CONSYGEN INC, 10KSB, 2000-08-29

CONSYGEN INC
10KSB, 2000-08-29
PREPACKAGED SOFTWARE

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-KSB

(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended May 31, 2000

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 17598

CONSYGEN, INC.
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(Name of Small Business Issuer in Its Charter)

Texas 76-0260145
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

125 South 52nd Street Tempe, AZ 85281
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(Address of Principal Executive Offices) (Zip Code)

Issuer's Telephone Number, Including Area Code: (480) 394-9100

Securities registered under Section 12(b) of the Exchange Act:

Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
N/A

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, Par Value $.003
-----------------------------
(Title of Class)

Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ] No [X]

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

State issuer's revenues for its most recent fiscal year: $146,424.

The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the closing price of such stock as
quoted on the Over the Counter Bulletin Board as of August 23, 2000, was
approximately $14,267,618. The number of shares of our common stock, $.003 par
value per share, outstanding at that date was 26,417,503 shares.

This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Our actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference are discussed in the section entitled "Cautionary Factors that May
Affect Future Results" of this Form 10-KSB.
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PART I

CONSYGEN, INC.

ITEM 1. BUSINESS

UNPROFITABLE OPERATING HISTORY AND LIMITED FINANCIAL RESOURCES.

We have not historically been profitable, and as of May 31, 2000, we had
suffered cumulative operating losses of approximately $7,343,000. At May 31,
2000, we had a net capital deficiency and a net working capital deficiency. We
have made significant strides towards profitability, and we have three master
distributor contracts in place for the COUNTERFEIT COP. However, we have a cash
deficiency of approximately $3,500,000 from operations during the year ended May
31, 2000, and there can be no assurance that the contracts already in place will
support us through a full year of operations. During fiscal 2001, we expect to
require additional funds to continue or to extend product development and
marketing. We may obtain such additional capital through cash derived from
operations, through private placements of debt or equity, or through
collaborative arrangements with our partners including, but not limited to, our
international partners.

However, although management believes that early revenue results indicate
that there will be a material improvement in corporate profitability during
fiscal 2001, there can be no assurance that we will generate sufficient cash
from our operations in the near future, or that we will complete financing on
acceptable terms. We have suffered material recurring losses from operations and
from time to time have had difficulty meeting our short-term obligations,
including payroll obligations. Additionally, we have no substantial cash
reserves. We must continue to improve the efficiency of our operations to
achieve and to maintain positive cash flow from operations. See "Description of
Business - Restructuring and New Business Focus," and "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Material Changes
in Financial Condition, Liquidity and Capital Resources" in this Form 10-KSB.
There is no assurance, however, that we will be able to continue as a going
concern, that cash from operations and the other sources will be available or
will be sufficient for our needs, or that we will be able to achieve
profitability on a sufficient or consistent basis.

CORPORATE OVERVIEW

ConSyGen, Inc., a Texas Corporation ("ConSyGen-Texas"), was incorporated on
September 28, 1988 as C-Square Ventures, Inc. ConSyGen-Texas was formed for the
purpose of obtaining capital in order to take advantage of domestic and foreign
business opportunities which may have had profit potential. On March 16, 1989,
ConSyGen-Texas (then C Square Ventures, Inc.) completed an initial public
offering.

In September, 1996, ConSyGen-Texas acquired 100% of the issued and
outstanding shares of ConSyGen, Inc., a privately-held Arizona corporation
formed in 1979 ("ConSyGen-Arizona") (f/k/a International Data Systems, Inc.). As
a result of the Acquisition, ConSyGen-Arizona became a wholly-owned subsidiary
of ConSyGen-Texas.

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DESCRIPTION OF BUSINESS

OVERVIEW

We conduct business together with our wholly-owned subsidiary, ConSyGen,
Inc., an Arizona corporation, which commenced business in 1979 for the purpose
of developing and marketing business software solutions. In 1993, we commenced
development of an automated software capability to move client software
applications from mainframes to open systems, which was marketed until 1999. In
1996, we commenced extension of this conversion capability to deal with the
"Year 2000" computer problem. The resulting ConSyGen 2000(SM) toolset provided
highly-automated date conversions and was used to complete several successful
conversion projects prior to 2000. We have not generated significant revenue
from the toolsets or other related services, and we have discontinued marketing
of both services.

In 1998, as part of our planning for new products and revenue
opportunities, we introduced a non-software product, the "COUNTERFEIT COP(TM)".
This device uses an Ultra-Violet light to provide effective protection against
multiple forms of counterfeiting, including the paper consistency of all forms
of U.S. domestic currency, hidden emblems on credit cards, drivers' licenses,
travelers' checks, event tickets, casino chips, and various governmental
documents. We believe that there will be ready market acceptance of this product
in all areas where the potential for counterfeiting exists, based on the
product's accuracy, speed, and ease of use. To market this product, we have
created a Business Product Division, and we have created master distributor
relationships with First Data Corporation, GMS Auditing, and Cardservice
International. We are in discussions with several other potential master
distributors with whom we expect additional contracts to be signed early in the
2001 fiscal year.

In 1999, our research determined that a major Internet business opportunity
existed for software which would enable the faster, broader facilitation of
electronic commerce ("e-commerce") transactions, particularly for smaller
merchants, by resolving the issue of the reluctance of Internet users to use
electronic payment and receipt methods on the Internet. To meet this
opportunity, we have commenced the development of a suite of innovative,
Internet-based software products, generally named BIZPAY(TM) and the BIZPAY
SUITE(TM), which are described in detail below. We intend to market this
software suite domestically and internationally to companies which participate
in the electronic funds-transfer industry. This concentration on the marketing
of our new software through our strategic partners confirms our new direction as
a specialist software development company, and our transition from supplying
software-related services. Our partners have been selected specifically to
provide the distribution and market penetration required for the widest possible
deployment of our software products. We expect to generate revenue from multiple
sources:

- transaction fees levied on all BIZPAY merchant transactions;
- advertising, particularly from banner advertisements placed on the
transaction emails;
- interest receivable on the financial `float' of BIZPAY account
balances.

Our revenue model provides for revenue growth as a function of business,
transaction and membership growth. Our marketing strategy and strategic
partnerships are intended to create a firm operational base and we expect to
capture and to retain a significant market share as this business opportunity
expands.

The design concept behind this technology is to allow every Internet user -
domestically or internationally - to participate in e-commerce in an
easy-to-use, safe and secure environment, and to make shopping and payments
easier than sending and receiving e-mail, through the use of a personal BIZPAY
account. The BIZPAY software will enable small- to mid-tier businesses and
homegrown businesses to accept credit cards as a form of payment without
incurring the cost or administrative overhead of a traditional credit card
merchant account.

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On August 21, 2000, we announced the formation of our Multimedia
Productions Group, a new division focusing specifically on the production and
sale of multimedia presentations built around the most recent computer animation
technology. This division does not constitute a re-direction of current staff or
financial resources, since it will use our existing staff to provide services to
external clients in addition to the services currently provided internally. We
believe that we will be able to reduce materially, or even to eliminate, our
overhead in the web development area, and eventually to grow this business as a
profitable adjunct to our existing services. This service does not represent a
change of direction or emphasis from our concentration on the COUNTERFEIT COP
and the BIZPAY SUITE.

RESTRUCTURING AND NEW BUSINESS FOCUS

Our new business direction is focused on two major product types, each of
which is described in detail in the section below:

BIZPAY SUITE: currently under development, this is a tightly-integrated
bundle of software products that are being developed to address a broad business
need within the Internet area of electronic commerce. The first version of this
suite is in preparation for release over the next several months, with the
remaining modules scheduled for completion and subsequent release progressively
thereafter; and

COUNTERFEIT COP: a business product which provides extensive and effective
counterfeit detection features for a variety of currency and other financial
instruments in a low-cost, easy-to-use device.

THE BIZPAY SUITE

Currently under development, the BIZPAY SUITE of software solutions is
being developed to enable small- to mid tier businesses, homegrown businesses,
and individual Internet users to participate in electronic commerce without the
requirement, difficulty or expense of opening and maintaining a traditional
credit card merchant account. The objective of the BIZPAY SUITE is to provide a
low-cost, secure and universal method of allowing the greatest range of both
sellers and buyers to participate fully in Internet commerce. This technology
will allow anyone with an e-mail address to participate in e-commerce.

We expect that the BIZPAY SUITE will eventually consist of nine separate
but tightly-integrated modules, each performing a distinct set of functions to
support the suite's overall e-commerce capabilities. BIZPAY, BIZPAYESCROW(TM),
BIZPAYMALL(TM), and BIZPAYMERCHANT(TM) are expected to be the first products in
the suite, and we plan to release them over the next several months, with the
remaining modules to be released as they are completed and tested.

BIZPAY is being developed in collaboration with several of the major U.S.
credit-card and transfer payment processing companies, which see it as a
specific solution to two of their major problems:

* the resistance of small merchants to high per-transaction fees, and
* the reluctance of would-be Internet purchasers to use a payment
mechanism that requires the entry or transmission of their credit card
data.

THE BIZPAY SUITE REVENUE MODEL

We expect to generate revenue from multiple sources through the deployment
of the BIZPAY SUITE. Rather than following the typical Internet pattern of
depending entirely on a single revenue source such as advertising revenues, we
expect our sources of revenue to be generated from:

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- transaction fees levied on all BIZPAY merchant transactions. This fee
structure will be substantially less than traditional credit-card
processing fees, but is nevertheless expected to represent a reliable
and significant source of profitability;
- advertising, particularly from banner advertisements placed on the
numerous transaction emails that BIZPAY will generate;
- interest receivable on the financial `float' of BIZPAY account
balances;
- later, interest receivable on BIZPAY members' debit account and
line-of-credit balances.

BIZPAY

BIZPAY is expected to be the core of the entire suite. Its most basic
service will be to provide an individual cash or credit account, which will
enable a BIZPAY member to send money to, or to receive money from, anyone with
an e-mail address without revealing that individual's credit card details.

When a consumer signs up with BIZPAY (i.e., becomes a member), an
individual online account will be opened in the member's name, and that account
can be used to send or receive money as long as the account is active.
Initially, BIZPAY members will be able to transfer money to and from their
online account. Later, funds will be able to be applied against a debit account
or a BIZPAY line of credit. BIZPAY members will be able to manage their account
through their own BIZPAY home page, called MYBIZPAY(TM). MYBIZPAY will show the
status of all account transactions, including the member's account balance. All
transactions into or out of the account will be initiated and monitored from the
individual member's MYBIZPAY page.

The system will ensure that BIZPAY members will be able to make payments
safely and securely online without disclosing their credit card details online,
and that merchants will never see any of a BIZPAY member's confidential details.
In simple terms, once a customer has completed shopping, he/she selects the `pay
by BizPay' option at a participating merchant's site. The customer is then
transferred to BIZPAY's site, where the transaction is completed. The merchant
is notified electronically of payment and receives payment upon notification to
BIZPAY. BIZPAY will e-mail the customer to confirm the transaction and shipping
details. This protects both the merchant and the customer.

Major expected benefits and features of BIZPAY:

* PERSONAL PRIVACY FOR FINANCIAL TRANSACTIONS. Consumers have learned to
be comfortable with Internet e-mail, yet still have trepidation about
relinquishing or transferring credit card information over the
Internet. BIZPAY SUITE will require the account-member's credit card
information only once - during account set-up; thereafter, it
eliminates the credit card security issue, as all transactions are
based on the use of e-mail for payments and receipt of payments.
Sensitive credit card information is never disclosed to the merchant;
nor is credit card information transmitted over the Internet for the
purchase.

* SIGNIFICANT COST AND EFFICIENCY BENEFITS FOR INTERNET MERCHANTS.
Internet transactions will be able to be made without expensive
merchant accounts, and the merchant will have the certainty that
transactions will be honored, since they will always be transacted
against a BIZPAY account. Since no special or additional software is
required, there is no major cost or technical barrier to membership
creation for either buyer or seller. We will introduce the service:

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- through consumers - initially, by an incentive program and
rewards for word-of-mouth referrals (`viral marketing'), and

- through merchants - by providing a more fully-featured service
than basic membership at a lower cost than traditional,
non-BIZPAY merchant accounts.

The ease of membership creation at both the consumer and merchant
level is designed to expand our base of users rapidly, particularly in
the early stages of the product launch. Our goal is to expand this
user base to the point where the BIZPAY SUITE is considered as the
industry standard for one-to-one e-commerce.

