. We maintain personnel
and programs dedicated to marketing our products and services to
the customers of these community financial institutions.

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Expanding Our Products and Services.We continue to build
upon our suite of Internet-based applications currently
available to the community financial institution market. Our
strategy is to provide customers with a comprehensive set of
e-commerce and Internet-enabled tools to help them remain
competitive in todays rapidly changing business
environment. We believe that our Internet-based products can
quickly and easily be upgraded to offer new on-line products and
services to a financial institution and its customers. We also
intend to expand upon and improve existing technology to enhance
the overall functionality and performance of our systems. We
believe these improvements will further enhance our Internet
banking system and provide additional services to our customers.

Product and Service Development

We are continuing to expand and enhance the products and
services that we provide to community financial institutions to
enable them to offer a wider variety of Internet and e-commerce
products and services to their customers. These development
efforts are focused on the following:



| |   |                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Enhancements to Existing Products and Services.We are
	developing new features and functionality for our core Internet
	banking and related applications.                                                                                                                       
|
| |  | Expanding Existing Product and Service Offerings.Our
	research and development team continues to evaluate additional
	product and service offerings for our Internet banking suite.
	The focus of this effort is on offering complementary products
	and services to this suite.
|
| |  | Interfaces with Core Processing Systems.We are
	continuing to develop additional interfaces with core processing
	systems. Additionally, we continue to expand the number of
	real-time interfaces that we offer.                                                               

Systems Architecture



| |                                
| | -------------------------------
| | Transaction Server Architecture

Our Internet banking suite uses multiple tier applications built
to leverage the capability of client/server technologies. Our
systems employ a transaction server to moderate the majority of
the features and functionality of our applications. By utilizing
a transaction server configuration, our systems can adapt to the
environments of our financial institution customers and provide
the flexibility to deploy the latest technologies as needed. A
transaction server architecture means that the communications
and functions of the applications are moderated by a transaction
server, which maintains the business and technical logic needed
to determine that the applications perform as intended. These
functions include maintaining connectivity to the financial
institutions host data processor, updating customer
information provided via the Internet interface, and monitoring
the security of the system to ensure customer data is accessed
only by authorized individuals.

Using a transaction server architecture provides for the
following advantages in the delivery of Internet-based financial
services applications:



| |   |                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Adaptability to the Financial Institutions Environment. The transaction server configuration allows our systems to
	communicate with the financial institutions host systems
	as seamlessly as possible in real-time, with multiple daily
	updates, or with a single daily update.
|
| |  | Scalability to Meet Future Demands. The transaction
	server allows for additional hardware and software to be
	supplemented to the existing system to meet the changing needs
	of our customers and to accommodate the latest technologies.                                         
|
| |  | Security of Private Data. The transaction server is able
	to monitor authorized use of private data as it is requested
	from a database.                                                                                                                                            



| |             
| | ------------
| | Data Centers

Our outsourced Internet banking and e-commerce services that we
provide are currently hosted and processed in our two data
centers located in Atlanta, Georgia and Portland, Oregon. Our
data centers contain

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The technical and operational security of our data centers is
reviewed on a regular basis by our full-time employees as well
as by third-party consultants. These reviews include operational
reviews performed in accordance with Statement on Auditing
Standards (SAS) No. 70, Reports on the
Processing of Transactions by Service Organizations, which
is an auditing standard developed by the American Institute of
Certified Public Accountants. Our SAS 70 operational
control review is conducted by Porter Keadle Moore, LLP, a
certified public accounting firm. We have contracted with
Internet Security Systems, Inc. (ISS), one of the
countrys foremost security firms, to provide vulnerability
and penetration scans of our perimeter network. Application
scans are also performed to identify potential vulnerabilities,
and our system usage logs are monitored daily by our full-time
security officer. ISS only tests our Atlanta, Georgia data
center; however, our full-time security staff has performed, on
a periodic and bi-monthly basis, similar scans of our data
center in Portland, Oregon.

To prevent service interruption and information losses due to
power failures, our Atlanta, Georgia data center is backed up by
a high capacity battery system. This battery system provides
continuous power to all production systems, including servers,
monitors, telecommunications equipment and individual computers.
In the event of an extended power outage, a fuel powered
generator also provides backup power to this data center. The
bill payment processing services conducted through our Portland,
Oregon data center are also backed up by similar systems. Each
data center also serves as a backup facility to the other data
center. Backup capabilities minimize the risk of customer
service disruption and allow for rapid response to an extended
power or systems failure or other interruption. Files are backed
up and stored off-site on a daily basis to minimize the loss of
stored customer information and to ensure system integrity in
the event of a disaster.

Sales and Marketing

Our primary marketing efforts are focused on building awareness
of our products and services among our target group of community
financial institutions, identifying potential customers and
establishing new strategic alliances. Our sales and marketing
efforts are conducted through both direct and indirect channels.

Direct Sales Channel. We use print advertisement, direct
mail, e-mail, telemarketing and trade shows to develop contacts
at the senior officer level of target community financial
institutions. These contacts are then passed along to sales
personnel who follow up with the specific contact.

Indirect Sales Channel. Our sales force also uses
indirect sales methods to generate new customers. We engage
third parties to refer financial institutions that may be
interested in purchasing our products and services. A sales
staff member will then make a presentation to the proposed
customer and, if successful, complete the transaction. We pay
these third parties a commission based on the amount of sales of
our products and services that result from their efforts.

Customers

Our target market is the approximately 19,500 community
financial institutions in the United States with assets of less
than $10 billion each. Within this target market, we focus
on (1) independent community financial institutions,
including banks, savings and loan associations, thrifts, trust
companies and credit unions, and (2) financial institutions
that are associated with or are shareholders of a bankers
bank, which in each case rely on one or more of the data
processing vendors with whom we have developed interfaces. We
continue to seek to expand the number of vendors with whom we
have interfaces.

As of December 31, 2001, we had over 940 institutional
customers who bought one or more of our products. More than 660
customers have contracted for one or more of our core Internet
banking products.

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Competition

The market for Internet based banking products and services is
highly competitive, and we expect that competition will
intensify in the future. The market in which we operate is
highly fragmented, as more than 100 on-line service outsourcing
companies provide Internet-based banking products and services
in the United States. We face competition from companies that
operate in at least five major sectors:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Providers of Internet banking services to community financial
	institutions, including, among others, Corillian Corporation,
	Digital Insight Corporation, FundsXpress, Inc., Intelidata
	Technologies Corp., Online Resources and Communications
	Corporation, S1 Corporation, and Certegy, Inc.                                                                                                                            
|
| |  | Large vendors that offer transaction processing services to
	financial institutions and also market their own Internet
	banking solutions, including, among others, Electronic Data
	Systems Corporation, Fiserv Correspondent Services, Inc., Jack
	Henry & Associates, Inc. and Metavante Corporation.                                                                                                                     
|
| |  | Large financial institutions that provide competitive products
	and services to individuals and businesses, including Wachovia,
	Wells Fargo, Citigroup, Inc, Nexity Bank and NetBank. Through
	their Internet banking products and services, these large
	financial institutions can obtain customers from communities in
	distant locations, effectively decreasing demand for our
	products and services in these markets.
|
| |  | Financial services companies entering the Internet banking
	market, such as State Farm Bank.                                                                                                                                                                                                                                                                                                                                 
|
| |  | Internet portals such as E*TRADE, Yahoo!, E-LOAN and Lending
	Tree.com, which serve as an alternative to financial
	institutions web sites.                                                                                                                                                                                                                                                                                 

In addition, we could experience competition from our target
customer financial institutions and potential customers that
develop their own on-line banking solutions and other Internet
enabled functions. Rather than purchasing Internet-based
products and services from third-party vendors, community
financial institutions could develop, implement and maintain
their own services and applications. We also believe that we
face competition from the various competitive alternative
approaches for Internet-based solutions, such as thin servers
and personal financial management software. Each of these
alternatives competes with our Internet-based products.

We believe that our ability to compete successfully depends upon
a number of factors, including, among other things:



| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | the comprehensiveness, expandability, ease of use and service
	level of our products and services;                 
|
| |  | our market presence with community financial institutions, which
	is enhanced by our strategic marketing alliances;
|
| |  | our pricing policies compared to the pricing policies of
	competitors and suppliers;                               
|
| |  | our ability to interface with vendors of core processing
	software and services;                                   
|
| |  | the reliability, security, speed and capacity of our systems and
	technical infrastructure;                        
|
| |  | the timing of introductions of new products and services by us
	and our competitors; and                           
|
| |  | our ability to support unique customer requirements.                                                               

We expect competition to increase significantly as new companies
enter the field, current competitors consolidate within the
industry and current competitors expand their product lines and
services.

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Intellectual Property

Although we believe that our success depends more upon our
technical expertise than our proprietary rights, our future
success and ability to compete depends in part upon our
proprietary technology and proprietary technology we may license
from others. Certain of our technology related to the Internet
banking assets acquired from Harland are either patented or
patent pending, and we continue to rely on a combination of
contractual rights and copyright, trademark and trade secret
laws to establish and protect our proprietary technology. We
generally enter into confidentiality agreements with our
employees, consultants, resellers, customers and potential
customers. We also limit access to and distribution of our
source code, and we further limit the disclosure and use of
other proprietary information. However, the steps that we may
take in this regard may not be adequate to prevent
misappropriation of our technology or technology we license from
others. Further, our competitors may independently develop
technologies that are substantially equivalent or superior to
our technology. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy or otherwise
obtain or use our products or technology or that which we
license from others. In addition, the laws of some foreign
countries do not protect our proprietary rights to the same
extent as do the laws of the United States.

Government Regulation



| |                                              
| | ---------------------------------------------
| | Regulation of the Financial Services Industry

The financial services industry is subject to extensive and
complex federal and state regulation. Our current and
prospective customers, which consist of community financial
institutions such as commercial banks, savings and loans, credit
unions, thrifts and other providers of financial services,
operate in markets that are subject to rigorous regulatory
oversight and supervision. Our customers must ensure that
marketing our products and services to their customers is
permitted by the extensive and evolving regulatory requirements
applicable to those community financial institutions. These laws
and regulations include federal and state truth-in-lending and
truth-in-savings rules, usury laws, the Equal Credit Opportunity
Act, the Fair Housing Act, the Electronic Fund Transfer Act, the
Fair Credit Reporting Act, the Bank Secrecy Act and the
Community Reinvestment Act. The compliance of our products and
services with these requirements depends on a variety of
factors, including the particular functionality, the interactive
design and the classification of the customer. Our financial
services customers must assess and determine what is required of
them under these regulations and are responsible for ensuring
that our system and the design of their site conform to their
regulatory needs. We do not make representations to customers
regarding applicable regulatory requirements, and each customer
must identify its regulatory issues and adequately specify
appropriate responses. It is not possible to predict the impact
that any of these regulations could have on our business.

We are not licensed by the Office of the Comptroller of the
Currency (the OCC), the Board of Governors of the
Federal Reserve System, the Office of Thrift Supervision, the
Federal Deposit Insurance Corporation (the FDIC),
the National Credit Union Administration or other federal or
state agencies that regulate or supervise depository
institutions or other providers of financial services. We are
subject to examination by the Federal depository institution
regulators under the Bank Service Company Act and the
Examination Parity and Year 2000 Readiness for Financial
Institutions Act and by contract with our customers. We are also
subject to encryption and security export laws and regulations
that, depending on future developments, could render our
business or operations more costly, less efficient or impossible.

Federal, state or foreign authorities could adopt laws, rules or
regulations affecting our business operations, such as requiring
compliance with data, record keeping and other processing
requirements. We may become subject to additional regulation as
the market for our business evolves. It is possible that laws
and regulations may be enacted with respect to the Internet,
covering issues such as user privacy, pricing, content,
characteristics and quality of services and products. Existing
regulations may be modified.

For example, we are not subject to the disclosure requirements
of Regulation E of the Federal Reserve Board under the
Electronic Fund Transfer Act, because we do not contract with
consumers to provide them with electronic funds transfer
services or provide access devices (such as cards, codes or
other means of accessing accounts to initiate electronic funds
transfers) to them. Regulation E regulates certain
electronic

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If enacted or deemed applicable to us, the laws, rules or
regulations applicable to financial services activities would
render our business or operations more costly, burdensome, less
efficient or impossible. Federal, state or foreign governmental
authorities may adopt new regulations addressing electronic
financial services or operations generally that could require us
to modify our current or future products and services. The
adoption of laws or regulations affecting our business or our
customers business could have a material adverse effect on
our business, financial condition and results of operations.

In the first quarter of 2002, we entered into a Memorandum of
Understanding (the MOU) with the OCC, the FDIC and
the Georgia State Banking Department. The MOU addresses several
operational tasks which we believe we have now substantially
completed, imposes continuing reporting requirements and
prohibits us from declaring or paying cash or stock dividends on
any shares of our capital stock without the approval of the
banking regulators. See Market for Registrants
Common Equity and Related Stockholder Matters  
Dividends on Shares of Capital Stock. No civil or monetary
penalties have been imposed on us as a result of the MOU.



| |                           
| | --------------------------
| | The Gramm-Leach-Bliley Act

In 1999, Congress passed the Gramm-Leach-Bliley Act (the
Act), which introduced sweeping changes in the way
the financial services industry is regulated. Among other
things, the Act provides for greater restrictions upon the use
and dissemination by financial institutions of non-public
personal financial and other information regarding individuals
who interact with financial institutions for personal, family or
household purposes.

The Act regulates the receipt and use of non-public
personal financial information by both financial
institutions and non-affiliated third parties to whom
financial institutions may transmit such financial information.
A financial institution is defined broadly as any person that
contracts directly with individuals to provide financial
services for personal, family or household purposes. Although we
do not currently contract directly with individuals to provide
them with such services, we may do so in the future, and at such
time would be subject to regulation under the Act as a
financial institution. However, because we receive
financial information from our non-affiliated financial
institution customers, we would be regulated primarily by the
Federal Trade Commission under the Act as a non-affiliated third
party.

The Act states that each financial institution must provide
individuals with whom it interacts (1) notice of its
privacy policies, (2) the names of non-affiliated third
parties to whom it may provide non-public personal information
and (3) the opportunity to opt out of having such
information shared, except with respect to information provided
from a financial institution to an entity that provides services
to the financial institution, and in certain other
circumstances. Even if that individual does not opt out at that
time, he or she must be free to do so at anytime after the
financial institution provides the individual with the mandated
disclosures.

As a non-affiliated third party providing services to financial
institutions, we would be allowed under the Act to receive
non-public personal information notwithstanding the fact that an
individual has exercised his or her opt out rights.
However, with respect to our ability to disseminate non-public
personal information, we would be subject to the same
restrictions as the financial institution, and thus would be
prohibited from disseminating such information to others (except
as otherwise permitted by the Act) if the customer has
opted out.

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As mandated by the Act, the various federal banking authorities,
the Securities and Exchange Commission and the Federal Trade
Commission have adopted final rules and regulations to implement
these restrictions (collectively, the Rules). Each
such authority adopted its own set of rules that are consistent
with each of the other sets of rules. As required by the Act,
the Rules became effective on November 13, 2000 and
compliance with these rules became mandatory on July 1,
2001. In general, the Rules clarify, rather than amplify, the
provisions of the Act.

The Act and the Rules will restrict or prohibit our ability to
offer third parties access to non-public personal
information generated by our Internet banking products and
services to the extent that individual customers of financial
institutions have exercised their opt out rights.
The Rules define non-public personal information to
mean personally identifiable financial information that is not
publicly available. In addition, we will have an ongoing
obligation to continually inquire of financial institutions as
to the opt out status of each individual financial
institution customer, who has the ability to change such status
at any time. Further, with respect to the information of each
particular individual, we will be required to comply with the
privacy policies that are adopted by the particular
individuals financial institution, including privacy
policies established by the financial institution customers of
our strategic partners, which may be different with respect to
each such financial institution.

Finally, the Act specifically allows the states to enact
consumer privacy laws that may be stricter than the restrictions
under the Act and other federal laws. Several states are already
considering such legislation, and it is possible that every
state in which we do business could adopt privacy legislation
that may be as or more restrictive than the Act. Further, with
respect to our existing or potential customers or existing or
potential users of our products and services that may operate in
the insurance industry, the National Association of Insurance
Commissioners (the NAIC) has adopted the Model
Regulation on the Privacy of Consumer Financial Information,
which tailors the Acts privacy provisions to insurers and
other licensees under the applicable state insurance laws. This
regulation contains provisions that are more stringent than the
Act and the Rules, most significantly in its treatment of
non-public personal health information. This regulation requires
covered insurers and licensees to obtain authorization from the
individual prior to disclosing non-public personal health
information, subject to certain exceptions.

Several states, including Georgia, are currently considering
legislation to implement the Acts provisions with respect
to insurers or to make existing laws governing insurers more
consistent with the Acts provisions, in many cases using
the NAICs model regulation as a guide. To the extent that
more restrictive privacy legislation is adopted by the states,
such legislation could make our operations more difficult or
burdensome and could significantly increase the cost of our
existing, or curtail future, operations. Our responsibilities
with respect to compliance with privacy laws that may vary from
state to state could increase the overall costs incurred by us
to provide our products and services on a nationwide basis. In
this regard, the passage of state privacy legislation could have
a material adverse effect on our business, results of operations
and financial condition.



| |                       
| | ----------------------
| | Taxation of E-Commerce

A number of proposals at the federal, state and local level and
by certain foreign governments would, if enacted, expand the
scope of regulation of Internet-based financial services and
could impose taxes on the sale of goods and services made over
the Internet and certain other Internet activities. The Internet
Tax Nondiscrimination Act extends a moratorium on new state and
local taxes on Internet commerce until November 1, 2003.
However, future laws may impose taxes or other regulations on
such commerce. Any development that substantially impairs the
growth of the Internet or its acceptance as a medium for
commerce or transaction processing could have a material adverse
effect on our business, financial condition and operating
results.

Employees

As of December 31, 2001, we had approximately
127 full-time employees and no part-time employees.
Throughout 2001, we consolidated our offices and personnel to
streamline our operations, divested non-core

13



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Item 2.     Properties

Our principal executive office consists of 25,179 square feet of
leased space located in Atlanta, Georgia. We also house our
Atlanta data center in this space. As of March 15, 2002, we
also leased the following additional locations:

|                      |  |                                                                             |  |                         |        | 
|--------------------- |  | --------------------------------------------------------------------------- |  | ----------------------- | ------ | 
|Location              |  | Primary Use                                                                 |  | Approximate Square Feet
|                      |  |                                                                             |  |                        
|Birmingham, Alabama   |  | Sublet                                                                      |  |                         | 16,100 | 
|                     
|                     
|                     
|                     
|Trumbull, Connecticut |  | Technical support (Lease expires April 2002, and
	will not be renewed)      |  |                         | 3,000  | 
|                     
|                     
|                     
|                     
|Portland, Oregon      |  | Data center, bill payment services, product
	development and implementation |  |                         | 15,275 | 

The approximate number of square feet for each lease set forth
above represents the maximum number of square feet that we may
occupy in each facility pursuant to the terms of each such
lease. The actual number of square feet that we occupy and pay
for may be significantly less than the amounts shown above.




Item 3.     Legal
Proceedings

On November 1, 1999, Independent Bankers Bank of
Florida (IBBF) filed a lawsuit against Netzee in the
U.S. District Court for the Middle District of Florida. In this
lawsuit, IBBF claimed that we violated the terms of a marketing
agreement between IBBF and SBS, a company acquired by our
predecessor. We terminated this marketing agreement after the
acquisition of SBS in August 1999. In the lawsuit, IBBF claimed
that the marketing agreement did not permit Netzee to terminate
the agreement and that Netzee breached certain exclusivity
provisions of the agreement. In March 2002, we settled this
lawsuit for $750,000.

From time to time, we may be involved in litigation arising in
the normal course of our business. We are not a party to any
litigation, individually or in the aggregate, that we believe
would have a material adverse effect on our business, financial
condition or results of operations.




Item 4.     Submission of
Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during
the quarter ended December 31, 2001.




PART II




Item 5.     Market for
Registrants Common Equity and Related Stockholder
Matters

Market Information

Our common stock, no par value, is traded on the Nasdaq National
Market under the symbol NETZ. According to our
transfer agent, as of March 15, 2002, our common stock was
held of record by approximately 265 persons. The following
table sets forth the low and high sales prices of our common
stock in each fiscal

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|             |                |                 |   |                  |  |  |   |        | 
|------------ | -------------- | --------------- | - | ---------------- |  |  | - | ------ | 
|             |                | Low Sales Price |   | High Sales Price
|             |                |                 |   |                 
|Fiscal 2000: |                |                 |   |                  |  |  |   |       
|            
|            
|            
|            
|             | First Quarter  |                 | $ | 117.00           |  |  | $ | 248.00 | 
|            
|            
|            
|            
|             | Second Quarter |                 |   | 39.00            |  |  |   | 128.00 | 
|            
|            
|            
|            
|             | Third Quarter  |                 |   | 28.75            |  |  |   | 74.00  | 
|            
|            
|            
|            
|             | Fourth Quarter |                 |   | 2.50             |  |  |   | 34.00  | 
|            
|            
|            
|            
|Fiscal 2001: |                |                 |   |                  |  |  |   |       
|            
|            
|            
|            
|             | First Quarter  |                 | $ | 3.75             |  |  | $ | 14.25  | 
|            
|            
|            
|            
|             | Second Quarter |                 |   | 3.75             |  |  |   | 5.76   | 
|            
|            
|            
|            
|             | Third Quarter  |                 |   | 0.80             |  |  |   | 4.20   | 
|            
|            
|            
|            
|             | Fourth Quarter |                 |   | 0.65             |  |  |   | 1.91   | 

Because our common stock is currently listed on the Nasdaq
National Market, we are subject to financial and market-related
requirements and other qualitative standards established by
Nasdaq to maintain our listing. On February 14, 2002, we
received notification from The Nasdaq Stock Market indicating
that we are out of compliance with the $5 million minimum
market value requirement for our publicly held shares. We have
been given 90 calendar days, or until May 15, 2002, to
come into compliance with this rule. If we fail to meet this
requirement, we will become subject to delisting from the Nasdaq
National Market, although we may be able to transfer our common
stock to the Nasdaq SmallCap Market if we meet all of the
continued listing requirements thereof. See
Business  Nasdaq Delisting. It is likely
we will be delisted from the Nasdaq National Market.

Dividends on Shares of Capital Stock

We have not paid any cash dividends on our common stock for the
years ended December 31, 2000 and 2001 and do not
anticipate paying any such dividends in the foreseeable future.
During 2000, we paid $24,200 of accrued dividends on our
Series A 8% Convertible Preferred Stock related to 1999. In
September 2000, all 500,000 outstanding shares of such stock
were exchanged for an equal number of shares of our
Series B preferred stock. This exchange was effected to
reflect the original intent of the parties to the acquisition of
assets from DPSC. We have accrued but not paid dividends of
$1,040,000 on our shares of Series B preferred stock as of
December 31, 2001.

The terms of our line of credit with InterCept and Harland
prohibit us from declaring or paying any dividends on any shares
of our capital stock, or making other distributions with respect
to such capital stock without the prior written consent of
InterCept and Harland. However, we are permitted under the line
of credit to declare and pay up to $520,000 per year in
dividends to the holders of the Series B preferred stock.
In addition, the MOU prohibits us from declaring or paying any
cash or stock dividends on shares of our capital stock without
the prior written approval of the banking regulators.

Recent Sales of Unregistered Securities and Certain
Stockholder Matters



| |                                                                
| | ---------------------------------------------------------------
| | Issuances Pursuant to the Acquisition of Digital Visions,
	Inc.

On March 7, 2000, we issued 104,810 shares of common stock
in connection with the acquisition of substantially all the
assets of DVI. We also granted to DVI the right to receive up to
78,534 shares of common stock upon the attainment of certain
revenue targets in fiscal years 2000 and 2001. None of these
shares were issued based on fiscal 2000 and 2001 performance. We
also issued options to purchase 8,803 shares of common stock in
exchange for the cancellation of options to purchase DVI common
stock. In connection with the acquisition of DVI, we also issued
1,048 shares of our common stock to a financial advisor.

15



---



##### Table of Contents





| |                                                         
| | --------------------------------------------------------
| | Issuances Pursuant to the Acquisition of Card Plus, Inc.

On July 28, 2000, we issued 40,000 shares of common stock
in connection with the acquisition of substantially all the
assets of Card Plus, Inc. (Card Plus). All of these
shares were placed in escrow for indemnification and other
purposes. Additionally, we granted to Card Plus the right to
receive up to 28,572 additional shares of common stock upon the
attainment of certain revenue, EBITDA (earnings
before interest, taxes, depreciation and amortization) and
employee retention goals for the period from July 1, 2000
to June 30, 2001. However, all of these shares were
required to be issued if the closing price of our common stock
was less than $36.00 per share on June 29, 2001. Because
the closing price of our common stock was $4.20 on June 29,
2001, we issued all of these additional shares of common stock.

The issuances of the securities in the DVI and Card Plus
transactions were exempt from registration under the Securities
Act in reliance on the exemptions provided by Sections 3(b)
and 4(2) of the Securities Act, including Rule 506
promulgated thereunder, and the Commissions
interpretations of such provisions, as transactions by an issuer
not involving any public offering. All recipients of common
stock were persons we believed were accredited investors within
the meaning of Regulation D of the Securities Act.
Appropriate legends were affixed to the share certificates and
we did not engage in any general solicitation or advertising in
connection with offers or sales of these securities.




Item 6.     Selected
Financial Data

The following selected consolidated financial data is qualified
by reference to, and should be read in conjunction with, our
Consolidated Financial Statements and the related Notes thereto
and other financial information included elsewhere in this
Annual Report on Form 10-K, as well as with
Managements Discussion and Analysis of Financial
Condition and Results of Operations in Item 7. The
selected consolidated financial data prior to February 28,
1999 reflects the financial position and results of operations
of our predecessor, Direct Access, which was formed in
October 1996. We acquired Direct Access on March 9,
1999; however, the financial data below is presented as if the
acquisition occurred on March 1, 1999. The activity between
March 1, 1999 and March 9, 1999 was immaterial. The
purchase method of accounting was used to record the assets and
liabilities of Direct Access. Accordingly, the selected
consolidated financial data of our predecessor on or before
February 28, 1999 is not comparable in all material
respects with our financial information after February 28,
1999.

The selected consolidated financial data as of December 31,
1997, 1998, 1999, 2000 and 2001, for the years ended
December 31, 1997, 1998, 2000 and 2001, for the period from
January 1, 1999 to February 28, 1999, and for the
period from March 1, 1999 to December 31, 1999, have
been derived from our consolidated financial statements, which
have been audited by Arthur Andersen LLP, independent public
accountants.

16



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##### Table of Contents



|                                                                                                         |                                                                                 |                          |       |                |     |                |       |              |     |              |     |              |     |   |         |        |        |   |         |        |         |   |         |        |        | 
|-------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ------------------------ | ----- | -------------- | --- | -------------- | ----- | ------------ | --- | ------------ | --- | ------------ | --- | - | ------- | ------ | ------ | - | ------- | ------ | ------- | - | ------- | ------ | ------ | 
|                                                                                                         |                                                                                 |                          |       |               
|                                                                                                         |                                                                                 | Predecessor              |       | Netzee, Inc.  
|                                                                                                         |                                                                                 |                          |       |               
|                                                                                                         |                                                                                 |                          |       | For the Period |     | For the Period |       |             
|                                                                                                         |                                                                                 |                          |       | from January   |     | from March 1,  |       |             
|                                                                                                         |                                                                                 | Year Ended               |       | Year Ended     |     | 1, 1999 to     |       | 1999 to      |     | Year Ended   |     | Year Ended  
|                                                                                                         |                                                                                 | December 31,             |       | December 31,   |     | February 28,   |       | December 31, |     | December 31, |     | December 31,
|                                                                                                         |                                                                                 | 1997                     |       | 1998           |     | 1999           |       | 1999(1)      |     | 2000(2)      |     | 2001(3)     
|                                                                                                         |                                                                                 |                          |       |                |     |                |       |              |     |              |     |             
|Statement of Operations                                                                                  |                                                                                 |                          |       |                |     |                |       |              |     |              |     |              |     |   |         |        |        |   |         |        |         |   |         |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|(In thousands, except for per share
	data):                                                              |                                                                                 |                          |       |                |     |                |       |              |     |              |     |              |     |   |         |        |        |   |         |        |         |   |         |       
|Revenues                                                                                                 |                                                                                 |                          |       |                |     |                |       |              |     |              |     |              |     |   |         |        |        |   |         |        |         |   |         |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Monthly maintenance and service                                                 |                          | $     | 59             |     |                | $     | 136          |     |              | $   | 33           |     |   | $       | 1,738  |        |   | $       | 17,761 |         |   | $       | 23,468 |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | License, hardware, implementation and other                                     |                          |       | 583            |     |                |       | 455          |     |              |     | 57           |     |   |         | 522    |        |   |         | 2,151  |         |   |         | 2,296  |       
|                                                                                                         |                                                                                 |                          |       |                |     |                |       |              |     |              |     |              |     |   |         |        |        |   |         |        |         |   |         |       
|                                                                                                         |                                                                                 | Total revenues           |       |                | 642 |                |       |              | 591 |              |     |              | 90  |   |         |        | 2,260  |   |         |        | 19,912  |   |         |        | 25,764 | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Operating expenses:                                                                                      |                                                                                 |                          |       |                |     |                |       |              |     |              |     |              |     |   |         |        |        |   |         |        |         |   |         |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Cost of service, license, hardware,
	implementation and maintenance             |                          |       | 422            |     |                |       | 465          |     |              |     | 44           |     |   |         | 1,914  |        |   |         | 10,107 |         |   |         | 14,115 |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Selling and marketing                                                           |                          |       | 77             |     |                |       | 111          |     |              |     | 12           |     |   |         | 2,575  |        |   |         | 9,422  |         |   |         | 3,559  |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | General and administrative, excluding
	amortization of stock-based compensation |                          |       | 231            |     |                |       | 332          |     |              |     | 49           |     |   |         | 1,845  |        |   |         | 11,342 |         |   |         | 11,556 |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Amortization of stock-based compensation                                        |                          |       |               |     |                |       |             |     |              |     |             |     |   |         | 4,592  |        |   |         | 3,193  |         |   |         | 1,255  |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Depreciation                                                                    |                          |       | 11             |     |                |       | 15           |     |              |     | 3            |     |   |         | 190    |        |   |         | 1,773  |         |   |         | 2,066  |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Amortization                                                                    |                          |       |               |     |                |       |             |     |              |     |             |     |   |         | 12,863 |        |   |         | 52,802 |         |   |         | 32,970 |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Restructuring costs                                                             |                          |       |               |     |                |       |             |     |              |     |             |     |   |         |       |        |   |         | 211    |         |   |         | 2,002  |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Long-lived asset impairment charges                                             |                          |       |               |     |                |       |             |     |              |     |             |     |   |         |       |        |   |         | 26,300 |         |   |         | 12,142 |       
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Loss on sale of assets                                                          |                          |       |               |     |                |       |             |     |              |     |             |     |   |         |       |        |   |         |       |         |   |         | 4,720  |       
|                                                                                                         |                                                                                 |                          |       |                |     |                |       |              |     |              |     |              |     |   |         |        |        |   |         |        |         |   |         |       
|                                                                                                         |                                                                                 | Total operating expenses |       |                | 741 |                |       |              | 923 |              |     |              | 108 |   |         |        | 23,979 |   |         |        | 115,150 |   |         |        | 84,386 | 
|                                                                                                         |                                                                                 |                          |       |                |     |                |       |              |     |              |     |              |     |   |         |        |        |   |         |        |         |   |         |       
|Operating loss                                                                                           |                                                                                 |                          | (99   | )              |     |                | (332  | )            |     |              | (18 | )            |     |   | (21,719 | )      |        |   | (95,238 | )      |         |   | (58,622 | )     
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Interest expense, net                                                                                    |                                                                                 |                          |      |                |     |                | (20   | )            |     |              | (4  | )            |     |   | (671    | )      |        |   | (1,051  | )      |         |   | (879    | )     
|                                                                                                         |                                                                                 |                          |       |                |     |                |       |              |     |              |     |              |     |   |         |        |        |   |         |        |         |   |         |       
|Loss before extraordinary loss                                                                           |                                                                                 |                          | (99   | )              |     |                | (352  | )            |     |              | (22 | )            |     |   | (22,390 | )      |        |   | (96,289 | )      |         |   | (59,501 | )     
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Extraordinary loss                                                                                       |                                                                                 |                          |      |                |     |                |      |              |     |              |    |              |     |   | (4,519  | )      |        |   |        |        |         |   |        |       
|                                                                                                         |                                                                                 |                          |       |                |     |                |       |              |     |              |     |              |     |   |         |        |        |   |         |        |         |   |         |       
|Net loss before preferred dividends                                                                      |                                                                                 |                          | (99   | )              |     |                | (352  | )            |     |              | (22 | )            |     |   | (26,909 | )      |        |   | (96,289 | )      |         |   | (59,501 | )     
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Preferred dividends                                                                                      |                                                                                 |                          |      |                |     |                |      |              |     |              |    |              |     |   | (24     | )      |        |   | (520    | )      |         |   | (520    | )     
|                                                                                                         |                                                                                 |                          |       |                |     |                |       |              |     |              |     |              |     |   |         |        |        |   |         |        |         |   |         |       
|Net loss attributable to common shareholders
	before cumulative effect of change in accounting principle |                                                                                 |                          | (99   | )              |     |                | (352  | )            |     |              | (22 | )            |     |   | (26,933 | )      |        |   | (96,809 | )      |         |   | (60,021 | )     
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Cumulative effect of change in accounting
	principle                                                     |                                                                                 |                          |      |                |     |                |      |              |     |              |    |              |     |   |        |        |        |   | (352    | )      |         |   |        |       
|                                                                                                         |                                                                                 |                          |       |                |     |                |       |              |     |              |     |              |     |   |         |        |        |   |         |        |         |   |         |       
|Net loss attributable to common shareholders                                                             |                                                                                 | $                        | (99   | )              |     | $              | (352  | )            |     | $            | (22 | )            |     | $ | (26,933 | )      |        | $ | (97,161 | )      |         | $ | (60,021 | )     
|                                                                                                         |                                                                                 |                          |       |                |     |                |       |              |     |              |     |              |     |   |         |        |        |   |         |        |         |   |         |       
|Basic and diluted loss per share before
	extraordinary loss(4)(6)                                        |                                                                                 | $                        | (0.10 | )              |     | $              | (0.35 | )            |     |              |     |              |     | $ | (15.54  | )      |        | $ | (34.81  | )      |         | $ | (17.89  | )     
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Extraordinary loss per share(4)(6)                                                                       |                                                                                 |                          |      |                |     |                |      |              |     |              |     |              |     |   | (3.13   | )      |        |   |        |        |         |   |        |       
|                                                                                                         |                                                                                 |                          |       |                |     |                |       |              |     |              |     |              |     |   |         |        |        |   |         |        |         |   |         |       
|Basic and diluted net loss per share before
	cumulative effect of change in accounting principle(4)(6)   |                                                                                 |                          | (0.10 | )              |     |                | (0.35 | )            |     |              |     |              |     |   | (18.67  | )      |        |   | (34.81  | )      |         |   | (17.89  | )     

