SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10 - KSB

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934[FEE REQUIRED]

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
                   -------------------------------------------
                                       OR

[ ]  TRANSITION  REPORT UNDER SECTION 13 OR 15(D) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934[NO FEE REQUIRED] For the  transition  period from
     to                                                            -----------
        ----------------.

                           COMMISSION FILE NO. 0-17114

                      DEFAULT PROOF CREDIT CARD SYSTEM, INC
                     ---------------------------------------
                 (Name of small business issuer in its charter)

              FLORIDA                                     59-2686523
          --------------                                -------------
         (State or other jurisdiction of                (I.R.S. Employer
         incorporation or organization)                Identification No.)

                  1545 MILLER ROAD, CORAL GABLES, FLORIDA    33146
                  ------------------------------------------------
               (Address of principal executive offices)   (Zip Code)

                   Registrant's telephone number:(305)666-1460
                                                 -------------

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

         TITLE OF EACH CLASS     NAME OF EACH EXCHANGE ON WHICH REGISTERED
         -------------------     -----------------------------------------
                  None                                None

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

                         COMMON STOCK, PAR VALUE $ 0.01
                         ------------------------------
                                (Title of Class)

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

Yes  X     No
   -------   ------

Check if there is no disclosure of delinquent  filers in response to item 405 of
Regulation  S-B,  contained  in  this  form  10-KSB  and no  disclosure  will be
contained,  to the best of registrant's knowledge, in definite proxy information
statements  incorporated  by  reference  Part  III of this  Form  10-KSB  or any
amendment to this Form 10-KSB [X].

The issuer's revenue for its most recent fiscal year was: Nil

The  aggregate  market  value of the voting stock held by  no-affiliates  of the
registrant (based upon the NASDAQ average bid and asked prices as of February 6,
2002 was 11,386,412.

The of shares issued and outstanding of the registrant's  common stock $0.01 par
value as of December 31, 2001 was: 1,508,134.

<PAGE>


                                     PART I

ITEM 1.   DESCRIPTION OF PRODUCTS & BUSINESS

     Default Proof Credit Card System, Inc. (the "Company"), was incorporated in
August 1985 under the laws of the State of Florida.  The Company  engages in the
development of  proprietary  methods and systems for issuing  secured,  prepaid,
stored value,  and gift credit and debit cards that are a safer lending risk for
the issuers and the  consumers.  The Company  first  secured  cards  program was
marketed  under the trademark  Resource,  presently the Company owns first class
technology  related to ATMs machines and to the prepaid  stored value cards.  On
August 15, 2000 U.S. Patent and Trademark Office issued the Patent No. 6,106,009
entitled  Automated Teller Machine Dispenser of Debit Cards ("ATMDDC") for which
it has  purchased  all  worldwide  rights and  licenses  from it's  inventor Dr.
Vincent Cuervo,  founder of Default Proof Credit Card System, Inc., and also the
inventor of the patent pending  applications  "INTERNET WEBSITE PROGRAM" for the
purchase,  issuing, activation and dispensing of prepaid debit cards, in the web
under the domain name  UBUYDEBITCARDS.COM  ["UBDC"], and the marketed in the web
as "THE OVER-THE-COUNTER PREPAID DEBIT CARD". Patent Pending ownership, the just
recently  filed patent  pending which full text and image database was published
by the U.S.  Patent and  Trademark  Office last  November  29, 2001 under patent
pending  application  publication number  20010047342  entitled "CREDIT OR DEBIT
CARDS OF ALL KINDS TO BE ISSUED WITH A BANK SAVINGS ACCOUNT  ATTACHED",  and the
"PREPAID  DEBIT  CARD  SYSTEM"  already  published  by WIPO,  the  International
Application  Under the  Patent  Cooperation  Treaty  and the World  Intellectual
Property Organization (WIPO) based in Geneva,  Switzerland,  wherein the Company
received  an  action  stating  that a  POSITIVE  result  has been  issued by the
International  Examining  Authority  that has been just  communicated  to DPCCS.
Presently  a  decision  needs to be made by DPCCS as to whether it wants to file
all of the 111  countries  elected or selected a number of them.

     These Company owned U.S.A.  patents, and U.S.A. patent pending applications
are continuation in part of the company's U.S. Patent  #6,105,009 that was filed
on June 16, 1997, date this that will be establishing  the legal claims priority
date,  and integrates  the  intellectual  property the Company has purchased and
owns all the worldwide  rights and licenses.  The  intellectual  property  above
mentioned is also protected under the United States  international  and national
Copyright laws, and particularly those State of Florida Trademark Laws. RESOURCE
is a national registered trademark of the Company since 1986.

     All of the Company's Intellectual Property is essential, efficient and will
proof effective to the savings and growing needs in the coming cashless society.

     Other segments of the Company's Intellectual Property and Patents are those
related to the Resource  System  which it was designed to enable  owners of life
insurance policies with cash surrender values to obtain a collateralized line of
credit  pursuant to the  issuance  by a  participating  bank or other  financial
institution of a credit or debit card,  such as MasterCard or Visa,  Discover or
AMEX. (See: "RESOURCE SYSTEM")

                                       2
<PAGE>

             THE COMPANY'S PATENTS AND PATENT PENDING APPLICATIONS
             -----------------------------------------------------

     INTERNET WEBSITE  PROGRAM,  patent pending it is continuation in part of US
Patent #6,105,009.

     O.T.C.   PREPAID  DEBIT  CARDS,  patent  pending   application,   it  is  a
continuation in part of US Patent #6,105,009.

     "PREPAID DEBIT CARD SYSTEM"  already  published by WIPO, the  International
Application  Under the  Patent  Cooperation  Treaty  and the World  Intellectual
Property  Organization (WIPO) based in Geneva,  Switzerland,  wherein a POSITIVE
result has been issued by the  International  Examining  Authority  and has been
just communicated to DPCCS. Presently a decision needs to be made by DPCCS as to
whether it wants to continue with all of the 111 countries elected or selected a
number of them.

     This  INTERNATIONAL  PATENT  APPLICATION,  PATENT  COOPERATION TREATY (PCT)
application was filed by the Company to obtain the International  Priority Claim
for the  prepaid  debit card  pending  applications.  The PCT filing  covers the
entire group of 110 countries plus United States of America.

     "CREDIT OR DEBIT  CARDS OF ALL KINDS  ISSUED  WITH A BANK  SAVINGS  ACCOUNT
ATTACHED",  another patent pending application that was filed on June 2001 which
in  accordance  with the new rule of the U.S.  Patent  and  Trademark  Office on
November 29, 2001 was published under Patent Pending  Application  Publication #
0010047342.The U.S. Patent and Trademark Office requires that all Patent Pending
applications,  filed after  3/30/01,  be published in the Internet.  Among other
things, this requirement provides additional  protection rights against possible
patent pending applications infringements.

     As its title  suggests,  the card will be issued  with an  attache  savings
account by the  issuing  bank.  Discounts,  rebates or cash  rewards  offered by
retailers or service provider  entities may be earned by customers when they use
the card to purchase merchandise or services. Once earned the discount,  rebate,
or cash  reward  will  then be  electronically  transferred  crediting  the bank
savings account associated with the card.

     Presently retailers and service providers offer discounts,  rebates or cash
rewards to only their own  cardholders.  In the United  States,  in excess of 45
million  individuals do not have a bank relationship.  An even greater number do
not have  credit or debit  cards,  or a retailer  card such as those  offered by
Sears, Burdines, Home Depot, Wal-Mart, and many other retailers. Major marketing
efforts will be directed toward those retailers and service  providers  offering
the  opportunity  to extend the same  discounts  and  benefits to the holders of
these DEBIT OR CREDIT CARDS WITH A BANK SAVINGS ACCOUNT  ATTACHED.  By so doing,
merchants will benefit with a vast source of new customers  being  encouraged by
offers to receive these discounts, rebates or cash rewards when using their card
at those participating stores.

     With the amounts credited to the attached  savings account,  the cardholder
will have control of its rebates and rewards having several options, determining
when and how to handle the rebates or cash  awards.  At any time the account has
accrued $15. or more the cardholder may select one of these options: In minimums
of $10.,  no maximum,  may use the accrued funds to increase the stored value of
their Prepaid Debit Card; to reduce the outstanding balance on a Credit Card, or
to request a check or cash.  A small $5 balance  should be kept to maintain  and
keep open the bank savings account.


                                       3
<PAGE>


     Patents and patent  pending  applications  differ from present  methods and
ways of soliciting,  purchasing  and deliver or dispensing.  Thanks to the DPPCS
intellectual property, its prepaid debit card would be available through several
different options,  the purchasers shopping can for DPCCS prepaid debit card may
select and design the card  amount of line of credit  desired in  accordance  to
their  needs and  means,  and they may used with more than one card to  transfer
funds and other incentives.

     These prepaid card may be obtain:  a) for cash or charges to existing debit
or  credit  cards  at  modified  Automated  Teller  Machines,  see  U.S.  Patent
#6,105,009  above and visit  "Products"  at  http://members.aol.com/dpccsystem/,
when available; b)by using the cyberspace and the Internet through the "Internet
Prepaid Debit Card Website  Program"  Intellectual  Property  which simplify the
purchase, issuance, activation and dispensing of prepaid debit cards, all in the
web under the domain  name  http://ubuydebitcards.com  ["UBDC"].  This  Internet
purchased  prepaid  card,  in the near future would be dispensed by an Automated
Teller Machine (ATMDCD U.S. Patent  #6,105,009) at a convenient  location to the
purchaser.  Presently  is  planned  that  would  be  pick  it up at  any  of the
participating  issuing bank  branches,  or be send by mail if so desired.  UBYDC
solves the problem of obtaining a debit card in an efficient and economical way.
There is no assurance that a related  patent to this patent pending  application
will be issue,  nevertheless  being a continuation in part of the Company's U.S.
Patent  #6,105,009  makes it more  likely;  d) at  selected  authorized  stores,
"System For  Dispensing  Prepaid  Debit Cards Through  Point-Of-Sale  Terminals"
marketed,     described     and    referred    in    "Products"    at    website
http://members.aol.com/dpccsystem/ as "The Over-The-Counter Prepaid Debit Card".
The  "Over-the-Counter"  Prepaid Debit Cards would be purchased at participating
stores from merchants,  like  supermarkets,  drugstores,  convenience stores and
from many other retailers.  Virtually  anyone,  anywhere in the world could be a
purchaser and buy one or many.

     The patent  pending,  a PREPAID  DEBIT CARDS  PROGRAM that may be purchased
Over-The-Counter at participating stores worldwide, is a continuation-in-part of
the Company's U.S. Patent No.6,105,009.

     The O-T-C  Prepaid  Debit  Card  Program  may soon be  co-branded  by a top
credit/debit card company in the card industry.  The program offers new features
as well as  improvements  to those now in the market,  in this  rapidly  growing
market,  those features offered are, including but not limited to: the unbanked,
money transfers,  teenagers,  payroll, college students and many others. It will
not require or be linked to a bank checking account, may be reloaded and will be
replaceable.

     THIS GLOBAL, PIN REQUIRED PREPAID DEBIT CARD will be easy and convenient to
purchase at the  counters  of  participating  stores  utilizing  their  existing
Point-of-Sales ("POS") terminals. This dynamic card will offer a wide variety of
uses and global  applications,  as well as several unique  advantages  that will
benefit issuers, users, and merchants.

     None of these Default Proof Credit Card System  prepaid debit cards require
previous banking affiliation or check,  savings or any other bank account,  even
though  the  prepaid  debit  card  will be  issued  by a  participating  bank or
financial  institution  which will be the funds depository of the prepaid stored
value in the cards for later  payments of those charges made by the consumer for
merchandise and services purchased with the card.


                                       4
<PAGE>

U.S. PATENT NUMBER 6,105,009 AND RELATED PENDING APPLICATIONS
-------------------------------------------------------------

     Automated  Teller  Machine  Dispenser  of  Debit  Cards,  U.S.  Patent  No.
6,105,009 is a patented system and technology for controlled purchase,  issuance
and  dispensing  of prepaid  debit cards.  The consumer  designs his own prepaid
debit  card in  accordance  to his  economic  means and  needs.  The Debit  Card
Dispenser  technology will be incorporated into newly  manufactured ATMs as well
as  existing  ATMs with  simple  modifications  or will  operate in  stand-alone
kiosks. Even is included in the technology, initially the system preferable will
dispense actual Debit Cards, not vouchers or coupons.

     This patent #6,105,009 will provide a system for dispensing and controlling
debit cards.

     All Default Proof's Patented  Prepaid Debit Card provide numerous  benefits
to the  sponsoring  financial  institution  such as:  Interim use of depositor's
funds,  also  known  as  cash  float;  Fees  from  merchant  discounts  and  ATM
transactions;  Eliminates  charge-offs,  over  limit  usage  and  delinquencies;
Elimination of expenses associated with mailings and from losses associated with
fraud and theft;  Limited or minimal  liability;  Utilization  of  existing  ATM
(system  modifications  required),  and access to a potential of millions of new
"customers"  worldwide.  ATM Patent,  "Over-The-Counter  Prepaid Debit Card", as
well the  "UBUYDEBITCARDS"  patent pending  applications,  as well as the others
still patent pending applications,  would be Paramount in the marketing planning
of the Company.

     These cards will require a minimum of paperwork,  maintenance and financial
disclosure from a card purchaser,  and unlike typical online debit cards,  these
prepaid  debit cards will not require  previous or formal  banking  relationship
with the issuing  bank.  This  system,  and new  technology,  incorporated  into
existing Automated Teller Machines (ATMs) and now existing Point-Of-Sale ("POS")
terminals will permit consumers to purchase and designing a desire prepaid debit
card from widely available ATMs and POS at participating  retail stores,  in the
Internet  ubuydebitcards.com  site by using cash, or through charges to existing
debit and or credit cards. These compatible  elements,  inexpensive to maintain,
will be those operational systems in use today.