* SYSTEM SECURITY. This is fundamental to the success of BIZPAY. The
hardware and software configurations and protections are being
designed to financial institution security standards, and in
consultation with our financial institution partners. All customer
records will be kept on remote servers which will not be connected to
the Internet and behind a series of redundant hardware/software
`firewalls' monitored around the clock. Two remote `mirror' sites,
which will run live and continuously, will provide protection against
disaster, giving the system high operating reliability and redundancy.
Tape backups will provide disaster recovery protection, and all
sessions with customers will be fully encrypted.

* IDENTITY CONFIRMATION provides added security if a BIZPAY member wants
to make a payment, but is unsure of a recipient's e-mail address. An
e-mail will be sent to the recipient asking them to provide their
street address as proof of identity. Once a response has been
received, the BIZPAY member can accept the confirmation and the money
will be sent. Or, the transaction can be cancelled.

* REQUEST MONEY. BIZPAY members can request money from friends or others
for outstanding debts. BIZPAY members need only provide the person's
name, e-mail address, and amount owed; a personalized bill will be
e-mailed. The recipient is notified via e-mail that a bill is awaiting
settlement at BizPay. The recipient can easily and quickly settle the
bill using BIZPAY's bill payment service.

* EVENT BILLING. Event organizers can use BIZPAY to send statements to
group members as simply as sending an e-mail advice. Group members can
pay for their event tickets with BIZPAY, payments can be credited to
the organization's BIZPAY account, and the organization's MYBIZPAY
page can be used to review collections.

In summary, we believe that BIZPAY will, upon completion of development, be
a complete sales fulfillment service that enables the buyer to send, and the
merchant to receive, payments in the form of e-mail, in an easy-to-use, safe,
and fully-secure environment. The technology is being designed for traditional
Internet devices, such as personal computers, but will soon be complemented by
BIZPAYMOBILE(TM), our mobile commerce payment solution. BIZPAYMOBILE will
provide a complete mobile commerce payment solution for wireless devices, such
as cellular phones and Personal Data Assistants. It will support transmission
protocols such as Wireless Application Protocols (WAP) and Bluetooth(TM), and
will enable consumers to buy, and to pay for, merchandise or to settle auction
bids from a fully-mobile environment.

BIZPAYESCROW

We expect that BIZPAYESCROW will provide a real-time risk analysis and
escrow settlement method - something that is particularly important for the
real-time auction business. The BIZPAY processing system is expected to capture
real-time buying and selling statistics to enable the seller to know the buyer's
payment history and profile, thereby allowing the seller to make an informed
decision regarding the buyer's ability to complete the auction transaction. Once

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closed, the transaction can be performed immediately through BIZPAY without any
requirement to open and maintain merchant accounts or to use external
funds-transfer mechanisms, and with substantial reduction of financial risk to
both parties.

BIZPAYMERCHANT

BIZPAYMERCHANT will be the back-end merchant component that will enable
individuals or small- to mid-tier businesses wanting to participate in
e-commerce to accept a credit card transaction in the form of an e-mail, without
requiring the creation, cost and maintenance of a traditional credit card
merchant account. We believe that there is a large market of businesses that are
currently disengaged from the traditional merchant credit card account because
of prohibitive set-up and transaction costs. BIZPAYMERCHANT will represent an
easy, safe, familiar and comfortable method of receiving payments for Internet
purchases - via e-mail. We expect that it will support all standard Internet
payment protocols, and that it will facilitate the entire online purchasing
spectrum from the shopping cart component to the full shopping experience.
BIZPAYMERCHANT will enable merchants to accept payments from buyers using any
major/minor credit card including, but not limited to, Visa, MasterCard, Diners,
AMEX, and Discover.

Advantages to BIZPAY merchants are expected to include:

* Reduced merchant costs.
* A higher level of security provided to their customers, as credit card
details are not released online, therefore increasing consumer
confidence.
* A higher level of security provided to the merchant, as all BIZPAY
customers have been qualified, which we expect to result in fewer
chargebacks.
* An ability to target people with online trading accounts and to tag
BIZPAY emails and newsletter with a call to action.
* An ability to customize their advertising schedules so that customers
are accessed as they transfer funds.
* An opportunity to participate in joint marketing promotions.
* An opportunity to become a preferred merchant in the initial
frequent-flyer points reward promotion.
* An opportunity to become a preferred merchant if BIZPAYCREDIT(TM)
becomes an affiliated frequent-flyer program member.

BIZPAYMALL

BIZPAYMALL will represent to the buyer a virtual online mall with many
merchants, a place for the buyer to browse for products and services and to make
purchases using BIZPAY. By its wide range of shopping alternatives and ease of
selection and payment, the mall is expected to generate "foot traffic" (online
viewers and purchasers) for all participating merchants and should facilitate
the shopper's search for products and services. Every new BIZPAY member will be
placed directly into BIZPAYMALL upon their acceptance of BIZPAY viral marketing
dollars.

To merchants of any size, but particularly the targeted small- to mid-tier
merchants, who accept BIZPAY as a form of transaction settlement, BIZPAYMALL is
expected to provide significant dedicated traffic as a prime benefit. The
merchant will be a subscriber to the BIZPAY system and the site visitors will be
BIZPAY members with available money in their accounts and an easy payment method
in which they should have confidence, arising from the knowledge that sensitive
credit card information is not transmitted as part of the transaction process.
Also, the risk of loss of financial or transaction information inherent in
online commerce is greatly reduced, a significant benefit to both the seller and
the buyer.

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THE BIZPAY SUITE - MARKET ANALYSIS

The scope of the BIZPAY SUITE's payment system is not limited to the size
of the existing Internet-based e-commerce market. We believe that there is an
opportunity for application of the BIZPAY SUITE to be effective in other
commercial situations requiring a payment-transfer system, because of its
expected ease of use, security, and efficiency. We expect that this improvement
of the payment process should encourage growth in personal business transactions
via the Internet - an area that is either too expensive or too difficult for
potential users to exploit at this time. E-commerce will play a major role in
the early implementation; however, we will use various channels to become a
viable alternative settlement mechanism for other transactions involving funds
transfers.

The BIZPAY SUITE is expected initially to integrate the "Peer-to-Peer"
market for small business e-commerce - that is, the area where any participant
in the market (buyer or seller) can complete financial transactions with any
other participant, irrespective of size or sophistication. We believe that the
Peer-to-Peer payment market for small business is poorly supported, but is
experiencing tremendous growth. Peer-to-Peer market participants are building
customer bases, but are delivering little more than the ability to settle
auction payments, or to send and receive money between friends (e.g., PayPal).
We believe that this form of payment is limited in function and vision, and that
it will be short-lived. We believe that the BIZPAY SUITE will establish itself
readily in this area because there will be no special status or technical
requirements which will limit a participant's activity or role - a BIZPAY member
can be simultaneously a buyer or a seller, can deal with individuals or with
businesses of any size, and does not need to incur the normal overheads for
these transactions. Additionally, there will be unprecedented security and
protection for both participants in a BIZPAY transaction - as well as the normal
fraud protection provided through credit-card agencies, BIZPAY technology will
ensure that only known and accepted members can participate, and that only
approved and validated transactions may move through the system.

This simple seller/buyer relationship will benefit the small- to mid-tier
business that has found it cost-prohibitive to establish a merchant account
under present cost structures. Surveys show that of the more than seven million
businesses with Web sites, some 2.7 million are small businesses. Many of these
small businesses do not conduct online commerce, primarily because of the cost
of processing through traditional merchant accounts. BIZPAY aims to solve this
problem by enabling the small business to "act" like a large business in its
ability to accept payments. The merchant with one account and one gateway has
the ability to accept payments from any consumer with any credit card. The
merchant no longer needs a merchant account for each and every credit card -
actually, no merchant credit card account is required.

Many other individuals selling on the Web do not have the ability to accept
credit card payments. We believe that the BIZPAY SUITE will be an ideal payment
solution for these sellers. The entire transaction process is as easy as sending
e-mail; in fact, the payment notification from the buyer to the seller is by
e-mail. Every online user that has an Internet connection and is e-mail-enabled
has received e-mail, and users are familiar and comfortable with sending and
receiving e-mail. Because BizPay transactions are based on e-mail, we believe
that users will become just as familiar and comfortable with its use. It is
estimated that nearly 400 million people will be online by the end of year 2000,
and it is expected that virtually all of them will have sent and/or received
e-mail.

E-stats reports that merchants sold about $6 billion of consumer goods over
the Internet in 1999, and projects that this figure will increase to $10 billion
in 2000. However, while many Internet users have visited shopping sites and have
`browsed', E-stats reports that only 14% of Internet users have actually
purchased anything online. Fewer still have used their credit card, despite the
fact that credit card membership is on the rise and credit card usage continues
to be a common method of transaction settlement.

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We believe that consumer reluctance to make online credit card purchases
indicates lack of consumer confidence and trust that their transactions will be
truly secure. Each credit card member who is also an Internet user is,
therefore, a potential BIZPAY member and customer, because BIZPAY guarantees
that this consumer can make a credit card purchase from an Internet merchant or
individual seller without disclosing sensitive credit card information.

An additional potential market for the BIZPAY SUITE is auction houses - an
estimated 150 sites with over 5 million sellers and potentially an many buyers.
Few of the sellers are equipped to accept credit cards, and therefore sale
transactions are completed mostly through traditional forms of funds transfer,
such as personal or bank checks or money orders, with all of the complications
of delay and uncertainty involved in such transactions.

Traditional hard-copy classified advertisements and Web-based classifieds
also present an enormous potential base of sellers needing a Peer-to-Peer method
of accepting payments without a credit card merchant account.

THE BIZPAY SUITE - MARKET AND SALES STRATEGY

We plan to partner with financial institutions, banks, and card service
companies to recapture the market segment that these companies are losing with
small businesses because of high credit card merchant account fees. We view this
as one of the remaining untapped `sweet spots' of the Internet commerce world.
BIZPAY will be targeted at large Internet Service Providers (ISPs) and large "E"
communities; then, we will direct our members to the ISPs and large "E"
communities and e-malls that accept BIZPAy as a form of payment. ISP and "E"
community members who register with BizPay will receive BIZPAY dollars to spend
at BIZPAYMALL.

Traditional subscription/renewal/membership companies, such as magazines,
newspapers, tabloids, membership organizations and the like can decrease their
expenses by using BIZPAY as part of their subscription renewal process. Any
subscriber or member who is e-mail-enabled can be notified at renewal time and
the subscriber or member can satisfy the renewal fees through BIZPAY. The
subscription company saves the expense of printed renewal notices, handling, and
postage. It also saves on the costs usually associated with the processing of
payments made by check, money order, and credit card. As BIZPAY payments are
received, they can be posted in real time.

BIZPAY will be introduced to new members at launch through a `viral' (that
is, spread by personal contacts and referrals) marketing approach, which has
worked very successfully with several other similar concepts. As part of this
process, BIZPAY will offer an incentive to all those who register as members of
the service, and a further incentive for any referrals who also register as
members. This incentive will be in the form of a "dollar value" that can be
spent at any merchant accepting BIZPAY. The newly-registered member will be
linked to a BIZPAYMALL to spend this newly-acquired "dollar value." We
anticipate that many of the participating BIZPAY merchants will offer products
and services closely matched to the "dollar value" of the registration
incentive. The new member will quickly understand the BIZPAYMALL concept and the
ease of using BIZPAY to make a purchase.

BIZPAY will initiate a rewards program to generate interest for both the
buyer and the seller - that is, at both ends of the transaction spectrum. Buyers
can accumulate bonus "points" by making purchases from BIZPAY merchants. Buyers
can then redeem accumulated points at BIZPAY merchants for products and
services.

BIZPAYMERCHANT will be promoted as the Internet payment mechanism of
choice. We expect that the viral marketing campaign should provide a base of
customers with a tool for online payments, and merchants will be encouraged to
associate themselves with BIZPAY for the additional selling opportunities.
BIZPAYMERCHANT will target a number of different categories of Merchant,
including:

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* Merchants with existing merchant relationships which allow them to
accept credit cards and who are already enabled to provide online
merchant services;
* Businesses with credit card facilities which are not currently enabled
for payment across the Internet;
* Smaller merchants who currently do not qualify for merchant accounts;
* Providers of offline services looking to streamline their payment
systems through online collection e.g. utilities, magazine
subscription renewals, charities, and
* With the advent of BIZPAYMOBILE, real world merchants (e.g. taxis,
restaurants, and so on).