17



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|                                                                               |  |              |       |                |  |                |       |              |  |              |  |              |  |   |        |   |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------ |  | ------------ | ----- | -------------- |  | -------------- | ----- | ------------ |  | ------------ |  | ------------ |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                                               |  |              |       |               
|                                                                               |  | Predecessor  |       | Netzee, Inc.  
|                                                                               |  |              |       |               
|                                                                               |  |              |       | For the Period |  | For the Period |       |             
|                                                                               |  |              |       | from January   |  | from March 1,  |       |             
|                                                                               |  | Year Ended   |       | Year Ended     |  | 1, 1999 to     |       | 1999 to      |  | Year Ended   |  | Year Ended  
|                                                                               |  | December 31, |       | December 31,   |  | February 28,   |       | December 31, |  | December 31, |  | December 31,
|                                                                               |  | 1997         |       | 1998           |  | 1999           |       | 1999(1)      |  | 2000(2)      |  | 2001(3)     
|                                                                               |  |              |       |                |  |                |       |              |  |              |  |             
|Loss per share from cumulative effect of change
	in accounting principle(4)(6) |  |              |      |                |  |                |      |              |  |              |  |              |  |   |       |   |  |   | (0.13  | ) |  |   |       |  
|                                                                               |  |              |       |                |  |                |       |              |  |              |  |              |  |   |        |   |  |   |        |   |  |   |        |  
|Basic and diluted net loss per share(4)(6)                                     |  | $            | (0.10 | )              |  | $              | (0.35 | )            |  |              |  |              |  | $ | (18.67 | ) |  | $ | (34.94 | ) |  | $ | (17.89 | )
|                                                                               |  |              |       |                |  |                |       |              |  |              |  |              |  |   |        |   |  |   |        |   |  |   |        |  
|Weighted average common shares
	outstanding(4)(5)(6)                           |  |              | 1,000 |                |  |                | 1,000 |              |  |              |  |              |  |   | 1,443  |   |  |   | 2,781  |   |  |   | 3,355  |  
|                                                                               |  |              |       |                |  |                |       |              |  |              |  |              |  |   |        |   |  |   |        |   |  |   |        |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On August 6, 1999, we acquired SBS in a transaction
	accounted for as a purchase, and its results of operations have
	been included in our consolidated financial statements since the
	date of acquisition. On September 3, 1999, we acquired Call
	Me Bill, Dyad and the Divisions, in transactions accounted for
	as purchases, and the results of operations of these
	acquisitions have been included in our consolidated financial
	statements since the date of acquisition. On December 15,
	1999, we acquired certain assets and assumed certain liabilities
	from DPSC in a transaction accounted for as a purchase, and the
	results of operations of this acquisition have been included in
	our consolidated financial statements from the date of
	acquisition until the sale of such assets. See Note 3 of
	the Notes to Consolidated Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(2) | On March 7, 2000, we acquired certain assets and assumed
	certain liabilities from DVI in a transaction accounted for as a
	purchase, and its results of operations have been included in
	our consolidated financial statements since the date of
	acquisition. Effective July 1, 2000, we acquired certain
	assets and assumed certain liabilities from Card Plus in a
	transaction accounted for as a purchase, and its results of
	operations have been included in our consolidated financial
	statements since the effective date of acquisition. Effective
	November 1, 2000, we acquired certain assets and assumed
	certain liabilities from Harland in a transaction accounted for
	as a purchase, and the results of operations of this acquisition
	have been included in our consolidated financial statements
	since the effective date of acquisition. See Note 3 of the
	Notes to Consolidated Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) | On February 2, 2001, we sold to InterCept certain of the
	regulatory reporting assets acquired from DPSC in 1999, and
	InterCept assumed certain of the related operating liabilities,
	resulting in a loss on sales of assets included in our
	consolidated financial statements. On March 15, 2001, we
	purchased certain assets of HomeComs Internet banking
	business and assumed certain of HomeComs operating
	liabilities related to the business in a transaction accounted
	for as a purchase, and its results of operations have been
	included in our consolidated financial statements since the date
	of acquisition. Effective May 1, 2001, we sold to iPay
	certain assets related to a portion of our bill payment
	operations, and iPay assumed certain of the operating
	liabilities related to those assets. The transaction resulted in
	a gain on sales of assets included in our consolidated statement
	of operations. Effective November 1, 2001, we sold
	substantially all the assets acquired from DVI to SS&C, and
	SS&C assumed substantially all the operating liabilities
	related to those assets. Additionally, during 2001, we
	determined that a triggering event had occurred in connection
	with our decision to sell certain assets we acquired from DVI,
	as well as the termination of customer contracts we acquired in
	our Card Plus acquisition. Consequently, the original cost bases
	of these assets were reduced to reflect their fair market value
	during 2001. The resulting losses were included in our
	consolidated financial statements. See Notes 3 and 4 of the
	Notes to Consolidated Financial Statements.
|   
|(4) | The number of weighted average common shares shown for the
	period from March 1, 1999 to December 31, 1999 is
	calculated by assuming a calculation period from January 1,
	1999 to December 31, 1999. Basic and diluted net loss per
	share for the period from March 1, 1999 to
	December 31, 1999 is                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

18



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##### Table of Contents



|    |                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | calculated from net loss for the period from January 1,
	1999 to February 28, 1999 and the period from March 1,
	1999 to December 31, 1999 divided by the number of weighted
	average common shares as noted.                                                                                         
|   
|(5) | The number of weighted average common shares outstanding for the
	years ended December 31, 1997 and 1998 reflects the initial
	investment of InterCept in the Predecessor. InterCept was the
	former parent company of the Predecessor and owned all of its
	capital stock prior to September 3, 1999.
|   
|(6) | All share and per share information has been adjusted to reflect
	the one-for-eight reverse stock split effected May 16, 2001.                                                                                                                                                                        

|                                     |  |              |      |              |  |      |      |      |  |      |         |  |  |   |         |   |  |   |        |  
|------------------------------------ |  | ------------ | ---- | ------------ |  | ---- | ---- | ---- |  | ---- | ------- |  |  | - | ------- | - |  | - | ------ | -
|                                     |  |              |      |             
|                                     |  | Predecessor  |      | Netzee, Inc.
|                                     |  |              |      |             
|                                     |  |              |      |             
|                                     |  | December 31, |      | December 31,
|                                     |  |              |      |             
|                                     |  | 1997         |      | 1998         |  | 1999 |      | 2000 |  | 2001
|                                     |  |              |      |              |  |      |      |      |  |     
|Balance Sheet Data                   |  |              |      |              |  |      |      |      |  |      |         |  |  |   |         |   |  |   |        |  
|                                    
|                                    
|                                    
|                                    
|(In thousands):                      |  |              |      |              |  |      |      |      |  |      |         |  |  |   |         |   |  |   |        |  
|                                    
|                                    
|                                    
|                                    
|Cash and cash equivalents            |  | $            | 28   |              |  | $    | 14   |      |  | $    | 11,255  |  |  | $ | 960     |   |  | $ | 465    |  
|                                    
|                                    
|                                    
|                                    
|Working (deficit) capital            |  |              | (94  | )            |  |      | (499 | )    |  |      | 4,798   |  |  |   | (5,489  | ) |  |   | (1,176 | )
|                                    
|                                    
|                                    
|                                    
|Total assets                         |  |              | 88   |              |  |      | 94   |      |  |      | 143,244 |  |  |   | 106,715 |   |  |   | 32,501 |  
|                                    
|                                    
|                                    
|                                    
|Redeemable preferred stock(1)        |  |              |     |              |  |      |     |      |  |      | 6,500   |  |  |   | 6,500   |   |  |   | 6,500  |  
|                                    
|                                    
|                                    
|                                    
|Related party borrowings(2)          |  |              |     |              |  |      |     |      |  |      | 12,173  |  |  |   | 21,466  |   |  |   | 13,192 |  
|                                    
|                                    
|                                    
|                                    
|Total shareholders (deficit) equity |  |              | (103 | )            |  |      | (455 | )    |  |      | 113,880 |  |  |   | 63,090  |   |  |   | 5,232  |  



---



|    |                                                                                           
|--- | ------------------------------------------------------------------------------------------
|(1) | Relates to our Series B preferred stock.                                                  
|   
|(2) | Related party borrowings related to our joint credit facility
	with InterCept and Harland.






|         |                                                                                       
|-------- | --------------------------------------------------------------------------------------
|Item  7. | Managements Discussion and Analysis of Financial
	Condition and Results of Operations

The following discussion should be read in conjunction with the
Consolidated Financial Statements and the related notes and
other financial information included elsewhere in this Annual
Report. This discussion also contains certain forward-looking
statements which are subject to, but not limited to, the risks
and uncertainties included in Factors That May Affect Our
Future Results of Operations or Financial Condition below
and elsewhere in this Annual Report.

Formation and Acquisitions

We are a provider of integrated Internet banking products to
financial institutions and their customers. We provide a suite
of integrated Internet banking products and services and
Internet commerce solutions to financial institutions. The suite
provides cost-effective, outsourced, secure and scalable
Internet banking and Internet commerce products that enable
financial institutions to offer to their customers a wide array
of financial products and services over the Internet. Included
in the suite are full-service Internet banking, bill payment,
cash management, targeted marketing, custom web site design and
hosting, branded portal design, access to brokerage services as
well as implementation and marketing services.

Netzee was formed as a Georgia corporation in August 1999 to be
merged with Direct Access, a company that was formed in October
1996 to provide Internet and telephone banking products and
services. InterCept acquired Direct Access as a wholly-owned
subsidiary in March 1999.

In August 1999, Direct Access acquired SBS in a merger.
Immediately after the merger, Direct Access sold all of the
assets of SBS, other than its Internet and telephone banking
assets, to our then parent company, InterCept. SBS provided
automated technology products and services, including Internet
and telephone banking systems, to community financial
institutions nationwide.

In September 1999, Direct Access was merged into Netzee, with
Netzee being the surviving corporation. At the same time, Netzee
acquired the Divisions. In September 1999, Netzee also acquired
all of the ownership interests in Call Me Bill, which provided
24-hour electronic and telephone bill payment services to

19



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##### Table of Contents





In September 1999, Netzee also acquired Dyad, which developed
proprietary loan application, approval and fulfillment software.
Certain of the assets acquired from Dyad were written down in
2000.

In December 1999, a wholly-owned subsidiary of Netzee
acquired certain of the assets and assumed certain liabilities
of DPSC, which provided regulatory reporting and support
applications designed to meet the needs of community financial
institutions. In February 2001, we sold to InterCept
substantially all of the regulatory reporting assets acquired
from DPSC in 1999 and InterCept assumed substantially all of the
related operating liabilities.

In March 2000, Netzee acquired certain of the assets and
assumed certain liabilities of DVI, which provided Internet
based financial information tools for community financial
institutions. In November 2001, we sold substantially all
DVI related assets to SS&C, and SS&C assumed
substantially all of the related operating liabilities. Certain
of these acquired assets were written down prior to the sale.

In July 2000, Netzee acquired certain of the assets and
assumed certain of the liabilities of Card Plus, which provided
outsourced software and systems development, and related
consulting services. Certain of these acquired assets were
written off during 2001.

In November 2000, Netzee acquired certain of the assets and
assumed certain liabilities of Harland. These assets were used
to provide Internet banking and bill payment services. This
acquisition allowed us to offer an in-house Internet banking
product to our customers that already have established more
extensive network infrastructures. As a result of this purchase,
Harland currently owns approximately 16% of our common stock.

During March 2001, Netzee acquired certain assets of
HomeComs Internet banking businesses and assumed certain
of HomeComs operating liabilities. These assets were used
to provide Internet banking and related services.

We collectively refer to Call Me Bill, Card Plus, DPSC, DVI,
Dyad, HomeCom, the Internet banking and bill payment assets of
Harland, and the Internet and telephone banking operations of
SBS and the Divisions as the Acquired Operations.

Overview

For our outsourced suite of products and services, we charge a
fixed monthly fee based on the number and type of products and
services purchased by the financial institution. We also charge
variable fees that are based on the number of end users and the
number of transactions for certain products and services. We
generally provide products and services under contracts with
terms ranging from three to five years. Revenues from these
types of arrangements are recognized over the term over which
the related services are provided.

We charge fees for our in-house Internet banking product under
either a perpetual license agreement which includes a software
license fee, implementation fees and recurring monthly fees
based on the number of active users and user generated
transactions, or under a three to five-year subscription that
includes annual subscription and maintenance fees. Revenues from
the software and implementation component of those types of
arrangements are recognized in accordance with Statement of
Position (SOP) No. 97-2 Software Revenue
Recognition and Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition.
Recurring fees represent post-contract customer support and are
recognized over the period in which the support services are
provided.

Our costs of services, license, hardware, implementation and
maintenance are comprised of the initial equipment and personnel
costs required to implement Internet and telephone banking
products and services for our financial institution customers,
ongoing personnel and system maintenance costs associated with
our data and call centers, royalties paid to information
providers, and personnel, production and shipping costs

20



---



##### Table of Contents





Selling and marketing expenses include marketing expenses, sales
commissions and related costs as well as sales employee
compensation and benefits. Commissions are paid to sales
personnel based on products and services sold. Selling and
marketing expenses exclude non-cash stock based compensation and
restructuring costs.

General and administrative expenses include employee
compensation and benefits and general office expenses incurred
in the ordinary course of business, but exclude non-cash stock
based compensation and restructuring costs.

Restructuring costs include charges related to severance and
other payroll-related items, as well as certain office lease and
other contract termination costs resulting from our plan to
reduce costs through the consolidation of our Internet and bill
payment operations.

We use EBITDA as a metric to measure our on-going operating
performance. EBITDA is defined as earnings before interest,
taxes, depreciation and amortization. Even though we use EBITDA
to measure our on-going operating performance, it is not an
accepted measure of profitability under generally accepted
accounting principles.

We use Adjusted EBITDA as a metric to measure our on-going
operating performance. Adjusted EBITDA is defined as earnings
before restructuring costs, interest, taxes, depreciation and
amortization. Even though we use Adjusted EBITDA to measure our
on-going operating performance, it is not an accepted measure of
profitability under generally accepted accounting principles.

Depreciation consists of depreciation of property, equipment and
capitalized software development costs.

Preferred stock dividends are related to our Series B
preferred stock.

Net interest expense includes our borrowing costs related to our
credit facility less amounts received related to our lease
receivables, interest on shareholders notes and cash sweep
interest income.

We also use cash loss as a metric to measure our on-going
operating performance. Cash loss is defined as net loss
attributable to common shareholders, excluding the effects of
amortization of intangible assets, amortization of stock-based
compensation, net loss on sales of assets, long-lived asset
impairment charges, extraordinary items and cumulative effect of
change in accounting principle. Even though we use cash loss to
measure our on-going operating performance, it is not an
accepted measure of profitability under generally accepted
accounting principles.

Amortization relates to goodwill, acquired technology and other
intangible assets resulting from our acquisitions. Intangible
assets are being amortized over lives ranging from two to five
years.

Amortization of stock-based compensation consists of
amortization of deferred compensation for certain stock options
with an exercise price below the initial public offering price
and compensation expense for stock sold or awarded to employees
at prices below the initial public offering price.

The extraordinary item consists of deferred financing costs for
the difference between the fair value of common stock and the
exercise price of warrants related to a line of credit
terminated in 1999.

Net loss on sales of assets consists of the disposal of certain
assets offset by the gain on the sale of certain bill
payment-related assets we acquired from Call Me Bill.

Long-lived asset impairment charges include non-cash charges
related to the write down of certain acquisition-related
intangible assets resulting from the change in capital markets
and our revised strategic direction.

We have incurred operating losses through December 31,
2001. Due to the uncertainty of the realizability of the net
operating losses, we have not reflected an income tax benefit in
our statements of operations, and we have recorded a valuation
allowance for the full amount of our net operating loss
carry-forwards.

21



---



##### Table of Contents



Although we have experienced significant growth in customers and
revenues, we have incurred substantial operating losses and
negative cash flows from operations. We incurred net losses of
approximately $97 million and $60 million for the
twelve months ended December 31, 2000 and December 31,
2001, respectively. Non-cash expenses including depreciation,
amortization, amortization of stock-based compensation, net loss
on sales of assets and long-lived asset impairment charges
accounted for approximately 87% and 89% of the net loss
attributable to common shareholders for the twelve months ended
December 31, 2000 and December 31, 2001, respectively.
We incurred cash losses, excluding restructuring costs, of
approximately $14.3 million and $6.9 million for the
twelve months ended December 31, 2000 and December 31,
2001, respectively. Including restructuring costs, we incurred
cash losses of approximately $14.5 million and
$8.9 million for the twelve months ended December 31,
2000 and December 31, 2001, respectively.

Results of Operations

For comparative purposes, the cumulative effect of change in
accounting principle of $351,980 resulting from the
implementation in 2000 of SAB No. 101 has been excluded
from the results of operations summarized below. All share and
per share amounts have been restated to reflect our 1-for-8
reverse stock split effected in May 2001.

|                                                                     |                                                                                                         |                          |             |            |         |      |      |          |    |      |             |            |           |  |     |    |    |   |             |            |            |  |     |    |    | 
|-------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ------------------------ | ----------- | ---------- | ------- | ---- | ---- | -------- | -- | ---- | ----------- | ---------- | --------- |  | --- | -- | -- | - | ----------- | ---------- | ---------- |  | --- | -- | -- | 
|                                                                     |                                                                                                         |                         
|                                                                     |                                                                                                         | Years Ended December 31,
|                                                                     |                                                                                                         |                         
|                                                                     |                                                                                                         |                          |             | % of       |         |      |      | % of     |    |      |             | % of      
|                                                                     |                                                                                                         | 1999(1)                  |             | Revenues   |         | 2000 |      | Revenues |    | 2001 |             | Revenues  
|                                                                     |                                                                                                         |                          |             |            |         |      |      |          |    |      |             |           
|Revenues                                                             |                                                                                                         | $                        | 2,349,913   |            |         |      | 100  | %        |    | $    | 19,911,544  |            |           |  | 100 | %  |    | $ | 25,764,043  |            |            |  | 100 | % 
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Cost of services, license, hardware,
	implementation and maintenance |                                                                                                         |                          | 1,958,318   |            |         |      | 83   |          |    |      | 10,105,570  |            |           |  | 51  |    |    |   | 14,115,008  |            |            |  | 55  |   
|                                                                     |                                                                                                         |                          |             |            |         |      |      |          |    |      |             |            |           |  |     |    |    |   |             |            |            |  |     |   
|                                                                     |                                                                                                         | Gross profit             |             |            | 391,595 |      |      |          | 17 |      |             |            | 9,805,974 |  |     |    | 49 |   |             |            | 11,649,035 |  |     |    | 45 | 
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Operating expenses:                                                  |                                                                                                         |                          |             |            |         |      |      |          |    |      |             |            |           |  |     |    |    |   |             |            |            |  |     |   
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Selling and marketing                                                                                   |                          |             | 2,587,607  |         |      |      | 110      |    |      |             | 9,422,085  |           |  |     | 47 |    |   |             | 3,559,257  |            |  |     | 14 |   
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | General and administrative, excluding
	amortization of stock based compensation and restructuring costs |                          |             | 1,894,028  |         |      |      | 81       |    |      |             | 11,342,280 |           |  |     | 57 |    |   |             | 11,556,547 |            |  |     | 45 |   
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Restructuring costs                                                                                     |                          |             |           |         |      |      | 0        |    |      |             | 211,200    |           |  |     | 1  |    |   |             | 2,002,139  |            |  |     | 8  |   
|                                                                     |                                                                                                         |                          |             |            |         |      |      |          |    |      |             |            |           |  |     |    |    |   |             |            |            |  |     |   
|                                                                     |                                                                                                         |                          | 4,481,635   |            |         |      | 191  |          |    |      | 20,975,565  |            |           |  | 105 |    |    |   | 17,117,943  |            |            |  | 66  |   
|                                                                     |                                                                                                         |                          |             |            |         |      |      |          |    |      |             |            |           |  |     |    |    |   |             |            |            |  |     |   
|EBITDA loss(2)                                                       |                                                                                                         |                          | (4,090,040  | )          |         |      | (174 | )        |    |      | (11,169,591 | )          |           |  | (56 | )  |    |   | (5,468,908  | )          |            |  | (21 | ) 
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Other cash expenses:                                                 |                                                                                                         |                          |             |            |         |      |      |          |    |      |             |            |           |  |     |    |    |   |             |            |            |  |     |   
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Depreciation                                                                                            |                          |             | 193,000    |         |      |      | 8        |    |      |             | 1,773,436  |           |  |     | 9  |    |   |             | 2,065,577  |            |  |     | 8  |   
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Preferred stock dividends                                                                               |                          |             | 24,200     |         |      |      | 1        |    |      |             | 520,000    |           |  |     | 3  |    |   |             | 520,000    |            |  |     | 2  |   
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Interest expense, net                                                                                   |                          |             | 673,972    |         |      |      | 29       |    |      |             | 1,050,664  |           |  |     | 5  |    |   |             | 878,824    |            |  |     | 3  |   
|                                                                     |                                                                                                         |                          |             |            |         |      |      |          |    |      |             |            |           |  |     |    |    |   |             |            |            |  |     |   
|                                                                     |                                                                                                         |                          | 891,172     |            |         |      | 38   |          |    |      | 3,344,100   |            |           |  | 17  |    |    |   | 3,464,401   |            |            |  | 13  |   
|                                                                     |                                                                                                         |                          |             |            |         |      |      |          |    |      |             |            |           |  |     |    |    |   |             |            |            |  |     |   
|Cash loss(3)                                                         |                                                                                                         |                          | (4,981,212  | )          |         |      | (212 | )        |    |      | (14,513,691 | )          |           |  | (73 | )  |    |   | (8,933,309  | )          |            |  | (35 | ) 
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Other non-cash expenses:                                             |                                                                                                         |                          |             |            |         |      |      |          |    |      |             |            |           |  |     |    |    |   |             |            |            |  |     |   
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Amortization                                                                                            |                          |             | 12,863,016 |         |      |      |          |    |      |             | 52,802,042 |           |  |     |    |    |   |             | 32,969,808 |            |  |     |    |   
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Amortization of stock-based compensation                                                                |                          |             | 4,591,888  |         |      |      |          |    |      |             | 3,192,688  |           |  |     |    |    |   |             | 1,255,437  |            |  |     |    |   
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Extraordinary item                                                                                      |                          |             | 4,518,760  |         |      |      |          |    |      |             |           |           |  |     |    |    |   |             |           |            |  |     |    |   
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Loss on sales of assets                                                                                 |                          |             |           |         |      |      |          |    |      |             |           |           |  |     |    |    |   |             | 4,719,863  |            |  |     |    |   
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Long-lived asset impairment                                                                             |                          |             |           |         |      |      |          |    |      |             | 26,300,278 |           |  |     |    |    |   |             | 12,142,146 |            |  |     |    |   
|                                                                     |                                                                                                         |                          |             |            |         |      |      |          |    |      |             |            |           |  |     |    |    |   |             |            |            |  |     |   
|                                                                     |                                                                                                         |                          | 21,973,664  |            |         |      |      |          |    |      | 82,295,008  |            |           |  |     |    |    |   | 51,087,254  |            |            |  |     |   
|                                                                     |                                                                                                         |                          |             |            |         |      |      |          |    |      |             |            |           |  |     |    |    |   |             |            |            |  |     |   
|Net loss attributable to common shareholders                         |                                                                                                         | $                        | (26,954,876 | )          |         |      |      |          |    | $    | (96,808,699 | )          |           |  |     |    |    | $ | (60,020,563 | )          |            |  |     |   
|                                                                     |                                                                                                         |                          |             |            |         |      |      |          |    |      |             |            |           |  |     |    |    |   |             |            |            |  |     |   

22



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##### Table of Contents



|                                                                                                                |  |                          |             |          |  |      |  |          |  |      |             |          |  |  |  |   |  |   |             |   |  |  |  | 
|--------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----------- | -------- |  | ---- |  | -------- |  | ---- | ----------- | -------- |  |  |  | - |  | - | ----------- | - |  |  |  | 
|                                                                                                                |  |                         
|                                                                                                                |  | Years Ended December 31,
|                                                                                                                |  |                         
|                                                                                                                |  |                          |             | % of     |  |      |  | % of     |  |      |             | % of    
|                                                                                                                |  | 1999(1)                  |             | Revenues |  | 2000 |  | Revenues |  | 2001 |             | Revenues
|                                                                                                                |  |                          |             |          |  |      |  |          |  |      |             |         
|Weighted average basic and diluted shares outstanding                                                           |  |                          | 1,442,754   |          |  |      |  |          |  |      | 2,781,141   |          |  |  |  |   |  |   | 3,354,909   |   |  |  |  | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|EBITDA loss per share(2)                                                                                        |  | $                        | (2.83       | )        |  |      |  |          |  | $    | (4.02       | )        |  |  |  |   |  | $ | (1.63       | ) |  |  |  | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Cash loss per share(3)                                                                                          |  | $                        | (3.45       | )        |  |      |  |          |  | $    | (5.22       | )        |  |  |  |   |  | $ | (2.66       | ) |  |  |  | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Net loss per share                                                                                              |  | $                        | (18.68      | )        |  |      |  |          |  | $    | (34.81      | )        |  |  |  |   |  | $ | (17.89      | ) |  |  |  | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Adjusted EBITDA loss(4)                                                                                         |  | $                        | (4,090,040  | )        |  |      |  |          |  | $    | (10,958,391 | )        |  |  |  |   |  | $ | (3,466,769  | ) |  |  |  | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Adjusted EBITDA loss per share(4)                                                                               |  | $                        | (2.83       | )        |  |      |  |          |  | $    | (3.94       | )        |  |  |  |   |  | $ | (1.03       | ) |  |  |  | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Cash loss, excluding restructuring costs(3)                                                                     |  | $                        | (4,981,212  | )        |  |      |  |          |  | $    | (14,302,491 | )        |  |  |  |   |  | $ | (6,931,170  | ) |  |  |  | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Cash loss per share excluding restructuring costs(3)                                                            |  | $                        | (3.45       | )        |  |      |  |          |  | $    | (5.14       | )        |  |  |  |   |  | $ | (2.07       | ) |  |  |  | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Net loss, excluding restructuring costs, long-lived asset
	impairment and net loss on sales of assets           |  | $                        | (26,954,876 | )        |  |      |  |          |  | $    | (69,922,221 | )(5      |  |  |  | ) |  | $ | (41,156,415 | ) |  |  |  | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Net loss per share, excluding restructuring costs, long-lived
	asset impairment and net loss on sales of assets |  | $                        | (18.68      | )        |  |      |  |          |  | $    | (25.14      | )        |  |  |  |   |  | $ | (12.27      | ) |  |  |  | 






|    |                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The results of operations for the Predecessor from
	January 1, 1999 to February 28, 1999 and the results
	of operations for Netzee for the period from March 1, 1999
	to December 31, 1999 have been combined for comparative
	purposes.                                                                
|(2) | EBITDA is defined as earnings before interest, taxes,
	depreciation, amortization and amortization of stock-based
	compensation.                                                                                                                                                                        
|(3) | Cash loss is defined as net loss attributable to common
	shareholders plus amortization of intangible assets,
	amortization of stock-based compensation, net loss on sales of
	assets, long-lived asset impairment charges extraordinary items
	and cumulative effect of change in accounting principle.
|(4) | Adjusted EBITDA is defined as EBITDA excluding restructuring
	costs.                                                                                                                                                                                                                                    
|(5) | Includes $375,000 in accelerated stock-based compensation
	expenses related to our management restructuring.                                                                                                                                                                                            

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



| |         
| | --------
| | Revenues

Total revenues increased approximately $5.9 million, or
29%, from approximately $19.9 million for the twelve months
ended December 31, 2000 to approximately $25.8 million
for the twelve months ended December 31, 2001. This
increase consisted primarily of an increase in monthly
maintenance and service revenues due primarily to the increase
in the number of financial institution customers, and an
increase in the number of their customers utilizing our
products. This increased customer base resulted from new
customer implementations, additional product sales to existing
customers and customers obtained from Harland in November 2000,
and is partially offset by approximately $5 million in
decreases resulting from the sale of our regulatory reporting
assets to InterCept and bill payment assets to iPay.



| |                                                                     
| | --------------------------------------------------------------------
| | Cost of services, license, hardware, implementation and
	maintenance

Cost of services, license, hardware, implementation and
maintenance increased by approximately $4.0 million, or
40%, from approximately $10.1 million for the twelve months
ended December 31, 2000 to approximately $14.1 million
for the twelve months ended December 31, 2001. The increase
in the cost of services, license, hardware, implementation and
maintenance was due primarily to an increase in the total

23



---



##### Table of Contents





As a percentage of revenue, cost of services, license, hardware,
implementation and maintenance increased to 55% from 51% for the
twelve months ended December 31, 2001 as compared to the
twelve months ended December 31, 2000. Correspondingly, our
gross margin decreased to 45% from 49% for the twelve months
ended December 31, 2001 as compared to the twelve months
ended December 31, 2000. These changes were due primarily
to the sale of our regulatory reporting business in February
2001, which generated higher margins relative to our remaining
non-core businesses, partially offset by cost reductions from
the consolidation of our data center operations.



| |                               
| | ------------------------------
| | Selling and marketing expenses

Selling and marketing expenses decreased by approximately
$5.9 million, or 63%, from approximately $9.4 million
for the twelve months ended December 31, 2000 to
approximately $ 3.6 million for the twelve months ended
December 31, 2001. The decrease in selling and marketing
expenses was primarily due to a decrease in sales personnel
associated with our restructuring, lower new sales volume and
sales commissions paid in 2001 as compared to 2000 as well as a
decrease in our external advertising expenditures compared to
levels in the prior year. As a percentage of revenue, selling
and marketing expenses decreased to 14% from 47% for the twelve
months ended December 31, 2001 as compared to the twelve
months ended December 31, 2000.



| |                                    
| | -----------------------------------
| | General and administrative expenses

General and administrative expenses increased by approximately
$300,000, or 2%, from approximately $11.3 million for the
twelve months ended December 31, 2000 to approximately
$11.6 million for the twelve months ended December 31,
2001. The increase in general and administrative expenses was
primarily due to increases in overall business and operating
activities, an increase in the number of employees and
facilities obtained during 2000 from certain of the Acquired
Operations and an increase in management, support staff, and
general operating expenses resulting from our growth over the
prior year. Additionally, due to our growth over the prior year,
we experienced increased product development costs and higher
insurance costs as compared to the prior year. These increases
were partially offset by reductions in personnel and facility
costs resulting from our restructuring and office consolidation
efforts. As a percentage of revenue, general and administrative
expenses decreased to 45% from 57% for the twelve months ended
December 31, 2001, as compared to the twelve months ended
December 31, 2000.



| |            
| | -----------
| | EBITDA loss

EBITDA loss for the twelve months ended December 31, 2001,
was approximately $5.5 million, or $1.63 per share on
3.4 million weighted average shares outstanding, compared
to $11.2 million, or $4.02 per share on 2.8 million
weighted average shares outstanding for the same period last
year. As a percentage of revenue, EBITDA loss decreased to 21%
from 56% for the twelve months ended December 31, 2001 as
compared to the twelve months ended December 31, 2000.

