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, 1999
                   -------------------------------------------
                                       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 4, 2000, was: Common
Stock.  $0.01 par value: $2,858,290.  The number of shares  outstanding  of the
registrant's common stock $0.01 par value as of December 31, 1999 was: 1,270,351


<PAGE>












                                     PART I

ITEM 1 DESCRIPTION OF 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 and marketing of proprietary  methods and systems for
issuing  secured  credits and debit cards that are a safer  lending risk for the
issuer.  The Company first and second  secured type card were marketed under the
trademark  Resource  (the Resource  System),  and business  processes  which are
related to prepaid value secured debit cards (patents pending) to be marketed as
an Automated Teller Machine Debit Card Dispenser [patent pending]("ATMDCD"), and
the UBUYDEBITCARDS.COM ["UBDC"] (patent pending)and  UBUYCREDITCARDS.COM [patent
pending] both a prepaid debit or credit cards that soon will be offered  through
the Company's web sites in the INTERNET.

         The  Resource  System is  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.  The ATM  Debit  Card
Dispenser,  patent pending,  on the other hand, allows an applicant to made cash
deposits or charges to any bank card at an Automated  Teller Machines which will
dispense to the applicant a debit card with a prepaid  stored value amount equal
to the cash  deposited less a small service fee. The issued debit card will have
equal functions as any other MasterCard, Visa, Optima, Discover, etc, now in the
market.

         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  equal to at least 80% of the  assigned
collateral through the issuance of a credit or a debit card, or any other credit
instrument.   Other  than  with  respect  to  the  cash  surrender  values,  the
assignments will not affect any provisions of such life insurance policies.  The
collateral will be used to protect the  participating  institutions  against the
cardholder's  failure to pay the  credit/debit  cards  charges  when due. In the
event  of  such  failure,  the  Company,  as  guarantor  will  agree  to pay the
participating  institution the defaulted amount and, in turn, will be reimbursed
by the cardholder's  life insurance  company from the proceeds of a loan made by
the insurance company to the policyholder and charged,  as a policy loan, to the
cardholder's insurance policy.  Although the foregoing represents the method the
Company  intends  to use in the  implementing  of  the  Resource  System,  it is
possible that the actual operation of the Resource System, if any, may vary from
the foregoing plan.

           Vincent  Cuervo,  President  and CEO of  Default  Proof  Credit  Card
System,  Inc., is the sole inventor of the Automated  Teller Machine DEBIT CARDS
DISPENSER   patent   pending   (ATMDCD)   and   the    ubuydebitcards.com    and
ubuycreditcards.com  [patent  pending] filed with the U.S.  Patent and Trademark
Office, Washington, D.C.

         The Automated Teller Machine Debit Card Dispensers [patent pending],

                                        2


<PAGE>
there is no assurance that the related patents to these patent pending
will be granted by the U.S. Patent and Trademark Office, relates to existent and
future ones to be manufactured modified automated teller machine to become debit
cards dispensers,  and more,  particularly to those that are computerized (ATM).
This patent pending will provide a system for dispensing and  controlling  debit
cards.  These  cards  will  require  a minimum  of  paperwork,  maintenance  and
financial  disclosure  from a card  purchaser,  and unlike  typical online debit
cards, the patent pending  stored-value card 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 installed in
future  manufactured ATMs, will permit consumers to purchase and design a desire
prepaid debit cards from widely available ATMs using cash, or through charges to
existing debit and or credit cards.  These compatible  elements,  inexpensive to
manufacture  and maintain,  are easily  installed and adapted to the operational
systems in use today.

         Existing Automated Teller Machines on the market today are accessed for
cash  advances by the  insertion of a valid credit or debit card and entry of an
assigned PIN number,  against the credit line balance on such credit/debit card.
Cash advances are approved or denied based on the current  available credit line
on a credit card, or the cash balance of a debit cardholder's bank account. Once
operative,  the patent  pending  system will not  provide  cash  advances  while
processing  the request for an interest free prepaid  debit card.  Very much the
opposite.  Applicants  will have access to any one of the thousands of Automated
Teller Machines (ATMs), (worldwide approx. over 400,000), and purchase a prepaid
debit card making cash deposits or charges to other bank card in varying amounts
($300;$ 1,000;  $ 3,000 and up). The amount  deposited will be determined by the
potential  cardholder's  means and needs and will determined the prepaid secured
debit or ATM card's credit line.

         Even  though  there is not need for bank  affiliation  the debit  cards
still must be issued by a participating  bank or financial  institution in order
to  access  regional,  national  and  international  electronic  funds  transfer
networks.  However,  though it may still be issue by such an  institution,  they
will be dispensed  through modified or new Automated Teller Machines.  There are
approximated  50 Million,  in the United  States  alone,  who do not have a bank
relationship.

         The Company will consider  offering  licenses to the  manufacturers  of
both new and previously  manufactured ATMs (Diebold;  NCR; Siemens; Wang Global;
Hitachi; Triton; Tidel Technologies, etc) in order to make hardware and software
modifications  necessary to incorporated new patented elements. As a result, the
utility and functionality of ATMs will be expanded.