     Default Proof Credit Card System,  Inc.  strives to become the Intellectual
Property  technology  leader in the Prepaid Debit Card field, and in the complex
financial  ATM,  Over-The-Counter  and Web  based  patents  and  patent  pending
applications  related to the purchase,  sale,  and or dispense of prepaid stored
valued cards markets.  It is this  combination of disciplines that makes Default
Proof Credit Card System,  Inc. unique in this intellectual  property technology
owned.  DPCCS has invested in and created  cutting-edge  technologies to provide
our clients  advanced  solutions and  unparalleled  opportunities.  DPCCS is the
owner of  up-and-coming  Intellectual  Property  Technology in the Prepaid Debit
Card fields.


                                       5
<PAGE>
     Checks, cash, paper certificates,  vouchers, merchandise and other types of
financial instruments are being rapidly displaced by those that are more secure,
easier to use, more  convenient and of greater  ultimately  value to recipients.
DPCCS  intellectual  property  intents  to  serve  various  markets,   including
insurance,  payroll  processing,  incentive and promotion,  gift giving and many
others through prepaid stored value cards.  The Internet  represents  tremendous
opportunities  for prepaid  stored  value  cards  solutions  including  coupons,
virtual gift certificates and person to person payments.  In its recent Internet
Payments Report, Jupiter forecasts that 9% of Internet transactions in 2003 will
be completed  with a prepaid  stored value  payment  mechanism.  Every second of
every day, consumers are initiating electronic payment transactions getting cash
at ATMs, using debit and credit cards to make purchases in stores, for services,
and on the Internet,  banking by phone and paying bills online,  twenty  billion
times a year.  It would be the DPCCS  Intellectual  Property the  integral  link
between  buyers and  sellers in the  rapidly  evolving  universe  of  electronic
payments  through the  prepaid/stored  value cards and may will made it possible
for millions of consumers to use their  prepaid  credit,  debit,  stored  value,
commercial,  smart and retail  cards  anytime,  anywhere  through  any medium or
portal.

THE ATM PREPAID DEBIT CARDS DISPENSER - THE O-T-C PREPAID CARDS - THE INTERNET
------------------------------------------------------------------------------
PREPAID CARDS PROGRAM - THE PREPAID DEBIT CARD WITH ATTACHED BANK ACCOUNT, THE
------------------------------------------------------------------------------
INT'L PREPAID DEBIT CARD SYSTEM, POTENTIAL & REVENUE
----------------------------------------------------

     The Company  believes that prepaid debit cards can be effectively  marketed
to  selected  members  of the  general  public  that fall  among  the  following
categories:


     Individuals  that  have no credit or can only  qualify  for small  lines of
credit,  or wish to establish  their  credit  worthiness  for the future.  These
individuals  will be able to prepaid  the  stored  value  desired  for a line of
credit by purchasing either prepaid cards of the Company programs.

     Individuals  who for whatever  reason want to manage  their  funds,  or the
funds they may want to make available to others, within a predetermine budget or
allowance. This will allow individuals with the need not to exceed their prepaid
budget, to do so while still carrying a debit card.

     It will  allow  Companies  that have  employees  in an  allowance  to issue
prepaid cards,  instead of travel  advances.  Parents may send their children to
college with a controlled  monthly budget.  One important feature of the prepaid
debit card is that its much more safer  than cash  while  working,  is just like
cash. In today's environment, safety is a paramount issue.

     With the proliferation of Visa, AMEX, MasterCard and DISCOVER in just about
every retail outlet, and the strong presence of ATMs, Internet  e-commerce,  the
prepaid debit cards will function just like cash,  while  providing a top safety
element.


                                       6
<PAGE>

     Its worldwide acceptance gives travelers wishing to provide safety to their
traveling  expenses  through a prepaid  debit card,  instead of just charged it.
These prepaid  debit card may be obtained in any currency  desired and used just
like cash in the visiting country, but better, if cash is lost is lost, the card
can be replaced  and for a small  charge  recuperate  what ever balance is still
available. It will work just like travelers checks with the added convenience of
a debit card and its  safety.  Individuals  don't need to wait  through  all the
hassle  applying and  maintaining a presently now been offered debit card with a
checking  account as collateral.  There will be no  application,  no delays,  no
credit  reports,  no payments and no paperwork,  probably most important to some
individuals, will be no overspending

     Based  on  information,  recently  published  in  trade  magazines,  of the
existence of over 40 million  individuals who can't obtain credit,  debit or ATM
cards for a variety of  different  reasons  (bad  credit,  divorcees,  students,
bankruptcies,  recent migrant  arrivals,  etc.),  this could be one of the first
expected group to purchase prepaid debit cards.

     According to Nilson Reports,  debit card transactions  increased 54 percent
in 2000,  and usage  continues  to grow as the debit card evolves into more than
just an electronic extension of a checking account.

     Revenues,  royalties or fees,  may be expected  from  license  sales to ATM
manufacturers,  financial  institutions who own their own ATMs and would like to
added the various features available in the Company's intellectual property.

     DPCCS will begin selecting the appropriated processor providing the ability
to conduct  domestic  and  international  PIN-based  debit  cards  transactions,
including on-line transaction  processing,  switching,  routing and ATM terminal
driving,  a software  provider  for debit  networks and by  incorporating  their
software with our Intellectual Property technology.

INDUSTRY OVERVIEW
-----------------

         Several trends related to the businesses of the Company continue to
demonstrate impressive strength. The following is a brief synopsis of some
trends and statistics of significant. This is merely a summary for illustrative
purposes and is non-comprehensive.

     For the first time in six years, the Federal Reserve System Processed fewer
checks than it did the prior year.  Volume declined from 17.83 billion checks in
1999 to 16.99 billion checks in 2000. Slowing growth in check use and processing
contrasts sharply with the relatively high annual growth in the use at the point
of sale of PIN-based debit cards. From 1999 through 2000, total POS debit volume
increased  by 30% from  approximately  7 billion and $150 billion in total debit
charge volume to 9.1 billion transactions and $210 billion in total debit charge
volume (source: NACHA Electronic Payments Association).  For the full year 2000,
cardholders completed 3.8 billion of PIN based debit card purchases, up from 2.9
billion for 1999.  In March 2001,  PIN-based  debit card  purchase  transactions
totaled 348 million, up over 34% from 259 million transactions switched in March
2000.  PIN-based debit transactions are also getting help from merchants who, by
requiring PIN use, incur lower interchange network charges.


                                       7
<PAGE>


     Why stored value is important: as an economical, efficient, and safe method
of money transfer that is expected to save consumers  billions of dollars a year
in unnecessary transaction fess, since:

        23% of Americans do not have bank accounts;
        28% of all U.S. households can not obtain credit cards;
        50% of all U.S. households will soon have Web access;
        Teens spend approximately $153 billion per year mostly in cash;
        Store Value eliminates the need to carry cash;
        By 2005, plastic will capture 80% of the gift certificate market;
        A total of about 850 million gift cards;
        Employers can use payroll cards to pay salaries, wages, bonuses, fees,
          commissions, and as a tool for expenses reimbursement.

(Source: Total System Services, Inc., Columbus, GA.)

     Combined  Visa and  MasterCard  debit card issuers had 139 million cards in
circulation  at the end of 2000,  up 237%  from 40  million  at the end of 1995.
Americans made nearly 5.3 billion VISA and MasterCard  transactions  in 2000, up
an impressive  693% from 668 million for 1995.  From almost nothing in the early
1990's,  debit now accounts for about 18% of total VISA and MasterCard volume in
the United States. By comparison, over the past five years, the actual number of
credit cards Outstanding increased by 28%.

     The point,  although  previously  mentioned  cannot be emphasized  strongly
enough,  is that the  Company,  by virtue of its  ownership  of the  pre-eminent
intellectual  property  related to several  aspects of the prepaid  stored value
debit card industry, is uniquely well positioned to benefit from the current and
projected strength in this market.

     DPCCS is poised to capture the great share of the rapidly  growing  prepaid
debit card payments market with the granting of United States patents and patent
pending  applications and its  International  Patent Pending "PREPAID DEBIT CARD
SYSTEM"  filed  through  the  Patent  Cooperation  Treaty  (PCT)  and the  World
Intellectual Property Organization (WIPO) based in Geneva, Switzerland,  wherein
a POSITIVE result, just received, has been issued by the International Examining
Authority. In the near future a decision needs to be made by DPCCS communicating
PCT as to whether it wants to continue with all of the 111 countries  elected or
a selected number of them. This worldwide Patent  Cooperation  Treaty represents
an important  tool that will  establish and protect the  Company's  Intellectual
Property  status  with the  International  Claims  Priority  Date.  The  Company
strongly  stands  on  the  principle  that   Intellectual   Property,   Patents,
Copyrights,  Trademarks,  etc.,  should be respected  and expects to  vigorously
protect it's own.

PATENT PENDING APPLICATIONS DETAILS
-----------------------------------

         The following would be a brief information about the Company's patents
and patent pending applications, at this time it will be disclosed the maximum
safely permitted.


                                       8
<PAGE>


     The Patent  #6,105,009  Claims and Benefits of the Prepaid Debit Cards. The
patent  pending  application  related to the  Internet  purchase,  issuance  and
deliver of a Prepaid Debit Card, Patent Pending filed as Continuation In Part of
U.S. Patent #6,105,009, was filed and details 11 new prepaid debit cards claims.
The patent pending  application  related to the  Over-the-Counter  Prepaid Debit
Card,  Patent Pending filed as Continuation  In Part of U.S. Patent  #6,105,009,
was filed and details seven new prepaid debit cards claims.  The patent  pending
application  related to "CREDIT OR DEBIT  CARDS OF ALL KINDS  ISSUED WITH A BANK
SAVINGS  ACCOUNT  ATTACHED,  the U.S. Patent and Trademark  Office  published it
under publication  number  #0010047342.  The PTO requires that application filed
after March 30, 2001, be published in the Internet.

     The Patents  Pending  claims filed are in addition to those claims  already
listed in U.S.  Patent No.  6,105,009  of which the  following  are some of it's
features:  Allows a user to link more than one of said identification numbers of
said debit cards to one line of credit thereby permitting more than one users to
simultaneously  access said line of credit.  No credit  report is  required.  No
credit  check is  requested.  No previous  bank  relationship  or bank  checking
account required. The users can send and receive funds through the use of linked
debit cards over a network of remotely distributed ATM assemblies.  Includes the
use of the debit cards in predetermined  geographic locations.  The said line of
credit can be calculated in one or more  pre-selected  foreign  currencies.  The
prepaid debit may be purchased  using cash, or charging the desired amount being
purchased to any credit  card,  debit card or  bankcard.  A Prepaid  Debit Cards
always RELOADABLE.  Personal  Identification Number ("PIN") is mandatory for the
users protection.  If lost or stolen can be replaced. With the Company's Prepaid
Debit Card Program, we are offering cardholders,  among other valuable features,
the following:

     A full charge card that can be purchased and issued in amounts from $100 to
several  thousands (a maximum  allowed will be set). A Prepaid  debit card which
after  validation  will be good for  payment  on  purchases  of  merchandise  or
services.  ATMs cash advances.  Availability for auto rentals,  airline flights,
and  hotel  reservations.  A  prepaid  debit  card  which  may be  reloaded  and
replaceable.

     There are other  multiple  applications  of the prepaid debit card that the
Company is presently studying and identifying, that may be added as intellectual
property of the present IP own by the  Company.  It is clear to the Company that
the total and complete  penetration of bank cards such as MasterCard,  DISCOVER,
AMEX and/or VISA, coupled with the widespread distribution of this prepaid debit
card create exciting new possibilities for the future cash less society.  We see
this product as an integral part of this phenomenon.

     It is in the best interest of the Company that the shareholders,  investors
and mainly the general public be aware having an  understanding of Default Proof
Credit Card System, Inc. products.

     The Default Proof applauds the recent acknowledgement of VISA, Master Card,
DISCOVER,  and AMEX regarding the market potential for prepaid card products and
their increased participation in it. For example, as disclosed to the news media
VISA  predicts  that debit  accounts  will again account for 10% of all consumer
payments by the end of next year.


                                       9
<PAGE>

THE RESOURCE SYSTEM
-------------------

     The Resource  System is designed to provide  individuals  with a convenient
method of  obtaining,  at a fair low cost,  immediate  access to credit which is
collateralized  by the cash surrender  value of their life  insurance  policies.
Applicants  who wish to obtain a credit  card  using the  Resource  System  will
transmit  to the Company an  application  in which  under the  Resource  System,
applicants who own life insurance with cash surrender  values will assign to the
Company,  as  collateral,  the cash  surrender  values of their  life  insurance
policies  in  exchange  for a line of credit to be  granted  by a  participating
institution or bank equal to at least 80% of the assigned collateral through the
issuance of a credit or a debit card, or any other credit instrument.

     The participating  financial institution will then issue to the applicant a
MasterCard  or Visa with an initial  line of credit equal to at least 80% of the
cash surrender value of the policy.  The Company will guarantee the cardholder's
obligation to the banks through the registered  assignment by the life insurance
company  who issued the life  insurance  policy,  of the cash values in the life
insurance policy of the cardholder/policyholder.

     The  successful  application  of the  Resource  System,  although it is not
dependent upon  acceptance by insurance  companies,  it is dependent among other
things,   upon  the  cooperation  of  insurance  companies  in  registering  the
assignments in their records and confirming assignments to the Company.