Adjusted EBITDA loss, or EBITDA excluding restructuring costs,
for the twelve months ended December 31, 2001 was
approximately $3.5 million, or $1.03 per share, compared
with $11.0 million, or $3.94 per share in the same period
last year. The improvement is primarily due to increased
revenues as well as cost reductions resulting from our
restructuring efforts.



| |                    
| | -------------------
| | Restructuring costs

Restructuring costs increased by approximately
$1.8 million, from approximately $211,000 for the twelve
months ended December 31, 2000 to approximately
$2.0 million for the twelve months ended December 31,
2001. Restructuring costs consisted of severance and payroll
related items, as well as certain office lease and contract
termination costs. During the first quarter of 2001, we
finalized and announced a plan to reduce our operating expenses
through the consolidation of our Internet banking and bill
payment operations. This plan

24



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##### Table of Contents







| |             
| | ------------
| | Depreciation

Depreciation increased by approximately $300,000, or 16%, from
approximately $1.8 million for the twelve months ended
December 31, 2000 to approximately $2.1 million for
the twelve months ended December 31, 2001. This increase
was primarily due to the depreciation of acquired assets and
from depreciation associated with capital acquisitions used to
support our growth during the prior year. This was partially
offset by the elimination of depreciation costs associated with
assets that were sold during 2001. As a percentage of revenue,
depreciation expenses decreased to 8% from 9% for the twelve
months ended December 31, 2001 as compared to the twelve
months ended December 31, 2000.



| |                          
| | -------------------------
| | Preferred stock dividends

Preferred stock dividends related to accrued dividends on our
Series B 8% preferred stock. No dividends were paid related
to fiscal 2000 and 2001.



| |                      
| | ---------------------
| | Interest expense, net

Net interest expense decreased by approximately $200,000, or
16%, from approximately $1.1 million for the twelve months
ended December 31, 2000 to approximately $900,000 for the
twelve months ended December 31, 2001. This decrease was
due to a lower average effective interest rate on the average
debt balances for the twelve months ended December 31,
2001, as compared to the twelve months ended December 31,
2000, partially offset by a higher weighted average debt balance
in fiscal 2001 as compared to fiscal 2000. As a percentage of
revenue, net interest expense decreased to 3% from 5% for the
twelve months ended December 31, 2001 as compared to the
twelve months ended December 31, 2000.



| |          
| | ---------
| | Cash loss

For the twelve months ended December 31, 2001, cash loss
decreased to $8.9 million, or $2.66 per share on
3.4 million weighted average shares outstanding, compared
with $14.5 million, or $5.22 per share on 2.8 million
weighted average shares outstanding, for the twelve months ended
December 31, 2000. As a percentage of revenue, cash loss
decreased to 35% from 73% for the twelve months ended
December 31, 2001 as compared to the twelve months ended
December 31, 2000.

Excluding restructuring costs, cash loss decreased to
$6.9 million, or $2.07 per share, for the twelve months
ended December 31, 2001 compared to approximately
$14.3 million, or $5.14 per share, for the twelve months
ended December 31, 2000. This decrease was due primarily to
increases in revenues as well as decreases in other operating
expenses resulting from our restructuring efforts.



| |                     
| | --------------------
| | Amortization expense

Amortization expense decreased by approximately
$19.8 million, or 38%, from approximately
$52.8 million for the twelve months ended December 31,
2000 to approximately $33.0 million for the twelve months
ended December 31, 2001. Amortization expense decreased
primarily due to the write-down of certain intangible assets
during 2000 and the write down of DVI-related assets during
2001, combined with the elimination of the amortization related
to the regulatory reporting assets that were sold in February
2001. These decreases were partially offset by the additional
amortization expense resulting from the Harland assets purchased
in November 2000.



| |                                         
| | ----------------------------------------
| | Amortization of stock-based compensation

Amortization of stock-based compensation decreased by
approximately $1.9 million, or 38%, from approximately
$3.2 million for the twelve months ended December 31,
2000 to approximately $1.3 million for

25



---



##### Table of Contents







| |                            
| | ---------------------------
| | Net loss on sales of assets

Net loss on sales of assets was approximately $4.7 million
for the twelve months ended December 31, 2001 and resulted
primarily from the sale of our regulatory reporting and
DVI-related assets in February 2001 and November 2001,
respectively, partially offset by the gain on certain bill
payment assets sold in May 2001.



| |                            
| | ---------------------------
| | Long-lived asset impairment

Long-lived asset impairment was approximately $12.1 million
for the twelve months ended December 31, 2001, compared to
approximately $26.3 million for the twelve months ended
December 31, 2000. Long-lived asset impairment charges
resulted primarily from the write down of certain intangible
assets related to certain acquisitions in 2000, and the closure
of certain operations during 2001.



| |         
| | --------
| | Net loss

Net loss for the twelve months ended December 31, 2001 was
$60.0 million, or $17.89 per share, compared with
$96.8 million, or $34.81 per share, for the twelve months
ended December 31, 2000. Excluding long-lived asset impairment
charges, restructuring costs and net loss on sales of assets,
net loss for the twelve months ended December 31, 2001
totaled $41.2 million, or $12.27 per share, compared with
$69.9 million, or $25.14 per share, for the twelve months
ended December 31, 2000.

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



| |         
| | --------
| | Revenues

Total revenues increased by approximately $17.6 million, or
747%, from approximately $2.3 million for the twelve months
ended December 31, 1999 to approximately $19.9 million
for the twelve months ended December 31, 2000. This
increase consisted primarily of an increase in monthly
maintenance and service revenues due primarily to the increase
in the number of financial institution customers, and an
increase in the number of financial institution customers
utilizing our products. This increased customer base is a result
of new sales, additional product sales to existing customers and
customers obtained from the Acquired Operations.



| |                                                                     
| | --------------------------------------------------------------------
| | Cost of services, license, hardware, implementation and
	maintenance

Cost of services, license, hardware, implementation and
maintenance increased by approximately $8.1 million, or
416%, from approximately $2.0 million for the twelve months
ended December 31, 1999 to approximately $10.1 million
for the twelve months ended December 31, 2000. The increase
in the cost of services, license, hardware, implementation and
maintenance was due primarily to an increase in the number of
new institutional customers for which we have implemented our
products. Additionally, we experienced increased data center
costs required to support the increase in the total number of
institutions to which we provided services.

As a percentage of revenue, cost of service, license, hardware,
implementation and maintenance decreased to 51% from 83% for
fiscal year 2000 as compared to fiscal 1999. Correspondingly,
our gross margin improved from 17% for fiscal year 1999 to 49%
for fiscal year 2000. This increase in gross margin was due to
our ability to continue to add additional customers at a pace
that exceeded the incremental costs required to support those
new customers.

26



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##### Table of Contents





| |                               
| | ------------------------------
| | Selling and marketing expenses

Selling and marketing expenses increased by approximately
$6.8 million, or 264%, from approximately $2.6 million
for the twelve months ended December 31, 1999 to
approximately $9.4 million for the twelve months ended
December 31, 2000. The increase in selling and marketing
expenses was primarily due to an increase in sales personnel and
an increase in sales commissions paid on new sales. We also
increased our advertising expenditures in order to increase our
brand recognition and our end-user penetration. As a percentage
of revenue, selling and marketing expenses decreased to 47% for
fiscal year 2000 from 110% for fiscal year 1999.



| |                                    
| | -----------------------------------
| | General and administrative expenses

General and administrative expenses increased by approximately
$9.4 million, or 499%, from approximately $1.9 million
for the twelve months ended December 31, 1999 to
approximately $11.3 million for the twelve months ended
December 31, 2000. The increase in general and
administrative expenses was primarily due to increases in
overall business and operating activities, an increase in the
number of employees and facilities obtained primarily from the
Acquired Operations and an increase in management, support staff
and general operating expenses resulting from our growth. As a
percentage of revenue, general and administrative expenses
decreased to 57% for fiscal year 2000 from 81% for fiscal year
1999.



| |                    
| | -------------------
| | Restructuring costs

Restructuring costs, consisting primarily of employee severance
and payroll related costs, were $211,000 for the twelve months
ended December 31, 2000 compared to zero for the twelve
months ended December 31, 1999. Restructuring costs were a
result of the restructuring of our management initiated during
the fourth quarter of fiscal 2000.



| |            
| | -----------
| | EBITDA loss

EBITDA loss for the twelve months ended December 31, 2000
was approximately $11.2 million, or $4.02 per share on
2.8 million weighted average shares outstanding, compared
to $4.1 million, or $2.83 per share on 1.4 million
weighted average shares outstanding, for the twelve months ended
December 31, 1999. As a percentage of revenue, EBITDA loss
decreased to 56% from 174% for the twelve months ended
December 31, 2000 as compared to the twelve months ended
December 31, 1999.

Adjusted EBITDA loss for the twelve months ended
December 31, 2000 was approximately $10.9 million, or
$3.94 per share, compared with $4.1 million, or $2.83 per
share, in the same period in 1999.



| |             
| | ------------
| | Depreciation

Depreciation increased by approximately $1.6 million, or
819%, from approximately $200,000 for the twelve months ended
December 31, 1999 to approximately $1.8 million for
the twelve months ended December 31, 2000. This increase
was due primarily to the depreciation of assets from the
Acquired Operations and from depreciation associated with
capital acquisitions necessary to support our growth.

As a percentage of revenue, depreciation expenses increased
slightly to 9% for fiscal year 2000 from 8% for fiscal year
1999. This slight increase was due to our continued data center
expansion in early 2000, along with additional depreciation
expense associated with assets obtained from our acquisitions in
fiscal 2000.



| |                          
| | -------------------------
| | Preferred stock dividends

Preferred stock dividends increased from approximately $24,000
for the twelve months ended December 31, 1999 to $520,000
for the twelve months ended December 31, 2000. This
increase was a result of preferred stock dividends accruing for
a partial month in fiscal 1999 as compared to the entire year in
2000.

27



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##### Table of Contents





| |                      
| | ---------------------
| | Interest expense, net

Net interest expense increased by approximately $400,000, or
56%, from approximately $700,000 for the twelve months ended
December 31, 1999 to approximately $1.1 million for
the twelve months ended December 31, 2000. The increase was
due primarily to a higher average debt balance for debt incurred
to fund our operations and acquisitions for the twelve months
ended December 31, 2000, as compared to a lower average
debt balance incurred during 1999. As a percentage of revenue,
net interest expense decreased to 5% for fiscal year 2000 from
29% for fiscal year 1999.



| |          
| | ---------
| | Cash loss

Cash loss increased by approximately $9.5 million, or 191%,
from approximately $5.0 million, or $3.45 per share on
1.4 million weighted average shares outstanding for the
twelve months ended December 31, 1999 compared to
$14.5 million, or $5.22 per share on 2.8 million
weighted average shares outstanding for the twelve months ended
December 31, 2000. The increase was due to increases in
operating expenses, including selling and marketing, general and
administrative, depreciation, interest and preferred dividends.
Operating expenses increased in fiscal year 2000 as we
experienced an increase in our number of employees and
facilities, primarily obtained from the Acquired Operations. We
also increased our sales staff over staffing levels in fiscal
1999, expanded our data center operations and experienced an
increase in the staff necessary to support our increased
customer base. The increase in cash loss as a result of
increased operating expenses was partially offset by increases
in our revenues.

Excluding restructuring costs, cash loss increased to
$14.3 million, or $5.14 per share for the twelve months
ended December 31, 2000 compared to approximately
$5.0 million, or $3.45 per share for the comparable period
in 1999.



| |                     
| | --------------------
| | Amortization expense

Amortization expense increased by approximately
$39.9 million, or 310%, from approximately
$12.9 million for the twelve months ended December 31,
1999 to $52.8 million for the twelve months ended
December 31, 2000. Amortization expense increased due to an
increase in intangible assets recorded as a result of purchase
accounting associated with our acquisitions during fiscal year
2000, combined with a full year of amortization of intangible
assets related to our acquisitions in August, September and
December 1999.



| |                                         
| | ----------------------------------------
| | Amortization of stock-based compensation

Amortization of stock-based compensation decreased by
approximately $1.4 million, or 30%, from approximately
$4.6 million for the twelve months ended December 31,
1999 to $3.2 million for the twelve months ended
December 31, 2000. Amortization of stock-based compensation
expense for the twelve months ended December 31, 2000
included twelve months of amortization for certain stock options
issued during fiscal year 1999 with an exercise price below the
initial public offering price and $375,000 due to the
accelerated vesting of restricted stock resulting from our
management restructuring in the fourth quarter of 2000.
Amortization of stock-based compensation for the twelve months
ended December 31, 1999 was due to the expenses associated
with the vesting of options upon our initial public offering and
the issuance of stock in August and September 1999 at a price
below the initial public offering price.



| |                            
| | ---------------------------
| | Long-lived asset impairment

Long-lived asset impairment was approximately $26.3 million
for the twelve months ended December 31, 2000 as compared
to zero for the twelve months ended December 31, 1999.
Long-lived asset impairment charges resulted primarily from the
write down of certain acquired intangible assets.



| |         
| | --------
| | Net loss

Net loss for the twelve months ended December 31, 2000 was
$96.8 million, or $34.81 per share, compared with
$27.0 million, or $18.68 per share, for the twelve months
ended December 31, 1999. Excluding

28



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Liquidity and Capital Resources

Our operating activities used cash of approximately
$8.4 million and $15.6 million for the twelve months ended
December 31, 2001 and 2000, respectively. Cash used in
operating activities for the twelve months ended
December 31, 2001 resulted primarily from our net operating
losses, the payment of restructuring related costs and the
recognition of previously collected deferred revenue. This was
partially offset by the collection of receivables during the
twelve months ended December 31, 2001. Cash used in
operating activities for the twelve months ended
December 31, 2000 resulted primarily from our operating
losses and the payment of accounts payable and accrued
liabilities. This was partially offset by the advance collection
of deferred revenue.

Our investing activities provided cash of approximately
$14.0 million and used cash of approximately
$4.3 million for the twelve months ended December 31,
2001 and 2000, respectively. Cash provided by investing
activities for the twelve months ended December 31, 2001
resulted primarily from the disposition of our regulatory
reporting assets in February 2001, certain bill payment
assets in May 2001 and the DVI-related assets in
November 2001. This was partially offset by the purchase of
property, equipment and costs associated with capitalized
software development and the purchase of other property required
to support our business, as well as our acquisition of assets
from HomeCom in March 2001. Cash used in investing
activities for the twelve months ended December 31, 2000
resulted primarily from our investment in property, equipment
and capitalized software for our data centers.

Our financing activities used cash of approximately
$6.0 million and provided cash of approximately
$9.5 million for the twelve months ended December 31,
2001 and 2000, respectively. Cash used in financing activities
for the twelve months ended December 31, 2001 resulted
primarily from repayments on our credit facility with proceeds
from the sale of our regulatory reporting assets, certain bill
payment and DVI-related assets, as well as proceeds from the
repayment of shareholder notes, offset by additional borrowings
from our credit facility. Cash provided by financing activities
for the twelve months ending December 31, 2000 resulted
from additional borrowings from our credit facility, borrowings
from a note payable, the repayment of shareholder notes and
proceeds from the exercise of warrants. This was partially
offset by the payments of notes payable assumed in the
acquisition of DVI and repayments on our credit facility.

Our working capital deficit as of December 31, 2001 was
approximately $1.2 million compared to a working capital
deficit of $5.5 million at December 31, 2000. This
increase in working capital is primarily due to changes in
working capital associated with certain dispositions of assets,
partially offset by accrued dividends during 2001. As of
December 31, 2001, we had $6.4 million in available
borrowings under our credit facility, which we may use to remedy
our working capital deficit.

In February 2001, we completed the sale of certain of our
regulatory reporting assets acquired from DPSC in 1999. As a
result, we received cash proceeds of approximately
$14.1 million. We used approximately $11.8 million of
the proceeds to pay down principal balances on the joint credit
facility. The balance of the proceeds was used to fund
operations as well as to pay certain closing costs and certain
liabilities related to the sale. In connection with this sale,
we converted our $15 million line of credit with InterCept
and our $5 million promissory note with Harland into a
$20 million joint credit facility ($15 million funded
by InterCept and $5 million funded by Harland). The terms
of the credit facility remained consistent with the terms of the
former line of credit and promissory note, except that both
InterCept and Harland had the right (instead of just InterCept)
to enforce the covenants contained in the line of credit
agreement.

In May 2001, we sold certain bill payment assets which we
considered to be a non-core component of our business. We
received cash proceeds of $1,275,000, which were primarily used
to pay down our credit facility. In connection with this sale,
Harlands portion of the joint credit facility was
permanently reduced to $4,775,000, reducing the total credit
facility to $19,775,000. InterCepts portion of the credit
facility remained at $15 million.

29



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In November 2001, we sold certain assets we acquired from DVI to
SS&C for gross proceeds of approximately $1.35 million,
which were primarily used to pay down our credit facility. In
connection with this sale, Harlands portion of the joint
credit facility was permanently reduced to $4,555,000, reducing
the total credit facility to $19,555,000. InterCepts
portion of the credit facility remained at $15 million. As
of December 31, 2001, the facility was funded approximately
77% by InterCept and 23% by Harland. As of December 31,
2001, we were in compliance with all of the covenants of the
credit facility.

In March 2002, we extended the maturity date of our joint credit
facility from November 2, 2002 to April 10, 2003. We
also reduced the total credit facility to $18,000,000. The first
$17 million, to the extent borrowed, will be funded
approximately 77% by InterCept and 23% by Harland. The remaining
$1 million, if borrowed, will be funded solely by InterCept. We
paid extension fees of $100,000 to InterCept and $20,000 to
Harland as a result of these changes to the credit facility. As
of March 29, 2002, we had approximately $4.3 million
available under the line and we were in compliance with all of
the covenants of the credit facility.

In December 1999, we issued 500,000 shares of preferred
stock in connection with our acquisition of DPSC. These shares
of preferred stock permit us to repurchase all such shares at a
price of $13.00 per share, plus accrued but unpaid dividends
thereon, subject to certain conditions, none of which have
currently been met. In addition, the holder of the preferred
stock has the right, beginning on April 10, 2003, to
require us to repurchase such stock at $13.00 per share, plus
accrued but unpaid dividends thereon, except that in the event
that indebtedness under our joint credit facility is
accelerated, the repurchase right shall become immediately
exercisable. On March 29, 2002, this repurchase right was
extended from June 15, 2002 for an extension fee of
approximately $500,000. Any repurchase of preferred shares will
require the approval of our creditors pursuant to the terms of
our credit facility and the banking regulators under the MOU.
The preferred stock obligation is subordinate to our obligations
to our creditors under the credit facility.

We have incurred net losses since our inception. As of December
31, 2001, we had an accumulated deficit of approximately $184
million. These losses have resulted from the costs we have
incurred to develop our products and services, and to increase
our customer base and build our infrastructure as well as from
the amortization of intangible assets associated with the
Acquired Operations. We believe that our existing capital
resources, together with cash provided by our operations and
borrowings under our credit facility, will be sufficient to fund
our working capital requirements for the next 12 months. If we
are unable to achieve and maintain our cost savings goals, if
our working capital requirements exceed our current
expectations, if cash provided by our operations is less than
anticipated, or if we make additional acquisitions, we may need
to raise additional capital either through debt or equity
sources before that time. We cannot be sure that we will be able
to obtain the additional financing necessary to satisfy these
additional capital requirements or to implement our strategy on
acceptable terms or at all. Additionally, we may need to further
extend the due dates of our line of credit as well as our
preferred stock. If we cannot obtain this financing or these
extensions on terms acceptable to us or at all, we may be forced
to curtail some planned business expansion, we may be unable to
fund our ongoing operations, or we may have to cease operations
altogether. Alternatively, we may be required to reduce the
level of spending on capital and operating expenses in order to
utilize our existing financing and sources of liquidity to
operate the business on a reduced scale.

Selected Quarterly Data

The following table sets forth our selected quarterly data for
the years ending December 31, 2000 and 2001. All share and
per share amounts have been restated to reflect our 1-for-8
reverse stock split effected in May 2001.

|                                             |  |                |             |               |  |                    |            |                   |  |   |             |   |  |   |            |  
|-------------------------------------------- |  | -------------- | ----------- | ------------- |  | ------------------ | ---------- | ----------------- |  | - | ----------- | - |  | - | ---------- | -
|                                             |  |               
|                                             |  | Quarter Ended 
|                                             |  |               
|                                             |  | March 31, 2001 |             | June 30, 2001 |  | September 30, 2001 |            | December 31, 2001
|                                             |  |                |             |               |  |                    |            |                  
|                                             |  |               
|                                             |  | (Unaudited)   
|                                            
|                                            
|                                            
|                                            
|Revenues                                     |  | $              | 7,468,000   |               |  | $                  | 6,350,000  |                   |  | $ | 6,236,000   |   |  | $ | 5,710,000  |  
|                                            
|                                            
|                                            
|                                            
|Gross profit                                 |  |                | 3,085,000   |               |  |                    | 2,602,000  |                   |  |   | 2,921,000   |   |  |   | 3,041,000  |  
|                                            
|                                            
|                                            
|                                            
|Operating loss                               |  |                | (19,974,000 | )             |  |                    | (9,591,000 | )                 |  |   | (21,781,000 | ) |  |   | (7,276,000 | )
|                                            
|                                            
|                                            
|                                            
|Net loss attributable to common shareholders |  |                | (20,400,000 | )             |  |                    | (9,904,000 | )                 |  |   | (22,129,000 | ) |  |   | (7,587,000 | )
|                                            
|                                            
|                                            
|                                            
|Basic and diluted loss per share             |  |                | (6.08       | )             |  |                    | (2.96      | )                 |  |   | (6.60       | ) |  |   | (2.25      | )

30



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|                                                                             |  |                |             |               |  |                    |             |                   |  |   |             |   |  |   |             |  
|---------------------------------------------------------------------------- |  | -------------- | ----------- | ------------- |  | ------------------ | ----------- | ----------------- |  | - | ----------- | - |  | - | ----------- | -
|                                                                             |  |               
|                                                                             |  | Quarter Ended 
|                                                                             |  |               
|                                                                             |  | March 31, 2000 |             | June 30, 2000 |  | September 30, 2000 |             | December 31, 2000
|                                                                             |  |                |             |               |  |                    |             |                  
|                                                                             |  |               
|                                                                             |  | (Unaudited)   
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Revenues                                                                     |  | $              | 2,815,349   |               |  | $                  | 4,303,000   |                   |  | $ | 5,235,000   |   |  | $ | 7,558,000   |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Gross profit                                                                 |  |                | 1,224,000   |               |  |                    | 2,181,000   |                   |  |   | 2,640,000   |   |  |   | 3,760,000   |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Operating loss                                                               |  |                | (15,606,000 | )             |  |                    | (17,544,000 | )                 |  |   | (17,191,000 | ) |  |   | (44,897,000 | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Net loss before extraordinary item and change in
	accounting principle       |  |                | (15,847,000 | )             |  |                    | (17,913,000 | )                 |  |   | (17,846,000 | ) |  |   | (45,202,000 | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Net loss attributable to common shareholders                                 |  |                | (16,156,000 | )             |  |                    | (17,902,000 | )                 |  |   | (17,703,000 | ) |  |   | (45,752,000 | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Loss per share before extraordinary item and
	change in accounting principle |  |                | (6.10       | )             |  |                    | (6.60       | )                 |  |   | (6.51       | ) |  |   | (14.73      | )
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Basic and diluted loss per share(1)(2)                                       |  |                | (6.24       | )             |  |                    | (6.56       | )                 |  |   | (6.48       | ) |  |   | (14.91      | )






|    |                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The sum of the quarterly basic and diluted loss per share does
	not equal the year-to-date basic and diluted loss per share
	calculation for the respective fiscal periods presented, due to
	differences in rounding as well as differences in quarterly
	average shares outstanding versus year-to-date average shares
	outstanding.                    
|   
|(2) | The data for the quarters ended March 31, June 30 and
	September 30, 2000 have been restated as a result of our
	adoption of SAB No. 101 in the fourth quarter of 2000. SAB
	No. 101 established guidelines for revenue recognition and
	enhanced revenue recognition disclosure requirements. See
	Note 12 in Notes to Consolidated Financial Statements.

Factors that May Affect Our Future Results of Operations or
Financial Condition



| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | To execute our strategy, we may require additional funding
	that may not be available on favorable terms or at all, and a
	lack of funds could substantially impair our ability to operate,
	grow and be profitable

We do not have sustained earnings or positive cash flow, and our
business strategy currently requires us to incur significant
expenses to operate competitively and to grow our business. We
do not currently have adequate cash flow from operations to fund
these expenses, although we expect to achieve positive cash flow
from operations in fiscal 2002. Until that time, we will be
funding our operations from borrowings under our credit
facility. If we are unable to borrow money under that facility
for whatever reason, our business and operations would be
greatly impaired and we would be required to seek new or
additional sources of funds. If we should need additional
financing, it may not be available on favorable terms or at all.
If we cannot raise adequate funds to satisfy our operating and
capital requirements, we may have to limit our operations
significantly or cease operations altogether. Our future
operating and capital requirements depend upon many factors,
including:



| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | our ability to maintain and achieve our cost levels and targets;                           
|
| |  | the response of customers to our product and service offerings;                            
|
| |  | the extent to which we expand our products and services; and                               
|
| |  | the extent to which we develop and upgrade our technology and
	data network infrastructure.

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| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | Because we have a limited operating history in a rapidly
	evolving industry, it is difficult to evaluate our business and
	prospects

We were incorporated in August 1999 as the successor to a
company which had operated only since October 1996. Therefore,
it is difficult for an investor to evaluate us and our
prospects. An investor in our common stock must consider the
risks we face as a company operating in the relatively new and
rapidly evolving Internet banking and e-commerce markets. These
risks include our inability to:



| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | operate profitably;                                                                                                     
|
| |  | comply with regulatory guidelines;                                                                                      
|
| |  | develop, test, market and sell our products and services;                                                               
|
| |  | expand successfully our sales and marketing efforts;                                                                    
|
| |  | maintain our current, and develop new, strategic marketing
	alliances;                                                  
|
| |  | promote acceptance of our Internet based services by our
	community financial institution customers and their customers;
|
| |  | protect our Internet-based products and services and our data
	stored on our servers from unauthorized access or use;   
|
| |  | respond effectively to competitive pressures; and                                                                       
|
| |  | continue to develop and upgrade our technology.                                                                         

We may not succeed in achieving any or all of these goals. We
may never achieve or sustain profitability.



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | We have a history of losses and anticipate losses in the
	future, and we may never become profitable

We incurred net losses of approximately $60 million for the
year ended December 31, 2001. We expect to incur
significant operating losses in the foreseeable future. We will
need to generate significant revenues to achieve and maintain
profitability, and we cannot give assurances that we will be
able to do so. Our revenues for the year ended December 31,
2001 were approximately $26 million, and our cash operating
expenses for the year were approximately $35 million. If
our revenues are less than we anticipate or if we cannot reduce
our operating expenses as expected, our financial performance
will be adversely affected. See Selected Financial
Information and Managements Discussion and
Analysis of Financial Condition and Results of Operations.



| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | Our continued inability to comply with the maintenance
	listing criteria of the Nasdaq National Market may cause our
	common stock to be delisted

Our common stock is currently listed on the Nasdaq National
Market. Thus, we are subject to financial and market-related
requirements and other qualitative standards established by
Nasdaq to maintain our listing. On February 14, 2002, we
were notified by Nasdaq that we failed to meet the
$5 million minimum market value requirement for our
publicly held shares. We have been given until May 15, 2002 to
come into compliance with this rule. If we fail to meet this
requirement, Nasdaq could delist our common stock. If this were
to happen, it may be more difficult for a shareholder to buy or
sell our stock at competitive market prices, or at all, and we
may lose support from institutional investors, brokerage firms
and market makers, if any, that currently buy and sell our stock
and provide information to investors about us. Such an event
could also cause the price of our stock to decrease further. It
is likely that we will be delisted from the Nasdaq National
Market.

Our business and
prospects will suffer if end users do not accept and use our
products and services

We derive substantially all of our revenues from products and
services provided to community financial institutions, their
customers and other participants in the financial services
industry. Our future success depends significantly upon the
willingness of community financial institutions to offer
technological innovations such as Internet and telephone banking
and upon their customers demand for and acceptance of these

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We may not be able to be successful in marketing these products
and services or other integrated products and services. In
addition, changes in economic conditions and unforeseen events,
including recession, inflation or other adverse occurrences, may
result in a significant decline in the utilization of community
financial institution services or demand for our products and
services. Any event that results in decreased consumer or
corporate use of community financial institution services, or
increased pressures on community financial institutions toward
the in-house development of Internet based systems, could have a
material adverse effect on our business, financial condition and
results of operations.

Because we offer Internet-based products and services, our
business would be adversely affected if Internet use does not
continue to grow or grows more slowly than expected. Internet
usage may be inhibited for a number of reasons, including
inadequate network infrastructure, security concerns,
inconsistent quality of service, and unavailability of cost
effective, high-speed access to the Internet. If the market for
Internet-based financial services fails to grow, grows more
slowly than anticipated, or becomes saturated with competitors,
our business, financial condition and results of operations
likely would be materially adversely affected.



| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have recently experienced a period of significant
	operational reductions that may place a strain on our ability to
	achieve revenue growth and profitability

We previously experienced significant growth in our operations
through acquisitions in 1999 and 2000. Our recent reorganization
and the resulting reduction in personnel and facilities is
placing and will continue to place additional demands on our
management and operational ability. Our current management,
sales, technical and accounting resources may not be adequate to
support our anticipated revenue growth. Our future operating
results will substantially depend on the ability of our
management to handle changing business conditions and to
implement and improve our systems. To manage these changes
effectively, we must:



| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | predict accurately the growth in the demand for our products and
	related services and our capacity to address that demand;
|
| |  | respond adequately to the needs of our financial institution
	customers and their customers;                               
|
| |  | motivate, manage and retain key employees; and                                                                             
|
| |  | respond effectively to changes in the industry.                                                                            



| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our relationships with InterCept and Harland may present
	potential conflicts of interest, which may result in decisions
	that favor InterCept and Harland over our other shareholders

Because Netzee, InterCept and Harland are engaged in the sale of
electronic commerce products and services to community financial
institutions, numerous potential conflicts of interest exist
between these companies or their affiliates. We compete with
each other when offering some products and services to potential
customers. Our bylaws contain provisions addressing potential
conflicts of interest between us and InterCept and the
allocation of transactions that, absent such allocation, could
constitute corporate opportunities of both companies. Under
these provisions, InterCept may take advantage of a corporate
opportunity rather than presenting that opportunity to us,
absent a clear indication that the opportunity was directed to
us rather than to InterCept.