         When the combination of these elements is realized, an ATM machine will
perform new  functions.  For the easy  purchase  of a debit  card,  the ATM will
accept cash deposits or charges to another bank card. It will dispense a plastic
debit card with the same  functions of most online debit cards.  It will allow a
cardholder  to receive cash from ATM or  purchasing  merchandise  or services by
entering a  confidential  personal PIN number at the point of sale. It will also
facilitate car rentals, airline and hotel reservations, etc.

                                       3
<PAGE>


         The cash deposited may be scanned for counterfeit bills.  The
applicant will provide its postal zip number or mother's maiden name for
security reasons.  The purchaser will select and enter four confidential numbers
for his or her personal and confidential  PIN number.  Besides cash the user can
charge the whole amount to a credit,  debit, bank or ATM card benefitting of the
25 days grace period for balance payment in those cards.

         Following  these easy steps,  a receipt  will be  provided  showing the
prepaid  amount of the  line-of-credit,  less a service  fee that will varied in
accordance with the amount of the prepaid stored value debit card purchased,  3%
or 4%. The issuing bank's customer  service  toll-free  number will be provided,
printed on the back of the card,  along with other sundry  information.  The ATM
will dispense the debit card with its 16 digits, the issuing bank's name and the
issue date.  Now the card will be ready for use.  The  cardholder  will have the
option to reload the card at any of the issuing bank's ATM machines.  In case of
reload,  the service fee would be reapplied.  There is no assurance of a related
patent being granted.

     THE CARDHOLDER:

In order to obtain this debit card, a  cardholder:  Will not need to have his or
her  good,  fair or bad  credit  checked.  Will not  suffer  issuing  delays  or
paperwork,  immediate  issue of an online debit card will follow  completion  of
transactions requirement.  Due to it's flexibility will design and determine the
line-of-credit  when applying for the card. The deposit amount would  correspond
to purchaser means and needs. Will not have to pay fees for late payments,  over
the limit usage, or interest charges.

         It can be purchased or reloaded 24 hours a day.  ATMs are open 24 hours
a day,  with around the clock  availability  while most banks close by 2.00 p.m.
Monday through Friday.  Foreign currency capability may be added. Other valuable
features are included in the patent pending.

         THE ISSUING BANKS:

         Would enjoy  foreseeable limited  and or minimal liability. Will not
have to  suffer  charge  offs,  over the  limit  usage,  or  delinquencies.  The
financial  institutions  will enjoy earnings  similar or higher profits that the
ones now obtain collecting  merchant  discount fees and ATMs transactions  fees.
Will also  benefit  from the CASH FLOAT of deposits  made from the debit  card's
purchases,  as now happens when  traveler's  checks are  purchased.  Millions of
dollars  will  become  available  for  some  time  to  the  issuing  bank  as  a
line-of-credit  on those  cards  purchased,  before  the  cardholder  uses them.
Paperwork will be reduced as we; as time. There would be no need for Equifax or
Credit Bureau  reports.  The bank issuing the debit card may not have to prepare
and mail monthly  statements  if so desires.  The Point Of Sale  terminals  will
remain the same as the ones now in use.  There will be no need to install new or
different  expensive  terminals  at the  Point of Sale  (POS).  The same  online
terminals  currently  being in use  will  suffice.  They  will  start  servicing
individuals  in the Sub-Prime  market.  Due to a variety of reasons such as poor
credit,  bankruptcy,  divorces,  college students,  etc., over 46 million people
cannot have a bank card.

                                        4


<PAGE>


The  technology  of this  patents  pending  will make it possible  for banks and
financial  institutions  to  service  this  untapped  ,  sub-prime  market,  and
merchants  will not be required to purchase new POS  expensive  terminals.  This
expanded functionality will represent future opportunities for branch banks. Not
only will the ATM be convenient,  more personalized and more enjoyable,  but now
it does more too. There is no assurance that the related patent will be granted.

         MARKET

     With this new ATM technology financial institutions that have been shifting
operations for quite sometime to  electronically  networked  enterprises will be
helped. ATMs have lead the change,  providing  consumers with quick,  convenient
access to cash. Everyone knows how it works: personal I.D., number in, cash out,
but automated  teller machines  haven't  fulfilled yet all the customer's  needs
yet.

         After  an  initial  placement  of ATMs in  banks  and  other  financial
institutions,  they  will  be  placed  at gas  stations,  theaters,  stores  and
supermarkets,  also they can now be found in hotel  lobbies,  fast food  stores,
convenience stores, drug stores, malls, nightclubs,  service stations, airports,
hospitals,  and many  other  places.  Several  ATM  manufacturers  are now offer
theater coupons or vouchers,  video advertising,  and check cashing capabilities
for personal and two party checks.

         SALES PLAN

         Being this a new product, we cannot provide a very detailed plan as
yet but we can  give an  overview  of where we want to go.  The  success  of the
telephone  card  must be taken  into  account  to  realize  that  the  potential
available  in this  product  is  several  times  greater  than the phone card in
revenue and earning. Both of these cards offer convenience to the consumer,  but
the  dollar  values  being  much  higher  here.  There are three  areas of sales
opportunities,  one with financial  institutions,  our own bank with its own ATM
machines and lastly, by way of Automated Teller Machines manufacturers.