The benefits of BIZPAYMERCHANT will be:

* Easy account installation;
* Low cost of membership and transactions;
* BIZPAYMERCHANT technology is designed to enable all online merchants
for online payment. We expect to provide BIZPAYMERCHANT in the form of
downloadable software for small business. Larger merchants will need
some customization. BIZPAYMERCHANT merchants will pay on a
per-transaction basis, which means that many of the cost barriers to
establishing online payments will be removed;
* Merchants can become payment-enabled almost immediately;
* BIZPAY customers will be qualified, thereby providing a substantial
potential reduction in the merchants' risk of non-payments;
* BIZPAY customers will be equipped with the tools to undertake secure
electronic commerce;
* The security of the BIZPAY system should increase consumers'
confidence in online shopping and should potentially lead to higher
participation rates; and
* The risk of charge-back is lower. Online merchants suffer from high
charge-back rates; BIZPAY is expected to decrease charge-backs
dramatically.

THE BIZPAY SUITE - COMPETITIVE EDGE

We believe that the BIZPAY SUITE will present a combination of innovative
and valuable features that constitute an advance over competitive products or
services. In particular:

* There is no cost to establish a BIZPAY merchant account;
* BIZPAY fees are lower than `typical' credit card merchant accounts;
* Buyers should feel more secure in the transaction process (e.g.,
credit-card information is not disclosed to merchants for purchases);
* Sellers should feel more secure because the buyer's funds are
pre-approved and available;
* Buyers can track their purchases;
* Sellers can profile their buyers;
* BIZPAYMALL will offer buyers PRECISIONSEARCH(TM) (a future product
from us) for locating and pricing products and services; and
* BIZPAYMALL is expected to offer BIZPAYAUCTION(TM) to merchants as a
place to sell distressed or discontinued merchandise.

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THE COUNTERFEIT COP

The COUNTERFEIT COP is a counterfeit detection device. It features an
industrial design for long life, a pressure-sensitive platform for watermark
illumination, and a safe, intense high-quality ultra-violet (UV) bulb for
revealing hidden distinguishing marks. The COUNTERFEIT COP features 13-watt lamp
technology as opposed to standard 4-watt technology used by competing devices,
and the 13-watt lamp provides a life expectancy equal to that of a long-life
4-watt lamp.

THE COUNTERFEIT COP - MANUFACTURE

To ensure economy of production and to safeguard our unit-level
profitability, we have contracted for the manufacture of the COUNTERFEIT COP in
China. Quality of manufacture is ensured through product specification and
inspection, and we have provided for alternative manufacturing facilities to
safeguard our inventory and stocking levels as demand increases. We believe that
the security provided over our technology is adequate to protect us from theft
or replication of the technology.

THE COUNTERFEIT COP - FEATURES

CURRENCY DETECTION. Ease of use and effectiveness of detection are
paramount to the public buying this product. For currency, the bill is merely
placed on the pressure-sensitive platform. A bright blue paper glow identifies
the currency as possibly counterfeit. A second check examines the bill's
security thread; on genuine currency, this is illuminated according to specific
denominations ($100 is red, $50 is yellow, and $20 is green). Finally, by
applying pressure to the platform, the watermark becomes easily visible on
genuine currency. Most international currencies have security threads and
watermarks like U.S. currency; therefore, the process of detection is
essentially the same.

CREDIT CARDS; OTHER ITEMS. Most credit cards have a hologram that becomes
visible under the COUNTERFEIT COP's UV lamp. These are displayed and validated
by simply placing the item on the unit. Travelers' checks, U.S. Government
checks, passports, driver's licenses, and other forms of identification are
authenticated through the same process of displaying imbedded holograms.

THE COUNTERFEIT COP - MARKET ANALYSIS

According to trend information released by the U.S. Secret Service,
counterfeit crime is expected to reach more than $2 billion in the U.S. alone
during the year 2000, up from $186 million in 1998. We believe that one of the
primary reasons for this dramatic increase is the increasing sophistication and
lower cost of computers and software now being used by counterfeiters.
Counterfeiting in the past was a crime requiring a considerable investment in
time, money, and resources. This is no longer true today. The anticipated
increase of $1.8 billion, or more than 900%, in two years dramatically
emphasizes the ease with which counterfeiting is now accomplished, and
highlights the potential for the scope of the problem to continue to increase.

The reason for the dramatic increase is due to the recent rise in
"digifeiting" - the making of counterfeit documents on home personal computers.
Consequently, as the price of personal computers continues to drop, we believe
that counterfeiting will increase. Today, counterfeiters are not hampered by the
trial-and-error process of the past; all that is required is a computer, a
scanner, and a bubble-jet printer. With these very accessible tools, they can
easily counterfeit as much money as they wish. We believe that the market
opportunity for counterfeit detection devices is significant, and that it will
continue to grow both domestically and internationally.

The market segment for COUNTERFEIT COP is any business or organization
currently taking physical payments in a variety of forms, such as cash, credit
cards, travelers checks, and checks. This market segment is very large and

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continues to grow every year. With this market growth grows the opportunity for,
and instances of, counterfeiting and the demand for a reliable form of
protection. The COUNTERFEIT COP is invaluable to any brick-and-mortar business
taking cash or currency, to all banks and financial institutions, and
realistically to any person providing a service or product for monetary
exchange. It is the ultimate proactive approach to deter domestic and foreign
exploitation of counterfeit currency, credit cards, identification, and other
documents.

The potential market has also been extended by recent changes in the
Uniform Commercial Code, where the liability for possessing or passing
counterfeit currency has been shifted from the banks to account-holders. These
new laws stress "due diligence" and "comparative negligence", where parties
split the liability and monetary losses based upon their respective levels of
fault. It is, therefore, in the strongest interest of the person handling money
or other negotiable instruments for the public to be able to identify and refuse
receipt of counterfeit currency or instruments at the earliest possible moment
to avoid incurring this liability. The Counterfeit Cop is a low-cost,
easy-to-use, effective tool for achieving this control.

THE COUNTERFEIT COP - MARKETING AND SALES STRATEGIES

We intend to engage between five and ten "Master Distributors" in the U.S.,
each of which we expect will be responsible for an agreed minimum quota of units
annually. These Master Distributors are companies which will in turn become
major distributors of the product to their already-established clients, or which
will market the product aggressively through their own sales channels.
Currently, we have three Master Distributors which account for approximately 50%
of our sales:

- First Data Corporation
- GMS Auditing
- Cardservice International

We will use these Master Distributor channels to minimize overhead while
maximizing market penetration. In addition, we have more than forty smaller
distributors, currently accounting for 17% of our sales.

THE COUNTERFEIT COP - SALES MODEL

We have moved from the direct sales model to a reseller/distribution model.
Marketing has been recently expanded into Europe and Asia. We also plan to add
to our reseller chain through direct marketing, creating partnerships with major
corporate accounts as master distributors.

The COUNTERFEIT COP is sold to distributors that are selling products used
in conducting commerce (e.g. credit card terminals, credit card swipe devices,
and point-of-sale devices). COUNTERFEIT COP complements the other devices being
sold by these distributors and protects the merchant (seller) against fraudulent
transactions. It is an ancillary device that is useful to banks, financial
institutions, credit card issuers and Point-Of-Sale dealers.

THE COUNTERFEIT COP - COMPETITIVE EDGE

* Easy to use
* Inexpensive
* Patent-pending
* 13-watt long life bulb
* Rugged design, lightweight, small footprint
* Comprehensive counterfeit detection:
- Paper quality (bleached or unbleached)

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- Watermarks
- Fluorescent color printing
- Opaque security threads
- Alterations
- Handles U.S. currency and financial instruments, including casino
chips, passports, foreign currency, credit cards, and bank notes.

FUTURE PRODUCTS

We understand the competitive market that is inherent within the technology
sector and, consequently, view ongoing research and development as an important
part of our business strategy. We plan to continue to acquire, develop and
market innovative products, in addition to enhancing our current line of
products.

We will also seek to acquire and distribute products that have identified
markets, that have defined technological advantages, and that can be
accommodated readily within our overall business plan and distribution
capability. We do not plan to engage in the development of such products, but we
will actively seek business products which fit our criteria and which can be
acquired without damaging our financial health and introduced without reducing
the effectiveness or profitability of existing products.

FUTURE OF THE BIZPAY SUITE

We plan to expand the BIZPAY SUITE product set to include specialized
modules which will be known as BIZPAYMOBILE, BIZPAYMENU(TM), BIZPAYCREDIT,
BIZPAYAUCTION and BIZPAYPORTAL(TM). These modules are currently under
development or in planning.

BIZPAYMOBILE will be the complete mobile commerce payment solution for
wireless devices. BIZPAYMALL will accommodate merchants who accept BIZPAY as a
form of transaction settlement. BIZPAYMENU will enable selected businesses to be
conducted entirely on wireless devices. BIZPAYCREDIT will be our brand of credit
card. BIZPAYAUCTION will provide additional value to both the BIZPAYMALL
consumer and merchant, and BIZPAYPORTAL will be introduced to help fuel the
acceptance and adoption of mobile commerce and e-mail based payment methods.

Through the BIZPAY SUITE, our goal is to set a new standard for
convenience, ease of use, security and consumer privacy for Web commerce.

We anticipate that BIZPAYMOBILE will be a complete mobile commerce payment
solution for wireless devices, such as cellular phones and Personal Data
Assistants. It will support Wireless Application Protocols (WAP) and
Bluetooth(TM) protocols and will enable consumers to buy merchandise or settle
auction bids in real time. Although this method of e-commerce is in its
embryonic stage, it is fueled by the major cellular service providers and,
therefore, is expected to experience high growth. Many foreign (non-USA)
countries are bypassing the traditional e-commerce device mechanism and making
the leap directly to wireless e-commerce.

Based on trends and the acceptance of technology in the public sector, the
numbers of wireless subscribers and worldwide Web users are expected to continue
to grow. We believe that worldwide Web users will eventually become comfortable
with shopping online for many of their purchases.

We expect that BIZPAYMENU will enable businesses to display products and
services selectively on wireless devices. The consumer will not only be able to
make menu selections, but will also be able to resolve payments, all directly on
their cellular phone or personal data assistant (PDA). BIZPAYMENU will be
charged to the merchant by monthly subscription. Businesses that would benefit
from BIZPAYMENU include, but are not limited to, restaurants, bagel shops,
coffee shops, fast food drive-ins and drive-throughs.

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BIZPAYCREDIT will be our brand of credit card for purchases made at the
traditional retailer. We plan to partner with a major financial institution to
back and issue these credit cards with a BIZPAY batch number.

We believe that BIZPAYAUCTION will satisfy the consumers' thirst for online
auction shopping. In addition it will enable the BIZPAYMALL merchant to generate
additional visibility, or simply to move discontinued or distressed merchandise.

BIZPAYPORTAL will focus on mobile commerce and e-mail-based payment methods
for the prime purpose of fuelling acceptance and adoption. It will include such
things as new product announcements, software downloads, and message boards.

GOVERNMENT REGULATIONS

Our operations may be subject to various state and federal regulations.
Because electronic commerce in general, and our products and services in
particular, are so new, the application of many of these regulations, including
regulations relating to banking, credit card transactions and Internet
transactions, is uncertain and difficult to interpret. The agencies responsible
for the interpretation and enforcement of these regulations could amend those
regulations or could issue new interpretations of existing regulations. It is
also possible that new legislation may be passed that imposes additional
burdens. Any such change could lead to increased operating costs and could also
reduce the convenience and functionality of our products or services, possibly
resulting in reduced market acceptance. In addition, it is possible that new
laws and regulations may be enacted with respect to the Internet, covering
issues such as user privacy, pricing, content, characteristics and quality of
products and services. The adoption of any such laws or regulations may decrease
the growth of the Internet, which could in turn decrease the demand for our
products or services and increase our cost of doing business or could otherwise
have a material adverse effect on our business, financial condition or operating
results.

COMPETITION

Refer to discussion of competitors and competition for both the COUNTERFEIT
COP and the BIZPAY SUITE under "Cautionary Factors that may affect Future
Results" in this Form 10-KSB.

BUSINESS PARTNERS

We lack the internal financial resources to single-handedly develop our
products and take them to market, particularly in the face of potential
competition from established business in the financial services market.
Therefore, our business philosophy is to align ourselves as a valuable and
indispensable partner with those established businesses. In the case of the
COUNTERFEIT COP, we have created Master Distributor relationships with First
Data Corporation, GMS Auditing, and Cardservice International, all of which are
major, high-volume distributors of financial services and related products, and
all of which have extensive networks of clients dependent on their services. We
are also in discussions with several other potential Master Distributors with
which we expect additional contracts to be signed in the 1st and 2nd quarters of
the 2001 fiscal year. Internationally, we are in discussions with a major
locally-established distributor regarding the marketing and distribution of the
COUNTERFEIT COP throughout Europe.

BIZPAY presents us with an opportunity to align ourselves with major
worldwide participants in the financial services industry, and to exploit the
relationships begun through our contacts from the COUNTERFEIT Cop. In addition,
our joint venture with Notremos in Australia should enable the creation of a
strong market presence for the BIZPAY technology through South-East Asia.