                                     PART II

ITEM 2. DESCRIPTION OF PROPERTY.
        -----------------------

     The Company's  executive  offices  consisting of  approximately  750 square
feet, are located at 1545 Miller Road,  Coral Gables,  FL 33146, the landlord is
Vincent Cuervo,  haven't charged,  nor receives payments for the space leased by
the Company  since March 1995.  Furniture,  general  office  equipment,  several
computers,  printers,  fax, scan, etc.  Telephone  number:  (305) 666-1460;  Fax
Number:(305)       665-3462.        E-Mail:ubuyde@bellsouth.net,        Website:
htt://members.aol.com/dpccsystem/

     The Company has  understanding  agreements  with the  inventor and owns the
worldwide  rights and  ownership  of the  issued  Patents,  the  Patent  Pending
applications  related  to the  Internet  Website  Program,  The  System  for the
Dispensing  Prepaid  Debit  Cards  Through  merchants  POS  Terminals,  and  the
UBUYDEBITCARDS.COM and UBUYCREDITCARDS.COM, three Domain Names registrations for
use in the Internet,  RESOURCE  registered  mark, 1998 to 2001  copyrights,  and
State Trademarks


                                       10
<PAGE>

THE PATENTS PENDING STATUS
--------------------------

     The Company's  patents pending  application are waiting for the U.S. Patent
and Trademark  Office to grant,  first the patent  allowances for each one, been
followed by the issue of their  certificates.  The International  patent pending
application  involves the selection of all or a number of 110 countries plus the
United States of America, among other requirements, it will involve translations
to several  country  languages,  Europe  United is to be considered 1 Region and
there will be English  for the whole  region,  before  been issued by the Patent
Cooperation  Treaty.  There is no assurance that related patents will be granted
on all or any of the above mentioned patents pending, being continuation in part
of the Company's US Patent #6,105,009 there are favorable expectations.  Default
Proof has been affected by the  unfortunate and sad happenings on last September
11. Delays caused at Post Offices in  Washington,  D.C.  reduced and slowed down
the normal flow of Patent Office Actions and  communications  with inventors and
Patent Attorneys.

     Careful  consideration  of the  most  effective  and  productive  means  of
maximizing  the Company's  potential,  and having  present the  expectations  of
Office Actions from the U.S.  Patent and Trademark  Offices in regards to any of
the patent pending applications,  positive PTO Office Actions are expected which
will bring strength to Company's prepaid debit cards portfolio  programs.  There
is no assurance that these  Company's  patent pending  applications  will become
patents.

OWNERSHIP OF THE PATENTS AND PATENT PENDING APPLICATIONS
--------------------------------------------------------

     Vincent Cuervo, CEO of Default Proof Credit Card System,  Inc., is the sole
inventor  of the ATM  DISPENSER  OF DEBIT CARDS  patent  number  6,105,009,  the
Prepaid Debit Card System patent pending  "System for  Dispensing  Prepaid Debit
Cards  Through  Merchants  "Point of Sale  Terminals",  and the  patent  pending
application "Internet Website Program" (ubuydebitcards.com),  that were filed by
him at the U.S. Patent and Trademark  Office,  being all continuation in part of
Patent  #6,105,009,  the Copyrights and Trademarks is the intellectual  property
Default Proof Credit Card System, Inc. has worldwide ownership of all rights, in
their present status as Patents,  patent pending applications and of the related
patents granted to the above mentioned patent pending applications.

     Under the  Employment  Agreement  executed  between the Company and Vincent
Cuervo  on  August  1986  filed  with the  Securities  and  Exchange  Commission
Registration Statement Under the Securities Act of 1933, and since renewed every
five  years  and in  force,  there  have  never  been  exclusions,  limitations,
conditions,  discussions or waivers over Vincent Cuervo  absolute  ownership and
freedom of disposition of his inventions,  creations or developed ideas,  filed,
registered or converted in to patent applications from which patents,  trademark
registrations,  copyrights or other type of national or international  rights he
can, and has become recipient, as well as the right of Vincent Cuervo to dispose
of the intellectual  property created and owned by him in whatever manner and to
whom he may decide to sell, lease or license this intellectual property.

     Vincent  Cuervo has always  given,  and will  continue  doing so, the first
right of refusal  offer to the  Company in  exchange  for Stock  Option  Grants.
Presently  all the  intellectual  property  exclusively  mentioned and described
above and the worldwide  rights and licenses on those are owned by Default Proof
Credit Card System,  Inc.  Vincent Cuervo when receiving the stock option grants
from the  Company in  exchange  for the  worldwide  ownership  of all rights and
licenses  of his  intellectual  property,  never  took in to  consideration  the
Company's  stock price of the shares at the time the Stock  Option was  granted,
which in most  instances  at the time of the  Agreement  with the Company of the
rights on those  patent  pending  applications  the stock  trade price was at "a
penny for the lot" or one or two pennies per share.  The stock options will only
be granted to Dr.  Cuervo if and when a notice of patent  allowance is issued by
the PTO and received by the Company.  Patent pending  applications not mentioned
in this filing and  specially  in this item above,  are still  subject to future
agreements between him and the Company.


                                       11
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS.
         -----------------

     The Company is not involved in any material  litigation and is not aware of
any potential claim that will give rise to material liability.

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

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

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
         ----------------------------------------------------------

     The Company's common stock is traded in the over-the-counter bulletin Board
market and prices are quoted on the National  Association of Securities  Dealers
Automated  Quotation  System  (NASDAQ)  Small Cap Market in the OTC:BB under the
Symbol "DPRS".

     The  following  table sets forth the high and low bid  information  for the
Company's  common stock  monthly  during 2001.  The  quotations  provided  below
reflect inter-dealer  prices,  without mark ups, mark down or commission and may
not represent actual transactions.

           FISCAL 2001        HIGH      CLOSE
           -----------        ----      -----
             02/02/01        10.00       8.50
             03/02/01        14.25      13.25
             04/06/01        14.00      13.06
             05/04/01        14.00      12.75
             06/01/01        14.10      13.55
             07/06/01        10.75       9.50
             08/03/01        14.50      13.75
             09/07/01        13.00      12.50
             10/05/01        10.00       8.75
             11/02/01         7.20       7.15
             12/07/01         6.25       4.50
             12/28/01         6.75       6.50

     On December 31, 2001 the Company had approximately 254 holders of record of
the  Company's  common stock.  A number of those record  holders are brokers and
other institutions  holding shares in "street name" for more than one beneficial
owner.


                                       12
<PAGE>

DIVIDENDS
---------

     The Company has never paid any cash  dividend on its common  stock and does
not anticipate  paying cash dividends in the near future.  The dividend  payment
will depend on its earnings, financial condition and other business and economic
factors  affecting  the  Company at that time which the Board of  Directors  may
consider relevant.

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
          AND RESULTS OF OPERATIONS.
          ------------------------------------------------------------

     In the coming early months of 2002 the Company  will  immediately,  through
the services of qualified personal,  prepare the necessary professional business
plan  presentations of the Company's owned intellectual  property,  products and
information  regarding  them, with the purpose aimed at the sale of licenses for
the use of its patented products.

     Plans include making the offering to the major players in the credit, debit
and bank industry.

     Default Proof Credit Card System,  Inc.  strives to become the Intellectual
Property  technology  leader in the Prepaid Debit Card field, and in the complex
financial  ATM,  Over-The-Counter  and Web  based  patents  and  patent  pending
applications  related to the purchase,  sale,  and or dispense of prepaid stored
valued cards markets.  It is this  combination of disciplines that makes Default
Proof Credit Card System,  Inc. unique in this intellectual  property technology
owned.  DPCCS has invested in and created  cutting-edge  technologies to provide
our clients  advanced  solutions and  unparalleled  opportunities.  DPCCS is the
owner of  up-and-coming  Intellectual  Property  Technology in the Prepaid Debit
Card fields.

     The Company has the serious  intention  to engage one of the top Patent Law
Trial Offices in the Nation to look after and protect it's intellectual property
legal  rights,  the  review and study of  possible  infringements  or  potential
infringements  by  corporations  or  individuals,  and to bring  respect  to its
Patented  Products with all and whatever  reasonable legal tools the Company may
have legal rights available.

THE COMPANY
-----------

     The Company's  operations commenced in 1986 with the licensing to it by the
Company's  President  of the default  proof  method and system,  all patents and
other  proprietary  rights to the  system  and the  right to use the  registered
trademark Resource.

     Since  inception,  the  Company  has  expended  approximately  $109,000  in
developing  computer  software and  acquiring  computer  hardware and paying for
technical support for the operation of the Resource(R)  System.  The Company has
expended in excess of $ 459,000 for  advertising  which have included  newspaper
and TV advertising, video tapes, brochures, printed material, personal officers'
presentations  and applications  which were distributed  through the mail and to
various stores and businesses.


                                       13
<PAGE>


     Patents filing fees applications,  Patent's attorneys legal fees, travel to
the Patent & Trademark Offices in Washington, D.C., maintenance patent fees, are
close to $211,000  of the  Company  general  expenses.  Expenses  were well over
$345,000 in  developing  the  Resource  System,  the ATM and Prepaid  Debit Card
Programs. The Company also expend over $ 1,000,000 in litigation vs State Street
Bank and Trust Company (State Street Bank), American Express litigation over the
Company's  RESOURCE(R)  registered  trademark until 1993,  Securities and patent
attorneys  legal fees,  and other legal and C.P.A.'s fees. The State Street Bank
litigation  forced  the  Company  to  attempt  the raise of  capital in order to
implement  a new  strategy  that  involved  the  consideration  of the  possible
purchase of its own bank.  The  litigation  and lack of funds  basically put the
company in a defensive  position with very little  possibilities  to raise funds
for the system being used by a bank in an authorized fashion.  Banks, which were
very  interested  in the  Resource  System  backed off once the  litigation  was
initiated.  Subsequent  efforts to raise  capital  failed.  The  litigation  was
settled in 1993 after almost five years,  leaving the Company  without  economic
resources.  The  Company  lost the  privilege  of been a NASDAQ  Member  for its
falling below the necessary financial requirements.

     As it is well known from the news media,  charge offs and  delinquencies in
the credit  card  Industry  are higher  than it is  desirable  to the  bankcards
issuing financial institutions, and it now appears that the patience and efforts
to protect its patent rights will pay off after all. The new added  intellectual
property and the new presently planned marketing campaign will aloud the Company
to offer the ATM and its valuable  Prepaid  Debit Cards  Programs to the credit,
debit and banking industry attractive and profitable licenses,  is expected that
this coming 2002 to be the year it rewards shareholders patience and faith.

     The present interest and growth on the prepaid products are encouraging, it
is expected the same interest in the Company's secured, credit and prepaid debit
card  programs.  New aggressive  marketing  efforts will commence early in 2002.
Jointly  with  the  offering  of the  Company's  Patents,  the ATM  DEBIT  CARDS
DISPENSER, the "Over-The-Counter Prepaid Debit Card Program", the U.S.A. patents
pending  applications,  soon  to be  launched  in the Web in  2002  the  Company
Internet  Website  Program  marketed  as  http://ubuydebitcards.com  and the new
"CREDIT  OR  DEBIT  CARDS  OF ALL  KINDS  ISSUED  WITH A  BANK  SAVINGS  ACCOUNT
ATTACHED",  all of the Company's  Intellectual  Property  including the "Prepaid
Debit Card System"  International  Patent  Pending  Application  (PCT)  carrying
exciting  features  and  technology.  There is no assurance  that these  patents
pending will be granted related patents.

EMPLOYEES
---------

     The Company isn't a  manufacturer  corporation,  the main source of revenue
and income will be provided by the  royalties  and fees earned from the licenses
sold.  The need of  administration  personal for office and daily duties will be
required  and in time  added.  As of the  date  hereof,  the  Company  has  five
employees,  3 serving also as officers,  like the CEO, the Counsel and Company's
Secretary  and the  valuable  David J.  Koss that  was,  in June 2000  appointed
President  and C.F.O.,  and on January 2001  jointly  with Eng.  Jose E. Aguirre
became  Members of the Board of Directors  of the  Company.  Jose E. Aguirre and
David J. Koss have  received  Stock  Options  Grants  (see:  Stock  Options)  on
becoming Directors and for all the work (without monetary  compensation) done by
them in the past years.


                                       14
<PAGE>

     On January  11,2001  there were Stock  Options  Grants  also issued to Rosa
Scavo, Esq. and Pedro E. Llaguno, Jesus Sanchelima,  Esq., for past, present and
future services.

ITEM 7. FINANCIAL STATEMENTS.
        --------------------
                            CONTENTS                                PAGE
                                                                    ----

         AUDITORS' REPORT...........................................F-2

         FINANCIAL STATEMENTS

                  BALANCE SHEET.....................................F-3

                  STATEMENTS OF OPERATIONS..........................F-4

                  STATEMENT OF STOCKHOLDERS' EQUITY/DEFICIENCY......F-5-F-10

                  STATEMENTS OF CASH FLOW...........................F-11

         NOTES TO FINANCIAL STATEMENTS..............................F-12 - F-17


ITEM 8.  CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING AND
         FINANCIAL DISCLOSURE.
         --------------------------------------------------------------------

     On February 9, 2000, the Company  engaged Joel S. Baum,  CPA,  President of
BAUM & Co., P.A.,1515  University Drive,  Suite 209, Coral Springs,  FL 33071 as
its independent certified public accountants to audit the Company's Consolidated
Financial  Statements for the year ended December 31, 1999.  Joel S. Baum,  CPA,
and his Company remain as the Company CPA Auditors.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT.
        ------------------------------------------------------------------------

     The directors and executive officers of the Company are as follows:

       Name                         Age              Position
       ----                         ---              --------

Vincent Cuervo, C.E.O.              72               Director
David J. Koss. President            42               Director
Ciro B. Sosa, Vice President        74               Director
Eng. Jose E. Aguirre                42               Director
Pedro P. Llaguno, Vice President    71               Director

     All directors hold office until the next annual meeting of stockholders and
the  election  and  qualification  of their  successors.  Officers  are  elected
annually by the Board of Directors and serve at the discretion of the Board.

     VINCENT CUERVO has been Chief  Executive  Officer and Chairman of the Board
of Directors  of the Company  since its  inception in August 1985.  From January
1984 until  March 1986 he was the  general  managing  agent for  Travelers  Life
Insurance  Co.,  O. Ltd.,  and Summit  National  Life  Insurance  Company.  From
September 1962 through  December  1983, he was general  managing agent for Crown
Life  Insurance  Company for South  Florida.  Mr.  Cuervo holds a Jurist  Doctor
Degree from the University of Havana, Cuba.

     CIRO B. SOSA has been a Vice-President  and a Director of the Company since
January  1986.  Since 1964,  Mr. Sosa has been owner of Futura  Advertising,  an
advertising agency located in Coral Gables, Florida.

     PEDRO P.  LLAGUNO has been  Secretary  and a Director of the Company  since
January 1986. Since 1977 Mr. Llaguno has been an attorney at Law.