         Regarding  the  licensing of financial  institutions,  we will approach
large  money-centered  banks that are heavily involved in the deployment of ATMs
on and off  premises,  also  licenses  offering  the system will be available to
smaller  institutions  who are now deploying off premise ATMs,  and will like to
enter this market.

         There are several  major ATMs  manufacturers,  Diebold  Inc;  NCR Inc.;
Siemens;  Triton  Systems Inc.;  Tidel  Technologies  Inc.,  etc. The new patent
pending system should be of interest to all of these manufacturers,  as it would
provide  additional  sources of revenue.  Worldwide  there are over 400,000 ATMs
presently  operating and of them a large  percentage  is  considered  not in top
shape or without updated technology, which would require the installation of the
new elements that would modify these machines into debit card  dispensers.  Once
the new system  makes the expected  impact in the market,  it is likely that new
manufactured machines will include this system.

         ATMs are either  owned by or leased by  financial  institutions,  or in
some cases they are owned and leased by the manufacturers to merchants or

                                        5


<PAGE>


to small banks.  Fees per ATM transactions are paid to owners,  lessors,  banks,
etc., banks are aware of the  profitability of the ATMs they now operate and the
fee income per transaction the ATMs generate,  the benefits and savings obtained
from  electronic  banking,  and the speed at which the ATM market is expanding..
Debit  cards and ATM cards  are  becoming  very  popular  and are been  accepted
everywhere.

         ATM DEBIT CARDS DISPENSER (PATENT PENDING) POTENTIAL REVENUE

         Forecasting  revenues  for a brand new  product  is not easy.  Based on
information  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, etc.), this could be the first expected group
to purchase stored value prepaid debit cards.

         Revenue will be from the Company own ATMs . This will include the 3% or
4% of the  prepaid  line of  credit  of the  prepaid  debit  card  issued as the
processing  fee,  the normal fee a bank  receives  when a credit card is used to
purchase  merchandise  or cash  advances,  the  ATM's  transaction  fees and the
earnings  on the cash float the bank will have at its  disposal,  less the lease
payment for the space where they are deployed.

         Revenues should also be expected from licensing ATM manufacturers,  and
from licenses sold to financial institutions. It is not possible at this time to
forecast revenues that may be generated from the ATM manufacturers.

         Revenue  projections  derived  from  ATMs  owned by the  Company,  from
partnerships or licensing multiple of banks are possible from frequent available
information  published in trade  magazines.  To be counted will be the Company's
earnings from the processing fees against the stored value line of credit issued
in the prepaid  debit card,  example:  $1000 line of credit 4% fee will generate
$40.per card,  will,  this will provide a  significant  source of revenue to the
Company.

         ATMs currently generate an average of $400(gross) in fees per month per
ATM from conventional transactions. We are only making these projections at this
time  because we want to examine the  incremental  business  that this ATM Debit
Card  Dispenser  will  generate.  It can be assumed that starting with owing 500
ATMs which may produce 500 x $400 x 12 months = 2.4 Million dollars. We believe,
even though there no  assurance,  it is possible to generate  this average or at
least  close  to this  number.  Part of  these  earnings  will go to the cost of
renting space for our owned ATMS.

         Once the  company's  revenue  stream  starts to come online,  this will
allow for  additional  ATM machines to be purchased  and placed.  This will also
allow for increased  advertising  and promotion which should increase the amount
of ATM debit  cards  being  purchased  per  machine.  The above does not reflect
reloads,  nor other individuals  whom, while in good credit rating,  purchases a
prepaid stored value debit card.

         The Company's Patent Pending, once operative, does not provide cash
advances while  processing the  solicitation  of the interest free prepaid debit
card,  very much the opposite.  Under the ATMDCD  applicants will be able to use
the  approximated  five  thousands  of  Automated  Teller  Machine  (ATM) in the
worldwide    market   today,    and   make   cash   deposits   that   may   vary
($100;$200;$300;$500;$  1,000; $ 2,000; $ 3,000 and up) which will determine the
amount of the ATMDCD of the prepaid  secured debit card, and in accordance  with
his or her means and needs.

         The bank  card  will be issued  by a  participating  bank or  financial
institution and dispensed through an Automated Teller Machine.

                                        6


<PAGE>


         UBUYDEBITCARDS.COM (patent pending)

         The present  patent  pending  differs from present  methods and ways of
soliciting  and  purchasing.   Through  the  use  of  cyberspace  and  Internet,
subscribers  will apply for a prepaid  debit card with any select line of credit
that can be used with more than one card to transfer funds and other incentives.
The  prepaid  debit  card will be issued by a  participating  bank or  financial
institution  and  in  the  future  may  be  dispensed  by  an  Automated  Teller
Machine(ATMDCD),  or received directly at the participating issuing bank office,
or by mail if so desired.

UBDC comes to solve the problem of  obtaining a debit card in an  efficient  and
economical way. There is no assurance that a related patent will be issued.

