##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K



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|           |  |                                                                                                              
|---------- |  | -------------------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                              
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee
	Required)    
|          
|           |  | For the Fiscal Year Ended December 31,
	2001                                                                 
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
	OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee
	Required)

Commission file No. 0-8358



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Micro General Corporation

(Exact name of Registrant as specified in its
charter)


|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|Delaware                                                        |  | 95-2621545                           
|(State or other jurisdiction of
	incorporation or organization) |  | (I.R.S. Employer
	Identification No.)
|                                                               
|2510 N. Red Hill Avenue, Suite 230
	Santa Ana, California       |  | 92705                                
|(Address of principal executive
	offices)                       |  | (Zip Code)                           

(Registrants telephone number, including
area code): (949) 622-4444

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

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

|                             |  |                                          
|---------------------------- |  | -----------------------------------------
|Title of each class          |  | Name of each exchange on which registered
|                             |  |                                          
|Common Stock, $.05 Par Value |  | NASDAQ                                   

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 þ          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. þ

As of March 5, 2002, 15,666,097 shares of
common stock ($.05 par value) were outstanding, and the
aggregate market value of the shares of the common stock held by
non-affiliates of the Registrant was $62,463,739.

Location of Exhibit Index:The index to exhibits is contained in
Part IV herein on page number 62.

The information in Part III hereof is
incorporated herein by reference to the Registrants Proxy
Statement on Schedule 14A for the fiscal year ended
December 31, 2001, to be filed within 120 days after
the close of the fiscal year that is the subject of this Report.



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TABLE OF CONTENTS



|              |                                                                                               |                                            |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|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. Quantitative and Qualitative Disclosure about Market Risk                           
|              | Item 8. Financial Statements and Supplementary Data                                          
|              |                                                                                               | CONSOLIDATED BALANCE SHEETS               
|              |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS     
|              |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|              |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|              | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III     
|              | Item 10. Through 13.                                                                         
|PART IV      
|              | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES   
|EXHIBIT INDEX
|EXHIBIT 3.2  
|EXHIBIT 3.3  
|EXHIBIT 10.1 
|EXHIBIT 10.7 
|EXHIBIT 10.16
|EXHIBIT 10.17
|EXHIBIT 10.18
|EXHIBIT 10.19
|EXHIBIT 10.20
|EXHIBIT 10.21
|EXHIBIT 10.22
|EXHIBIT 10.23
|EXHIBIT 10.24
|EXHIBIT 10.25
|EXHIBIT 10.26
|EXHIBIT 10.27
|EXHIBIT 10.28
|EXHIBIT 10.30
|EXHIBIT 21.1 
|EXHIBIT 23.1 



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##### Table of Contents



TABLE OF CONTENTS

FORM 10-K

|             |  |                                                                                        |  |      |    | 
|------------ |  | -------------------------------------------------------------------------------------- |  | ---- | -- | 
|             |  |                                                                                        |  | Page
|             |  |                                                                                        |  | No. 
|             |  |                                                                                        |  |     
|PART I      
|Item 1.      |  | Business                                                                               |  |      | 2  | 
|Item 2.      |  | Properties                                                                             |  |      | 15 | 
|Item 3.      |  | Legal Proceedings                                                                      |  |      | 15 | 
|Item 4.      |  | Submission of Matters to a Vote of Security
	Holders                                   |  |      | 15 | 
|PART II     
|Item 5.      |  | Market for Registrants Common Equity and
	Related Stockholder Matters                 |  |      | 16 | 
|Item 6.      |  | Selected Financial Data                                                                |  |      | 17 | 
|Item 7.      |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |  |      | 19 | 
|Item 7A.     |  | Quantitative and Qualitative Disclosure about
	Market Risk                             |  |      | 27 | 
|Item 8.      |  | Financial Statements and Supplementary Data                                            |  |      | 28 | 
|Item 9.      |  | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure  |  |      | 56 | 
|PART III    
|Item 10.-13. |  |                                                                                        |  |      | 56 | 
|PART IV     
|Item 14.     |  | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                       |  |      | 56 | 

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PART I

This report contains forward-looking
statements that have been made pursuant to the provisions of the
Private Securities Litigation Reform Act of 1995. These
statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking
statements by terminology such as may,
will, should, forecasts,
expects, plans, anticipates,
believes, estimates,
predicts, potential, or
continue or the negative of such terms and other
comparable terminology. These statements are only predictions.
Actual events or results may differ materially. In evaluating
these statements, you should specifically consider various
factors, including the risks outlined below under the caption
Risk Factors. These factors may cause our actual
events to differ materially from any forward-looking statement.
We do not undertake to update any forward-looking
statement.




Item 1.     Business

Overview

We provide industry leading software solutions
and services to real estate services providers, such as title
insurers, escrow companies and lenders, that enable them to work
more efficiently and cost-effectively. Our software solutions
and services address many of the inefficiencies of real estate
services providers in processing and settling real estate
transactions by automating many of the tasks involved in this
process, and by integrating their tasks into a more unified
workflow. Our software solutions range from pre-packaged desktop
software to enterprise class networked systems. Fidelity
National Financial, Inc. (Fidelity National), the
nations largest title insurance company, uses our software
solutions and services to manage its title and escrow functions
and accounts for 95% of our revenues in 2001. We are currently
developing next generation software solutions that use the
internet to provide added levels of automation and integration
for our customers. In addition, we believe we operate the
largest electronic data exchange for mortgage originators and
settlement services providers.

On May 14, 1998, we along with Fidelity
National completed the merger of Micro General with
ACS Systems, Inc, (ACS), a wholly-owned
subsidiary of Fidelity National. As a result of the merger, all
of the outstanding shares of ACS were exchanged for
4.6 million shares of Micro General common stock. The
transaction was appraised at $1.3 million. Following the
merger of Micro General and ACS, Fidelity National owned 81.4%
of our common stock on an undiluted basis. The transaction has
been accounted for as a reverse merger with ACS, with Micro
General as the legal surviving entity and ACS as the surviving
entity for accounting purposes. At December 31, 2000, ACS
was formally merged into Micro General. Fidelity National owned
61.7% of our outstanding common stock at December 31, 2001.
Prior to the ACS transaction, our operations consisted of the
design, manufacture and sale of computerized postal and shipping
systems. The acquisition of ACS shifted our focus to software
solutions and information technology services.

On November 17, 1998, we completed the
acquisition of LDExchange.com, Inc. (LDExchange), a
carrier focused primarily on the international long distance
market. LDExchange was a facilities-based, wholesale long
distance carrier providing low cost international
telecommunication services primarily to U.S. based long distance
carriers. In 2000, LDExchange obtained the necessary stated
certifications to begin offering domestic long distance services
across the country. The LDExchange purchase price was
$3.1 million, payable $1.1 million in cash and
$2.0 million in Micro General restricted common stock
(1,000,000 shares). In December 2001, we discontinued the
international wholesale division of LDExchange. We have also
recorded a loss on disposal of discontinued operations in 2001,
which is separately disclosed on our fiscal 2001 Statement of
Operations included herein.

On August 20, 2001, we acquired SoftPro
Corporation (SoftPro), for $1.75 million in
cash and 336,034 shares of our common stock valued at
$3.9 million. SoftPro, established in 1984, is based in
Raleigh, North Carolina and is a leading provider of real estate
closing and title insurance automation software for the
independent title agent marketplace. It has an installed base of
more than 6,300 sites nationwide and a user base of more than
23,000.

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On November 1, 2001, we signed an agreement
with Beyond Ventures, LLC and MGEN Tech Fund I, L.P.
and transferred 30,779 and 123,114 shares, to Beyond Ventures
and MGEN Tech Fund, respectively, of our common stock in
exchange for all of RealEC Technologies common stock. The
consideration for the acquisition was determined based on a per
share price of $10.24 for our common stock, which was the
average per share price of our common stock less a 10% discount
for the restricted nature of the shares granted to effect the
purchase. Combined with our convertible preferred stock position
in RealEC Technologies, we now own approximately 56% of RealEC
Technologies on a diluted basis assuming conversion of all
convertible preferred stock. RealEC Technologies provides a
standardized, electronic platform which lenders and realtors can
utilize to order and receive products and services from multiple
vendors such as credit, flood, appraisal, title and closing.

As of December 31, 2001, we have three
reportable business segments: Micro General Enterprise Software
Solutions, SoftPro and RealEC Technologies. For additional
information on these segments, see note 8, Segment
Information, in the notes to the consolidated financial
statements.

Industry Background

In recent years real estate transaction volume
has increased as a result of lower mortgage interest rates and
other factors, including a greater demand for housing and
general economic conditions. The increase in real estate
transaction volume has resulted in a strain on the capacity of
many real estate services providers. At the same time, increased
competition in the real estate services industry has resulted in
additional pressure on real estate services providers to improve
profitability by lowering overhead costs and increasing
productivity. Faced with these pressures, services providers in
the real estate services industry have tried to improve the
efficiency of their operations. These services providers have
identified and made substantial investments in their information
technology systems as a primary means of becoming more efficient.



| |                                                                   
| | ------------------------------------------------------------------
| | Inefficiencies in the Real Estate
	Transaction Settlement Process.

The successful settlement of real estate
transactions depends on the processing and coordination of tasks
provided by multiple real estate services providers. Because the
real estate services industry is largely decentralized,
consisting of numerous independent services providers, the
performance of these tasks often occur in a disorganized manner.
Moreover, real estate transactions involve the generation and
delivery of a large amount of documents by these real estate
services providers. As a result, coordination of the real estate
transaction settlement process is difficult. Inefficiencies in
the management of the real estate transaction settlement process
result in substantial costs to real estate services providers,
poor customer service and loss of productivity. These
inefficiencies include:



| |   |                                        
| | - | ---------------------------------------
| |  | Reliance on manual processes.          
|
| |  | Labor intensive coordination of
	tasks.
|
| |  | Inaccuracies in documentation.         
|
| |  | Inadequate access to documentation.    
|
| |  | Burdensome regulatory compliance.      

The Micro General Solution

We provide a broad-based suite of software
solutions for real estate services providers, which automate
many of the tasks involved in the real estate transaction
settlement process, and integrate these tasks into a more
unified workflow. Our software solutions range from pre-packaged
desktop software to enterprise class networked systems. Our
software solutions allow real estate services providers to
generate and manage information more efficiently, and to more
effectively coordinate their tasks with other real estate
services providers. As a result, our software solutions allow
real estate services providers to reduce costs, increase

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productivity, shorten the closing process and
provide higher levels of customer service. Our software
solutions provide the following advantages:




| |   |                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Online ordering and delivery of
	documents.By ordering services and
	receiving the corresponding documentation online, real estate
	services providers can reduce their labor, delivery and
	distribution costs.                                                                                              
|
| |  | Automated coordination of
	tasks.Our customers are able to
	transmit products in electronic form, which can be managed and
	organized into a more unified workflow.                                                                                                                                           
|
| |  | Increased accuracy.Real estate services providers are able to reduce the potential
	for miscommunication and error as a result of a reduction in the
	level of reliance on the manual processing and verification of
	information, thereby reducing delays in the real estate
	transaction settlement process.
|
| |  | Electronic document
	review.Mortgage lenders and their
	customers are able to review documents in a secure online
	environment, and are therefore afforded a greater opportunity to
	review and correct documents prior to the closing of the real
	estate transaction.                                       
|
| |  | Assistance with regulatory
	compliance.Real estate services
	providers can use our software solutions to help them comply
	with a wide range of federal and state regulations, thereby
	substantially reducing their legal and administrative costs in
	ensuring regulatory compliance.                       

The Micro General Strategy

Our objective is to be the leading provider of
software solutions that enable our customers in the real estate
services industry to operate more efficiently and competitively.
To accomplish this objective, we intend to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Leverage our market position in the real
	estate information technology market.We have experience developing some of
	the most widely used workflow automation software solutions in
	the real estate services industry. With over 600 real estate
	technology professionals, we believe that we have the largest
	number of qualified employees dedicated to providing automated
	solutions to the real estate industry. We intend to leverage the
	knowledge and expertise of our employees to develop leading
	solutions that address our customers needs.                                                                    
|
| |  | Continue to leverage our relationship with
	Fidelity National.We believe that our
	close relationship with Fidelity National will help us continue
	to develop and expand our business. Among other factors, we
	expect that maintaining our relationship with Fidelity National
	will allow us to increase our revenues as Fidelity
	Nationals transaction volume increases, to market our
	software solutions to Fidelity Nationals large and diverse
	customer base of lenders and agents, and to expand our suite of
	software solutions by leveraging the software development
	projects we perform for Fidelity National.
|
| |  | Continue to develop and expand our software
	solutions.We are continuously adding
	features to our software solutions that better serve the needs
	of our customers. We are developing software solutions that
	enable lenders to securely acquire, store and remotely access
	selected loan data and documents. Once completed, we believe Net
	Global Solutions, or NGS, will be a highly scalable modular
	platform that can be used to develop custom applications for a
	broad range of real estate and financial services providers.                                                                                       
|
| |  | Leverage our established industry
	relationships.We have formed
	relationships with some of the key leaders in the real estate
	and financial services providers market. We provide to Fannie
	Mae MORNETPlus 2000, its online services ordering technology. In
	addition, we have formed a strategic alliance with Stewart
	Information Services Corporation (Stewart Title) and
	LandAmerica Financial Group, Inc. (LandAmerica) to
	develop the RealEC Exchange. We intend to expand our
	relationships with industry leaders to capture additional market
	share.                                                        
|
| |  | Expand our customer base.We plan to expand and diversify our
	customer base and increase our revenue sources by aggressively
	marketing our software solutions. We believe our enterprise
	solutions                                                                                                                                                                                                                                                                                                                                                                                                                             

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | will be able to address the needs of a larger
	segment of the title insurance and escrow industry than our
	existing software solution, SIMON. We believe that SoftPro will
	allow us to further penetrate the market of small to mid-size
	customers consisting of independent title agents and attorneys.
	We also believe that we have significant advantages in marketing
	our software solutions created by our access to Fidelity
	Nationals customer base and the existing customer base for
	the RealEC Exchange.                                                                                       
|
| |  | Pursue strategic acquisitions and
	alliances.We believe opportunities
	exist in the fragmented real estate and financial information
	technology services market to expand our business through
	strategic acquisitions and alliances. We believe the acquisition
	of one or more complementary businesses, products, product
	rights or technologies will enable us to expand our product
	offerings and enter new markets. We also believe our
	relationship with Fidelity National and our access to its large
	customer base will provide us with the opportunity to maximize
	the value of our acquisitions.

Software and Services

We provide a broad-based suite of software
solutions to the real estate services industry designed to
address the different workflow requirements of multiple real
estate services providers in the real estate transaction
settlement process.



| |                                              
| | ---------------------------------------------
| | Micro General Enterprise Software
	Solutions.

We provide enterprise software solutions targeted
at the automation needs of large title insurance and escrow
companies. Our enterprise software solutions are designed to
coordinate the multiple tasks involved in the real estate
transaction settlement process into a unified workflow
throughout our customers businesses. Our enterprise
software solutions primarily consist of SIMON, which has been in
use since 1994, and will include NGS, which is being designed to
provide increased levels of automation and efficiency to real
estate services providers.



| |       
| | ------
| | SIMON.

We provide SIMON, an industry leading title
workflow, escrow closing and trust accounting software, to the
real estate services industry. SIMON is a client server-based
software system that allows our customers to manage workflow and
share data within their organizations. SIMON has processed over
$1 trillion in real estate transactions and manages
$2 billion in daily balances. Fidelity National, the
largest title insurance company in the United States, uses SIMON
for its real estate settlement workflow management. In addition
to Fidelity National, over 150 independent companies use
SIMON to manage their escrow closing and trust accounting
processes.



| |                      
| | ---------------------
| | Net Global Solutions.

We are currently developing NGS, our next
generation enterprise software solution. NGS is being built to
operate on a web-based technology platform. This technology
platform allows NGS to receive and transmit data over the
internet and to be seamlessly linked with the internal systems
of multiple real estate services providers. We are using our
experience in developing and supporting SIMON in our current
development of NGS. Once NGS is fully implemented, we plan to
market NGS instead of SIMON as our enterprise software solution
to large real estate services providers. We believe that the
web-based technology platform on which NGS is being built will
enable us to develop software applications that further
integrate and streamline the real estate transaction settlement
process. Once completed, we expect NGS will provide the
following features:



| |   |                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Integrated online ordering and delivery of
	products.Through seamless integration
	of NGS with the RealEC Exchange, real estate services providers
	can order and receive products online, such as credit reports,
	title reports and flood certifications, from third party service
	providers within a single application, providing a unified
	workflow.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Title report and policy
	production.Through seamless
	integration of NGS with title search databases, real estate
	services providers will be able to more efficiently generate
	title products within the NGS application, eliminating
	duplicative connectivity to title plant records and the
	continual maintenance and update of in house title plants while
	increasing productivity.   
|
| |  | Secure, centralized information and document
	repository.Real estate services
	providers can receive and store information and documents in a
	secure, centralized, electronic location that can be accessed
	for internal use and resale throughout an enterprise and the
	internet.                                                                                                         
|
| |  | Electronic funds management.Real estate services providers can
	automate positive pay, reverse positive pay and bank
	reconciliation functions, which eliminates the need to manually
	tabulate incoming deposits and initiate fund disbursements.                                                                                                                                            
|
| |  | Integrated financial and customizable
	reporting tools.Daily revenue
	accompanied by supporting financial reports from all cost
	centers are dynamically uploaded into the corporate accounting
	divisions of real estate services providers. Profitability and
	productivity reports enable efficient management of a national
	company from a single application from one or more locations.

In addition to enabling more robust software
applications, we believe that the NGS technology platform
provides our customers with significant advantages over
enterprise software solutions based on client server platforms.
These advantages include:



| |   |                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lower cost of ownership.Because we offer NGS on an application
	service provider, or ASP, basis we are able to reduce the amount
	of network infrastructure that our customers must acquire and
	maintain, such as servers and related hardware.
|
| |  | Rapid deployment.Because NGS requires less infrastructure build-up by our
	customers, we can deploy NGS faster than client server-based
	systems.                                                                                               
|
| |  | Integrated Training.Integrated on-line training tools provide uniform training from
	a corporate level to meet the time sensitive needs of NGS users
	prior to deployment of the initial application and for future
	releases.                  
|
| |  | Scalability.NGS is
	based on a flexible technology platform, which allows us to
	deploy NGS in modules to meet the automation and cost
	requirements of our customers and to efficiently add new
	features and functionality.                   

We expect that Fidelity National will begin
rolling out NGS on a state by state basis in 2002. We currently
derive revenues from the development of NGS. With the completion
of the initial NGS software system, our revenues for NGS
development will be reduced, however, we anticipate deriving new
revenues from the deployment and implementation of NGS and
ultimately plan to charge a monthly per seat service fee. The
monthly service fee will include ongoing technical support,
bandwidth usage and upgrades.



| |                       
| | ----------------------
| | Professional Services.

We also offer our customers a portfolio of
related services within the broad categories of professional
services, managed application services and information
technology. For example, last year we derived substantial
revenues from the management of Team and other software systems
and processes owned by Fidelity National. These services include
systems development, integration, business process management
and consulting. We provide personnel with substantial
cross-disciplines in the areas of technology and real estate
services, such as lending, title insurance and escrow services.
In addition, we maintain a substantial repository of software
applications, many of which we believe can be customized to meet
the specific needs of our customers. We continually explore
opportunities to commercialize and apply these software
applications to meet the needs of our customers. We believe we
can continue to provide our customers with highly specialized
information technology solutions.

6



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| |                     
| | --------------------
| | Product Development.

We continue to develop software solutions to
better meet the needs of our customers. In particular, we are
developing software solutions based on iLumin technology. In
December 2001, we entered into a technology license with iLumin
Corporation under which we acquired exclusive licensing rights,
within the real estate industry, to iLumins secure
transactions technology. The iLumin technology suite, from which
no revenues have yet been generated, includes the following
individual software components:



| |   |                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Digital Credential
	Authority:an out-of-the-box, digital
	certificate issuance and management application, designed to
	give flexibility to the issuance, validation maintenance and
	management of digital certificates.                                                                                            
|
| |  | Digital Business
	Composer:a flexible electronic form
	and graphic business process design toolset.                                                                                                                                                                                                                  
|
| |  | Digital Handshake:a
	web-based business transaction engine that enables companies to
	execute business rules that govern secure, private and legally
	binding online transactions, absent of any paperwork or manual
	steps.                                                                                         
|
| |  | Digital Content
	Exchange:a family of extended
	personal key infrastructure, or PKI, solutions that integrate
	with existing e-mail applications and networks to allow
	companies to dynamically encrypt and digitally manage access and
	usage privileges for all forms of content, files and email
	communications.
|
| |  | Digital Content
	Authority:a robust secure web-vault,
	complete with privilege and rights management tools,
	multi-source content contribution methods, and structure
	management capabilities.                                                                                                                      

We are currently developing an application
platform we call eTransaction, which uses iLumin technology
together with our custom software to create a tailored software
solution that addresses the specific needs of mortgage lenders.
We believe that our solution will help lenders more efficiently
close mortgage loans and package loan documents for loan
servicing arrangements and sales into the secondary markets.



| |         
| | --------
| | SoftPro.

SoftPro is our pre-packaged, turnkey software
application that provides automation tools and back-office
support to independent title agents and attorneys for the
management of real estate transaction settlements. SoftPro
includes features such as automated generation of closing and
title insurance forms, order tracking and management reporting,
trust accounting management and reconciliation, title plant
indexing, 1099-S IRS magnetic media reporting, advanced
amortization calculations and schedules, and custom document
design.

We have recently released SoftPro SQL, which is a
networked software application based on SoftPro which enables
title and escrow companies to connect hundreds of users in one
location, or hundreds of offices around the country, to use the
software. SoftPro SQL has been designed to be used by large,
multi-office title and escrow companies. Because of the broad
capabilities of SoftPro SQL, we believe we can market this
product to larger offices of agents thereby increasing our
average order size and revenue derived from these products.

We charge a one-time license fee per site and a
monthly per seat fee for SoftPro.



| |                     
| | --------------------
| | The RealEC Exchange.

The RealEC Exchange is an online marketplace
whereby over 800 mortgage lending institutions can order online,
from over 2,000 service providers located across the United
States, products and services in connection with loan
originations. Companies, such as lenders and realtors, can place
orders for products using customized parameters or through our
intelligent ordering subsystem, which manages the task of
identifying the appropriate product and service provider. Orders
are transmitted to vendors of those products and services
electronically through the internet and other private networks.
Those service providers can in turn deliver the desired product,
such as credit reports, title reports and flood certifications,
directly to the requesting company

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through the RealEC Exchange. Products and
services that can be ordered using the RealEC Exchange include:




| |   |                                      
| | - | -------------------------------------
| |  | title reports and insurance policies.
|
| |  | closing and escrow services.         
|
| |  | appraisal services.                  
|
| |  | automated property valuations.       
|
| |  | flood determinations.                
|
| |  | credit reports.                      
|
| |  | property inspections.                
|
| |  | tax notifications.                   

We believe the utility of the RealEC Exchange
will increase as additional real estate services providers adopt
this platform as part of their workflow, which we expect will
allow us to derive additional revenue from this product. We
charge a fee to vendors that receive and fill orders through the
RealEC Exchange. Our fees are based on the type of service being
offered, with the more expensive and complex services generating
higher fees. We also charge per use transaction fee to customers
who use our intelligent ordering system.

Customers

Our customers range from major financial and real
estate services providers to independent agents and attorneys.
Fidelity National and its affiliates use SIMON for their real
estate transaction settlement services and accounted for
approximately 95% of our revenues in 2001. Fidelity National,
operating under the brands Fidelity National Title, Chicago
Title, Ticor Title, Security Union Title and Alamo Title, is the
largest title insurance company in the United States. Also
included in Fidelity National affiliates are Fidelity National
Information Systems (FNIS) and American Title, both
public companies in which Fidelity National has ownership
interests. Besides Fidelity National, we have over 150
independent companies using SIMON to manage their escrow closing
and trust accounting processes.

SoftPro is used primarily by independent title
agents and attorneys. SoftPro is installed in approximately
6,300 sites and used by approximately 23,000 users. We have also
entered into 18 cooperative ventures involving Softpro with
different underwriters. Softpro SQL was released in April of
2001 and is being used by approximately 56 customers, including
Watson Title and North American Titles Lennar division.

The RealEC Exchange is used primarily by mortgage
lenders and settlement services providers. Mortgage lenders
initiate transactions through the RealEC Exchange and service
providers pay the transaction fees. Five of the largest ten
mortgage lenders in the United States use the RealEC Exchange,
including Wells Fargo, Countrywide Insurance, Chase Home
Finance, Bank of America and ABN AMRO Mortgage Group. Through
our contractual arrangements, the RealEC Exchange is used by
Fidelity National, Stewart Title Company, Old Republic Title
Insurance Company and LandAmerica Financial Group, Inc.,
collectively representing four of the five largest title
insurance companies in the United States.

Sales and Marketing

We utilize different marketing models depending
on the software solutions being marketed. We recently
significantly increased the size of our sales and marketing
department, and we currently have a direct sales and marketing
staff of 15 people.

We have marketed SIMON through direct sales
calls. We have recently scaled back our marketing efforts for
SIMON and expect to phase out SIMON with the rollout of NGS.

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We market custom applications to major real
estate and financial services providers through our direct sales
force. In addition, once NGS is complete, we plan to market NGS
to national title insurance and escrow companies and to the
approximately 200 largest regional independent title insurance
agents.

We market SoftPro to independent title agencies
and real estate attorneys through our sales staff and
cooperative marketing ventures, including 18 title insurance
underwriters nationwide, and to users of SIMON. Marketing by us
and through these ventures consists of a combination of direct
mail, fax and email campaigns, print advertisements, and trade
show attendance, both locally and nationally. We believe the
target market for SoftPro consists of approximately 20,000
independent title agencies in more than 100,000 offices in the
United States.

We market the RealEC Exchange through our sales
staff, strategic partners, such as title insurance companies who
use the RealEC Exchange to deliver their services, and
aggregator partners, such as Fannie Mae, who market and sell
their order-entry portals to lenders and mortgage brokers who,
in turn, utilize the RealEC Exchange to deliver orders to real
estate services providers. Our marketing targets the
approximately 100 largest lenders in the country and consists of
industry trade shows, industry publications and direct selected,
focused telephone calls.

Customer Service and Support

We provide technical support to our customers
depending on contractual service levels purchased as part of the
acquisition of our software solutions. Technical support for our
software solutions are provided by our call center for SIMON
located in Santa Ana, California and for SoftPro located in
Raleigh, North Carolina. We maintain a customer service staff of
approximately 41 persons. Our technical support personnel
are required to complete support training and certification
classes to help ensure appropriate levels of customer support.
In addition, we employ a number of technologies in our call
centers to enable us to more efficiently provide support to our
customers. These technologies include call routing and merging
systems, providing our customers with the convenience of a
single number to obtain a wide range of support, and a back-end
system that assists us in monitoring and coordinating our
response levels. We are currently implementing technologies that
will enable our customers to use the internet to submit and
monitor their support requests, as well as search knowledge
databases.

Competition

The market for information technology is
intensely competitive and involves aggressive technological
development. We believe that the market for companies providing
real estate transaction closing solutions consists of only a
limited number of companies. Our competitors vary in size and in
the scope and breadth of the products they offer. In addition,
because many of our potential customers have historically
developed real estate transaction closing systems in-house and
therefore view their system requirements from a make-versus-buy
perspective, we often compete against our potential
customers in-house capabilities.