Our existing and future agreements and relationships with
InterCept have not resulted and will not necessarily result from
arms-length negotiations. InterCept currently owns approximately
28% of our common stock. Our Chairman, our former Vice Chairman,
our Chief Executive Officer and another of our former directors
are directors or significant shareholders of InterCept. In
addition, John W. Collins, our Chairman, serves as Chief
Executive Officer of InterCept. When the interests of InterCept
diverge from our interests, InterCepts officers and
directors may exercise their influence in InterCepts best
interests. Therefore, our agreements and relationships with
InterCept may be less favorable to us than those that we could
obtain from unaffiliated third parties. Moreover, many of the
transactions between us and InterCept do not lend

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Other than the provisions of our bylaws relating to corporate
opportunities, there is no mechanism in place to resolve these
conflicts of interest, except that it is our policy that
transactions with affiliated parties be approved by a majority
of our disinterested directors. Nevertheless, due to the
extensive relationships between InterCept and us, we may make
decisions that potentially favor InterCept or its affiliates at
the expense of our shareholders. Furthermore, Georgia law may
prohibit a shareholder from successfully challenging these
decisions, if the decision received the affirmative vote of a
majority, but not less than two, of our disinterested directors
who received full disclosure of the existence and nature of the
conflict.

Our existing agreements and relationships with Harland have
resulted, but future agreements will not necessarily result,
from arms-length negotiations. Harland currently owns
approximately 16% of our common stock.

We may experience delays
in product development, and these delays may adversely affect
us

The electronic banking and financial services industry is
characterized by rapidly changing technology, evolving industry
standards, emerging competition and frequent new product and
service introductions. Our future success will depend on our
ability to develop, test, sell and support new and integrated
products and services that will keep pace with technological
advances and industry standards and satisfy the evolving needs
of both financial institutions and their customers. Our
inability to develop and introduce new and integrated products
and services in a timely manner could limit the marketability of
our products and services and could render them obsolete, which
would adversely affect us. Further, we cannot predict the time
required and costs involved in developing new and integrated
products and services. Actual development costs could
substantially exceed budgeted amounts, and estimated product
development schedules could require extensions. In these cases,
our business, financial condition and results of operations may
be materially adversely affected.



| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | The unpredictability of our future financial results and
	events beyond our control may adversely affect the trading price
	of our common stock

The price of our common stock has fluctuated substantially and
our financial results and stock price may fluctuate
substantially in the future. These fluctuations may be caused by
numerous factors, including pricing competition for our products
and services and our ability to generate revenues and operate
profitably. Other factors which may cause our common stock to be
adversely affected and which may cause significant fluctuations
in our stock price include:



| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our actual or anticipated operating results;                                                                                                       
|
| |  | our actual or anticipated growth rates, as they may change from
	time to time;                                                                     
|
| |  | our ability to remain listed on the Nasdaq National Market;                                                                                        
|
| |  | changes in analysts estimates;                                                                                                                    
|
| |  | competitors announcements;                                                                                                                        
|
| |  | regulatory actions;                                                                                                                                
|
| |  | industry conditions;                                                                                                                               
|
| |  | general economic conditions; and                                                                                                                   
|
| |  | a variety of other factors that we have discussed elsewhere in
	Factors That May Affect Our Future Results of Operations
	or Financial Condition.

Further, the market for Internet and technology companies has
experienced extreme price and volume volatility that have often
been unrelated or disproportionate to the operating performance
of those companies. These broad market and industry factors may
materially and adversely affect our stock price, regardless of
our operating performance. The trading prices of the stock of
many Internet and technology companies remain at or near
historical lows and reflect relative valuation levels
substantially lower than historical levels. Because our stock
price is currently very low and the number of shares outstanding
is relatively small, small trades and changes in our stock price
can produce significant percentage changes in the value of our
common stock.

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| |                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our sales efforts may be delayed because community financial
	institutions are generally slow to adopt new technology, and our
	financial condition may make sales of our products and services
	to such financial institutions more difficult

Community financial institutions tend to be cautious in making
purchase decisions regarding new technologies. This requires us
to provide a significant level of education to prospective
customers regarding the use and benefits of our products and
services prior to the purchase of our products and services.
Further, community financial institutions are frequently slow to
approve capital expenditures and to review new technologies that
affect key operations. In addition, our low stock price,
operating losses, recent security issues and level of financial
resources have made some financial institutions reluctant to
purchase our products and services. All of this could have the
effect of significantly lengthening our sales cycle or reducing
sales, thereby delaying revenue growth and adversely affecting
our business, operating results and financial condition.



| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our operating results may be adversely affected because
	implementation of our Internet banking products and services by
	our community financial institution customers may take longer
	than we anticipate

During the course of an initial implementation of our Internet
banking products and services, we must integrate our Internet
banking software with a community financial institutions
core processing systems. This involves the installation of an
interface to permit communication between our Internet banking
products and services and the community financial
institutions core processing systems. We may, from time to
time, experience some delays in the integration process,
particularly if we do not already have an established interface
for a particular core processing system. It takes us an average
of 60 to 90 days to implement our service bureau Internet
banking services. A longer integration period will increase our
costs associated with the implementation and delay the
recognition of revenues. Changes to existing core software
systems by existing customers and custom implementations for
future client financial institutions may also cause integration
delays in future implementations that could have a material
adverse effect on our business, operating results and financial
condition for subsequent periods. The implementation of our
in-house Internet banking product depends on the size and
complexity of the financial institutions infrastructure of
systems, network structure and software.



| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Damage to our data centers would result in failures or
	interruptions in providing our products and services to our
	customers, which could jeopardize our business and customer
	relationships

Although we have backup facilities to provide Internet services
if either or both of our data centers fail to function, a
natural disaster, such as a fire, tornado or flood, or other
unanticipated problem at one or more of our data centers,
including an extended power loss, telecommunications failure,
break-in or other security breach, computer virus, hacker attack
or other events beyond our control, could nevertheless result in
failures or interruptions in providing our products and services
to our customers. The occurrence of any of these events could
have a material adverse effect on our business, financial
condition and results of operations. See
 Network security problems could hinder the
growth of the Internet and cause us to lose customers.



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Our business could suffer if our community financial
	institution customers terminate their contracts with us

Significant consolidation is occurring in the financial services
industry, and our community financial institution customers that
are involved in mergers and acquisitions may terminate their
agreements with us or fail to renew them when they expire. An
existing community financial institution customer may be
acquired by or merged with another financial institution that
utilizes a different Internet banking system or does not desire
to continue the relationship with us for some other reason. This
could result in the new entity terminating the relationship with
us. This risk is particularly relevant to us because we target
small to mid-sized community financial institutions as
customers, which are more likely to be potential acquisition
candidates.

Customers of financial institutions that continue to use our
products and services may ultimately decide to discontinue using
the Internet banking and related product offerings of that
financial institution because of

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| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | If we cannot hire and retain qualified personnel, we will not
	be able to conduct our operations successfully or at all

There is significant competition for qualified employees, and
high employee turnover exists among Internet and other
technology companies today. As a result, we may experience
difficulty in hiring and retaining highly skilled employees with
appropriate qualifications. Our operating results may be
adversely affected if we experience increased expenses related
to attracting, training and retaining qualified employees. Our
failure to succeed in attracting new personnel or retaining and
motivating our current personnel could adversely affect our
business, financial condition and results of operations.



| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | Network security problems could hinder the growth of the
	Internet and cause us to lose customers

To the extent that our activities involve the storage and
transmission of proprietary information, security breaches could
expose us to possible liability and damage our reputation. Any
compromise of our security could harm our business and could
deter people from using the Internet to conduct transactions
that involve transmitting confidential information. We rely on
standard Internet security systems, all of which are licensed
from third parties, to provide the security and authentication
necessary to effect secure transmission of data. Nevertheless,
compromises or breaches of our security measures have occurred
and may occur in the future.

Our networks have been, and may continue to be, vulnerable to
unauthorized access, computer viruses and other disruptive
problems. Someone who is able to circumvent our security
measures could misappropriate our proprietary information or
cause interruptions in our Internet operations. We, as well as
other Internet and on-line service providers have in the past
experienced, and we and they may in the future experience,
interruptions in service as a result of the accidental or
intentional actions of Internet users, including current and
former employees or others. Concerns regarding security risks
may deter community financial institutions from purchasing our
products and services and deter their customers from using our
products and services. We may need to expend significant capital
or other resources to protect against the threat of security
breaches or to alleviate problems caused by breaches. These
breaches may also require us to pay money damages to others who
were harmed by them. Eliminating computer viruses and
alleviating other security problems may result in interruptions,
delays or termination of service to users accessing web sites
that deliver our services, any of which could harm our business,
financial condition and results of operations.

Security breaches may permit unauthorized persons to obtain
private financial information of users of the services we
provide to our financial institution customers. If this private
information is illegally obtained, it may be used to commit
identity theft or commit other types of fraud. During 2001, we
experienced the unauthorized access of private data due to a
security breach at our former Birmingham, Alabama data center.
As a result of this breach, unauthorized persons used the data
to open online investment accounts and send extortion e-mails to
financial institutions in an attempt to transfer funds using
Internet-based person-to-person payment systems. To our
knowledge, these incidents did not result in any material direct
financial loss to any of our customers. However, we were
required to invest considerable resources and management
attention to investigate these incidents and properly notify our
customers. Additionally, some of our customers terminated their
contracts with us as a result of these incidents.

While we have continued to invest in additional resources to
prevent security breaches and other similar incidents from
recurring, future security breaches would cause us to incur
significant costs to investigate, restore services, implement
additional security measures and notify our customers.
Furthermore, additional unauthorized intrusions would likely
result in additional customer attrition, which would have a
material adverse impact on our business, results of operations
and financial condition.

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| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Defects in software products that we use in our products and
	our inability to sustain a high volume of traffic may materially
	and adversely affect our business

The software used by our systems and products and services may
contain errors, defects or bugs. Although we have not suffered
significant harm from any errors or defects to date, we may
discover significant errors or defects in the future that we may
or may not be able to correct. We have recently introduced and
will be continually introducing new products in the market and
have not experienced any product liability claims to date, but
the sale and support of our products and services may entail the
risk of these claims. A product liability claim brought against
us could have a material adverse effect on our business,
financial condition and results of operations.

Furthermore, as the volume of traffic and transactions on our
system increases substantially, we could experience periodic
temporary capacity constraints, which may cause unanticipated
system disruptions, slower response times and lower levels of
customer service. We may be unable to project accurately the
rate or timing of increases, if any, in the use of our services
or expand and upgrade our systems and infrastructure in a timely
manner to accommodate these increases. Any inability to do so
could harm our business.



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Increased competition may increase pricing pressures, reduce
	margins and create a loss of market share

The market for our products and services is highly competitive.
We compete with a variety of third parties, including other
providers of Internet banking systems, as well as systems
developed internally by financial institutions. We also expect
competition in our markets to increase significantly as new
companies enter our market and current competitors expand their
product lines and services. These new competitors may include
non-bank financial institutions, such as brokerage firms,
on-line service providers and data processing vendors, among
others. In many instances, these entities are dominant
competitors and may enjoy substantial competitive advantages,
including:



| |   |                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |  | greater name recognition;                                                                                                
|
| |  | better financial condition;                                                                                              
|
| |  | greater financial, technical and marketing resources to devote
	to the development, promotion and sale of their services;
|
| |  | longer operating histories; and                                                                                          
|
| |  | a larger base of client financial institutions.                                                                          

Any pricing pressures, reduced margins or loss of market share
resulting from our failure to compete effectively would
materially and adversely affect our business, financial
condition and operating results.



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Infringement by others upon our proprietary technology could
	harm our ability to establish and protect our proprietary
	rights, which could adversely affect our business

Our inability to protect our proprietary rights adequately could
have a material adverse effect on the acceptance of our brand
names and on our business, financial condition and operating
results. We rely on a combination of copyright, trademark and
trade secret laws and contractual provisions to establish and
protect our proprietary rights.

There can be no assurance that the steps we have taken, and will
take in the future, to protect our proprietary rights will be
adequate or that third parties will not infringe upon or
misappropriate our copyrights, trademarks, service marks, domain
names and similar proprietary rights. In addition, effective
copyright and trademark protection may be unenforceable or
limited in foreign countries, and the global nature of the
Internet makes it impossible to control the ultimate destination
of our services. Our competitors or others may adopt product or
service names similar to ours, thereby impeding our ability to
build brand identity and possibly leading to customer confusion.
Moreover, because Internet domain names derive value from the
individuals ability to remember these names, we cannot
guarantee that our Internet domain names will

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Furthermore, we may become involved in litigation or other
proceedings regarding our trade secrets, copyrights and other
intellectual property rights. An adverse determination in
intellectual property litigation could result in the loss of
proprietary rights, subject us to significant liabilities,
require us to seek licenses from third parties or prevent us
from selling our products and services. There can be no
assurance that we would be able to obtain licenses, if
necessary, on commercially reasonable terms, if at all. In
addition, litigation would divert management resources and be
expensive. Any of these results could have a material adverse
effect on the acceptance of our brand names and on our business,
financial condition and operating results.



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our growth may be adversely affected by government regulation
	and legal uncertainties that could add additional costs to doing
	business on the Internet

Other than the Gramm-Leach-Bliley Act discussed below, there are
currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and
regulations may be adopted in the future that address issues,
including user privacy, pricing, and the characteristics and
quality of products and services. For example, the
Telecommunications Act sought to prohibit transmitting various
types of information and content over the Internet. Several
telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers
and on-line service providers in a manner similar to long
distance telephone carriers and to impose access fees on those
companies. This could increase the cost of transmitting data
over the Internet. Moreover, it may take years to determine the
extent to which existing laws relating to issues such as
property ownership, libel and personal privacy issues apply to
the Internet. Any new laws or regulations relating to the
Internet or the manner in which existing laws are applied to the
Internet could adversely affect our business.

Our primary customers are community financial institutions,
which are heavily regulated. In addition, financial institution
regulators can effectively control and mandate the standards for
the required security systems, communication technologies and
other features of our products and services. There can be no
assurance that federal, state or foreign governmental
authorities will not adopt new regulations addressing electronic
financial institution operations that could require us to modify
our current or future products and services.

For example, the U.S. Congress enacted the Gramm-Leach-Bliley
Act in November 1999. This law may restrict or prohibit our
ability to offer third parties access to non-public personal
information generated by our Internet banking products and
services. Further, with respect to the information of each
particular individual that does business with a community
financial institution, we will be required to comply with the
privacy policies that are adopted by each financial institution.
Pursuant to this law, the federal banking authorities, the
Securities and Exchange Commission and the Federal Trade
Commission have adopted rules and regulations implementing this
law. Finally, this law specifically permits states to adopt
financial privacy laws that are more restrictive than federal
law. Some states have interpreted laws that were in effect when
the Gramm-Leach-Bliley Act was enacted to be more restrictive
than the new federal laws, and those states have continued to
enforce those laws. Several other states have adopted or are
considering the adoption of consumer privacy legislation that
would be more restrictive than this federal law, and it is
possible that every state in which we provide our products and
services could adopt laws that are more restrictive than the
Gramm-Leach-Bliley Act and its complementary rules. This law or
the adoption of other laws or regulations affecting our business
or our community financial institution customers
businesses could reduce our growth rate or could otherwise have
a material adverse effect on our business, financial condition
and operating results. See Business  Government
Regulation.

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| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Taxation of our Internet products and services could affect
	our pricing policies and reduce demand for our products and
	services

Any legislation that substantially impairs the growth of
e-commerce could have a material adverse effect on our business,
financial condition and operating results. The tax treatment of
the Internet and e-commerce is currently unsettled. A number of
proposals at the federal, state and local levels in the United
States and before foreign governments would, if enacted, impose
taxes on the sale of goods and services provided over the
Internet. The Internet Tax Nondiscrimination Act extends a
moratorium on new state and local taxes on Internet commerce
until November 1, 2003. However, future laws may impose
taxes or other regulations on such commerce. We cannot predict
the effect of any such future laws or current attempts to tax or
regulate commerce over the Internet.



| |                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our stock value may be adversely affected because our
	management and affiliates beneficially own approximately 53% of
	our common stock, and thus no corporate actions requiring
	shareholder approval can be taken without their approval

Our officers, directors and affiliated persons beneficially own
approximately 53% of our common stock. As a result, our
officers, directors and affiliated persons effectively are able
to:



| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | elect, or defeat the election of, our directors;                                
|
| |  | amend or prevent amendment of our articles of incorporation or
	bylaws;         
|
| |  | effect or prevent a merger, sale of assets or other corporate
	transaction; and 
|
| |  | control the outcome of any other matter submitted to the
	shareholders for vote.

Our public shareholders, for so long as they hold less than a
majority of the outstanding shares of our common stock, are
unable to control the outcome of any shareholder vote.
Managements stock ownership may discourage a potential
acquirer from offering to purchase or otherwise attempting to
obtain control of Netzee, which in turn could reduce our stock
price or prevent our shareholders from realizing a premium over
our stock price.



| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | Future sales of our common stock will dilute current
	shareholder ownership and may further depress our stock price

We may seek to raise funds to support or expand our operations
by selling shares of our common or preferred stock. In the
future, we may acquire other businesses and products using our
stock or a combination of our stock and cash. Such issuances
would dilute current shareholder ownership interest in Netzee.

Our stock price is currently very low. If our shareholders sell
substantial amounts of our common stock, including shares
issuable upon the conversion of shares of preferred stock and
the exercise of outstanding options, the market price of our
common stock could fall further. These sales also might make it
more difficult for us to sell equity securities in the future at
a time and price that we deem appropriate. As of March 25,
2002, we had 3,377,911 shares of common stock outstanding,
51,384 shares of common stock reserved for issuance upon the
conversion of our Series B preferred stock and outstanding
options to acquire 202,973 shares of common stock.

In addition, we may be required to register up to 550,000 shares
of common stock that we issued to Harland in connection with our
acquisitions of assets from Harland, subject to the terms and
conditions of a registration rights agreement we entered into
with Harland.

Further, we have reserved a total of 790,404 shares of our
common stock for issuance under our stock option plan. The plan
provides that this amount will be automatically increased on
January 1 of each year to an amount equal to 20% of the
fully diluted shares of our common stock on the preceding
December 31, provided, however, that the number of shares
available for issuance shall not be less than 437,500. As of
March 25, 2002, we have outstanding options to purchase a
total of 202,973 shares of common stock under this plan. We have
registered all of the shares presently issuable under this plan
for sale in the public market.

39



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##### Table of Contents





| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Our future earnings will be reduced because we have a
	significant amount of intangible assets

As of December 31, 2001, approximately $22 million, or
68%, of our total assets were intangible assets. These
intangible assets primarily represent amounts attributable to
the issuance of stock in acquisitions accounted for as
purchases. We will likely record additional intangible assets in
the future if we acquire additional businesses. Additionally, we
currently amortize intangible assets over a useful life that
management believes is reasonable and is allowable under
generally accepted accounting principles, or GAAP. GAAP can
change in the future and affect the amortization period and
therefore our future results. Additionally, any additional
impairment in the value of these intangible assets could have a
material adverse effect on our business, financial condition and
operating results.



| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our articles of incorporation and bylaws, as well as Georgia
	corporate law, may prevent or delay third parties from buying
	your stock and result in a decrease in the stock price

Our articles of incorporation, bylaws and Georgia law could make
it more difficult for a third party to acquire us, even if a
change in control would be beneficial to our shareholders. For
example, our articles of incorporation and bylaws provide, among
other things, that:



| |   |                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the board of directors, without shareholder approval, has the
	authority to issue preferred stock with rights superior to the
	rights of the holders of common stock, and we have already
	issued a series of preferred stock in connection with one of our
	acquisitions;
|
| |  | our directors may only be removed for cause, and only upon the
	vote of the holders of at least 66 2/3% of our voting stock;                                                                                                                                              
|
| |  | the board of directors is divided into three classes and
	directors have staggered terms; and                                                                                                                                                                             
|
| |  | the shareholders may call a special meeting only upon request of
	75% of votes entitled to be cast on an issue.                                                                                                                                                           

Georgia law also contains business combination and
fair price provisions. Our board of directors may
adopt these provisions and other anti-takeover
measures without shareholder approval, the effect of which may
be to delay, deter or prevent a change in control of Netzee.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board
(FASB) approved Statement of Financial Accounting
Standards (SFAS) No. 141, Business
Combinations. SFAS No. 141 prospectively prohibits
the pooling of interest method of accounting for business
combinations initiated after June 30, 2001. Additionally,
SFAS No. 141 requires additional disclosure regarding the
reasons for a business combination and the allocation of the
purchase price for business combinations accounted for as a
purchase subsequent to June 30, 2001.

In June 2001, the FASB also approved SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS
No. 142 requires companies to cease the amortization of
goodwill that existed at June 30, 2001. SFAS No. 142
established a new method of testing goodwill for impairment on
an annual basis or on an interim basis if an event occurs or
circumstances change that would change the fair value of
goodwill from its carrying value. SFAS No. 142 becomes
effective for our fiscal year beginning January 1, 2002. We
are currently assessing the impact of adopting SFAS No. 142
to determine the effect, if any, it may have on the consolidated
results of operations and financial position as amortization of
goodwill will cease for our fiscal year beginning
January 1, 2002 and periodic impairment losses may be
recognized. The cumulative impact of adopting SFAS No. 142
will be reported as a change in accounting principle in our
fiscal 2002 consolidated financial statements.

In October 2001, the FASB approved SFAS No. 144,
Accounting for Impairment or Disposal of Long-Lived
Assets. SFAS No. 144 supersedes SFAS No. 121 and
addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. In contrast to
SFAS No. 121, this statement requires the exclusion of
goodwill from its scope and, therefore, eliminates the
requirement of SFAS No. 121 to allocate

40



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##### Table of Contents








Item 7A.     Qualitative and
Quantitative Disclosures Regarding Market Risk

We do not use derivative financial instruments in our operations
or investments, and we do not have significant operations
subject to fluctuations in foreign currency exchange rates. We
have a joint credit facility with InterCept and Harland that has
an interest rate based upon the prime rate as published in the
Wall Street Journal, plus a 2% margin. Any increases in such
rates may dramatically increase the interest rate under such
facility and would make it more costly for us to borrow funds
thereunder. These increased borrowing costs may impede our
acquisition and growth strategies if management determines that
such costs are too high to implement these strategies. These
increased costs may also hinder our ability to fund our working
capital requirements.




Item 8.     Financial
Statements and Supplementary Data

The Consolidated Financial Statements of Netzee, including
Netzees Consolidated Balance Sheets as of
December 31, 2000 and 2001 and Consolidated Statements of
Operations, Consolidated Statements of Cash Flows and
Consolidated Statements of Changes in Shareholders Equity
for the period from January 1, 1999 to February 28,
1999, for the period from March 1, 1999 to
December 31, 1999, and for the years ended
December 31, 2000 and 2001, together with the report
thereto of Arthur Andersen LLP dated February 15, 2002
(except with respect to related party borrowings and preferred
stock discussed in Note 21, as to which the date is
March 29, 2002), are attached hereto as pages F-1 through
F-29.




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

Since January 1, 2000, we have not had any disagreements on
accounting or financial disclosures with our accountants and we
have not changed such accountants.




PART III




Item 10.     Directors and
Executive Officers of the Registrant

In accordance with General Instruction G(3) to the
Form 10-K, the information required by this item is hereby
incorporated by reference from our definitive proxy statement,
to be filed with the Securities and Exchange Commission on or
before April 30, 2002.




Item 11.     Executive
Compensation

In accordance with General Instruction G(3) to the
Form 10-K, the information required by this item is hereby
incorporated by reference from our definitive proxy statement,
to be filed with the Securities and Exchange Commission on or
before April 30, 2002.






|          |                                                                                                
|--------- | -----------------------------------------------------------------------------------------------
|Item  12. | Security Ownership Of Certain Beneficial Owners and
	Management and Related Stockholder Matters

In accordance with General Instruction G(3) to the
Form 10-K, the information required by this item is hereby
incorporated by reference from our definitive proxy statement,
to be filed with the Securities and Exchange Commission on or
before April 30, 2002.

41



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##### Table of Contents








|          |                                               
|--------- | ----------------------------------------------
|Item  13. | Certain Relationships and Related Transactions

In accordance with General Instruction G(3) to the
Form 10-K, the information required by this item is hereby
incorporated by reference from our definitive proxy statement,
to be filed with the Securities and Exchange Commission on or
before April 30, 2002.




PART IV




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

(a) Exhibits and Financial Statements.

Financial Statements

The following consolidated financial statements of Netzee, Inc.
and Subsidiaries are filed as part of this Report and are
attached hereto as pages F-1 through F-29:

(i) Report of Independent Public Accountants



| |       |                                                                                                                                                                                                              
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)  | Consolidated Balance Sheets at December 31, 2000 and 2001                                                                                                                                                    
|
| | (iii) | Consolidated Statements of Operations for the period from
	January 1, 1999 to February 28, 1999, for the period from
	March 1, 1999 to December 31, 1999, and for the years
	ended December 31, 2000 and 2001



| |      |                                                                                                                                                                                                                        
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) | Consolidated Statements of Cash Flows for the period from
	January 1, 1999 to February 28, 1999, for the period from
	March 1, 1999 to December 31, 1999, and for the years
	ended December 31, 2000 and 2001          
|
| | (v)  | Consolidated Statements of Shareholders Equity for the
	period from January 1, 1999 to February 28, 1999, for
	the period from March 1, 1999 to December 31, 1999,
	and for the years ended December 31, 2000 and 2001

(vi) Notes to Consolidated Financial Statements

Financial Statement Schedule

Schedule II  Valuation and Qualifying Accounts,
is incorporated by reference herein from Exhibit 99.2 filed
herewith. The Report of Independent Public Accountants on
Financial Statement Schedule with respect thereto is
incorporated by reference herein from Exhibit 99.3 filed
herewith.

(3) Exhibits

|        |      |                         |  |                                                                                                                                                                
|------- | ---- | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                        
|No.     |      | Description of Exhibits
|        |      |                        
|        | 2.1* |                         |  | Agreement and Plan of Merger, dated
	August 6, 1999, by and among Direct Access Interactive,
	Inc., SBS Corporation and the shareholders of SBS Corporation.(1)
|        | 2.2* |                         |  | Agreement and Plan of Merger, dated
	September 3, 1999, by and among Netzee, Inc., Dyad
	Corporation and certain of the shareholders of Dyad
	Corporation.(1)  
|        | 2.3* |                         |  | Asset Contribution Agreement, dated
	September 3, 1999, by and among The InterCept Group, Inc.,
	Netzee, Inc. and The Bankers Bank.(1)                         
|        | 2.4* |                         |  | Asset Contribution Agreement, dated
	September 3, 1999, by and among The InterCept Group, Inc.,
	Netzee, Inc. and TIB The Independent BankersBank.(1)          
|        | 2.5* |                         |  | Acquisition Agreement, dated September 3,
	1999, by and among Netzee, Inc., Call Me Bill, LLC and each of
	the members of Call Me Bill, LLC.(1)                
|        | 2.6* |                         |  | Asset Transfer Agreement, dated August 6,
	1999, by and between The InterCept Group, Inc. and Direct Access
	Interactive, Inc.(1)                              
|        | 2.7* |                         |  | Agreement and Plan of Merger, dated
	September 3, 1999, by and between Netzee, Inc. and Direct
	Access Interactive, Inc.(1)                                    

42



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##### Table of Contents



|        |         |                         |  |                                                                                                                                                                                                                        
|------- | ------- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                        
|No.     |         | Description of Exhibits
|        |         |                        
|        | 2.8*    |                         |  | Asset Purchase Agreement, dated December 15,
	1999, by and among Netzee, Inc., Netcal, Inc. and DPSC Software,
	Inc.(2)                                                                                                
|        | 2.9*    |                         |  | Asset Purchase Agreement, dated February 28,
	2000, by and among Netzee, Inc., Digital Visions, Inc. and
	certain shareholders of Digital Visions, Inc.(3)                                                             
|        | 2.10*   |                         |  | Asset Purchase Agreement, dated July 28,
	2000, by and among Netzee, Inc., NetzeePlus, Inc., Card Plus,
	Inc. and the shareholders of Card Plus, Inc.(7)                                                               
|        | 2.11*   |                         |  | Asset Purchase Agreement, dated
	September 29, 2000, by and among Netzee, Inc., John H.
	Harland Company, Concentrex Incorporated, Meca Software, L.L.C.
	and MoneyScape Holdings, Inc.(8)                             
|        | 2.11.1* |                         |  | Amendment No. 1 to the Asset Purchase
	Agreement, dated November 10, 2000, by and among Netzee, Inc.,
	John H. Harland Company, Concentrex Incorporated, Meca Software,
	L.L.C. and MoneyScape Holdings, Inc.(8)       
|        | 2.12*   |                         |  | Asset Purchase Agreement, dated February 2,
	2001, by and among Netzee, Inc., Netcal, Inc. and The InterCept
	Group, Inc.(9)                                                                                           
|        | 2.13*   |                         |  | Asset Purchase Agreement, dated March 15,
	2001, by and between Netzee, Inc., and HomeCom Communications,
	Inc.(11)                                                                                                    
|        | 2.14*   |                         |  | Asset Purchase Agreement, dated May 8, 2001,
	by and among Netzee, Inc., Call Me Bill, LLC, and iPay, LLC.(11)                                                                                                         
|        | 2.15*   |                         |  | Asset Purchase Agreement, dated November 15,
	2001, by and between Netzee, Inc. and SS&C Technologies,
	Inc.(12)                                                                                                       
|        | 3.1     |                         |  | Amended Articles of Incorporation of Netzee,
	Inc., as amended to date.(11)                                                                                                                                            
|        | 3.2     |                         |  | Amended and Restated Bylaws of Netzee, Inc., as
	amended.(4)                                                                                                                                                           
|        | 4.1     |                         |  | Form of Netzee, Inc. common stock certificate.(11)                                                                                                                                                                     
|        | 4.2     |                         |  | Form of Netzee, Inc. Series B 8% Convertible
	Preferred Stock certificate.(7)                                                                                                                                          
|        | 4.3     |                         |  | Registration Rights Agreement, dated
	December 15, 1999, by and between Netzee, Inc. and each of
	the former shareholders of DPSC Software, Inc.(2)                                                                    
|        | 4.3.1   |                         |  | First Amendment to Registration Rights Agreement,
	dated September 29, 2000, by and between Netzee, Inc. and Bruce
	R. Gall & Associates, Inc., on behalf of each of the former
	shareholders of DPSC Software, Inc.(7)
|        | 4.3.2   |                         |  | Second Amendment to Registration Rights
	Agreement, dated March 29, 2002, by and among Netzee, Inc.
	and each of the former shareholders of DPSC Software, Inc.                                                        
|        | 4.4     |                         |  | Registration Rights Agreement, dated
	July 28, 2000, by and between Netzee, Inc. and Card Plus,
	Inc.(7)                                                                                                               
|        | 4.5     |                         |  | Registration Rights Agreement, dated
	November 10, 2000, by and between Netzee, Inc. and John H.
	Harland Company.(8)                                                                                                  
|        | 10.1    |                         |  | Netzee, Inc. 1999 Stock Option and Incentive
	Plan.(1)                                                                                                                                                                 
|        | 10.2    |                         |  | Option Agreement, dated July 1, 1999, by and
	between Netzee, Inc. (as successor to Direct Access Interactive,
	Inc.) and Glenn W. Sturm.(1)                                                                           
|        | 10.3    |                         |  | Option Agreement, dated July 1, 1999, by and
	between Netzee, Inc. (as successor to Direct Access Interactive,
	Inc.) and John W. Collins.(1)                                                                          
|        | 10.4    |                         |  | Option Agreement, dated August 5, 1999, by
	and between Netzee, Inc. (as successor to Direct Access
	Interactive, Inc.) and Richard S. Eiswirth.(1)                                                                    
|        | 10.5    |                         |  | Employment Agreement, dated September 1,
	1999, by and between Netzee, Inc. and Glenn W. Sturm.(1)                                                                                                                     
|        | 10.6    |                         |  | Employment Agreement, dated March 1, 2000,
	by and between Netzee, Inc. and Richard S. Eiswirth.(4)                                                                                                                    
|        | 10.6.1  |                         |  | Amendment to Employment Agreement, dated
	May 1, 2001, by and between Netzee, Inc. and Richard S.
	Eiswirth.(11)                                                                                                       

43



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|        |         |                         |  |                                                                                                                                                                            
|------- | ------- | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                        
|No.     |         | Description of Exhibits
|        |         |                        
|        | 10.7    |                         |  | Form of Indemnification Agreement entered into between Netzee,
	Inc. and each of its executive officers and directors.(1)                                                  
|        | 10.8    |                         |  | Promissory Note, dated September 1, 1999, from Richard S.
	Eiswirth as maker to Netzee, Inc. (as successor to Direct Access
	Interactive, Inc.)(1)                         
|        | 10.9    |                         |  | General Marketing Agent Agreement, dated September 3, 1999,
	as amended, by and between Netzee, Inc. and TIB The Independent
	Bankers Bank.(1)(5)                          
|        | 10.10   |                         |  | General Marketing Agent Agreement, dated September 3, 1999,
	as amended, by and between Netzee, Inc. and The Bankers
	Bank.(1)(5)                                          
|        | 10.11   |                         |  | Commercial Lease, dated January 9, 1998, by and between
	DMB, LLC and Netzee, Inc. (as successor to Direct Access
	Interactive, Inc. (as successor to SBS Corporation)).(1)
|        | 10.12   |                         |  | Credit Agreement, dated May 31, 2000, by and between
	Netzee, Inc. and The InterCept Group, Inc.(6)                                                                        
|        | 10.12.1 |                         |  | Amendment No. 1 to Credit Agreement, dated
	September 29, 2000, by and between Netzee, Inc. and The
	InterCept Group, Inc.(7)                                              
|        | 10.12.2 |                         |  | Amended and Restated Credit Agreement, dated February 2,
	2001, by and among Netzee, Inc., The InterCept Group, Inc. and
	John H. Harland Company.(9)                      
|        | 10.12.3 |                         |  | Consent and Release, dated May 1, 2001, by and among
	Netzee, Inc., Call Me Bill, LLC, The InterCept Group, Inc., and
	John H. Harland Company.(11)                        
|        | 10.12.4 |                         |  | Amendment No. 1 to Amended and Restated Credit Agreement, dated
	March 29, 2002, by and among Netzee, Inc., InterCept, Inc.
	and John H. Harland Company.                  
|        | 10.13   |                         |  | Employment Agreement, dated July 26, 2000, by and between
	Netzee, Inc. and Catherine G. Silver.(7)                                                                        
|        | 10.14   |                         |  | Warranty Bill of Sale, dated March 1, 2001, from Netzee,
	Inc. in favor of W-II Investments, Inc.(10)                                                                      
|        | 10.15   |                         |  | Assignment and Assumption Agreement (Business Loan Agreement),
	dated March 1, 2001, by and between Netzee, Inc. and W-II
	Investments, Inc.(10)                           
|        | 10.16   |                         |  | Assignment and Assumption Agreement (Mortgage, Security
	Agreement and Assignment), dated March 1, 2001, by and
	between Netzee, Inc. and W-II Investments, Inc.(10)       
|        | 10.17   |                         |  | Employment Agreement, dated October 9, 2000, by and between
	Netzee, Inc. and Dan Anderson.(10)                                                                            
|        | 10.18   |                         |  | Severance Agreement, dated November 1, 2000, by and between
	Netzee, Inc. and Catherine G. Silver.(10)                                                                     
|        | 10.19   |                         |  | Employment Agreement, dated October 10, 2000, by and
	between Netzee, Inc. and Donny R. Jackson.(10)                                                                       
|        | 10.20   |                         |  | Severance Agreement, dated May 5, 2001, by and between
	Netzee, Inc. and Dan Anderson.(11)                                                                                 
|        | 10.21   |                         |  | Employment Agreement, dated May 7, 2001, by and between
	Netzee, Inc. and William Todd Shiver.(11)                                                                         
|        | 10.22   |                         |  | Severance Agreement, dated November 30, 2001, by and
	between Netzee, Inc. and C. Michael Bowers                                                                           
|        | 21.1    |                         |  | Subsidiaries of the Registrant.                                                                                                                                            
|        | 23.1    |                         |  | Consent of Arthur Andersen LLP.                                                                                                                                            
|        | 99.1    |                         |  | Letter Required by Temporary Note 3T to Article 3 of
	Regulation S-X.                                                                                                      
|        | 99.2    |                         |  | Schedule II to Consolidated Financial
	Statements  Valuation and Qualifying Accounts.                                                                                     
|        | 99.3    |                         |  | Report of Independent Public Accountants on Financial Statement
	Schedule.                                                                                                 






| |   |                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | Certain schedules and exhibits to this exhibit have been omitted
	in accordance with the rules of the Securities and Exchange
	Commission. Netzee, Inc. agrees to furnish supplementally a copy
	of any such omitted schedule or exhibit to the Securities and
	Exchange Commission upon request.