             PLANNED MARKETING OF THE COMPANY"S PREPAID DEBIT CARDS

         AUTOMATED TELLER MACHINES DEBIT CARDS DISPENSER(PATENT PENDING)
        -----------------------------------------------------------------

                     AND UBUYDEBITCARDS.COM (PATENT PENDING)

         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 low lines of
credit,  or wish to  establish  their  credit  worthiness  for the future.  This
individuals  will be able to prepaid  the  stored  value  desired  for a line of
credit by purchasing the Company prepaid debit cards.

         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 and  MasterCard  in just  about  every
retail  outlet,  and the strong  presence of ATMs and the Internet,  the prepaid
debit cards will function just like cash, while providing a safety element.

         Travelers  wishing to prepaid their traveling  expenses,  in stead
of just  charging  it. This  prepaid  debit card may be obtained in any currency
desired and used just like cash in the visiting country.  It will work just like
travelers  checks  with the added  convenience  of a debit  card and its  safety
Individuals not wanting to go through all the hassle of applying and maintaining
a present offered debit card. There will be no application, no delays, no credit
reports,  no payments  and no  paperwork.  But probably  most  important to some
individuals, there will be no overspending.

                                        7


<PAGE>


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

         THE RESOURCE SYSTEM

         The  Resource  System  is  designed  to  provide   individuals  with  a
convenient  method of obtaining , at 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  they  assign the cash
surrender values of their insurance policy to the Company as collateral.

         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.

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 and its telephone
(305) 666-1460, its Fax No. is (305) 665-3462. E-Mail dpccsystem@aol.com and the
Web    site     addresses     are:     htt://members.aol.com/dpccsystem/     and
ubuydebitcards.com/confidential.   Furniture,   office   equipment  and  several
computers.  Has an  understanding  agreement with the inventor for the worldwide
rights and ownership of the Patents  Pending(3)  related to two Automated Teller
Machines Debit Cards Dispenser the  UBUYDEBITCARDS.COM  and  UBUYCREDITCARDS.COM
patents pending. Two Domain Name registrations for use in the Internet.

         THE PATENTS PENDING STATUS

         The Company's patents pending are pending the U.S. Patent and Trademark
Office  granting  the related  patents.  Even though there is no  assurance,  on
February 8, 2000 Dr. Vincent Cuervo, CEO of the Company and the Company's Patent
Attorney  visited at the U.S. Patent Office in Washington D.C. with the examiner
and left with  confidence  that after that meeting it is expected to receive the
Grant for the ATM DEBIT CARDS  DISPENSER  as early as April  2000,  and that the
ubuydebitcards.com is also expected to follow shortly.

                                        8


<PAGE>


         There is no assurance that related  patents will be granted by the U.S.
Patent  and  Trademark  Office  on all or any  of the  above  mentioned  patents
pending.

         The UBUYDEBITCARDS.COM and  UBUYCREDITCARDS.COM,  Internet Domain Names
are integrated to the Company's  intellectual  property,  as it is the trademark
Resource.

         ITEM 3. LEGAL PROCEEDINGS.

         The Company is not involved in any material litigation and is not aware
of any potential claims which 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, 1999.

                                     PART II

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

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

         The following table sets forth the high and low bid information for the
Company's  common stock  monthly  during 1998.  The  quotations  provided  below
reflect inter-dealer  prices,  without mark ups, mark down or commission and may
not represent actual transactions.

FISCAL 1999                                      HIGH             CLOSE

                           02/05/99             .010               .08
                           03/26/99             11/16              5/8
                           04/09/99             11/16              11/16
                           05/07/99             .70                9/16
                           06/04/99             3/8                3/8
                           07/02/99             1-1/8              .51
                           08/06/99             7/8                3/8
                           09/03/99             2-/8               2-1/4
                           10/01/99             1-/8               1-7/8
                           11/05/99             2.                 1.88
                           12/03/99             2-1/8              1-13/16
                           12/31/99             3.                 2-15/16

         On  December  31, 1999 the  Company  had  approximately  211 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.

         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


                                        9


<PAGE>


payment of dividends 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

         During the next twelve  months,  the Company  plans to (i) either begin
marketing of the Resource  System with one or more  Financial  Institutions,  or
license,  joint  venture,  or sell the  Resource  System to a bank or  financial
institution,  (ii) to begin  the  licensing  of its ATM Debit  Cards  Dispenser,
patents  pending  to one or several  banks or  financial  institutions  or joint
venture.

         `The company would will consider to raise 25 million dollars to
enter,  through the  acquisition  or control of a small  Florida  bank,  the off
premise ATM business.  It will require 3.5 to 5 million dollars for the purchase
of 500 automated  teller  machines that can dispense  Debit cards (at about 7 to
9,000 dollars  each).  The balance will be used for  administrative,  marketing,
advertising and promotion expenses.

       The ATM  Debit  Card  Dispensers  will be  placed  in fast  food  stores,
airports,  gasoline stations, bus terminals,  etc. The company will pay rent for
the space  the ATM  occupies  or a  percentage  of the  earnings  per  installed
machine.  The cards dispensed by an ATM will be issued through the company-owned
bank as well as by licensed institutions issuing credit and debit cards now.