Employees

As of January 31, 2002, we employed
approximately 728 full-time employees, consisting of
approximately 529 in technology development, support and
maintenance, 61 dedicated to SoftPro, 41 dedicated to RealEC, 41
in customer service, 41 in administrative services and 15 in
sales and marketing. None of our employees are represented by a
collective bargaining agreement and management considers
relations with our employees to be excellent.

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Risk Factors

We rely on Fidelity National for a significant
portion of our revenues and we expect that reliance to continue
for the foreseeable future.

Fidelity National, operating under the Fidelity
National Title, Chicago Title, Ticor Title, Security Union Title
and Alamo Title brands, and its affiliates accounted for
approximately 89% of our revenues in 2001. Our billings to
Fidelity National Information Solutions (FNIS), a
public company 79% owned by Fidelity National, accounted for an
additional 6% of our 2001 revenues. Discontinuing the operations
of LDExchange has eliminated most of our non-Fidelity related
revenues. Fidelity National is not required to use our software
solutions or technology services in any minimum amount or for
any period of time. Fidelity National may, in its sole
discretion, obtain products and services from other providers.
Any substantial decrease in Fidelity Nationals purchase of
our software solutions and technology services would have a
material adverse affect on our overall financial condition,
results of operations and cash flows. We may not be able to
establish alternative sources of revenues at the levels provided
to us by Fidelity National.

We are subject to restrictions under our
master services agreement with Fidelity National that could
prevent or deter us from providing NGS for a period of time to
certain potential customers.

We have a master services agreement with Fidelity
National which formalizes the terms of our development and other
technology services for Fidelity National, including the
development, ownership and use of NGS. Under the master services
agreement we are prohibited from providing NGS to Stewart Title
Company, LandAmerica Financial Group, Inc. and Old Republic
National Title Company in a state for a period of 90 days
following Fidelity Nationals rollout of NGS in that state
and to First American Corporation in a state for a period of
three years following Fidelity Nationals rollout of NGS in
that state. In addition, if we license NGS to an entity in the
real estate industry, we are required to pay to Fidelity
National a royalty equal to 10% of our licensing revenues until
the royalties equal the aggregate amount paid by Fidelity
National to us for the development of NGS, and a royalty equal
to 2% of our licensing revenues until Fidelity National has
recovered 125% of the NGS development costs. These provisions
may impair our ability to expand our customer base and cause us
to continue our reliance on Fidelity National for a significant
portion of our revenues. They may also allow our competitors to
license their software solutions before us in various areas of
the country, which harms our competitive position and may
decrease our market share.

We have historically lacked product and
business diversification and the market may not accept our new
software solutions.

Our information technology business has
historically focused almost exclusively on our SIMON software
solution. In addition, our professional services business has
largely focused on servicing the information technology needs of
Fidelity National. Any downturn in the demand for SIMON or our
technology services would materially harm our business.

The growth of our business is dependent on
expanding and diversifying our software solutions and our
customer base. We have marketed SIMON to the title insurance and
escrow industries. We have only recently acquired a second
software product line, SoftPro, which we market to independent
title agents and attorneys. We are developing NGS and plan to
market NGS to large real estate services providers. Market
acceptance of these software solutions is uncertain and the real
estate services industry has historically been reluctant to
adopt new technologies. Our close relationship with Fidelity
National may also make competitors of Fidelity National
reluctant to purchase our software solutions. In addition,
adopting our software solutions may require our customers to
make substantial investments in time and capital, significantly
changing their operating procedures and displacing existing
internal information technology departments. If our new software
solutions fail to gain market acceptance our business will be
harmed.

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Development and launch of our new software
solutions are uncertain.

Many of the software solutions that we plan to
provide to the real estate services industry, including NGS, are
under development. We do not assure you that these software
solutions will be developed as expected, without delays or
unexpected cost, or at all. We may encounter technical, legal,
competitive or other barriers in connection with the development
and launch of our software solutions that may hamper or prevent
us from offering these software solutions.

In particular, the successful implementation of
NGS could be affected by a number of factors. NGS is designed to
be a feature rich, complex system that requires the integration
of various software applications into a new web-based technology
platform. Our technology platform will be managed out of a data
center that is under construction and has not been tested in an
operational environment. Our data center may contain
bugs or other technical problems that could prove
costly or burdensome to fix and could delay the rollout of NGS.
Our data center also requires the connectivity of potentially
thousands of locations nationwide through the network of a major
telecommunications company. We will rely on hardware, software
and network vendors to support and maintain our systems, and, as
a result, problems may arise that are specific to these vendors
that are beyond our control and that could have an adverse
effect on the deployment and operation of NGS. Our
customers needs and the real estate market may change in
ways that make our software more expensive to develop and
maintain. These factors may have a substantial negative effect
on the timing and amount of revenues that we will ultimately
derive from NGS.

Our future revenues and operating results are
unpredictable, which may adversely affect the price of our
common stock.

Our revenues and operating results may fluctuate
significantly from quarter to quarter as a result of a number of
factors, many of which are outside of our control. These factors
include:



| |   |                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------
| |  | fluctuations in the volume of real estate
	transactions;                                                
|
| |  | unexpected expenses related to software solutions
	implementation and maintenance, and customer service;
|
| |  | a decrease in the use of our software solutions
	by Fidelity National;                                  
|
| |  | the timing and market acceptance of our new
	software solutions;                                        
|
| |  | technical difficulties we face in implementing
	our new software solutions; and                         
|
| |  | potential changes in contractual arrangements
	with Fidelity National.                                  

In addition, our future revenues and operating
results may fluctuate as a result of changes in pricing for our
software solutions in response to customer demand and
competitive pressures. As a result of the foregoing factors, in
future periods our revenues and operating results may fall below
the expectations of market analysts and investors, which could
adversely affect the price of our common stock.

We intend to pursue acquisitions in the future
that may prove to be unsuccessful.

We intend to pursue the acquisition of
businesses, products, services or technologies that complement
or expand our existing business and software solutions.
Acquisitions involve a number of risks that could adversely
affect our operating results, including the following:



| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | diversion of managements attention from our
	other business concerns;                                                                    
|
| |  | difficulties and increased costs in connection
	with the integration of the products, operations and personnel
	of the acquired companies;
|
| |  | the potential loss of key employees and the
	failure to hire additional management and other critical
	personnel;                         

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| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | adverse effects on existing business
	relationships with our customers, including Fidelity National,
	or the acquired companys customers;        
|
| |  | lack of synergy or inability to realize expected
	synergies resulting from the acquisition;                                                       
|
| |  | the risk that the issuance of our common stock in
	a transaction could be dilutive to our stockholders if
	anticipated synergies are not realized;
|
| |  | acquired assets becoming impaired as a result of
	technological advancements or worse-than-expected performance by
	the acquired company;         
|
| |  | assumption of unknown or unexpected liabilities;                                                                                                  
|
| |  | increasing the scope, geographic diversity and
	complexity of our operations; and                                                                 
|
| |  | difficulties in consolidating the facilities and
	transferring processes and know-how from the acquired companies.                                

We do not assure you that any acquisitions made
by us will not materially and adversely affect us or that any
acquisition will enhance our existing business.

Our success depends on our ability to manage
our growth.

We have rapidly expanded our operations,
including the founding and development of two subsidiary
companies. We will need to increase and expand many aspects of
our operations under our business model, including developing
and expanding our software solutions and completing the
construction of our data center, hiring additional employees and
obtaining additional financing. We do not assure you that our
systems, procedures or controls will be adequate to support our
current or future operations. We do not assure you that
management will be able to manage expansion effectively. If we
fail to manage growth effectively, our business will be harmed.

The loss of key personnel could adversely
affect our operations.

Our performance is greatly dependent on the
performance of our senior management and key employees. The loss
of the services of any of our executive officers or other key
employees could harm our business. Our performance also greatly
depends on our ability to retain and motivate our officers and
key employees. Rapid growth of our business may place a
significant strain on our management and on our technical,
operational and financial resources.

We must also identify, attract, hire, train,
retain and motivate other highly skilled technical, managerial,
marketing and customer service personnel. Competition for
qualified personnel is intense. If we fail to retain and attract
the necessary personnel, our business could be harmed. We do not
maintain key-man life insurance for any of our executive
officers and do not expect to do so for the foreseeable future.

Our software solutions may have undetected
errors.

We intend to continue to develop and market new
software solutions to the real estate industry. Complex software
and systems, such as NGS, frequently contain undetected errors
or bugs that are discovered only after
implementation and use by our customers. We do not assure you
that errors will not be found in our software solutions in the
future or that any errors, or difficulties in installing,
maintaining or training customers and their staffs on the use of
our software solutions, will not result in a delay or loss of
revenue, diversion of development resources, damage to our
reputation, increased service costs or impaired market
acceptance of our software solutions, any of which could have a
material adverse effect on our business, financial position,
results of operations and cash flows.

We are subject to product liability
claims.

Our customers will rely on our software solutions
for their core operations. Errors or defects in our software
solutions could give rise to liability claims against us. We do
not assure you that the limitations of

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liability set forth in our agreements will be
enforceable in all instances or will otherwise protect us from
liability for damages. We do not assure you that our general
liability insurance coverage will continue to be available on
reasonable terms or will be available in sufficient amounts to
cover one or more large claims, or that the insurer will not
disclaim coverage as to any future claim. The successful
assertion of one or more large claims against us that exceed
available insurance coverage or changes in our insurance
policies, including premium increases or the imposition of large
deductible or co-insurance requirements, would have a material
adverse affect on our business, results of operations and
financial condition.


The success of our business is highly
dependent on our proprietary technology and intellectual
property, none of which is protected through patents, and on our
exclusive license to NGS.

We regard the proprietary technology and other
intellectual property underlying our software solutions as
critical to our success. We rely on trademark, trade secret and
copyright law to protect our technology and our brand. We also
rely on confidentiality, license and other agreements with
employees and others to protect our proprietary rights. We have
no patents. A third party may copy or otherwise obtain and use
our technology or other intellectual property without
authorization. In addition, effective copyright, trademark,
trade secret and patent protection may be unavailable or limited
in various foreign countries. Information and internet
technologies are evolving rapidly, and third parties may also
develop similar or superior technologies independently. Any
unauthorized use of our proprietary information could result in
costly and time-consuming litigation to enforce our proprietary
rights. If we are unable to prevent infringement of our
technologies, or if other parties are able to develop superior
technologies without infringement of our technologies, our
ability to compete in the real estate services market would be
harmed.

Under the master services agreement with
Fidelity, we have an exclusive license to NGS for a period of
ten years from the date of completion of beta testing for NGS.
Our exclusive license expires upon the earlier of the expiration
of the ten year period or the termination of the master services
agreement caused by a breach by us, at which time we will have a
perpetual nonexclusive license. If our license ceases to be
exclusive, Fidelity National or its sublicensees could offer
NGS, or software solutions based on NGS, in competition with us.

We are dependent on the stability and growth
of the real estate services market.

Our software solutions are designed solely for
the management of the real estate transaction settlement
process. The real estate market is affected by a number of
economic factors, including mortgage interest rates, which can
cause significant fluctuations in real estate transaction
volume. To the extent there is a slowdown in the real estate
market that reduces the number of real estate transactions, the
demand for our software solutions may weaken and real estate and
financial services companies may become more reluctant to make
capital investments in information technology.

Changes in the regulation of title insurance,
escrow and other financial services could harm our
business.

Although our software solutions are not directly
regulated, the title insurance, escrow and lending industries
are heavily regulated both at the federal and state levels. The
content and delivery of documentation during the real estate
transaction settlement process is also heavily regulated. To be
successful, our software solutions must enable our customers to
remain in compliance with these regulations. If our software
solutions cause our customers to fail to comply with applicable
regulations, we may be liable to our customers for damages and
fines that they may suffer. Moreover, changes in these
regulations could make the development of our software solutions
more costly and require us to make costly changes to the
software solutions being used by our customers. Under our fixed
fee maintenance agreements with our customers, we would not be
able to defer these additional costs to our customers.

Our market is intensely competitive and there
are only a limited number of potential customers for
NGS.

The market for information technology is
intensely competitive and involves aggressive technological
development. We believe that the market for large, enterprise
real estate information technology solutions, such as SIMON and
NGS, consists of only a limited number of companies. Our
competition primarily

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consists of lending institutions and title
insurance companies, which may maintain substantial internal
information technology departments and may have developed their
own software solutions. Many of these companies have
substantially greater financial resources than we do. Our
ability to compete in our market will depend on:




| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| |  | our ability to offer desirable features and
	solutions.                     
|
| |  | the reliability, effectiveness and compatibility
	of our software solutions.
|
| |  | price.                                                                      
|
| |  | access to strategic customer bases.                                         
|
| |  | customer service and support.                                               
|
| |  | brand recognition.                                                          

We may be unable to adapt to rapid
technological change.

Rapid technological change, characterized by the
increased processing power of computers, product obsolescence,
evolving industry standards, the proliferation of networks and
the rapid growth in the usage of the internet and intranets are
all challenges we face. We must react to these changes by using
these new technologies to develop software solutions as existing
software solutions become obsolete. We do not assure you that we
will be successful in adapting to continued rapid technological
change, that we will be able to develop new software solutions,
or that we will develop new software solutions that are both
price and feature competitive with those software solutions that
may be developed by our competitors. In addition, we do not
assure you that in the future we will be successful in
attracting and retaining key personnel with the technological
skills and expertise necessary to develop new software solutions.

We face risks related to our use of the
internet.

Many of our software solutions depend on the
internet for communication and data transfers and we expect that
we will continue to develop software solutions that rely on the
internet. Our systems may be interrupted if the internet
experiences periods of poor performance, if our computer systems
or the systems of our third party service providers contain
defects or are disabled, or if real estate services providers
are reluctant to use, or have inadequate connectivity to, the
internet.

We rely on encryption and authentication
technology licensed from third parties to provide the security
and authentication necessary to effect secure transmission of
confidential information through our network systems. We do not
assure you that advances in computer capabilities, new
discoveries in the field of cryptography or other events or
developments will not result in a compromise or breach of the
security systems that we use to protect our customers
information transmitted over the internet or other networks.
Parties who are able to circumvent our security measures may be
able to misappropriate confidential information transmitted
through our systems. If any such compromise of our security were
to occur, we may be required to expend significant capital and
other resources to protect against the threat of such security
breaches or to alleviate problems caused by such breaches, be
subject to litigation and possible liability, and suffer harm to
our reputation.

Furthermore, increased government regulation of
the internet, including the imposition of taxes, could also
adversely affect our use of the internet in unanticipated ways
and discourage our customers from using our software solutions.
If our ability to use the internet in providing our software
solutions is impaired, our business may be hampered.

We are subject to risks of operational failure
that are beyond our control.

Our ability to provide reliable and effective
software solutions depends on the efficient and uninterrupted
operation of our computer and communications systems. NGS is
expected to operate on a technology platform served by our data
center located in Chicago, Illinois. Portions of our data center
are under construction, and,

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as such, are untested in an operational
environment. Our systems and operations are vulnerable to damage
and interruption from fire, flood, telecommunications failure,
break-ins, power disruptions, earthquake and similar events and
systems capacity constraints. We do not maintain alternative
power sources. We have a formal disaster recovery plan, but we
do not assure you that our plan is adequate. Our insurance may
be inadequate to compensate us for any losses that may occur.
Furthermore, our security mechanisms may be inadequate to
prevent security breaches to our computer systems, including
from computer viruses, electronic break-ins and similar
disruptions. Any security breaches or operational failures could
expose us to liability, impair our operations and harm our
reputation.


Other parties may assert claims against us
that we are infringing upon their intellectual property
rights.

We cannot be certain that our software solutions
do not infringe upon the intellectual property rights of others.
Authorship of intellectual property rights can be difficult to
verify. Because patent applications in the United States are not
publicly disclosed until the patent is issued, applications may
have been filed which relate to software solutions similar to
those offered by us. We may be subject to legal proceedings and
claims from time to time in the ordinary course of our business,
including claims of alleged infringement of the trademarks and
other intellectual property rights of third parties. If our
software solutions violate third-party proprietary rights, we do
not assure you we would be able to obtain licenses to continue
offering our software solutions on commercially reasonable
terms, or at all. Any claims against us relating to the
infringement of third-party proprietary rights, even if not
meritorious, could result in the expenditure of significant
financial and managerial resources and injunctions, preventing
us from providing services or using our trademarks. These claims
could severely harm our financial condition and ability to
compete.




Item 2.     Properties

We lease approximately 49,000 square feet of
space at our headquarters in Santa Ana, California pursuant to a
lease expiring in June 2007, approximately 38,078 square feet of
space at two facilities located in Chicago, Illinois under
leases expiring in July 2004, and approximately 31,000 square
feet of space at our facility in Raleigh, North Carolina under a
lease expiring in July 2007. Additional leased space includes
locations in Houston, Texas; Los Angeles, California; Ft.
Lauderdale, Florida; and San Diego, California.

We believe that the material terms of our leases
are commercially reasonable terms typically found in each of the
respective areas in which we lease space. We believe that our
facilities are adequate to support our current needs and that
additional facilities will be available at competitive rates as
needed.




Item 3.     Legal
Proceedings

We may be involved in legal proceedings from time
to time in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not
have a material adverse effect on our consolidated financial
position, results of operations or liquidity. However, as of the
date of this prospectus, there are no material legal proceedings
pending or, to our knowledge, threatened against us except as
described below.

In 1999 Barry B. Kaufman and Vans, Inc. filed a
class action complaint against ACS Systems, Datamart Information
Services Corp. and Joe Girdwood, in the Superior Court of the
County of Los Angeles, California. We assumed this
litigation after our acquisition of ACS. The complaint alleges
that ACS and Datamart violated state and federal law when
Datamart made advertisements on behalf of ACS. The complaint
seeks damages totaling $12.3 million. We believe we have
defenses to these allegations and will vigorously defend this
action. In addition, we have filed a cross-complaint against
Datamart and Datamart has filed a cross-complaint against us.




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

We did not submit any matters to a vote of
security holders in the fourth quarter of 2001.

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PART II




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

Principal Market and Prices

Our common stock is traded on the Nasdaq National
Market under the symbol MGEN. Before April 25,
2000, our common stock was traded on the Nasdaq OTC Bulletin
Board. The following table sets forth, for the period indicated,
the high and low sale prices per share of our common stock as
reported on the Nasdaq National Market and the Nasdaq OTC
Bulletin Board, as applicable, and are adjusted to take into
account our 10% stock dividend declared on May 2, 2001. The
prices set forth for periods preceding April 25, 2000
reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual
transactions.

|                             |                |      |   |       |  |  |   |       | 
|---------------------------- | -------------- | ---- | - | ----- |  |  | - | ----- | 
|                             |                | High |   | Low  
|                             |                |      |   |      
|Year Ended December 31, 2000 |                |      |   |       |  |  |   |      
|                             | First Quarter  |      | $ | 39.55 |  |  | $ | 13.86 | 
|                             | Second Quarter |      |   | 24.55 |  |  |   | 8.41  | 
|                             | Third Quarter  |      |   | 14.32 |  |  |   | 8.75  | 
|                             | Fourth Quarter |      |   | 10.45 |  |  |   | 4.55  | 
|Year Ended December 31, 2001 |                |      |   |       |  |  |   |      
|                             | First Quarter  |      | $ | 9.32  |  |  | $ | 6.02  | 
|                             | Second Quarter |      |   | 16.40 |  |  |   | 6.59  | 
|                             | Third Quarter  |      |   | 18.90 |  |  |   | 7.00  | 
|                             | Fourth Quarter |      |   | 14.30 |  |  |   | 8.71  | 

The foregoing amounts have been adjusted to
reflect a 10% stock dividend declared on May 2, 2001 and
paid on June 1, 2001 to stockholders of record as of
May 18, 2001.

The last reported sale price of our common stock
on the Nasdaq National Market on March 5, 2002 was $7.84
per share. As of March 5, 2002, there were approximately
2,426 holders of our common stock based on the records of
our transfer agent which do not include beneficial owners of
common stock.

Dividend Policy

On May 2, 2001 we declared a stock dividend
of 10% which was paid on June 1, 2001 to stockholders of
record as of May 18, 2001. We have never declared or paid
any cash dividend on our common stock. Any future decision to
pay dividends remains within the discretion of our board of
directors. We anticipate we will retain earnings, if any, to
support operations and to finance the growth and development of
our business and do not anticipate paying cash dividends in the
foreseeable future.

Recent Sales of Unregistered
Securities

The following is a summary of transactions by us
during 2001 involving sales of our securities that were not
registered under the Securities Act:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On August 20, 2001, we issued 336,034 shares
	of our common stock to Loren Harrell as partial consideration
	for the acquisition of all of the outstanding shares of capital
	stock of SoftPro Corporation. Of those shares, ten percent (10%)
	were being held in an escrow account until August 20, 2002
	to indemnify us against any claims we may have against SoftPro
	relating to the representations and warranties made in
	connection with the acquisition. Additionally, we assumed the
	SoftPro Option Plan, which had 133,328 options issued and
	outstanding. Options under our 1999 Stock Incentive Plan were
	issued at a conversion rate of 0.636 Micro General options per
	one (1) SoftPro option outstanding.

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| |   |                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On November 1, 2001 we entered into Stock
	Purchase Agreements with each of MGEN Tech Fund I, L.P. and
	Beyond Ventures, LLC under which we sold 123,114 shares and
	30,779 shares, respectively, of our common stock in
	exchange for 100% of the common stock of RealEC Technologies.

We did not employ any underwriters, brokers or
finders in connection with any of the transactions set forth
above.

The sale of securities in connection with the
SoftPro transaction was exempt from registration under the
Securities Act pursuant to a Section 3(a)(10) fairness
hearing, however, these securities are subject to the volume
limitations of Rule 144(e)(1). The sales of the remaining
securities listed above were deemed to be exempt from
registration under the Securities Act in reliance on
Section 4(2) of the Securities Act and Regulation D
promulgated thereunder. The recipients of securities in the
November 1, 2001 transaction represented their intentions
to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof
and appropriate legends were affixed to the instruments
representing such securities issued in such transactions. All
recipients had adequate access, through their relationships with
us, to information about us.




Item 6.     Selected
Financial Data

The historical operating results data, per share
data and balance sheet data set forth below are derived from our
historical financial statements, certain of which have been
restated to reflect the discontinued operations of LDExchange,
Inc. and to reflect the ACS Systems, Inc. acquisition and the
related reverse merger accounting treatment (see notes 1 and 11
of the notes to consolidated financial statements). The balance
sheet data includes the accounts of ACS, SoftPro and RealEC
Technologies as of December 31, 2001, and only the accounts
of ACS as of December 31, 2000, 1999, 1998 and 1997.
Operating results and per share data for the year ended
December 31, 2001 include the results of operations for ACS
for the entire year, SoftPro for the period from August 20,
2001 through December 31, 2001, and RealEC for the period
November 1, 2001 through December 31, 2001. Operating
results and per share data for the years ended December 31,
2000 and December 31, 1999 include the results of
operations for ACS for the entire year and the results of
operations of the postage meter and scale division for a short
period in early 1999 until the operations ceased. Operating
results and per share data for the year ended December 31,
1998 include the results of operations for ACS for the year
ended December 31, 1998 and the results of operations for
the postage scale and meter division for the period May 14,
1998 through December 31, 1998. Operating results and per
share data for the year ended December 31, 1997, include
only the results of operations of ACS for the year then ended.
The consolidated balance sheets at December 31, 2001 and
2000 and consolidated statements of operations,
stockholders equity and cash flows for the years ended
December 31, 2001, 2000 and 1999, together with the related
notes and the report of KPMG LLP, independent certified public
accountants, are included elsewhere herein and should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations included
elsewhere herein. Share and per share data have been
retroactively adjusted for the 10% stock dividends declared on
May 2, 2001.