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In August, 2000, we signed a Memorandum of Understanding with Cardservice
International for a joint venture involving the formation of BizPay USA, Inc.
Both companies will use this new company as a vehicle to support and facilitate
the roll-out of the BIZPAY SUITE through the U.S. domestic market.

PATENTS, TRADEMARKS AND LICENSES

We believe that there are aspects to certain of the modules within the
BIZPAY SUITE that are patentable, and we have engaged counsel to explore
preparation of such applications in the U.S. We will also explore the
practicability and effect of making patent filings in other countries, either to
protect us from competition or to facilitate our entry into specific markets.

We have also filed a patent application covering certain aspects of the
COUNTERFEIT COP, and are in discussions with our international partners
regarding the practicability of such patent filings in their countries of
operation.

INTELLECTUAL PROPERTY

We own all of the rights to our technology and products, and we do not rely
on any third party for licenses or product rights.

We have applied for U.S. trademark registration for the "BIZPAY" name and
we believe that the entire range of BIZPAY-related names would be protected by
such trademark, if issued. All staff working on the development of the BIZPAY
SUITE are under appropriate confidentiality agreements, as also are any external
contacts who need to understand aspects of the technology. The BIZPAY SUITE
technology will be licensed to our business partners, and there is no
requirement for transfer of the technology. Depending on future business
decisions, we may allow one or more of our business partners to assist in code
development; under such circumstances, we will ensure the application of
stringent security controls and protection over our intellectual property. All
software is regularly backed-up and is securely stored to ensure complete
recovery in an emergency.

We have filed a U.S. trademark application for the name "ConSyGen's
Counterfeit Cop", and will assess with our international partners the
requirements for any international filings. We have also filed a patent
application for certain aspects of the COUNTERFEIT COP, and will discuss with
out international partners any such filings in their countries of operation.

RESEARCH AND DEVELOPMENT

Integral to our corporate restructuring efforts, which began in June 1999,
was the establishment of research and development activities. We have identified
several additional lines of business and related markets that we may enter at
some future time. Among these are the expansion of our new e-commerce solutions,
new Internet services, and Business Productivity Software. We plan to add
strategic research and developmental resources as part of our restructuring
process, in addition to reassigning resources to such efforts. We do not plan to
expend further funds for research and development of software services or the
COUNTERFEIT COP. As of August 23, 2000, we had nineteen employees engaged in
product research, development and support. All of our research and development
employees are located at our headquarters in Tempe, Arizona.

EMPLOYEES

As of August 23, 2000, we had 33 full-time employees, including two in
sales and marketing, nineteen in research, development and support, three in the
Business Products division, and nine in corporate operations and administration.
None of our employees is represented by a collective bargaining agreement. We
believe that our relations with our employees are good. There are no employment
contracts with our non-executive staff.

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ITEM 2. PROPERTIES

Our principal administrative, research and development, customer support
and marketing facilities are located in an approximately 10,000 square foot
building at 125 South 52nd Street, Tempe, Arizona 85281 that we acquired in
March 1998 for approximately $800,000 in cash. This property is subject to a
Trust Agreement, dated November 15, 1999, whereby Daniel B. Hamburg, Lillian
Hamburg and Robert Rehm are second beneficiaries and we are the first
beneficiary. Our interest is encumbered in the amount of $465,000, representing
various loans made to us by the second beneficiaries. The property is also
subject to a Deed of Trust to secure a $550,000 Promissory Note dated April 6,
1999, payable to American Savings Life Insurance Company.

We believe that our facilities are adequate for our current needs and that
suitable additional space will be available when needed. The condition of the
property is generally good and it is properly insured.

ITEM 3. LEGAL PROCEEDINGS

We have been involved in material litigation with holders (the "Debenture
Holders") of our 6% Convertible Debentures Due May 29, 2003 (the "Debentures").
In 1998, the Debenture Holders filed a lawsuit against us based upon our failure
to honor their requests to convert the Debentures to common stock (the
"Debenture Litigation"). In January 1999, the Debenture Holders and other
plaintiffs (together the "Plaintiffs") filed related lawsuits against us and
certain of our former officers, and others, to recover damages for alleged
intentional and calculated defamation (the "Defamation Litigation"). On April
11, 2000, we entered into a definitive Settlement Agreement and Conditional
Release with the Plaintiffs to settle the Debenture Litigation and the
Defamation Litigation. If we honor our obligations under the Settlement
Agreement and the Debentures, the settlement will fully and finally resolve the
Debenture Litigation and the Defamation Litigation. Under the Settlement
Agreement, we have agreed to honor the terms of the Debentures (and the related
common stock purchase warrants) and to convert the principal and accrued
interest on the Debentures into our common stock as the Debenture Holders
request such conversion and as permitted under the Debentures. As of August 23,
2000, approximately $2,241,000 in principal amount of the Debentures has been
converted into shares of our common stock in partial implementation of the
settlement. In addition, we have agreed to pay (in common stock, to be issued as
the Debentures are converted) an additional $350,000 in liquidated damages,
which amount has been accrued in the third quarter of the year ended May 31,
2000. We have agreed to perform additional non-monetary obligations under the
Settlement Agreement and Conditional Release which, while they represent
material terms of the Settlement Agreement, we believe we can successfully
perform without a material adverse financial impact.

We are involved in litigation with a former officer and director relating
to his claims for indemnification and reimbursement of legal expenses in
connection with the Defamation Litigation, and for breach of an employment
agreement with respect to stock options. The former executive seeks damages,
including substantial exemplary and punitive damages, and an order requiring us
to honor stock options. Although we believe that the settlement of the
Defamation Litigation mitigates potential damages in this litigation, the
outcome of this litigation, and its potential financial impact on us, cannot be
estimated fully at this time. However, at the present time, we believe that the
claims for exemplary and punitive damages relating to both the indemnity and
stock option claims are wholly without merit.

We are involved in litigation with a former customer who has alleged that
we breached an agreement to provide software conversion services and to test its
software for the ability to function in the year 2000 and beyond. While the
lawsuit seeks a substantial amount of damages, we intend to defend this action
vigorously and to assert set-offs and counterclaims in these proceedings. The
outcome and potential financial impact of this litigation on us cannot yet be
estimated.

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ITEM 4. SUBMISSION TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5. MARKET PRICE FOR AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

RECENT SALES OF UNREGISTERED SECURITIES

We furnish the following information regarding sales of unregistered
securities during the fiscal year covered by this report:

(1) On May 29, 1998, we sold $3,500,000 in principal amount of convertible
debentures, as well as warrants to purchase 105,000 shares of common stock, for
aggregate net proceeds, after payment of finders' fees and expenses, of
approximately $3,200,000. Included in the finders' fees paid in connection with
the convertible debentures, we issued warrants to purchase an additional 10,000
shares of our common stock. The issuance of the securities was effected without
registration under the Securities Act of 1933, as amended, in reliance upon the
exemption from registration in Rule 506 of Regulation D promulgated under the
Securities Act.

On March 6, 2000, we issued 748,846 shares to Dominion Capital Fund, Ltd.
in response to a conversion request by certain of the debenture holders under
the sale described above and the settlement agreement described under "Legal
Proceedings" of this Form 10-KSB. On April 20, 2000, we issued an additional
749,202 shares to Sovereign Partners, L.P. and 306,047 shares to Canadian
Advantage, L.P., also in response to a conversion request by certain of the
debenture holders under the same settlement agreement. On May 5, 2000, we issued
67,797 shares to Dominion Capital Fund, Ltd. in response to a further conversion
request. On August 2, 2000, we issued 169,028 shares and on August 23, 2000 we
issued 203,555 shares to Dominion Capital Fund, Ltd., both in response to
further conversion requests.

(2) On May 5, 2000 and June 6, 2000, we sold an aggregate of 4,498,000 units,
consisting of one share of common stock and a warrant to one share of our common
stock at an exercise price of $1.50 per share to forty-four investors for total
cash consideration of $1,124,500 in a private placement.

(3) On May 15, 2000, we issued 50,000 shares of our common stock, valued at
$54,650, to a business consultant in consideration for services provided in
relation to the BIZPAY product.

Except as otherwise specified, to the extent that the foregoing
transactions constituted "sales" within the meaning of the Securities Act of
1933, the securities issued in such transactions were not registered under the
Securities Act of 1933 in reliance upon the exemption from registration set
forth in Section 4(2) of the Securities Act of 1933, relating to sales by an
issuer not involving any public offering. None of the foregoing transactions,
either individually or in the aggregate, involved a public offering.

Each of the foregoing transactions, to the extent that they constituted
"sales" within the meaning of the Securities Act of 1933, was exempt under the
applicable exemption based on the following facts: to our knowledge, there was
no general solicitation, there were a limited number of purchasers, the
purchasers were provided with or had access to information about our company,
and either the purchasers or their specific representatives were sophisticated
about business or financial matters; and, as applicable, the purchasers were
"accredited investors" within the meaning of Rule 501 under the Securities Act
of 1933, and we took reasonable steps to ensure that the purchasers were not
underwriters within the meaning of Section 2(11) under the Securities Act of
1933.

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RECORD HOLDERS

As of August 23, 2000, we had approximately 418 stockholders of record.
This number does not include those stockholders whose shares are held in
"nominee" or "street" name.

MARKET INFORMATION

Our common stock is quoted on the National Association of Securities
Dealers, Inc.'s OTC Bulletin Board under the symbol "CSGI". The following table
sets forth the range of high and low sales prices as quoted on the OTC Bulletin
Board by quarter for the last two fiscal years to May 31, 2000 and through
August 23, 2000. These quotations reflect inter-dealer prices, without retail
mark-up, markdown, or commission, and may not necessarily represent actual
transactions.

High Low
---- ---
Fiscal Year Ending May 31, 1999

First Quarter.......................................... 4.750 1.031
Second Quarter......................................... 3.000 0.687
Third Quarter.......................................... 6.000 0.875
Fourth Quarter......................................... 2.281 0.562

Fiscal Year Ending May 31, 2000

First Quarter.......................................... 1.718 0.450
Second Quarter......................................... 0.843 0.406
Third Quarter.......................................... 3.437 0.250
Fourth Quarter......................................... 3.000 0.625

Fiscal Year Ending May 31, 2001

First Quarter (to August 23, 2000)..................... 1.375 0.500

DIVIDENDS

We have not paid any dividends on our capital stock since our inception.
Our current policy is to retain any future earnings to finance the continuing
development of our business. Any future determination to pay cash dividends will
be at the discretion of the Board of Directors and will be dependent upon our
financial condition, operating results, capital requirements, general business
conditions and such other factors as our Board of Directors deems relevant.

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

This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Our actual results could differ materially from those set
forth in the forward-looking statements. The following discussion should also be
read in conjunction with our audited consolidated financial statements and notes
thereto appearing elsewhere in this Form 10-KSB.

OVERVIEW

Historically, we have developed pre-packaged software and proprietary
products and services. However, we have recently moved our specific emphasis to
identifying developing software-related business opportunities and technologies
and providing timely and effective software-based solutions for these
opportunities, while still maintaining our traditional emphasis on high-quality
proprietary products and services. We are no longer marketing our automated
conversion services or our Year 2000 conversion services. We are still capable

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of performing both of these services if solicited by clients; however, our
business model has changed and these business opportunities are no longer in
sufficient demand or sufficiently profitable to justify their inclusion in our
service offerings.

We are now marketing the COUNTERFEIT COP through our new Business Products
Division. We have entered into distribution agreements with third parties with
national domestic distribution networks, and we have begun marketing the product
in Europe. We intend to continue the active marketing of this product through
these distribution channels and others that we expect to create in the future.

We are preparing for the introduction over the next several months of the
BIZPAY SUITE software - a new "e-commerce" product, and we are seeking strategic
domestic and international joint venture partners to participate in the
development and launch of this new product line. We are negotiating a joint
venture with an Australian partner and we plan to market the technology on an
international basis.

Due to the lack of profitable operations and difficulties raising
additional capital, we have experienced significant cash flow difficulties.
Since May 31, 1999, we have borrowed approximately $1,200,000, with our office
building serving as collateral on those borrowings. In addition, one of our
directors posted additional collateral to secure our obligations under these
borrowings. We have also raised approximately $1,110,000 through a private sale
of equity securities. Even with these borrowings, we have had difficulties from
time to time in meeting payroll and other operating obligations.

We will continue to attempt to implement our business plan with our
strategic new direction - that is, the marketing and distribution of the
COUNTERFEIT COP and the development and introduction of new products related to
e-commerce. We will require additional capital to move forward on these product
lines and new ventures. We believe that partnerships are highly desirable for
accelerating market penetration and for establishing market dominance, and we
are currently negotiating with several other international parties to extend
this approach.