     DAVID J.  KOSS,  has been  president  and CFO since  June  2000,  a 18 year
financial  services  professional  and with a large  experience  in the  banking
industry.

     ENG. JOSE E. AGUIRRE,  for the last three years have been rendering several
valuable  jobs,  bringing  counseling  and  help  to -  different  projects  and
developments of the Company.  For over ten years an Officer of Cordis Corp., now
Cordis is a wholly owned corporation of Johnson & Johnson.

     Mr. Cuervo may be deemed a "parent" or "promoter" of the Company,  as those
terms are defined under the federal securities laws.

     There are no family relationships between any of the Company's directors or
executive officers.


                                       15
<PAGE>

     During  the last ten  years  none of the  following  events  occurred  with
respect to any  executive  officer  or  director  of the  Company as of the date
hereof.

     (I) Any  bankruptcy  petition was filed by or against any business of which
such person was a general partner or an executive officer at or within two years
before the time of such filing;

     (II) Any conviction in a criminal  proceeding or being subject of a pending
criminal proceeding (excluding traffic violations and other minor offenses);

     (III)  Being  subject to any order,  judgment or decree,  not  subsequently
reserved,  suspended  or  vacated,  of  any  court  of  competent  jurisdiction,
permanently or temporarily enjoining,  barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; and

     (IV) Being found by a court of competent  jurisdiction (in a civil action),
the  Securities  and  Exchange  Commission  or  the  Commodity  Futures  Trading
Commission to have violated a federal or state  securities or  commodities  law,
and the judgment has not been reversed, suspended or vacated.

ITEM 10. EXECUTIVE COMPENSATION.
         ----------------------

     General.  The following table sets forth the total annual compensation paid
or accrued by the Company to or for the account of the Company's chief executive
officer and any other executive officer whose total  compensation for the fiscal
year ended December 31, 2001 exceeded one hundred thousand dollars.
<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

                             LONG-TERM COMPENSATION
                       ANNUAL COMPENSATION            AWARDS         PAYOUTS
                    --------------------------------------------------------
(A)            (B)   (C)       (D)      (E)      (F)         (G)         (H)    (I)

<S>            <C>   <C>       <C>      <C>      <C>         <C>         <C>    <C>
                                        OTHER
NAME                                    ANNUAL   RESTRICTED  SECURITIES         ALL OTHER AND
AND                                     COMPEN-  STOCK       UNDERLYING  LTIP   COMPENSATION
PRINCIPAL                               SATION   AWARDS      OPTIONS     PAYOUTS
POSITION       YEAR  SALARY($) BONUS($)  ($)     ($)         SARs(@)     ($)    ($)
---------------------------------------------------------------------------------------------
               2001    0        0         0       0            0          0      0
V. CUERVO CEO  2000    0        0         0       0            0          0      0
               1999    0        0         0       0            0          0      0
               1998    0        0         0    20,000          0          0      0

</TABLE>

               AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                          AND FY-END OPTION/SAR VALUES

(a)       (b)              (c)                (d)               (e)
                                               NUMBER OF
                                               SECURITIES        VALUE OF
                                               UNDERLYING        UNEXERCISED
                                               UNEXERCISED       IN-THE-M
                                               OPTIONS/SARS      OPTIONS/SAR AT
                                               FY-END ($)        FY-END ($)

          SHARES ACQUIRED                      EXERCISABLE/       EXERCISABLE/
NAME      ON EXERCISE (#)  VALUE REALIZED ($)  UNEXERCISABLE      UNEXERCISABLE
----      --------------   -----------------   -------------      -------------
V.CUERVO       0                0              * 252,000/   252,000x5=1,260,000/


                                    PART III

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
         --------------------------------------------------------------

     The  following  table sets forth  information  on early January 2000 and at
February 18, 2000 based on  information  obtained  from the persons named below,
with respect to the  beneficial  ownership of shares of Common Stock by (I) each
person  known by the  Company  to be owner  of more  than 5% of the  outstanding
shares of Common Stock. (ii) each director, and (iii) all officers and directors
as a group. The filing by a shareholder of Schedule 13D related to the number of
shares  beneficially  owned by this  shareholders  exceeding  5% of the  Company
outstanding shares.

                                       16
<PAGE>


NAME OF BENEFICIAL    AMOUNT AND NATURE OF          PERCENTAGE OF
      OWNER           BENEFICIAL OWNERSHIP     OUTSTANDING SHARES OWNED
------------------    --------------------     ------------------------

VINCENT CUERVO              390,291                     26.13%
Miami, FL 33143

CIRO B. SOSA                 24,276                       1.7%
Miami, FL 33145

PEDRO P. LLAGUNO             38,642                       2.6%
Miami, FL 33145

KATHY WILLIAMS               19,750                       1.4%
Mississuaga, Ontario

DAVID J. KOSS                40,000                       0.27%
Miami, FL 33145

ENG. JOSE E. AGUIRRE          4,900                       0.03%
Weston, FL 33327

ERIC H. SPELLMAN             74,000                       4.95%
Larchmont, NY

Officers/directors,
promoters, as a group       591,859                      39.63%

     The Company is not aware of any  arrangements  which may result in a change
of control of the Company.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATE TRANSACTIONS.
         ---------------------------------------------

     Last  November  1997 the Company  acquired  from  Vincent  Cuervo,  all the
worldwide  rights,  licenses,  and  ownership  of the ATM Debit  Card  Dispenser
patents pending filed with the US Patent and Trademark Office, Washington,  D.C.
earlier in 1997.  Under the  understanding  agreement  between  the  Company and
Vincent Cuervo,  the Company will issue to Vincent Cuervo 225,000.  Stock Option
of the Company's Common Stock $0.01 par value per Share at an exercising  Option
Price of $0.15 per share,  the day after the Company receives from the US Patent
and Trademark Office a Notice of Allowance  notifying  Vincent Cuervo and/or the
Company that its patent  application has been allowed and subsequently the issue
of a related Patent to this patent pending (ATMDCD) will be issued.

     On the  Special  Meeting,  that  took  place on  October  2,  1998,  of the
Company's  Board of Directors  was  unanimously  approved an  agreement  between
Vincent Cuervo and the Company  regarding the amount of money, the result of the
numerous loans, at no interest, made by V. Cuervo to the Company, providing with
this loans and or payments of the expenses, the continuity of its operations and
existence. It was approved that Vincent Cuervo will have the choice of demanding
the full  payment in cash,  or to be issued in his name one Common  Stock  $0.01
(post  split) par value per share for each one dollar the Company  owes  Vincent
Cuervo at the time he demands payment of the debt the Company owes him.

     On  December  1998  the  Company  acquired  from  Vincent  Cuervo,  all the
worldwide  rights,  licenses,  and  ownership of the INTERNET  WEBSITE  PROGRAM,
(WWW.UBUYDEBITCARDS.COM)  patent pending  application filed by Vincent Cuervo at
his own expense with the US Patent and Trademark  Office,  Washington,  D.C. and
continuation  in part of US Patent  6,105,009.  Under the agreement  between the
Company and Vincent  Cuervo,  the Company will issue to Vincent Cuervo  300,000.
Stock  Option of the  Company's  Common  Stock $0.01 par value per share,  at an
exercising  Option Price of $0.10 per share,  the day after the Company receives
from the US Patent and Trademark Office a Notice of Allowance  notifying Vincent
Cuervo  and/or the  Company  that its patent  application  has been  allowed and
subsequently a related Patent to this patent pending application will be issued.


                                       17
<PAGE>

     If the U.S.  Patent  and  Trademark  Office  does  not  issue  the  related
patent(s) the Company will not issue shares of the stock option grant to Vincent
Cuervo and the  understanding  agreement will be void and canceled.  There is no
assurance  that the U.S.  Patent and Trademark  Office will grant the patents on
any or all of the patents pending.

     On May 2000 the Company  acquired  from Vincent  Cuervo,  all the worldwide
rights, licenses, and ownership of the SYSTEM FOR DISPENSING PREPAID DEBIT CARDS
THROUGH  Merchants  POS TERMINALS  (The OTC Prepaid  Debit Card) patent  pending
application filed with the US Patent and Trademark Office,  Washington,  D.C. by
Vincent Cuervo at his expense,  and continuation in part of US Patent 6,105,009.
Under the  agreement  between the Company and Vincent  Cuervo,  the Company will
issue to Vincent Cuervo  500,000shares  of the Company's  Common Stock $0.01 par
value per share, at an exercising Option Price of $0.10 per share, the day after
the  Company  receives  from the US  Patent  and  Trademark  Office a Notice  of
Allowance   notifying   Vincent  Cuervo  and/or  the  Company  that  its  patent
application  has been allowed and  subsequently  a related Patent to this patent
pending application will be issued.

     If the U.S.  Patent  and  Trademark  Office  does  not  issue  the  related
patent(s)  the Company  will not issue the shares of the stock  option  grant to
Vincent Cuervo and the understanding agreement will be void and canceled.  There
is no assurance that the U.S. Patent and Trademark Office will grant the patents
on any or all of the patents pending.

SECURITIES  OUTSTANDING
-----------------------

     The Company has 2,500,000 authorized shares of $0.01 par value common stock
(the Shares).  As of December 31, 2001 there are 1,507,634  currently issued and
outstanding shares, and 591,859 of the Company outstanding shares are restricted
shares.  The Company also has 36,000 Stock Options of the Company's Common Stock
$0.01 par value at an exercise  price  ranging from $0.75 to $1.75 per share (an
average exercise price of $1.05 per share),  and another 35,000 Stock Options of
the Company's  Common Stock $0.01 par value to purchase shares until February 2,
2002, at an exercise price of $1.50 per share,  and 175,000 Stock Options of the
Company's  Common  Stock  $0.01 to  purchase  shares  exercisable  for five year
periods at a price of $1.40.  There are  200,000  Stock  Options of the  Company
Common  Stock  $0.01  exercise  price  ranging  from  $0.38 to $1.87  per  share
exercisable  from May 2000 to April 2012.  225,000  Stock Option Shares at $1.50
per share  exercisable  up to April 24,  2010.  Granted  over the year there are
170,000  Stock Options  shares with an  exercising  price per share from $4.5 to
$11. In 2001 there were 70,000 Stock Option  Shares  Forfeited  and 60,000 Stock
Option Shares exercised.

     On  November  2,  2000  Vincent  Cuervo  exercised  125,283  shares  of the
Company's  Common Stock $0.01 par value per share at the exercise price of $1.00
per share or one share per each dollar owed by the company to Vincent  Cuervo as
per  October  2,  1998  Special  Meeting  of the Board of  Directors.  SEE STOCK
OPTIONS.

     The holders of Common Stock are entitled to one vote for each share held of
record on all  matters to be voted on by  shareholders.  There is no  cumulative
voting  with  respect to the  election  of  directors,  with the result that the
holders of more than 50% of the shares voted can elect all the directors.

                                       18
<PAGE>

STOCK OPTIONS
-------------

     On August 2, 1993 the  Company  issued  to its  principal  stockholder  Dr.
Vincent Cuervo and one of its officers, Pedro P. Llaguno, Esq., Stock Options to
purchase  stock of the Company's  Common Stock $0.01 par value to purchase 7,000
Vincent Cuervo , and 2,000 Pedro P. Llaguno yearly for a term of five years, and
exercisable for a term of five years from the date of each Stock Option annually
issued.  The Stock  Option  price range  varies  from $0.50 to $1.75.  The Stock
Option  issued on August 2, 1993 to both,  Vincent  Cuervo and Pedro P. Llaguno,
were not exercised on August 2, 1998,  the  expiration  date and were  canceled.
2,500 stock  options  have been  exercised  and the balance  outstanding  awards
continue to be exercisable as of December 31, 2000.

     On February 1995, the Company issued to its principal  shareholder  Vincent
Cuervo and one of its officers P. P. Llaguno,  Stock Options to purchase  20,000
Vincent  Cuervo and 15,000 Pedro P. Llaguno,  Esquire,  of the Company's  Common
Stock $0.01 par value  yearly for a term of five years,  and  exercisable  for a
term of five years from the date of each Stock Option annually issued. The Stock
Option  price at $0.10 and $0.15  respectably.  15,000  stock  options have been
exercised and the balance of the  outstanding  awards continue to be exercisable
as of December 31, 2000.

     On July 17, 1998, the Company issued to its principal  shareholder  Vincent
Cuervo and to one of its officer  Pedro P.  Llaguno,  Stock  options to purchase
20,000 Vincent Cuervo and 5,000 Pedro P. Llaguno,  Esq., of the Company's Common
Stock $0.01 par value  yearly for a term of five years,  and  exercisable  for a
term of five years from the date of each Stock Option annually issued. The Stock
Option price is of $0.14.  No stock options have been forfeited or exercised and
all outstanding awards continue to be exercisable as of December 31, 2000.

     On June 29,1999 on a Special  Meeting of the  Company's  Board Of Directors
David J. Koss,  newly  appointed  President  and Chief  Financial  Officer,  was
granted  25,000  Stock  Option  Shares per year for four years of the  Company's
Common  Shares  $0.01  par value  per  share at an  exercise  price of $0.38 per
shares.  David J. Koss will receive the Option  Shares each year or to such time
he shall cease providing services to the Company for whatever reason,  including
the year in which his services to the Company are terminated.  The Option Shares
shall be deemed  restricted  stock  pursuant to Rule 144  promulgated  under the
Securities Act of 1933, as amended.

                                       19
<PAGE>

     The above stock options to purchase the Company's Common Stock, were issued
to  the  Company's  President/Principal  Stockholder  for  his  daily  work  and
services.  Vincent  Cuervo  received  minimal  compensation  during 1993, and no
compensation since 1994 first quarter,  at which time Dr. Cuervo also waived his
salary  and  bonuses up to that  date.  Since  March 1994 he has made no bearing
interest  loans to the Company for the payment of its  administrative  expenses.
The  officer,  P.P.  Llaguno has  rendered  his legal  services,  and many other
services  beyond his  obligations at no charge.  David J. Koss have not received
salary or refund of personal expenses since mid 1998.