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|                                                                                                 |                         |                                                   |             |            |            |      |            |            |            |      |            |            |            |   |            |            |            |   |            |            |            | 
|------------------------------------------------------------------------------------------------ | ----------------------- | ------------------------------------------------- | ----------- | ---------- | ---------- | ---- | ---------- | ---------- | ---------- | ---- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|                                                                                                 |                         |                                                  
|                                                                                                 |                         | Year Ended December 31,                          
|                                                                                                 |                         |                                                  
|                                                                                                 |                         | 2001                                              |             | 2000       |            | 1999 |            | 1998       |            | 1997
|                                                                                                 |                         |                                                   |             |            |            |      |            |            |            |     
|Operating Results Data:                                                                          |                         |                                                   |             |            |            |      |            |            |            |      |            |            |            |   |            |            |            |   |            |           
|Management, support and consulting
	revenues  related parties                                   |                         | $                                                 | 94,147,290  |            |            | $    | 54,511,284 |            |            | $    | 10,884,822 |            |            | $ | 7,627,772  |            |            | $ | 2,547,781  |           
|Management, support and consulting
	revenues  third parties                                     |                         |                                                   | 3,260,678   |            |            |      | 592,491    |            |            |      | 6,830,035  |            |            |   | 2,934,065  |            |            |   | 1,043,482  |           
|                                                                                                 |                         |                                                   |             |            |            |      |            |            |            |      |            |            |            |   |            |            |            |   |            |           
|                                                                                                 |                         | Total management, support and consulting revenues |             |            | 97,407,968 |      |            |            | 55,103,775 |      |            |            | 17,714,857 |   |            |            | 10,561,837 |   |            |            | 3,591,263  | 
|                                                                                                 |                         |                                                   |             |            |            |      |            |            |            |      |            |            |            |   |            |            |            |   |            |           
|Software, maintenance and other
	revenues  related parties                                      |                         |                                                   | 17,763,682  |            |            |      | 14,051,342 |            |            |      | 16,216,711 |            |            |   | 13,442,669 |            |            |   | 9,112,096  |           
|Software, maintenance and other
	revenues  third parties                                        |                         |                                                   | 2,779,369   |            |            |      | 2,981,020  |            |            |      | 2,557,655  |            |            |   | 2,805,756  |            |            |   | 1,120,275  |           
|                                                                                                 |                         |                                                   |             |            |            |      |            |            |            |      |            |            |            |   |            |            |            |   |            |           
|                                                                                                 |                         | Total software, maintenance and other revenues    |             |            | 20,543,051 |      |            |            | 17,032,362 |      |            |            | 18,774,366 |   |            |            | 16,248,425 |   |            |            | 10,232,371 | 
|                                                                                                 |                         |                                                   |             |            |            |      |            |            |            |      |            |            |            |   |            |            |            |   |            |           
|Total revenues                                                                                   |                         |                                                   | 117,951,019 |            |            |      | 72,136,137 |            |            |      | 36,489,223 |            |            |   | 26,810,262 |            |            |   | 13,823,634 |           
|Management, support and consulting cost of sales                                                 |                         |                                                   | 62,621,223  |            |            |      | 35,228,221 |            |            |      | 7,581,167  |            |            |   | 5,623,887  |            |            |   | 2,529,407  |           
|Software, maintenance and other cost of sales                                                    |                         |                                                   | 10,836,759  |            |            |      | 9,039,274  |            |            |      | 14,029,205 |            |            |   | 15,893,689 |            |            |   | 8,452,283  |           
|                                                                                                 |                         |                                                   |             |            |            |      |            |            |            |      |            |            |            |   |            |            |            |   |            |           
|                                                                                                 | Total cost of sales     |                                                   |             | 73,457,982 |            |      |            | 44,267,495 |            |      |            | 21,610,372 |            |   |            | 21,517,576 |            |   |            | 10,981,690 |           
|                                                                                                 |                         |                                                   |             |            |            |      |            |            |            |      |            |            |            |   |            |            |            |   |            |           
|Gross profit                                                                                     |                         |                                                   | 44,493,037  |            |            |      | 27,868,642 |            |            |      | 14,878,851 |            |            |   | 5,292,686  |            |            |   | 2,841,944  |           
|Selling, general and administrative                                                              |                         |                                                   | 22,601,090  |            |            |      | 14,760,053 |            |            |      | 15,621,936 |            |            |   | 8,854,765  |            |            |   | 2,984,812  |           
|Amortization of goodwill                                                                         |                         |                                                   | 797,505     |            |            |      | 1,806,402  |            |            |      | 1,834,078  |            |            |   | 471,794    |            |            |   | 146,329    |           
|                                                                                                 |                         |                                                   |             |            |            |      |            |            |            |      |            |            |            |   |            |            |            |   |            |           
|                                                                                                 | Operating income (loss) |                                                   |             | 21,094,442 |            |      |            | 11,302,187 |            |      |            | (2,577,163 | )          |   |            | (4,033,873 | )          |   |            | (289,197   | )         
|Joint venture loss                                                                               |                         |                                                   |            |            |            |      | 578,045    |            |            |      | 42,189     |            |            |   |           |            |            |   |           |           
|Interest (income) expense, net                                                                   |                         |                                                   | 586,559     |            |            |      | 900,041    |            |            |      | 1,668,498  |            |            |   | 664,375    |            |            |   | (15,130    | )         
|                                                                                                 |                         |                                                   |             |            |            |      |            |            |            |      |            |            |            |   |            |            |            |   |            |           
|Income (loss) from continuing operations
	before taxes                                           |                         |                                                   | 20,507,883  |            |            |      | 9,824,101  |            |            |      | (4,287,850 | )          |            |   | (4,698,248 | )          |            |   | (274,067   | )         
|Income tax expense (benefit)                                                                     |                         |                                                   | 6,150,895   |            |            |      | 26,618     |            |            |      | 4,000      |            |            |   | 2,400      |            |            |   | (64,126    | )         
|                                                                                                 |                         |                                                   |             |            |            |      |            |            |            |      |            |            |            |   |            |            |            |   |            |           
|Income (loss) from continuing operations                                                         |                         |                                                   | 14,356,988  |            |            |      | 9,797,483  |            |            |      | (4,291,850 | )          |            |   | (4,700,648 | )          |            |   | (209,941   | )         
|Loss from discontinued operations, net of tax                                                    |                         |                                                   | (4,192,883  | )          |            |      | (7,804,138 | )          |            |      | (2,854,589 | )          |            |   | (146,155   | )          |            |   |           |           
|Loss on disposal of discontinued operations,
	including provision for shutdown costs, net of tax |                         |                                                   | (3,426,216  | )          |            |      |           |            |            |      |           |            |            |   |           |            |            |   |           |           
|                                                                                                 |                         |                                                   |             |            |            |      |            |            |            |      |            |            |            |   |            |            |            |   |            |           
|Net income (loss)                                                                                |                         | $                                                 | 6,737,889   |            |            | $    | 1,993,345  |            |            | $    | (7,146,439 | )          |            | $ | (4,846,803 | )          |            | $ | (209,941   | )         
|                                                                                                 |                         |                                                   |             |            |            |      |            |            |            |      |            |            |            |   |            |            |            |   |            |           
|Per Share Data:                                                                                  |                         |                                                   |             |            |            |      |            |            |            |      |            |            |            |   |            |            |            |   |            |           
|Income (loss) from continuing operations per
	share  basic                                      |                         | $                                                 | 0.96        |            |            | $    | 0.68       |            |            | $    | (0.50      | )          |            | $ | (0.72      | )          |            | $ | (0.04      | )         
|Income (loss) from continuing operations per
	share  diluted                                    |                         |                                                   | 0.85        |            |            |      | 0.61       |            |            |      | (0.50      | )          |            |   | (0.72      | )          |            |   | (0.04      | )         
|Net income (loss) per share  basic                                                              |                         |                                                   | 0.45        |            |            |      | 0.14       |            |            |      | (0.83      | )          |            |   | (0.74      | )          |            |   | (0.04      | )         
|Net income (loss) per share 
	diluted                                                           |                         |                                                   | 0.40        |            |            |      | 0.13       |            |            |      | (0.83      | )          |            |   | (0.74      | )          |            |   | (0.04      | )         
|                                                                                                
|Number of shares used in per share
	computations  basic                                         |                         |                                                   | 14,911,511  |            |            |      | 14,303,831 |            |            |      | 8,587,326  |            |            |   | 6,549,400  |            |            |   | 5,056,700  |           
|Number of shares used in per share
	computations  diluted                                       |                         |                                                   | 16,801,560  |            |            |      | 15,582,684 |            |            |      | 8,587,326  |            |            |   | 6,549,400  |            |            |   | 5,056,700  |           
|                                                                                                
|Balance Sheet Data:                                                                              |                         |                                                   |             |            |            |      |            |            |            |      |            |            |            |   |            |            |            |   |            |           
|Cash and cash equivalents                                                                        |                         | $                                                 | 10,902,386  |            |            | $    | 4,340,409  |            |            | $    | 1,344,257  |            |            | $ | 193,251    |            |            | $ | 830,784    |           
|Total assets                                                                                     |                         |                                                   | 77,785,293  |            |            |      | 46,292,562 |            |            |      | 24,598,933 |            |            |   | 21,444,843 |            |            |   | 9,864,129  |           
|Amounts and notes payable to affiliates                                                          |                         |                                                   | 5,265,408   |            |            |      | 5,265,408  |            |            |      | 5,265,408  |            |            |   | 16,729,411 |            |            |   | 5,431,417  |           
|Preferred stock of consolidated subsidiary, held
	by outside parties                             |                         |                                                   | 7,062,173   |            |            |      |            |            |            |      |            |            |            |   |            |            |            |   |            |           
|Total liabilities                                                                                |                         |                                                   | 30,945,482  |            |            |      | 28,125,450 |            |            |      | 11,967,198 |            |            |   | 20,860,255 |            |            |   | 7,732,738  |           
|Stockholders equity                                                                             |                         |                                                   | 39,777,638  |            |            |      | 18,167,112 |            |            |      | 12,631,735 |            |            |   | 584,588    |            |            |   | 2,131,391  |           

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Selected Quarterly Financial Data
(Unaudited):

|                                                              |                |               |            |            |  |               |            |              |  |   |            |            |  |   |            |            | 
|------------------------------------------------------------- | -------------- | ------------- | ---------- | ---------- |  | ------------- | ---------- | ------------ |  | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                                              |                |              
|                                                              |                | Quarter Ended
|                                                              |                |              
|                                                              |                | March 31,     |            | June 30,   |  | September 30, |            | December 31,
|                                                              |                |               |            |            |  |               |            |             
|2001                                                          |                |               |            |            |  |               |            |              |  |   |            |            |  |   |            |           
|Revenues  related parties                                    |                | $             | 25,500,341 |            |  | $             | 26,747,549 |              |  | $ | 28,334,877 |            |  | $ | 31,328,206 |           
|Revenues  third parties                                      |                |               | 945,036    |            |  |               | 691,471    |              |  |   | 1,344,045  |            |  |   | 3,059,494  |           
|                                                              |                |               |            |            |  |               |            |              |  |   |            |            |  |   |            |           
|                                                              | Total revenues |               |            | 26,445,377 |  |               |            | 27,439,020   |  |   |            | 29,678,922 |  |   |            | 34,387,700 | 
|Gross profit                                                  |                |               | 10,341,977 |            |  |               | 10,037,787 |              |  |   | 10,619,372 |            |  |   | 13,493,901 |           
|Income from continuing operations                             |                |               | 3,783,838  |            |  |               | 3,675,185  |              |  |   | 3,948,202  |            |  |   | 2,949,763  |           
|Loss from discontinued operations                             |                |               | (975,996   | )          |  |               | (1,056,304 | )            |  |   | (894,287   | )          |  |   | (1,266,296 | )         
|Net income (loss)                                             |                |               | 2,807,842  |            |  |               | 2,618,881  |              |  |   | 3,053,915  |            |  |   | (1,742,749 | )         
|Income from continuing operations per
	share  basic          |                |               | .26        |            |  |               | .25        |              |  |   | .26        |            |  |   | .19        |           
|Income from continuing operations per
	share  diluted        |                |               | .24        |            |  |               | .22        |              |  |   | .23        |            |  |   | .17        |           
|Net income (loss) per share  basic                           |                |               | .19        |            |  |               | .18        |              |  |   | .20        |            |  |   | (.11       | )         
|Net income (loss) per share 
	diluted                        |                |               | .17        |            |  |               | .16        |              |  |   | .18        |            |  |   | (.11       | )         
|2000                                                          |                |               |            |            |  |               |            |              |  |   |            |            |  |   |            |           
|Revenues  related parties                                    |                | $             | 8,198,525  |            |  | $             | 16,676,506 |              |  | $ | 18,362,499 |            |  | $ | 25,325,096 |           
|Revenues  third parties                                      |                |               | 535,891    |            |  |               | 1,247,666  |              |  |   | 870,988    |            |  |   | 918,966    |           
|                                                              |                |               |            |            |  |               |            |              |  |   |            |            |  |   |            |           
|                                                              | Total revenues |               |            | 8,734,416  |  |               |            | 17,924,172   |  |   |            | 19,233,487 |  |   |            | 26,244,062 | 
|Gross profit                                                  |                |               | 3,228,336  |            |  |               | 6,503,394  |              |  |   | 7,382,293  |            |  |   | 10,754,619 |           
|Income (loss) from continuing operations                      |                |               | (418,002   | )          |  |               | 1,568,887  |              |  |   | 2,772,140  |            |  |   | 5,874,458  |           
|Loss from discontinued operations                             |                |               | (1,197,382 | )          |  |               | (1,560,690 | )            |  |   | (1,640,048 | )          |  |   | (3,406,018 | )         
|Net income (loss)                                             |                |               | (1,615,384 | )          |  |               | 8,197      |              |  |   | 1,132,092  |            |  |   | 2,468,440  |           
|Income (loss) from continuing operations per
	share  basic   |                |               | (.03       | )          |  |               | .11        |              |  |   | .18        |            |  |   | .41        |           
|Income (loss) from continuing operations per
	share  diluted |                |               | (.03       | )          |  |               | .10        |              |  |   | .16        |            |  |   | .37        |           
|Net income (loss) per share  basic                           |                |               | (.12       | )          |  |               |           |              |  |   | .08        |            |  |   | .17        |           
|Net income (loss) per share 
	diluted                        |                |               | (.12       | )          |  |               |           |              |  |   | .07        |            |  |   | .15        |           




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

Overview

We provide industry leading software solutions
and services to real estate services providers, such as title
insurers, escrow companies and lenders, that enable them to work
more efficiently and cost-effectively. Our software solutions
and services address many of the inefficiencies of real estate
services providers in processing and settling real estate
transactions by automating many of the tasks involved in the
process, and by integrating their tasks into a more unified
workflow. Our software solutions are designed to meet the
different levels of automation desired by real estate services
providers, ranging from pre-packaged desktop software to
networked enterprise systems. Fidelity National, the
nations largest title insurance company, primarily uses
our software solutions and services to manage its title and
escrow functions. We are developing next generation software
solutions that use the Internet to provide added levels of
automation and integration for our customers.

Our revenues are derived primarily from three
lines of business. First, we provide to our customers software
and hardware management, support and consulting services. We
record revenue from these services at the time the services are
provided. Second, we sell software, hardware and annual
maintenance services. We record revenue on the sale of software
and hardware at the completion of installation and realize
maintenance revenues ratably over the life of the maintenance
agreement, typically one year. Third, through our majority owned
subsidiary RealEC Technologies, we provide the RealEC Exchange,
which is an online marketplace where lending institutions can
order products and services from vendors in connection with loan
originations. RealEC Technologies primarily charges vendors a
transaction fee on a per use basis. Through our consolidation of
RealEC Technologies, we record these transaction fees as
revenue. Revenue recognition is our most critical accounting
policy. (See also note 1-k in the notes to the
consolidation financial statements.)

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In 2001, 2000 and 1999, Fidelity National and
affiliates accounted for 95%, 95% and 92%, respectively, of our
total revenues from continuing operations. Fidelity National
owns 61.7% of our common stock and three of our seven directors
are officers and directors of Fidelity National or its
affiliates. The increase from 1999 to 2000 primarily resulted
from the Fidelity Nationals acquisition of Chicago Title
in April 2000. We hired approximately 150 of the former Chicago
Title IT personnel and began to support approximately
750 locations acquired in the Chicago Title acquisition. In
addition, we began to bill Fidelity National in the last half of
2000 for the initial work on the NGS development project. For
additional related party disclosures see note 6 of the
notes to the consolidated financial statements.

Since 1998, our businesses, revenue composition
and segments have undergone substantial change. We acquired ACS
Systems from Fidelity National in 1998 pursuant to a reverse
merger, for which Fidelity received shares of our common stock
resulting in Fidelity National owning 81.4% of our outstanding
shares at that time. Also, we acquired LDExchange in 1998, which
operations we discontinued 2001. We have reclassified all prior
period financial results to separate the results of continuing
operations from the losses from discontinued operations.

In 1999, we closed our former postage meter and
scale businesses, which contributed to less than
$0.5 million of the $1.6 million loss incurred in the
first three months of 2000. In addition, we formed the RealEC
joint venture with Stewart Title and established escrow.com in
1999. In connection with our establishment of escrow.com, we
hold a warrant that if exercised would result in a majority
ownership position of escrow.com on a fully-diluted basis and a
convertible promissory note in the principal amount of
$4.5 million.

We formed RealEC Technologies in 2000 by
contributing our interests in the RealEC joint venture and other
intellectual property and own 56% of the common stock of RealEC
Technologies on a fully diluted basis. Effective as of
November 1, 2001, we acquired all of the voting stock of
RealEC Technologies and began accounting for RealEC Technologies
on a consolidated basis, resulting in recorded revenues of
$0.8 million and a net loss before income taxes of
$0.4 million in 2001.

We acquired SoftPro in 2001, which contributed
$2.4 million in revenue and a net loss before income taxes
of $0.4 million in 2001. In addition, we began to provide
services to FNIS which accounted for $7.5 million of
revenue in the last half of 2001. With the exception of the
RealEC Technologies operations, all of our current sources
of revenues are profitable.

In addition, we acquired and expanded our Chicago
data center that supports the existing software systems of
Fidelity National, and will support additions to the software
systems and also NGS as they are both deployed in 2002 and 2003.
Through December 31, 2001, we had spent $12.6 million
on building and equipping the data center. The data center is
operating at a profitable level and we expect that as additional
business is brought into the data center that both revenues and
profits will increase.

A substantial portion of our revenues from
Fidelity National is derived from the development and deployment
of NGS and from supporting SIMON at approximately 450 locations
and an existing legacy software system (Team) at approximately
750 former Chicago Title locations. We expect that the
development and deployment of NGS will continue for the next two
years. Once completed, NGS is expected to replace these existing
legacy systems. We expect that revenues derived from the
development of NGS and from supporting existing software systems
will be replaced by revenues from our support and maintenance of
NGS. We provide services to Fidelity National under a master
services agreement, which does not require Fidelity National to
continue using our services. Under our master services agreement
with Fidelity National, however, we have an exclusive license
subject to certain restriction for a period of at least ten
years to develop enhancements and updates in support of NGS. In
addition, we anticipate continuing other Fidelity National
development projects and to support the FNIS operations.

We plan to grow and diversify our revenues, and
lessen our reliance on Fidelity National in 2002 and future
years through the expansion of our software solutions and
customer base. As discussed previously, we expect to continue to
derive revenues for the entire year in 2002 from SoftPro, which
we acquired in August 2001, and from RealEC, which we began
consolidating in November 2001. Based on revenues generated by

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SoftPro and RealEC and other growth initiatives,
we anticipate that Fidelity National will account for
approximately 70% to 80% of our 2002 revenues, and will continue
to decline as a percentage of our total revenues in future years
as we grow our customer base and execute our acquisition
strategy. We also plan to market NGS to other large real estate
services providers. We are, however, prohibited under the master
services agreement with Fidelity National from licensing NGS to
certain title insurance companies for a limited period of time.
In addition, if we license NGS to an entity within the real
estate industry, we are required to pay to Fidelity National a
royalty on our revenues of up to 125% of the development cost of
NGS.


We negotiated the rates that we charge Fidelity
National under the master services agreement based on rates that
we believe we would be able to receive from other customers.
Because of the scope and continuity of work that we perform for
Fidelity National the master services agreement requires that we
provide services to Fidelity National at prices no higher than
we charge to any other customer. Historically, certain projects
have been billed to Fidelity National on a cost plus fixed
percentage profit basis, which has varied between a 5% to 15%
mark-up. In addition, these arrangements have been subject to
renegotiation from time to time. For example, our use of outside
consultants on the NGS project has changed from an initial cost
plus 15% earlier in 2001 to cost plus 5% at the end of 2001. In
2001, approximately $27 million of our revenues were based
on these cost-plus arrangements, all of which were attributable
to our services for Fidelity National and its affiliates. The
remainder of our revenues from Fidelity and its affiliates are
derived from the provisioning of a variety of products and
services that are billed under one of the following methods:
time and expenses, annual licensing, annual maintenance, fees
based on per transaction, per user and per location. Beginning
in January 2002, we eliminated most of these cost-plus
arrangements and implemented new billings that are contained in
the new master services agreement between us and Fidelity
National. This agreement outlines the scope of services to be
provided to Fidelity National and certain of the pricing and
billing arrangements. The former billing arrangements may not be
deemed to be the result of arms length negotiations, and
initially certain of the rates charged under the new master
services agreement are expected to produce revenues similar to
those derived in 2001, however we believe that the new fixed fee
pricing should provide us with an opportunity to generate
greater profits by more closely monitoring and managing our
costs. In January 2002, we implemented a new PeopleSoft ERP
software system that enables us to monitor revenues and costs on
a per project basis. Eliminating our cost-plus arrangements also
exposes us to risks relating to our ability to manage costs,
which may result in reduced profits. If our profit margins are
reduced as a result of these new fee arrangements, we will
attempt to negotiate higher rates with Fidelity National,
although we do not assure you that we would be successful in
doing so.

Cost of goods sold consists of labor, outside
services, materials and overhead expenses. Other costs of goods
sold are depreciation of capital assets related to the
provisioning of service, and amortization of capitalized
software development costs related to the software that is being
sold.

Operating expenses consist of selling and
marketing expenses, general and administrative expenses, and
amortization of goodwill. We have recently initiated a more
comprehensive selling and marketing program, and anticipate that
these expenses will increase in 2002 as compared to past years.
General and administrative expenses have remained fairly
constant as a percentage of revenues and we anticipate that they
will remain constant or decline slightly as a percentage of
revenues. Subject to the continuing evaluation of
recoverability, we expect to realize a benefit in 2002 and
future years as amortization of goodwill will cease as an
operating expense due to the implementation of new accounting
standards.

Depreciation expense is charged to cost of goods
sold or as an operating expense. In 2001, depreciation expense
totaled $3.8 million, of which $1.6 million was
charged to cost of goods sold, while the remaining
$2.2 million was charged to operating expenses. In
addition, in 2001, amortization of software development costs
was $0.1 million, all of which was charged to cost of goods
sold.

Our interest expense relates to notes and capital
leases resulting from the financing of hardware purchases,
borrowings on our line of credit and an unsecured convertible
note held by Fidelity National. Interest expense is reported net
of interest income. Our interest income has grown due to our
increasing cash position as a result of our continuing
profitability.

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Results of Operations

Our consolidated financial information presents
the net effect of the results from discontinued operations
separate from the results of our continuing operations. The
historical financial information has been reclassified to
present consistently the results from continuing operations and
the results from discontinued operations. The discussion and
analysis that follows focuses on the results from continuing
operations.

On December 31, 2001, we discontinued the
operations of our wholly owned LDExchange subsidiary. The
financial statements for 2001, 2000 and 1999 reflect our results
from continuing operations, with the LDExchange revenues and
expenses being combined into a single line entitled Loss
from discontinued operations. These losses, net of tax,
total $4.2 million, $7.8 million and $2.9 million
in 2001, 2000 and 1999, respectively.

The following table presents, for the periods
given, selected financial data as a percentage of our revenue.

|                                                              |                            |                         |      |      |       |      |       |      |       |  |       |      |       | 
|------------------------------------------------------------- | -------------------------- | ----------------------- | ---- | ---- | ----- | ---- | ----- | ---- | ----- |  | ----- | ---- | ----- | 
|                                                              |                            |                        
|                                                              |                            | Year Ended December 31,
|                                                              |                            |                        
|                                                              |                            | 2001                    |      | 2000 |       | 1999
|                                                              |                            |                         |      |      |       |     
|                                                              |                            |                        
|                                                              |                            | (In millions)          
|Revenues:                                                     |                            |                         |      |      |       |      |       |      |       |  |       |     
|                                                              | Revenues  related parties |                         |      | 94.9 | %     |      |       | 95.0 | %     |  |       | 91.5 | %    
|                                                              | Revenues  third parties   |                         |      | 5.1  |       |      |       | 5.0  |       |  |       | 8.5  |      
|                                                              |                            |                         |      |      |       |      |       |      |       |  |       |     
|                                                              |                            | Total revenues          |      |      | 100.0 |      |       |      | 100.0 |  |       |      | 100.0 | 
|                                                              |                            |                         |      |      |       |      |       |      |       |  |       |     
|Cost of sales                                                 |                            |                         | 62.3 |      |       |      | 61.4  |      |       |  | 59.2  |     
|                                                              |                            |                         |      |      |       |      |       |      |       |  |       |     
|Gross profit                                                  |                            |                         | 37.7 |      |       |      | 38.6  |      |       |  | 40.8  |     
|Selling, general and administrative                           |                            |                         | 19.1 |      |       |      | 20.5  |      |       |  | 42.8  |     
|Amortization of goodwill                                      |                            |                         | 0.7  |      |       |      | 2.5   |      |       |  | 5.0   |     
|                                                              |                            |                         |      |      |       |      |       |      |       |  |       |     
|Income (loss) from operations                                 |                            |                         | 17.9 |      |       |      | 15.6  |      |       |  | (7.0  | )   
|Joint venture loss                                            |                            |                         |      |      |       |      | 0.8   |      |       |  | 0.1   |     
|Interest expense, net                                         |                            |                         | 0.5  |      |       |      | 1.2   |      |       |  | 4.7   |     
|                                                              |                            |                         |      |      |       |      |       |      |       |  |       |     
|Income (loss) from continuing operations
	before income taxes |                            |                         | 17.4 |      |       |      | 13.6  |      |       |  | (11.8 | )   
|Income tax                                                    |                            |                         | 5.2  |      |       |      |      |      |       |  |      |     
|                                                              |                            |                         |      |      |       |      |       |      |       |  |       |     
|Income (loss) from continuing operations,
	net of tax         |                            |                         | 12.2 |      |       |      | 13.6  |      |       |  | (11.8 | )   
|Loss from discontinued operations, net of tax                 |                            |                         | (3.6 | )    |       |      | (10.8 | )    |       |  | (7.8  | )   
|Loss on disposal of discontinued operations, net
	of tax      |                            |                         | (2.9 | )    |       |      |      |      |       |  |      |     
|                                                              |                            |                         |      |      |       |      |       |      |       |  |       |     
|Net income (loss)                                             |                            |                         | 5.7  | %    |       |      | 2.8   | %    |       |  | (19.6 | )%  
|                                                              |                            |                         |      |      |       |      |       |      |       |  |       |     

Comparison of Fiscal Years Ended
December 31, 2001 and 2000

Revenues.Revenues
increased $45.9 million, or 64%, to $118.0 million in
2001 from $72.1 million in 2000. The majority of the
increase in revenues in 2001 was attributable to the
$17.5 million of management and support services for the
Fidelity National business, which includes the businesses
acquired by Fidelity National, including the former Chicago
Title and Security Union acquisitions, and $37.0 million
for development efforts related to the NGS project. Also
contributing to this increase were $2.4 million in revenue
from SoftPro and $0.8 million in revenue from RealEC
Technologies, both acquisitions in the second half of 2001. In
addition, we received $7.5 million in revenues from
business with FNIS.

Gross Profit.Gross
profit increased $16.6 million, or 60%, to
$44.5 million in 2001 from $27.9 million in 2000.
Gross profit margin was approximately the same, with a 38% gross
profit margin in 2001 and a 39% gross profit margin in 2000. The
increase in total gross profit was a result of higher
management, support and consulting revenues, which contributed
$14.9 million of additional gross profit compared to 2000.

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Expenses.Selling,
general and administrative expenses increased $7.9 million
from $14.7 million in 2000 to $22.6 million in 2001.
Contributing to this increase was $1.4 million of expenses
from SoftPro and $1.0 million of selling, general and
administrative expenses from RealEC Technologies. Sales and
marketing expenses increased $1.1 million as a result of
new 2001 marketing initiatives by us. We also realized a
non-cash expense of approximately $0.5 million from the
issuance of stock options to two members of our Board of
Directors, who are also officers of Fidelity National. The stock
options vest over a four year period through April of 2005.
Pursuant to accounting provisions contained in FIN 44 and
EITF 98-6 accounting pronouncements, we recognized an
expense of approximately $0.5 million for the amortization
of the vested portion of the fair value of the options under
these grants in the amount of $2.8 million at
December 31, 2001. We will continue to record compensation
cost based on the fair value of the remaining unvested options
at the end of each subsequent financial reporting period through
April of 2005. The remaining increase is associated with
administrative costs related to growth in the number of our
employees to support our increased revenues. Total employee
headcount at December 31, 2001 was 719, up from 400 at the
end of 2000.

The amortization of goodwill relates to the
intangible assets recorded during a particular period and the
estimated useful life of the intangible assets. Fluctuations in
the amortization of goodwill result from the amount, mix and
characteristics of the intangible assets recorded as well as the
circumstances surrounding our estimate of the appropriate useful
life. Amortization expense decreased $1.0 million to
$0.8 million in 2001 compared to $1.8 million in 2000.
This decrease is attributable to lower amortization expense,
from extending the goodwill life related to the ACS acquisition
and from utilization of acquisition NOLs in the current year
which resulted in a credit to goodwill and a reduction in the
amortizable goodwill balance. For 2002, we will follow the
guidelines associated with the Statement of Financial Accounting
Standards No. 142, which no longer allows amortization of
goodwill.

Interest income, net, is related to the use of
our working capital, which is in the form of available cash and
lines of credit. The decrease in interest expense to
$0.6 million in 2001 from $0.9 million in 2000 can be
attributed to lower interest rates in 2001, lower borrowing
requirements in 2001 and increased interest income due to the
larger cash balances that we had in 2001.

Income Taxes.Income
tax expense is recorded based on the amounts that we estimate
will be due to federal and state taxation authorities based on
our taxation structure. Historically, we have paid only minimum
taxes on operating results because we have not historically
generated taxable earnings. In 2001, we accrued income taxes at
a rate of 25.5%, which was estimated based on the utilization of
net operating loss carryforwards. In 2000, a nominal income tax
expense was recorded, also due to the utilization of net
operating loss carryforwards. We estimate that future years
income tax rates will be higher due to the limited availability
of any remaining operating loss carryforwards.

Comparison of Fiscal Years Ended
December 31, 2000 and 1999

Revenues.Revenues
increased $35.6 million, or 98%, to $72.1 million in
2000 from $36.5 million in 1999. The increase in
management, support and consulting revenues can be attributed to
the additional business that was directed to us by Fidelity
National as a result of its Chicago Title acquisition and the
NGS development effort that began in the last half of 2000. In
April 2000, we hired approximately 150 former Chicago Title
information technology employees, and at the same time entered
into an agreement to provide information technology services to
Fidelity National for the former Chicago Title locations.
Software, maintenance and other revenue decreased
$1.7 million to $17.0 million from $18.7 million
in the prior year. This 9% decrease resulted from us devoting
many of our resources towards transitioning the over 700 Chicago
Title office support services to our management, and less effort
toward selling our SIMON product to new customers. In 2000,
Fidelity National continued to utilize our services for the
majority of its information technology needs and remains a
primary source of our revenues.