We have been involved in material litigation with holders (the "Debenture
Holders") of our 6% Convertible Debentures Due May 29, 2003 (the "Debentures").
In 1998, the Debenture Holders filed a lawsuit against us based upon our failure
to honor their requests to convert the Debentures to common stock (the
"Debenture Litigation"). In January 1999, the Debenture Holders and other
plaintiffs (together, the "Plaintiffs") filed related lawsuits against us and
certain of our former officers, and others, to recover damages for alleged
intentional and calculated defamation (the "Defamation Litigation"). On April
11, 2000, we entered into a definitive Settlement Agreement and Conditional
Release with the Plaintiffs to settle the Debenture Litigation and the
Defamation Litigation. Provided that we honor our obligations under the
Settlement Agreement and the Debentures, which we intend to do, the settlement
will fully and finally resolve the Debenture Litigation and the Defamation
Litigation. Under the Settlement Agreement, we have agreed to honor the terms of
the Debentures (and the related common stock purchase warrants) and to convert
the principal and accrued interest on the Debentures into our common stock as
the Debenture Holders request such conversion and as permitted under the
Debentures. As of August 23, 2000, approximately $2,241,000 in principal amount
of the Debentures has been converted into shares of our common stock in partial
implementation of the settlement. In addition, we have agreed to pay (in common
stock, to be issued as the Debentures are converted) an additional $350,000 in
liquidated damages, which amount has been accrued in the third quarter of the
year ending May 31, 2000. We have agreed to perform additional non-monetary
obligations under the Settlement Agreement which, while they represent material
terms of the Settlement Agreement and Conditional Release, we believe we can
successfully perform without a material adverse financial impact.

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to honor stock options. Although we believe that the settlement of the
Defamation Litigation mitigates potential damages in this litigation, the
outcome of this litigation, and its potential financial impact on us, cannot be
estimated fully at this time. However, at the present time, we believe that the
claims for exemplary and punitive damages relating to both the indemnity and
stock option claims are wholly without merit.

RESULTS OF OPERATIONS

COMPARISON OF YEAR ENDED MAY 31, 2000 TO YEAR ENDED MAY 31, 1999

NET LOSSES. For the year ended May 31, 2000, we incurred a net loss of
approximately $7,343,000, compared with a net loss of $4,946,000 for the year
ended May 31, 1999, an increase of approximately $2,397,000. An explanation of
these losses is set forth below.

REVENUE. For the year ended May 31, 2000, we had revenues of $146,000,
compared to $33,000 for the previous year. The increase in revenue reflects
growth in revenues from sales of the COUNTERFEIT COP product, which increased
from $0 in fiscal 1999 to $146,000 in fiscal 2000. The 1999 revenue amount has
been adjusted in the audited financials from a reported $742,000 for the year
ended May 31, 1999 to reflect the discontinuation of our Year 2000 software
conversion services operation. We are no longer marketing Year 2000 conversion
services, and have transferred all of the employees working on these services to
other projects - primarily to the development of the BIZPAY e-commerce
technology.

We are beginning our efforts to move the COUNTERFEIT COP through the
distribution channels we have established with certain national distributors.
Revenue results for June, 2000 indicate that sales of the COUNTERFEIT COP have
increased to approximately $600,000 for the month, and management believes that
further revenue growth will follow in the succeeding months.

COST OF SALES. For the year ended May 31, 2000, the primary cost of sales
expense is the cost of obtaining COUNTERFEIT COP units from our supplier. These
costs represent approximately 30% of related revenue for the year ended May 31,
2000. We expect gross margins on the COUNTERFEIT COP to increase in the near
term as we negotiate different pricing structures under new distribution
agreements.

COST OF CONVERSION SERVICES. We no longer market this service. For
reporting purposes, it is considered to be a discontinued operation, as shown in
the audited financial statements in this Form 10-KSB. The conversion service
incurred a net loss of approximately $6,000 in the year ended May 31, 2000.

SOFTWARE RESEARCH AND DEVELOPMENT EXPENSES. For the year ended May 31,
2000, software development expenses were $360,000, compared with $622,000 for
the comparable prior period. The decrease in software development expenses
represents the impact of a deliberate program of cost reduction and the decision
not to purchase externally-developed software. However, certain employees must
continue to be dedicated to research and development as we develop new products
for our new strategic direction. These personnel are assigned to development of
our prospective e-commerce products. We intend to begin capitalizing certain
software development costs when proprietary software products have reached
technological feasibility.

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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $6,262,000 for the year ended May 31, 2000,
compared with $3,956,000 for the previous year, an increase of $2,306,000. The
increase in selling, general and administrative expenses is primarily
attributable to $1,164,000 associated with recognition of the value of employee
stock options under variable awards and to $1,233,000 associated with issuance
of 1,382,000 shares of our common stock to consultants for service provided to
us. Apart from these expenses attributable to recognizing variable stock grants
and option awards, we have generally reduced operating expenses as a result of
implementing our new business model. We have also significantly reduced
marketing expenses related to Year 2000 services and the COUNTERFEIT COP, which
will now be sold through third-party distribution channels.

INTEREST EXPENSE. For the year ended May 31, 2000, interest expense was
$663,000, compared with $227,000 for the previous year, an increase of $436,000.
The increase in interest expense is primarily composed of interest accrual on a
$3,5000,000 principal amount of our 6% Convertible Debentures and on a $550,000
mortgage. We also incurred significant new debt in the year ended May 31, 2000,
with some debt issued at significant discounts. We issued notes payable of
approximately $685,000 and received $600,000 cash for those notes. As these
notes have maturities of less than one year, the discount amount has been
amortized as interest expense.

DEPRECIATION AND AMORTIZATION EXPENSE. For the year ended May 31, 2000,
depreciation and amortization expense was $166,000, compared with $204,000 for
the previous year. The decrease indicates that there has been no major growth in
depreciable items, primarily due to a shortage of operating capital.

We re-priced numerous options granted to employees in the year ended May
31, 1999. Under the Proposed Interpretation, ACCOUNTING FOR CERTAIN TRANSACTIONS
INVOLVING STOCK COMPENSATION, AN INTERPRETATION OF APB OPINION NO. 25, issued by
the Financial Accounting Standards Board, these constitute variable awards that
may require us to recognize compensation expense. The price of our common stock
has recently been consistently higher than the re-priced exercise price of these
options.

COMPARISON OF YEAR ENDED MAY 31, 1999 TO YEAR ENDED MAY 31, 1998

For the year ended May 31, 1999, we incurred net losses of $4.9 million,
compared with net losses of $3.1 million for the year ended May 31, 1998. An
explanation of these losses is set forth below.

For the year ended May 31, 1999, we had revenues of $742,000, compared with
revenues of $815,000 for the year ended May 31, 1998. We started the Year 2000
("Y2K") compliance services in fiscal 1998. We are not currently generating any
significant revenue. Our ability to compete successfully in the sale of its Y2K
and conversion services will depend in large part upon its ability to attract
customers.

For the year ended May 31, 1999, our cost of conversion services was
$774,000, compared with $353,000 for the year ended May 31, 1998. Cost of
conversion services consists primarily of personnel costs directly related to
the performance of our conversion services. Before the commencement of
revenue-generating operations, the personnel currently dedicated to the
provision of conversion services were dedicated to software development, and,
accordingly, the costs directly related to such personnel were previously
included in software development expense. The increase in cost of conversion
services is primarily attributable to the re-deployment of personnel, from
software development to the provision of conversion services, and the hiring of
additional personnel.

For the year ended May 31, 1999, software development costs were $622,000,
compared with $1,046,000 for the year ended May 31, 1998. The decrease in
software development expenses are primarily attributable to our reduction of
development work for Year 2000 tools used in providing Year 2000 conversion
services and migration services.

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For the year ended May 31, 1999, selling, general and administrative
expenses were $3,992,000, compared with $2,297,000 for the twelve months ended
May 31, 1998. During the fiscal year 1999, we hired 24 sales personnel for the
Year 2000 sales and 15 sales personnel for the COUNTERFEIT COP product, which
accounted for a $1,400,000 increase. The remaining increase is due to
communication and systems support, $200,000, and various corporate
administrative costs, $100,000.

MATERIAL CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We experienced our first profitable month in June 2000, and we expect that
July 2000 will be a break-even month. Our revenues will be derived from two
products: the COUNTERFEIT COP and the BIZPAY SUITE of e-commerce software
solutions.

The COUNTERFEIT COP is now marketed through our new Business Products
Division to master distributors in a national domestic network. We have also
begun marketing the product in Europe.

We have signed Memorandums of Understanding (MOU) with carefully-selected
strategic partners for the introduction of the BIZPAY SUITE in the United States
and Australia as an e-commerce product. These transactions are subject to
definitive agreements. We are currently negotiating with other parties for the
international expansion of our technology.

During the year ended May 31, 2000, we have suffered material operating
losses and negative cash flow. We continue to experience an ongoing working
capital deficiency and, since May 31, 1999, cash has come almost exclusively
from borrowings and private sales of our common stock. Although there are now
encouraging signs of increased revenue through sales of COUNTERFEIT COP by our
major distributors, we will continue to require capital to meet the demands of
our ambitious business plan. In addition to these projected revenues, we are
attempting to raise sufficient equity capital to meet our current obligations
and to implement our new business plan. Without these projected revenues and/or
the funding that we are seeking, we may be unable to continue to finance our
day-to-day operations.

We have utilized significant resources in research and development and
marketing efforts. Those efforts must continue in order for us to be successful
in the implementation of our new strategic direction. We will use any
internally-generated funds and additional capital from private placements of
equity to meet our obligations and to implement our new strategic direction.

Our balance of cash and cash equivalents was $3,605 at May 31, 2000,
compared with $739,308 at May 31, 1999. We had a working capital deficit of
$2,298,000 at May 31, 2000, compared with a working capital deficit of
$2,861,000 at May 31,1999, a $563,000 decrease in working capital. This decrease
is primarily attributable to the use of available operating cash to finance our
net loss from operations of more than $7.3 million for the year ended June 31,
2000.

Accounts receivable balances increased to $49,000 at May 31, 2000 from
$8,000 at May 31, 1999. The increase is directly attributable to an increase in
sales volumes for the COUNTERFEIT COP at the end of our 2000 fiscal year.

Inventory balances increased to $412,000 at May 31, 2000 from $161,000 at
May 31, 1999. These balances are entirely composed of the COUNTERFEIT COP
product being held for a short period awaiting shipment in satisfaction of
distributor orders. We purchase finished product units directly from a
third-party manufacturer, and we do not intend to hold significant quantities of
these products.

Accrued Liabilities and Accrued Payroll and Related Liabilities increased
to $1,276,000 at May 31, 2000 from $638,000 at May 31, 1999. The increase of
approximately $638,000 is primarily attributable to an increase in accrued
payroll and payroll tax liabilities of approximately $350,000, and a provision
of approximately $220,000 for the balance of the cash amount payable to the
holders of our 6% Convertible Debentures. In general, the increase reflects our
cash deficiency and a general increase in our Trade Payables associated with the
cash deficiency.

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We used net cash in the amount of $95,000 for the purchase of property and
equipment in the year ended May 31, 2000, primarily for the acquisition of
computer equipment for use in software development. We extended our $550,000
mortgage over our property by a further $150,000 to a total of $700,000 during
the year ended May 31, 2000. We also borrowed additional funds from a third
party under two separate notes, the terms of which resulted in the receipt of
net proceeds of $120,000 with repayment of $155,000 within seven days from the
dates of the loans. The terms of these loans have now been extended, and the
liability has been incorporated into our Balance Sheet.

We also incurred significant new debt in the year ended May 31, 2000, with
some debt issued at significant discounts. We issued notes payable of
approximately $685,000 and received $600,000 cash for those notes. As these
notes have maturities of less than one year, the discount amount has been
amortized as interest expense.

We do not intend to require material capital expenditures in the short
term. However, as discussed above, we will require cash to implement our new
strategic direction. In August 2000, we entered into an agreement with a funding
source to ensure that there will be an available reserve of cash to meet our
short-term demands as they arise, and to assist us in more effective financial
planning.

In June 1999, we entered into an agreement with a third party to purchase
certain technology. The terms of that agreement include an original purchase
price for the software of $600,000. We had estimated at the time of purchase
that an additional $275,000 would be required to complete development of the
software. We paid $180,000 cash at the date of purchase but failed to make the
$420,000 payment due on July 30, 1999. We received a 30-day extension of the
July 30, 1999 due date by making a payment of $50,000 against the balance due
and by issuing 120,000 shares of common stock to the seller of the software. We
later made a determination that the software would require significant
additional development above our original estimates and concluded that the
capabilities of the software were misrepresented by the seller. As a result, we
elected not to make the final payment of $370,000 and we have determined not to
proceed with acquisition of the software. We have abandoned the project, and
have made a write-off provision of $230,000 in the year ended May 31, 2000.