     During 2001 Stock Option  Shares in the amount of 170,000 were granted Rosa
Scavo, Esquire; Eng. Jose E. Aguirre;  Pedro Emilio Llaguno;  David J. Koss, and
J. Sanchelima, Esquire for past present and future services to the Company.

     The above stock options are available and contingent  upon the  individuals
providing their continuing services to the Company. In the event of termination,
options  through  the year of  termination  will be  available.  The options are
deemed  restricted  stock pursuant to Rule 144 promulgated  under the Securities
Act of 1934 as amended.

     All the above Stock  Option  shares are  Company's  Common  Stock $0.01 par
value per share and adjusted to the reverse  split of 10 Common Stock $0.001 per
1 Common stock $0.01 under the reverse ten for one split dated  February 5, 1999
stipulations.

SECURITIES TRANSFER AGENT
-------------------------

     The Transfer  Agent for the Company's  Securities is Registrar and Transfer
Company, 10 Commerce Dr., Cranford, NJ 07016.

RECENT SALES OF UNREGISTERED SECURITIES
---------------------------------------

     On January 11,  2001 the  Company  issued  14,000  shares of the  Company's
Common Stock $0.01 par value per share to  Francisco  de  Monteverde y Benito de
Lugo in payment for her continuous,  marketing  work,  services and his personal
expenses,  meetings  and  traveling  during the last three  years and  continues
services.

     On July 30, 2001 the Company  issued 3,000  shares to Maria T. C.  Schafer,
Webmaster;  5,000 shares to David J. Koss, President, and 1,000 shares to Robert
A. Schreiber,  Esquire,  all the shares of the Company's  Common Stock $0.01 par
value per share and all in payment for their past present and continue  services
to the Company.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
         --------------------------------

EXHIBIT #1
----------

     On February 1, 1999 the  Registrant  approved a Reverse  Stock Split of the
Corporation's Common Stock Shares.

     The Board of Directors of Default  Proof  Credit Card  System,  Inc.  (OTC-
BB:DPRS) on an  Extraordinary  Meeting  held today  February 1, 1999,  after the
casting and tallying of the votes  submitted  from January 14. 1999 to this date
by the Company's  shareholders resulting in the approval of the proposed ten-for
one reverse split by a 99% of all the votes received,  has unanimously  voted to
implement a ten-for-one reverse split of the Company's Common Stock. The reverse
stock  split will  become  effective  as of the close of business on February 4,
1999.  On February 5, 1999 for each  pre-split  ten (10) shares of the Company's
Common Stock  $0.001 par value the holder of record will receive one  post-split
share of the  Company's  Common stock $0.01 par value per post split share.  The
new stock certificates will have a new cusip number 244626 40 4.

                                       20
<PAGE>

     The new  certificates  will be issued  in the  normal  course  of  business
whenever the  appropriate  transfer is requested by the  shareholders.Fractional
shares  resulting  from the  reverse  stock split will be settled in cash at the
shares  closing  price of the  shares  traded  at the close of  business  of the
effective  date February 4, 1999.  The reverse split will decrease the number of
shares  outstanding,  but not the  value  of  shares  held by the  shareholders.
Shareholders  will  maintain the same  percentage of equity as before the split.
The Company will make a news release through the news media, Business Wire, Wall
Street  Journal,  etc., for the general public  information.Attached  hereto and
filed  as a part of this  Report  are the  financial  statements.  The  Exhibits
described below are incorporated by reference herein.

EXHIBIT #2
----------

REGISTRANT'S CHANGING OF CERTIFIED PUBLIC ACCOUNTANT'S FIRM.
------------------------------------------------------------

     The Board of Directors of Default Proof Credit Card System,  Inc.  (OTC-BB:
DPRS) on this  Extraordinary  Meeting held today February 12, 2000 approves this
unanimously resolution terminating the services of Infante, Lagos and Company as
the Company's certified public accounts who were responsible for the preparation
and  completion  of Default  Proof Credit Card  System,  Inc. for the year ended
December 31, 1998 audited balance sheet and financials filed on 1999. The end of
their services to be effective on this February 11th., 2000. The reason for this
change is for their high  expensive  fees and  charges at times when the Company
can not afford such expenses.

     On this  above  mentioned  Meeting  of the Board of  Directors  it was also
unanimously  approved,  effective February 11th., 2000 the engagement  agreement
with Joel S. Baum, C.P.A.,  President of BAUM & COMPANY, P.A. at 1515 University
Drive, Suite 209, Coral Spring, Florida 33071. The new certified public accounts
firm will be  responsible  for the audit of the balance sheet and  financials of
Default Proof Credit Card System, Inc., for the year ending on December 31, 1999
and the related statements of income,  retained earnings, and cash flows for the
year then ended. The new engaged certified public  accountants,  while promising
the  same  quality  services,  offered  reasonable  and  accessible  cost to the
Company.

         EXHIBITS:
         ---------

          3.1*     Certificate of Incorporation of Registrant

          3.2*     By-Laws of Registrant

                                       21
<PAGE>

          4.1**    Form of Certificate evidencing Common Stock, $.001 par value

          4.2**    Form of  Redeemable  Common Stock  Purchase  Warrant (1988
                   Public Offering)

          4.3**    Form of  Warrant  Agreement  between  Registrant, the
                   Underwriter (Normandy  Securities,  Inc.) and Continental
                   Stock Transfer and Trust Company. (1988 Public Offering)

          4.6****  Form of Option  Agreement  for 60,000 Stock Option  shares
                   for Marina S. Klein.

          10.1*    License  Agreement  between  Vincent  Cuervo  and the
                   Registrant dated August 14, 1985

          10.2**   Amendments to License  Agreement between Vincent Cuervo and
                   the Registrant

          10.3*    Agreement dated August 14, 1986 between  Vincent  Cuervo and
                   SSS Associates an d Felix Guardiola.

          10.4**   Lease between  Registrant and Douglas Entrance  Restoration
                   and Development Group.

          10.4(a)  Lease between Registrant and Miami Board of Realtors.

          10.5***  Employment Agreement between the Company and Vincent Cuervo.

          10.6**   Employment Agreement between the Company and Hugh Vanhoose.

          10.7**   Sales Agreement between the Company and James Branam Jr.

          10.8**   Form of 1988 Stock Option Plan.

          14****   Material  Foreign  Patents - Notice of Allowance for Patent
                   from Canada's Consumer and Corporate Affairs.

          (28)**** Minutes  of  Special  meeting  of the  Board of  Directors
                   of Default Proof Credit Card System, Inc. for January 9, 1990

         REPORTS ON FORM 8 K

         EXHIBIT #1 REPORT ON FORM 8-K
         Reverse Split 10 for 1 filed 2-1-99

         EXHIBIT #2 REPORT ON FORM 8-K
         Change of Auditor CPA

         ITEM 13(B) EXHIBITS

         The Exhibits described above are incorporated by reference here:

          *    Incorporated by reference to the Company's  Annual Report on Form
               10-K,  file  No.33-9185A  for the fiscal year ended  December 31,
               1987.

                                       22
<PAGE>

          **   Incorporated by reference to the Company's Registration Statement
               on Form S-1, File No.  33-22677,  filed with the SEC on August 3,
               1988, and incorporated by reference herein.

          ***  Previously  filed as an exhibit the  Company's  Annual  Report on
               form 10-K, File No. 90-17114,  for the fiscal year ended December
               31, 1988.

          **** Previously  filed as an Exhibit the  Company's  Annual  Report in
               Form 10-K, File No.0-7114, for the fiscal year ended December 31,
               1990.

          *****Form 10-SB\A filed  November  1994 General Form for  Registration
               of Small Business Issuers Pursuant to Section 12(b) or (g) of The
               Securities and Exchange Commission.

EXHIBIT #1.
-----------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 8 - K

                                 CURRENT REPORT

               PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
                            AND EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):

                                February 1, 1999

                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                     --------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

     FLORIDA                                        0-17114
     -------                                        -------
(State or other Jurisdiction                   (Commission File No.)
Of Incorporation or Organization)

                                   59-2686523
                                   ----------
                     (I.R.S. Employer Identification Number)

         1545 Miller Road
         Coral Gables, Florida                       33146-2309
         ---------------------                       ----------
         (Address of Principal                       (Zip Code)
         Executive Offices)

         Registrant's Telephone Number,
         including Area Code: (305) 666-1460


                                       23
<PAGE>


ITEM 5. REGISTRANT'S REVERSE STOCK SPLIT OF CORPORATION'S COMMON STOCK SHARES.
        ---------------------------------------------------------------------

     The  Board  of  Directors  of  Default  Proof  Credit  Card  System,   Inc.
(OTC-BB:DPRS) on an Extraordinary Meeting held today February 1, 1999, after the
casting and tallying of the votes  submitted  from January 14. 1999 to this date
by the Company's  shareholders resulting in the approval of the proposed ten-for
one reverse split by a 99% of all the votes received,  has unanimously  voted to
implement a ten-for-one reverse split of the

     Company's Common Stock. The reverse stock split will become effective as of
the  close of  business  on  February  4,  1999.  On  February  5, 1999 for each
pre-split  ten (10) shares of the  Company's  Common  Stock $0.001 par value the
holder of record will receive one post-split share of the Company's Common stock
$0.01 par value per post split share. The new stock certificates will have a new
cusip number 244626 40 4.

     The new  certificates  will be issued  in the  normal  course  of  business
whenever the appropriate  transfer is requested by the shareholders.  Fractional
shares  resulting  from the  reverse  stock split will be settled in cash at the
shares  closing  price of the  shares  traded  at the close of  business  of the
effective  date February 4, 1999.  The reverse split will decrease the number of
shares  outstanding,  but not the  value  of  shares  held by the  shareholders.
Shareholders  will  maintain the same  percentage of equity as before the split.
The Company will make a news release through the news media, Business Wire, Wall
Street Journal, etc., for the general public information.

                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant has duly caused this report on its behalf by the undersigned hereunto
duly authorized.

                                  Default Proof Credit Card System, Inc.
                                  (Registrant)


Date: February 1, 1999            By: VINCENT CUERVO
                                      ---------------
                                      Vincent Cuervo, President & CEO

                                       24
<PAGE>

EXHIBIT #2.
-----------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 8 - K

                                 CURRENT REPORT

               PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
                            AND EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):

                                February 12, 2000

                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                     --------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

     FLORIDA                                          0-17114
     -------                                          -------
(State or other Jurisdiction                   (Commission File No.)
Of Incorporation or Organization)

                                   59-2686523
                                   ----------
                     (I.R.S. Employer Identification Number)

         1545 Miller Road
         Coral Gables, Florida                 33146-2309
         ---------------------                 ----------
         (Address of Principal                 (Zip Code)
         Executive Offices)

         Registrant's Telephone Number,
         including Area Code: (305) 666-1460

ITEM 5.   REGISTRANT'S   CHANGING  OF  CERTIFIED   PUBLIC   ACCOUNTANT'S   FIRM.
          ---------------------------------------------------------------------

     The  Board  of  Directors  of  Default  Proof  Credit  Card  System,   Inc.
(OTC-BB:DPRS)  on this  Extraordinary  Meeting  held  today  February  12,  2000
approves this unanimously  resolution terminating the services of Infante, Lagos
and Company as the Company's  certified public accounts who were responsible for
the preparation and completion of Default Proof Credit Card System, Inc. for the
year ended December 31, 1998 audited balance sheet and financials filed on 1999.
The end of their  services to be effective on this  February  11th.,  2000.  The
reason for this  change is for their high  expensive  fees and  charges at times
when the Company can not afford such expenses.

     On this  above  mentioned  Meeting  of the Board of  Directors  it was also
unanimously  approved,  effective February 11th., 2000 the engagement  agreement
with Joel S. Baum, C.P.A.,  President of BAUM & COMPANY, P.A. at 1515 University
Drive, Suite 209, Coral Spring, Florida 33071. The new certified public accounts
firm will be  responsible  for the audit of the balance sheet and  financials of
Default Proof Credit Card System, Inc., for the year ending on December 31, 1999
and the related statements of income,  retained earnings, and cash flows for the
year then ended. The new engaged certified public  accountants,  while promising
the  same  quality  services,  offered  reasonable  and  accessible  cost to the
Company.

                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant has duly caused this report on its behalf by the undersigned hereunto
duly authorized.

                                    DEFAULT PROOF CREDIT CARD SYSTEM,  INC.
                                    ---------------------------------------
                                                               (Registrant)
Date: FEBRUARY 11, 2000             By: VINCENT CUERVO
      -----------------                 -----------------------------------
                                        Vincent Cuervo President & CEO


                                       25
<PAGE>


CERTIFICATION BY CORPORATE SECRETARY

     I  hereby  certify  that the  following  is a true  and  correct  copy of a
resolution  duly and  regularly  passed by the Directors of DEFAULT PROOF CREDIT
CARD SYSTEM, INC., at a extraordinary  meeting of the Board of Directors held on
the 11th.,  day February,  2000 at the Corporate  offices situated at 2050 Coral
Way, Suite # 404, City of Miami, County of Miami-Dade,  Florida,  33145 and that
as such  meeting a quorum of  Directors  was present  and voting;  and I further
certify  that  said  Resolution  is still in force and  effect  and has not been
revoked, modified nor changed in any manner.

RESOLVED:

     The  Board  of  Directors  of  Default  Proof  Credit  Card  System,   Inc.
(OTCBB:DPRS)  on this  Extraordinary  Meeting  held  today  February  11,  2000,
approves this unanimously  resolution  terminating the services of Infante, Lago
and Company as the Company's  certified public accounts who were responsible for
the  preparation  and completion of Default Proof Credit Card System,  Inc., for
the year ended December 31, 1998 audited  balance sheet and financials  filed on
1999.  The end of their services to be effective on this February  11th.,  2000.
The reason for this change is for their high expensive fees and charges at times
when the Company can not afford such expenses.  On this above mentioned  Meeting
of the Board of Directors it was also unanimously  approved,  effective February
11th.,  2000 the engagement  agreement with Joel S. Baum,  C.P.A.,  President of
BAUM & COMPANY,  P.A.  at 1515  University  Drive,  Suite #209,  Coral  Springs,
Florida 33071. The new certified public accountants firm will be responsible for
the audit of the balance sheet of Default Proof Credit Card System,  Inc., as of
December 31, 1999 and the related statements of income,  retained earnings,  and
cash  flows  for  the  year  then  ended.  The  new  engaged   certified  public
accountants, while promising the same quality service, offered a more reasonable
and accessible cost to the Company.