44



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##### Table of Contents



|    |                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Previously filed as an exhibit to Netzee, Inc.s
	Registration Statement on Form S-1 (File
	No. 333-87089), and hereby incorporated by reference herein.                                                                                                    
|(2) | Previously filed as an exhibit to Netzee, Inc.s
	Form 10-Q for the quarter ended September 30, 1999, as
	filed with the Securities and Exchange Commission on
	December 22, 1999, and hereby incorporated by reference
	herein.                            
|(3) | Previously filed as an exhibit to Netzee, Inc.s
	Form 8-K, dated March 7, 2000, as filed with the
	Securities and Exchange Commission on March 22, 2000, and
	hereby incorporated by reference herein.                                                     
|(4) | Previously filed as an exhibit to Netzee, Inc.s
	Form 10-K for the fiscal year ended December 31, 1999,
	as filed with the Securities and Exchange Commission on
	March 29, 2000, and as amended May 1, 2000, and hereby
	incorporated by reference herein.
|(5) | Portions of this exhibit were previously omitted pursuant to a
	confidential treatment request granted by the Securities and
	Exchange Commission on November 8, 1999 and renewed on
	November 15, 2000 and October 18, 2001.                               
|(6) | Previously filed as an exhibit to Netzee, Inc.s
	Form 8-K, dated May 31, 2000, as filed with the
	Securities and Exchange Commission on June 20, 2000, and
	hereby incorporated by reference herein.                                                       
|(7) | Previously filed as an exhibit to Netzee, Inc.s
	Form 10-Q for the quarter ended September 30, 2000, as
	filed with the Securities and Exchange Commission on
	November 14, 2000, and hereby incorporated by reference
	herein.                            
|(8) | Previously filed as an exhibit to Netzee, Inc.s
	Form 8-K, dated November 10, 2000, as filed with the
	Securities and Exchange Commission on November 22, 2000, and
	hereby incorporated by reference herein.                                              
|(9) | Previously filed as an exhibit to Netzee, Inc.s
	Form 8-K, dated February 2, 2001, as filed with the
	Securities and Exchange Commission on February 16, 2001, and
	hereby incorporated by reference herein.                                               

|     |                                                                                                                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Previously filed as an exhibit to Netzee, Inc.s
	Form 10-K for the fiscal year ended December 31, 2000,
	as filed with the Securities and Exchange Commission on
	April 2, 2001, and hereby incorporated by reference herein.               
|(11) | Previously filed as an exhibit to Netzee, Inc.s
	Form 10-Q for the quarter ended June 30, 2001, as
	filed with the Securities and Exchange Commission on
	August 14, 2001, and hereby incorporated by reference
	herein.                    
|(12) | Previously filed as an exhibit to SS&C Technologies,
	Inc.s Form 8-K, dated November 15, 2001 (File
	No. 0-28430), as filed with the Securities and Exchange
	Commission on November 27, 2001, and hereby incorporated by
	reference herein.

(b) Reports on Form 8-K.

During the last quarter of our 2001 fiscal year, we did not file
any reports on Form 8-K.

45



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##### Table of Contents






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:



| |             
| | ------------
| | NETZEE, INC.



| |     |                     
| | --- | --------------------
| | By: | /s/ DONNY R. JACKSON

| |                        
| | -----------------------
| |                        
| | Donny R. Jackson       
| | Chief Executive Officer

Date: April 1, 2002

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

|                                                       |  |                                                                                                        |  |              
|------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------ |  | -------------
|Signature                                              |  | Title                                                                                                  |  | Date         
|                                                       |  |                                                                                                        |  |              
|/s/ DONNY R. JACKSONDonny R. Jackson                   |  | Chief Executive Officer and
	Director (Principal Executive Officer)                                    |  | April 1, 2002
|                                                      
|/s/ RICHARD S. EISWIRTHRichard S. Eiswirth             |  | Senior Executive Vice President,
	Chief Financial Officer and
	Secretary (Principal Financial Officer) |  | April 1, 2002
|                                                      
|/s/ JARETT J. JANIKJarett J. Janik                     |  | Vice President and Controller
	(Principal Accounting Officer)                                          |  | April 1, 2002
|/s/ JOHN W. COLLINSJohn W. Collins                     |  | Chairman of the Board of Directors                                                                     |  | April 1, 2002
|/s/ STILES A. KELLETT, JR.Stiles A. Kellett, Jr.       |  | Director                                                                                               |  | April 1, 2002
|/s/ JEFFERSON B. A. KNOX, SR.Jefferson B. A. Knox, Sr. |  | Director                                                                                               |  | April 1, 2002
|/s/ BRUCE P. LEONARDBruce P. Leonard                   |  | Director                                                                                               |  | April 1, 2002
|/s/ A. JAY WAITEA. Jay Waite                           |  | Director                                                                                               |  | April 1, 2002

46



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##### Table of Contents



NETZEE, INC.

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1999, 2000 AND 2001

TABLE OF CONTENTS

|                                            |                                                                                                                                                                                                                                              |      |     |     | 
|------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | --- | --- | 
|                                            |                                                                                                                                                                                                                                              | Page
|                                            |                                                                                                                                                                                                                                              |     
|Report of Independent Public
	Accountants   |                                                                                                                                                                                                                                              |      | F-2 |    
|                                           
|                                           
|                                           
|                                           
|Consolidated Financial Statements           |                                                                                                                                                                                                                                              |      |     |    
|                                           
|                                           
|                                           
|                                           
|                                            | Consolidated Balance Sheets as of
	December 31, 2000 and 2001                                                                                                                                                                                |      |     | F-3 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Consolidated Statements of Operations for the
	period from January 1, 1999 to February 28, 1999, for
	the period from March 1, 1999 to December 31, 1999 and
	for the years ended December 31, 2000 and 2001                                 |      |     | F-4 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Consolidated Statements of Changes in
	Shareholders (Deficit) Equity for the period from
	January 1, 1999 to February 28, 1999, for the period
	from March 1, 1999 to December 31, 1999 and for the
	years ended December 31, 2000 and 2001 |      |     | F-5 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Consolidated Statements of Cash Flows for the
	period from January 1, 1999 to February 28, 1999, for
	the period from March 1, 1999 to December 31, 1999 and
	for the years ended December 31, 2000 and 2001                                 |      |     | F-6 | 
|                                           
|                                           
|                                           
|                                           
|Notes to Consolidated Financial
	Statements |                                                                                                                                                                                                                                              |      | F-7 |    

F-1



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##### Table of Contents






REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Netzee, Inc.:

We have audited the accompanying consolidated balance sheets of
NETZEE, INC.(a Georgia corporation, formerly Direct
Access Interactive, Inc.) AND SUBSIDIARIES as of
December 31, 2000 and 2001 and the related consolidated
statements of operations, shareholders equity, and cash
flows for the period from March 1, 1999 to
December 31, 1999, and for the years ended
December 31, 2000 and 2001 and the consolidated statements
of operations, shareholders deficit, and cash flows of its
predecessor (Direct Access Interactive, Inc.) for the period
from January 1, 1999 to February 28, 1999. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audits 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 financial position
of Netzee, Inc. and subsidiaries as of December 31, 2000
and 2001, the results of their operations and their cash flows
for the years ended December 31, 2000 and 2001 and the
period from March 1, 1999 to December 31, 1999, and the
results of operations and cash flows of its predecessor (Direct
Access Interactive, Inc.) for the period from January 1,
1999 to February 28, 1999 in conformity with accounting
principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Atlanta, Georgia



F-2



---



##### Table of Contents






NETZEE, INC.

AND SUBSIDIARIES







CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                                                                    |                                                                                                                                                                                              |                                            |           |                   |             |  |           |              |            | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ----------------- | ----------- |  | --------- | ------------ | ---------- | 
|                                                                                                                                                                                                    |                                                                                                                                                                                              | December 31, 2000                          |           | December 31, 2001
|                                                                                                                                                                                                    |                                                                                                                                                                                              |                                            |           |                  
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|ASSETS                                                                                                                                                                                             
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|Current assets:                                                                                                                                                                                     |                                                                                                                                                                                              |                                            |           |                   |             |  |           |             
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Cash and cash equivalents                                                                                                                                                                    |                                            | $         | 960,231           |             |  | $         | 464,889      |           
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Restricted cash                                                                                                                                                                              |                                            |           | 135,000           |             |  |           | 325,000      |           
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Accounts receivable, net of allowance for
	doubtful accounts of $641,447 and $375,202, at December 31,
	2000 and 2001, respectively                                                          |                                            |           | 5,836,904         |             |  |           | 2,708,227    |           
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Leases receivable, current                                                                                                                                                                   |                                            |           | 671,580           |             |  |           | 630,083      |           
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Prepaid and other current assets                                                                                                                                                             |                                            |           | 1,130,294         |             |  |           | 1,091,442    |           
|                                                                                                                                                                                                    |                                                                                                                                                                                              |                                            |           |                   |             |  |           |             
|                                                                                                                                                                                                    |                                                                                                                                                                                              | Total current assets                       |           |                   | 8,734,009   |  |           |              | 5,219,641  | 
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Property and equipment, net of accumulated
	depreciation of $3,552,971 and $3,007,404 at December 31,
	2000 and 2001, respectively                                                           |                                            |           | 6,616,804         |             |  |           | 4,315,900    |           
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Intangible assets, net of accumulated
	amortization of $47,824,555 and $50,028,727 at December 31,
	2000 and 2001, respectively                                                              |                                            |           | 89,950,659        |             |  |           | 22,261,157   |           
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Leases receivable, net of current portion                                                                                                                                                    |                                            |           | 1,202,606         |             |  |           | 638,267      |           
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Other non-current assets                                                                                                                                                                     |                                            |           | 210,942           |             |  |           | 65,607       |           
|                                                                                                                                                                                                    |                                                                                                                                                                                              |                                            |           |                   |             |  |           |             
|                                                                                                                                                                                                    |                                                                                                                                                                                              | Total assets                               |           | $                 | 106,715,020 |  |           | $            | 32,500,572 | 
|                                                                                                                                                                                                    |                                                                                                                                                                                              |                                            |           |                   |             |  |           |             
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|LIABILITIES AND SHAREHOLDERS
	EQUITY                                                                                                                                                              
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|Current liabilities:                                                                                                                                                                                |                                                                                                                                                                                              |                                            |           |                   |             |  |           |             
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Accounts payable                                                                                                                                                                             |                                            | $         | 1,784,480         |             |  | $         | 1,303,835    |           
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Accrued liabilities                                                                                                                                                                          |                                            |           | 4,372,821         |             |  |           | 1,354,045    |           
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Deferred revenue                                                                                                                                                                             |                                            |           | 7,263,099         |             |  |           | 2,697,894    |           
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Note payable, current portion                                                                                                                                                                |                                            |           | 134,231           |             |  |           |             |           
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Other current liabilities                                                                                                                                                                    |                                            |           | 668,151           |             |  |           | 1,039,996    |           
|                                                                                                                                                                                                    |                                                                                                                                                                                              |                                            |           |                   |             |  |           |             
|                                                                                                                                                                                                    |                                                                                                                                                                                              | Total current liabilities                  |           |                   | 14,222,782  |  |           |              | 6,395,770  | 
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Related-party borrowings                                                                                                                                                                     |                                            |           | 20,000,000        |             |  |           | 13,191,715   |           
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Note payable, net of current portion                                                                                                                                                         |                                            |           | 1,465,590         |             |  |           |             |           
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Deferred revenue, net of current portion                                                                                                                                                     |                                            |           | 1,436,576         |             |  |           | 1,180,780    |           
|                                                                                                                                                                                                    |                                                                                                                                                                                              |                                            |           |                   |             |  |           |             
|                                                                                                                                                                                                    |                                                                                                                                                                                              | Total liabilities                          |           |                   | 37,124,948  |  |           |              | 19,587,485 | 
|Commitments and contingencies (Note 20)                                                                                                                                                             |                                                                                                                                                                                              |                                            |           |                   |             |  |           |             
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|Redeemable preferred stock, no par value;
	5,000,000 shares authorized: 8% convertible preferred stock, $13
	stated value; 500,000 shares authorized and outstanding at
	December 31, 2000 and 2001 |                                                                                                                                                                                              |                                            | 6,500,000 |                   |             |  | 6,500,000 |             
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|Shareholders equity:                                                                                                                                                                               |                                                                                                                                                                                              |                                            |           |                   |             |  |           |             
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Common stock, no par value; 70,000,000 shares
	authorized at December 31, 2000 and 2001; 3,358,642 and
	3,377,911 shares issued and outstanding at December 31,
	2000 and 2001, respectively |                                            |           | 192,304,886       |             |  |           | 190,555,255  |           
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Notes receivable from shareholders                                                                                                                                                           |                                            |           | (1,525,467        | )           |  |           | (579,486     | )         
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Deferred stock compensation                                                                                                                                                                  |                                            |           | (3,595,682        | )           |  |           | (629,234     | )         
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                   
|                                                                                                                                                                                                    | Accumulated deficit                                                                                                                                                                          |                                            |           | (124,093,665      | )           |  |           | (184,114,228 | )         
|                                                                                                                                                                                                    |                                                                                                                                                                                              |                                            |           |                   |             |  |           |             
|                                                                                                                                                                                                    |                                                                                                                                                                                              | Total shareholders equity                 |           |                   | 63,090,072  |  |           |              | 5,232,307  | 
|                                                                                                                                                                                                    |                                                                                                                                                                                              |                                            |           |                   |             |  |           |             
|                                                                                                                                                                                                    |                                                                                                                                                                                              | Total liabilities and shareholders equity |           | $                 | 106,715,020 |  |           | $            | 32,500,572 | 
|                                                                                                                                                                                                    |                                                                                                                                                                                              |                                            |           |                   |             |  |           |             

The accompanying notes are an integral part of these
consolidated balance sheets.

F-3



---



##### Table of Contents



The year ended December 31, 1999 is presented in two
columns below due to the acquisition of the predecessor on
March 9, 1999, which established a new basis of accounting
for certain assets and liabilities of Netzee, Inc. The purchase
method of accounting was used to record assets acquired and
liabilities assumed by Netzee, Inc. Such accounting generally
results in increased amortization reported in future periods.
Accordingly, the accompanying consolidated financial statements
of the Predecessor and Netzee, Inc. are not comparable in all
material respects, since those financial statements report
financial position, results of operations, and cash flows on a
different basis of accounting.

NETZEE, INC.

(Formerly Direct Access Interactive, Inc.
(Predecessor))


AND SUBSIDIARIES







CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                                         |                                                                                                         |                          |         |                  |         |              |             |              |            |   |             |            |             |   |             |            |            | 
|-------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ------------------------ | ------- | ---------------- | ------- | ------------ | ----------- | ------------ | ---------- | - | ----------- | ---------- | ----------- | - | ----------- | ---------- | ---------- | 
|                                                                                                         |                                                                                                         |                          |         |                 
|                                                                                                         |                                                                                                         | Predecessor              |         | Netzee, Inc.    
|                                                                                                         |                                                                                                         |                          |         |                 
|                                                                                                         |                                                                                                         | For the                  |         | For the          |         |             
|                                                                                                         |                                                                                                         | Period from              |         | Period from      |         |             
|                                                                                                         |                                                                                                         | January 1, 1999 to       |         | March 1, 1999 to |         | Year Ended   |             | Year Ended  
|                                                                                                         |                                                                                                         | February 28,             |         | December 31,     |         | December 31, |             | December 31,
|                                                                                                         |                                                                                                         | 1999                     |         | 1999             |         | 2000         |             | 2001        
|                                                                                                         |                                                                                                         |                          |         |                  |         |              |             |             
|Revenues:                                                                                                |                                                                                                         |                          |         |                  |         |              |             |              |            |   |             |            |             |   |             |           
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Monthly maintenance and service                                                                         |                          | $       | 33,082           |         |              | $           | 1,737,592    |            |   | $           | 17,760,838 |             |   | $           | 23,467,947 |           
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | License, hardware, implementation and other                                                             |                          |         | 57,080           |         |              |             | 522,159      |            |   |             | 2,150,706  |             |   |             | 2,296,096  |           
|                                                                                                         |                                                                                                         |                          |         |                  |         |              |             |              |            |   |             |            |             |   |             |           
|                                                                                                         |                                                                                                         | Total revenues           |         |                  | 90,162  |              |             |              | 2,259,751  |   |             |            | 19,911,544  |   |             |            | 25,764,043 | 
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Operating expenses:                                                                                      |                                                                                                         |                          |         |                  |         |              |             |              |            |   |             |            |             |   |             |           
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Cost of services, license, hardware,
	implementation and maintenance                                    |                          |         | 44,358           |         |              |             | 1,913,960    |            |   |             | 10,105,570 |             |   |             | 14,115,008 |           
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Selling and marketing                                                                                   |                          |         | 12,350           |         |              |             | 2,575,257    |            |   |             | 9,422,085  |             |   |             | 3,559,257  |           
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | General and administrative, excluding
	amortization of stock-based compensation and restructuring costs |                          |         | 49,399           |         |              |             | 1,844,629    |            |   |             | 11,342,280 |             |   |             | 11,556,547 |           
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Amortization of stock-based compensation                                                                |                          |         |                 |         |              |             | 4,591,888    |            |   |             | 3,192,688  |             |   |             | 1,255,437  |           
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Depreciation                                                                                            |                          |         | 2,476            |         |              |             | 190,524      |            |   |             | 1,773,436  |             |   |             | 2,065,577  |           
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Amortization                                                                                            |                          |         |                 |         |              |             | 12,863,016   |            |   |             | 52,802,042 |             |   |             | 32,969,808 |           
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Restructuring costs                                                                                     |                          |         |                 |         |              |             |             |            |   |             | 211,200    |             |   |             | 2,002,139  |           
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Long-lived asset impairment charges                                                                     |                          |         |                 |         |              |             |             |            |   |             | 26,300,278 |             |   |             | 12,142,146 |           
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                         | Net loss on sales of assets                                                                             |                          |         |                 |         |              |             |             |            |   |             |           |             |   |             | 4,719,863  |           
|                                                                                                         |                                                                                                         |                          |         |                  |         |              |             |              |            |   |             |            |             |   |             |           
|                                                                                                         |                                                                                                         | Total operating expenses |         |                  | 108,583 |              |             |              | 23,979,274 |   |             |            | 115,149,579 |   |             |            | 84,385,782 | 
|                                                                                                         |                                                                                                         |                          |         |                  |         |              |             |              |            |   |             |            |             |   |             |           
|Operating loss                                                                                           |                                                                                                         |                          | (18,421 | )                |         |              | (21,719,523 | )            |            |   | (95,238,035 | )          |             |   | (58,621,739 | )         
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Interest expense, net                                                                                    |                                                                                                         |                          | (3,469  | )                |         |              | (670,503    | )            |            |   | (1,050,664  | )          |             |   | (878,824    | )         
|                                                                                                         |                                                                                                         |                          |         |                  |         |              |             |              |            |   |             |            |             |   |             |           
|Loss before extraordinary item                                                                           |                                                                                                         |                          | (21,890 | )                |         |              | (22,390,026 | )            |            |   | (96,288,699 | )          |             |   | (59,500,563 | )         
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Extraordinary loss                                                                                       |                                                                                                         |                          |        |                  |         |              | (4,518,760  | )            |            |   |            |            |             |   |            |           
|                                                                                                         |                                                                                                         |                          |         |                  |         |              |             |              |            |   |             |            |             |   |             |           
|Net loss before preferred dividends and
	cumulative effect of change in accounting principle             |                                                                                                         |                          | (21,890 | )                |         |              | (26,908,786 | )            |            |   | (96,288,699 | )          |             |   | (59,500,563 | )         
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Preferred stock dividends                                                                                |                                                                                                         |                          |        |                  |         |              | (24,200     | )            |            |   | (520,000    | )          |             |   | (520,000    | )         
|                                                                                                         |                                                                                                         |                          |         |                  |         |              |             |              |            |   |             |            |             |   |             |           
|Net loss attributable to common shareholders
	before cumulative effect of change in accounting principle |                                                                                                         |                          | (21,890 | )                |         |              | (26,932,986 | )            |            |   | (96,808,699 | )          |             |   | (60,020,563 | )         
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Cumulative effect of change in accounting
	principle                                                     |                                                                                                         |                          |        |                  |         |              |            |              |            |   | (351,980    | )          |             |   |            |           
|                                                                                                         |                                                                                                         |                          |         |                  |         |              |             |              |            |   |             |            |             |   |             |           
|Net loss attributable to common shareholders                                                             |                                                                                                         | $                        | (21,890 | )                |         | $            | (26,932,986 | )            |            | $ | (97,160,679 | )          |             | $ | (60,020,563 | )         
|                                                                                                         |                                                                                                         |                          |         |                  |         |              |             |              |            |   |             |            |             |   |             |           
|Basic and diluted loss per share before
	extraordinary item                                              |                                                                                                         |                          |         |                  |         | $            | (15.54      | )            |            | $ | (34.81      | )          |             | $ | (17.89      | )         
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Extraordinary loss per share                                                                             |                                                                                                         |                          |         |                  |         |              | (3.13       | )            |            |   |            |            |             |   |            |           
|                                                                                                         |                                                                                                         |                          |         |                  |         |              |             |              |            |   |             |            |             |   |             |           
|Basic and diluted net loss per share before
	cumulative effect of change in accounting principle         |                                                                                                         |                          |         |                  |         | $            | (18.67      | )            |            | $ | (34.81      | )          |             | $ | (17.89      | )         
|                                                                                                        
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Loss per share from cumulative effect of change
	in accounting principle                                 |                                                                                                         |                          |         |                  |         |              |            |              |            |   | (0.13       | )          |             |   |            |           
|                                                                                                         |                                                                                                         |                          |         |                  |         |              |             |              |            |   |             |            |             |   |             |           
|Basic and diluted loss per share                                                                         |                                                                                                         |                          |         |                  |         | $            | (18.67      | )            |            | $ | (34.94      | )          |             | $ | (17.89      | )         
|                                                                                                         |                                                                                                         |                          |         |                  |         |              |             |              |            |   |             |            |             |   |             |           
|Weighted average common shares outstanding                                                               |                                                                                                         |                          |         |                  |         |              | 1,442,754   |              |            |   | 2,781,141   |            |             |   | 3,354,909   |           
|                                                                                                         |                                                                                                         |                          |         |                  |         |              |             |              |            |   |             |            |             |   |             |           

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

F-4



---



##### Table of Contents



The purchase method of accounting was used to record assets
acquired and liabilities assumed by Netzee, Inc. Such accounting
generally results in increased amortization reported in future
periods. Accordingly, the accompanying consolidated financial
statements of the Predecessor and Netzee, Inc. are not
comparable in all material respects, since those financial
statements report financial position, results of operations, and
cash flows on a different basis of accounting.

NETZEE, INC.

(Formerly Direct Access Interactive, Inc.
(Predecessor))


AND SUBSIDIARIES







CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
(DEFICIT) EQUITY

|                                                                                               |                            |              |           |           |  |               |            |                  |  |              |            |           |  |   |            |            |   |   |             |            |   |   |             |              |  
|---------------------------------------------------------------------------------------------- | -------------------------- | ------------ | --------- | --------- |  | ------------- | ---------- | ---------------- |  | ------------ | ---------- | --------- |  | - | ---------- | ---------- | - | - | ----------- | ---------- | - | - | ----------- | ------------ | -
|                                                                                               |                            |              |           |           |  |               |            |                  |  |             
|                                                                                               |                            | Common Stock |           |           |  |               |            |                  |  |             
|                                                                                               |                            |              |           |           |  | Shareholders |            | Deferred         |  | Accumulated 
|                                                                                               |                            | Shares(1)    |           | Amount    |  | Warrants      |            | Notes Receivable |  | Compensation |            | Deficit  
|                                                                                               |                            |              |           |           |  |               |            |                  |  |              |            |          
|Predecessor:                                                                                   |                            |              |           |           |  |               |            |                  |  |              |            |           |  |   |            |            |   |   |             |            |   |   |             |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Balance, December 31, 1998 |              |           | 2,000,000 |  |               | $          | 50,871           |  |              | $          |          |  |   | $          |           |   |   | $           |           |   |   | $           | (505,689     | )
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Net loss                                                                                       |                            |              |          |           |  |               |           |                  |  |              |           |           |  |   |           |            |   |   |            |            |   |   | (21,890     | )           
|                                                                                               |                            |              |           |           |  |               |            |                  |  |              |            |           |  |   |            |            |   |   |             |            |   |   |             |             
|                                                                                               | Balance, February 28, 1999 |              |           | 2,000,000 |  |               | $          | 50,871           |  |              | $          |          |  |   | $          |           |   |   | $           |           |   |   | $           | (527,579     | )
|                                                                                               |                            |              |           |           |  |               |            |                  |  |              |            |           |  |   |            |            |   |   |             |            |   |   |             |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Netzee, Inc.:                                                                                  |                            |              |           |           |  |               |            |                  |  |              |            |           |  |   |            |            |   |   |             |            |   |   |             |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Initial InterCept investment, March 9, 1999                                                    |                            |              | 1,000,147 |           |  | $             | 1,379,965  |                  |  | $            |           |           |  | $ |           |            |   | $ |            |            |   | $ |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of common stock for notes receivable                                                  |                            |              | 194,375   |           |  |               | 3,110,000  |                  |  |              |           |           |  |   | (3,110,000 | )          |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Capital contributions                                                                          |                            |              |          |           |  |               | 1,990,556  |                  |  |              |           |           |  |   |           |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of common stock in connection with
	acquisitions                                      |                            |              | 765,280   |           |  |               | 71,884,011 |                  |  |              |           |           |  |   |           |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of common stock in connection with
	marketing agreements                              |                            |              | 16,077    |           |  |               | 1,479,096  |                  |  |              |           |           |  |   |           |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Deferred stock-based compensation                                                              |                            |              | 20,000    |           |  |               | 13,224,100 |                  |  |              |           |           |  |   | (85,000    | )          |   |   | (13,139,100 | )          |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Amortization of deferred stock-based compensation                                              |                            |              |          |           |  |               |           |                  |  |              |           |           |  |   |           |            |   |   | 4,591,888   |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Stock options exercised for note receivable                                                    |                            |              | 3,750     |           |  |               | 93,300     |                  |  |              |           |           |  |   | (93,300    | )          |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Payment of shareholder notes                                                                   |                            |              |          |           |  |               |           |                  |  |              |           |           |  |   | 85,000     |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Interest on shareholder notes                                                                  |                            |              |          |           |  |               |           |                  |  |              |           |           |  |   | (111,499   | )          |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of warrants to purchase common stock                                                  |                            |              |          |           |  |               |           |                  |  |              | 4,618,760  |           |  |   |           |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Initial public offering proceeds, net of expenses                                              |                            |              | 550,000   |           |  |               | 54,895,583 |                  |  |              |           |           |  |   |           |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Net loss attributable to common shareholders                                                   |                            |              |          |           |  |               |           |                  |  |              |           |           |  |   |           |            |   |   |            |            |   |   | (26,932,986 | )           
|                                                                                               |                            |              |           |           |  |               |            |                  |  |              |            |           |  |   |            |            |   |   |             |            |   |   |             |             
|                                                                                               | Balance, December 31, 1999 |              |           | 2,549,629 |  |               |            | 148,056,611      |  |              |            | 4,618,760 |  |   |            | (3,314,799 | ) |   |             | (8,547,212 | ) |   |             | (26,932,986  | )
|                                                                                               |                            |              |           |           |  |               |            |                  |  |              |            |           |  |   |            |            |   |   |             |            |   |   |             |             
|Exercise of warrants to purchase common stock                                                  |                            |              | 57,735    |           |  |               | 6,119,857  |                  |  |              | (4,618,760 | )         |  |   |           |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of common stock and options to purchase
	common stock in connection with acquisitions |                            |              | 705,232   |           |  |               | 39,834,929 |                  |  |              |           |           |  |   |           |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of common stock in connection with
	employer 401k match                               |                            |              | 47,401    |           |  |               | 142,204    |                  |  |              |           |           |  |   |           |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Forfeiture of restricted shares                                                                |                            |              | (3,125    | )         |  |               | (375,000   | )                |  |              |           |           |  |   |           |            |   |   | 375,000     |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Initial public offering expenses                                                               |                            |              |          |           |  |               | (107,480   | )                |  |              |           |           |  |   |           |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Exercise of stock options                                                                      |                            |              | 1,771     |           |  |               | 17,607     |                  |  |              |           |           |  |   |           |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Interest on shareholder notes                                                                  |                            |              |          |           |  |               |           |                  |  |              |           |           |  |   | (214,241   | )          |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Repayment of shareholders notes                                                               |                            |              |          |           |  |               |           |                  |  |              |           |           |  |   | 2,003,573  |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Amortization of deferred stock-based compensation                                              |                            |              |          |           |  |               |           |                  |  |              |           |           |  |   |           |            |   |   | 3,192,688   |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Forfeiture of stock options                                                                    |                            |              |          |           |  |               | (1,383,842 | )                |  |              |           |           |  |   |           |            |   |   | 1,383,842   |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Net loss attributable to common shareholders                                                   |                            |              |          |           |  |               |           |                  |  |              |           |           |  |   |           |            |   |   |            |            |   |   | (97,160,679 | )           
|                                                                                               |                            |              |           |           |  |               |            |                  |  |              |            |           |  |   |            |            |   |   |             |            |   |   |             |             
|                                                                                               | Balance, December 31, 2000 |              |           | 3,358,642 |  |               |            | 192,304,886      |  |              |            |          |  |   |            | (1,525,467 | ) |   |             | (3,595,682 | ) |   |             | (124,093,665 | )
|                                                                                               |                            |              |           |           |  |               |            |                  |  |              |            |           |  |   |            |            |   |   |             |            |   |   |             |             
|Return of common stock in connection with
	acquisitions                                        |                            |              | (23,824   | )         |  |               | (115,885   | )                |  |              |           |           |  |   |           |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Forfeitures of stock options                                                                   |                            |              |          |           |  |               | (1,711,011 | )                |  |              |           |           |  |   |           |            |   |   | 1,711,011   |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Repayment of shareholders notes                                                               |                            |              |          |           |  |               |           |                  |  |              |           |           |  |   | 981,659    |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Exercise of stock options                                                                      |                            |              | 2,223     |           |  |               | 177        |                  |  |              |           |           |  |   |           |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of common stock in connection with
	acquisitions                                      |                            |              | 28,572    |           |  |               | 56,573     |                  |  |              |           |           |  |   |           |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Interest on shareholder notes                                                                  |                            |              |          |           |  |               |           |                  |  |              |           |           |  |   | (35,678    | )          |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Amortization of deferred stock-based compensation                                              |                            |              |          |           |  |               |           |                  |  |              |           |           |  |   |           |            |   |   | 1,255,437   |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of common stock in connection with
	employer 401(k) match                             |                            |              | 12,298    |           |  |               | 20,516     |                  |  |              |           |           |  |   |           |            |   |   |            |            |   |   |            |             
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Net loss attributable to common shareholders                                                   |                            |              |          |           |  |               |           |                  |  |              |           |           |  |   |           |            |   |   |            |            |   |   | (60,020,563 | )           
|                                                                                               |                            |              |           |           |  |               |            |                  |  |              |            |           |  |   |            |            |   |   |             |            |   |   |             |             
|                                                                                               | Balance, December 31, 2001 |              |           | 3,377,911 |  |               | $          | 190,555,255      |  |              | $          |          |  |   | $          | (579,486   | ) |   | $           | (629,234   | ) |   | $           | (184,114,228 | )
|                                                                                               |                            |              |           |           |  |               |            |                  |  |              |            |           |  |   |            |            |   |   |             |            |   |   |             |             