On October 1, 1999, a $150,000 loan was arranged from the Hamburg Trust,
interest rate for the first 90 days is 1.5% per month increasing to 2%, with
interest payments due on the first of each month. On October 1, 1999 a further
loan was obtained from Daniel Rehm for $70,000 with the same interest rates and
payment structure. On October 21, 1999 a $90,000 loan was arranged from Daniel
Rehm with an interest rate of 2% per month and payments due on the first of each
month. Collateral for this loan is a second mortgage on our headquarters
building, located at 125 S. 52nd Street, Tempe, AZ 85281. On November 3, 1999 a
$65,000 loan was arranged from Daniel Rehm with an interest rate of 1.5% per
month and payments due on the first of each month. Collateral for this loan is a
second mortgage on our headquarters building, located at 125 S. 52nd Street,
Tempe, AZ 85281. On October 15, 1999 a $310,000 loan was arranged from the
Hamburg Trust with an interest rate of 1.75% per month, with payments due on the
first of each month. Collateral for this loan is a second mortgage on our
headquarters building, located at 125 S. 52nd Street, Tempe, AZ 85281.

In January 2000, we undertook the raising of $1,124,500 through a private
offering of restricted common stock, valued at $0.25 per share. This was fully
subscribed, and we issued 4,438,000 shares in May, 2000. Based on the timing of
the submission of a registration filing for the shares underlying this private
offering, we were required to issue 100,000 additional shares of common stock
for each week of filing delay, with the additional shares to be distributed
proportionately to some of the subscribers, and to be included in the
registration filing. As of August 28, 2000, we are obligated under this
agreement to issue 3,000,000 additional shares, which will be included in a
planned registration filing on Form SB-2. Each subscription to one share of our
common stock also carried an entitlement of a warrant for one share of common

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stock at $1.50 per share, with the underlying shares to be included in the
registration filing. We may redeem the warrants within a 30-month period from
the effective date of the warrants. Redemption may occur when the closing price
of our common stock exceeds $2.75 for five consecutive days in a 90-day period
prior to our notice to the warrant-holder; the warrant-holder then has 30 days
to exercise their warrant.

IMPACT OF INFLATION

Increases in the inflation rate are not expected to affect our operating
expenses materially. Although we have no plans to borrow additional funds, if we
were to do this at variable interest rates, any increase in interest rates would
increase our borrowed funds.

SEASONALITY

Our operations are not affected by seasonal fluctuations, although our cash
flows may at times be affected by fluctuations in the timing of cash receipts
from large contracts. Management believes that the cash-flow of the two major
product lines in our new strategic direction - BIZPAY and the COUNTERFEIT COP -
will be very regular, and will be much less impact by large purchases or
seasonal factors.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

WE HAVE A HISTORY OF NET LOSSES AND NEGATIVE CASH FLOWS. IF WE ARE UNABLE
TO BECOME PROFITABLE IT IS UNLIKELY THAT WE WILL BE ABLE TO CONTINUE OUR
OPERATIONS.

We have sustained substantial and recurring losses and negative cash flows
in each of the last three fiscal years ended May 31, 1998, 1999 and 2000. For
these periods, we had aggregate net losses of $15,368,000. For the fiscal year
ended May 31, 1999, we had a net loss of $4,946,000, and for the fiscal year
ended May 31, 2000, we had a net loss of $7,343,000. We are also experiencing a
significant working capital deficiency. Please see the discussion of "Material
Changes in Financial Condition, Liquidity and Capital Resources" contained in
"Item 6: Management's Discussion and Analysis of Financial Condition and Results
of Operations" of this Form 10-KSB.

If we continue to sustain losses and negative cash flow, it is unlikely
that we will be able to continue our operations. Our ability to become
profitable primarily depends on our ability to generate significant revenue and
improve the efficiency of our operations. Specifically, we must be able to
generate substantial sales of our Counterfeit Cop product and complete
development of our BizPay Suite and generate revenue from the sale of our BIZPAY
products, once developed.

WE HAVE BEEN UNABLE TO FUND OUR OPERATIONS WITH INTERNALLY-GENERATED FUNDS
BECAUSE OUR BUSINESS HAS GENERATED NEGATIVE CASH FLOW. WE WILL NEED TO GENERATE
FUNDS INTERNALLY OR RAISE ADDITIONAL CAPITAL TO FUND OUR OPERATIONS DURING THE
2001 FISCAL YEAR.

We have required, and will continue to require, substantial capital to fund
our business operations. We expect to require additional funds to continue or to
extend product development and marketing. We may obtain such additional
financing through private placements of debt or equity through collaborative
arrangements with our partners including, but not limited to, our international
partners. If adequate funds are not available when required or on acceptable
terms, we may be forced to delay, scale back, or eliminate our product
development activities and sales and marketing efforts. If this were to become
necessary, it could adversely affect our business, results of operations and our
financial condition.

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THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING
CONCERN.

We have made significant strides towards profitability, and we have three
master distributor contracts in place for the COUNTERFEIT COP. However, we have
a cash deficiency of approximately $3,500,000 from operations during the year
ended May 31, 2000, and there can be no assurance that the contracts already in
place will support us through a full year of operations.

Our auditor's report indicates that certain factors raise substantial doubt
about our ability to continue as a going concern. Our auditors issued a going
concern opinion because:

* we have incurred recurring material losses from operations;
* we have material current debt; and
* we were involved in material litigation for which the outcome was
uncertain.

We cannot assure you that we will be able to generate internally or raise
sufficient funds to continue our operations, or that our auditor's will not
issue another going concern opinion. Our failure to raise sufficient additional
funds, either through additional financing or continuing operations, will have a
material adverse effect on our business and financial condition and on our
ability to continue as a going concern.

Our consolidated financial statements do not include any adjustments to
reflect the possible future affects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from our
possible inability to continue our operations.

WE EXPECT THAT A SUBSTANTIAL NUMBER OF OUR SECURITIES WILL BE SOLD IN THE
MARKET IN THE NEAR FUTURE. THIS COULD CAUSE OUR STOCK PRICE TO DECLINE
SIGNIFICANTLY.

The market price of our common stock could decline significantly if our
existing stockholders sell shares of our common stock in the market. Such sales
also may make it more difficult for us to raise capital in the future at a time
and at a price that we deem appropriate. As of August 23, 2000, we had
approximately 26,410,503 shares of common stock outstanding, which does not
include the 4,498,000 shares issueable upon exercise of outstanding warrants
under our January, 2000 private offering, or the 115,000 shares issueable upon
exercise of outstanding warrants to the holders of our 6% Convertible
Debentures. Subject to certain volume and other limitations, approximately
5,581,500 shares are currently eligible for sale under Rule 144, including
5,564,500 shares which are held by one of our affiliates, and approximately
748,012 shares are eligible for public sale without registration, pursuant to
Rule 144.

As of August 23, 2000, we also had outstanding options to purchase
4,708,150 shares of our common stock at a weighted average exercise price of
approximately $1.29 per share. Further, we have filed Form S-8 registration
statements under the Securities Act registering an aggregate of 10,500,000
shares of common stock issuable under our stock option plans, including the
4,708,150 options currently outstanding.

As of August 17, 2000, up to an additional 2,652,739 shares of our common
stock are issuable upon conversion of outstanding convertible debentures in the
amount of $1,551,916, which includes principal, interest and liquidated damages.

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We also have 4,613,000 warrants outstanding for the purchase of our common
stock. The weighted average purchase price of the outstanding warrants to
purchase 4,498,000 shares of our common stock under our January, 2000 private
offering is $1.50 per share. An additional 115,000 warrants are issuable to the
holders of our 6% Convertible Debentures at a price equal to 110% of the average
closing price of our common stock for five trading days preceding the date of
exercise. The warrant-holders have until May 29, 2003 to exercise these
warrants.

OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE OUR BIZPAY SOFTWARE IS
CURRENTLY UNDER DEVELOPMENT AND IN THE EARLY STAGES OF IMPLEMENTATION. IF WE ARE
UNABLE TO COMPLETE DEVELOPMENT OF OUR BIZPAY SOFTWARE OR A MARKET FOR OUR
PRODUCTS AND SERVICES DOES NOT DEVELOP, WE MAY BE UNABLE TO SUCCESSFULLY
IMPLEMENT OUR BUSINESS STRATEGY.

A market for our products may not develop as anticipated, and we may not
successfully execute our business strategy. We have a limited operating history
upon which you can evaluate our business. Our BizPay software products are
currently in the early stages of development and implementation. Until we
complete development of our new BizPay software products, we will derive
substantially all of our revenues from our Counterfeit Cop business. No further
revenues are expected from the discontinued Year 2000 business, and, although we
expect that revenues from the Counterfeit Cop will grow during fiscal 2001,
these revenues may not be sufficient to enable us to continue to fund our
operations. If we are unable to complete the development of our BizPay products
or if the market does not accept these products, we will have difficulty
generating the revenue we need to continue doing business.

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO FORECAST OUR FUTURE
REVENUES. ACCORDINGLY, WE MAY ACHIEVE A LEVEL OF REVENUES THAT IS LOWER THAN WE
EXPECT, WHICH WOULD RESULT IN GREATER THAN EXPECTED LOSSES.

As a result of our limited operating history with our Business Products
division, it is difficult to accurately forecast future revenues. We may be
unable to adjust our spending in a timely manner to adjust for any unexpected
revenue shortfall. Also, we have limited meaningful historical financial data
upon which to base planned operating expenses. We base our current and future
expense levels on our operating plans and estimates of future revenue. Revenue
and operating results are difficult to forecast because they generally depend on
the volume and timing of the orders we receive. As a result, we may be unable to
adjust our spending in a timely manner to adjust for any unexpected revenue
shortfall, which would result in further substantial losses. We may also be
unable to expand our operations in a timely manner to adequately meet customer
demand in excess of our expectations.

OUR HISTORICAL FINANCIAL RESULTS ARE NOT MEANINGFUL TO AN ANALYSIS OF OUR
CURRENT BUSINESS.

The financial data included in this document covers periods prior to the
transition from our Year 2000 business to our new business, which comprises
Counterfeit Cop and our BizPay software products, which are still under
development. Accordingly, our historical financial data is not necessarily
meaningful to an analysis of our current and future business operations. For
example, Year 2000 services accounted for 96% of our total revenue during the
year ended May 31, 1999 and 58% during the year ended May 31, 2000. Because we
will no longer receive revenues from the Year 2000 operations, our revenues in
future periods will be substantially less than prior periods unless we are able
to replace the lost revenues from the Year 2000 business with new business.

IN ORDER TO SUSTAIN OUR VIABILITY OVER THE NEXT FEW YEARS, WE WILL NEED TO
DEVELOP NEW PRODUCTS.

The successful development of any new products is dependent on a number of
factors, including our ability to develop acceptable products, to anticipate
future changes and the demands of applicable markets, the retraining or hiring
necessary personnel, and our ability to provide sufficient capital either from

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internally generated revenues or external sources to properly fund the
development of new products. Also, if we do not complete the development of new
products, we will need to seek other opportunities to replace the revenues
generated by our Year 2000 and software services businesses.

We have not yet released the initial version of our new BizPay software
product. We may encounter difficulties in completing the BizPay product line or
in expanding such product line once initial development is completed. If we are
unable to complete development of our BizPay product line, we will not be able
to generate the level of revenue we are expecting and may have difficulty
funding our operations. Any failures to anticipate product opportunities in our
market areas, or any delays in developing and releasing new products, could have
a material adverse effect on our business, results of operations and our
financial condition.

IF WE DO NOT RESPOND TO RAPID TECHNOLOGICAL CHANGES, OUR PRODUCTS COULD
BECOME OBSOLETE AND WE COULD LOSE CUSTOMERS.

To be competitive, we must enhance and improve the functionality and
features of our products. If competitors introduce new products and services
embodying new technologies, or if new industry standards and practices emerge,
our existing products and systems may become obsolete. Ongoing development of
our technology entails significant expense and technical risks. The markets for
counterfeit detection devices and for Internet and electronic commerce products
and services are characterized by rapidly changing technologies, resulting in
rapid product obsolescence and short product life-cycles. Accordingly, our
success is dependent on our ability to anticipate technological changes and
business opportunities, and to conditionally identify, obtain and successfully
market new products and services that utilize evolving technologies and that
satisfy customer preferences and industry requirements. We cannot be certain
that present or future competitors will not market products and services which
have actual or perceived advantages over ours or which render our products and
services obsolete or less marketable.