         Owning or having controlling interest in a bank will allow the
capture of extra revenue along with a potential for very significant cash float.
An important  consideration  here is that having the Company its own bank allows
us to  generate  a huge cash  float  from  debit  card  purchase  balances  that
cardholders  on average  will not use  immediately.  This  allows us to generate
considerable  income off this float.  As an issuing  bank the company  will also
receive  50% of the  transactions  fees that VISA,  MASTERCARD  charges to their
merchants, i.e. projection - 120 million line of credit eventually translates to
120,000,000 x 1.7% transaction fee x 50% to issuing bank = 1,020,000  dollars in
revenue.

         The  Company  is  now  having  substantive  interviews,   meetings  and
conversations,  on February 29, 2000 the Company and First Southern Bank at 2000
Glades  Rd.,  Suite 206,  Boca  Raton,  Florida  33431 and the News  Release was
distributed through the financial news media, the first paragraph of it follows:

MIAMI, FL (Business  Wire) February 29, 2000:  DEFAULT PROOF CREDIT CARD SYSTEM,
(OTC-BB:  DPRS) (the "Company")  announced it has entered into an agreement with
Boca Raton,  Florida based FIRST SOUTHERN BANK ("FSB").  FSB will be licensed to
issue  prepaid,  debit cards  purchased  by users of the  Company's  dynamic new
INTERNET Web-Site  UBUYDEBITCARDS.COM(TM)(C)  (patent pending) in the World Wide
Web.  FIRST  SOUTHERN  BANK will issue the  prepaid  debit  cards' PIN  required
MASTERCARD(R). Pursuant to the agreement, as soon as possible, DEFAULT PROOF and
First Southern Bank will launch UBUYDEBITCARDS.COM on the WORLD WIDE WEB.

                                       10


<PAGE>
         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
$95,000 in developing  computer software and acquiring computer hardware for the
operation  of the  Resource  System.  The  Company  has  expended in excess of $
630,000 for advertising which has included newspaper and television advertising,
video tapes, and brochures and applications  which were distributed  through the
mail and to various stores and businesses.

         Patents fees  applications,  as well as Patent's  attorneys legal fees,
maintenance patent fees, are close to $130,000 of Company expenses.  The Company
expend well over $245,000 in developing  the Resource  System.  The Company also
expended over $ 1,000,000 in litigation with State Street Bank and Trust Company
(State Street Bank),  American  Express  litigation over the Company's  RESOURCE
trademark  in 1991,  Securities  attorneys  legal  fees,  and in other legal and
C.P.A.'s fees. The State Street Bank litigation  forced the Company to attempted
to raise more  capital in order to implement a new  strategy  that  involved the
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.

     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 bank cards
issuing  financial  institutions,  and it now appears that the effort to protect
its patent rights will pay off after all. The renewed marketing efforts offering
the Company's Resource System to banks for licensing has developed new interest.
Conversations  with  several  banks'  officers are  encouraging,  since they are
demonstrating  interest in the Company's  secured  credit/debit  card  products.
Marketing  efforts will continue  jointly with the offering of the Company's ATM
DEBIT CARDS  DISPENSER,  patents  pending,  and the about to be launched late in
1999 Fall our Internet  UBUYDEBITCARDS.COM  patent pending, all of them with new
exciting Company's technology.  There is no assurance that these patents pending
will be granted related patents.

      EMPLOYEES

         As of the date  hereof,  the Company has 3  employees  serving  also as
officers,  like the CEO, the Counsel and  Company's  Secretary  and the valuable
acquisition  of  David  J.  Koss  first  as a  consultant  and in June  1999 was
appointed as President and C.F.O. Cuervo and Llaguno have received Stock Options
Grants (see: Stock Options) for all work (without monetary compensation) done by
them in the last several years. Those stock

                                                    11


<PAGE>


options to Cuervo were granted also,  because of his loans,  at no interest,  to
the Company, and other expenses paid by him on behalf of the Company. Also David
J. Koss was  granted  25,000  Stock  Options per year for a period of four years
from the date of his appointment as President of the Company.

         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. The reason for this
change is for their high  expensive  fees and  charges at times when the Company
can not afford such expenses. EXHIBIT #2

                                                 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.                      71                Director

David J. Koss. President                    40

Ciro B. Sosa, Vice President                71                Director

Pedro P. Llaguno, Vice President            68               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.

                                       12


<PAGE>


     VINCENT CUERVO has been President 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 Juris 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, a 17 year financial  services  professional and with a large
experience  in the  banking  industry.  Mr.  Cuervo may be deemed a "parent"  or
"promoter"  of the  Company,  as those  terms  are  defined  under  the  federal
securities  laws.  The Company lost the services of a long time friend,  Officer
and Director, David I. B. Williams who died.

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

          During the last five 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, judgement 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 judgement 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, 1998 exceeded one Dollar.