     Dated at the City of Miami, Florida this 12th. February, 2000


                                           By: PEDRO P. LLAGUNO, ESQ.,
                                               --------------------------
                                               Pedro P.Llaguno, Secretary

                                       26
<PAGE>



                                   SIGNATURES


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant has duly caused this report on its behalf by the undersigned hereunto
duly authorized.


                              DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                              --------------------------------------
                                                        (Registrant)


Date: March 4, 2002           By: VINCENT CUERVO
      -------------               ------------------------------------
                                  Vincent Cuervo, CEO


                              By: PEDRO P. LLAGUNO, ESQ.,
                                  ------------------------------------
                                  Pedro P. Llaguno, Secretary



                                       27
<PAGE>



                                 C O N T E N T S


                                                            PAGE

AUDITORS' REPORT...........................................F-2

FINANCIAL STATEMENTS

         BALANCE SHEET.....................................F-3

         STATEMENTS OF OPERATIONS..........................F-4

         STATEMENT OF STOCKHOLDERS' EQUITY/DEFICIENCY......F-5 - F-10

         STATEMENTS OF CASH FLOWS..........................F-11

NOTES TO FINANCIAL STATEMENTS..............................F-12 - F-17


                                       F-1


<PAGE>


                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                          (A DEVELOPMENT STAGE COMPANY)




                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Default Proof Credit Card System, Inc.

     We have audited the accompanying balance sheet of Default Proof Credit Card
System,  Inc., (a  development  stage  company) as of December 31, 2001, and the
related  statements of operations,  stockholders'  deficiency and cash flows for
the year then ended.  These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an  opinion  on the
financial statements based on our audit.

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

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the financial  position of Default Proof Credit Card
System,  Inc. (a  development  stage  company)  as of December  31, 2000 and the
results  of its  operations  and its  cash  flows  for the  year  then  ended in
conformity with generally accepted accounting principles.

     The accompanying  financial statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial  statements  the Company's  dependence on outside  financing,  lack of
existing  commitments  from  lenders to  provide  necessary  financing,  lack of
sufficient working capital,  and losses since inception raise substantial doubts
about its ability to continue as a going concern.  Management's plans concerning
these  matters are also  described in Note 2. The  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.

/s/ Baum & Company, PA
----------------------
Coral Springs, Florida
February 20, 2002









                 See Accompanying Notes to Financial Statements

                                       F-2


<PAGE>


                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                          (A DEVELOPMENT STAGE COMPANY)




                                  BALANCE SHEET

                                December 31, 2001



                                     ASSETS
                                     ------
CURRENT ASSETS
   Cash                                                          $      14,114

PROPERTY AND EQUIPMENT (Net of
   Accumulated Depreciation of $5,093)                                   4,701

OTHER ASSETS
   Deferred Patent Costs, Net                                            1,161
                                                                 -------------
               TOTAL ASSETS                                      $      19,976
                                                                 =============


                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY
                    ----------------------------------------

CURRENT LIABILITIES
       Accrued Expenses                                          $        800
                                                                 ------------
               Total Liabilities                                          800

STOCKHOLDERS' DEFICIENCY
      Common Stock, $0.01 Par Value, 2,500,000
,        Shares Authorized, 1,508,134 Issued and Outstanding           15,082
      Additional Paid-In Capital                                    4,393,260
      Deficit Accumulated During Developmental Stage               (4,389,166)
                                                                 ------------
               TOTAL STOCKHOLDERS' EQUITY                              19,176
                                                                 ------------
                  TOTAL LIABILITY AND STOCKHOLDERS EQUITY        $     19,976
                                                                 =============



                 See Accompanying Notes to Financial Statements

                                       F-3


<PAGE>


                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                          (A DEVELOPMENT STAGE COMPANY)



                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                 CUMULATIVE FROM
                                                                 AUGUST 14, 1985           FOR THE YEARS ENDED
                                                                   (INCEPTION)                DECEMBER  31,
                                                                     THROUGH        -----------------------------
                                                               DECEMBER 31, 2001         2001               2000
                                                               -----------------    -------------      -----------
<S>                                                                <C>              <C>                <C>
EXPENSES
    General & Administrative                                       $ 3,351,788      $     214,223      $    57,040
    Officer Salary                                                     986,556                  -                -
    Marketing                                                          393,358                  -                -
    Depreciation & Amortization                                        103,800              3,134            1,959
    Expired Public Offering Costs                                      179,211                  -                -
                                                                   -----------      -------------      -----------
    Total Expenses                                                   5,014,713            217,357           58,999
                                                                   -----------      -------------      -----------

OTHER INCOME (EXPENSE)
    Litigation Settlements (Note 7)                                    (90,000)                 -                -
    Interest & Other Income                                            423,220                  -                -
    Loss on Marketable Securities                                      (96,529)                 -                -
    Loss on Sale of Equipment                                          (34,144)                 -                -
                                                                   -----------      -------------      -----------
    Total Other Income (Expense)                                       202,547                  -                -
                                                                   -----------      -------------      -----------
Net Loss before Income Taxes and Extraordinary Item                 (4,812,166)          (217,357)         (58,999)
Income tax benefit                                                      25,436                  -                -
                                                                   -----------      -------------      -----------
Net Loss before Extraordinary Item                                  (4,786,730)          (217,357)         (58,999)
,
Extraordinary item - Gain from restructuring of
    debt (net of Income Taxes of $165,200)                             257,800                  -                -
Benefit from utilization of net operating loss carryforward            139,764                  -                -
                                                                   -----------      -------------      -----------
NET (LOSS) INCOME                                                  $(4,389,166)     $    (217,357)     $   (58,999)
                                                                   ===========      =============      ===========

Net (Loss) Earnings per Common Share                                                $       (0.15)     $     (0.04)
                                                                                     ============      ===========

Weighted Average Number of  Common
    Shares Outstanding                                                                  1,488,024        1,347,493
                                                                                        =========        =========

</TABLE>




                 See Accompanying Notes to Financial Statements

                                       F-4


<PAGE>


                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                          (A DEVELOPMENT STAGE COMPANY)


                 STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>

                                                                                                     DEFICIT
                                                            COMMON STOCK                           ACCUMULATED
                                                    ----------------------------     ADDITIONAL     DURING THE
                                                      # OF SHARES                      PAID-IN     DEVELOPMENT
                                                        ISSUED          AMOUNT         CAPITAL        STAGE            TOTAL
                                                    -----------      -----------    -----------    -----------    -----------
<S>                                                    <C>                <C>           <C>              <C>           <C>
To a Director, for Cash & Other Property
 (A, B, C) ......................................     2,518,000            2,518         11,705           --            4,223
To Directors & Officers for non-Cash
 Considerations Received (A, B, D) ..............       582,750              583         16,900           --           17,483
To Others for non-Cash Considerations
 Received (A, B, D) .............................        49,250               49          1,428           --            1,477
                                                                     -----------    -----------    -----------    -----------
BALANCE - DECEMBER 31, 1985 .....................     3,150,000            3,150         30,033           --           33,183
Private Placement Offering, Net of
 Issuance Costs of $16,453 (A, E) ...............       312,500              312        108,235           --          108,547
Patent License Costs (M) ........................          --               --         (125,000)          --         (125,000)
Dec. 31/86--Net Loss ............................          --               --             --          (44,461)       (44,461)
                                                    -----------      -----------    -----------    -----------    -----------
BALANCE - DECEMBER 31, 1986 .....................     3,462,500            3,462         13,268        (44,461)       (27,731)
May 7/87-- to a Director/Officer for Property
 (A, B, C) ......................................       500,000              500           (500)          --             --
May 12/87-- to a Director/Officer for Cash
 (A, F) .........................................       100,000              100         39,900           --           40,000
Reversal of Accrued License Costs (M) ...........          --               --           25,000           --           25,000
Capital Contribution by Principal Stockholder ...          --               --           78,076           --           78,076

Oct. 12/87-- Public Offering, net of Costs ......   $    76,314        1,131,010          1,132      1,336,318      1,337,450
Dec. 31/87--Net Loss ............................          --               --             --         (176,052)      (176,052)
                                                    -----------      -----------    -----------    -----------    -----------
BALANCE - DECEMBER 31, 1987 .....................     5,193,510            5,194      1,492,062       (220,513)     1,276,743
Apr. 7/88-- to Directors/Officers for Property
 (A, G) .........................................       800,000              800           --             --             800
May 1/88-- to Others for non-Cash Considerations
 Received (A, H) ................................        95,750               96            (96)          --             --
May 19/88-- Proceeds from Public Offering, net of
 Public Offering Costs of .......................   $   487,287        2,300,000          2,300      1,810,413      1,812,713
Patent License Costs (M) ........................          --               --         (100,000)          --         (100,000)
Warrants Converted at $1.25 per Share ...........       128,300              128        160,247           --          160,375
Dec. 31/88--Net Loss ............................          --               --             --         (405,875)      (405,875)
                                                    -----------      -----------    -----------    -----------    -----------
BALANCE - DECEMBER 31, 1988 .....................     8,517,560            8,518      3,362,626       (626,388)     2,744,756
Warrants Converted at $2.00 per Share ...........         3,000                3          5,997           --            6,000
Issuance of Stock by Principal Stockholder ......          --               --          110,000           --          110,000
Dec. 31/89--Net Loss ............................          --               --             --       (1,129,559)    (1,129,559)
                                                    -----------      -----------    -----------    -----------    -----------
BALANCE - DECEMBER 31, 1989 .....................     8,520,560      $     8,521    $ 3,478,623    ($1,755,947)   $ 1,731,197
Dec. 31/90--Net Loss ............................          --               --             --       (1,175,201)   ( 1,175,201)
                                                    -----------      -----------    -----------    -----------    -----------
BALANCE - DECEMBER 31, 1990 .....................     8,520,560            8,521      3,478,623     (2,931,148)       555,996
Jul. 10/91--to Various Parties for Professional
  Services Rendered (A, I) ......................       125,000              125          7,375          7,500           --
Oct. 3/91-- To Directors & Officers for non-Cash
 Considerations Received (A, J) .................        85,000               85          5,015          5,100
Dec. 31/91--Net Loss ............................          --               --             --         (430,800)      (430,800)
                                                    -----------      -----------    -----------    -----------    -----------
BALANCE - DECEMBER 31, 1991 .....................     8,730,560            8,731      3,491,013     (3,361,948)       137,796

</TABLE>



                 See Accompanying Notes to Financial Statements

                                       F-5


<PAGE>


                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                          (A DEVELOPMENT STAGE COMPANY)



           STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
<TABLE>
<CAPTION>

                                                                                                     DEFICIT
                                                            COMMON STOCK                           ACCUMULATED
                                                    ----------------------------     ADDITIONAL     DURING THE
                                                      # OF SHARES                      PAID-IN     DEVELOPMENT
                                                        ISSUED          AMOUNT         CAPITAL        STAGE            TOTAL
                                                    --------------   -----------    -----------    -----------    -----------
<S>                                                    <C>                <C>           <C>              <C>           <C>

BALANCE - DECEMBER 31, 1991 ........................     8,730,560         8,731     3,491,013    (3,361,948)       137,796
Aug. 12/92-- to an Individual for Professional
  Services Rendered (A, K) .........................        50,000            50         2,950         3,000           --
Dec. 31/92--Net Loss ...............................          --            --            --        (173,144)      (173,144)
                                                       -----------   -----------   -----------   -----------    -----------
BALANCE - DECEMBER 31, 1992 ........................     8,780,560         8,781     3,493,963    (3,535,092)       (32,348)
Feb. 12/93-- to a Related Entity in Consideration
  for Deferral of Loan Repayment (A, L) ............        46,850            47         2,753         2,800           --
Dec. 31/93--Net Loss ...............................          --            --            --        (450,366)      (450,366)
                                                       -----------   -----------   -----------   -----------    -----------
BALANCE - DECEMBER 31, 1993 ........................     8,827,410         8,828     3,496,716    (3,985,458)      (479,914)
Feb. 22/94-- to Various Parties for Professional
  Services Rendered (A, N) .........................        75,000            75         7,425         7,500           --
Jul. 25/94--to an Individual for Professional
  Services Rendered (A, O) .........................        30,000            30         5,970         6,000           --
Jul. 25/94-- to Various Parties for Secretarial
  Services Rendered (A, P) .........................        10,000            10         1,990         2,000           --
Dec. 31/94--Net Loss ...............................          --            --            --        (198,366)      (198,366)
                                                       -----------   -----------   -----------   -----------    -----------
BALANCE - DECEMBER 31, 1994 ........................     8,942,410         8,943     3,512,101    (4,183,824)      (662,780)
Jul. 25/95--to an Individual for Professional
  Services Rendered (A, Q) .........................       125,000           125        18,625        18,750           --
Dec. 31/95--Net Loss ...............................          --            --            --        (103,635)      (103,635)
                                                       -----------   -----------   -----------   -----------    -----------
BALANCE - DECEMBER 31, 1995 ........................     9,067,410   $     9,068   $ 3,530,726   ($4,287,459)   ($  747,665)
Jul. 12/96--to an Individual for Professional
  Services Rendered (A, R) .........................        25,000            25         3,725         3,750           --
Jul. 12/96--to an Individual for Professional
  Services Rendered (A, K) .........................        60,000            60         8,940         9,000           --
Aug. 28/96--to an Individual for Professional
  Services Rendered (A, S) .........................        30,000            30         4,470         4,500           --
Aug. 28/96--to an Individual for Professional
  Services Rendered (A, T) .........................        50,000            50         7,450         7,500           --
Sep. 13/96--to the President/Principal Shareholder
  in Exchange for Accrued Salaries Waiver up to
  12/31/96 (A, U) ..................................     2,000,000         2,000       298,000       300,000           --
Dec. 31/96--Net Loss ...............................          --            --            --         (39,711)       (39,711)
                                                       -----------   -----------   -----------   -----------    -----------
BALANCE - DECEMBER 31, 1996 ........................    11,232,410        11,233     3,853,311    (4,327,170)      (462,626)
Feb. 26/97--to Director/Officer for Professional
  Services Rendered (A, V) .........................        50,000            50         8,950         9,000           --
Feb. 26/97-- to an Individual for Professional
  Services Rendered (A, W) .........................        15,000            15         2,685         2,700           --
Nov. 5/97-- to an Individual for Professional
  Services Rendered (A, P) .........................        20,000            20         2,980         3,000           --
Nov. 5/97--to a Financial Public Relations Company
  for  Professional Services Rendered (A, X) .......       226,100           226        24,634        24,860           --
Nov. 5/97-- to a Consulting Company for Professional
  Services Rendered (A, Y) .........................       100,000           100        10,900        11,000
Dec. 31/97--Net Gain ...............................          --            --         349,910        349,910          --
                                                       -----------   -----------   -----------   -----------    -----------
BALANCE - DECEMBER 31, 1997 ........................    11,643,510        11,644     3,903,460    (3,977,260)       (62,156)