IF WE FAIL TO ESTABLISH AND MAINTAIN A CLEAR ADVANTAGE OVER OUR
COMPETITORS, WE WILL HAVE DIFFICULTY IN CAPTURING OR RETAINING AN ADEQUATE
MARKET SHARE TO ENSURE ACCEPTANCE OF OUR PRODUCTS AND THEIR CONTINUING MARKET
PENETRATION. FAILURE TO COMPETE EFFECTIVELY IN OUR MARKET WILL LEAD TO REDUCED
SALES, WHICH WILL HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.

The business products industry is extremely competitive and has relatively
low barriers to entry. With the COUNTERFEIT COP, we compete primarily with three
main classes of products:

- chemical-based pen-type scanners. The market leader is Money Tester,
although there are several other products, all of which are relatively
inexpensive, and there is a very low barrier to entry of the market.
The main difference of these products to the COUNTERFEIT COP is that
they are severely restricted in function, being able to detect only a
limited set of counterfeit features, and only on paper;
- ultra-violet light-based. There are at least two other products which
compete directly with COUNTERFEIT COP. In each case, the COUNTERFEIT
COP clearly exceeds the functionality of the other products, or is
considerably easier and more efficient to use, and also provides
significant improvements in effective operational performance and
life;
- ink-checking and micro-writing detection. We have examined the two
main competitors in this area. As with the ultra-violet competitors,
these products do not provide the range of detection functionality or
ease of use that is available as standard with the COUNTERFEIT COP,
and each requires multiple steps to gain results which are less than
those provided as standard by the COUNTERFEIT COP.

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In order to compete effectively, we have deliberately sought to incorporate
into the COUNTERFEIT COP all of the desirable features of our competitors'
products, and to provide a product which exceeds all competitive performance and
efficiency standards.

With BIZPAY, the primary competition is in three major categories:

- 'person-to-person' transaction services, such as PayPal.com (X.com),
ProPay.com, PayMe.com, and BillPoint.com (eBay.com). Several of these
competitors have established partner relationships with major banks
and financial institutions, as we are seeking to do with BIZPAY;
however, their concentration is almost exclusively directed to the
individual's requirement to transfer money electronically. BIZPAY is
designed to facilitate the merchant side of an electronic sales
transaction while also providing full service and protection to the
individual/buyer. We expect that one or more of these competitors will
move to extend their service offering to include merchant features,
but we also believe that we will have a time and market position
advantage due to the early release of the merchant features.
- `paper-payment' replacement. Services such as PayMyBills.com and
PayTrust.com (which has American Express and AT&T Ventures among its
backers) are providing an online alternative to check payments. BIZPAY
will not incorporate this feature in its initial release, although it
will be introduced in later versions;
- individual service providers. There are several companies which now
market specific functions to other, larger companies - either software
aggregators preparing larger software offerings, or financial groups
seeking to develop their own solution. Most of these companies are
small, with limited funding, and easily absorbed by larger entities.
They provide an innovative and rapidly-growing range of specialist
services. On their own, none of them represents a major competitive
threat to BIZPAY; however, the incorporation of these new features
into our products will provide BIZPAY with a competitive edge, and
will forestall competition from aggregators.

While all competitive services offer one or more of the three major
e-commerce transactions (parson-to-person, consumer-to-business, and
business-to-business), BIZPAY offers all three and has also identified and
incorporated a wide and distinctive variety of other features which enable it to
exceed any of the alternative products or services in functionality and
features. Additionally, we have deliberately sought to include all of the
standard `links' to other competitive products and developing standards to
ensure that BIZPAY will not become a victim of proprietary technology.

We expect that BIZPAY will compete successfully with less functional
systems such as PayPal and Ebay's BillPoint, which we believe will present only
a basic level of competition. We are aware that major credit-card processing
companies have sufficient technical capacity to develop an alternative system to
BIZPAY, should they decide to enter this market; to date, most have preferred to
use external developers or to partner with other financial-services groups to
gain size and efficiency advantages. We expect this trend to continue, and we
are seeking to position BIZPAY to benefit from this approach. In August, 2000,
we signed a Memorandum of Understanding with Cardservice International for a
joint venture involving the formation of BizPay USA, Inc. Both companies will
use this new company as a vehicle to support and facilitate the roll-out of the
BIZPAY SUITE through the U.S. domestic market.

We must compete effectively and continually with established products and
services, and we must create and maintain profitable business relationships and
partnerships with major industry participants. We must also provide a service
which is cost-effective and able to discourage competition from other members of
the financial-services industry with substantially stronger financial reserves
than ourselves.

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OUR FAILURE TO MAINTAIN OUR RELATIONSHIP WITH THE SUPPLIER OF OUR
COUNTERFEIT COP PRODUCT WOULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS.

We are dependent upon a third party supplier for manufacture of our
Counterfeit Cop products. Our supplier generally can cancel or modify its
agreements with us upon no or relatively short notice. In addition, any decline
in the quality of our Counterfeit Cop products could adversely affect our
reputation. The untimely loss of the manufacturer of our Counterfeit Cop, or a
change in any favorable pricing agreements with the manufacturer, would
negatively impact the cash flow we receive from our operations.

IF WE ARE UNABLE TO MANAGE CHANGE AND ANY FUTURE GROWTH, OUR BUSINESS MAY
BE HARMED.

We cannot be certain that our systems, procedures and controls will be
adequate to support any expansion of our operations. Any future growth also will
impose significant added responsibilities on members of our senior management,
including the need to identify, recruit and integrate new senior level managers
and executives. There can be no assurance that such additional management will
be identified or retained by us. If our new management team fails to manage and
grow the changing business lines successfully and profitably, or fails to guide
us in our new strategic direction, there would be a material adverse impact on
our business, results of operations and our financial condition.

Factors affecting our ability to grow internally include, but are not
limited to:

* customer acceptance of our products under development;
* the ability to expand our customer base;
* the ability to expand the products offered;
* continued relationships with certain suppliers;
* the ability to recruit and retain qualified sales personnel; and
* continued access to capital.

THE SUCCESS OF OUR BUSINESS DEPENDS ON THE CONTINUING CONTRIBUTION OF OUR
KEY PERSONNEL, WHOSE KNOWLEDGE OF OUR BUSINESS WOULD BE DIFFICULT TO REPLACE IN
THE EVENT WE LOSE THEIR SERVICES.

The further success of our new strategic direction depends largely on the
skills, experience and performance of some key members of our senior management
and technical personnel, and on our ability to attract, train, motivate and
retain personnel who provide the business strategy, technology, marketing and
creative skills required by our clients. We believe that there is a shortage of,
and significant competition for, professionals with the advance technological
skills necessary to perform the services related to e-commerce products and
services. To address this problem, we have transferred employees from other
technical areas to our e-commerce business, and we are engaged in the necessary
training in new technology and new skills sets applicable to e-commerce
technology. Once trained, such individuals will be in higher demand because of
their new skill-sets. Additionally, not all of our current personnel will be
able to acquire the skills necessary to transition to our new business. We
cannot be certain we will be successful in attracting, transitioning or
retaining qualified technical personnel in the future. The loss of one or more
of our key personnel could have a material adverse effect on our business,
results of operations and financial condition.

WE HAVE NEVER PAID DIVIDENDS AND WE DO NOT EXPECT TO PAY ANY DIVIDENDS IN
THE NEAR FUTURE. AN INVESTOR SHOULD NOT RELY ON DIVIDENDS TO BE PAID ON THE
COMMON STOCK AS A SOURCE OF INCOME.

We intend to retain any future earnings in order to finance our planned
operations and to implement our business plan. A potential purchaser of the
common stock should not rely on dividends from the common stock offered hereby
as a possible source of income.

28
<PAGE>
THE MARKET PRICE OF OUR COMMON STOCK FLUCTUATES SUBSTANTIALLY. YOU MAY BE
UNABLE TO SELL YOUR COMMON STOCK QUICKLY AT THE CURRENT MARKET PRICE.

The market price of our common stock has been highly volatile and will
likely fluctuate significantly. Attempts to purchase or sell relatively small
amounts of our common stock could cause the market price of our common stock to
fluctuate significantly. Low trading volume levels may also affect our
stockholders' ability to sell shares of our common stock quickly at the current
market price. In addition, sales of substantial amounts of our common stock, or
the perception that such sales could occur, would adversely affect the
prevailing market prices for our common stock. In addition, OTC Bulletin Board
or Nasdaq equity securities trading under five dollars ($5.00) per share which
fail to meet certain minimum net tangible asset or average revenue criteria are
subject to the requirements of the rules relating to "Penny Stocks" under
Section 15(g) of the Exchange Act, which impose additional disclosure
requirements upon broker-dealers in connection with any trades involving such
stock. Such securities may also become subject to Rule 15g-9 under the Exchange
Act, which imposes certain sales practice requirements upon broker-dealers
involving the suitability of customers to buy the stock. The additional burdens
imposed upon broker-dealers should our common stock become subject to such
requirements could discourage them from effecting transactions in our common
stock and/or affect their ability to effect such transactions. In such event,
the market liquidity of our common stock could be materially adversely affected.

OUR RESULTS MAY BE ADVERSELY AFFECTED BY OUR FUTURE INTERNATIONAL
OPERATIONS.

We anticipate that international business will account for a growing
portion of our revenues in 2001, and that it will continue to be a material
component of our success in the future. While there are very substantial areas
of worldwide commonality in Internet-based technologies and practices, there are
special risks inherent in international markets, including:

* unexpected changes in regulatory requirements;
* difficulties in staffing and managing foreign operations;
* political instability;
* potentially adverse tax consequences;
* potentially adverse business customs, practices and norms;
* differences in accounting practices;
* longer payment cycles;
* problems in collecting accounts receivable;
* fluctuations in currency exchange rates; and
* seasonal reductions in business activity during the summer months in
Europe.

Any of these factors could impact adversely the success for our
international operations.

OUR INTELLECTUAL PROPERTY IS SUBJECT TO MISAPPROPRIATION.

Our ability to compete effectively depends to a significant extent on our
ability to protect our proprietary information. We rely primarily upon
confidentiality procedures, trade secrets and trademark and trade-name laws to
protect our intellectual property rights. We generally enter into
confidentiality agreements with our customers, key employees and marketing
partners, and generally control access to our technology, software and other
proprietary information. Despite these precautions, it may be possible for
competitors or customers to copy all of or part of our technology, or to obtain
information that we regard as proprietary from us. Furthermore, we cannot be
certain that others will not independently develop technology similar to that
which we are developing or planning. Although we intend to defend our
intellectual property, we cannot be certain that the steps we have taken to

29
<PAGE>
protect our proprietary information will be adequate to prevent misappropriation
of our technology or that our competitors will not independently develop
technologies that are substantially equivalent or superior to ours.

WE MAY BE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION, WHICH COULD HARM OUR
BUSINESS.

Our operations may be subject to various state and federal regulations.
Because electronic commerce in general, and our products and services in
particular, are so new, the application of many of these regulations, including
regulations relating to banking, credit card transactions and Internet
transactions, is uncertain and difficult to interpret. The agencies responsible
for the interpretation and enforcement of these regulations could amend those
regulations or issue new interpretations of existing regulations. It is also
possible that new legislation may be passed that imposes additional burdens. Any
such change could lead to increased operating costs and could also reduce the
convenience and functionality of our products or services, possibly resulting in
reduced market acceptance. In addition, it is possible that new laws and
regulations may be enacted with respect to the Internet, covering issues such as
user privacy, pricing, content, characteristics and quality of products and
services. The adoption of any such laws or regulations may decrease the growth
of the Internet, which could in turn decrease the demand for our products or
services and increase our cost of doing business or could otherwise have a
material adverse effect on our business, financial condition or operating
results.

30
<PAGE>
ITEM 7. FINANCIAL STATEMENTS

Our Consolidated Financial Statements are filed as part of this Annual
Report. See Index to Financial Statements on Page F-1.

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

Not Applicable.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a)

The information set forth under the caption "ELECTION OF DIRECTORS" in the
Company's definitive Proxy Statement to be filed for its Annual Meeting of
Stockholders to be held in November, 2000, pursuant to Regulation 14A under the
Securities Exchange Act of 1934 (the "2000 Proxy Statement") is incorporated
herein by reference.

ITEM 10. EXECUTIVE COMPENSATION

The information set forth under the caption "EXECUTIVE COMPENSATION" in the
2000 Proxy Statement is incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the caption "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" in the 2000 Proxy Statement is incorporated
herein by reference.

ITEM 12. CERTAIN TRANSACTIONS

The information set forth under the caption "CERTAIN TRANSACTIONS" in the
2000 Proxy Statement is incorporated herein by reference.