                                       13


<PAGE>


                           SUMMARY COMPENSATION TABLE
                            LONG-TERM COMPENSATION

         ANNUAL COMPENSATION                      AWARDS

NAME AND                             (# OF SHARES)  (# OF SHARES)
PRINCIPAL    SALARY    OTHER ANNUAL  RESTRICTED     OPTIONS/SAR     ALL OTHER
POSITION     YEAR      $BONUS        COMP. $        STOCK AWARDS

        NONE


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

        NONE

        ITEM 11.  SECURITY   OWNERSHIP  OF  CERTAIN   BENEFICIAL   OWNERS  AND
               MANAGEMENT

The following table sets forth information on early January 1999 and at February
18, 1999 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.

Name of Beneficial    Amount and Nature of          Percentage of
      Owner           Beneficial Ownership     Outstanding Shares Owned

VINCENT CUERVO
Miami, FL 33143                348,291                      29%

CIRO B. SOSA
Miami, FL 33145                 24,276                       2%

PEDRO P. LLAGUNO
Miami, FL 33145                 16,142                     1.4%

KATHY WILLIAMS
Mississuaga, Ontario            19,750                     1.6%

DAVID J. KOSS                   10,000                     0.9
Miami, Fl 33145

ERIC H. SPELLMAN                83,500                     6.2%
Larchmont, NY
Officers/directors,
promoters, as a group          501,960                    39.3%

         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

                                       14


<PAGE>


$.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  UBUYDEBITCARDS.COM  patent
pending filed with the US Patent and Trademark Office, Washington,  D.C. earlier
in 1998.  Under the  understanding  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 the issue
of a related Patent to this patent pending UBUYDEBITCARDS.COM will be issued.

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

          SECURITIES  OUTSTANDING

         The Company is authorized to issue 2,500,000  shares of $0.01 par value
common stock (the Shares). As of December 31, 1999 there are 1,270,351 currently
outstanding shares, and 491,960 of the Company outstanding shares are restricted
shares.  The Company also has 38,000 Stock Options of the Company's Common Stock
$0.01 par value at an exercise  price  ranging from $0.50 to $1.25 per share (an
average exercise price of $0.75 per share), and another 140,000 Stock Options of
the Company's  Common Stock $0.01 par value to purchase shares until February 2,
2000, at an exercise price of $0.10 and $0.15 cents per share, and 125,000 Stock
Options of the Company's  Common Stock $0.01 to purchase shares  exercisable for
five year  periods  at a price of $0.14 or the last  preceding  day on which the
Company's  shares were trade as reported on the  NASDAQ:OTC-BB on July 17, 1998.
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.

                                       15


<PAGE>

         SOCK 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 $1.25.  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.  No
stock  options  have been  forfeited  or exercised  and all  outstanding  awards
continue to be exercisable as of December 31, 1998.

         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,  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  at $0.10  and  $0.15  respectably.  No stock  options  have  been
forfeited or exercised and all outstanding  awards continue to be exercisable as
of December 31, 1999.

         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, 1999.

         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.

         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 fi, 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.

         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.

                                       16


<PAGE>


         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 February 5, 1999 the Company  issued  10,000 shares of the Company's
Common  Stock  $0.01 par value per share to Maria T. C.  Schafer  web  master in
payment for her previous and present services. The shares price at the close was
$0.80 per share.  Also on September  30, 1999 there were issued to Mrs,  Schafer
5,000. Shares of the Company's Common Stock $0.01 per share. At market close the
price per share was $1.50 per share.

         On February 5,1999 the Company issued 40,000 shares of the Company's
Common  Stock  $0.01  par value per share to Eric H.  Spellman  in  payment  for
several  years of services  to the  Company.  The shares  price at the close was
$0.80 per share.

         On February 11, 1999 and April 15, 1999 the Company issued 10,000
shares of the Company's Common Stock $0.01 par value per share in payment of his
services.  The price of the share at the market  close on February  11, 1999 was
$0.80.

         On October 21, 1999 one thousand (1,000) shares of the Company's Common
Stock  $0.01 par value per  share,  were  issued  to David  Hunt in  payment  of
services . The price per share at the close of the market was $1.81 per share.

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.

The new certificates will be issued in the normal course of business

                                       17


<PAGE>


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

   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 option shares for Marina S.
            Klein.

                                       18


<PAGE>


  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 and 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.

         ** 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.

                                       19


<PAGE>


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


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.

                                       20


<PAGE>


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: /S/ VINCENT CUERVO
                                          ---------------
                                          Vincent Cuervo, President & CEO

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

                                       21


<PAGE>


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: /S/ VINCENT CUERVO
      -----------------                   ---------------
                                           Vincent Cuervo
                                           President & CEO

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

                                       22


<PAGE>


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

                                               /S/  PEDRO P. LLAGUNO, ESQ.
                                               ----------------------------
                                               Pedro P.  Llaguno, Secretary


<PAGE>
                                    Appendix "A"

                                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>




                          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, 1999, 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.  The financial  statements of Default
Proof Credit Card Systems,  Inc. (a development stage company),  were audited by
other auditors whose report,  dated March 17, 1998, on those statements included
an  explanatory  paragraph  that  described  the  substantial  doubt  about  the
Company's ability to continue as a going concern.

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, 1999 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.