</TABLE>

                 See Accompanying Notes to Financial Statements

                                       F-6


<PAGE>


                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                          (A DEVELOPMENT STAGE COMPANY)


           STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
<TABLE>
<CAPTION>

                                                                                                     DEFICIT
                                                            COMMON STOCK                           ACCUMULATED
                                                    ----------------------------     ADDITIONAL     DURING THE
                                                      # OF SHARES                      PAID-IN     DEVELOPMENT
                                                        ISSUED          AMOUNT         CAPITAL        STAGE            TOTAL
                                                    --------------   -----------    -----------    -----------    -----------
<S>                                                    <C>                <C>           <C>              <C>           <C>

BALANCE - DECEMBER 31, 1997 ......................     11,643,510          11,644      3,903,460     (3,977,260)        (62,156)
Jan. 22/98--to a Financial Public Relations Co. ..
  for Professional Services Rendered (X) .........        200,000             200         21,800           --            22,000
Apr. 13/98--for Professional Services Rendered (X)        100,000             100         14,900           --            15,000
Jun. 4/98--for Professional Services Rendered (Y)          50,000              50          8,950           --             9,000
Aug. 4/98--for Professional Services Rendered (R)          50,000              50          7,950           --             8,000
Dec. 31/98--Net Loss .............................           --              --             --          (71,231)        (71,231)
                                                     ------------    ------------   ------------   ------------    ------------
BALANCE - DECEMBER 31, 1998 ......................     12,043,510    $     12,044   $  3,959,560   ($ 4,048,491)   ($    76,887)
Feb. 1/99--10 to 1 Reverse Stock Split ...........    (10,839,159)           --             --             --       (10,839,129)
Various/99--for Professional Services Rendered ...         66,000             660         22,825           --            23,485
Dec. 31/99--Net Loss .............................           --              --             --          (64,319)        (64,319)
                                                     ------------    ------------   ------------   ------------    ------------
BALANCE - DECEMBER 31, 1999 ......................      1,270,351          12,304      3,982,385     (4,112,810)       (118,121)
Feb. 28/00--for Professional Services Rendered ...          7,000              70         26,180           --            26,250
Apr. 2/00--for Professional Services Rendered ....          4,000              40          8,680           --             8,720
Apr. 12/00--for Professional Services Rendered ...            500               5          1,245           --             1,250
Jul. 26/00--for Professional Services Rendered ...          2,500              25          1,850           --             1,875
Nov./00--for Exercise of Stock Options in Exchange
  for Extingment of Debt .........................        140,283           1,403        146,380           --           147,783
Dec. 31/00--Net Loss .............................           --              --             --          (58,999)        (58,999)
                                                     ------------    ------------   ------------   ------------    ------------
BALANCE - DECEMBER 31, 2000 ......................      1,424,634          14,247      4,166,720     (4,171,809)          9,158
Jan 11/01-for Professional Services Rendered .....         14,500             145         67,355           --            67,500
Jan/Apr 01 Stock Options for Services ............           --              --           34,500           --            34,500
Jan 31/ 01-Exercise of Stock Options for Cash ....         35,000             350         34,650           --            35,000
May 11/01Exercise of Stock Options for Cash ......         25,000             250          9,125           --             9,375
 July 31/01 for Professional Services Rendered ...          9,000              90         80,910           --            81,000
Dec 31/01 Net Loss ...............................           --              --             --         (217,357)       (217,357)
                                                     ------------    ------------   ------------   ------------    ------------
BALANCE -DECEMBER 31, 2001 .......................      1,508,134    $     15,082   $  4,393,260   $ (4,389,166)   $     19,176
                                                     ============    ============   ============   =============   ============
</TABLE>

                 See Accompanying Notes to Financial Statements

                                       F-7


<PAGE>


                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                          (A DEVELOPMENT STAGE COMPANY)


STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)  (CONTINUED)

(A)  The shares are subject to restrictions on transfers  imposed by Rule 144 of
     the Securities Act of 1993, as amended.

(B)  In  addition  to the  shares of common  stock  issued,  the same  number of
     warrants  were issued  entitling the  shareholder  to purchase one share of
     common stock at $1.50 per share until April 12, 1990 (extended to August 2,
     1991). On May 4, 1990 the Company,  pursuant to a Resolution adopted by its
     Board  of  Directors  at a  special  meeting  of its  Board  of  Directors,
     terminated and canceled the warrants.

(C)  Other property  consisted of an exclusive license to a patent and a service
     mark recorded at par value ($.001) of the shares of common stock issued. At
     the time of issuance of the shares,  the fair market  value of the property
     exchanged was not determinable.

(D)  Non-cash consideration received consisted of professional services rendered
     in connection with the  organization  and  development of the Company.  The
     shares of stock  issued for  non-cash  services  were  recorded at the fair
     market value of the services rendered.

(E)  The Company sold 312,500 shares of $.001 par value common stock at $.40 per
     share in a private placement offering during August 1986.

(F)  In addition to the shares of common stock issued, the shareholder  received
     three hundred thousand  warrants,  each entitling him to purchase one share
     of common stock at $1.50 per share until April 12, 1990 (extended to August
     2, 1991). On May 4, 1990 the Company,  pursuant to a Resolution  adopted by
     its Board of  Directors  at a Special  Meeting  of its Board of  Directors,
     terminated and canceled the warrants.

(G)  Property  consists  of  an  exclusive  license  Patent  No.  4,718,009,   a
     Registered Trademark  "Resource",  and a  Continuation-In-Part  of a patent
     application  called  "Debit  Card".  The Canadian  patent for Default Proof
     Credit Card  System was  granted and the Company was advised  that fees for
     issuance of such patent were due before December 12, 1990. The Company paid
     such fees on October 30, 1990.  The shares of common stock were recorded at
     fair market value ($1.00 per share). Additional paid-in capital was reduced
     by $799,200 to adjust for the excess of the fair market value of the shares
     issued over the contributors' cost of the license agreement.

(H)  Non-cash   consideration   received   consisted  of  services  rendered  in
     connection with the Company's 1987  self-underwriting  public offering. The
     shares of common  stock were  recorded at fair market  value at the date of
     issuance,  net of discounts for restricted stock  (approximately  $1.00 per
     share).  A corresponding  charge was made to additional  paid-in capital to
     reflect the public offering costs.

(I)  Non-cash consideration received consisted of professional services rendered
     in connection  with the lawsuit between the Company and State Street Bank &
     Trust  Company.  The shares of stock  issued  for  non-cash  services  were
     recorded at the fair market value at the date of issuance.

(J)  Shares  were  issued  to the  directors  and  officers  of the  Company  as
     consideration for their services as directors of the Company. The shares of
     stock issued for non-cash  services  were recorded at the fair market value
     of the shares at the date of issuance.




                 See Accompanying Notes to Financial Statements

                                       F-8


<PAGE>


                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                          (A DEVELOPMENT STAGE COMPANY)




           STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)


(K)  Non-cash consideration received consisted of professional services rendered
     for software  consulting.  The shares of stock issued for non-cash services
     were  recorded  at the  fair  market  value  of the  shares  at the date of
     issuance.

(L)  Non-cash consideration received consisted of a deferral on a loan repayment
     to an entity controlled by the Company's principal stockholder.  The shares
     of stock issued for non-cash consideration were recorded at the fair market
     value of the shares at the date of issuance.

(M)  In  connection  with a  license  agreement  between  the  Company  and  its
     principal  stockholder,  the  stockholder  was paid a fee in the  amount of
     $200,000  from the  proceeds  and  earnings of the  Company's  October 1987
     self-underwriting   public  offering.  The  $200,000  fee  was  charged  to
     additional paid-in capital.

(N)   Non-cash consideration received consisted of promotion efforts with Credit
      Union officers. The shares of stock issued for non-cash services were
      recorded at the fair market value of the shares at the date of issuance.

(O)  Non-cash  consideration  received  consisted of  arranging  meetings and an
     agreement . The shares of stock issued for non-cash  services were recorded
     at the fair market value of the shares at the date of issuance.

(P)  Non-cash   consideration  received  consisted  of  secretarial  and  typing
     services. The shares of stock issued for non-cash services were recorded at
     the fair market value of the shares at the date of service.

(Q)  Non-cash  consideration  received  consisted of arranging  various meetings
     with  bankers,  investors  etc.  The shares of stock  issued  for  non-cash
     services  were  recorded at the fair market value of the shares at the date
     of service.

(R)  Non-cash  consideration received consisted of accounting services performed
     to date. The shares of stock issued for non-cash  services were recorded at
     the fair market value of the shares at the date of service.

(S)  Non-cash  consideration received consisted of introductions to investors in
     Ecuador.  The shares of stock issued for non-cash services were recorded at
     the fair market value of the shares at the date of service.

(T)  Non-cash  consideration  received  consisted  of work  related to  possible
     infringement on Company's  patent.  The shares of stock issued for non-cash
     services  were  recorded at the fair market value of the shares at the date
     of service.

(U)  Non-cash  consideration received consisted of waiver of accrued salaries up
     to 12/31/96. The shares of stock issued for non-cash services were recorded
     at the fair market value of the shares at the date of service.

(V)  Non-cash  consideration  received  consisted of  advertising  and marketing
     services   supplied  at  no  charge  STATEMENT  OF   STOCKHOLDERS'   EQUITY
     (DEFICIENCY) (CONTINUED)

                 See Accompanying Notes to Financial Statements

                                       F-9


<PAGE>


                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                          (A DEVELOPMENT STAGE COMPANY)




     since 1995. The shares of stock issued for non-cash  services were recorded
     at the fair market value of the shares at the date of service.

(W)  Non-cash  consideration  received  consisted of security legal advice since
     May 1995. The shares of stock issued for non-cash services were recorded at
     the fair market value of the shares at the date of service.

(X)  Non-cash   consideration   received   consisted  of  services   related  to
     communications  relating to investor relations.  The shares of stock issued
     for non-cash  services were recorded at the fair market value of the shares
     at the date of service.

(Y)  Non-cash consideration received consisted of consulting services related to
     the  preparation  of 10K  filing..  The shares of stock issued for non-cash
     consideration  were  recorded at the fair market value of the shares at the
     date of issuance.

(Z)  In 2001,  25,500  shares of common  stock,  valued  at  $148,500  and stock
     options to outside  consultants  for 69,000 shares,  valued at $34,500 were
     issued for services.












                 See Accompanying Notes to Financial Statements

                                      F-10


<PAGE>


                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                          (A DEVELOPMENT STAGE COMPANY)


                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                   CUMULATIVE FROM             YEARS ENDED
                                                                    AUG. 14, 1985 to           DECEMBER 31
                                                                     DEC. 31, 2001          2001         2000
                                                                     -------------          ----         ----
OPERATING ACTIVITIES
--------------------
<S>                                                                   <C>             <C>          <C>

Net (Loss) Gain                                                       $ (4,389,166)   $ (217,357)  $  (58,999)
Adjustments to Reconcile Net (Loss) Gain to
    Net Cash Used in Operating Activities:
    Depreciation & Amortization                                            105,628         3,134        1,959
    Loss on Marketable Securities                                          130,741             -            -
    Expired Public Offering Costs                                          110,000             -            -
    Cancellation of Stockholder Note Receivable                             55,490             -            -
    Stock Issued in lieu of Cash for Prof. Services                        477,055       148,500       38,095
    Stock  Options Issued in lieu of Cash for Prof. Services                34,500        34,500
    Stock Issued in lieu of Cash for Waived Salaries                       294,000             -            -
    Loss on Sale of Equipment                                               34,144             -            -
    Decrease (Increase) in Other Assets                                    (-1,161)            -            -
    Increase (Decrease) in Accrued Expenses                                    800           800      (28,515)
                                                                      ------------    ----------   ----------
    NET CASH USED IN OPERATING ACTIVITIES                               (3,247,969)      (30,423)     (47,460)
                                                                      ------------    ----------   ----------
INVESTING ACTIVITIES
--------------------
Purchases of Marketable Securities                                        (130,741)            -            -
Purchases of Property & Equipment                                         (125,227)            -       (11753)
Patent License Expenditures                                               (152,098)            -            -
Proceeds from Sale of Equipment                                             22,994             -            -
                                                                      ------------     ---------    ----------
    NET CASH USED IN INVESTING ACTIVITIES                                 (385,072)            -       (11,753)
                                                                      ------------     ---------    ----------
FINANCING ACTIVITIES
--------------------
Proceeds from Issuance of Stock-Private Offerings                          234,783             -       126,236
Proceeds from Issuance of Stock-Public Offerings                         3,150,163             -             -
Proceeds from Issuance of Stock-Exercise of Warrants                       284,733        44,375             -
Capital Contributions                                                       78,076             -             -
Net Receipts/Advances to Stockholder                                      (100,600)            -       (90,367)
                                                                      ------------     ---------    ----------
     NET CASH PROVIDED BY FINANCING ACTIVITIES                           3,647,155        44,375        35,869
                                                                      ------------     ---------    ----------
     NET INCREASE (DECREASE) IN CASH                                        14,114        13,952           162
    CASH - BEGINNING                                                             -           162             -
                                                                      ------------     ---------    ----------
    CASH - ENDING                                                     $     14,114     $  14,114    $      162
                                                                      ============     =========    ==========


</TABLE>




                 See Accompanying Notes to Financial Statements

                                      F-11


<PAGE>


                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                          (A DEVELOPMENT STAGE COMPANY)


                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2001

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          ORGANIZATION AND BUSINESS ACTIVITY

          Default   Proof  Credit  Card  System,   Inc.  (the   "Company")   was
          incorporated  on  August  14,  1985  under  the  laws of the  State of
          Florida.  The Company owns the  intellectual  property of several U.S.
          Patents  and  patent  pending  applications  and  is  engaged  in  the
          marketing of secured  credit cards and of the ATM Prepaid  Debit Cards
          Dispenser for which received  notice of patent  allowance on April 24,
          2000,  the over the counter sale and dispensing of prepaid debit cards
          (patent  pending)  and the  e-commerce  internet  dispensed of prepaid
          debit  cards  under the Domain  name  ubuydedbitcards.com  also patent
          pending.  The Company's offices are located in Coral Gables,  Florida.
          The Company is in the development stage and its operation to date have
          largely  consisted of the research,  marketing and  development of its
          products.