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                               |                            |                  |             |             |  
|---------------------------------------------------------------------------------------------- | -------------------------- | ---------------- | ----------- | ----------- | -
|                                                                                               |                            | Total           
|                                                                                               |                            | Shareholders   
|                                                                                               |                            | (Deficit) Equity
|                                                                                               |                            |                 
|Predecessor:                                                                                   |                            |                  |             |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Balance, December 31, 1998 |                  | $           | (454,818    | )
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Net loss                                                                                       |                            |                  | (21,890     | )          
|                                                                                               |                            |                  |             |            
|                                                                                               | Balance, February 28, 1999 |                  | $           | (476,708    | )
|                                                                                               |                            |                  |             |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Netzee, Inc.:                                                                                  |                            |                  |             |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Initial InterCept investment, March 9, 1999                                                    |                            | $                | 1,379,965   |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of common stock for notes receivable                                                  |                            |                  |            |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Capital contributions                                                                          |                            |                  | 1,990,556   |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of common stock in connection with
	acquisitions                                      |                            |                  | 71,884,011  |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of common stock in connection with
	marketing agreements                              |                            |                  | 1,479,096   |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Deferred stock-based compensation                                                              |                            |                  |            |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Amortization of deferred stock-based compensation                                              |                            |                  | 4,591,888   |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Stock options exercised for note receivable                                                    |                            |                  |            |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Payment of shareholder notes                                                                   |                            |                  | 85,000      |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Interest on shareholder notes                                                                  |                            |                  | (111,499    | )          
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of warrants to purchase common stock                                                  |                            |                  | 4,618,760   |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Initial public offering proceeds, net of expenses                                              |                            |                  | 54,895,583  |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Net loss attributable to common shareholders                                                   |                            |                  | (26,932,986 | )          
|                                                                                               |                            |                  |             |            
|                                                                                               | Balance, December 31, 1999 |                  |             | 113,880,373 |  
|                                                                                               |                            |                  |             |            
|Exercise of warrants to purchase common stock                                                  |                            |                  | 1,501,097   |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of common stock and options to purchase
	common stock in connection with acquisitions |                            |                  | 39,834,929  |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of common stock in connection with
	employer 401k match                               |                            |                  | 142,204     |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Forfeiture of restricted shares                                                                |                            |                  |            |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Initial public offering expenses                                                               |                            |                  | (107,480    | )          
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Exercise of stock options                                                                      |                            |                  | 17,607      |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Interest on shareholder notes                                                                  |                            |                  | (214,241    | )          
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Repayment of shareholders notes                                                               |                            |                  | 2,003,573   |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Amortization of deferred stock-based compensation                                              |                            |                  | 3,192,688   |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Forfeiture of stock options                                                                    |                            |                  |            |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Net loss attributable to common shareholders                                                   |                            |                  | (97,160,679 | )          
|                                                                                               |                            |                  |             |            
|                                                                                               | Balance, December 31, 2000 |                  |             | 63,090,072  |  
|                                                                                               |                            |                  |             |            
|Return of common stock in connection with
	acquisitions                                        |                            |                  | (115,885    | )          
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Forfeitures of stock options                                                                   |                            |                  |            |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Repayment of shareholders notes                                                               |                            |                  | 981,659     |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Exercise of stock options                                                                      |                            |                  | 177         |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of common stock in connection with
	acquisitions                                      |                            |                  | 56,573      |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Interest on shareholder notes                                                                  |                            |                  | (35,678     | )          
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Amortization of deferred stock-based compensation                                              |                            |                  | 1,255,437   |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Issuance of common stock in connection with
	employer 401(k) match                             |                            |                  | 20,516      |            
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Net loss attributable to common shareholders                                                   |                            |                  | (60,020,563 | )          
|                                                                                               |                            |                  |             |            
|                                                                                               | Balance, December 31, 2001 |                  | $           | 5,232,307   |  
|                                                                                               |                            |                  |             |            



---



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|(1) | All shares have been adjusted to reflect the one-for-eight
	reverse stock split effected May 16, 2001.

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

F-5



---



##### Table of Contents



The year ended December 31, 1999 is presented in two
columns below due to the acquisition of the predecessor on
March 9, 1999, which established a new basis of accounting
for certain assets and liabilities of Netzee, Inc. The purchase
method of accounting was used to record assets acquired and
liabilities assumed by Netzee, Inc. Such accounting generally
results in increased amortization reported in future periods.
Accordingly, the accompanying consolidated financial statements
of the Predecessor and Netzee, Inc. are not comparable in all
material respects, since those financial statements report
financial position, results of operations, and cash flows on a
different basis of accounting.

NETZEE, INC.

(Formerly Direct Access Interactive, Inc.
(Predecessor))


AND SUBSIDIARIES







CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                      |                                                                              |                                                                                     |                                          |                                                      |       |                   |            |                   |            |            |             |             |            |            |             |             |            |            |            |  
|----------------------------------------------------- | ---------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ---------------------------------------- | ---------------------------------------------------- | ----- | ----------------- | ---------- | ----------------- | ---------- | ---------- | ----------- | ----------- | ---------- | ---------- | ----------- | ----------- | ---------- | ---------- | ---------- | -
|                                                      |                                                                              |                                                                                     |                                          |                                                     
|                                                      |                                                                              | Predecessor                                                                         |                                          | Netzee, Inc.                                        
|                                                      |                                                                              |                                                                                     |                                          |                                                     
|                                                      |                                                                              | For the Period from                                                                 |                                          | For the Period from                                  |       |                  
|                                                      |                                                                              | January 1, 1999 to                                                                  |                                          | March 1, 1999 to                                     |       | Year Ended        |            | Year Ended       
|                                                      |                                                                              | February 28, 1999                                                                   |                                          | December 31, 1999                                    |       | December 31, 2000 |            | December 31, 2001
|                                                      |                                                                              |                                                                                     |                                          |                                                      |       |                   |            |                  
|Cash flows from operating activities:                 |                                                                              |                                                                                     |                                          |                                                      |       |                   |            |                   |            |            |             |             |            |            |             |            
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Net loss attributable to common shareholders                                 |                                                                                     | $                                        | (21,890                                              | )     |                   | $          | (26,932,986       | )          |            | $           | (97,160,679 | )          |            | $           | (60,020,563 | )         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Adjustments to reconcile net loss to net cash
	used in operating activities: |                                                                                     |                                          |                                                      |       |                   |            |                   |            |            |             |             |            |            |             |             |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                              | Cumulative effect of change in accounting
	principle                                |                                          |                                                      |      |                   |            |                   |           |            |             |             | 351,980    |            |             |             |           |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                              | Depreciation and amortization                                                       |                                          |                                                      | 2,476 |                   |            |                   | 13,053,540 |            |             |             | 54,575,478 |            |             |             | 35,035,385 |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                              | Stock-based compensation expense                                                    |                                          |                                                      |      |                   |            |                   | 4,591,888  |            |             |             | 3,192,688  |            |             |             | 1,255,437  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                              | Asset impairment charges                                                            |                                          |                                                      |      |                   |            |                   |           |            |             |             | 26,300,278 |            |             |             | 12,142,146 |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                              | Provision for bad debt                                                              |                                          |                                                      |      |                   |            |                   |           |            |             |             | 579,590    |            |             |             | 10,572     |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                              | Net loss on sales of assets                                                         |                                          |                                                      |      |                   |            |                   |           |            |             |             |           |            |             |             | 4,719,858  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                              | Extraordinary loss                                                                  |                                          |                                                      |       |                   |            |                   | 4,518,760  |            |             |             |           |            |             |             |           |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                              | Interest income on shareholder notes                                                |                                          |                                                      |       |                   |            |                   | (111,499   | )          |             |             | (214,241   | )          |             |             | (35,678    | )         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                              | Changes in assets and liabilities, net of effect
	of acquisitions and dispositions: |                                          |                                                      |       |                   |            |                   |            |            |             |             |            |            |             |             |            |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                              |                                                                                     | Accounts receivable                      |                                                      |       | 12,606            |            |                   |            | (2,008,746 | )           |             |            | (2,946,615 | )           |             |            | 2,255,972  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                              |                                                                                     | Leases receivable                        |                                                      |       |                  |            |                   |            | (198,873   | )           |             |            | (621,207   | )           |             |            | 605,836    |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                              |                                                                                     | Prepaid and other current assets         |                                                      |       |                  |            |                   |            | (303,528   | )           |             |            | (387,938   | )           |             |            | (175,409   | )         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                              |                                                                                     | Accounts payable and accrued liabilities |                                                      |       | (42,889           | )          |                   |            | 3,238,796  |             |             |            | (956,124   | )           |             |            | (3,205,903 | )         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                              |                                                                                     | Accrued restructuring costs              |                                                      |       |                  |            |                   |            |           |             |             |            | 98,300     |             |             |            | (61,292    | )         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                              |                                                                                     | Deferred revenue                         |                                                      |       | 41,222            |            |                   |            | 1,602,925  |             |             |            | 990,444    |             |             |            | (1,530,326 | )         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                                              |                                                                                     | Other current liabilities                |                                                      |       |                  |            |                   |            | 24,200     |             |             |            | 639,085    |             |             |            | 586,795    |           
|                                                      |                                                                              |                                                                                     |                                          |                                                      |       |                   |            |                   |            |            |             |             |            |            |             |            
|                                                      |                                                                              |                                                                                     |                                          | Net cash used in operating activities                |       |                   | (8,475     | )                 |            |            | (2,525,523  | )           |            |            | (15,558,961 | )           |            |            | (8,417,170 | )
|                                                      |                                                                              |                                                                                     |                                          |                                                      |       |                   |            |                   |            |            |             |             |            |            |             |            
|Cash flows from investing activities:                 |                                                                              |                                                                                     |                                          |                                                      |       |                   |            |                   |            |            |             |             |            |            |             |            
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Acquisitions, net of cash acquired                                           |                                                                                     |                                          |                                                     |       |                   |            | (48,938,638       | )          |            |             |            |            |            |             | (420,954    | )         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Purchase of property, equipment and capitalized
	software                    |                                                                                     |                                          |                                                     |       |                   |            | (4,233,946        | )          |            |             | (4,138,335  | )          |            |             | (2,238,777  | )         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Purchase of short-term investments related to
	restricted cash               |                                                                                     |                                          |                                                     |       |                   |            |                  |            |            |             | (135,000    | )          |            |             | (575,000    | )         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Proceeds from sale of short-term investments
	related to restricted cash     |                                                                                     |                                          |                                                     |       |                   |            |                  |            |            |             |            |            |            |             | 380,000     |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Proceeds from the sale of assets                                             |                                                                                     |                                          |                                                     |       |                   |            |                  |            |            |             |            |            |            |             | 16,863,801  |           
|                                                      |                                                                              |                                                                                     |                                          |                                                      |       |                   |            |                   |            |            |             |             |            |            |             |            
|                                                      |                                                                              |                                                                                     |                                          | Net cash (used in) provided by investing
	activities |       |                   |           |                   |            |            | (53,172,584 | )           |            |            | (4,273,335  | )           |            |            | 14,009,070 |  
|                                                      |                                                                              |                                                                                     |                                          |                                                      |       |                   |            |                   |            |            |             |             |            |            |             |            
|Cash flows from financing activities:                 |                                                                              |                                                                                     |                                          |                                                      |       |                   |            |                   |            |            |             |             |            |            |             |            
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Contributions from shareholder                                               |                                                                                     |                                          |                                                     |       |                   |            | 1,240,556         |            |            |             |            |            |            |             |            |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Related party borrowings                                                     |                                                                                     |                                          |                                                     |       |                   |            | 41,830,132        |            |            |             | 27,046,095  |            |            |             | 10,450,000  |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Payments on related party borrowings                                         |                                                                                     |                                          |                                                     |       |                   |            | (31,524,798       | )          |            |             | (18,003,025 | )          |            |             | (17,496,706 | )         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Decrease in line of credit                                                   |                                                                                     |                                          |                                                     |       |                   |            | (277,473          | )          |            |             |            |            |            |             |            |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Payments on notes payable                                                    |                                                                                     |                                          |                                                     |       |                   |            | (25,865           | )          |            |             | (3,403,911  | )          |            |             | (22,372     | )         
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Net proceeds from refinancing of note payable                                |                                                                                     |                                          |                                                     |       |                   |            |                  |            |            |             | 400,192     |            |            |             |            |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Repayment of shareholder notes                                               |                                                                                     |                                          |                                                     |       |                   |            |                  |            |            |             | 2,003,573   |            |            |             | 981,659     |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Payments of preferred stock dividends                                        |                                                                                     |                                          |                                                     |       |                   |            |                  |            |            |             | (24,200     | )          |            |             |            |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Proceeds from exercise of warrants                                           |                                                                                     |                                          |                                                     |       |                   |            |                  |            |            |             | 1,501,097   |            |            |             |            |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Proceeds from exercise of options for common stock                           |                                                                                     |                                          |                                                     |       |                   |            |                  |            |            |             | 17,607      |            |            |             | 177         |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Sale of common stock                                                         |                                                                                     |                                          |                                                     |       |                   |            | 55,707,144        |            |            |             |            |            |            |             |            |           
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Decrease in related party loans from shareholder
	of predecessor entity      |                                                                                     |                                          | (2,000                                               | )     |                   |            |                  |            |            |             |            |            |            |             |            |           
|                                                      |                                                                              |                                                                                     |                                          |                                                      |       |                   |            |                   |            |            |             |             |            |            |             |            
|                                                      |                                                                              |                                                                                     |                                          | Net cash (used in) provided by financing
	activities |       |                   | (2,000     | )                 |            |            | 66,949,696  |             |            |            | 9,537,428   |             |            |            | (6,087,242 | )
|                                                      |                                                                              |                                                                                     |                                          |                                                      |       |                   |            |                   |            |            |             |             |            |            |             |            
|Net (decrease) increase in cash and cash
	equivalents |                                                                              |                                                                                     | (10,475                                  | )                                                    |       |                   | 11,251,589 |                   |            |            | (10,294,868 | )           |            |            | (495,342    | )          
|                                                     
|                                                     
|                                                     
|                                                     
|Cash and cash equivalents beginning of period         |                                                                              |                                                                                     | 13,985                                   |                                                      |       |                   | 3,510      |                   |            |            | 11,255,099  |             |            |            | 960,231     |            
|                                                      |                                                                              |                                                                                     |                                          |                                                      |       |                   |            |                   |            |            |             |             |            |            |             |            
|Cash and cash equivalents end of period               |                                                                              | $                                                                                   | 3,510                                    |                                                      |       | $                 | 11,255,099 |                   |            | $          | 960,231     |             |            | $          | 464,889     |            
|                                                      |                                                                              |                                                                                     |                                          |                                                      |       |                   |            |                   |            |            |             |             |            |            |             |            

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

F-6



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##### Table of Contents



NETZEE, INC.

AND SUBSIDIARIES







NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1999, 2000, and 2001


1. ORGANIZATION AND NATURE OF BUSINESS

Organization, Formation, Certain Acquisitions and Certain
Dispositions

Netzee, Inc. (we, Netzee or the
Company) is a provider of Internet banking products
and services and Internet commerce solutions to small and
mid-sized banks, thrifts and credit unions, typically with
assets of less than $10 billion. We provide solutions that
enable financial institutions to offer their customers a wide
array of financial products and services over the Internet. We
also offer financial institutions custom web site design,
implementation and marketing services, telephone banking
products and other support applications.

Netzee was formed as a Georgia corporation in August 1999 to be
merged with Direct Access Interactive, Inc. (Direct
Access or the Predecessor), a company that was
formed in October 1996 to provide Internet and telephone banking
products and services. In March 1999, InterCept, Inc.
(InterCept) acquired Direct Access as a wholly owned
subsidiary. InterCept currently owns approximately 28% of our
common stock.

In August 1999, Direct Access acquired SBS Corporation
(SBS) in a merger. Immediately after the merger,
Direct Access sold all of the assets of SBS, other than its
Internet and telephone banking assets, to our former parent
company, InterCept. Based in Birmingham, Alabama, SBS provided
automated technology products and services, including Internet
and telephone banking systems, to community financial
institutions nationwide.

In September 1999, Direct Access was merged into Netzee, with
Netzee being the surviving corporation. On that same day, Netzee
acquired the Internet banking divisions (the
Divisions) of each of TIB The Independent
BankersBank (TIB), a Texas state chartered and
Federal Reserve member bank, and The Bankers Bank, a Georgia
state chartered and Federal Reserve member bank. Each of these
entities is a bankers bank, which is a bank
that exclusively serves and is owned by other financial
institutions.

In September 1999, we also acquired all of the ownership
interests in Call Me Bill, LLC (Call Me Bill) based
in Elizabethtown, Kentucky. Call Me Bill provided 24-hour
electronic bill payment services to financial institutions
customers. Subsequently, we integrated these services into our
core Internet banking product. In May 2001, we sold a portion of
these assets which we considered a non-core component of our
business to iPay, LLC (iPay), a related party, which
also assumed certain of the liabilities associated with the
assets (see Note 4).

In September 1999, we also acquired Dyad Corporation
(Dyad). Based in Norcross, Georgia, Dyad developed,
among other things, proprietary loan application, approval and
fulfillment software.

In November 1999, we completed our initial public offering. We
issued 550,000 shares of common stock (including the exercise of
a portion of the underwriters over-allotment option) at an
offering price of $112 per share. Net proceeds from the offering
were approximately $55 million after deducting
underwriters discounts, commissions and expenses of the
offering. We used the proceeds to repay principal and accrued
interest owed to InterCept pursuant to outstanding promissory
notes and previous working capital advances and to acquire DPSC
Software, Inc. (DPSC) in December 1999.

Located near Los Angeles, California, DPSC provided regulatory
reporting and support applications designed to meet the special
needs of community financial institutions. In February 2001, we
sold substantially all of these assets to InterCept, which also
assumed substantially all of the liabilities associated with the
assets (see Note 4).

In March 2000, we acquired certain of the assets and assumed
certain liabilities of Digital Visions, Inc. (DVI)
based in Minneapolis, Minnesota. DVI provided Internet-based
financial information tools for

F-7



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##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

community financial institutions. In November 2001, we sold
substantially all of these assets to SS&C Technologies, Inc.
(SS&C), which also assumed certain of the
liabilities associated with the assets (see Note 4).

In July 2000, we acquired certain assets and assumed certain
liabilities of Card Plus, Inc. (Card Plus). Located
in Norcross, Georgia, Card Plus provided software and outsourced
consultants for systems development.

In November 2000, we acquired certain assets and assumed certain
liabilities of John H. Harland Company (Harland).
The assets acquired were principally located in Trumbull,
Connecticut and Portland, Oregon and are used to provide
Internet banking and bill payment services. As a result of our
purchase of these assets, Harland now has beneficial ownership
of approximately 16% of our common stock.

In March 2001, we purchased certain assets of HomeComs
Internet banking business and assumed certain of HomeComs
operating liabilities related to the business. The assets
acquired were principally located in Atlanta, Georgia and are
used to provide Internet banking services (see Note 3).

We collectively refer to Call Me Bill, Card Plus, DPSC, DVI,
Dyad, HomeCom, the Internet banking and bill payment assets of
Harland, the Internet and telephone banking operations of SBS
and the Divisions as the Acquired Operations.

We have incurred net losses since our inception. As of
December 31, 2001, we had an accumulated deficit of
approximately $184 million. These losses have resulted from
the costs we have incurred to develop our products and services,
and to increase our customer base and build our infrastructure
as well as from the amortization of intangible assets associated
with the Acquired Operations. We believe that our existing
capital resources, together with cash provided by our operations
and borrowings under our credit facility, will be sufficient to
fund our working capital requirements for the next
12 months. If we are unable to achieve and maintain our
cost savings goals, if our working capital requirements exceed
our current expectations, if cash provided by our operations is
less than anticipated, or if we make additional acquisitions, we
may need to raise additional capital either through debt or
equity sources before that time. We cannot be sure that we will
be able to obtain the additional financing necessary to satisfy
these additional capital requirements or to implement our
strategy on acceptable terms or at all. Additionally, we may
need to further extend the due dates of our line of credit as
well as our preferred stock. If we cannot obtain this financing
or these extensions on terms acceptable to us or at all, we may
be forced to curtail some planned business expansion, we may be
unable to fund our ongoing operations, or we may have to cease
operations altogether. Alternatively, we may be required to
reduce the level of spending on capital and operating expenses
in order to utilize our existing financing and sources of
liquidity to operate the business on a reduced scale.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements of the Predecessor for the period from
January 1, 1999 through February 28, 1999, include
only the accounts of Direct Access. The consolidated financial
statements for the period from March 1, 1999 to
December 31, 1999 and for the years ended December 31,
2000 and 2001 include the accounts of the Company and its wholly
owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

The consolidated financial statements of the Predecessor and the
Company are not comparable in all material respects, since those
financial statements report the financial position, results of
operations, and cash flows on a different basis of accounting.
Although Direct Access was acquired on March 9, 1999, the
accompanying financial statements for the year ended
December 31, 1999 are presented as if the acquisition

F-8



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##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

occurred on the close of business on February 28, 1999
instead of March 9, 1999. The operations between
March 1, 1999 and March 9, 1999 were not material. The
accompanying financial statements prior to February 28,
1999 present the financial position and the results of
operations and cash flows of Direct Access, the predecessor to
Netzee.

The Acquired Operations noted above were accounted for using the
purchase method of accounting. Accordingly, the results of
operations of the Acquired Operations have been included in the
consolidated financial statements from their respective dates of
acquisition forward.

Use of 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 amount of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.

Cash and Cash Equivalents

We consider all short-term, highly liquid investments with an
original maturity date of three months or less to be cash
equivalents.

Restricted Cash

Restricted cash at December 31, 2001 is comprised of
certificates of deposit and are related to certain operating
stand-by letters of credit, as well as $125,000 held in escrow
related to certain divestitures in 2001 (see Note 4).
Restricted cash at December 31, 2000 related to certain
operating stand-by letters of credit.

Property and Equipment

Property and equipment are recorded at cost and are depreciated
using the straight-line method over the estimated useful lives
of the assets for financial reporting purposes. Effective
March 9, 1999, the property and equipment of the
Predecessor were restated to the fair value at the date of
acquisition. Major additions and improvements are charged to the
property accounts while maintenance and repairs, which do not
improve or extend the lives of assets, are expensed in the
current period. Estimated useful lives for our assets are as
follows:

|                              |  |                                       
|----------------------------- |  | --------------------------------------
|                             
|                             
|                             
|                             
|Leasehold improvements        |  | Lesser of useful life or term of lease
|                             
|                             
|                             
|                             
|Computer equipment            |  | 3 to 5 years                          
|                             
|                             
|                             
|                             
|Furniture and fixtures        |  | 10 years                              
|                             
|                             
|                             
|                             
|Machinery and other equipment |  | 3 to 15 years                         
|                             
|                             
|                             
|                             
|Software                      |  | 3 to 5 years                          

Intangible Assets

Intangible assets consist of the intangibles recorded as a
result of the acquisitions discussed in Note 1 and include
acquired technology, workforce, contracts in progress, marketing
agreements and goodwill. The carrying amounts of the intangible
assets are reviewed for impairment when events and circumstances
indicate that the recorded costs may not be recoverable in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of. If the review indicates that the undiscounted
cash flows from operations of the related intangible assets over
the remaining amortization period are expected to be less than
the recorded amount of

F-9



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##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

the intangible, our carrying value of the intangible asset would
be reduced to its estimated fair value determined based on
discounted future cash flows. We recorded impairment charges
related to certain intangible assets during 2000 and 2001 (see
Note 11).

We have allocated the value of acquired intangible assets to
acquired technology, workforce, contracts in progress, marketing
agreements and goodwill. The value of workforce was determined
by reference to the cost of the workforce retained. Contracts in
progress represent existing customer contracts acquired. The
value of contracts in progress was determined by reference to
the recurring revenue generated from existing customers.
Marketing agreements represent agreements with several
bankers banks to use their best efforts to promote and
market our products and services to community financial
institutions on an exclusive basis.

Excluding intangible assets acquired from Card Plus, we
determined that the remaining value of intangible assets was
related to acquired technology. Acquired technology also
represents internally developed software acquired. Intangible
assets obtained in the Card Plus acquisition in excess of
amounts allocated to workforce were allocated to goodwill. Each
of these intangible assets is amortized on a straight-line basis
over the following periods:

|                      |  |             
|--------------------- |  | ------------
|                     
|                     
|                     
|                     
|Workforce             |  | 3 years     
|                     
|                     
|                     
|                     
|Contracts in progress |  | 3 to 4 years
|                     
|                     
|                     
|                     
|Marketing agreements  |  | 2 years     
|                     
|                     
|                     
|                     
|Acquired technology   |  | 3 years     
|                     
|                     
|                     
|                     
|Goodwill              |  | 3 years     

Software Development Costs

For certain of our service bureau software applications, we
account for costs incurred to develop software applications in
accordance with the American Institute of Certified Public
Accountants (AICPA) Statement of Position
(SOP) No. 98-1, Accounting for the Cost
of Computer Software Developed or Obtained for Internal
Use. SOP No. 98-1 requires that entities capitalize
certain internal use software costs, which includes software
design, coding, installation, configuration and testing, once
technical feasibility of the developed software is attained.
Costs incurred in the process of attaining technological
feasibility, which includes the conceptual formulation and
evaluation of the software alternatives, and costs to upgrade
and enhance software once developed are expensed as incurred.
Under SOP 98-1, overhead, general and administration costs,
support costs and training costs are not capitalized.
Capitalized software costs are depreciated on a straight-line
basis over the estimated useful life of the application.
Depreciation commences when the application is put into
production. We perform an on-going assessment of the carrying
value of our capitalized software cost in accordance with SFAS
No. 121.

For certain of our in-house software applications that we sell
or lease to customers, we account for costs to develop software
applications in accordance with SFAS No. 86,
Accounting for Computer Software to be Sold, Leased, or
Otherwise Marketed. Research and development costs are
expensed as incurred. Computer software development costs are
charged to research and development expense until technological
feasibility or a detail design document of the software is
established, after which remaining significant software
production costs are capitalized. These costs are amortized on a
straight-line basis over the estimated economic life of the
software. Amortization of capitalized software costs begins when
products are made available for sale or when the related product
is put into use. We make on ongoing assessment of recoverability
of our capitalized software projects by comparing the amount
capitalized for each product to the estimated net realizable
value (NRV) of the product. If the NRV is less than
the amount capitalized, a write-down of the amount capitalized
is recorded.

F-10



---



##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

We capitalized approximately $1.6 million,
$2.2 million and $1.1 million in software development
costs, respectively, for the years ended December 31, 1999,
2000 and 2001 with an estimated useful of approximately five
years. These costs are classified in property and equipment in
the accompanying consolidated balance sheets.

Revenue Recognition

For our outsourced suite of products and services, we generally
charge a fixed monthly fee based on the number and type of
products and services purchased by the financial institution. We
also charge variable fees that are based on the number of end
users and the number of transactions for certain products and
services. We generally provide products and services under
contracts with terms ranging from three to five years. Revenues
from these types of arrangements are recognized over the term
over which the related services are provided.

We generally charge fees for our in-house products under either
a perpetual license agreement which includes an up-front
software fee, implementation fees and recurring monthly fees
based on the number of active users and user generated
transactions, or under a three to five-year subscription that
includes annual subscription and maintenance fees. Revenues from
the software and implementation component of those types of
arrangements are recognized in accordance with SOP
No. 97-2, Software Revenue Recognition and
Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition. SOP No. 97-2 software
revenue is recognized when delivery has occurred, contract is
signed, the price is fixed and determinable, and collectibility
is assured. The related implementation revenue is recognized as
the implementation is performed. Recurring fees represent
post-contract customer support and are recognized over the
period in which the support services are provided. Subscription
contracts result in fees being recognized over the term of the
agreement.

Deferred Revenue and Unbilled Receivables

Deferred revenue represents amounts receivable and collected
prior to revenue recognition. The balance primarily consists of
quarterly and annual billings collected in advance and
recognized ratably over the subsequent three or twelve months,
as applicable. Deferred revenues will be recognized as revenue
as the related services are provided.

Unbilled receivables were approximately $1.4 million and
$700,000 at December 31, 2000 and 2001, respectively. These
receivables relate to end user fees and transaction fees that
are billed in arrears.

Income Taxes

We account for our income taxes in accordance with SFAS
No. 109, Accounting for Income Taxes. Under
SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statements carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that
includes the enactment date.