Gross Profit.Gross
profit increased by $13.0 million to $27.9 million, or
87%, from $14.9 million and represents a gross profit
margin of 39%. This compares to a gross profit margin of 41% in
1999. Gross profit derived from software, maintenance and other
revenues increased significantly from 2000 compared with 1999
primarily due to a reduction in lower margin hardware and
software sales coupled with a substantial increase

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in higher margin maintenance contract revenue.
The increase in total gross profit from management, support and
consulting revenues resulted from supporting over 700 additional
Fidelity National locations as a result of Fidelity
Nationals acquisition of Chicago Title in April 2000, and
also from new consulting services derived from the NGS
development project. Management, support and consulting revenues
contributed approximately $19.9 million in gross profit in
2000 versus $10.1 million in 1999.


Expenses.Selling,
general and administrative expenses declined slightly to
$14.8 million in 2000 compared to $15.6 million in
1999 despite the increase in revenue. Selling, general and
administrative expenses generally trend consistently with
revenues. However, the 150 employees that were hired in
April 2000 to support Chicago Title were all revenue-producing
personnel. Since this substantial increase in personnel expense
is reflected in cost of sales and did not increase selling,
general and administrative expenses, the 2000 results show that
selling, general and administrative expenses were 20% of total
revenues while selling, general and administrative expenses in
1999 were 43% of total revenues. Total employee count increased
by 176 when comparing December 31, 2000 with
December 31, 1999.

The amortization of goodwill relates to the
intangible assets recorded during a particular period and the
estimated useful life of the intangible assets. Amortization
expense was unchanged at $1.8 million for both 2000 and
1999.

Interest income, net, is related to the use of
our working capital, which is in the form of available cash and
lines of credit. The decrease in interest expense to
$0.9 million, or $0.8 million from $1.7 million,
can be attributed to Fidelity Nationals conversion of
$18 million of debt to equity on December 15, 1999.

In 2000, we recorded a joint venture loss of
$0.6 million as compared to a $42,000 loss in 1999. This
loss resulted from our 50% ownership in the RealEC joint venture
with Stewart Title from the time it was organized through the
sale of our 50% ownership to TXMnet in May of 2000.

Income tax expense (benefit) is recorded
based on the amounts that we estimate, based on our taxation
structure, will be due to federal and state taxation
authorities. Historically, we have paid only minimum taxes based
on operating results due to the fact we have not historically
generated taxable earnings.

Liquidity and Capital Resources

Our current cash requirements include capital
expenditures, personnel and other operating expenses, debt
service and capital for acquisitions and expansion. Internally
generated funds fluctuate in a pattern generally consistent with
revenues. Our internal growth has historically been financed
approximately equally from cash flows from operations and lines
of credit and debt, primarily from Fidelity National. We base
our decision on obtaining financing through lines of credit and
debt depending on available terms, including interest rates. The
following tables reflect our contractual cash obligations,
excluding interest, due over the indicated periods.

|                                   |                           |                        |      |           |  |        |     |        |  |         |     |     |  |   |     |     |  |   |     |     | 
|---------------------------------- | ------------------------- | ---------------------- | ---- | --------- |  | ------ | --- | ------ |  | ------- | --- | --- |  | - | --- | --- |  | - | --- | --- | 
|                                   |                           |                       
|                                   |                           | Payments Due By Period
|                                   |                           |                       
|                                   |                           |                        |      | Less Than |  | 1 to 3 |     | 4 to 5 |  | After 5
|                                   |                           | Total                  |      | 1 Year    |  | Years  |     | Years  |  | Years  
|                                   |                           |                        |      |           |  |        |     |        |  |        
|                                   |                           |                       
|                                   |                           | (In millions)         
|Contractual Cash Obligations:      |                           |                        |      |           |  |        |     |        |  |         |     |     |  |   |     |     |  |   |     |    
|                                   | Long Term Debt            |                        | $    | 10.0      |  |        | $   | 3.5    |  |         | $   | 6.5 |  |   | $   |    |  |   | $   |    | 
|                                   | Lines of Credit           |                        |      | 1.6       |  |        |     | 1.6    |  |         |     |    |  |   |     |    |  |   |     |    | 
|                                   | Capital Lease Obligations |                        |      | 0.3       |  |        |     | 0.1    |  |         |     | 0.2 |  |   |     |    |  |   |     |    | 
|                                   | Operating Leases          |                        |      | 5.7       |  |        |     | 1.7    |  |         |     | 2.6 |  |   |     | 0.9 |  |   |     | 0.5 | 
|                                   |                           |                        |      |           |  |        |     |        |  |         |     |     |  |   |     |     |  |   |     |    
|Total Contractual Cash Obligations |                           | $                      | 16.0 |           |  | $      | 5.3 |        |  | $       | 9.3 |     |  | $ | 0.9 |     |  | $ | 0.5 |    
|                                   |                           |                        |      |           |  |        |     |        |  |         |     |     |  |   |     |     |  |   |     |    

The Company has available a $10 million revolving
line of credit, $5 million of which is guaranteed by
Fidelity National. The Company had available $8.4 million
for borrowings at December 31, 2001. The line of credit has
an interest rate calculated based on either the Imperial Bank
Prime rate or 1.4 percentage points over LIBOR. The line of
credit expires on July 1, 2002.

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At December 31, 2001, we had
$10.9 million in cash and cash equivalents, which is a
$6.6 million increase from $4.3 million at
December 31, 2000. Working capital increased
$14.4 million to $16.7 million at December 31,
2001, from $2.3 million at December 31, 2000. These
comparisons exclude the net assets and liabilities of the
discontinued operations for all periods. We rely on positive
cash flow from operations and on existing lines of credit to
fund our cash requirements. Should our operations not continue
to generate positive cash flow or we do not continue to have
access to our lines of credit, we would need to find alternative
sources of cash in order to fund our operations. While Fidelity
National, our primary customer, is not obligated to use our
services we expect that they will continue to do so. As a result
of our current revenue base, improved profitability, increased
margins, current cash balance and the anticipated availability
of funds in the form of existing lines of credit, we believe all
cash requirements will be met for at least the next twelve
months.

In 2001, we generated $27.9 million in cash
from operating activities. This came primarily from operating
income before depreciation and amortization of
$19.1 million. We used $11.6 million of cash in
investing activities, primarily for the purchase of
$12.9 million of property and equipment. Also, the
acquisition of SoftPro required net cash of $1.5 million.
Financing activities used $2.4 million of cash. This
resulted from a $1.0 million pay down on the line of credit
and $3.4 million in principal payments on the notes, offset
by $2.2 million in stock issuances and the exercise of
stock options.

In 2000, net cash provided by operating
activities was $10.5 million. Net income after addback of
non-cash depreciation and amortization provided
$12.8 million of cash and increases in accounts payable and
accrued expenses provided an additional $6.4 million of
cash. Significantly offsetting these sources of cash was
$10.1 million to finance increased accounts receivables,
net of bad debt allowance. Investing activities used
$8.5 million of cash. Purchases of property and equipment
required $6.9 million of cash, and we also invested
$1.5 million in the RealEC joint venture. Financing
activities generated $4.5 million of cash, primarily from a
$2.5 million borrowing on the line of credit and an
additional $2.4 million of proceeds from the exercise of
stock options and from the employee stock purchase plan.
Principal payments of $0.4 million on capital lease and
note payable obligations reduced the cash provided by financing
activities.

In 1999, operating activities provided cash of
$2.8 million. We had a net loss of $1.0 million after
addback of non-cash depreciation and amortization. Cash provided
by investing activities totaled $1.3 million, which resulted
primarily from $0.4 million in property and equipment
purchases and an investment of $0.7 million in the RealEC
joint venture. Financing activities provided cash of
$7.5 million, which were $6.8 million in borrowings
from Fidelity National and its affiliates and $0.7 million
from the exercise of stock options.

In December 2001, we discontinued the operations
of our wholly owned subsidiary LDExchange, which had been a
significant user of cash since its acquisition in November 1998.
We recorded a charge of $5.1 million ($3.4 million net
of income tax benefit) for the disposal of LDExchange, of which
approximately $4.2 million was a non-cash charge related to
the write-down of the goodwill and property, equipment and other
assets that were owned by LDExchange. In 2001, 2000 and 1999,
LDExchange recorded losses, net of income tax benefit, in
discontinued operations of $4.2 million, $7.8 million
and $2.9 million, respectively.

We have experienced positive cash flow from
operations in 2001 and 2000. Prior to 2000, we had historically
suffered losses and negative cash flows from operations, and had
relied on Fidelity National as the primary source of capital.
Fidelity National remains our largest customer and indirectly
funds our operations through the profits derived from the
revenues related to the products and services provided to
Fidelity National. Fidelity National had also provided funds
through financing arrangements and is a guarantor of certain of
our lending arrangements. In December 1999, two significant
transactions occurred with Fidelity National and other note
holders that improved both our liquidity and capital resources.
First, on December 15, 1999, $18.0 million of our debt
was converted into common stock pursuant to a conversion
election contained in the notes and exercised by the note
holders. The conversion of this debt caused an improvement from
negative stockholders equity to $12.6 million in
stockholders equity at December 31, 1999. The
conversion of this debt also substantially reduced our debt
service requirements in 2000 and 2001. Second, also on
December 15, 1999, we entered into a new $5.3 million
five-year convertible note with Fidelity National. During 1999,
we had exceeded the borrowings available under the Fidelity
National note agreement. With the conversion of the
$18.0 million of notes on December 15, 1999, our
borrowing arrangements no longer existed.

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We negotiated this new note to address the
amounts borrowed in excess of the note limit. There are no other
borrowings available or contemplated between Fidelity National
and us.


On December 22, 1999, we entered into a
$5.0 million secured revolving line of credit with Imperial
Bank guaranteed by Fidelity National. This secured line of
credit was expanded to $10.0 million on July 23, 2001
and extended through July 1, 2002. The additional
$5.0 million expansion in the line is not guaranteed by
Fidelity National. Borrowings on the Imperial Bank revolving
line of credit were $1.6 million and $2.5 million at
December 31, 2001 and 2000, respectively. In addition, we
have entered into a number of note financing arrangements with
IBM Global Credit and GE Capital, which have provided funding
for the hardware and software requirements for our new data
center. These notes have terms of from one to three years, and
borrowings totaled $4.2 million in 2000 and an additional
$3.7 million in 2001. Our financing with IBM Global Credit
is secured by a first priority security interest in and to our
rights, including the right to receive payment, under a software
services agreement with Fidelity National. In connection with
additional data center hardware requirements and the rollout of
the NGS system, we estimate capital purchases for 2002 will not
exceed $15 million. We believe that the necessary sources
of funds are available to complete these capital purchases.

We must comply with various affirmative, negative
and financial covenants related to our outstanding debt and
notes payable. We were in compliance with these covenants at
December 31, 2001 and have always been in compliance prior
to December 31, 2001.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS
133). SFAS 133 was effective for all fiscal quarters for
fiscal years beginning after June 15, 1999. In August 1999,
the FASB issued Statement of Financial Accounting Standards
No. 137, Accounting for Derivative Instruments and
Hedging Activities  Deferral of the Effective Date of
FASB Statement No. 133, an amendment of FASB Statement
No. 133 (SFAS 137), which defers the
effective date of SFAS 133 to all fiscal quarters for fiscal
years beginning after June 15, 2000. In June 2000, the FASB
issued Statement of Financial Accounting Standards No. 138,
Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an Amendment of FASB Statement
No. 133. SFAS 133, as amended, establishes accounting
and reporting standards for derivative instruments embedded in
other contracts and for hedging activities. As we do not have
any derivative instruments and do not engage in hedging
activities, the application of these statements did not have a
material impact on the Companys consolidated financial
position, results of operations or liquidity.

In July 2001, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible
Assets. The Company is required to adopt the provisions of
SFAS No. 141 immediately. SFAS No. 141 requires that
all business combinations be accounted for under a single
method  the purchase method. Use of the
pooling-of-interests method is no longer permitted. SFAS
No. 141 required that the purchase method be used for
business combinations initiated after June 30, 2001. SFAS
No. 142 requires that goodwill no longer be amortized to
earnings, but instead be reviewed for impairment. Under SFAS
No. 142, the amortization of goodwill ceases upon adoption
of SFAS No. 142, is effective for fiscal years beginning
after December 15, 2001 and shall be initially applied at
the beginning of a fiscal year.

The Company has historically amortized its
goodwill and other intangible assets over their estimated useful
lives. Beginning with the adoption of SFAS No. 142, the
Company will cease amortizing its goodwill and certain
intangible assets. The Company will adopt SFAS No. 142 as
of the beginning of fiscal year 2002 (i.e., January 1,
2002). The Company recorded amortization expense in the amount
of $797,505 for the fiscal year ended December 31, 2001,
$1,806,402 for fiscal year ended December 31, 2000, and
$1,834,078 for fiscal year ended December 31, 1999. To the
extent that no impairment charges are recorded upon adoption or
application of SFAS No. 142, similar amounts of
amortization will not be recorded in future periods. Because

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of the extensive effort needed to comply with
adopting SFAS No. 141 and No. 142, it is not
practicable to reasonably estimate the impact of adopting these
Statements on the Companys financial statements.


The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS),
No. 143, Accounting for Asset Retirement
Obligations in September 2001. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002,
which addresses financial accounting and reporting for
obligations associated with the retirement of tangible
long-lived assets and the associate asset retirement costs.
Management does not believe the application of these standards
will have a material effect on the Companys financial
position, results of operations or liquidity.

The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment of Disposal of
Long-Lived Assets in October 2001. SFAS No. 144
addresses financial accounting and reporting for the impairment
of disposal of long-lived assets. SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001.
Management does not believe the application of these standards
will have a material effect on the Companys financial
position, results of operations or liquidity.




Item 7A.     Quantitative
and Qualitative Disclosure about Market Risk

The following discusses our exposure to market
risk related to changes in interest rates. This discussion
contains forward-looking statements that are subject to risks
and uncertainties. Actual results could vary materially as a
result of a number of factors, including those set forth in the
Risk Factors section. We are exposed to market risk
related to changes in interest rates. We do not have derivative
financial instruments for hedging, speculative or trading
purposes.

Our borrowings are subject to interest rate risk.
Increases and decreases in prevailing interest rates generally
translate into decreases and increases in fair values of those
instruments. Additionally, fair values of interest rate
sensitive instruments may be affected by the creditworthiness of
the issuer, prepayment options, relative values of alternative
investments, the liquidity of the instrument and other general
market conditions.

Caution should be used in evaluating our overall
market risk from the information below. Actual results could
differ materially because the information was developed using
estimates and assumptions as described below.

The fair value of our notes payable approximate
their carrying value at December 31, 2001 as the interest
rates paid approximate the market value of borrowings of a
similar nature.

The hypothetical effects of changes in market
rates or prices on the fair values of financial instruments at
December 31, 2001, which relate to our line of credit,
would be an increase (decrease) in the fair value of
approximately $16,000, if interest rates increased
(decreased) 100 basis points.

All of our revenues are realized in U.S. dollars.
In addition, we do not maintain any asset or cash account
balances in currencies other than the United States dollar.
Therefore, we do not believe we have any significant direct
foreign currency exchange rate risk. If our operations expand
outside of North America, the effect of currency fluctuations
may have a more significant impact on our revenues and costs.

27



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##### Table of Contents






Item 8.     Financial
Statements and Supplementary Data

MICRO GENERAL CORPORATION AND
SUBSIDIARIES

INDEX TO FINANCIAL INFORMATION

|                                                                                                      |  |      |    | 
|----------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                      |  | Page
|                                                                                                      |  | No. 
|                                                                                                      |  |     
|Independent Auditors Report                                                                          |  |      | 29 | 
|Consolidated Balance Sheets as of
	December 31, 2001 and 2000                                         |  |      | 30 | 
|Consolidated Statements of Operations for the
	years ended December 31, 2001, 2000, and 1999          |  |      | 31 | 
|Consolidated Statements of Stockholders
	Equity for the years ended December 31, 2001, 2000 and 1999 |  |      | 32 | 
|Consolidated Statements of Cash Flows for the
	years ended December 31, 2001, 2000 and 1999           |  |      | 33 | 
|Notes to Consolidated Financial Statements                                                            |  |      | 34 | 
|Schedule II  Valuation and
	Qualifying Accounts and Reserves                                         |  |      | 60 | 

All other schedules are omitted because the
required information is not applicable or the information is
presented in the consolidated financial statements or notes
thereto.

28



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

Board of Directors

Micro General Corporation:


We have audited the consolidated financial
statements of Micro General Corporation and subsidiaries
(the Company) as listed in the accompanying index.
In connection with our audits of the consolidated financial
statements, we have also audited the financial statement
schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on
our audits.

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

As described in notes 1, 5, 6, 7 and 8 to
the consolidated financial statements, the Companys
financial position, results of operations and cash flows are
materially affected by and are dependent on certain transactions
and agreements with Fidelity National Financial, Inc. (Fidelity
National), the Companys majority owner, and Fidelity
National and its affiliates.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Micro General Corporation
and subsidiaries as of December 31, 2001 and 2000 and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2001 in
conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.

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



| |             
| | ------------
| | /s/ KPMG LLP

Los Angeles, California

February 27, 2002


29



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##### Table of Contents



MICRO GENERAL CORPORATION

AND SUBSIDIARIES







CONSOLIDATED BALANCE SHEETS


December 31, 2001 and 2000


|                                                                                                                     |                                                                                                                                                                                                                                      |                           |            |             |            |   |            |             |            | 
|-------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------- | ---------- | ----------- | ---------- | - | ---------- | ----------- | ---------- | 
|                                                                                                                     |                                                                                                                                                                                                                                      | 2001                      |            | 2000       
|                                                                                                                     |                                                                                                                                                                                                                                      |                           |            |            
|ASSETS                                                                                                              
|Current assets:                                                                                                      |                                                                                                                                                                                                                                      |                           |            |             |            |   |            |            
|                                                                                                                     | Cash and cash equivalents                                                                                                                                                                                                            |                           | $          | 10,902,386  |            |   | $          | 4,340,409   |           
|                                                                                                                     | Trade accounts receivable, less allowance for
	doubtful accounts of $580,314 in 2001 and $341,132 in 2000                                                                                                                            |                           |            | 1,221,806   |            |   |            | 185,730     |           
|                                                                                                                     | Trade accounts receivable due from affiliates                                                                                                                                                                                        |                           |            | 14,511,887  |            |   |            | 14,033,919  |           
|                                                                                                                     | Inventories                                                                                                                                                                                                                          |                           |            | 143,958     |            |   |            |            |           
|                                                                                                                     | Prepaid and other current assets                                                                                                                                                                                                     |                           |            | 2,093,112   |            |   |            | 2,924,010   |           
|                                                                                                                     | Net assets from discontinued operations                                                                                                                                                                                              |                           |            |            |            |   |            | 288,130     |           
|                                                                                                                     | Income tax receivable                                                                                                                                                                                                                |                           |            | 1,483,645   |            |   |            |            |           
|                                                                                                                     | Deferred tax assets                                                                                                                                                                                                                  |                           |            | 4,326,636   |            |   |            |            |           
|                                                                                                                     |                                                                                                                                                                                                                                      |                           |            |             |            |   |            |            
|                                                                                                                     |                                                                                                                                                                                                                                      | Total current assets      |            |             | 34,683,430 |   |            |             | 21,772,198 | 
|Property and equipment, net                                                                                          |                                                                                                                                                                                                                                      |                           | 28,382,040 |             |            |   | 13,511,134 |            
|Capitalized software development costs, less
	accumulated amortization of $4,403,899 in 2001 and $4,288,535 in
	2000 |                                                                                                                                                                                                                                      |                           | 2,356,554  |             |            |   |           |            
|Goodwill, less accumulated amortization of
	$5,198,289 in 2001 and $4,400,784 in 2000                                |                                                                                                                                                                                                                                      |                           | 9,979,350  |             |            |   | 4,897,545  |            
|Other intangible assets, less accumulated
	amortization of $62,133 in 2001                                           |                                                                                                                                                                                                                                      |                           | 869,867    |             |            |   |           |            
|Deferred tax assets                                                                                                  |                                                                                                                                                                                                                                      |                           | 1,514,052  |             |            |   |           |            
|Net assets from discontinued operations                                                                              |                                                                                                                                                                                                                                      |                           |           |             |            |   | 4,450,792  |            
|Investments                                                                                                          |                                                                                                                                                                                                                                      |                           |           |             |            |   | 1,660,893  |            
|                                                                                                                     |                                                                                                                                                                                                                                      |                           |            |             |            |   |            |            
|Total assets                                                                                                         |                                                                                                                                                                                                                                      | $                         | 77,785,293 |             |            | $ | 46,292,562 |            
|                                                                                                                     |                                                                                                                                                                                                                                      |                           |            |             |            |   |            |            
|LIABILITIES AND STOCKHOLDERS
	EQUITY                                                                               
|Current liabilities:                                                                                                 |                                                                                                                                                                                                                                      |                           |            |             |            |   |            |            
|                                                                                                                     | Accounts payable and accrued expenses                                                                                                                                                                                                |                           | $          | 7,157,437   |            |   | $          | 10,246,688  |           
|                                                                                                                     | Accrued compensation expenses                                                                                                                                                                                                        |                           |            | 2,201,850   |            |   |            | 1,434,893   |           
|                                                                                                                     | Accounts payable and accrued expenses 
	affiliates                                                                                                                                                                                  |                           |            | 607,700     |            |   |            | 326,244     |           
|                                                                                                                     | Income and other taxes payable                                                                                                                                                                                                       |                           |            | 197,092     |            |   |            | 1,338,554   |           
|                                                                                                                     | Deferred tax liabilities                                                                                                                                                                                                             |                           |            |            |            |   |            | 361,726     |           
|                                                                                                                     | Deferred revenue                                                                                                                                                                                                                     |                           |            | 2,565,043   |            |   |            | 612,955     |           
|                                                                                                                     | Current portion of notes payable                                                                                                                                                                                                     |                           |            | 5,114,115   |            |   |            | 4,804,734   |           
|                                                                                                                     | Current portion of capital leases with affiliate                                                                                                                                                                                     |                           |            | 104,739     |            |   |            | 55,675      |           
|                                                                                                                     | Accrued liabilities for discontinued operations                                                                                                                                                                                      |                           |            | 1,971,141   |            |   |            |            |           
|                                                                                                                     |                                                                                                                                                                                                                                      |                           |            |             |            |   |            |            
|                                                                                                                     |                                                                                                                                                                                                                                      | Total current liabilities |            |             | 19,919,117 |   |            |             | 19,181,469 | 
|Capital leases with affiliate                                                                                        |                                                                                                                                                                                                                                      |                           | 150,612    |             |            |   | 175,787    |            
|Deferred revenue                                                                                                     |                                                                                                                                                                                                                                      |                           | 3,574,639  |             |            |   | 1,530,527  |            
|Notes payable                                                                                                        |                                                                                                                                                                                                                                      |                           | 1,196,266  |             |            |   | 1,972,259  |            
|Amounts and notes payable to affiliates                                                                              |                                                                                                                                                                                                                                      |                           | 5,265,408  |             |            |   | 5,265,408  |            
|Accrued liabilities for discontinued operations                                                                      |                                                                                                                                                                                                                                      |                           | 839,440    |             |            |   |           |            
|Commitments and contingencies                                                                                        |                                                                                                                                                                                                                                      |                           |            |             |            |   |            |            
|Preferred stock of consolidated subsidiary, held
	by outside parties                                                 |                                                                                                                                                                                                                                      |                           | 7,062,173  |             |            |   |           |            
|Stockholders equity:                                                                                                |                                                                                                                                                                                                                                      |                           |            |             |            |   |            |            
|                                                                                                                     | Preferred stock, $0.05 par value. Authorized
	1,000,000 shares, none issued and outstanding                                                                                                                                          |                           |            |            |            |   |            |            |           
|                                                                                                                     | Common stock, $0.05 par value. Authorized
	50,000,000 shares at December 31, 2001 and 20,000,000
	shares at December 31, 2000; issued and outstanding
	15,499,139 and 13,222,553 shares at December 31, 2001
	and 2000, respectively |                           |            | 774,957     |            |   |            | 661,128     |           
|                                                                                                                     | Treasury stock (17,302 shares at
	December 31, 2001)                                                                                                                                                                                 |                           |            | (213,397    | )          |   |            |            |           
|                                                                                                                     | Additional paid-in capital                                                                                                                                                                                                           |                           |            | 56,298,854  |            |   |            | 28,809,431  |           
|                                                                                                                     | Accumulated deficit                                                                                                                                                                                                                  |                           |            | (17,082,776 | )          |   |            | (11,303,447 | )         
|                                                                                                                     |                                                                                                                                                                                                                                      |                           |            |             |            |   |            |            
|Total stockholders equity                                                                                           |                                                                                                                                                                                                                                      |                           | 39,777,638 |             |            |   | 18,167,112 |            
|                                                                                                                     |                                                                                                                                                                                                                                      |                           |            |             |            |   |            |            
|Total liabilities and stockholders equity                                                                           |                                                                                                                                                                                                                                      | $                         | 77,785,293 |             |            | $ | 46,292,562 |            
|                                                                                                                     |                                                                                                                                                                                                                                      |                           |            |             |            |   |            |            

See accompanying notes to the consolidated
financial statements.