Coral Springs, Florida
February 29, 2000

                                        /s/ Baum & Company, P.A.
                                        ------------------------


                                      F-2
<PAGE>

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

                                 Balance Sheet

                               December 31, 1999



         ASSETS

Deferred Patent Costs, Net                                  $    1,161
                                                            ==========


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

CURRENT LIABILITIES
         Accrued Expenses                                  $    28,515
         Due to Directors                                       90,367
                                                           -----------
                  Total Current Liabilities                    118,882
                                                           -----------

Stockholders' Deficiency

         Common Stock, $0.01 Par Value, 2,500,000
            Shares Authorized, 1,270,351 Issued and
            Outstanding                                         12,704
         Additional Paid-In Capital                          3,982,385
         Deficit Accumulated During Developmental Stage     (4,112,810)
                  Total Stockholders' Deficiency              (117,721)
                                                           -----------
                                                           $     1,161
                                                           ===========



                 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, 1999      1999                   1998
                                                                              -------------         -------------
<S>                                                               <C>          <C>                   <C>

EXPENSES

         General & Administrative .........................   $  3,080,525    $     64,319           $      71,231
         Officer Salary ...................................        986,556            --                      --
         Marketing ........................................        393,358            --                      --
         Depreciation & Amortization ......................         98,707            --                      --
         Expired Public Offering Costs ....................        179,211            --                      --
                                                              -------------   -------------          --------------
         Total Expenses ...................................      4,738,357          64,319                  71,231
                                                              -------------   -------------          --------------

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 .......     (4,535,810)        (64,319)                (71,231)
Income tax benefit ........................................         25,436            --                      --
                                                                ----------    ------------           -------------
Net Loss before Extraordinary Item ........................     (4,510,374)           --                   (71,231)

Extraordinary item - Gain from restructuring of
    debt (net of Income Taxes of $165,200) ................        257,800            --                      --
Benefit from utilization of net operating loss carry forward       139,764            --                      --
                                                              ------------    ------------           -------------
NET (LOSS) INCOME .........................................   $ (4,112,810)   $    (64,319)          $     (71,231)
                                                              ============    ============           =============

Basic Loss per Common Share
         Loss before extraordinary income .................   $      (0.55)   $      (0.01)          $       (0.01)
         Extraordinary item (net, plus Tax Benefits) ......   $      (0.05)   $         --           $         --
                                                              -------------   -------------          --------------
Net (Loss) Earnings per Common Share ......................   $      (0.50)   $      (0.01)          $       (0.01)
                                                              ============    ============           =============

Diluted Loss per Common Share
         Loss before extraordinary income .................   $      (0.46)   $      (0.01)          $       (0.01)
         Extraordinary item (net, plus Tax Benefits) ......   $      (0.04)   $         --           $         --
                                                              -------------   -------------          --------------
Net (Loss) Earnings per Common Share ......................   $      (0.42)   $      (0.01)          $       (0.01)
                                                              ============    ============           =============
Weighted Average Number of  Common
    Shares Outstanding ....................................      8,287,754      11,982,962               11,982,962

</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
</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, 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

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)


</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, 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-7
<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)             --             --           --            --
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    $     12,704   $  3,982,385   ($ 4,112,810) ($ 117,721)
                                                      ===========    ============   ============   ============  ==========


</TABLE>
     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)



(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.

(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.

                 See Accompanying Notes to Financial Statements
                                      F-9
<PAGE>

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


           Statement of Stockholders' Equity (Deficiency) (Continued)


(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 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.

                  See Accompanying Notes to Financial Statements
                                      F-10

<PAGE>

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



(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.


                            Statements of Cash Flows
<TABLE>
<CAPTION>

                                                          Cumulative from           Years ended
                                                           Aug. 14, 1985           to December 31
                                                            Dec. 31, 1999        1999          1998
                                                          --------------       -------      -------
OPERATING ACTIVITIES
--------------------
<S>                                                              <C>           <C>            <C>

Net (Loss) Gain .........................................   $(4,048,991)   $   (64,319)   $   (71,231)
Adjustments to Reconcile Net (Loss) Gain to
    Net Cash Used in Operating Activities:
         Depreciation & Amortization ....................       100,535          2,784          2,784
         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        190,460           --           56,500
         Stock Issued in lieu of Cash for Waived Salaries       294,000           --             --
         Loss on Sale of Equipment ......................        34,144           --             --
         Decrease (Increase) in Other Assets ............       (25,480)          --             --
         Increase (Decrease) in Accrued Expenses ........        38,781           --           11,947
                                                            -----------    -----------    ------------
         Net Cash Used in Operating Activities ..........    (3,120,320)          --             --
                                                            -----------    -----------    ------------

INVESTING ACTIVITIES
--------------------
Purchases of Marketable Securities ......................      (130,741)          --             --
Purchases of Property & Equipment .......................      (136,980)          --             --
Patent License Expenditures .............................      (201,864)          --             --
Proceeds from Sale of Equipment .........................        22,994           --             --
                                                            -----------    -----------    ------------

         Net Cash Used in Investing Activities ..........      (446,591)          --             --