          USE OF ESTIMATES

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

          EARNINGS (LOSS) PER COMMON SHARE

          In February 1997, the Financial  Accounting  Standards  Board ("FASB")
          issued Statement of Financial  Accounting  Standards ("SFAS") No. 128,
          "Earnings  per Share" which  simplifies  the  standards  for computing
          earnings per share ("EPS")  previously  found in APB No. 15, "Earnings
          Per  Share".  It  replaces  the  presentation  of  primary  EPS with a
          presentation of basic EPS. It also requires dual presentation of basic
          and diluted EPS on the face of the income  statement  for all entities
          with complex capital  structures and requires a reconciliation  of the
          numerator and denominator of the diluted EPS computation.  The Company
          adopted  SFAS No. 128 in January 1998 and its  implementation  did not
          have an effect on the financial statements.  EPS has been restated for
          all prior  periods  presented.  Net loss per common  share  (basic and
          diluted)  is based on the net loss  divided  by the  weighted  average
          common shares outstanding during each year. The Company's  potentially
          issuable shares of common stock pursuant to outstanding  stock options
          has been  excluded from the  calculation  of diluted loss per share in
          2001 and 2000 since the effect  would have been  anti-dilutive  to the
          Company's net loss per common share.

          PATENT COSTS

          Costs incurred in connection with obtaining the license agreement of a
          patent  have  been  capitalized  and are  being  amortized  using  the
          straight-line  method  over 17 years from the date of  issuance of the
          patents.

          INCOME TAXES

          The Company  accounts for income taxes  pursuant to the  provisions of
          FASB No. 109  "Accounting  for Income Taxes",  which  requires,  among
          other things,  a liability  approach to  calculating  deferred  income
          taxes. The asset and liability approach requires the recognition






                                      F-12


<PAGE>


                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                          (A DEVELOPMENT STAGE COMPANY)



                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                December 31, 2001

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        INCOME TAXES (CONTINUED)

          of deferred tax  liabilities  and assets for the  expected  future tax
          consequences of temporary differences between the carrying amounts and
          the tax bases of assets and liabilities. The Company has had operating
          losses since  inception  and  accordingly  has not provided for income
          taxes.  Realization of the benefits  related to the net operating loss
          carryforwards  may be limited in any one year due to IRS Code  Section
          382, change of ownership rules.

          ACCOUNTING PRONOUNCEMENTS

          Statement  of  Position  ("SOP")  98-5,  "Reporting  on the  Costs  of
          Start-up Activities",  provides guidance on the financial reporting of
          start-up costs and  organization  costs. It requires costs of start-up
          activities and organization costs to be expensed as incurred.  The SOP
          is effective for financial statements for fiscal years beginning after
          December 15, 1998. The Company's  management  does not expect this SOP
          to have a  material  impact on the  Company's  financial  position  or
          results of operations.

          In March 1998, the American  Institute of Certified Public Accountants
          ("AICPA") issued Statement of Position 98-1,  Accounting for the Costs
          of Computer  Software  Developed  or Obtained  for  Internal Use ("SOP
          98-1").  SOP 98-1 requires  computer  software costs  associated  with
          internal  use  software  to be  expensed  as  incurred  until  certain
          capitalization  criteria  are met.  The Company will adopt SOP 98-1 on
          January 1, 1999.  Adoption of this statement is not expected to have a
          material  impact  on the  Company's  financial  position,  results  of
          operations or cash flows.

          SFAS No.  133,  "Accounting  for  Derivative  Instruments  and Hedging
          Activities",   establishes  accounting  and  reporting  standards  for
          derivative instruments and for hedging activities. It requires that an
          entity  recognize all  derivatives  as either assets or liabilities in
          the statement of financial  position and measure those  instruments at
          fair value. The Statement applies to all entities and is effective for
          all fiscal quarters of the fiscal years beginning after June 15, 1999.
          The  Company  did not  engage in  derivative  instruments  or  hedging
          activities in any periods presented in the financial statements.

NOTE 2. GOING CONCERN CONSIDERATION

          The accompanying  financial statements have been prepared assuming the
          Company will continue as a going concern.  The Company suffered losses
          prior  to  commencement  of  operations  and  has  a  working  capital
          deficiency.  Management intends to actively market the Resource System
          and a new (patent  pending) Line of Credit system.  The Company is now
          engaged in discussions  with several  financial  institutions  for its
          development.  In the absence of achieving  profitable  operations,  or
          obtaining  debt  or  equity  financing,   the  Company  may  not  have
          sufficient funds to continue through December 31, 2001.



                                      F-13


<PAGE>


                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                          (A DEVELOPMENT STAGE COMPANY)


                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                December 31, 2001

NOTE 3. DUE FROM STOCKHOLDER

          Due from stockholder consisted of various non-interest bearing and due
          upon demand advances.

NOTE 4. LICENSE AGREEMENT

          The Company's  C.E.O.  and principal  stockholder  was issued two U.S.
          patents and one  Canadian  patent  between  January  1988 and February
          1991,  and also  registered in the U.S. the trademark  "Resource".  On
          February 9, 1993, the Company  entered into a license  agreement which
          revoked the prior agreement dated January 8, 1991,  which provides the
          Company the exclusive rights and use of the aforementioned patents and
          trademark  for an  indefinite  period  of time in return  for  nominal
          consideration to the  stockholder.  The Company C.E.O. has transferred
          to the Company all the worldwide  rights and ownership of three patent
          applications for stock options to purchase shares of the Company,  the
          stock options to be granted if the patent  applications  received from
          the U.S. Patent and Trademarks  offices the related patent allowances.
          On April 24,  2000 the U.S.  Patent  and  Trademark  Office  notice of
          allowance of the patent  application ATM Prepaid Debit Cards Dispenser
          notifying  that all its eight claims were  allowed.  The other patents
          pending,  the sale,  dispensed and activated over the counter  prepaid
          debit cards, as well as the purchase,  sale and dispensed  through the
          Internet e-commerce,  known as the domain name  ubuydebitcards.com are
          now in process of receive patent allowances.

NOTE 5. EMPLOYMENT AGREEMENT

          On September 1, 1988, the president/principal stockholder entered into
          an employment  agreement with the Company.  Pursuant to the agreement,
          the stockholder is to receive an annual salary of $144,000,  increased
          annually by the greater of 5% or the  increase in the  consumer  price
          index.  However,  rights to this  salary and its  increases  have been
          permanently waived by the stockholder until such time as the Company's
          cash flows improve.  The agreement  terminates upon the  stockholder's
          seventy-sixth  birthday, or his death or disability,  whichever occurs
          first.  The agreement also provides that in the event of a termination
          for other than cause, death or disability,  he shall receive severance
          pay in the amount equal to his salary, payable during the remainder of
          his employment term.

NOTE 6. STOCK OPTIONS

        1988 STOCK OPTION PLAN

          In August 1988, the Company adopted the 1988 Stock Option Plan.  Under
          this plan,  stock options to purchase  600,000  shares of common stock
          may be granted to  employees,  officers  and other  persons  providing
          services to the Company, a parent or a subsidiary of the Company.

          The 1988 Stock  Option Plan is  intended  to qualify as an  "Incentive
          Stock Option Plan" under  Section 422A of the Internal  Revenue  Code.
          Under the Stock Option Plan, incentive stock options may be granted at
          not less than 100  percent of the fair market  value of the  Company's
          common  stock at the date the option is granted  (110% of fair  market
          value for 10% or greater





                                      F-14


<PAGE>


                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                          (A DEVELOPMENT STAGE COMPANY)


                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                December 31, 2001

NOTE 6. STOCK OPTIONS
        1988 STOCK OPTION PLAN (CONTINUED)

          shareholders)  and  options  granted  to any one  participant  may not
          exceed  $100,000  in option  price per year.  Options  may be  granted
          within tne (10) years from the adoption of the 1988 Stock Option Plan.
          Each option granted under the 1988 Stock Option Plan must be exercised
          within ten (10) years from the date of grant.

          No options were granted under the 1988 Stock Option Plan.


          OTHER STOCK OPTIONS

          During 1998,  five-year non-plan options to purchase 695,000 shares of
          common stock at prices ranging  between $0.14 and $1.50 per share were
          granted to the  President  and Vice  President of the  Company.  These
          options were fully vested at the date of grant.

          During 1997 five-year  non-plan  options to purchase 445,000 shares of
          common stock, at prices ranging between $0.15 and $1.25 per share were
          granted to the  President  and Vice  President of the  Company.  These
          options were fully vested at the date of grant.

          At December 31, 1998 and 1997 total non-plan options  outstanding were
          2,125,000 and 1,525,000,  respectively.  At December 31, 1998 and 1997
          2,125,000 and 1,525,000,  respectively,  of the non-plan  options were
          fully vested.

          As of  December  31, 1998 and 1997 the Company has agreed to grant its
          President other five-year non-plan options of 3,000,000 and 2,250,000,
          respectively,  contingent upon the issuance of certain patents.  These
          options will have exercise prices of $0.10 and $0.15, respectively.

          As of May 19,  2000 the  Company  has agreed to grant its  C.E.O.  and
          inventor  over ten year non- plan  options to purchase  the  Company's
          Common  Stock  $0.01  par value  per  share in the  amount of  500,000
          shares,  contingent upon the issuance of patent allowance related to a
          certain patent application. In February 2002, the patent was granted.

          In 2001,  69,000  options,  at exercise  prices  ranging from $4.75 to
          $11.00,  were issued for outside  services.  The company  also granted
          corporate  officers  options for 101,000  shares at prices of $4.75 to
          $12.00 per share.

          As required by Statement of Financial  Accounting  Standards  ("SFAS")
          123, pro-forma  information  regarding net loss and loss per share 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.







                                      F-15


<PAGE>


                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                          (A DEVELOPMENT STAGE COMPANY)


                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                December 31, 2001

NOTE 6. STOCK OPTIONS
        OTHER STOCK OPTIONS (CONTINUED)

          The  Black-Scholes  option  valuation  model was  developed for use in
          estimating  the fair  value of traded  options  that have not  vesting
          restriction 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  traded
          options,  and because changes in the subjective input  assumptions can
          materially  affect the fair value estimate,  the existing  models,  in
          management's  opinion,  do not  necessarily  provide a reliable single
          measure  of the fair  value of its  stock  options.  .The  charge  for
          options  issued in 2001 would  increase the loss .by $ 50,500 or $ .03
          per share.

          A summary of the status of the  Company's  fixed stock option plan and
          non-plan  options as of December 31, 2001 and 2000, and changes during
          the years then ended is presented below:
<TABLE>
<CAPTION>

                                                             Year Ended December 31,
                                                         2001                      2000
                                              --------------------------   -----------------------
                                                              Weighted                   Weighted
                                                               Average                    Average
                                                              Exercise                   Exercise
                                                 SHARES        PRICE         SHARES*      PRICE
                                              -----------   -----------   ------------  ---------
<S>                                             <C>         <C>           <C>            <C>
          Outstanding at beginning of year      1,287,500   $ 2.17           302,000     $ 3.30
          Granted                                 170,000   $ 7.46         1,025,000     $ 1.375
          Exercised                               (60,000)       -           (17,500)         -
          Forfeited                               (70,000)       -           (22,000)    $    -
                                              -----------                 ----------
          Outstanding at end of year            1,327,500   $ 2.50         1,287,500     $ 2.17
                                              ===========                 ==========
          Options exercisable at year-end         691,500   $ 2.50           527,000     $ 2.50
                                              ===========                 ==========
</TABLE>




                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                December 31, 2001

                                      F-16


<PAGE>


                     DEFAULT PROOF CREDIT CARD SYSTEM, INC.
                          (A DEVELOPMENT STAGE COMPANY)



NOTE 6. COMMON STOCK SPLIT

          On February 1, 1999, the Board of Directors of the company  approved a
          10 to 1 reverse stock split. All financial data has been appropriately
          adjusted.

NOTE 7. INCOME TAXES

          At December  31,  2001,  the Company  had a net  operating  loss carry
          forward of approximately $4 million, that expires through 2016.

          The Company has a deferred tax asset of approximately  $1,500,000 as a
          result of net  operating  loss  carry  forwards,  which is offset by a
          valuation allowance of the same amount due to the uncertainties behind
          its realization.

NOTE 8. PATENTS ISSUED AND SUBSEQUENT EVENT

          On August 15, 2000,  the U.S.  Patent and Trademark  Office issued the
          Patent Number  6,105,009,  the Automated  Teller Machine  Dispenser of
          Debit Cards. The Patent Certificate was received on August 23, 2000.

          In  February  2002  the  company  received  from  the U S  Patent  and
          Trademark Office a notice of allowance for its Prepaid Debit Card.






                                                          F-17


<PAGE>