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##### Table of Contents



MICRO GENERAL CORPORATION

AND SUBSIDIARIES







CONSOLIDATED STATEMENTS OF
OPERATIONS


Years Ended December 31, 2001, 2000 and
1999


|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |            |            |            |  
|-------------------------------------------------------------- | ----------------------------------- | -------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | ---------- | ---------- | ----------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | -
|                                                               |                                     | 2001                                                                                                           |                                                   | 2000       |            | 1999       
|                                                               |                                     |                                                                                                                |                                                   |            |            |            
|Revenues:                                                      |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|Management, support and consulting
	revenues  related parties |                                     | $                                                                                                              | 94,147,290                                        |            |            | $           | 54,511,284 |            |            | $          | 15,834,865 |           
|Management, support and consulting
	revenues  third parties   |                                     |                                                                                                                | 3,260,678                                         |            |            |             | 592,491    |            |            |            | 1,879,992  |           
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|                                                               |                                     |                                                                                                                | Total management, support and consulting revenues |            |            | 97,407,968  |            |            |            | 55,103,775 |            |            |            | 17,714,857 |  
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|Software, maintenance and other
	revenues  related parties    |                                     |                                                                                                                | 17,763,682                                        |            |            |             | 14,051,342 |            |            |            | 17,560,879 |           
|Software, maintenance and other
	revenues  third parties      |                                     |                                                                                                                | 2,779,369                                         |            |            |             | 2,981,020  |            |            |            | 1,213,487  |           
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|                                                               |                                     |                                                                                                                | Total software, maintenance and other revenues    |            |            | 20,543,051  |            |            |            | 17,032,362 |            |            |            | 18,774,366 |  
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|                                                               |                                     |                                                                                                                | Total revenues                                    |            |            | 117,951,019 |            |            |            | 72,136,137 |            |            |            | 36,489,223 |  
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|Cost of sales:                                                 |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|Management, support and consulting cost of sales               |                                     |                                                                                                                | 62,621,223                                        |            |            |             | 35,228,221 |            |            |            | 7,581,167  |           
|Software, maintenance and other cost of sales                  |                                     |                                                                                                                | 10,836,759                                        |            |            |             | 9,039,274  |            |            |            | 14,029,205 |           
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|                                                               |                                     |                                                                                                                | Total cost of sales                               |            |            | 73,457,982  |            |            |            | 44,267,495 |            |            |            | 21,610,372 |  
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|                                                               |                                     |                                                                                                                | Gross profit                                      |            |            | 44,493,037  |            |            |            | 27,868,642 |            |            |            | 14,878,851 |  
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|                                                               | Selling, general and administrative |                                                                                                                |                                                   | 22,601,090 |            |             |            | 14,760,053 |            |            |            | 15,621,936 |           
|                                                               | Amortization of goodwill            |                                                                                                                |                                                   | 797,505    |            |             |            | 1,806,402  |            |            |            | 1,834,078  |           
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|                                                               |                                     | Operating income (loss)                                                                                        |                                                   |            | 21,094,442 |             |            |            | 11,302,187 |            |            |            | (2,577,163 | )         
|                                                               | Joint venture loss                  |                                                                                                                |                                                   |           |            |             |            | 578,045    |            |            |            | 42,189     |           
|                                                               | Interest expense, net               |                                                                                                                |                                                   | 586,559    |            |             |            | 900,041    |            |            |            | 1,668,498  |           
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|Income (loss) from continuing operations
	before taxes         |                                     |                                                                                                                | 20,507,883                                        |            |            |             | 9,824,101  |            |            |            | (4,287,850 | )         
|Income tax                                                     |                                     |                                                                                                                | 6,150,895                                         |            |            |             | 26,618     |            |            |            | 4,000      |           
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|Income (loss) from continuing operations                       |                                     |                                                                                                                | 14,356,988                                        |            |            |             | 9,797,483  |            |            |            | (4,291,850 | )         
|Discontinued operations:                                       |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|                                                               |                                     | Loss from discontinued operations, net of tax of
	$2,028,092 for 2001 and $0 for 2000 and 1999                 |                                                   |            | (4,192,883 | )           |            |            | (7,804,138 | )          |            |            | (2,854,589 | )         
|                                                               |                                     | Loss on disposal of discontinued operations,
	including provision for shutdown costs, net of tax of $1,657,256 |                                                   |            | (3,426,216 | )           |            |            |           |            |            |            |           |           
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|                                                               |                                     |                                                                                                                | Net income (loss)                                 |            | $          | 6,737,889   |            |            | $          | 1,993,345  |            |            | $          | (7,146,439 | )
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|Number of shares used in per share computations:               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|Basic                                                          |                                     |                                                                                                                | 14,911,511                                        |            |            |             | 14,303,831 |            |            |            | 8,587,326  |           
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|Diluted                                                        |                                     |                                                                                                                | 16,801,560                                        |            |            |             | 15,582,684 |            |            |            | 8,587,326  |           
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|Income (loss) from continuing operations per
	share  basic    |                                     | $                                                                                                              | 0.96                                              |            |            | $           | 0.68       |            |            | $          | (0.50      | )         
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|Income (loss) from continuing operations per
	share  diluted  |                                     | $                                                                                                              | 0.85                                              |            |            | $           | 0.61       |            |            | $          | (0.50      | )         
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|Net income (loss) per share  basic                            |                                     | $                                                                                                              | 0.45                                              |            |            | $           | 0.14       |            |            | $          | (0.83      | )         
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           
|Net income (loss) per share 
	diluted                         |                                     | $                                                                                                              | 0.40                                              |            |            | $           | 0.13       |            |            | $          | (0.83      | )         
|                                                               |                                     |                                                                                                                |                                                   |            |            |             |            |            |            |            |            |           

See accompanying notes to the consolidated
financial statements.

31



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##### Table of Contents



MICRO GENERAL CORPORATION

AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

Years Ended December 31, 2001, 2000 and
1999


|                                                                   |  |              |            |            |  |          |         |             |  |               |            |        |  |   |          |   |  |   |             |   |  |   |            |  
|------------------------------------------------------------------ |  | ------------ | ---------- | ---------- |  | -------- | ------- | ----------- |  | ------------- | ---------- | ------ |  | - | -------- | - |  | - | ----------- | - |  | - | ---------- | -
|                                                                   |  |              |            |            |  |          |         |             |  |              
|                                                                   |  | Common Stock |            | Additional |  |          |         |             |  | Total        
|                                                                   |  |              |            | Paid-in    |  | Treasury |         | Accumulated |  | Stockholders
|                                                                   |  | Shares       |            | Amount     |  | Capital  |         | Stock       |  | Deficiency    |            | Equity
|                                                                   |  |              |            |            |  |          |         |             |  |               |            |       
|Balance at December 31, 1998                                       |  |              | 7,546,666  |            |  | $        | 377,333 |             |  | $             | 6,357,608  |        |  | $ |         |   |  | $ | (6,150,353  | ) |  | $ | 584,588    |  
|Note conversion                                                    |  |              | 4,677,771  |            |  |          | 233,889 |             |  |               | 18,046,111 |        |  |   |          |   |  |   |             |   |  |   | 18,280,000 |  
|Acquisition of Interactive Associates                              |  |              | 50,000     |            |  |          | 2,500   |             |  |               | 191,500    |        |  |   |          |   |  |   |             |   |  |   | 194,000    |  
|Shares issued in connection with employee stock
	purchase plan     |  |              | 50,000     |            |  |          | 2,500   |             |  |               | 117,766    |        |  |   |          |   |  |   |             |   |  |   | 120,266    |  
|Stock options exercised                                            |  |              | 211,201    |            |  |          | 10,560  |             |  |               | 588,760    |        |  |   |          |   |  |   |             |   |  |   | 599,320    |  
|Net Loss                                                           |  |              |            |            |  |          |         |             |  |               |            |        |  |   |          |   |  |   | (7,146,439  | ) |  |   | (7,146,439 | )
|                                                                   |  |              |            |            |  |          |         |             |  |               |            |        |  |   |          |   |  |   |             |   |  |   |            |  
|Balance at December 31, 1999                                       |  |              | 12,535,638 |            |  |          | 626,782 |             |  |               | 25,301,745 |        |  |   |         |   |  |   | (13,296,792 | ) |  |   | 12,631,735 |  
|Stock options exercised                                            |  |              | 577,477    |            |  |          | 28,875  |             |  |               | 2,095,832  |        |  |   |          |   |  |   |             |   |  |   | 2,124,707  |  
|Warrants exercised                                                 |  |              | 48,529     |            |  |          | 2,426   |             |  | $             |           |        |  |   |          |   |  |   |             |   |  |   | 2,426      |  
|Contributions in connection with the employee
	stock purchase plan |  |              |            |            |  |          |         |             |  |               | 288,416    |        |  |   |          |   |  |   |             |   |  |   | 288,416    |  
|Earnout payment to Interactive Associates, Inc.                    |  |              | 50,000     |            |  |          | 2,500   |             |  |               | 661,058    |        |  |   |          |   |  |   |             |   |  |   | 663,558    |  
|Share issuance in exchange for software purchase                   |  |              | 10,909     |            |  |          | 545     |             |  |               | 104,455    |        |  |   |          |   |  |   |             |   |  |   | 105,000    |  
|Compensation expense related to options granted
	to non-employees  |  |              |            |            |  |          |         |             |  |               | 357,925    |        |  |   |          |   |  |   |             |   |  |   | 357,925    |  
|Net Income                                                         |  |              |            |            |  |          |         |             |  |               |            |        |  |   |          |   |  |   | 1,993,345   |   |  |   | 1,993,345  |  
|                                                                   |  |              |            |            |  |          |         |             |  |               |            |        |  |   |          |   |  |   |             |   |  |   |            |  
|Balance at December 31, 2000                                       |  |              | 13,222,553 |            |  |          | 661,128 |             |  |               | 28,809,431 |        |  |   |         |   |  |   | (11,303,447 | ) |  |   | 18,167,112 |  
|Stock options exercised                                            |  |              | 404,275    |            |  |          | 20,213  |             |  |               | 1,716,582  |        |  |   |          |   |  |   |             |   |  |   | 1,736,795  |  
|Shares issued in connection with employee stock
	purchase plan     |  |              | 50,000     |            |  |          | 2,500   |             |  |               | 366,630    |        |  |   |          |   |  |   |             |   |  |   | 369,130    |  
|Tax benefit from exercise of stock options                         |  |              |            |            |  |          |         |             |  |               | 5,853,912  |        |  |   |          |   |  |   |             |   |  |   | 5,853,912  |  
|Purchase of treasury stock                                         |  |              |            |            |  |          |         |             |  |               |            |        |  |   | (326,800 | ) |  |   |             |   |  |   | (326,800   | )
|Treasury stock issued to employee stock purchase
	plan             |  |              |            |            |  |          |         |             |  |               | 24,606     |        |  |   | 113,403  |   |  |   |             |   |  |   | 138,009    |  
|Compensation expense related to options granted
	to non-employees  |  |              |            |            |  |          |         |             |  |               | 465,000    |        |  |   |          |   |  |   |             |   |  |   | 465,000    |  
|Stock dividend                                                     |  |              | 1,331,619  |            |  |          | 66,581  |             |  |               | 12,450,637 |        |  |   |          |   |  |   | (12,517,218 | ) |  |   |            |  
|Earnout payment to Interactive Associates, Inc.                    |  |              | 765        |            |  |          | 38      |             |  |               | 10,450     |        |  |   |          |   |  |   |             |   |  |   | 10,488     |  
|Acquisition of RealEC Technologies                                 |  |              | 153,893    |            |  |          | 7,695   |             |  |               | 1,567,782  |        |  |   |          |   |  |   |             |   |  |   | 1,575,477  |  
|Acquisition of SoftPro, Inc.                                       |  |              | 336,034    |            |  |          | 16,802  |             |  |               | 5,033,824  |        |  |   |          |   |  |   |             |   |  |   | 5,050,626  |  
|Net Income                                                         |  |              |            |            |  |          |         |             |  |               |            |        |  |   |          |   |  |   | 6,737,889   |   |  |   | 6,737,889  |  
|                                                                   |  |              |            |            |  |          |         |             |  |               |            |        |  |   |          |   |  |   |             |   |  |   |            |  
|Balance at December 31, 2001                                       |  |              | 15,499,139 |            |  | $        | 774,957 |             |  | $             | 56,298,854 |        |  | $ | (213,397 | ) |  | $ | (17,082,776 | ) |  | $ | 39,777,638 |  
|                                                                   |  |              |            |            |  |          |         |             |  |               |            |        |  |   |          |   |  |   |             |   |  |   |            |  

See accompanying notes to the consolidated
financial statements.

32



---



##### Table of Contents



MICRO GENERAL CORPORATION

AND SUBSIDIARIES







CONSOLIDATED STATEMENTS OF CASH
FLOWS


Years Ended December 31, 2001, 2000 and
1999


|                                                   |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |            |           |           |            |  
|-------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------- | ------------------------------------------ | --------------------------------------------------------------------------------- | --------- | ---------- | ----------- | ---------- | --------- | ----------- | ---------- | ---------- | --------- | --------- | ---------- | -
|                                                   |                                                                                   | 2001                                          |                                            | 2000                                                                              |           | 1999      
|                                                   |                                                                                   |                                               |                                            |                                                                                   |           |           
|Cash flows from operating
	activities:             |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |           
|                                                   | Income (loss) from continuing operations                                          |                                               | $                                          | 14,356,988                                                                        |           |            | $           | 9,797,483  |           |             | $          | (4,291,850 | )        
|                                                   | Adjustments to reconcile net loss to net cash
	used in operating activities:      |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |            |          
|                                                   |                                                                                   | Depreciation and amortization                 |                                            |                                                                                   | 4,763,402 |            |             |            | 2,964,765 |             |            |            | 3,309,158 |          
|                                                   |                                                                                   | Compensation expense on stock options granted |                                            |                                                                                   | 465,000   |            |             |            | 357,925   |             |            |            |          |          
|                                                   |                                                                                   | Loss on disposal of property and equipment    |                                            |                                                                                   | 163,426   |            |             |            | 621,293   |             |            |            |          |          
|                                                   |                                                                                   | Provision for doubtful accounts               |                                            |                                                                                   | 239,672   |            |             |            | 122,000   |             |            |            | 251,929   |          
|                                                   |                                                                                   | Joint venture loss                            |                                            |                                                                                   |          |            |             |            | 578,045   |             |            |            | 42,189    |          
|                                                   |                                                                                   | Exercise of warrants                          |                                            |                                                                                   |          |            |             |            | 2,426     |             |            |            |          |          
|                                                   |                                                                                   | Changes in assets and liabilities:            |                                            |                                                                                   |           |            |             |            |           |             |            |            |           |          
|                                                   |                                                                                   |                                               | Trade accounts receivable                  |                                                                                   |           | 137,086    |             |            |           | 713,241     |            |            |           | (487,327  | )         
|                                                   |                                                                                   |                                               | Affiliates accounts receivable             |                                                                                   |           | (477,968   | )           |            |           | (11,013,011 | )          |            |           | 1,329,882 |           
|                                                   |                                                                                   |                                               | Inventories                                |                                                                                   |           | (143,958   | )           |            |           | 438,728     |            |            |           | 158,763   |           
|                                                   |                                                                                   |                                               | Deferred income taxes                      |                                                                                   |           | 6,850,040  |             |            |           |            |            |            |           |          |           
|                                                   |                                                                                   |                                               | Prepaid expenses and other assets          |                                                                                   |           | 966,947    |             |            |           | (2,634,518  | )          |            |           | (9,460    | )         
|                                                   |                                                                                   |                                               | Income tax receivable                      |                                                                                   |           | (1,483,645 | )           |            |           |            |            |            |           |          |           
|                                                   |                                                                                   |                                               | Accounts payable and accrued expenses      |                                                                                   |           | (2,663,694 | )           |            |           | 6,371,900   |            |            |           | 1,871,417 |           
|                                                   |                                                                                   |                                               | Income and other taxes payable             |                                                                                   |           | (1,141,492 | )           |            |           | 1,059,421   |            |            |           | 173,898   |           
|                                                   |                                                                                   |                                               | Deferred revenue                           |                                                                                   |           | 2,343,826  |             |            |           | 2,054,384   |            |            |           | (182,375  | )         
|                                                   |                                                                                   |                                               | Advances to (from) discontinued operations |                                                                                   |           | 3,550,359  |             |            |           | (940,527    | )          |            |           | 664,928   |           
|                                                   |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |           
|                                                   |                                                                                   |                                               |                                            | Net cash provided by operating activities from
	continuing operations             |           |            | 27,925,989  |            |           |             | 10,493,555 |            |           |           | 2,831,152  |  
|                                                   |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |           
|                                                   |                                                                                   |                                               |                                            | Net cash used by operating activities from
	discontinued operations               |           |            | (4,855,579  | )          |           |             | (701,754   | )          |           |           | (5,728,477 | )
|                                                   |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |           
|Cash flows from investing
	activities:             |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |           
|                                                   | Acquisition of Interactive Associates, Inc., net
	of cash acquired                |                                               |                                            |                                                                                  |           |            |             |           |           |             |            | (176,341   | )        
|                                                   | Acquisition of RealEC Technologies, Inc., net of
	cash acquired                   |                                               |                                            | 2,743,269                                                                         |           |            |             |           |           |             |            |           |          
|                                                   | Acquisition of Softpro, Inc., net of cash acquired                                |                                               |                                            | (1,537,526                                                                        | )         |            |             |           |           |             |            |           |          
|                                                   | Joint venture in RealEC                                                           |                                               |                                            |                                                                                  |           |            |             | (1,450,000 | )         |             |            | (681,127   | )        
|                                                   | Purchase of property and equipment                                                |                                               |                                            | (12,850,856                                                                       | )         |            |             | (6,991,358 | )         |             |            | (431,682   | )        
|                                                   | Decrease in notes receivable                                                      |                                               |                                            |                                                                                  |           |            |             |           |           |             |            | 29,850     |          
|                                                   |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |           
|                                                   |                                                                                   |                                               |                                            | Net cash provided by (used in) investing
	activities                              |           |            | (11,645,113 | )          |           |             | (8,441,358 | )          |           |           | (1,259,300 | )
|                                                   |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |           
|                                                   |                                                                                   |                                               |                                            | Net cash provided by (used in) investing
	activities from discontinued operations |           |            | (2,449,724  | )          |           |             | (2,545,398 | )          |           |           | (2,227,952 | )
|                                                   |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |           
|Cash flows from financing
	activities:             |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |           
|                                                   | Net increase in borrowings from affiliates                                        |                                               |                                            |                                                                                  |           |            |             |           |           |             |            | 6,815,997  |          
|                                                   | Repayment of capital lease obligations                                            |                                               |                                            | (32,453                                                                           | )         |            |             | (65,495    | )         |             |            |           |          
|                                                   | Purchase of treasury stock                                                        |                                               |                                            | (326,800                                                                          | )         |            |             |           |           |             |            |           |          
|                                                   | Shares issued under employee stock purchase plan                                  |                                               |                                            | 369,130                                                                           |           |            |             | 288,416    |           |             |            |           |          
|                                                   | Issuance of treasury stock to stock purchase plan                                 |                                               |                                            | 138,009                                                                           |           |            |             |           |           |             |            |           |          
|                                                   | Repayment of notes payable                                                        |                                               |                                            | (3,398,277                                                                        | )         |            |             | (313,221   | )         |             |            |           |          
|                                                   | Net borrowing (repayments) on line of credit                                      |                                               |                                            | (900,000                                                                          | )         |            |             | 2,500,000  |           |             |            |           |          
|                                                   | Exercise of stock options                                                         |                                               |                                            | 1,736,795                                                                         |           |            |             | 2,124,707  |           |             |            | 719,586    |          
|                                                   |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |           
|                                                   | Net cash provided by (used in) financing
	activities                              |                                               |                                            | (2,413,596                                                                        | )         |            |             | 4,534,407  |           |             |            | 7,535,853  |          
|                                                   |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |           
|                                                   | Net cash provided by (used in) financing
	activities from discontinued operations |                                               |                                            |                                                                                  |           |            |             | (343,300   | )         |             |            |           |          
|                                                   |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |           
|                                                   | Net increase in cash and cash equivalents                                         |                                               |                                            | 6,561,977                                                                         |           |            |             | 2,996,152  |           |             |            | 1,151,006  |          
|                                                   | Cash and cash equivalents at beginning of year                                    |                                               |                                            | 4,340,409                                                                         |           |            |             | 1,344,257  |           |             |            | 193,251    |          
|                                                   |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |           
|                                                   | Cash and cash equivalents at end of year                                          |                                               | $                                          | 10,902,386                                                                        |           |            | $           | 4,340,409  |           |             | $          | 1,344,257  |          
|                                                   |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |           
|Supplemental Disclosure of cash flow
	information: |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |           
|Cash paid during the year for:                     |                                                                                   |                                               |                                            |                                                                                   |           |            |             |            |           |             |            |           
|                                                   | Interest                                                                          |                                               |                                            | 1,131,417                                                                         |           |            |             | 893,219    |           |             |            |           |          
|                                                   | Income taxes                                                                      |                                               |                                            | 1,326,618                                                                         |           |            |             |           |           |             |            | 4,000      |          

See accompanying notes to the consolidated
financial statements.

33



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##### Table of Contents



MICRO GENERAL CORPORATION

AND SUBSIDIARIES







NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


As of December 31, 2001 and 2000 and for
the Years

Ended December 31, 2001, 2000 and
1999


(1)     Summary of
Significant Accounting Policies



| |                             
| | ----------------------------
| | (a) Description of
	Business

Micro General Corporation and subsidiaries
(the Company or Micro General) provide production
and workflow software systems to the title and real estate
industries, including managed application services, application
development and integration, network, data and infrastructure
management and information technology services. The Company is
the successor of ACS Systems, Inc. (ACS) formerly a
wholly owned subsidiary of Fidelity National Financial, Inc.
(Fidelity National). In 1998, ACS was merged into
the Company, resulting in Fidelity National owning 81.4% of the
common stock of the Company. As of December 31, 2001,
Fidelity National owns 61.7% of the Companys common stock.

The Company generated 95%, 95% and 92% of its
revenue from continuing operations during the years ended
December 31, 2001, 2000 and 1999, respectively, from
multiple servicing arrangements with Fidelity National and its
affiliates.

As a result of its acquisition of LDExchange.com,
Inc. (LDExchange), which closed on November 17,
1998, the Company entered the international telecommunications
and internet telephony markets. The LDExchange purchase price
was $3.1 million; payable $1.1 million in cash and
$2.0 million in Micro General restricted common stock
(1,000,000 shares). The acquisition was accounted for as a
purchase. In December 2001, the Company adopted a plan to
discontinue the international wholesale division of LDExchange.
Accordingly, the assets, liabilities and results of operations
of LDExchange have been classified separately from those of
continuing operations in the accompanying consolidated financial
statements. (See note 11).

The Company is focused now as a provider of
production and workflow software systems to the title and real
estate industries. Also provided are managed application
services, application development and integration, network, data
and infrastructure management and information technology
outsourcing. With the acquisition of RealEC Technologies, Inc.
(RealEC), and SoftPro Corporation
(SoftPro) in 2001, the Company has expanded into
real estate closing and title insurance automation software and
has acquired a standardized, electronic platform to service
lenders and realtors. For 2001, 2000, and 1999,
$111.9 million, $68.6 million, $33.4 million,
respectively, of Micro General revenues were derived from
Fidelity National and its affiliates.

On August 20, 2001, the Company acquired
SoftPro, for $1.75 million in cash and 336,034 shares of
the Companys common stock valued at $3,919,500. The
consideration for the acquisition was determined based on a per
share price of $11.66 which was the average quoted market price
of Micro Generals common stock less a 10% discount for the
restricted nature of the shares granted to effect the purchase.
The Company also assumed SoftPro options of 133,328 options
valued at $1,131,126 using the Black Scholes option-pricing
model. SoftPro is a provider of real estate closing and title
insurance automation software for the independent title agent
marketplace. The acquisition was accounted for as a purchase and
the results of operations have been included in the
Companys results of operations since August 20, 2001.

On November 1, 2001, the Company signed an
agreement with Beyond Ventures, LLC and MGEN Tech Fund I,
L.P. and transferred 30,779 and 123,114 shares, respectively, of
Micro Generals common stock in exchange for all of
RealECs common stock. Beyond Ventures, LLC and MGEN Tech
Fund I L.P. are controlled by members of Micro
Generals Board of Directors (See note 6). The
consideration for the acquisition was determined based on $10.24
per common share, which was the average quoted price of Micro
General common stock less a 10% discount for the restricted
nature of the shares granted to effect the purchase. The number
of shares exchanged (153,893) was calculated based on a per
share price of $1.305 for

34



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##### Table of Contents



MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

RealECs common stock, which was the per
share purchase price in RealECs latest equity
financing to an outside independent party, which closed on
October 25, 2001. RealEC provides a standardized,
electronic platform which lenders and realtors can utilize to
order and receive products and services from multiple vendors
such as credit, flood, appraisal, title and closing. The
acquisition was accounted for as a purchase and accordingly, the
results of operations of RealEC Technologies have been included
in the Companys results of operations since
November 1, 2001.



| |                                 
| | --------------------------------
| | (b) Principles of
	Consolidation

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



| |                               
| | ------------------------------
| | (c) Cash and Cash
	Equivalents

Cash and cash equivalents include cash on deposit
with banks with original maturities of three months or less.



| |                        
| | -----------------------
| | (d) Accounts Receivable

The carrying amounts reported in the consolidated
balance sheets for accounts receivable approximate their fair
value.



| |                
| | ---------------
| | (e) Inventories

Inventories are stated at the lower of cost or
market (net realizable value) under the first-in, first-out
method of accounting for inventories.



| |                            
| | ---------------------------
| | (f) Property and
	Equipment

Property and equipment are stated at cost.
Depreciation is provided on a straight-line basis over estimated
useful lives, which range from three to seven years.
Amortization of leasehold improvements is charged to expense on
a straight-line basis over the shorter of the estimated useful
lives of the assets or the term of the underlying lease.



| |                                            
| | -------------------------------------------
| | (g) Capitalized Software Development
	Costs

Capitalized software development costs for fiscal
year 2001 consist of purchase price allocated to purchased
software of $2,471,918 related to the SoftPro and RealEC
acquisitions. The Company did not capitalize any internal
software development costs in 2001 or 2000. The Companys
capitalized software development costs policy is to capitalize
software development costs incurred after the establishment of
technological feasibility, which were capitalized and later
amortized using the greater of (1) the straight-line method
or (2) the ratio of current revenues to total estimated
revenues for that product. This policy results in the Company
amortizing its capitalized software development costs over an
estimated economic life of three to seven years. During 2001 and
2000, the Company amortized software development costs of
$115,364 and $747,680, respectively. The Company periodically
assesses the recoverability of the cost of its capitalized
software development costs based on an analysis of the
undiscounted cash flows generated by the underlying assets.

35



---



##### Table of Contents



MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |             
| | ------------
| | (h) Goodwill

Goodwill is the excess of the purchase price paid
over the fair value of the net assets of the acquired company at
the date of acquisition. The Company periodically assesses the
recoverability of its cost in excess of net assets acquired
prior to July 1, 2001 based on an analysis of the
undiscounted cash flows generated by the underlying assets.
Goodwill from acquisitions prior to July 1, 2001 are being
amortized ratably over a period of 5 to 25 years. The SoftPro
and RealEC acquisitions have been accounted for under
SFAS 141 and 142 as described in note 1q. In the
opinion of management, no impairment of cost in excess of net
assets acquired has occurred at December 31, 2001 (see
note 10).



| |                             
| | ----------------------------
| | (i) Other Intangible
	Assets

Other intangible assets consist of the allocated
value of customer lists purchased in the SoftPro acquisition.
The Company is amortizing the other intangible assets over an
estimated economic life of five years. The Company recorded
amortization expense in the amount of $62,133 during 2001.



| |                               
| | ------------------------------
| | (j) Capital Lease
	Obligations

All capital lease obligations are with affiliates
and are recorded at the present value of the minimum lease
payments at the beginning of the lease terms. The monthly
payments under the leases are allocated between a reduction of
the obligation and interest expense so as to produce a constant
periodic rate of interest on the remaining balance of the
obligation.



| |                        
| | -----------------------
| | (k) Revenue Recognition

The Companys revenues arise from providing:
management, support and consulting services and software,
maintenance and other services and products. Management services
are provided primarily for the Simon and Team systems. Support
consists of email, web-hosting and other IT services. Consulting
revenues are derived primarily from services provided for the
NGS and other Fidelity and affiliate company projects.
Transaction fees are included in management, support and
consulting revenues.

Software revenues consist of sales of packaged
software products. Hardware and software maintenance revenues
are primarily annual contracts for the support of the Simon,
SoftPro and other systems. Hardware sales are related to
purchases of the Simon system and other ancillary hardware.

Revenues from providing management support and
consulting services are recognized as services are performed.

Revenues from software sales are recognized upon
installation, provided that no significant post-contract support
obligations remain outstanding and collection of the resulting
receivable is deemed probable. The Companys sales do not
provide a specific right of return. At the time of sale, the
Company typically provides 90-270 day initial maintenance and
support to the customer. Costs relating to this initial support
period, which include primarily telephone support, are accrued
for at the time of sale. After the initial support period,
customers may choose to purchase ongoing maintenance contracts
that include telephone, e-mail and other methods of support, and
the right to receive upgrades. Revenues from these maintenance
contracts are deferred and recognized ratably over the life of
the contract, usually twelve months.

Revenues from transaction fees are recognized as
the Companys electronic networks are utilized by customers
to access various websites and are recorded on a per use basis.
Revenues from these transactions are not significant in fiscal
years 2001, 2000 and 1999.