In the event the future tax consequences of differences between
the financial reporting bases and the tax bases of our assets
and liabilities results in deferred tax assets, an evaluation of
the probability of our ability to realize the future benefits
indicated by such asset is required. A valuation allowance is
provided for a portion of the deferred tax asset when it is more
likely than not that some portion or all of the deferred tax
asset will not

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NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

be realized. In assessing the realizability of the deferred tax
assets, management considers the scheduled reversals of deferred
tax liabilities, projected future taxable income and
tax-planning strategies.

Fair Value of Financial Instruments

The fair value of financial instruments classified as current
assets or liabilities, including cash and cash equivalents,
restricted cash, accounts receivable, accounts payable and
preferred stock, approximate carrying value due to the
short-term maturity of the instruments. The fair values of
short-term and long-term debt amounts approximate carrying value
and are based on their effective interest rates compared to
current market rates.

Comprehensive Loss

Comprehensive loss for the period from January 1, 1999 to
February 28, 1999, for the period from March 1, 1999
to December 31, 1999 and for the years ended
December 31, 2000 and 2001 is the same as the net loss as
presented in the accompanying statements of operations.



Segment Reporting

We currently operate in only one segment, and as such, no
additional disclosure is required. Additionally, we did not have
any operations, net assets or liabilities in foreign locations.

Stock Split

All share, per share calculations, and references to historical
share prices have been adjusted to reflect the one-for-eight
reverse stock split effected May 16, 2001.

Reclassifications

Certain amounts in prior period financial statements have been
reclassified to conform to the current year presentation. These
reclassifications had no impact on previously reported results
of operations.

Concentration of Risk

During 2001, Bank of America accounted for approximately 15% of
our total revenue related to certain of our non-core operating
contracts that will terminate during the first half of fiscal
2002. No other individual customer accounted for more than 10%
of our total revenues. There is no material impact from the
termination of these operating contracts on our continuing
operations.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board
(FASB) approved SFAS No. 141, Business
Combinations. SFAS No. 141 prospectively prohibits
the pooling of interest method of accounting for business
combinations initiated after June 30, 2001. Additionally,
SFAS No. 141 requires additional disclosure regarding the
reasons for a business combination and the allocation of the
purchase price for business combinations accounted for as a
purchase subsequent to June 30, 2001.

In June 2001, the FASB also approved SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS
No. 142 requires companies to cease the amortization of
goodwill that existed at June 30, 2001. SFAS No. 142
established a new method of testing goodwill for impairment on
an annual basis or on an interim basis if an event occurs or
circumstances change that would change the fair value of
goodwill from its carrying value. SFAS No. 142 becomes
effective for our fiscal year beginning January 1, 2002. We
are currently

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NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

assessing the impact of adopting SFAS No. 142 to determine
the effect, if any, it may have on the consolidated results of
operations and financial position as amortization of goodwill
will cease for our fiscal year beginning January 1, 2002
and periodic impairment losses may be recognized. The cumulative
impact of adopting SFAS No. 142 will be reported as a
change in accounting principle in our fiscal 2002 consolidated
financial statements.

In October 2001, the FASB issued SFAS No. 144,
Accounting for Impairment or Disposal of Long-Lived
Assets. SFAS No. 144 supersedes SFAS No. 121,
and addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. In contrast to
SFAS No. 121, this statement requires the exclusion of
goodwill from its scope and, therefore, eliminates the
requirement of SFAS No. 121 to allocate goodwill to
long-lived assets to be tested for impairment. SFAS No. 144
also requires that the depreciable life of a long-lived asset to
be abandoned be revised in accordance with the Accounting
Principles Board Opinion (APB) No. 20,
Accounting Changes. APB No. 20 requires that a
change in estimate be accounted for in the period of change if
the change only affects that period or the period of change and
future periods if the change affects both. APB No. 20 does
not require restatement or pro forma information for prior
periods. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. We are required to adopt
SFAS No. 144 on January 1, 2002. We believe that the
adoption of SFAS No. 144 will not have a material
impact on our financial position or results of operations.

3. ACQUISITIONS

Acquisition of the remote Internet and telephone banking
division of SBS Corporation

On August 6, 1999, Direct Access purchased the remote
banking operations of SBS. The purchase price for these
operations included 325,000 shares of Direct Access common stock
at the estimated fair market value of $92.00 per share and
$21,534,625 in cash. Only the remote Internet and telephone
banking operations of SBS were retained by the Company and the
remaining operations were sold to InterCept in exchange for
56,250 shares of Direct Access common stock valued at $92.00 per
share, for a total sales price of $5,175,000. The Company
recorded no gain or loss on the sale of assets to InterCept, as
the sale was a related party transaction. The acquisition of SBS
was accounted for as a purchase. The results of operations of
SBS have been included in the consolidated financial statements
from the date of acquisition. The excess of the purchase price
over the net tangible assets acquired was allocated to the
following intangible assets with the following amortization
lives:

|                      |  |   |            |  |  |  |         | 
|--------------------- |  | - | ---------- |  |  |  | ------- | 
|                     
|                     
|                     
|                     
|Acquired technology   |  | $ | 45,041,300 |  |  |  | 3 years | 
|                     
|                     
|                     
|                     
|Contracts in progress |  |   | 1,340,000  |  |  |  | 4 years | 
|                     
|                     
|                     
|                     
|Workforce             |  |   | 440,000    |  |  |  | 3 years | 

Acquisitions of the Divisions

On September 3, 1999, we purchased the Divisions. The
acquisitions of the Divisions were accounted for as purchases.
The purchase price of the Divisions included a total of 340,250
shares of our common stock valued at $92.00 per share. The
results of operations of the Divisions have been included in the
consolidated financial statements from the date of acquisition.
The excess of the purchase price over the tangible net assets
was allocated to acquired technology, marketing agreements,
workforce and contracts in progress were amortized over 2 to
3 years. Certain of these intangible assets were written
down in 2000 (see Note 11).

Acquisition of Dyad Corporation

On September 3, 1999, we purchased Dyad. The purchase price
of Dyad included 77,268 shares of our common stock valued at
$92.00 per share and approximately $900,000 in cash. We also
assumed debt owed by

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NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Dyad of approximately $3,500,000. The acquisition of Dyad was
accounted for as a purchase. The results of operations of Dyad
have been included in the consolidated financial statements from
the date of acquisition. The excess of the purchase price over
the net tangible assets acquired totaled $12,314,000 and was
allocated to acquired technology with a three-year amortization
life. The unamortized balances of these intangible assets were
written off during 2000 (see Note 11).

Acquisition of Call Me Bill, LLC

On September 3, 1999, we purchased Call Me Bill. The
purchase price of Call Me Bill included cash of approximately
$3,288,000. The acquisition of Call Me Bill was accounted for as
a purchase. The results of operations of Call Me Bill have been
included in the consolidated financial statements from the date
of acquisition. The excess of the purchase price over the net
tangible assets acquired totaled approximately $3,635,000 and
was allocated to acquired technology with a three-year
amortization life. Certain of these assets were sold in 2001
(see Note 4).

Acquisition of DPSC Software, Inc.

On December 15, 1999, we purchased DPSC. The purchase price
of DPSC included 52,282 shares of Netzee common stock, as
adjusted to reflect shares of common stock that were returned to
us to satisfy certain indemnification claims, valued at $115.00
per share, 500,000 shares of preferred stock valued at $13.00
per share, $18,500,000 in cash and the payment of other
acquisition costs of approximately $1,000,000. The acquisition
of DPSC was accounted for as a purchase. The results of
operations of DPSC have been included in the consolidated
financial statements from the date of acquisition until the
assets were sold in 2001. The excess of the purchase price over
the net tangible assets acquired totaled $35,760,000 and was
allocated to acquired technology with a three-year amortization
life. Certain of these assets were sold in 2001 (see Note 4).

Acquisition of DVI

On March 7, 2000, we purchased DVI. The purchase price of
DVI included 94,329 shares of our common stock, as adjusted to
reflect shares of common stock that were returned to us to
satisfy certain indemnification claims, valued at $177.00 per
share and options to purchase 8,803 shares of common stock in
exchange for the cancellation of options to purchase DVI common
stock. In addition, we assumed approximately $3,300,000 in
outstanding debt of DVI and $1,200,000 in operating liabilities
and other acquisition costs. We also granted DVI the right to
receive up to 78,534 additional shares of our common stock upon
the attainment of certain revenue targets in fiscal years 2000
and 2001. None of these shares were issued based on fiscal 2000
and 2001 performance. The acquisition was accounted for as a
purchase. The results of operations of DVI have been included in
the consolidated financial statements from the date of the
acquisition until the assets were sold in 2001. The excess of
purchase price over the net tangible assets acquired was
allocated to acquired technology and workforce with a three-year
life. Certain of these assets were written down and subsequently
sold in 2001 (see Notes 4 and 11).

Acquisition of Card Plus

Effective July 1, 2000, we purchased Card Plus. The
purchase price included 40,000 shares of our common stock valued
at $56.00 per share and options to purchase 4,445 shares of
common stock in exchange for the cancellation of Card Plus
phantom stock units. Additionally, we granted Card Plus the
right to receive up to 28,572 shares of common stock upon the
attainment of certain revenue and employee retention goals for
the period from July 1, 2000 to June 30, 2001.
However, we were required to issue all of these shares if the
closing price of a share of our common stock was less than
$36.00 on June 29, 2001. Because our closing stock

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##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

price on June 29, 2001 was $4.20, we issued all of these
shares and recorded the amount within equity. The acquisition
was accounted for as a purchase. The results of operations of
Card Plus have been included in the Consolidated Financial
Statements since the effective date of the acquisition. The
excess of purchase price over the net tangible assets acquired
was allocated to goodwill and workforce with a three-year life.
The unamortized balances of these intangible assets were written
off during 2001 (see Note 11).

Acquisition of Assets from Harland

Effective November 1, 2000, we purchased Harlands
Internet banking and bill payment businesses and assumed certain
liabilities related to those businesses. The purchase price
included 550,000 shares of our common stock valued at $32.00 per
share. As a result of this issuance, Harland owns approximately
16% of our common stock. The acquisition was accounted for as a
purchase. The results of operations of Harland have been
included in the consolidated financial statements from the
effective date of the acquisition. The excess of the purchase
price over the net tangible assets acquired was allocated to the
following intangible assets with a three-year life:

|                    |  |   |            | 
|------------------- |  | - | ---------- | 
|                   
|                   
|                   
|                   
|Acquired technology |  | $ | 17,747,000 | 
|                   
|                   
|                   
|                   
|Workforce           |  |   | 950,000    | 

Acquisition of HomeCom

On March 15, 2001, we purchased certain assets of
HomeComs Internet banking business and assumed certain of
HomeComs operating liabilities related to the business.
The purchase price was approximately $420,000 in cash and
related acquisition expenses. The transaction was accounted for
as a purchase. The excess of purchase price over the net
tangible assets acquired was allocated to acquired technology
and is being amortized over three years. The results of
operations of HomeCom have been included in the consolidated
financial statements from the effective date of the acquisition
and are not material to the results of our operations.

We will continue to evaluate the carrying amounts of these
assets and liabilities for 12 months following the date of
their acquisition and may adjust the allocations to intangible
assets based on this evaluation. See Note 4 for pro forma
consolidated financial information related to these acquisitions.

4. DISPOSITIONS

Disposition of DPSC Assets

On February 2, 2001, we sold to InterCept certain of the
regulatory reporting assets acquired from DPSC in 1999, and
InterCept assumed certain of the related operating liabilities,
for total consideration of approximately $16.5 million,
including liabilities assumed of approximately
$2.4 million. We received cash proceeds of approximately
$14.1 million. In connection with the sale of these assets,
we recorded a non-cash loss of approximately $5.7 million.
This non-cash loss is included in the net loss on sales of
assets in our Consolidated Statement of Operations.

Disposition of Certain Bill Payment Assets

Effective May 1, 2001, we sold to iPay certain assets
related to a portion of our bill payment operations including
contracts for bill payment only services that were not
considered to be a part of our core business, and iPay assumed
certain of the related operating liabilities. Gross proceeds
from the sale were approximately $1.3 million in cash, of
which $50,000 was placed in escrow for indemnification and other
purposes. In connection with the sale of these assets, we
recorded a gain of approximately $1.2 million. This gain is
included in the net loss on sales of assets in our Consolidated
Statement of Operations.

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##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Disposition of DVI Assets

On November 15, 2001, we sold substantially all the assets
acquired from DVI to SS&C and SS&C assumed substantially
all the related operating liabilities. Gross proceeds from the
sale were approximately $1.35 million in cash, of which
$75,000 was placed in escrow for indemnification and other
purposes. Prior to the sale, certain of the intangible assets
were written down in 2001 (see Note 11). In connection with
the sale of these assets, we recorded a non-cash loss on sale
assets of approximately $206,000. This loss is included in the
net loss on sales of assets in our Consolidated Statements of
Operations.

Pro Forma Consolidated Financial Information

The following unaudited pro forma consolidated financial
information for the years ended December 31, 2000 and 2001
assume that the acquisitions or dispositions occurred as of
January 1, 2000.

|                                             |  |                    |             |                   |  |   |             |  
|-------------------------------------------- |  | ------------------ | ----------- | ----------------- |  | - | ----------- | -
|                                             |  |                   
|                                             |  | For the year ended
|                                             |  |                   
|                                             |  | December 31, 2000  |             | December 31, 2001
|                                             |  |                    |             |                  
|Total revenue                                |  | $                  | 26,936,942  |                   |  | $ | 22,303,390  |  
|                                            
|                                            
|                                            
|                                            
|Net loss attributable to common shareholders |  | $                  | (68,863,292 | )                 |  | $ | (35,730,498 | )
|                                            
|                                            
|                                            
|                                            
|Basic and diluted loss per share             |  | $                  | (33.24      | )                 |  | $ | (11.22      | )

The unaudited pro forma consolidated financial information does
not purport to represent what our results of operations would
have been had the acquisitions or dispositions occurred as of
such date, nor what results will be for any future period.

5. LEASES RECEIVABLE

We have sold certain of our telephone banking products under
sales-type leases. At December 31, 2001, future minimum
lease payments under non-cancelable leases are as follows:

Total minimum lease payments receivable:

|                                                        |      |   |           |         | 
|------------------------------------------------------- | ---- | - | --------- | ------- | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 2002 |   | $         | 630,083 | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 2003 |   |           | 415,876 | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 2004 |   |           | 307,984 | 
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | 2005 |   |           | 69,798  | 
|                                                        |      |   |           |        
|                                                        |      |   | 1,423,741 |        
|                                                       
|                                                       
|                                                       
|                                                       
|Less amount representing interest                       |      |   | (155,392  | )      
|                                                        |      |   |           |        
|Present value of net minimum lease payments
	receivable |      |   | 1,268,350 |        
|                                                       
|                                                       
|                                                       
|                                                       
|Less current maturities of lease payments
	receivable   |      |   | (630,083  | )      
|                                                        |      |   |           |        
|Leases receivable, net of current portion               |      | $ | 638,267   |        
|                                                        |      |   |           |        

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NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

6. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2000 and 2001
consisted of the following:

|                              |  |      |            |      |  |   |            |  
|----------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | -
|                              |  | 2000 |            | 2001
|                              |  |      |            |     
|Leasehold improvements        |  | $    | 1,138,369  |      |  | $ | 1,163,964  |  
|                             
|                             
|                             
|                             
|Computer equipment            |  |      | 4,132,127  |      |  |   | 3,108,391  |  
|                             
|                             
|                             
|                             
|Furniture and fixtures        |  |      | 424,339    |      |  |   | 254,232    |  
|                             
|                             
|                             
|                             
|Machinery and other equipment |  |      | 2,614,118  |      |  |   | 446,425    |  
|                             
|                             
|                             
|                             
|Software                      |  |      | 1,860,822  |      |  |   | 2,350,292  |  
|                              |  |      |            |      |  |   |            |  
|                              |  |      | 10,169,775 |      |  |   | 7,323,304  |  
|                             
|                             
|                             
|                             
|Less accumulated depreciation |  |      | (3,552,971 | )    |  |   | (3,007,404 | )
|                              |  |      |            |      |  |   |            |  
|Property and equipment, net   |  | $    | 6,616,804  |      |  | $ | 4,315,900  |  
|                              |  |      |            |      |  |   |            |  

7. INTANGIBLE ASSETS

Intangible assets at December 31, 2000 and 2001 consisted
of the following:

|                              |  |      |             |      |  |   |             |  
|----------------------------- |  | ---- | ----------- | ---- |  | - | ----------- | -
|                              |  | 2000 |             | 2001
|                              |  |      |             |     
|Goodwill                      |  | $    | 1,903,393   |      |  | $ |            |  
|                             
|                             
|                             
|                             
|Workforce                     |  |      | 4,427,000   |      |  |   | 1,780,000   |  
|                             
|                             
|                             
|                             
|Contracts in progress         |  |      | 1,880,000   |      |  |   | 1,880,000   |  
|                             
|                             
|                             
|                             
|Marketing agreements          |  |      | 4,135,104   |      |  |   |            |  
|                             
|                             
|                             
|                             
|Acquired technology           |  |      | 125,429,717 |      |  |   | 68,629,884  |  
|                              |  |      |             |      |  |   |             |  
|                              |  |      | 137,775,214 |      |  |   | 72,289,884  |  
|                             
|                             
|                             
|                             
|Less accumulated amortization |  |      | (47,824,555 | )    |  |   | (50,028,727 | )
|                              |  |      |             |      |  |   |             |  
|Intangible assets, net        |  | $    | 89,950,659  |      |  | $ | 22,261,157  |  
|                              |  |      |             |      |  |   |             |  

8. NOTE PAYABLE

On October 18, 1999, we entered into a $1,345,000 term loan
with a bank to secure the purchase of equipment. The loan bore
interest at LIBOR plus 2% per year and outstanding principal
under the loan was due in 60 monthly installments starting
November 1, 1999. On August 22, 2000 the loan was
revalued and refinanced due to equipment upgrades. The loan
amount was thereby increased to $1,650,000 resulting in net
proceeds of $400,192. The loan was secured by equipment and a
personal guaranty by two directors of Netzee. On March 1,
2001, the note payable was assumed by the directors providing
the guarantee, in exchange for the equipment that was purchased
with the proceeds of the loan. We no longer have any liability
under the loan.

9. RELATED-PARTY TRANSACTIONS

As discussed in Note 3 and Note 4, we completed several
acquisitions and dispositions during 2000 and 2001. In some of
these transactions, persons who were previously officers,
directors or shareholders of the acquired companies became
executive officers or directors of Netzee, or beneficial owners
of more than 5% of our common stock.

Related Party
Borrowings

Prior to our initial public offering, InterCept loaned us money
to fund the cash portions of the acquisitions of Dyad and Call
Me Bill discussed in Note 3 and to fund our operations. All
pre-offering borrowings were

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##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

paid off with proceeds from the initial public offering. On
December 15, 1999, we received a commitment for a
$15 million line of credit from InterCept in connection
with the acquisition of DPSC. During 1999, we incurred
approximately $677,000 of interest expense associated with these
borrowings. In May 2000, the $15 million line of credit
agreement with InterCept was finalized. At that time, the
outstanding principal balance due on the borrowings was
transferred to the line of credit. The line of credit bore
interest at a yearly rate of prime plus 2% and was secured by
substantially all of our assets. Accrued interest under the line
of credit was payable quarterly beginning July 1, 2000. The
principal balance was payable at maturity on May 31, 2003.
The line of credit agreement provided for earnings, tangible net
worth and other affirmative and negative covenants with which we
were required to comply, and provided for various other
conditions and restrictions. These borrowings were used to fund
working capital requirements. As of December 31, 2000, we
were out of compliance with certain of these covenants. However,
InterCept waived such non-compliance as of December 31,
2000. As of December 31, 2000, the outstanding balance on
the credit facility was $15 million. We incurred
approximately $1.1 million of interest expense associated
with our borrowings from InterCept for the year ended
December 31, 2000.

On September 29, 2000, we entered into an acquisition
agreement with Harland to acquire Harlands Internet
banking and bill payment businesses. Simultaneously with the
signing of the acquisition agreement, we borrowed $5.0 million
from Harland pursuant to a promissory note. The note bore
interest at a rate of prime plus 2% per year and was secured by
substantially all of our assets. Such security was pari passuin priority to the security given to InterCept with respect
to the line of credit. The principal balance was payable at
maturity on September 29, 2005, or upon demand with
30 days notice after September 29, 2002. We incurred
approximately $148,000 in interest associated with this
borrowing in 2000. In conjunction with the sale of the DPSC
assets to InterCept in February 2001, we converted the
$15 million line of credit with InterCept and our
$5 million promissory note to Harland into a joint $20
million credit facility that matured on November 2, 2002
($15 million to be funded by InterCept and $5 million
to be funded by Harland). The terms of the credit facility
remained consistent with the terms of the former InterCept line
of credit and Harland promissory note except that both InterCept
and Harland had the right (instead of just InterCept) to enforce
the covenants contained in the line of credit agreement. On
February 2, 2001, we sold to InterCept certain of the
regulatory reporting assets acquired from DPSC in 1999 and
InterCept assumed certain of the related operating liabilities,
for total consideration of approximately $16.5 million,
including liabilities assumed of approximately
$2.4 million. The proceeds from the sale of the DPSC assets
were used to pay down this credit facility by approximately
$11.8 million.

On May 8, 2001, we sold certain assets related to a portion
of our bill payment operations. Gross proceeds from the sale
were approximately $1.3 million in cash and the majority of
these proceeds were used to pay down our joint credit facility.
As a result of this sale, Harlands portion of the joint
credit facility was permanently reduced by $225,000. The total
credit facility was reduced to $19,775,000 and the ratio of
available borrowings was adjusted to approximately 76% from
InterCept and approximately 24% from Harland.

On November 15, 2001, we sold certain assets acquired from
DVI. Gross proceeds from the sale were approximately
$1.35 million in cash and the majority of these proceeds
were used to pay down our joint credit facility. As a result of
this sale, Harlands portion of the joint credit facility
was permanently reduced by $220,000. The total credit facility
was reduced to $19,555,000 and the ratio of available borrowings
was adjusted to approximately 77% from InterCept and
approximately 23% from Harland.

As of December 31, 2001, the balance on this joint credit
facility was $13,192,000 with InterCepts and
Harlands portion totaling $10,118,000 and $3,074,000,
respectively. We incurred interest expense associated with our
borrowings from InterCept and Harland of approximately $824,000
and $265,000, respectively, during 2001, and we were in
compliance with all the covenants of the credit agreement. These
loans require us

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##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

to maintain certain levels of EBITDA (as defined). We were in
compliance with this covenant at December 31, 2001.
Subsequent to December 31, 2001, we extended the maturity
date of the credit facility to April 10, 2003 and reduced
the total credit facility to $18 million (see Note 21).

On October 18, 1999, we entered into a $3,000,000 line of
credit facility with a company, and in connection therewith, an
affiliate of that company was appointed as one of our directors.
In connection with this line of credit, we issued to that
company a warrant to purchase 57,735 shares of our common
stock. The line of credit was terminated in December 1999 (see
Note 13). This warrant was exercised in full in March 2000.

Related-party loans from shareholders at December 31, 2000
and 2001 consisted of the following:

|                                                                                                                                                                                                                                                                                                             |  |      |            |      |  |   |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | ---- |  | - | ---------- | 
|                                                                                                                                                                                                                                                                                                             |  | 2000 |            | 2001
|                                                                                                                                                                                                                                                                                                             |  |      |            |     
|Line of credit from InterCept, interest payable
	quarterly at prime plus 2% per year; principal payable in full
	on May 31, 2003; the line of credit was secured by
	substantially all our assets, pari passu with the promissory
	note below                                                                |  | $    | 15,000,000 |      |  | $ |           | 
|                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                            
|Promissory note from Harland, interest payable
	quarterly at prime plus 2% per year; payable in full upon
	maturity on September 29, 2005 or upon demand with 30 days
	notice after September 29, 2002; the note was secured by
	substantially all our assets, pari passu with the line of credit
	above     |  |      | 5,000,000  |      |  |   |           | 
|                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                            
|Joint line of credit from InterCept and Harland
	(InterCept funds 76.7%, Harland funds 23.3%), interest payable
	quarterly at prime plus 2% per year; payable in full on
	November 2, 2002 (subsequently extended to April 10,
	2003, see Note 21); the facility is secured by
	substantially all our assets |  |      |           |      |  |   | 13,191,715 | 
|                                                                                                                                                                                                                                                                                                             |  |      |            |      |  |   |            | 
|                                                                                                                                                                                                                                                                                                             |  |      | 20,000,000 |      |  |   | 13,191,715 | 
|                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                            
|Less current maturities                                                                                                                                                                                                                                                                                      |  |      |           |      |  |   |           | 
|                                                                                                                                                                                                                                                                                                             |  |      |            |      |  |   |            | 
|                                                                                                                                                                                                                                                                                                             |  | $    | 20,000,000 |      |  | $ | 13,191,715 | 
|                                                                                                                                                                                                                                                                                                             |  |      |            |      |  |   |            | 

Other Relationships with
InterCept

Our Chairman of the Board of Directors is the Chairman and Chief
Executive Officer of InterCept. Our Chief Executive Officer is a
director of InterCept. Our former Chief Executive Officer and
former Vice Chairman of the Board of Directors is a director of
InterCept. A former non-employee director of Netzee is also a
director of InterCept.

In September 1999, we entered into a marketing agreement with
InterCept under which InterCept sells our products and services.
Under this agreement, we pay a commission to InterCept for each
sale of our products and services made by InterCept and for each
referral to our sales force that results in a sale. We paid
InterCept approximately $357,000 and $141,000 in 2000 and 2001,
respectively, as a result of this agreement.

During 2000 and 2001, we shared some of our facilities with
InterCept. We paid approximately $163,000 and $112,000 related
to those shared costs during 2000 and 2001, respectively.

During 2000 and 2001, we used InterCepts vendor
relationships to purchase certain hardware and software used to
implement our Internet and telephone banking products. By
utilizing these vendor relationships, we were able to take
advantage of discounts that we would have been unable to obtain
on our

F-19



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##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

own. In addition, InterCept assisted us in managing the ordering
and inventory process related to this equipment. During 2000 and
2001, we paid approximately $435,000 and $123,000, respectively,
in costs to purchase the equipment, which included a fee to
InterCept for its services.

InterCept also licenses certain of our telephone banking
products for sales to their customers. Under this agreement,
InterCept pays us an initial license fee along with an annual
maintenance fee. We received approximately $286,000 and $248,000
in payments from InterCept related to this agreement during 2000
and 2001, respectively.



| |                                 
| | --------------------------------
| | Other Relationships with Harland

In connection with the acquisition of assets from Harland,
beginning in November 2000, we subleased certain of our
Connecticut and Oregon facilities from Harland. We paid
approximately $135,000 and $356,000 in expenses during 2000 and
2001, respectively, associated with these subleases.
Additionally, we incurred costs totaling approximately $322,000
and $122,000 during 2000 and 2001, respectively, related to the
usage of certain of their employees and certain administrative
support and equipment lease costs during the post-acquisition
transition.

In May 2001, we entered into a marketing agreement with
Harland under which Harland sells certain of our Internet-based
products and services. Under this agreement we pay a commission
for sales of our products and services made by Harland and for
each referral to our sales force that results in a sale. We
incurred expenses of approximately $76,000 in 2001 as a result
of this agreement.



| |                        
| | -----------------------
| | Our Other Relationships

Our former Chief Executive Officer and former Vice Chairman of
the Board of Directors is a partner at Nelson Mullins Riley
& Scarborough, L.L.P., a law firm that provided legal
services to us. We paid approximately $425,000 and $62,000
during fiscal 2000 and 2001, respectively, to this firm for
these legal services.

On July 1, 1999, certain officers and directors of Netzee
and InterCept entered into full-recourse promissory notes with
Direct Access as lender. These notes totaled $3,110,000 and were
given as consideration for the issuance of shares of Direct
Access common stock to these individuals. Each of the notes
bears interest at 7% per year and matures on June 30, 2002.
During fiscal 2000 and 2001, principal payments on the notes
were made in the amount of $1,766,500 and $952,745,
respectively, and interest payments were made in the amount of
$237,073 and $28,914, respectively. The outstanding principal
balances totaled $1,343,500 and $400,000 as of December 31, 2000
and 2001, respectively. Accrued interest on the notes as of
December 31, 2000 and 2001 totaled approximately $79,000 and
$70,000, respectively.

On August 5, 1999, an officer of Netzee entered into a
full-recourse promissory note with Netzee as lender. The note
totaled $93,300 and the proceeds were used to exercise options
to purchase shares of our common stock. Accrued interest on this
note as of December 31, 2000 and 2001 was approximately
$10,000 and $16,000, respectively. The loan bears interest at a
rate of 7% and matures on August 4, 2002. The interest on
these promissory notes has been included in the principal amount
and is, therefore, classified as a component of
stockholders equity.

In May 2001, we sold a portion of our non-core business to
iPay, which also assumed certain of the liabilities associated
with the assets (see Note 4). Certain of the owners of iPay
were former officers of Netzee.

Management believes that these transactions were made on terms
no less favorable to us than could have been obtained with
unaffiliated third parties.

F-20



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##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

10. RESTRUCTURING COSTS

In the fourth quarter of 2000, we initiated a restructuring of
management with the termination of certain management employees.
Consequently, a restructuring charge of $586,200 was recorded in
accordance with Emerging Issues Task Force (EITF)
94-3, Liability Recognition for Cost to Exit an Activity
(Including Certain Costs Incurred in a Restructuring).
This amount was comprised of $375,000 in non-cash stock-based
compensation associated with the accelerated vesting of
restricted stock, which is included in amortization of
stock-based compensation in the Consolidated Statements of
Operations, and $211,200 in severance and payroll-related items.

During fiscal 2001, we finalized and announced restructuring
plans to reduce expenses through the consolidation of our
Internet and bill payment operations. This restructuring has
resulted in the closure of our offices in Alabama, Kentucky,
Texas and Tennessee, as well as the downsizing of offices in
Connecticut. Total staff reductions were approximately 195
employees. Consequently, a restructuring charge of approximately
$2,002,000 was recorded for the year ended December 31,
2001 in accordance with EITF 94-3. This amount was
comprised of approximately $1,350,000 in severance and
payroll-related items and approximately $652,000 in lease and
other contract termination costs.

In connection with this restructuring, we have accrued
approximately $1,109,000 as additional purchase price for the
acquisition of assets from Harland as a result of the
termination of employees and the closing of offices obtained in
that acquisition in accordance with EITF 95-3,
Recognition of Liabilities in Connection with a Purchase
Business Combination. This amount is comprised of
approximately $1,060,000 for severance and payroll-related items
and approximately $50,000 for office lease and other contract
termination costs.

As of December 31, 2001, we had paid approximately
$3,535,000 in restructuring costs consisting of approximately
$2,858,000 in severance and payroll related costs and
approximately $677,000 in contract and lease termination costs.
As of December 31, 2001, we had terminated approximately
190 employees out of an anticipated total of 195 employees to be
terminated as the result of the restructuring plan. At
December 31, 2001, approximately $162,000 in restructuring
costs remained as an accrued liability, consisting of
approximately $137,000 in future severance benefits and other
payroll-related costs and $25,000 in additional contract and
lease termination costs.