FINANCING ACTIVITIES
--------------------
Proceeds from Issuance of Stock-Private Offerings .......       108,547           --             --
Proceeds from Issuance of Stock-Public Offerings ........     3,150,163           --             --
Proceeds from Issuance of Stock-Exercise of Warrants ....       240,358           --             --
Capital Contributions ...................................        78,076           --             --
Net Receipts/Advances to Stockholder ....................       (10,233)          --             --
                                                            -----------    -----------    ------------
         Net Cash Provided by Financing Activities ......     3,566,911           --             --
                                                            -----------    -----------    ------------
         NET INCREASE (DECREASE) IN CASH ................          --             --             --
         CASH - BEGINNING ...............................          --             --             --
                                                            -----------    -----------    ------------
         CASH - ENDING ..................................   $      --      $      --      $      --
                                                            ===========    ===========    ============

</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, 1999

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 is
     engaged in the development and marketing of a patented  financial  business
     system  for  extending  lines  of  credit  on  a  collateralized  basis  to
     consumers.  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 and development of its product.

     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
     1998 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 Notes to Financial  Statements
     (Continued) December 31, 1999



                                      F-12
<PAGE>

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



NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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.

     New 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,
     1999.


                                        F-13
<PAGE>

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


                   Notes to Financial Statements (Continued)
                               December 31, 1999


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  president  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. Two new patents are now in process.

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  seventieth  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
     shareholders) and options granted to any one participant may not exceed



                                      F-14
<PAGE>

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


                   Notes to Financial Statements (Continued)
                               December 31, 1999

NOTE 6. STOCK OPTIONS (Continued)

     1988 STOCK OPTION PLAN (Continued)

     $100,000 in option price per year.  Options may be granted  within ten (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.

     STOCK BASED COMPENSATION

     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 with the  following  weighted-average  assumptions  for 1998;
     risk-free rate of return of 5.0%; dividend yield of 0.0%; volatility factor
     of the  expected  market  price of the  Company's  common stock of 1.41 and
     expected lives ranging from 1 to 5 years.

     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


                                      F-15
<PAGE>

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

                   Notes to Financial Statements (Continued)
                               December 31, 1999

NOTE 6. STOCK OPTIONS (Continued)

     STOCK BASED COMPENSATION (Continued)

     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.

     Under the  accounting  provisions of SFAS No. 123, the Company's  pro-forma
     net loss and loss per share would have been:

                                                 Year Ended December 31,
                                                 -----------------------
                                                   1999            1998
                                                 ---------     ---------
         Net (loss) income
              As reported                        $( 64,319)    $  (71,231)
              Pro-forma                          $(104,197)    $ (115,978)
         Net (loss) income per common share
              As reported                        $   (0.01)    $    (0.01)
              Pro-forma                          $   (0.01)    $    (0.01)

     A summary  of the  status of the  Company's  fixed  stock  option  plan and
     non-plan  options as of December 31, 1999 and 1998,  and changes during the
     years then ended is presented below:


                                              Year Ended December 31,
                                    -----------------------------------------
                                           1999                  1998
                                    -------------------  --------------------
                                                Weighted            Weighted
                                                Average             Average
                                                Exercise            Exercise
                                     Shares     Price     Shares*   Price
                                    -------    --------  --------  ---------

Outstanding at beginning of year    212,500    $   0.33  152,500    $   0.33
Granted ........................     10,000    $   0.33   69,500    $   0.33
Exercised ......................         --          --       --          --
Forfeited ......................     (9,500)   $  (0.25)  (9,500)   $  (0.25)
                                    -------    --------  -------    --------
Outstanding at end of year .....    213,000    $   0.33  212,500    $   0.33
                                    =======              =======
Options exercisable at year-end     213,000    $   0.33  212,500    $   0.33
                                    =======              =======

* The 1998 shares have been restated to reflect 10 to 1 reverse stock split.


                                      F-16
<PAGE>

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


                   Notes to Financial Statements (Continued)
                               December 31, 1999

NOTE 6. STOCK OPTIONS (Continued)

     STOCK BASED COMPENSATION (Continued)

     Weighted-average fair value of options granted during the year:

                                                     Year Ended December 31,
                                                  --------------------------
                                                      1999            1998
                                                  ------------    ----------
                        Below market                $   -          $   -
                        At market                   $ 0.38         $   -
                        Above market                $ 0.33         $ 0.33


                        Options Outstanding and Exercisable
                        -----------------------------------

                                       Weighted
                     Number            Average          Weighted
   Range of          Outstanding       Remaining        Average
   Exercise          at                Contractual      Exercise
   Prices            12/31/99          Life             Price
   ------            --------          ----             -----

$0.38                    10,000        3.00 years       $   2.9
$0.01  - $0.05          174,500        2.76 years       $   2.76
$0.075 - $0.125          28,500        2.59 years       $   2.59


NOTE 7. COMMON STOCK SPLIT

     On February 1, 1999, the Board of Directors of the company approved a 10 to
     1 reverse stock split.

NOTE 8. INCOME TAXES

     At December 31, 1999, the Company had a net operating loss carry forward of
     approximately $4 million, that expires through 2013.

     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.


                                       F-17