36



---



##### Table of Contents



MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Revenues from the sale of hardware and other
products are recognized when delivery has occurred, the fee is
fixed and determinable and the collection of any receivable is
probable. Revenues from hardware and maintenance contracts are
deferred and recognized ratably over the life of the contract.



| |                     
| | --------------------
| | (l) Deferred Revenue

Deferred revenues represent amounts received in
advance of the delivery of products or services. The Company
recognizes the revenues ratably over the terms of the respective
contracts as the products or services are delivered.



| |                 
| | ----------------
| | (m) Income Taxes

Deferred tax assets and liabilities are
recognized for temporary differences between the financial
reporting basis and the tax basis of the Companys assets
and liabilities and expected benefits of utilizing net operating
loss and credit carryforwards. 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 impact
on deferred taxes of changes in tax rates and laws, if any, are
applied to the years during which temporary differences are
expected to be settled and reflected in the financial statements
in the period enacted.



| |                         
| | ------------------------
| | (n) Management Estimates

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



| |                       
| | ----------------------
| | (o) Earnings Per Share

Basic earnings per share are based on the
weighted-average number of shares outstanding and exclude any
dilutive effects of options and convertible securities. Diluted
earnings per share gives effect to assumed conversions of
potentially dilutive securities.

On May 2, 2001, the Company declared a stock
dividend of 10 percent to shareholders of record at the
close of business on May 18, 2001, payable June 1,
2001. Cash was paid in lieu of fractional shares. Accordingly,
the weighted average shares outstanding used in the
corresponding calculations of earnings per share have been
restated to reflect a 10% stock dividend for each of the periods
presented. The fair value of the additional shares of common
stock issued in connection with the stock dividend was credited
to additional paid-in capital and a like amount charged to
accumulated deficit.

The schedule below summarizes the elements
included in the calculation of basic and diluted earnings
(loss) per common share from continuing operations and
basic and diluted earnings (loss) per common share for the
years ended December 31, 2001, 2000, 1999. For the year
ended December 31, 1999, all dilutive securities were
excluded from the calculations of diluted loss per share, as
their effect would have been antidilutive.

37



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##### Table of Contents



MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                              |                                                |                         |            |            |  |      |           |            |  |   |            |           | 
|------------------------------------------------------------- | ---------------------------------------------- | ----------------------- | ---------- | ---------- |  | ---- | --------- | ---------- |  | - | ---------- | --------- | 
|                                                              |                                                |                        
|                                                              |                                                | Year Ended December 31,
|                                                              |                                                |                        
|                                                              |                                                | 2001                    |            | 2000       |  | 1999
|                                                              |                                                |                         |            |            |  |     
|Net income (loss) from continuing operations                  |                                                | $                       | 14,356,988 |            |  | $    | 9,797,483 |            |  | $ | (4,291,850 | )        
|Net income (loss)                                             |                                                | $                       | 6,737,889  |            |  | $    | 1,993,345 |            |  | $ | (7,146,439 | )        
|Weighted average shares outstanding:                          |                                                |                         |            |            |  |      |           |            |  |   |            |          
|                                                              | Weighted average shares outstanding 
	basic   |                         |            | 14,911,511 |  |      |           | 14,303,831 |  |   |            | 8,587,326 | 
|                                                              | Diluted securities                             |                         |            | 1,890,049  |  |      |           | 1,838,010  |  |   |            | 0         | 
|                                                              |                                                |                         |            |            |  |      |           |            |  |   |            |          
|                                                              | Weighted average shares outstanding 
	diluted |                         |            | 16,801,560 |  |      |           | 15,582,684 |  |   |            | 8,587,326 | 
|                                                              |                                                |                         |            |            |  |      |           |            |  |   |            |          
|Income (loss) from continuing operations per
	share  basic   |                                                | $                       | 0.96       |            |  | $    | 0.68      |            |  | $ | (0.50      | )        
|                                                              |                                                |                         |            |            |  |      |           |            |  |   |            |          
|Income (loss) from continuing operations per
	share  diluted |                                                | $                       | 0.85       |            |  | $    | 0.61      |            |  | $ | (0.50      | )        
|                                                              |                                                |                         |            |            |  |      |           |            |  |   |            |          
|Net income (loss) per share  basic                           |                                                | $                       | 0.45       |            |  | $    | 0.14      |            |  | $ | (0.83      | )        
|                                                              |                                                |                         |            |            |  |      |           |            |  |   |            |          
|Net income (loss) per share 
	diluted                        |                                                | $                       | 0.40       |            |  | $    | 0.13      |            |  | $ | (0.83      | )        
|                                                              |                                                |                         |            |            |  |      |           |            |  |   |            |          



| |                      
| | ---------------------
| | (p) Reclassifications

Certain prior years amounts have been
reclassified to conform to current year presentation.



| |                                   
| | ----------------------------------
| | (q) New Accounting
	Pronouncements

In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities
(SFAS 133). SFAS 133 was effective for all
fiscal quarters for fiscal years beginning after June 15,
1999. In August 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, Accounting for
Derivative Instruments and Hedging Activities 
Deferral of the Effective Date of FASB Statement No. 133,
an amendment of FASB Statement No. 133
(SFAS 137), which defers the effective date of
SFAS 133 to all fiscal quarters for fiscal years beginning after
June 15, 2000. In June 2000, the FASB issued Statement of
Financial Accounting Standards No. 138, Accounting
for Certain Derivative Instruments and Certain Hedging
Activities, an Amendment of FASB Statement No. 133.
SFAS 133, as amended, establishes accounting and reporting
standards for derivative instruments embedded in other contracts
and for hedging activities. As the Company does not have any
derivative instruments and does not engage in hedging
activities, the application of these statements did not have a
material impact on the Companys consolidated financial
position, results of operations or liquidity.

In July 2001, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible
Assets. The Company is required to adopt the provisions of
SFAS No. 141 immediately. SFAS No. 141 requires that
all business combinations be accounted for under a single
method  the purchase method. Use of the
pooling-of-interests method is no longer permitted. SFAS
No. 141 required that the purchase method be used for
business combinations initiated after June 30, 2001. SFAS
No. 142 requires that goodwill no longer be amortized to
earnings, but instead be reviewed for impairment. Under SFAS
No. 142, the amortization of goodwill ceases upon adoption
of SFAS No. 142, is effective for fiscal years beginning
after December 15, 2001 and shall be initially applied at
the beginning of a fiscal year.

The Company has historically amortized its
goodwill and other intangible assets over their estimated useful
lives. Beginning with the adoption of SFAS No. 142, the
Company will cease amortizing its goodwill and certain
intangible assets. The Company will adopt SFAS No. 142 as
of the beginning of fiscal year 2002

38



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MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(i.e., January 1, 2002). The Company
recorded amortization expense in the amount of $797,505 for the
fiscal year ended December 31, 2001, $1,806,402 for fiscal
year ended December 31, 2000, and $1,834,078 for fiscal
year ended December 31, 1999. To the extent that no
impairment charges are recorded upon adoption or application of
SFAS No. 142, similar amounts of amortization will not be
recorded in future periods. Because of the extensive effort
needed to comply with adopting SFAS No. 141 and
No. 142, it is not practicable to reasonably estimate the
impact of adopting these Statements on the Companys
financial statements.

The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS),
No. 143, Accounting for Asset Retirement
Obligations in September 2001. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002,
which addresses financial accounting and reporting for
obligations associated with the retirement of tangible
long-lived assets and the associate asset retirement costs.
Management does not believe the application of these standards
will have a material effect on the Companys financial
position, results of operations or liquidity.

The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment of Disposal of
Long-Lived Assets in October 2001. SFAS No. 144
addresses financial accounting and reporting for the impairment
of disposal of long-lived assets. SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001.
Management does not believe the application of these standards
will have a material effect on the Companys financial
position, results of operations or liquidity.

(2) Inventories

A summary of inventories follows:

|                             |  |      |         |      |  |   |          |  
|---------------------------- |  | ---- | ------- | ---- |  | - | -------- | -
|                             |  | 2001 |         | 2000
|                             |  |      |         |     
|Computer equipment           |  | $    | 127,888 |      |  | $ | 222,546  |  
|Telecommunications equipment |  |      | 30,000  |      |  |   | 89,143   |  
|Less reserve                 |  |      | (13,930 | )    |  |   | (311,689 | )
|                             |  |      |         |      |  |   |          |  
|                             |  | $    | 143,958 |      |  | $ |         |  
|                             |  |      |         |      |  |   |          |  

(3) Income Taxes

Total income tax expense (benefit) for the year
ended December 31, 2001 was allocated as follows:

|                                                                                                                                   |  |   |            |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | - | ---------- | -
|Income from continuing operations                                                                                                  |  | $ | 6,150,895  |  
|Discontinued operations                                                                                                            |  |   | (3,685,348 | )
|Goodwill, for initial recognition of acquired tax
	benefits that previously were included in the valuation allowance               |  |   | (1,809,869 | )
|Stockholders equity, for compensation
	expense for tax purposes in excess of amounts recognized for
	financial reporting purposes |  |   | (5,835,912 | )
|                                                                                                                                   |  |   |            |  
|                                                                                                                                   |  | $ | (5,180,234 | )
|                                                                                                                                   |  |   |            |  

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##### Table of Contents



MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The income tax provision (benefit) attributable
to income from continuing operations for the years ended
December 31, 2001, 2000 and 1999 consists of the following:

|          |         |      |           |           |  |      |        |        |  |   |       |       | 
|--------- | ------- | ---- | --------- | --------- |  | ---- | ------ | ------ |  | - | ----- | ----- | 
|          |         | 2001 |           | 2000      |  | 1999
|          |         |      |           |           |  |     
|Current:  |         |      |           |           |  |      |        |        |  |   |       |      
|          | Federal |      | $         | 2,421,081 |  |      | $      |       |  |   | $     |      | 
|          | State   |      |           | 290,294   |  |      |        | 26,618 |  |   |       | 4,000 | 
|          |         |      |           |           |  |      |        |        |  |   |       |      
|          |         |      | 2,711,375 |           |  |      | 26,618 |        |  |   | 4,000 |      
|          |         |      |           |           |  |      |        |        |  |   |       |      
|Deferred: |         |      |           |           |  |      |        |        |  |   |       |      
|          | Federal |      |           | 3,122,396 |  |      |        |       |  |   |       |      | 
|          | State   |      |           | 317,124   |  |      |        |       |  |   |       |      | 
|          |         |      |           |           |  |      |        |        |  |   |       |      
|          |         |      | 3,439,520 |           |  |      |       |        |  |   |      |      
|          |         |      |           |           |  |      |        |        |  |   |       |      
|          |         | $    | 6,150,895 |           |  | $    | 26,618 |        |  | $ | 4,000 |      
|          |         |      |           |           |  |      |        |        |  |   |       |      

The provision for income taxes attributable to
income from continuing operations differed from the amounts
computed by applying the U.S. Federal income tax rate of 35% for
fiscal year 2001 and 34% for fiscal years 2000 and 1999 to the
income (loss) before income taxes as a result of the following:

|                                                                                          |  |      |            |      |  |      |            |   |  |   |            |  
|----------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                                                                          |  | 2001 |            | 2000 |  | 1999
|                                                                                          |  |      |            |      |  |     
|Computed expected tax expense
	(benefit)                                                |  | $    | 7,177,759  |      |  | $    | 677,740    |   |  | $ | (2,429,789 | )
|State taxes, net of Federal income tax benefit                                            |  |      | 364,227    |      |  |      | 123,754    |   |  |   | (277,273   | )
|Payment by parent for utilization of the
	Companys prior year state net operating losses |  |      | (510,000   | )    |  |      |            |   |  |   |            |  
|Amortization of cost in excess of net assets
	acquired                                    |  |      | 494,748    |      |  |      | 828,690    |   |  |   | 835,347    |  
|Nondeductible expenses                                                                    |  |      | 34,804     |      |  |      | 8,343      |   |  |   | 21,126     |  
|Net operating loss utilized by affiliated group                                           |  |      | 0          |      |  |      | 274,107    |   |  |   | 260,304    |  
|Valuation allowance                                                                       |  |      | (1,410,643 | )    |  |      | (1,886,016 | ) |  |   | 1,594,285  |  
|                                                                                          |  |      |            |      |  |      |            |   |  |   |            |  
|                                                                                          |  | $    | 6,150,895  |      |  | $    | 26,618     |   |  | $ | 4,000      |  
|                                                                                          |  |      |            |      |  |      |            |   |  |   |            |  

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##### Table of Contents



MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The deferred tax assets and liabilities at
December 31, 2001 and 2000 consist of the following:

|                         |                                                               |                                |           |           |           |  |           |            |           | 
|------------------------ | ------------------------------------------------------------- | ------------------------------ | --------- | --------- | --------- |  | --------- | ---------- | --------- | 
|                         |                                                               |                               
|                         |                                                               | December 31,                  
|                         |                                                               |                               
|                         |                                                               | 2001                           |           | 2000     
|                         |                                                               |                                |           |          
|Deferred Tax Assets:     |                                                               |                                |           |           |           |  |           |           
|                         | Net operating loss carryover                                  |                                | $         | 2,221,153 |           |  | $         | 3,522,276  |          
|                         | Reserve for notes receivable                                  |                                |           | 1,685,387 |           |  |           | 1,773,258  |          
|                         | Book over tax provision for bad debts                         |                                |           | 279,794   |           |  |           | 1,051,033  |          
|                         | Reserves and accruals not recognized for income
	tax purposes |                                |           | 1,244,008 |           |  |           | 850,357    |          
|                         | Employee benefits accruals                                    |                                |           | 810,655   |           |  |           |           |          
|                         | Other assets                                                  |                                |           | 62,921    |           |  |           | 223,416    |          
|                         |                                                               |                                |           |           |           |  |           |           
|                         |                                                               |                                | 6,303,918 |           |           |  | 7,420,340 |           
|                         | Less: Valuation allowance                                     |                                |           |          |           |  |           | (3,220,512 | )        
|                         |                                                               |                                |           |           |           |  |           |           
|                         |                                                               | Total deferred tax assets      |           |           | 6,303,918 |  |           |            | 4,199,828 | 
|Deferred Tax Liabilities |                                                               |                                |           |           |           |  |           |           
|                         | Stock option exercises                                        |                                |           |          |           |  |           | 4,536,534  |          
|                         | Other Liabilities                                             |                                |           |          |           |  |           | 25,010     |          
|                         | Accelerated depreciation for tax purposes in
	excess of book  |                                |           | 463,230   |           |  |           |           |          
|                         |                                                               |                                |           |           |           |  |           |           
|                         |                                                               | Total deferred tax liabilities |           |           | 463,230   |  |           |            | 4,561,554 | 
|                         |                                                               |                                |           |           |           |  |           |           
|                         | Net deferred tax asset (liability)                            |                                | $         | 5,840,688 |           |  | $         | (361,726   | )        
|                         |                                                               |                                |           |           |           |  |           |           

Deferred tax assets are reduced by a valuation
allowance if it is more likely than not that some portion or all
of the deferred tax assets will not be realized. For tax year
2000, the Company established a valuation allowance of
$3,220,512 of which $1,809,869 is associated with net operating
loss carryforwards and other deferred tax assets recorded from
acquisitions. In 2001, it was determined that the valuation
allowance was no longer necessary due to current taxable income
generated and future estimated taxable income.

The Company has available for 2001 and 2000,
federal net operating loss carryforwards of $6,457,757 and
$10,154,059, respectively, expiring in years 2002 to 2021. The
Company also had available for 2000 state net operating loss
carryforwards of $1,292,998 which were completely utilized in
2001.

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##### Table of Contents



MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(4) Property and Equipment

A summary of property and equipment follows:

|                                               |  |      |            |      |  |   |            | 
|---------------------------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | 
|                                               |  | 2001 |            | 2000
|                                               |  |      |            |     
|Telecommunications equipment                   |  | $    | 655,336    |      |  | $ | 511,779    | 
|Computer equipment                             |  |      | 10,581,831 |      |  |   | 6,045,445  | 
|Purchased software                             |  |      | 13,341,010 |      |  |   | 5,159,982  | 
|Furniture and fixtures                         |  |      | 2,424,881  |      |  |   | 1,988,816  | 
|Office equipment                               |  |      | 218,837    |      |  |   | 202,176    | 
|Leasehold improvements                         |  |      | 1,605,715  |      |  |   | 736,018    | 
|Construction in progress                       |  |      | 5,341,723  |      |  |   | 442,509    | 
|                                               |  |      |            |      |  |   |            | 
|                                               |  |      | 34,169,333 |      |  |   | 15,086,725 | 
|Less accumulated depreciation and amortization |  |      | 5,787,293  |      |  |   | 1,575,591  | 
|                                               |  |      |            |      |  |   |            | 
|                                               |  | $    | 28,382,040 |      |  | $ | 13,511,134 | 
|                                               |  |      |            |      |  |   |            | 

Construction in progress is the accumulated costs
of the unfinished data center in Chicago, Illinois.

(5) Commitments and
Contingencies

(a) Lease
Commitments

The Company leases facilities and equipment under
various leases. Future minimum noncancelable operating and
capital lease commitments, due primarily to Fidelity National
and its affiliates, are as follows:

|                                                     |            |                                                       |           |           |  |  |         |         |         | 
|---------------------------------------------------- | ---------- | ----------------------------------------------------- | --------- | --------- |  |  | ------- | ------- | ------- | 
|                                                     |            | Operating                                             |           | Capital  
|                                                     |            | Leases                                                |           | Leases   
|                                                     |            |                                                       |           |          
|Year ending December 31:                             |            |                                                       |           |           |  |  |         |        
|                                                     | 2002       |                                                       | $         | 1,683,305 |  |  | $       | 136,157 |        
|                                                     | 2003       |                                                       |           | 1,390,058 |  |  |         | 97,874  |        
|                                                     | 2004       |                                                       |           | 1,156,992 |  |  |         | 51,863  |        
|                                                     | 2005       |                                                       |           | 487,857   |  |  |         |        |        
|                                                     | 2006       |                                                       |           | 502,493   |  |  |         |        |        
|                                                     | Thereafter |                                                       |           | 517,568   |  |  |         |        |        
|                                                     |            |                                                       |           |           |  |  |         |        
|Total minimum lease payments                         |            | $                                                     | 5,738,273 |           |  |  | 285,894 |        
|Less amount representing interest                    |            |                                                       |           |           |  |  | 30,543  |        
|                                                     |            |                                                       |           |           |  |  |         |        
|Present value of net minimum capital lease
	payments |            |                                                       |           |           |  |  | 255,351 |        
|Less current portion                                 |            |                                                       |           |           |  |  | 104,739 |        
|                                                     |            |                                                       |           |           |  |  |         |        
|                                                     |            | Capital lease obligations, excluding current
	portion |           |           |  |  |         | $       | 150,612 | 
|                                                     |            |                                                       |           |           |  |  |         |        

Rent expense was $3,248,827, $1,884,884 and
$1,365,634 for the years ended December 31, 2001, 2000 and
1999, respectively. Included in rent expense for 2001, 2000 and
1999 was $1,895,268, $1,136,647 and $972,332, respectively, paid
to affiliates. There are no lease agreements associated with the
rent paid to affiliates, and therefore no amount has been
included in the future minimum lease commitments for future rent
payments to affiliates. The Company also has a commitment to pay
$1,231,470 of principal payments over the next three years
related to capital leases associated with discontinued
operations. That amount is included in the balance sheet as part
of accrued liabilities for discontinued operations.

42



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##### Table of Contents



MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |               
| | --------------
| | (b) Litigation

The Company is involved in various claims and
legal actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on the Companys
consolidated financial position, results of operations or
liquidity.

(6) Related Party Transactions

As described in note 1, the Companys
primary source of revenue is fees resulting from sales and
services to Fidelity National and its affiliated companies.
Revenues generated from sales and services to affiliates for the
years ended December 31, 2000, 1999 and 1998 accounted for
95%, 95% and 92% of revenues from continuing operations.
Fidelity National owns 61.7% of our common stock and three of
our seven directors are officers and directors of Fidelity
National or its affiliates.

The Company provides services to Fidelity
National under a master services agreement. Under the master
services agreement, the Company is required to provide services
to Fidelity National at prices no higher than prices charged to
direct competitors of Fidelity National. Historically, certain
projects have been billed to Fidelity National on a cost plus
fixed percentage profit basis, which has varied between a 5% to
a 15% mark-up. The cost of outside consultants on the NGS
project in fiscal 2000 was billed to Fidelity National at cost
plus 15%. This rate was modified to cost plus 10% in the third
quarter of fiscal 2001 and then to cost plus 5% in the fourth
quarter of fiscal 2001. Other revenues from Fidelity and its
affiliates are derived from the provisioning of a variety of
products and services that are billed under one of the following
methods: time and expenses, annual licensing, annual
maintenance, fees based on per transaction, per user and per
location. In addition, these arrangements have been subject to
renegotiation from time to time. Beginning in January 2002,
these arrangements were replaced by a new master services
agreement. This new agreement outlines the scope of services to
be provided to Fidelity National and changes the pricing and
billing arrangements to a fixed fee by type of service.

Fidelity National has consolidated Micro General
in its tax returns for state tax, but not for Federal tax
purposes. Fidelity National had utilized the benefit of Micro
Generals net operation losses for state income taxes for
which Micro General was paid $510,000 by Fidelity in fiscal year
2001.

Certain notes payable executed for the purchase
of equipment are secured by an agreement which assigns like
revenue streams payable to the Company from Fidelity National to
the note holders in the event of a default by the Company on the
respective notes payable (see note 7). In addition, the
Company has long-term amounts and notes payable to affiliates
amounting to $5,265,408 at both December 31, 2001 and 2000
(see note 7). The Company also has accounts payable due to
affiliates of $607,700 and $326,244 as well as capital leases
payable to affiliates of $142,001 and $192,122 at
December 31, 2001 and 2000, respectively. The Company also
has certain operating leasing arrangements with Fidelity
National as described in note 5.

On October 1, 1999, Micro General entered
into an intellectual property transfer agreement that provided
the financing to launch escrow.com as a new company. Under the
agreement, the Company sold the escrow.com name and trademark,
the escrow.com internet URL, a license for the Micro General
proprietary escrow trust accounting software, the Companys
computer services provider business unit and approximately
$535,000 of related computer equipment. Under the terms of the
intellectual property transfer agreement, the Company received
from escrow.com a $4.5 million note with a term of seven
years and an interest rate of three percent. The Company also
received a warrant giving the Company the right to purchase
15.0 million shares of escrow.com common stock at a price
of $0.40 per share.

Escrow.com offers on-line escrow-related services
designed to provide buyers and sellers with a safe, secure and
easy to use system for managing payment for and delivery of
products and services purchased via the Intranet. As an internet
transaction services provider, escrow.com provides for the
secure transmission of

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MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

funds between a buyer and seller by placing the
funds in escrow, confirming and verifying the receipt of
merchandise by the buyer, and releasing the funds from escrow to
the seller.

Because of the start-up nature of escrow.com, the
Company has fully reserved the $4.5 million note receivable
on its consolidated balance sheet. The gain on the sale of
assets will be realized at such time escrow.com has sufficient
funding in place to reasonably assure the payment of the note.
While the Company has no equity interest in escrow.com as of
December 31, 2001, the 15.0 million warrants give the
Company the opportunity to acquire a substantial interest in
escrow.com. Escrow.com is incurring substantial losses and may
need to raise additional funds in order to continue its
operations. The Companys potential ownership in escrow.com
may be substantially diluted if escrow.com issues additional
shares to raise the necessary capital.

As previously described, the Company has warrants
that, upon their exercise, will give the Company substantial
ownership in escrow.com. In April 2000, escrow.com completed a
private placement in which it raised gross proceeds of
$30 million. As an inducement to invest, the Company
assigned to two of the investors 250,000 of its
15.0 million warrants in escrow.com. As a result of this
funding, escrow.com has 10,579,271 shares outstanding as of
December 31, 2001. Although escrow.com has raised
additional capital, those funds are not being used for repayment
of the $4.5 million note receivable discussed above.
Therefore, the note will be fully reserved until such time that
escrow.com has sufficient funding in place to reasonably ensure
payment of the note. Assuming exercise of the warrants, the
Company would have a 58% ownership in escrow.com.

On October 8, 1998, the Company announced
the creation of RealEC, a real estate electronic commerce
network. RealEC commenced operations in mid-1999 and was a 50%
owned joint venture with Stewart Title Corporation, a subsidiary
of Stewart Information Services Corporation (Stewart
Title). RealEC provides a standardized, electronic
platform which lenders and realtors can utilize to order and
receive products and services from multiple vendors such as
credit, flood, appraisal, title and closing.

On May 19, 2000, the Company created TXMNet,
Inc. and transferred its 50% ownership of the RealEC joint
venture into the new entity along with certain other
intellectual property in exchange for 6,650,000 shares of
convertible, non-voting preferred stock. The Companys
investment in TXMNet was $1,660,893, which was the book value of
its 50% ownership in the RealEC joint venture. On
December 31, 2000, Stewart Title Corporation exchanged its
50% ownership position in RealEC for 2,935,000 shares of
convertible, non-voting preferred stock in TXMNet, Inc., which
is included in preferred stock of consolidated subsidiary, held
by outside parties in the accompanying financial statements.
TXMNet, Inc. changed its name to RealEC Technologies, Inc. on
February 13, 2001. The Company has advanced RealEC
Technologies approximately $5.3 million and has accounted
for these advances using the modified equity method. Subsequent
to the end of the quarter, the Company was repaid
$1.5 million of these advances as a result of the
transaction described below. Therefore, in anticipation of the
receipt of these funds, the Company had reserved
$3.8 million of the RealEC Technologies receivable.

On November 1, 2000 RealEC Technologies,
Inc. issued to Micro General an additional 150,000 shares of its
Series A Preferred Stock as consideration for Micro
Generals assignment of certain intellectual property
rights.

On October 25, 2001, LandAmerica Financial
Group, Inc. (LandAmerica) signed an agreement with
the RealEC to invest $4 million in RealEC for 3,065,000
shares of Series B preferred stock. Terms of the agreement
include the payment of $1.5 million of this investment to
the Company as repayment of funds advanced by the Company to
RealEC.

RealEC has agreed, as of October 25, 2001,
to turn the remaining $3.8 million owed to Micro General
into a convertible note having a term of 20 months and
bearing interest of 7% annually. The Series B preferred

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##### Table of Contents



MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

stock is included in preferred stock of
consolidated subsidiary held by outside parties in the
accompanying financial statements. The terms of the preferred
stock are described in note 10).

Effective November 1, 2001, Micro General,
pursuant to stock purchase agreements with Beyond Ventures, LLC
and MGEN Tech Fund I, L.P., acquired 100 percent of the
common stock (1,250,000 shares) of RealEC, for $1.305 per share.
In consideration for the acquisition of the common stock, Micro
General transferred to Beyond Ventures, LLC 30,779 shares of
Micro Generals common stock and to the MGEN Tech Fund I,
L.P., 123,114 shares of Micro Generals common stock. The
Managing Partner of Beyond Ventures is a director of Micro
General. The MGEN Tech Fund I,L.P. is an investment group whose
general partner is Ratisbon, LLC whose sole member and certain
limited partners consist of officers and directors of Micro
General. The consideration for the acquisition was determined
based on a per share price of $10.24 for Micro General common
stock, which was the average price of Micro Generals
common stock less a 10% discount for the restricted nature of
the shares granted to effect the purchase. The number of Micro
General shares exchanged (153,893) was calculated based on a per
share price of $1.305 for RealECs common stock, which was
the per share purchase price in RealECs latest equity
financing to an outside independent party which closed on
October 25, 2001. Combined with the Companys
convertible preferred stock position, Micro General now owns 56%
of RealEC on an as-if converted basis assuming conversion of all
convertible preferred stock. Effective November 1, 2001,
Micro General has consolidated RealECs results with its
results of operations.

(7) Notes Payable

Prior to 1999, the Company had entered into
various lending arrangements with Fidelity National and its
affiliates. All of these arrangements were combined into
$18 million of 10% convertible debt. In connection with the
various lending arrangements, detachable warrants to exercise
288,750 shares of the Companys common stock at a price of
$1.36 were also issued. The warrants remain outstanding at
December 31, 2001.