The following table summarizes our restructuring charges accrued
and paid in 2000 and 2001:

|                                                                                          |  |               |            |                   |  |       |          |   |  |   |            |  
|----------------------------------------------------------------------------------------- |  | ------------- | ---------- | ----------------- |  | ----- | -------- | - |  | - | ---------- | -
|                                                                                          |  | Severance and |            | Lease and Other   |  |      
|                                                                                          |  | Payroll       |            | Contract          |  |      
|                                                                                          |  | Related Items |            | Termination Costs |  | Total
|                                                                                          |  |               |            |                   |  |      
|Restructuring charges accrued in 2000                                                     |  | $             | 586,000    |                   |  | $     |         |   |  | $ | 586,000    |  
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Restructuring charges recorded in connection with
	the acquisition of assets from Harland |  |               | 773,000    |                   |  |       | 200,000  |   |  |   | 973,000    |  
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Paid in 2000                                                                              |  |               | (487,000   | )                 |  |       |         |   |  |   | (487,000   | )
|                                                                                          |  |               |            |                   |  |       |          |   |  |   |            |  
|Balance at December 31, 2000                                                              |  |               | 872,000    |                   |  |       | 200,000  |   |  |   | 1,072,000  |  
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Restructuring charges accrued in 2001                                                     |  |               | 1,350,000  |                   |  |       | 652,000  |   |  |   | 2,002,000  |  
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Restructuring charges recorded in connection with
	the acquisition of assets from Harland |  |               | 286,000    |                   |  |       | (150,000 | ) |  |   | 136,000    |  
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Paid in 2001                                                                              |  |               | (2,371,000 | )                 |  |       | (677,000 | ) |  |   | (3,048,000 | )
|                                                                                          |  |               |            |                   |  |       |          |   |  |   |            |  
|Balance at December 31, 2001                                                              |  | $             | 137,000    |                   |  | $     | 25,000   |   |  | $ | 162,000    |  
|                                                                                          |  |               |            |                   |  |       |          |   |  |   |            |  

F-21



---



##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

11. ASSET IMPAIRMENT CHARGES

In accordance with the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets,
we perform an impairment test with regards to a long-lived asset
when a triggering event occurs which may indicate
that the carrying value of the asset is unrealizable. Our policy
for the completion of such analysis is to compare the
undiscounted cash flows expected to be generated from the
long-lived asset over its useful life to the carrying value of
the asset. SFAS No. 121 also requires that when a group of
assets being tested for impairment was acquired as part of a
business combination using the purchase method of accounting,
any cost in excess of net assets acquired that arose as part of
the transaction must be included as part of the asset group.
During fiscal 2000, management determined that a triggering
event had occurred with respect to certain acquired software
applications as a result of our management restructuring and
realigned strategic focus.

Additionally, during 2001 we determined that a triggering event
had occurred related to our decision to sell certain assets
related to the DVI acquisition, as well as the termination of a
customer associated with our Card Plus acquisition. An analysis
of the estimated future cash flows expected to be generated by
these acquired assets was determined to be less than the
carrying amount, and allocated cost was determined to be in
excess of net assets acquired. Therefore, these acquired assets
were determined to be impaired in accordance with SFAS
No. 121. Consequently, the original cost bases of these
assets were reduced to reflect the fair market value of such
assets at the date of the analysis.

These triggering events resulted in a $26.3 million and
$12.1 million asset impairment loss for the years ended
December 31, 2000 and 2001, respectively. In determining
the fair market value of these assets, we considered recent
transactions and market trends involving similar assets.

12. CHANGE IN ACCOUNTING PRINCIPLE

In the fourth quarter of fiscal 2000, we adopted SAB
No. 101, which establishes guidelines for revenue
recognition and enhances revenue recognition disclosure
requirements. Pursuant to this guideline, up-front fees
associated with certain product implementations are now being
recognized over the term of the underlying agreement, rather
than upon the completion of product implementation. The
cumulative impact of adopting SAB No. 101 was recorded as
of January 1, 2000 and is reported as a change in
accounting principle for our year ended December 31, 2000.

The following unaudited pro forma consolidated financial
information for the years ended December 31, 1999, 2000 and
2001 assumes that the change in accounting principle occurred as
of January 1, 1999.

|                                                                                                     |  |      |             |      |  |      |             |   |  |   |             |  
|---------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- |  | ---- | ----------- | - |  | - | ----------- | -
|                                                                                                     |  | 1999 |             | 2000 |  | 2001
|                                                                                                     |  |      |             |      |  |     
|Loss attributable to common shareholders before
	cumulative effect of change in accounting principle |  | $    | (26,954,876 | )    |  | $    | (96,808,699 | ) |  | $ | (60,020,563 | )
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Cumulative effect of change in accounting
	principle                                                 |  |      | (351,980    | )    |  |      |            |   |  |   |            |  
|                                                                                                     |  |      |             |      |  |      |             |   |  |   |             |  
|Pro forma net loss attributable to common
	shareholders                                              |  | $    | (27,306,856 | )    |  | $    | (96,808,699 | ) |  | $ | (60,020,563 | )
|                                                                                                     |  |      |             |      |  |      |             |   |  |   |             |  
|Basic and diluted loss per share before change in
	accounting principle                              |  | $    | (18.67      | )    |  | $    | (34.81      | ) |  | $ | (17.89      | )
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Cumulative effect of change in accounting
	principle per share                                       |  |      | (0.24       | )    |  |      |            |   |  |   |            |  
|                                                                                                     |  |      |             |      |  |      |             |   |  |   |             |  
|Basic and diluted net loss per share                                                                 |  | $    | (18.92      | )    |  | $    | (34.81      | ) |  | $ | (17.89      | )
|                                                                                                     |  |      |             |      |  |      |             |   |  |   |             |  
|Basic and diluted weighted average shares
	outstanding                                               |  |      | 1,442,754   |      |  |      | 2,781,141   |   |  |   | 3,354,909   |  
|                                                                                                     |  |      |             |      |  |      |             |   |  |   |             |  

F-22



---



##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

All of the pro forma effects of SAB No. 101 have been
allocated to 1999 as we did not charge any up front fees for
services in prior periods.

13. EXTRAORDINARY ITEM

On October 18, 1999, we entered into a $3,000,000 line of
credit facility with a company, and in connection therewith, an
affiliate of that company was appointed as one of our directors.
The line of credit facility bore interest at the prime rate. In
conjunction with the line of credit facility, we issued warrants
to purchase 57,735 shares of common stock at an exercise price
of $26.00 per share. We recorded deferred financing costs for
the difference between the fair value of common stock, valued at
$106.00 per share, and the exercise price of the warrants. The
deferred financing costs were to be recognized over the
three-year term of the line of credit. The line of credit
facility was terminated in December 1999 in connection with the
receipt of the commitment from InterCept discussed in Note 9
above. The termination resulted in the recognition of an
extraordinary non-cash loss of $4,518,760 for the period from
March 1, 1999 to December 31, 1999 related to the
write off of the unamortized deferred financing fees.

14. INCOME TAXES

We have incurred net operating losses (NOL) since
inception. As of December 31, 2000 and 2001, we had NOL
carryforwards of approximately $25.8 million and
$47.2 million, respectively, available to offset our future
income tax liability. The NOL carryforwards will begin to expire
in 2014. Due to the uncertainty of the realizability of the net
operating losses, we have not reflected an income tax benefit in
the accompanying statements of operations for any period
presented and have recorded a valuation allowance equal to the
net deferred tax assets at December 31, 2000 and 2001.

The components of the deferred tax assets and liabilities are as
follows as of December 31, 2000 and 2001:

|                         |                                  |                                |             |            |            |   |             |            |            |  
|------------------------ | -------------------------------- | ------------------------------ | ----------- | ---------- | ---------- | - | ----------- | ---------- | ---------- | -
|                         |                                  |                               
|                         |                                  | December 31,                  
|                         |                                  |                               
|                         |                                  | 2000                           |             | 2001      
|                         |                                  |                                |             |           
|Deferred tax assets:     |                                  |                                |             |            |            |   |             |           
|                        
|                        
|                        
|                        
|                         | Net operating loss carryforwards |                                | $           | 12,231,914 |            |   | $           | 18,029,840 |           
|                        
|                        
|                        
|                        
|                         | Deferred revenue                 |                                |             | 3,305,877  |            |   |             | 1,172,699  |           
|                        
|                        
|                        
|                        
|                         | Accounts receivable reserve      |                                |             | 243,750    |            |   |             | 142,577    |           
|                        
|                        
|                        
|                        
|                         | Stock-based compensation         |                                |             | 2,958,139  |            |   |             | 3,292,705  |           
|                        
|                        
|                        
|                        
|                         | Intangible assets                |                                |             | 418,000    |            |   |             | 505,963    |           
|                        
|                        
|                        
|                        
|                         | Other                            |                                |             | 427,872    |            |   |             | 213,057    |           
|                         |                                  |                                |             |            |            |   |             |           
|                         |                                  | Total deferred tax assets      |             |            | 19,585,552 |   |             |            | 23,356,841 |  
|Deferred tax liabilities |                                  |                                |             |            |            |   |             |           
|                        
|                        
|                        
|                        
|                         | Property and equipment           |                                |             | (283,322   | )          |   |             | (283,322   | )         
|                        
|                        
|                        
|                        
|                         | Unbilled accounts receivable     |                                |             | (712,191   | )          |   |             | 0          |           
|                         |                                  |                                |             |            |            |   |             |           
|                         |                                  | Total deferred tax liabilities |             |            | (995,513   | ) |             |            | (283,322   | )
|                         |                                  |                                |             |            |            |   |             |           
|Net deferred tax assets  |                                  |                                | 18,590,039  |            |            |   | 23,073,519  |           
|                        
|                        
|                        
|                        
|Valuation allowance      |                                  |                                | (18,590,039 | )          |            |   | (23,073,519 | )         
|                         |                                  |                                |             |            |            |   |             |           
|Net                      |                                  | $                              |            |            |            | $ |            |           
|                         |                                  |                                |             |            |            |   |             |           

F-23



---



##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The components of the income tax benefit for the period from
March 1, 1999 to December 31, 1999, and for the years
ended December 31, 2000 and 2001 are as follows:

|                    |         |                   |            |                   |            |                   |             |             |             |   |            |            |            |  
|------------------- | ------- | ----------------- | ---------- | ----------------- | ---------- | ----------------- | ----------- | ----------- | ----------- | - | ---------- | ---------- | ---------- | -
|                    |         | December 31, 1999 |            | December 31, 2000 |            | December 31, 2001
|                    |         |                   |            |                   |            |                  
|Current benefit     |         |                   |            |                   |            |                   |             |             |             |   |            |           
|                   
|                   
|                   
|                   
|                    | Federal |                   | $          |                  |            |                   | $           |            |             |   | $          |           |           
|                   
|                   
|                   
|                   
|                    | State   |                   |            |                  |            |                   |             |            |             |   |            |           |           
|                    |         |                   |            |                   |            |                   |             |             |             |   |            |           
|Deferred benefit    |         |                   |            |                   |            |                   |             |             |             |   |            |           
|                   
|                   
|                   
|                   
|                    | Federal |                   |            | (5,134,862        | )          |                   |             | (11,503,613 | )           |   |            | (3,374,311 | )         
|                   
|                   
|                   
|                   
|                    | State   |                   |            | (598,198          | )          |                   |             | (1,353,366  | )           |   |            | (396,978   | )         
|                    |         |                   |            |                   |            |                   |             |             |             |   |            |           
|                    |         |                   | (5,733,060 | )                 |            |                   | (12,856,979 | )           |             |   | (3,771,289 | )         
|                   
|                   
|                   
|                   
|                    |         | Total benefit     |            |                   | (5,733,060 | )                 |             |             | (12,856,979 | ) |            |            | (3,771,289 | )
|                   
|                   
|                   
|                   
|Valuation allowance |         |                   | 5,733,060  |                   |            |                   | 12,856,979  |             |             |   | 3,771,289  |           
|                    |         |                   |            |                   |            |                   |             |             |             |   |            |           
|                    |         | Total             |            | $                 |           |                   |             | $           |            |   |            | $          |           |  
|                    |         |                   |            |                   |            |                   |             |             |             |   |            |           

The following is a summary of the items, which resulted in
recorded income taxes that differ from taxes, computed using the
statutory income tax rates for the period from March 1,
1999 to December 31, 1999, and for the years ended
December 31, 2000 and 2001, respectively:

|                                       |  |      |     |      |  |      |     |   |  |  |     |  
|-------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                                       |  | 1999 |     | 2000 |  | 2001
|                                       |  |      |     |      |  |     
|Tax benefit at federal statutory rates |  |      | 34  | %    |  |      | 34  | % |  |  | 34  | %
|                                      
|                                      
|                                      
|                                      
|Tax benefit at state statutory rate    |  |      | 4   |      |  |      | 4   |   |  |  | 4   |  
|                                      
|                                      
|                                      
|                                      
|Permanent tax differences              |  |      | (59 | )    |  |      | (51 | ) |  |  | (44 | )
|                                      
|                                      
|                                      
|                                      
|Effect of valuation allowance          |  |      | 21  |      |  |      | 13  |   |  |  | 6   |  
|                                       |  |      |     |      |  |      |     |   |  |  |     |  
|Effective tax rate                     |  |      |    | %    |  |      |    | % |  |  |    | %
|                                       |  |      |     |      |  |      |     |   |  |  |     |  

The income tax benefit for the period from January 1, 1999
to February 28, 1999 was not material.

15. PREFERRED STOCK

In December 1999, we issued 500,000 shares of Series A 8%
Convertible Preferred Stock, no par value, with a $13.00 per
share stated value. The Series A Preferred Stock was
convertible at the option of the shareholder, in whole or in
part, into 51,384 split-adjusted shares of common stock. In
addition, if the average closing price of our common stock had
equaled or exceeded a split-adjusted price of $208.00 per share
for any four-week period, we would have been permitted to redeem
all of the Series A Preferred Stock for cash or 51,384
split-adjusted shares of common stock. If we had elected to
redeem the Series A Preferred Stock for cash, the holder
had the option to receive payment in common stock. Series A
Preferred Stock dividends were cumulative and were payable when
declared by the Board of Directors, at the rate of $1.04 per
share per year. We accrued $24,200 in dividends on the shares of
Series A Preferred Stock for the period from
December 15, 1999 to December 31, 1999. During 2000,
we paid $24,200 in accrued dividends on these shares.

In September 2000, we exchanged all 500,000 shares of
Series A 8% Convertible Preferred Stock for 500,000 shares
of Series B 8% Convertible Preferred Stock, no par value.
The rights, preferences and limitations of the Series B
Preferred Stock are substantially identical to those of the
Series A Preferred Stock, except that upon conversion of
the Series B Preferred Stock or upon the liquidation of
Netzee, a holder of the Series B Preferred Stock is
entitled to receive all accrued but unpaid dividends thereupon.

In connection with a registration rights agreement entered into
with the former shareholders of DPSC, the shares were subject to
the right, as of June 15, 2002, of the holders of the
Series B Preferred Stock to

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##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

require us to repurchase all of such shares at a price of $13.00
per share, plus all accrued and unpaid dividends thereupon.
Subsequent to December 31, 2001, we extended the repurchase
requirement date to April 10, 2003 (see Note 21).

We have accrued $1,040,000 in dividends on the shares of
Series B Preferred Stock for the year ended
December 31, 2001 and have included that amount in the
other current liabilities in the accompanying balance sheets.
Additionally, we have included the preferred dividends for each
year in the calculation of net income attributable to common
shareholders.

16. STOCK OPTION PLAN

During 1999, we adopted, and our shareholders approved, the 1999
Stock Option and Incentive Plan (the Plan). Awards
under the Plan are granted to eligible officers, directors,
employees and other persons by the Board of Directors or by our
Compensation Committee, which is composed of the entire Board of
Directors. Awards issued under the Plan may include incentive
stock options (ISOs), nonqualified stock options
(NQSOs), restricted stock or stock appreciation
rights. The Compensation Committee administers the Plan and
generally has the discretion to determine the terms of an option
grant, including the number of option shares, option price,
term, vesting schedule, the post-termination exercise period,
and whether the grant will be an ISO or NQSO, except that the
Board of Directors must approve all awards to our executive
officers and directors.

The maximum number of shares of common stock that may be issued
under the Plan as of January 1, 2002 is 790,404. The Plan
provides that the number of shares of common stock available for
issuance shall be automatically increased on January 1 of
each year to an amount equal to 20% of the fully diluted shares
of stock outstanding on December 31 of the previous year,
provided that the shares available for issuance shall not be
less than 437,500, and no more than 437,500 shares shall be
issuable with respect to ISOs.

The Plan will remain in effect until terminated by the Board of
Directors. The Board of Directors may generally amend the Plan
without the consent of our shareholders.

During 1999, we issued options with exercise prices below the
initial public offering price. Accordingly, we recorded
approximately $13.1 million in deferred compensation and
included such amount in common stock. This amount is being
amortized over the respective vesting periods of the options. We
recorded $3.2 million and $1.3 million in compensation
expense for these options during 2000 and 2001, respectively.

F-25



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##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

A summary of stock options granted and related information for
the years ended December 31, 1999, 2000 and 2001 is
presented below:

|                                 |           |        |         |             |   |   |                 |                 | 
|-------------------------------- | --------- | ------ | ------- | ----------- | - | - | --------------- | --------------- | 
|                                 |           | Shares |         | Price Range
|                                 |           |        |         |            
|Outstanding at December 31, 1998 |           |        |        |             |   | $ |                |                
|                                
|                                
|                                
|                                
|                                 | Granted   |        |         | 351,938     |   |   | $               | 16.00 - $118.00 | 
|                                
|                                
|                                
|                                
|                                 | Exercised |        |         |            |   |   | $               |                | 
|                                
|                                
|                                
|                                
|Outstanding at December 31, 1999 |           |        | 351,938 |             |   | $ | 16.00 - $118.00 |                
|                                 |           |        |         |             |   |   |                 |                
|                                 | Granted   |        |         | 297,802     |   |   | $               | 0.08 - $177.04  | 
|                                
|                                
|                                
|                                
|                                 | Exercised |        |         | (1,771      | ) |   | $               | 0.08 - $ 40.00  | 
|                                
|                                
|                                
|                                
|                                 | Forfeited |        |         | (111,347    | ) |   | $               | 40.00 - $177.04 | 
|                                 |           |        |         |             |   |   |                 |                
|Outstanding at December 31, 2000 |           |        | 536,622 |             |   | $ | 0.08 - $136.64  |                
|                                
|                                
|                                
|                                
|                                 | Granted   |        |         | 48,700      |   |   | $               | 3.84 - $  4.00  | 
|                                
|                                
|                                
|                                
|                                 | Exercised |        |         | (2,223      | ) |   | $               | 0.08            | 
|                                
|                                
|                                
|                                
|                                 | Forfeited |        |         | (380,126    | ) |   | $               | 0.08 - $177.04  | 
|                                
|                                
|                                
|                                
|Outstanding at December 31, 2001 |           |        | 202,973 |             |   | $ | 3.84 - $122.00  |                
|                                 |           |        |         |             |   |   |                 |                
|Exercisable at December 31, 2001 |           |        | 119,871 |             |   | $ | 10.00 - $122.00 |                
|                                 |           |        |         |             |   |   |                 |                

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

|                |  |                     |            |                     |  |           |      |                |  |           |       |  |  |  |         |  |  |   |        | 
|--------------- |  | ------------------- | ---------- | ------------------- |  | --------- | ---- | -------------- |  | --------- | ----- |  |  |  | ------- |  |  | - | ------ | 
|                |  |                     |            |                     |  |          
|                |  | Options Outstanding |            |                    
|                |  |                     |            | Options Exercisable
|                |  |                     |            | Weighted-           |  |           |      |               
|                |  | Number              |            | Average             |  | Weighted- |      | Number         |  | Weighted-
|                |  | Outstanding at      |            | Remaining           |  | Average   |      | Exercisable at |  | Average  
|Range of        |  | December 31,        |            | Contractual         |  | Exercise  |      | December 31,   |  | Exercise 
|Exercise Prices |  | 2001                |            | Life                |  | Price     |      | 2001           |  | Price    
|                |  |                     |            |                     |  |           |      |                |  |          
|$ 3.84 - $ 10   |  |                     | .00 40,212 |                     |  |           | 9.34 |                |  | $         | 5.04  |  |  |  | 2,820   |  |  | $ | 10.00  | 
|               
|               
|               
|               
|$16.00 - $ 38.  |  |                     | 75 80,750  |                     |  |           | 7.58 |                |  | $         | 20.68 |  |  |  | 60,996  |  |  | $ | 20.57  | 
|               
|               
|               
|               
|$40.00 - $ 62.  |  |                     | 24 35,344  |                     |  |           | 7.71 |                |  | $         | 40.31 |  |  |  | 25,358  |  |  | $ | 40.14  | 
|               
|               
|               
|               
|$78.00 - $122.0 |  |                     | 0 46,667   |                     |  |           | 8.01 |                |  | $         | 98.04 |  |  |  | 30,697  |  |  | $ | 102.91 | 
|                |  |                     |            |                     |  |           |      |                |  |           |       |  |  |  |         |  |  |   |        | 
|                |  |                     | 202,973    |                     |  |           | 8.05 |                |  | $         | 38.79 |  |  |  | 119,871 |  |  | $ | 45.55  | 
|                |  |                     |            |                     |  |           |      |                |  |           |       |  |  |  |         |  |  |   |        | 

During 1999, we issued 9,375 shares of restricted stock under
the Plan. In conjunction with our management restructuring (see
discussion in Note 10), we accelerated the vesting period
of 3,125 of these shares in exchange for the forfeiture of 3,125
shares. As of December 31, 2001, there were 6,250 shares
issued and outstanding related to this grant, all of which are
vested. The weighted average fair value of these shares at grant
date was $120.00 per share.

During 1995, the FASB issued SFAS No. 123, Accounting
for Stock-Based Compensation, which defines a fair
value-based method of accounting for an employee stock option or
similar equity instrument and encourages all entities to adopt
that method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the
method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for
Stock Issued to Employees. Entities electing to use the
accounting methodology required by APB Opinion No. 25 must
make pro forma disclosures of net income, and, if presented,
earnings per share, as if the fair value-based method of
accounting defined in SFAS No. 123 had been applied.

We have elected to account for our stock-based compensation plan
under APB Opinion No. 25. We have computed, for pro forma
disclosure purposes, the value of all options to purchase shares
of our common stock granted in 1999, 2000 and 2001 to our
employees using the Black-Scholes option pricing model
prescribed in

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##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

SFAS No. 123 and the following weighted-average
assumptions: for 1999, risk-free interest rates of 5.80% to
6.17%, expected dividend yield of 0%, expected lives of four
years, and expected volatility of 69%; for 2000, risk-free
interest rates of 6.03% to 6.21%, expected dividend yield of 0%,
expected lives of four years, and expected volatility of 132%;
and for 2001, risk-free interest rates of 3.49% to 5.02%,
expected dividend yield of 0%, expected lives of four years, and
expected volatility of 185%.

The weighted average fair value of options granted to employees
of Netzee in 1999, 2000 and 2001 was $90.64, $52.08 and $3.79
per share, respectively. The total value of the options granted
to these employees during 1999, 2000 and 2001 was computed as
approximately $21.0 million, $15.9 million and
$185,000, respectively, which would be amortized on a pro forma
basis over the three-year vesting period of the options. If we
had accounted for the Plan in accordance with SFAS No. 123,
our net loss for the years ended December 31, 1999, 2000
and 2001 would have been as follows:

|                                                          |  |              |             |              |  |              |              |   |  |   |             |  
|--------------------------------------------------------- |  | ------------ | ----------- | ------------ |  | ------------ | ------------ | - |  | - | ----------- | -
|                                                          |  | Year Ended   |             | Year Ended   |  | Year Ended  
|                                                          |  | December 31, |             | December 31, |  | December 31,
|                                                          |  | 1999         |             | 2000         |  | 2001        
|                                                          |  |              |             |              |  |             
|Net loss attributable to common shareholders as
	reported |  | $            | (26,954,876 | )            |  | $            | (97,160,679  | ) |  | $ | (60,020,563 | )
|                                                         
|                                                         
|                                                         
|                                                         
|Pro forma net loss                                        |  | $            | (28,212,750 | )            |  | $            | (107,169,281 | ) |  | $ | (58,581,010 | )
|                                                         
|                                                         
|                                                         
|                                                         
|Loss per share (basic and diluted) as reported            |  | $            | (18.72      | )            |  | $            | (34.94       | ) |  | $ | (17.89      | )
|                                                         
|                                                         
|                                                         
|                                                         
|Loss per share (basic and diluted) pro forma              |  | $            | (19.52      | )            |  | $            | (38.53       | ) |  | $ | (17.46      | )

17. BASIC AND DILUTED NET LOSS PER SHARE

Basic and diluted net loss per share have been computed in
accordance with SFAS No. 128, Earnings per
Share, using net loss divided by the weighted average
number of shares of common stock outstanding for the period
presented. Potentially dilutive options to purchase 351,938,
536,622, and 202,973 shares of common stock with a weighted
average exercise price of $59.76, $51.92 and $38.79 per share
were outstanding at December 31, 1999, 2000 and 2001,
respectively, approximately 51,384 common shares issuable upon
conversion of the preferred stock for the years ended
December 31, 1999, 2000, and 2001, 57,735 outstanding
warrants to purchase common stock for the year ended
December 31, 1999, and 107,106 common shares issuable upon
the achievement of certain performance targets associated with
the DVI and Card Plus acquisitions for the year ended
December 31, 2000 were excluded from the presentation of
diluted net loss per share, as they are antidilutive due to the
net loss.

18. EMPLOYEE BENEFITS

In 1999, we established a defined contribution 401(k) savings
plan, which covers substantially all employees, subject to
certain minimum age and service requirements. Contributions to
this plan are voluntary; however, for 1999 we matched in cash
100% of the first 6% of an employees compensation
contributed. For the year ended December 31, 2000, we
matched in cash 100% of the first 4% of compensation
contributed, and in our common stock 100% of the next 2% of
compensation contributed. For the year ended December 31,
2001, we matched in cash 50% of the first 4% of compensation
contributed and in our common stock, 50% of the next 2%
contributed. The stock will be issued to those employees who
contributed in excess of 4% and were still employed by us as of
December 31, 2000 and 2001, respectively. The number of
shares was determined by taking the total dollar value of the
matching contribution divided by the share closing price on the
last trading day of the year. We contributed approximately
47,400 and 12,300 shares valued at approximately $142,000 and
$21,000 at December 31, 2000 and 2001, respectively. Our
cash contributions were approximately $577,000 and $187,000 for
the years ended December 31, 2000 and 2001, respectively.

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##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

19. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

|                                                                         |                                                                         |                 |       |                 |  |              |         |              |  |   |         |            |  |   |           |         |  
|------------------------------------------------------------------------ | ----------------------------------------------------------------------- | --------------- | ----- | --------------- |  | ------------ | ------- | ------------ |  | - | ------- | ---------- |  | - | --------- | ------- | -
|                                                                         |                                                                         |                 |       |                
|                                                                         |                                                                         | Predecessor     |       | Netzee, Inc.   
|                                                                         |                                                                         |                 |       |                
|                                                                         |                                                                         | For the Period  |       | For the Period  |  |             
|                                                                         |                                                                         | from January 1, |       | from March 1,   |  |             
|                                                                         |                                                                         | 1999 to         |       | 1999            |  | Year Ended   |         | Year Ended  
|                                                                         |                                                                         | February 28,    |       | to December 31, |  | December 31, |         | December 31,
|                                                                         |                                                                         | 1999            |       | 1999            |  | 2000         |         | 2001        
|                                                                         |                                                                         |                 |       |                 |  |              |         |             
|Cash paid for interest                                                   |                                                                         | $               | 2,971 |                 |  | $            | 740,638 |              |  | $ | 908,132 |            |  | $ | 1,379,936 |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Supplemental disclosure of non-cash investing and
	financing activities: |                                                                         |                 |       |                 |  |              |         |              |  |   |         |            |  |   |           |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Stock issued for acquisitions                                           |                 |       |                |  |              |         | 71,884,011   |  |   |         | 39,834,929 |  |   |           |        |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Warrants issued for the purchase of common stock                        |                 |       |                |  |              |         | 4,618,760    |  |   |         |           |  |   |           |        |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Stock issued for notes receivable                                       |                 |       |                |  |              |         | 3,110,000    |  |   |         |           |  |   |           |        |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Purchase of property and equipment with note
	payable                   |                 |       |                |  |              |         | 1,345,000    |  |   |         |           |  |   |           |        |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Stock issued as deferred compensation                                   |                 |       |                |  |              |         | 1,125,000    |  |   |         |           |  |   |           |        |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Stock issued in connection with marketing
	agreements, net of cash paid |                 |       |                |  |              |         | 1,079,096    |  |   |         |           |  |   |           |        |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Capital contribution for property and equipment
	from shareholder       |                 |       |                |  |              |         | 750,000      |  |   |         |           |  |   |           |        |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Exercise of stock options for note receivable                           |                 |       |                |  |              |         | 93,300       |  |   |         |           |  |   |           |        |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Stock issued for employer 401(k) match                                  |                 |       |                |  |              |         |             |  |   |         | 142,204    |  |   |           | 20,516  |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Stock reclaimed from escrow                                             |                 |       |                |  |              |         |             |  |   |         |           |  |   |           | (68,713 | )

20. COMMITMENTS AND CONTINGENCIES

Property Leases

We lease various facilities under non-cancelable property lease
agreements. Future minimum annual obligations under these leases
as of December 31, 2001 are as follows:

|     |       |   |         |           | 
|---- | ----- | - | ------- | --------- | 
|    
|    
|    
|    
|2002 |       | $ | 571,210 |          
|    
|    
|    
|    
|2003 |       |   | 325,962 |          
|    
|    
|    
|    
|2004 |       |   | 362,781 |          
|    
|    
|    
|    
|2005 |       |   | 378,056 |          
|    
|    
|    
|    
|2006 |       |   | 189,024 |          
|     |       |   |         |          
|     | Total |   | $       | 1,827,034 | 
|     |       |   |         |          

Rent expense for the period from January 1, 1999 to
February 28, 1999, the period from March 1, 1999 to
December 31, 1999, and the years ended December 31,
2000 and 2001 was $8,934, $138,874, $1,111,384, and $1,373,932,
respectively.

Litigation

We are party to various claims and legal proceedings that arise
in the normal course of business (see Note 21). Management,
on the advice of legal counsel, does not believe that a negative
outcome of any known pending litigation would have a material
adverse effect on us or our financial condition or results of
operations.

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##### Table of Contents



NETZEE, INC.


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

21. SUBSEQUENT EVENTS

Nasdaq Notification

On February 14, 2002, we received notification from The
Nasdaq Stock Market indicating that we were out of compliance
with the $5 million minimum market value requirement for
our publicly held shares, as stated in Marketplace
Rule 4450(a)(2). This rule provides us with 90 calendar
days, or until May 15, 2002, to come into compliance with
this rule, which would require our publicly held shares to
maintain a minimum market value of $5 million for a minimum
of 10 consecutive trading days during that period. If we fail to
meet this requirement, we will become subject to delisting from
the Nasdaq National Market, at which time we can appeal the
delisting to the Nasdaq Listing Qualifications Panel. It is
likely that we will be delisted from the Nasdaq National Market.
In addition, we also have the option of applying to transfer our
common stock to the Nasdaq SmallCap Market, where we also would
have to satisfy continued inclusion requirements for that
market. These requirements include maintaining certain levels of
shareholders equity and market value, which we may be unable to
achieve.

Litigation

As reported in our Form 10-Q for the quarter ended
June 30, 2001, on November 1, 1999, Independent
Bankers Bank of Florida (IBBF) filed a lawsuit
against Netzee in the U.S. District Court for the Middle
District of Florida. In this lawsuit, IBBF claimed that we
violated the terms of a marketing agreement between IBBF and
SBS, a company acquired by our predecessor. We terminated this
marketing agreement after the acquisition of SBS in August 1999.
In the lawsuit, IBBF claimed that the marketing agreement did
not permit Netzee to terminate the agreement and that Netzee
breached certain exclusivity provisions of the agreement. In
March 2002, we settled this litigation for $750,000. This amount
was recorded in the first quarter of 2002 upon settlement of the
litigation, as the amount was not reasonably estimable at
December 31, 2001.

Related Party Borrowings

On March 29, 2002, our joint credit facility with InterCept
and Harland was amended. The maturity date of the credit
facility was extended to April 10, 2003 and the total
credit facility was reduced from approximately
$19.6 million to $18 million. The first
$17 million, to the extent borrowed, will be funded
approximately 76.7% by InterCept and 23.3% by Harland. The
remaining $1 million, if borrowed, will be funded solely by
InterCept. In connection with this amendment, InterCept was paid
an extension fee of $100,000 and Harland was paid an extension
fee of $20,000.

Preferred Stock

On March 29, 2002, the Registration Rights Agreement with
the former shareholders of DPSC was amended to defer, until
April 10, 2003, the right of the holders of the
Series B Preferred Stock to require Netzee to repurchase
the preferred stock. In connection with this amendment, Netzee
paid an extension fee of approximately $500,000.

Memorandum of Understanding

In the first quarter of 2002, we entered into a Memorandum of
Understanding (the MOU) with the Office of the
Comptroller of the Currency, the Federal Deposit Insurance
Corporation, and the Georgia State Banking Department. The MOU
addresses several operational tasks which we believe we have now
substantially completed, imposes continuing reporting
requirements and prohibits us from declaring or paying cash or
stock dividends on any shares of our capital stock without the
approval of the banking regulators. No civil or monetary
penalties have been imposed on us as a result of the MOU.

F-29