On December 15, 1999 the holders of
$18.0 million of the Companys convertible debt, which
was the entire amount of the Companys convertible debt
outstanding on that date, exercised their conversion rights and
exchanged the debt for newly issued shares of the Companys
common stock. There were 4,677,771 shares of common stock issued
at an average conversion price of approximately $3.85 per share.

Also on December 15, 1999, the Company
entered into with Fidelity National a new $5,265,000 five-year
convertible note purchase agreement having an accrued interest
rate of ten percent, payable quarterly. The note is convertible
into common shares of the Company at a rate of $10.00 per share
at any time during the five-year term. Fidelity National also
received warrants to purchase 275,000 shares of the
Companys common stock at a price of $9.09 per share. In
1999, the Company recognized a $280,000 expense in regard to
these warrants.

On December 22, 1999, the Company entered
into a one-year $5.0 million revolving line of credit with
Imperial Bank, guaranteed by Fidelity National. On July 23,
2001, the Company executed an amendment to this agreement which
increased the available line to $10 million, added certain
financial covenants and extended the expiration date to
July 1, 2002. The additional $5.0 million expansion in
the line is not guaranteed by Fidelity National. The Company had
borrowings under this line of credit of $1.6 million and
$2.5 million at December 31, 2001 and 2000,
respectively. At December 31, 2001 the Company was not in
default of any of the Imperial loan covenants.

Between June 9, 2000 and October 30,
2000, the Company entered into four equipment note financing
arrangements with IBM Credit Corporation. Financing rates range
from 7.437% to 11.30% and terms are 12 months to
36 months. Between January 30, 2001 and March 31,
2001, the Company entered into three equipment note financing
arrangements with IBM Credit Corporation. Financing rates range
from 8.030% to

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##### Table of Contents



MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

9.670% and terms are 24 months to
36 months. Equipment financed includes both software and
hardware purchases. The notes are secured by an agreement which
assigns the respective revenue streams payable to the Company
from Fidelity National to the note holders in the event of a
default by the Company on the respective notes payable.

On March 23, 2001, the Company entered into
an equipment note financing arrangement with GE Capital Lease
Corporation with a financing rate of 9.883% and a term of
24 months, which financing was used for hardware purchases.

On June 2, 2001, the Company entered into a
software financing arrangement with Siemens Financial Services
with a financing rate of 5.662% and a term of 24 months.
This financing was used for software purchases. The notes are
secured by an agreement which assigns the respective revenue
streams payable to the Company from Fidelity National to the
note holders in the event of a default by the Company on the
respective notes payable.

Notes payable as of December 31, 2001 and
2000 consists of the following:

|                                                                                               |  |              |            |      |  |   |            | 
|---------------------------------------------------------------------------------------------- |  | ------------ | ---------- | ---- |  | - | ---------- | 
|                                                                                               |  |             
|                                                                                               |  | December 31,
|                                                                                               |  |             
|                                                                                               |  | 2001         |            | 2000
|                                                                                               |  |              |            |     
|IBM Credit Corporation financing agreement (9.37%
	at June 9, 2000), due in three years        |  | $            | 798,009    |      |  | $ | 1,292,675  | 
|IBM Credit Corporation financing agreement
	(11.30% at July 31, 2000), due in one year         |  |              |           |      |  |   | 526,425    | 
|IBM Credit Corporation financing agreement
	(9.621% at September 28, 2000), due in three years |  |              | 464,732    |      |  |   | 697,328    | 
|IBM Credit Corporation financing agreement
	(7.437% at October 30, 2000), due in two years     |  |              | 743,382    |      |  |   | 1,721,614  | 
|IBM Credit Corporation financing agreement
	(9.670% at January 31, 2001), due in three years   |  |              | 87,084     |      |  |   |           | 
|IBM Credit Corporation financing agreement
	(8.720% at January 30, 2001), due in three years   |  |              | 121,716    |      |  |   |           | 
|IBM Credit Corporation financing agreement
	(8.030% at March 31, 2001), due in two years       |  |              | 681,411    |      |  |   |           | 
|GE Capital Lease (9.883% at March 23, 2001),
	due in two years                                 |  |              | 835,066    |      |  |   |           | 
|Siemens Financial Services, People Soft (5.662%
	at June 29, 2001) due in two years            |  |              | 928,982    |      |  |   |           | 
|Stewart Title Note Payable (10%)                                                               |  |              | 50,000     |      |  |   |           | 
|Imperial Bank, line of credit draw (8.18125%
	annual), 90 days due February 2001.              |  |              |           |      |  |   | 1,000,000  | 
|Imperial Bank, line of credit draw (8.15063%
	annual), 90 days due February 2001.              |  |              |           |      |  |   | 1,500,000  | 
|Imperial Bank, line of credit draw (3.32%
	annual), 15 days due January 2002.                  |  |              | 300,000    |      |  |   |           | 
|Imperial Bank, line of credit draw (3.33%
	annual), 30 days due January 2002.                  |  |              | 1,300,000  |      |  |   |           | 
|Affiliate five-year convertible note (10%
	annual), due December 14, 2004.                     |  |              | 5,265,408  |      |  |   | 5,265,408  | 
|                                                                                               |  |              |            |      |  |   |            | 
|                                                                                               |  | $            | 11,575,790 |      |  | $ | 12,003,450 | 
|                                                                                               |  |              |            |      |  |   |            | 

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##### Table of Contents



MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The notes with IBM Credit Corporation and the
lease with GE Capital are collateralized by the underlying
assets purchased with the notes.

Principal maturities of the notes payable and
long-term debt at December 31, 2001 are as follows:

|     |  |   |            | 
|---- |  | - | ---------- | 
|2002 |  | $ | 5,114,116  | 
|2003 |  |   | 1,187,245  | 
|2004 |  |   | 5,274,429  | 
|2005 |  |   |           | 
|2006 |  |   |           | 
|     |  |   |            | 
|     |  | $ | 11,575,790 | 
|     |  |   |            | 

(8) Segment Information

The Companys Consolidated Financial
Statements as of December 31, 2001 include three reportable
segments. For 2000 and 1999, the Company had only one segment
after the reclassification of the discontinued operations.

As of and for the year ended December 31,
2001:

|                                  |  |               |             |         |  |        |           |       |  |   |            |   |  |   |             | 
|--------------------------------- |  | ------------- | ----------- | ------- |  | ------ | --------- | ----- |  | - | ---------- | - |  | - | ----------- | 
|                                  |  | Micro General |             | Softpro |  | RealEc |           | Total
|                                  |  |               |             |         |  |        |           |      
|Total revenues                    |  | $             | 114,744,351 |         |  | $      | 2,388,020 |       |  | $ | 818,648    |   |  | $ | 117,951,019 | 
|Related party revenues            |  |               | 111,662,020 |         |  |        |          |       |  |   | 248,952    |   |  |   | 111,910,972 | 
|Operating income (loss)           |  |               | 21,117,606  |         |  |        | 296,111   |       |  |   | (319,275   | ) |  |   | 21,094,442  | 
|Interest (income) expense net     |  |               | 546,208     |         |  |        | (3,333    | )     |  |   | 43,684     |   |  |   | 586,559     | 
|Income (loss) before income taxes |  |               | 20,571,398  |         |  |        | 299,444   |       |  |   | (362,959   | ) |  |   | 20,507,883  | 
|Depreciation and amortization     |  |               | 4,503,788   |         |  |        | 152,873   |       |  |   | 106,741    |   |  |   | 4,763,402   | 
|Total assets                      |  | $             | 58,362,941  |         |  | $      | 9,061,213 |       |  | $ | 10,361,139 |   |  | $ | 77,785,293  | 

The activities of the three reportable segments
include the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Micro General Enterprise Software Solutionsprovides software solutions and
	services to the title and real estate industries. Such services
	include managed application services, application development
	and integration, network, data and infrastructure management,
	information technology outsourcing, telecommunications and
	hardware sales. Related party revenues are from Fidelity
	National and its affiliates.                                                                                                                        
|
| |  | SoftPro Corporationis a software company selling
	applications that provide automation tools and back office
	support to independent title agents and attorneys for the
	management of real estate transaction settlements.                                                                                                                                                                                                                                                                                                                          
|
| |  | RealEC Technologiesis a real estate electronic commerce
	network for mortgage loan originators, realtors and settlement
	services providers. RealEC TechnologiesTM enables the
	online ordering and delivery of all real estate related products
	and services to provide lenders and REALTORS® a complete
	and integrated technology solution for closing and managing real
	estate transactions. The biggest users include Fidelity National
	Title, Fidelity Information Systems, Stewart Title Mortgage
	Information, Fannie Mae and Wells Fargo.

The accounting policies of the segments are the
same as those described in the summary of significant accounting
policies.

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##### Table of Contents



MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(9) Employee Benefit Plans

Employee benefits include an employee stock
purchase plan, four stock option plans and a 401(k) plan.

In 1998, the Companys Board of Directors
approved the adoption of an Employee Stock Purchase Plan
(ESPP). Under the terms of the ESPP, there are
880,000 shares of the Companys common stock available for
purchase at current market prices by Company employees who meet
certain vesting requirements. The authorized number of shares is
subject to adjustment in the event of stock splits, stock
dividends or certain other similar changes in the capital
structure of the Company. Pursuant to the ESPP, Company
employees may contribute an amount between 5% and 15% of their
base salary and certain commissions. The Company contributes
varying amounts as specified in the ESPP.

In 1987, stockholders also approved the adoption
of a Stock Option Plan (1987 Option Plan). Under the
terms of the 1987 Option Plan, the Company may grant stock
options to certain key employees and nonemployee directors or
officers. The number of shares issuable under the 1987 Option
Plan is 220,000 shares of common stock at not less than fair
market value on the date of grant. All options granted become
exercisable at the discretion of the Board of Directors and
expire five years from the date of grant. Options that lapse or
are canceled prior to exercise are added to the shares
authorized for future grants. The 1987 Option Plan expired in
1991, but was renewed by stockholders in 1993. There were no
remaining shares available for grant at December 31, 2001
under the 1987 Option Plan.

In 1995, stockholders approved the adoption of
the 1995 Stock Option Plan (1995 Option Plan). The
number of shares reserved for issuance under the 1995 Option
Plan is 220,000 shares of common stock. 177,470 shares were
available for grant at December 31, 2001 under the 1995
Option Plan.

During 1998, stockholders approved the adoption
of the 1998 Stock Incentive Plan (1998 Plan). The
1998 Plan authorizes up to 1,650,000 shares of common stock,
plus an additional 330,000 shares of common stock on the date of
each annual meeting of the stockholders of the Company, for
issuance under the terms of the 1998 Plan. In 1999, the Board of
Directors recommend and the Companys shareholders approved
an amendment to the 1998 Plan increasing the number of
authorized shares of common stock for issuance to 3,300,000. The
authorized number of shares is subject to adjustment in the
event of stock splits, stock dividends or certain other similar
changes in the capital structure of the Company. The 1998 Plan
provides for grants of incentive stock options as
defined in Section 422 of the Internal Revenue Code of
1986, as amended, nonqualified stock options and rights to
purchase shares of common stock (Purchase Rights).
Incentive stock options, nonqualified stock options and Purchase
Rights may be granted to employees of the Company and its
subsidiaries and affiliates. Nonqualified stock options and
Purchase Rights may be granted to employees of the Company and
its subsidiaries and affiliates, non-employee directors and
officers, consultants and other service providers.

The Board of Directors, or a committee consisting
of two or more members of the Board of Directors, administers
the 1998 Plan (the Administrator). The Administrator
has the full power and authority to interpret the 1998 Plan,
select the recipients of options and Purchase Rights, determine
and authorize the type, terms and conditions of, including
vesting provisions, and the number of shares subject to grants
under the 1998 Plan, and adopt, amend and rescind rules relating
to the 1998 Plan. The term of options may not exceed
10 years from the date of grant (5 years in the case
of a person who owns or is deemed to own more than 10% of the
total combined voting power of all classes of stock of the
Company). The option exercise price for each share granted
pursuant to an incentive stock option may not be less than 100%
of the fair market value of a share of common stock at the time
such option is granted (110% of fair market value in the case of
an incentive stock option granted to a person who owns more than
10% of the combined voting power of all classes of stock of the
Company). There is no minimum purchase price for shares of
common stock purchased pursuant to a Purchase Right, and any
such purchase price shall be determined by the Administrator. The

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##### Table of Contents



MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

maximum number of shares for which options may be
granted to any one person during any one calendar year under the
1998 Plan is 1,650,000 and in no event shall the aggregate
number of shares subject to incentive stock options exceed
1,650,000. The aggregate fair market value of the common stock
(determined as of the date of grant) with respect to incentive
stock options granted under the 1998 Plan or any other stock
option plan of the Company that become exercisable for the first
time by any optionee during any calendar year may not exceed
$100,000. At December 31, 2001, 1,025,682 shares were
available for grant under the 1998 Option Plan.

In 1999, the Board of Directors approved the
adoption of the 1999 Stock Incentive Plan (1999
Plan). The 1999 Plan originally authorized up to 2,200,000
shares of common stock for issuance under the terms of the 1999
Plan. In 2001, the Board of Directors approved an amendment to
the 1999 Plan increasing the number of authorized shares of
common stock for issuance to 3,200,000. The authorized number of
shares is subject to adjustment in the event of stock splits,
stock dividends or certain other similar changes in the capital
structure of the Company. The 1999 Plan provides for grants of
nonqualified stock options to officers, directors, key
employees, consultants and other service providers.

The 1999 Plan is administered by the Board of
Directors or a committee consisting of two or more members of
the Board of Directors (the Administrator). The
Administrator has the full power and authority to interpret the
1999 Plan, select the recipients of options, determine and
authorize the type, terms and conditions of, including vesting
provisions, and the number of shares subject to grants under the
1999 Plan, and adopt, amend and rescind rules relating to the
1999 Plan. The term of options may not exceed 10 years from
the date of grant. The option exercise price for each share
granted may not be less than 100% of the fair market value of a
share of common stock at the time such option is granted. The
maximum number of shares for which options may be granted to any
one person during any one calendar year under the 1999 Plan is
550,000. At December 31, 2001, 318,309 shares were
available for grant under the 1999 Option Plan.

In April 2001 the Company granted 330,000 options
to two of its board members, who are also officers of Fidelity
National. The options were granted at an exercise price of $7.45
per share and vest over 4 years. The Company recorded
compensation expense in the amount of $465,000 for the
amortization of the vested portion of the fair value of the
82,500 options under these grants in the amount of
$2.8 million at December 31, 2001. The Company will
continue to record compensation expense based on the fair value
of the remaining unvested options at the end of each subsequent
financial reporting period through April 2005.

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##### Table of Contents



MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of the Companys stock option
activity and related information for the years ended
December 31, 2001, 2000 and 1999 is as follows (adjusted
for the 10% stock dividend declared on May 2, 2001).

|                                 |           |           |           |           |   |           |      |           |  |           |           |           |   |   |      |       |  |  |           |           |   |   |      |      | 
|-------------------------------- | --------- | --------- | --------- | --------- | - | --------- | ---- | --------- |  | --------- | --------- | --------- | - | - | ---- | ----- |  |  | --------- | --------- | - | - | ---- | ---- | 
|                                 |           |           |           |           |   |          
|                                 |           | 2001      |           | 2000      |   | 1999     
|                                 |           |           |           |           |   |          
|                                 |           |           |           | Weighted- |   |           |      | Weighted- |  |           |           | Weighted-
|                                 |           |           |           | Average   |   |           |      | Average   |  |           |           | Average  
|                                 |           | Number    |           | Exercise  |   | Number    |      | Exercise  |  | Number    |           | Exercise 
|                                 |           | of Shares |           | Price     |   | of Shares |      | Price     |  | of Shares |           | Price    
|                                 |           |           |           |           |   |           |      |           |  |           |           |          
|Outstanding at beginning of year |           |           | 3,790,762 |           |   | $         | 5.84 |           |  |           | 3,809,406 |           |   | $ | 3.90 |       |  |  | 1,582,808 |           |   | $ | 3.95 |     
|                                 | Granted   |           |           | 1,775,368 |   |           |      | 8.85      |  |           |           | 927,300   |   |   |      | 11.75 |  |  |           | 2,890,855 |   |   |      | 3.64 | 
|                                 | Exercised |           |           | (404,275  | ) |           |      | 4.22      |  |           |           | (635,225  | ) |   |      | 3.36  |  |  |           | (232,321  | ) |   |      | 2.54 | 
|                                 | Canceled  |           |           | (108,314  | ) |           |      | 6.61      |  |           |           | (310,719  | ) |   |      | 6.85  |  |  |           | (431,936  | ) |   |      | 4.14 | 
|                                 |           |           |           |           |   |           |      |           |  |           |           |           |   |   |      |       |  |  |           |           |   |   |      |     
|Outstanding at end of year       |           |           | 5,053,541 |           |   |           | 7.00 |           |  |           | 3,790,762 |           |   |   | 5.82 |       |  |  | 3,809,406 |           |   |   | 3.86 |     
|                                 |           |           |           |           |   |           |      |           |  |           |           |           |   |   |      |       |  |  |           |           |   |   |      |     
|Options exercisable at year-end  |           |           | 3,265,476 |           |   | $         | 5.49 |           |  |           | 2,647,322 |           |   | $ | 4.82 |       |  |  | 2,465,257 |           |   | $ | 3.73 |     
|                                 |           |           |           |           |   |           |      |           |  |           |           |           |   |   |      |       |  |  |           |           |   |   |      |     

The following table sets forth options
outstanding and exercisable by price range at December 31,
2001:

|                         |  |                     |           |                     |  |           |      |             |  |           |       |  |  |  |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | --------- | ---- | ----------- |  | --------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                         |  |                     |           |                    
|                         |  | Options Outstanding |           | Options Exercisable
|                         |  |                     |           |                    
|                         |  |                     |           | Weighted-           |  |           |      |            
|                         |  | Number              |           | Average             |  | Weighted- |      | Number      |  | Weighted-
|                         |  | Outstanding         |           | Remaining           |  | Average   |      | Exercisable |  | Average  
|                         |  | as of               |           | Contractual         |  | Exercise  |      | as of       |  | Exercise 
|Range of Exercise Prices |  | 12/31/01            |           | Life                |  | Price     |      | 12/31/01    |  | Price    
|                         |  |                     |           |                     |  |           |      |             |  |          
|$0.01 - $ 4.32           |  |                     | 1,279,030 |                     |  |           | 7.25 |             |  | $         | 3.26  |  |  |  | 1,264,364 |  |  | $ | 3.27  | 
|$4.37 - $ 7.45           |  |                     | 2,172,728 |                     |  |           | 8.22 |             |  |           | 5.65  |  |  |  | 1,441,528 |  |  |   | 4.81  | 
|$7.65 - $27.61           |  |                     | 1,601,783 |                     |  |           | 8.89 |             |  |           | 11.80 |  |  |  | 559,584   |  |  |   | 12.26 | 
|                         |  |                     |           |                     |  |           |      |             |  |           |       |  |  |  |           |  |  |   |       | 
|$0.01 - $27.61           |  |                     | 5,053,541 |                     |  |           | 8.19 |             |  | $         | 7.00  |  |  |  | 3,265,476 |  |  | $ | 5.49  | 
|                         |  |                     |           |                     |  |           |      |             |  |           |       |  |  |  |           |  |  |   |       | 

The Company has elected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (Opinion 25), and related
Interpretations in accounting for its employee stock options. As
discussed below, in managements opinion, the alternative
fair value accounting provided for under Statement 123,
Accounting for Stock Based Compensation, requires
use of option valuation models that were not developed for use
in valuing employee stock options. Under Opinion 25, because the
exercise price of the Companys employee stock options
equals the market price of the underlying stock on the date of
the grant, no compensation expense is recognized.

The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options
that do not have vesting restrictions and are fully
transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected
stock price volatility. Because the Companys stock options
have characteristics significantly different from those of
traded options and because changes in the subjective input
assumptions can materially affect the value of an estimate, in
managements opinion, the existing models do not
necessarily provide a reliable single measure of the fair value
of its employee stock options.

Pro forma information regarding net earnings and
earnings per share is required by Statement 123, and has been
determined as if the Company had accounted for its employee
stock options under the fair value method of that statement. The
fair value for these options was estimated at the date of grant
using a Black-Scholes option-pricing model with the following
weighted-average assumptions. The risk-free interest rate used
in the calculation is the rate on the date the options were
granted. The risk-free interest rate used for

50



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##### Table of Contents



MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

options granted during 2001, 2000 and 1999 was
4.3%, 6.5% and 6.35%, respectively. Volatility factors for the
expected market price of the common stock of 51%, 56% and 53%
were used for options granted in 2001, 2000 and 1999,
respectively. No dividends are paid by the Company; as a result,
its expected dividend yield is 0.0%. A weighted-average expected
life of 8.19 years was used for 2001, 8.58 years for
2000, and 9.32 years for 1999.

The Company applies Opinion 25 in accounting for
its plans, and accordingly, no compensation cost has been
recognized for its employee stock options in the consolidated
financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Companys net earnings
for 2001, 2000 and 1999 would have been reduced to the proforma
amounts indicated below:

|                                      |             |      |   |           |  |      |   |            |   |  |   |            |  
|------------------------------------- | ----------- | ---- | - | --------- |  | ---- | - | ---------- | - |  | - | ---------- | -
|                                      |             | 2001 |   | 2000      |  | 1999
|                                      |             |      |   |           |  |     
|Net income (loss):                    |             |      |   |           |  |      |   |            |   |  |   |           
|                                      | As reported |      | $ | 6,737,889 |  |      | $ | 1,993,345  |   |  | $ | (7,146,439 | )
|                                      | Pro forma   |      | $ | 3,039,872 |  |      | $ | (1,359,121 | ) |  | $ | (9,133,767 | )
|Net income (loss) per share  basic   |             |      |   |           |  |      |   |            |   |  |   |           
|                                      | As reported |      | $ | 0.45      |  |      | $ | 0.14       |   |  | $ | (0.83      | )
|                                      | Pro forma   |      | $ | 0.20      |  |      | $ | (0.10      | ) |  | $ | (1.06      | )
|Net income (loss) per share  diluted |             |      |   |           |  |      |   |            |   |  |   |           
|                                      | As reported |      | $ | 0.40      |  |      | $ | 0.13       |   |  | $ | (0.83      | )
|                                      | Pro forma   |      | $ | 0.18      |  |      | $ | (0.10      | ) |  | $ | (1.06      | )

The Company also offers a 401(k) profit sharing
plan, a qualified voluntary contributory savings plan, available
to substantially all employees. Eligible employees may
contribute up to 15% of their pretax annual compensation, up to
the amount allowed pursuant to the Internal Revenue Code. The
Company matches 50% of the first 6% of contributions made by an
employee.

(10) Acquisitions

Interactive Associates

On March 22, 1999, the Company acquired
Interactive Associates, Inc., a privately held distributor of
computer telephony hardware and services. This acquisition
provided for the purchase of 100% of the common stock of
Interactive Associates, Inc. in exchange for 50,000 shares of
Micro General common stock, subject to certain conditions,
including an earn out provision for up to an additional 50,000
shares. The closing price of the Company common stock on
March 22, 1999, according to the NASDAQ Bulletin Board, was
$3.88. This acquisition was accounted for using the purchase
method. The financial position and results of operation of
Interactive are not material to the Company. All 50,000 shares
in the earnout provision were earned and recorded in 2000.

SoftPro Corporation

On August 20, 2001, the Company acquired
SoftPro for $1.75 million in cash and 336,034 shares of the
Companys common stock valued at $3,919,500. The
consideration for the acquisition was determined based on a per
share price of $11.66 which was the average quoted market price
of the of Micro General Corporations common stock less a
10% discount for the restricted nature of the shares granted to
effect the purchase. The Company also assumed the SoftPro Option
Plan, which had 133,328 options issued and outstanding. The
vesting of these options accelerated upon the change in
ownership. The vested options were then converted to 84,785 of
the Companys options which were valued at $1,131,126 using
the Black Scholes option-pricing model. SoftPro is a provider of
real estate closing and title insurance automation software for

51



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MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the independent title agent marketplace.
SoftPros acquisition will allow the company to expand its
product offerings and enable the company to more rapidly enter
market segments that SoftPro is currently in. The acquisition
was accounted for as a purchase and the results of operations
have been included in the Companys results of operations
since August 20, 2001.

The following table summarizes the estimated fair
values of the assets acquired and liabilities assumed at the
date of acquisition, August 20, 2001.

|                                 |                       |   |            |           | 
|-------------------------------- | --------------------- | - | ---------- | --------- | 
|Current assets                   |                       | $ | 1,808,071  |          
|Property and equipment           |                       |   | 360,492    |          
|Customer list                    |                       |   | 932,000    |          
|Capitalized software development |                       |   | 989,000    |          
|Goodwill                         |                       |   | 4,900,884  |          
|                                 |                       |   |            |          
|                                 | Total assets acquired |   |            | 8,990,447 | 
|Current liabilities assumed      |                       |   | (2,096,821 | )        
|                                 |                       |   |            |          
|                                 | Net assets acquired   |   | $          | 6,893,626 | 
|                                 |                       |   |            |          

The acquisition was accounted for in accordance
with FASB Statement No. 141, Business
Combinations. Identifiable intangibles included
capitalized software development costs and customer lists, and
will be amortized over an estimated useful life of five years.
Residual goodwill will not be amortized but will be subject to
periodic testing of impairment at the reporting unit level in
accordance with Financial Accounting Standards No. 142.

RealEC Technologies, Inc.

On November 1, 2001, the Company signed an
agreement with Beyond Ventures, LLC and MGEN Tech Fund I, L.P.
and transferred 30,779 and 123,114 shares, respectively, of
Micro Generals common stock in exchange for all of RealEC
Technologies common stock. The consideration for the
acquisition was determined based on a per share price of $10.24
for Micro General common stock, which was the average quoted
market price of Micro General common stock less a 10% discount
for the restricted nature of the shares granted to effect the
purchase. The number of Micro General shares exchanged (153,893)
was calculated based on a per share price of $1.305 for RealEC
Technologies common stock, which was the per share
purchase price in RealECs latest equity financing to an
outside independent party which closed on October 25, 2001.
Combined with Micro Generals convertible preferred stock
position, Micro General now owns approximately 56% of RealEC
Technologies on an as-if converted basis assuming conversion of
all convertible preferred stock and convertible notes. Effective
November 1, 2001, Micro General consolidated RealEC
Technologies results with its results of operations.
RealEC is one of the largest real estate electronic commerce
networks in the nation. The RealEC acquisition has placed Micro
General as a leading provider of services in a new market
segment.

52



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##### Table of Contents



MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes the estimated fair
values of the assets acquired and liabilities assumed at the
date of acquisition, November 1, 2001.

|                                                        |                         |   |            |            |  
|------------------------------------------------------- | ----------------------- | - | ---------- | ---------- | -
|Current assets                                          |                         | $ | 3,463,420  |           
|Property and equipment                                  |                         |   | 1,734,423  |           
|Capitalized software development costs                  |                         |   | 1,482,918  |           
|Long-term deferred tax asset                            |                         |   | 1,273,066  |           
|Goodwill                                                |                         |   | 2,685,504  |           
|                                                        |                         |   |            |           
|                                                        | Total assets acquired   |   |            | 10,639,331 |  
|Current liabilities assumed                             |                         |   | (4,290,308 | )         
|Series A and B preferred stock held by
	outside parties |                         |   | (7,062,173 | )         
|Series A preferred stock held by Micro
	General         |                         |   | (1,491,373 | )         
|                                                        |                         |   |            |           
|                                                        | Net deficiency acquired |   | $          | (2,204,523 | )
|                                                        |                         |   |            |           

The acquisition was accounted for in accordance
with FASB Statement No. 141, Business
Combinations. Identifiable intangibles included
capitalized software development costs, and will be amortized
over its expected useful life, which is estimated to be five
years. Residual goodwill will not be amortized but will be
subject to periodic testing of impairment at the reporting unit
level in accordance with Financial Accounting Standards
No. 142.

The rights, preferences and privileges of the
RealEC subsidiary Series A and Series B preferred
stock are listed below.



| |                  
| | -----------------
| | Conversion Rights

Each share of Series A preferred stock and
Series B preferred stock is convertible, at the option of
the holder, into common stock at a conversion ratio of 1:1. Each
share of Series A and Series B preferred stock shall
automatically be converted into a share of common stock upon the
(a) closing of a firm commitment underwritten public
offering, (b) upon vote or written consent of holder of not
less than a majority of the outstanding shares of Series A
preferred stock and Series B preferred stock voting
together as a class, or (c) on the fifth anniversary of the
date the Series A and Series B preferred stock were
issued by RealEC.



| |          
| | ---------
| | Dividends

Series A and Series B preferred
shareholders are entitled to receive non-cumulative dividends at
the rate $.05 per annum per share of Series A preferred
stock, and at the rate of $.065 per share of Series B
preferred stock, when and if, declared by RealECs Board of
Directors. In the event that a cash dividend is declared at any
time prior to June 1, 2003, each holder of Series A
preferred stock and Series B preferred stock may elect, at
their option, to have such dividend paid in either cash or in a
number of additional shares of Series A preferred stock or
Series B preferred stock equal to the amount of such
dividend. Both the Series A and Series B preferred
stock is non-voting.



| |            
| | -----------
| | Liquidation

In the event of a liquidation, dissolution or
winding up of RealEC, the holders of Series A preferred
stock are entitled to receive the greater of $1.00 per share
plus all accrued or declared but unpaid dividends, if any, but
before common shareholders, or an amount that each share of
outstanding Series A preferred stock would be entitled to
if immediately prior to such liquidation, dissolution, or
winding up of RealEC, such share is converted into common stock,
plus any declared but unpaid dividends. Holders of Series B
preferred stock are

53



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MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

entitled to receive the greater of $1.305 per
share plus all accrued or declared but unpaid dividends, if any,
but before common shareholders or an amount that each share of
outstanding Series B preferred stock would be entitled to
if immediately prior to such liquidation, dissolution, or
winding up of RealEC, such share is converted into common stock
plus any declared but unpaid dividends.

The Companys consolidated financial
statements for the year ended December 31, 2001 include the
results of operations of SoftPro since its acquisition on
August 20, 2001 and the results of operations of RealEC
since its acquisition on November 1, 2001. The following
selected pro forma information is being provided to present a
summary of the combined results of the Company, SoftPro and
RealEC as if the acquisitions had occurred as of the beginning
of each period, giving effect to purchase accounting adjustments.

|                                       |  |                             |             |              |  |   |            |  
|-------------------------------------- |  | --------------------------- | ----------- | ------------ |  | - | ---------- | -
|                                       |  |                            
|                                       |  | For the Proforma Year Ended
|                                       |  |                            
|                                       |  | December 31,                |             | December 31,
|                                       |  | 2001                        |             | 2000        
|                                       |  |                             |             |             
|Net revenues                           |  | $                           | 125,017,928 |              |  | $ | 77,112,393 |  
|Net income (loss)                      |  |                             | 1,858,562   |              |  |   | (281,445   | )
|Net income (loss) per share  basic    |  | $                           | 0.12        |              |  | $ | (0.02      | )
|Net income (loss) per share 
	diluted |  | $                           | 0.11        |              |  | $ | (0.02      | )

(11) Discontinued Operations

In December, 2001 the Company adopted a plan to
discontinue the operations of its wholly owned subsidiary,
LDExchange which was engaged in the wholesale international long
distance business. The company recorded a charge of
$5.3 million ($3.4 million net of income tax benefit)
for the disposal of LDExchange. The charge consisted primarily
of the write-off of discontinued assets, goodwill, and the
accrual of shutdown and severance costs.

The consolidated financial statements reflect the
results of operations of LDExchange reported as discontinued
operations for all periods presented. The LDExchange results for
2001, 2000, and 1999 are summarized as follows:

|                                  |  |      |            |      |  |      |            |   |  |   |            |  
|--------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                  |  | 2001 |            | 2000 |  | 1999
|                                  |  |      |            |      |  |     
|Revenues                          |  | $    | 19,749,396 |      |  | $    | 41,105,467 |   |  | $ | 58,597,628 |  
|Loss before income tax benefit    |  |      | (6,220,976 | )    |  |      | (7,804,138 | ) |  |   | (2,854,589 | )
|Income tax benefit                |  |      | 2,028,093  |      |  |      |           |   |  |   |           |  
|Loss from discontinued operations |  |      | (4,192,883 | )    |  |      | (7,804,138 | ) |  |   | (2,854,589 | )

Telecommunication revenues were recognized as
services were provided.

54



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MICRO GENERAL CORPORATION


AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The net assets (liabilities) of the
discontinued operations in the December 31, 2001 and 2000
Consolidated Balance Sheets include:

|                                                                |  |      |            |      |  |  |            |  
|--------------------------------------------------------------- |  | ---- | ---------- | ---- |  |  | ---------- | -
|                                                                |  | 2001 |            | 2000
|                                                                |  |      |            |     
|Cash and cash equivalents                                       |  |      | 342,837    |      |  |  | 997,144    |  
|Trade accounts receivable                                       |  |      | 698,973    |      |  |  | 2,668,241  |  
|Other current assets                                            |  |      | 21,784     |      |  |  | 352,195    |  
|Accounts payable and accrued expenses                           |  |      | (2,642,705 | )    |  |  | (3,378,575 | )
|Current portion of capital lease                                |  |      | (392,030   | )    |  |  | (350,875   | )
|                                                                |  |      |            |      |  |  |            |  
|Net current assets (liabilities) of discontinued
	operations    |  |      | (1,971,141 | )    |  |  | 288,130    |  
|                                                                |  |      |            |      |  |  |            |  
|Property, plant and equipment  net                             |  |      |           |      |  |  | 3,951,138  |  
|Goodwill  net                                                  |  |      |           |      |  |  | 1,877,191  |  
|Deferred revenue and other long term liabilities                |  |      |           |      |  |  | (146,067   | )
|Capital leases  long term                                      |  |      | (839,440   | )    |  |  | (1,231,470 | )
|                                                                |  |      |            |      |  |  |            |  
|Net non-current assets(liabilities) of
	discontinued operations |  |      | (839,440   | )    |  |  | 4,450,792  |  
|                                                                |  |      |            |      |  |  |            |  

55



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

None.




PART III






Item 10. Through 13.


Within 120 days after the close of its
fiscal year, the Company intends to file with the Securities and
Exchange Commission a definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934 as
amended, which will include the election of directors, the
report of compensation committee on annual compensation, certain
relationships and related transactions and other business.




PART IV




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

(a)(1) Financial Statements.The
following is a list of the Consolidated Financial Statements of
Micro General Corporation and its subsidiaries included in
Item 8 of Part II.



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Independent Auditors Report.                                                                         
|
| | Consolidated Balance Sheets as of
	December 31, 2001 and 2000.                                        
|
| | Consolidated Statements of Operations for the
	years ended December 31, 2001, 2000, and 1999.         
|
| | Consolidated Statements of Stockholders
	Equity for the years ended December 31, 2001, 2000 and 1999.
|
| | Consolidated Statements of Cash Flows for the
	years ended December 31, 2001, 2000, and 1999.         



| |                                            
| | -------------------------------------------
| | Notes to Consolidated Financial Statements.

(a)(2) Financial Statement Schedules.The following is a list of financial statement schedules
filed as part of this annual report on Form 10-K.

Schedule II:     Valuation
and Qualifying Accounts.

All other schedules are omitted because they are
not applicable or not required, or because the required
information is included in the Consolidated Financial Statements
or notes thereto.

(a)(3) The following exhibits are
incorporated by reference or are set forth on pages to this
Form 10-K:

|        |      |             |  |                                                                                                                                                                                                                     
|------- | ---- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 3.1  |             |  | Restated Certificate of Incorporation of Micro
	General incorporated by reference to Micro Generals Annual
	Report on Form 10-K, as amended for the year ended
	December 25, 1988.                                 
|        | 3.2  |             |  | Certificate of Amendment of Certificate of
	Incorporation of Micro General, as amended on February 12,
	2002.                                                                                                       
|        | 3.3  |             |  | Amended and Restated Bylaws of Micro General.                                                                                                                                                                       
|        | 10.1 |             |  | 1995 Stock Option Plan.*                                                                                                                                                                                            
|        | 10.2 |             |  | 1998 Stock Incentive Plan, incorporated by
	reference to Micro Generals Registration Statement on
	Form S-8 filed on September 25, 1998 and Micro
	Generals Proxy Statement on Form 14A, filed on
	July 1, 1999.* 
|        | 10.3 |             |  | 1998 Employee Stock Purchase Plan, incorporated
	by reference to Micro Generals Registration Statement on
	Form S-8 filed on September 25, 1998.*                                                                  
|        | 10.4 |             |  | 1999 Stock Incentive Plan, incorporated by
	reference to Micro Generals Registration Statement on
	Form S-8, filed on February 1, 2000 and Micro
	Generals Proxy Statement on Form 14A, filed on
	April 30, 2001.*

56



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##### Table of Contents



|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | ----- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10.5  |             |  | Agreement and Plan of Reorganization dated as of
	May 14, 1998, among ACS Systems, Inc., Micro General, ACS
	Merger, Inc. and Fidelity National Financial, Inc., incorporated
	by reference to Micro Generals Current Report on
	Form 8-K filed on May 26, 1998.                                                                                                                                                                               
|        | 10.6  |             |  | Agreement of Merger dated May 14, 1998 by
	and among ACS Systems, Inc., Micro General, and Fidelity
	National Financial, Inc., incorporated by reference to Micro
	Generals Current Report on Form 8-K filed on
	May 26, 1998.                                                                                                                                                                                                                 
|        | 10.7  |             |  | Employment Agreement effective as of
	April 15, 1999 between Micro General and John Snedegar.*                                                                                                                                                                                                                                                                                                                                                  
|        | 10.8  |             |  | Intellectual Property Transfer, Right of First
	Refusal, and Warrant Purchase Agreement by and between Micro
	General and Escrow.com, Inc. dated October 1, 1999,
	incorporated by reference to Micro Generals Annual Report
	on Form 10-K for the year ended December 31, 1999.                                                                                                                                                               
|        | 10.9  |             |  | Promissory Note payable to Micro General
	Corporation by Escrow.com, Inc. dated October 1, 1999,
	incorporated by reference to Micro Generals Annual Report
	on Form 10-K for the year ended December 31, 1999.                                                                                                                                                                                                                                
|        | 10.10 |             |  | Convertible Note Purchase Agreement by and
	between Micro General Corporation and Cal West Service
	Corporation dated as of December 15, 1999, incorporated by
	reference to Micro Generals Annual Report on
	Form 10-K for the year ended December 31, 1999.                                                                                                                                                                                  
|        | 10.11 |             |  | Credit Agreement and Promissory Note by and
	between Micro General and Imperial Bank entered into on
	December 22, 1999, incorporated by reference to Micro
	Generals Annual Report on Form 10-K for the year
	ended December 31, 1999.                                                                                                                                                                                                        
|        | 10.12 |             |  | Stock Purchase Agreement, dated as of May 3,
	2000, entered into by and among North Star Telecom, LLC, Micro
	General, and ACS Systems, Inc., incorporated by reference to
	Micro Generals report on Form 10-K filed on
	March 28, 2000, as amended April 28, 2000.                                                                                                                                                                            
|        | 10.13 |             |  | Management Agreement, dated as of May 4,
	2000, entered into by and among North Star Telecom, LLC, Micro
	General, LDExchange.com, Inc. and ACS Systems, Inc. incorporated
	by reference to Micro Generals report on Form 10-K
	filed on March 28, 2000, as amended April 28, 2000.                                                                                                                                                            
|        | 10.14 |             |  | Asset Transfer, Right of First Refusal and Stock
	Purchase Agreement entered into as of May 19, 2000, by and
	between Micro General and TXMNet, Inc., incorporated by
	reference to Micro Generals report on Form 10-K filed
	on March 28, 2000, as amended April 28, 2000.                                                                                                                                                                    
|        | 10.15 |             |  | Mutual Release and Settlement Agreement, dated as
	of December 28, 2000, entered into by and among North Star
	Enterprises, LLC, North Star Telecom, LLC, and all subsidiaries
	and entities owned by and/or related to either of said North
	Star companies, Micro General, LDExchange.com, Inc. and ACS
	Systems, Inc., incorporated by reference to Micro Generals
	report on Form 10-K filed on March 28, 2000, as
	amended April 28, 2000.
|        | 10.16 |             |  | System Development, Maintenance and Information
	Technology Services Agreement between Micro General and Fidelity
	National Financial, Inc., dated May 23, 2001.                                                                                                                                                                                                                                                                                
|        | 10.17 |             |  | System Development, Maintenance and Information
	Technology Services Agreement between Micro General and Fidelity
	National Information Solutions, Inc., effective as of
	August 2, 2001.                                                                                                                                                                                                                                                       
|        | 10.18 |             |  | Employment Agreement with Nancy Pope Nelson,
	effective November 7, 2001.*                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.19 |             |  | License Agreement between Micro General and
	iLumin Corporation, dated December 21, 2001.                                                                                                                                                                                                                                                                                                                                                       
|        | 10.20 |             |  | First Modification to Credit Agreement between
	Micro General and Imperial Bank, dated July 23, 2001.                                                                                                                                                                                                                                                                                                                                           
|        | 10.21 |             |  | Software Services Agreement between Micro General
	and Fidelity National Financial, Inc., dated March 5, 2001.                                                                                                                                                                                                                                                                                                                                  
|        | 10.22 |             |  | Software Services Agreement between Micro General
	and Fidelity National Financial, Inc., dated June 14, 2000.                                                                                                                                                                                                                                                                                                                                  
|        | 10.23 |             |  | Software Services Agreement between Micro General
	and Fidelity National Financial, Inc., dated August 21,
	2000.                                                                                                                                                                                                                                                                                                                               

57



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##### Table of Contents



|        |       |             |  |                                                                                                                                                                                                                                                                                               
|------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10.24 |             |  | Software Services Agreement between Micro General
	and Fidelity National Financial, Inc., dated September 28,
	2000.                                                                                                                                                                          
|        | 10.25 |             |  | Software Services Agreement between Micro General
	and Fidelity National Financial, Inc., dated November 1,
	2000.                                                                                                                                                                            
|        | 10.26 |             |  | Software Services Agreement between Micro General
	and Fidelity National Financial, Inc., dated February 15,
	2001.                                                                                                                                                                           
|        | 10.27 |             |  | Software Services Agreement between Micro General
	and Fidelity National Financial, Inc., dated February 9,
	2001.                                                                                                                                                                            
|        | 10.28 |             |  | Master Security Agreement between Micro General
	and General Electric Capital Corporation, dated May 21,
	2001.                                                                                                                                                                               
|        | 10.29 |             |  | Agreement And Plan Of Merger And Reorganization
	among the Shareholder of SoftPro Corporation, SoftPro
	Corporation, SoftPro Merger Corp. and Micro General, dated as of
	July 13, 2001, incorporated by reference to Micro
	Generals current report on Form 8-K filed on
	September 4, 2001.
|        | 10.30 |             |  | Convertible Promissory Note between Micro General
	and RealEC Technologies, Inc., dated October 25, 2001.                                                                                                                                                                                     
|        | 21.1  |             |  | Subsidiaries of Micro General.                                                                                                                                                                                                                                                                
|        | 23.1  |             |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                                          



---



|  |                                                                                                                               
|- | ------------------------------------------------------------------------------------------------------------------------------
|* | This exhibit is identified as a management
	contract or compensatory plan or arrangement pursuant to
	Item 14(a) of Form 10-K.

(b) Reports on Form 8-K.The
Company filed reports on Form 8-K during the fourth quarter
of 2001 as follows:



| |                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On October 11, 2000 we filed a Form 8-K
	(Item 5) relating to our stock repurchase plan.                                                                                                                                                                  
|
| | On December 19, 2001 we filed a
	Form 8-K (Item 2) relating to our purchase of all of
	the outstanding common stock of RealEC Technologies, Inc. and
	included the financial statements of RealEC Technologies, Inc.
	and pro forma financial information.

58



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SIGNATURES

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



| |                           
| | --------------------------
| | MICRO GENERAL CORPORATION,
| | a Delaware Corporation    



| |     |                  
| | --- | -----------------
| | By: | /s/ JOHN SNEDEGAR

| |                                   
| | ----------------------------------
| |                                   
| | John Snedegar                     
| | Chief Executive Officer, President
| | (Principal Executive Officer)     

Date: March 28, 2000

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/ JOHN R. SNEDEGARJohn R. Snedegar         |  | President, Chief Executive Officer
	and Director                                                      |  | March 28, 2002
|                                            
|/s/ DALE W. CHRISTENSENDale W. Christensen   |  | Executive Vice President, and
	Chief Financial Officer
	(Principal Financial and
	Accounting Officer) |  | March 28, 2002
|                                            
|/s/ WILLIAM P. FOLEY, IIWilliam P. Foley, II |  | Director                                                                                              |  | March 28, 2002
|                                            
|/s/ PATRICK F. STONEPatrick F. Stone         |  | Director                                                                                              |  | March 28, 2002
|                                            
|/s/ DWAYNE WALKERDwayne Walker               |  | Director                                                                                              |  | March 28, 2002
|                                            
|/s/ JOHN M. MCGRAWJohn M. McGraw             |  | Director                                                                                              |  | March 28, 2002
|                                            
|/s/ RICHARD H. PICKUPRichard H. Pickup       |  | Director                                                                                              |  | March 28, 2002
|                                            
|/s/ CARL A. STRUNKCarl A. Strunk             |  | Director                                                                                              |  | March 28, 2002

59



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SCHEDULE II

MICRO GENERAL CORPORATION AND
SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES

Years Ended December 31, 2001, 2000 and
1999


|                              |                                 |                          |   |            |  |             |   |            |  |  |   |         |  |  |   |         | 
|----------------------------- | ------------------------------- | ------------------------ | - | ---------- |  | ----------- | - | ---------- |  |  | - | ------- |  |  | - | ------- | 
|                              |                                 |                         
|                              |                                 | Years Ended December 31,
|                              |                                 |                         
|                              |                                 |                          |   | Additions  |  |            
|                              |                                 | Balance at               |   | Charged to |  |             |   | Balance at
|                              |                                 | Beginning                |   | Costs and  |  | Amounts     |   | End of    
|Classification                |                                 | of Period                |   | Expenses   |  | Written-off |   | Period    
|                              |                                 |                          |   |            |  |             |   |           
|Year ended December 31, 2001: |                                 |                          |   |            |  |             |   |            |  |  |   |         |  |  |   |        
|                              | Allowance for doubtful accounts |                          | $ | 341,132    |  |             | $ | 239,672    |  |  | $ | 490     |  |  | $ | 580,314 | 
|Year ended December 31, 2000: |                                 |                          |   |            |  |             |   |            |  |  |   |         |  |  |   |        
|                              | Allowance for doubtful accounts |                          | $ | 255,828    |  |             | $ | 122,000    |  |  | $ | 36,696  |  |  | $ | 341,132 | 
|Year ended December 31, 1999: |                                 |                          |   |            |  |             |   |            |  |  |   |         |  |  |   |        
|                              | Allowance for doubtful accounts |                          | $ | 482,820    |  |             | $ | 251,929    |  |  | $ | 478,921 |  |  | $ | 255,828 | 

60



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##### Table of Contents






EXHIBIT INDEX

|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | ----- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 3.1   |             |  | Restated Certificate of Incorporation of Micro
	General incorporated by reference to Micro Generals Annual
	Report on Form 10-K, as amended for the year ended
	December 25, 1988.                                                                                                                                                                                                                                                             
|        | 3.2   |             |  | Certificate of Amendment of Certificate of
	Incorporation of Micro General, as amended on February 12,
	2002.                                                                                                                                                                                                                                                                                                                                   
|        | 3.3   |             |  | Amended and Restated Bylaws of Micro General.                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10.1  |             |  | 1995 Stock Option Plan.*                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10.2  |             |  | 1998 Stock Incentive Plan, incorporated by
	reference to Micro Generals Registration Statement on
	Form S-8 filed on September 25, 1998 and Micro
	Generals Proxy Statement on Form 14A, filed on
	July 1, 1999.*                                                                                                                                                                                                                             
|        | 10.3  |             |  | 1998 Employee Stock Purchase Plan, incorporated
	by reference to Micro Generals Registration Statement on
	Form S-8 filed on September 25, 1998.*                                                                                                                                                                                                                                                                                              
|        | 10.4  |             |  | 1999 Stock Incentive Plan, incorporated by
	reference to Micro Generals Registration Statement on
	Form S-8, filed on February 1, 2000 and Micro
	Generals Proxy Statement on Form 14A, filed on
	April 30, 2001.*                                                                                                                                                                                                                            
|        | 10.5  |             |  | Agreement and Plan of Reorganization dated as of
	May 14, 1998, among ACS Systems, Inc., Micro General, ACS
	Merger, Inc. and Fidelity National Financial, Inc., incorporated
	by reference to Micro Generals Current Report on
	Form 8-K filed on May 26, 1998.                                                                                                                                                                               
|        | 10.6  |             |  | Agreement of Merger dated May 14, 1998 by
	and among ACS Systems, Inc., Micro General, and Fidelity
	National Financial, Inc., incorporated by reference to Micro
	Generals Current Report on Form 8-K filed on
	May 26, 1998.                                                                                                                                                                                                                 
|        | 10.7  |             |  | Employment Agreement effective as of
	April 15, 1999 between Micro General and John Snedegar.*                                                                                                                                                                                                                                                                                                                                                  
|        | 10.8  |             |  | Intellectual Property Transfer, Right of First
	Refusal, and Warrant Purchase Agreement by and between Micro
	General and Escrow.com, Inc. dated October 1, 1999,
	incorporated by reference to Micro Generals Annual Report
	on Form 10-K for the year ended December 31, 1999.                                                                                                                                                               
|        | 10.9  |             |  | Promissory Note payable to Micro General
	Corporation by Escrow.com, Inc. dated October 1, 1999,
	incorporated by reference to Micro Generals Annual Report
	on Form 10-K for the year ended December 31, 1999.                                                                                                                                                                                                                                
|        | 10.10 |             |  | Convertible Note Purchase Agreement by and
	between Micro General Corporation and Cal West Service
	Corporation dated as of December 15, 1999, incorporated by
	reference to Micro Generals Annual Report on
	Form 10-K for the year ended December 31, 1999.                                                                                                                                                                                  
|        | 10.11 |             |  | Credit Agreement and Promissory Note by and
	between Micro General and Imperial Bank entered into on
	December 22, 1999, incorporated by reference to Micro
	Generals Annual Report on Form 10-K for the year
	ended December 31, 1999.                                                                                                                                                                                                        
|        | 10.12 |             |  | Stock Purchase Agreement, dated as of May 3,
	2000, entered into by and among North Star Telecom, LLC, Micro
	General, and ACS Systems, Inc., incorporated by reference to
	Micro Generals report on Form 10-K filed on
	March 28, 2000, as amended April 28, 2000.                                                                                                                                                                            
|        | 10.13 |             |  | Management Agreement, dated as of May 4,
	2000, entered into by and among North Star Telecom, LLC, Micro
	General, LDExchange.com, Inc. and ACS Systems, Inc. incorporated
	by reference to Micro Generals report on Form 10-K
	filed on March 28, 2000, as amended April 28, 2000.                                                                                                                                                            
|        | 10.14 |             |  | Asset Transfer, Right of First Refusal and Stock
	Purchase Agreement entered into as of May 19, 2000, by and
	between Micro General and TXMNet, Inc., incorporated by
	reference to Micro Generals report on Form 10-K filed
	on March 28, 2000, as amended April 28, 2000.                                                                                                                                                                    
|        | 10.15 |             |  | Mutual Release and Settlement Agreement, dated as
	of December 28, 2000, entered into by and among North Star
	Enterprises, LLC, North Star Telecom, LLC, and all subsidiaries
	and entities owned by and/or related to either of said North
	Star companies, Micro General, LDExchange.com, Inc. and ACS
	Systems, Inc., incorporated by reference to Micro Generals
	report on Form 10-K filed on March 28, 2000, as
	amended April 28, 2000.
|        | 10.16 |             |  | System Development, Maintenance and Information
	Technology Services Agreement between Micro General and Fidelity
	National Financial, Inc., dated May 23, 2001.                                                                                                                                                                                                                                                                                



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##### Table of Contents



|        |       |             |  |                                                                                                                                                                                                                                                                                               
|------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10.17 |             |  | System Development, Maintenance and Information
	Technology Services Agreement between Micro General and Fidelity
	National Information Solutions, Inc., effective as of
	August 2, 2001.                                                                                                     
|        | 10.18 |             |  | Employment Agreement with Nancy Pope Nelson,
	effective November 7, 2001.*                                                                                                                                                                                                                    
|        | 10.19 |             |  | License Agreement between Micro General and
	iLumin Corporation, dated December 21, 2001.                                                                                                                                                                                                     
|        | 10.20 |             |  | First Modification to Credit Agreement between
	Micro General and Imperial Bank, dated July 23, 2001.                                                                                                                                                                                         
|        | 10.21 |             |  | Software Services Agreement between Micro General
	and Fidelity National Financial, Inc., dated March 5, 2001.                                                                                                                                                                                
|        | 10.22 |             |  | Software Services Agreement between Micro General
	and Fidelity National Financial, Inc., dated June 14, 2000.                                                                                                                                                                                
|        | 10.23 |             |  | Software Services Agreement between Micro General
	and Fidelity National Financial, Inc., dated August 21,
	2000.                                                                                                                                                                             
|        | 10.24 |             |  | Software Services Agreement between Micro General
	and Fidelity National Financial, Inc., dated September 28,
	2000.                                                                                                                                                                          
|        | 10.25 |             |  | Software Services Agreement between Micro General
	and Fidelity National Financial, Inc., dated November 1,
	2000.                                                                                                                                                                            
|        | 10.26 |             |  | Software Services Agreement between Micro General
	and Fidelity National Financial, Inc., dated February 15,
	2001.                                                                                                                                                                           
|        | 10.27 |             |  | Software Services Agreement between Micro General
	and Fidelity National Financial, Inc., dated February 9,
	2001.                                                                                                                                                                            
|        | 10.28 |             |  | Master Security Agreement between Micro General
	and General Electric Capital Corporation, dated May 21,
	2001.                                                                                                                                                                               
|        | 10.29 |             |  | Agreement And Plan Of Merger And Reorganization
	among the Shareholder of SoftPro Corporation, SoftPro
	Corporation, SoftPro Merger Corp. and Micro General, dated as of
	July 13, 2001, incorporated by reference to Micro
	Generals current report on Form 8-K filed on
	September 4, 2001.
|        | 10.30 |             |  | Convertible Promissory Note between Micro General
	and RealEC Technologies, Inc., dated October 25, 2001.                                                                                                                                                                                     
|        | 21.1  |             |  | Subsidiaries of Micro General.                                                                                                                                                                                                                                                                
|        | 23.1  |             |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                                          



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|  |                                                                                                                               
|- | ------------------------------------------------------------------------------------------------------------------------------
|* | This exhibit is identified as a management
	contract or compensatory plan or arrangement pursuant to
	Item 14(a) of Form 10-K.