31
<PAGE>
PART IV

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K

(a) The following documents are filed as a part of this report:

(1) Financial Statements

Consolidated Balance Sheets as of May 31, 2000.

Consolidated Statements of Operations for year ended May 31, 2000
and May 31, 1999.

Consolidated Statements of Stockholders' Deficit for the year
ended May 31, 2000 and May 31, 1999.

Consolidated Statements of Cash Flows for the year ended May 31,
2000 and May 31, 1999.

Notes to Consolidated Financial Statements

Report of Independent Public Accountants

Statement of Management's Responsibility

(2) Financial Statement Schedules

No financial statement schedules are included since this is not
applicable, not required, or is included in financial statements
or notes thereto.

(3) The list of Exhibits which are filed with this report or which
incorporated by reference herein is set forth in the Exhibit
Index, which appears following the Consolidated Financial
Statements, which Exhibit Index is incorporated herein by
reference.

(b) On March 22, 2000, we filed a Current Report on Form 8-K, disclosing
our settlement of all litigation with the holders of our 6%
convertible debentures, due in 2003, and terms of that settlement.

32
<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form 10-KSB and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Tempe,
State of Arizona, on August 28, 2000.

CONSYGEN, INC.

By: /s/ A. Lewis Burridge
------------------------------------
A. Lewis Burridge, President and
Chief Executive Officer

33
<PAGE>
EXHIBITS

Annual Report on Form 10-KSB
Item 8, Item 14(a)

-----------------------------

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

------------------------------

YEAR ENDED MAY 31, 2000

ConSyGen, Inc.

TEMPE, ARIZONA

Page Number
-----------

Report of Independent Accountants F-2

Consolidated Balance Sheets as of May 31, 2000. F-3

Consolidated Statements of Operations
for year ended May 31, 2000 and May 31, 1999. F-4

Consolidated Statements of Stockholders' Deficit
for the year ended May 31, 2000 and May 31, 1999. F-5

Consolidated Statements of Cash Flows for
the year ended May 31, 2000 and May 31, 1999. F-6

Notes to Consolidated Financial Statements F-8

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders
ConSyGen, Inc.

We have audited the accompanying consolidated balance sheet of ConSyGen, Inc.
and its subsidiary as of May 31, 2000 and the related consolidated statements of
operations, changes in stockholders' equity (deficit), and cash flows for each
of the two years in the period ended May 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ConSyGen, Inc. and
its subsidiary as of May 31, 2000, and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
May 31, 2000, in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring material losses from
operations, has not generated significant revenue from its new product lines and
has material current debt. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in this
regard are described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/ KING, WEBER & ASSOCIATES, P.C.

Phoenix, Arizona
August 15, 2000

F-2
<PAGE>
CONSYGEN, INC.

CONSOLIDATED BALANCE SHEET

May 31,
2000
ASSETS ------------
Current Assets:
Cash and Cash Equivalents $ 3,605
Accounts Receivable 49,462
Inventory 412,338
Prepaid Expenses 24,855
Other Current Assets 13,043
------------
Total Current Assets 503,303
------------
Property and Equipment - Net 1,230,928
------------
Other Assets:
Net Debt Issuance Costs 212,676
Other Assets 41,306
------------
Total Other Assets 253,982
------------
Total Assets $ 1,988,213
============

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
Accounts Payable $ 335,477
Notes Payable 413,369
Accrued Payroll and Related Liabilities 346,825
Other accrued liabilities 929,408
Capital Lease - Current Portion 21,740
Mortgage - Current Portion 754,665
------------
Total Current Liabilities 2,801,484

Convertible Debentures 1,838,000
Capital lease - Long Term Portion 48,828
Mortgage - Long Term Portion 521,508
------------
Total Liabilities 5,209,820
------------
Commitments & Contingencies

Stockholders' Deficit :
Common Stock, $.003 par Value, Authorized
40,000,000 Shares, Issued 24,003,361 72,010
Additional Paid-in Capital 31,171,438
Accumulated Deficit (34,065,055)
Treasury Stock, at cost (70,000 shares) (400,000)
------------
Total Stockholders' Deficit (3,221,607)
------------
Total Liabilities and Stockholders' Deficit $ 1,988,213
============

The accompanying notes are an integral part of the financial statements.

F-3
<PAGE>
CONSYGEN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For The Year Ended May 31,
----------------------------------
2000 1999
------------ ------------

Revenues $ 146,424 $ 33,380
------------ ------------
Costs and Expenses:
Cost of Sales 45,228 4,526
Software Research and Development 360,000 622,134
Selling, General and Administrative
Expenses 6,262,267 3,955,674
Interest Expense 663,445 227,046
Depreciation and Amortization 166,626 203,863
------------ ------------
Total Costs and Expenses 7,497,566 5,013,243
------------ ------------
Loss from Operations (7,351,142) (4,979,863)

Interest Income 22,474 131,131
------------ ------------

Loss from Continuing Operations $ (7,328,668) (4,848,732)

Loss from Discontinued Operation (14,154) (97,073)
------------ ------------

Net Loss $ (7,342,822) $ (4,945,805)
============ ============
Loss Per Common Share:
Weighted Average Common Shares
Outstanding 17,461,779 15,363,146
============ ============
Basic:
Continuing Operations $ (0.42) $ (0.32)
Discontinued Operations * *
------------ ------------
(0.42) (0.32)
============ ============
Diluted:
Continuing Operations $ (0.42) $ (0.32)
Discontinued Operations * *
------------ ------------
(0.42) (0.32)
============ ============

* - Less than $0.01

The accompanying notes are an integral part of the financial statements.

F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED MAY 31, 2000 AND 1999

<TABLE>
<CAPTION>
Common Stock Additional Total
--------------------- Paid-In Accumulated Treasury Stockholders'
Shares Amount Capital Deficit Stock Equity (Deficit)
---------- ------- ------------ ------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance - June 1, 1998 15,407,653 $46,223 $ 25,134,310 $(21,776,428) $(400,000) $ 3,004,105

Issuance of Common Stock -
Stock Options Exercised 67,448 202 89,728 -- -- 89,930

Net Loss -- -- -- (4,945,805) -- (4,945,805)
---------- ------- ------------ ------------ --------- -----------
Balance - May 31, 1999 15,475,101 $46,425 $ 25,224,038 $(26,722,233) $(400,000) $(1,851,770)

Issuance of Common Stock -
Stock Options Exercised 836,363 2,509 610,247 -- -- 612,756

Issued for Cash 4,438,000 13,314 941,186 -- -- 954,500

Conversion of Debentures 1,871,897 5,616 2,002,717 -- -- 2,008,333

Issued to consultants as
consideration for services 1,382,000 4,146 1,228,902 -- -- 1,233,048

Employee compensation for
stock options granted -- -- 1,164,348 -- -- 1,164,348

Net Loss -- -- -- (7,342,822) -- (7,342,822)
---------- ------- ------------ ------------ --------- -----------
Balance - May 31, 2000 24,003,361 $72,010 $ 31,171,438 $(34,065,055) $(400,000) $(3,221,607)
========== ======= ============ ============ ========= ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-5
<PAGE>
CONSYGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For The Year Ended May 31,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $(7,342,822) $(4,945,805)
Adjustments to Reconcile Net Loss to
Net Cash (Used) by Operating Activities:
Depreciation 182,875 140,962
Stock Issued for Consultants for Services 1,233,048 --
Loss from discontinued operation 14,154 97,073
Value of employee stock options recognized
as compensation expense 1,164,348 --
Write-off of investment in technology 230,000 --
Loss on disposal of property and equipment 6,032 --
Amortization of Debt Issuance Costs 64,400 62,901
Changes in Operating Assets and Liabilities:
Accounts Receivable (49,462) 54,467
Inventory (251,018) (161,320)
Prepaid Expenses and Other Assets (30,081) (22,436)
Accounts Payable 285,151 (62,614)
Accrued Payroll and other Liabilities 984,980 428,716
----------- -----------
Net Cash Provided/(Used) by Continuing Operations (3,508,395) (4,408,056)
Net Cash Provided/(Used) by Discontinued Operations (5,720) 157,001
----------- -----------
Net Cash Provided/(Used) by Operating Activities (3,514,115) (4,251,055)
----------- -----------
Cash Flows from Investing Activities:
Redemption/(purchase) of certificate of deposit as
collateral on letter of credit 467,208 (467,208)
Investment in technology (230,000) --
Proceeds from sale of property and equipment 2,975 --
Purchases of property and equipment (95,561) (240,638)
----------- -----------
Net Cash Provided/(Used) by Investing Activities 144,622 (707,846)
----------- -----------
Cash Flows from Financing Activities:
Payments on Capital Lease Obligations (14,008) 620,640
Proceeds from Sale of Common Stock 954,500 --
Proceeds from Debt Collateralized by Building 740,000 --
Payments on Mortgage Payable (12,827) --
Payments on Notes Payable (72,987) (3,795)
Proceeds of Loans payable -- Related Parties 458,256 --
Payments of Loans payable -- Related Parties (31,900) --
Payments of Debt Financings -- --
Proceeds of Stock Options Exercised 612,756 89,930
----------- -----------
Net Cash Provided/(Used) by Financing Activities 2,633,790 706,775
----------- -----------
Net Increase/(Decrease) in Cash and Cash Equivalents (735,703) (4,252,126)

Cash and Cash Equivalents -- Beginning of Period 739,308 4,991,434
----------- -----------
Cash and Cash Equivalents -- End of Period $ 3,605 739,308
=========== ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-6
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)

For The Year Ended May 31,
----------------------------
2000 1999
----------- -----------
Supplemental Cash Flow Information:

Cash Paid for Interest $ 165,458 $ 6,988
=========== ===========
Cash Paid for Income Taxes $ -- $ --
=========== ===========
Supplemental Disclosure of Non-Cash
Financing Activities:

Conversion of Debt $ 1,662,000 $ --
=========== ===========
Issuance of Common Stock as payment of
accrued interest on Convertible Debentures $ 168,351 $ --
=========== ===========

The accompanying notes are an integral part of the financial statements.

F-7
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000

NOTE 1 - OPERATIONS AND BASIS OF PRESENTATION

HISTORY OF CONSYGEN, INC.

ConSyGen, Inc., a Texas Corporation ("ConSyGen-Texas'), was incorporated on
September 28, 1988 as C Square Ventures, Inc. ConSyGen-Texas was formed for
obtaining capital in order to take advantage of domestic and foreign business
opportunities, which might have profit potential. On March 16, 1989,
ConSyGen-Texas (then C Square Ventures, Inc.) completed an initial public
offering.

On September 5, 1996, ConSyGen-Texas acquired 100% of the issued and
outstanding shares of ConSyGen, Inc., a privately held Arizona corporation
formed on October 11, 1979 ("ConSyGen-Arizona") ("the acquisition"). On June 25,
1996, International Data Systems, Inc. changed its name to ConSyGen, Inc. In
connection with the acquisition, ConSyGen-Texas issued an aggregate of 9,275,000
shares of its common stock directly to the stockholders of ConSyGen-Arizona in
exchange for all of the issued and outstanding shares of ConSyGen-Arizona (see
Notes 11 and 12). As a result of the acquisition, ConSyGen-Arizona became a
wholly-owned subsidiary of ConSyGen-Texas. The transaction has been treated as a
reverse acquisition (purchase) with ConSyGen-Arizona being the acquirer and
ConSyGen-Texas being the acquired company. Subsequent to the acquisition,
ConSyGen-Texas changed its name to ConSyGen, Inc. ConSyGen-Texas and its
wholly-owned subsidiary ConSyGen-Arizona are hereafter collectively referred to
as the "Company".

DESCRIPTION OF BUSINESS

The Company had previously concentrated its efforts rendering automated
software conversion services, including "year 2000" remediation services. As the
market for those services began to diminish, the Company began research and
development of other software product. The Company also introduced a counterfeit
detection device called the Counterfeit COP. As of May 31, 2000, the Company has
not generated significant revenue from new software products. Revenue from
continuing operations for the year ended May 31, 2000 represents sales of the
Counterfeit COP product. The Company sells the Counterfeit Cop product to
distributors with national distribution channels.

BASIS OF PRESENTATION

The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has suffered material
recurring losses from operations and has had difficulty meeting its short-term
obligations. These factors raise substantial doubt about the Company's ability
to continue as a going concern. Continuation of the Company is dependent on (1)
achieving sufficiently profitable operations and (2) obtaining adequate
financing. The Company has made significant strides towards profitability, and
has three master distributor contracts in place for the Counterfeit Cop.
However, the Company has incurred a cash deficiency of approximately $3,500,000
from operations during the year ended May 31, 2000, and there can be no
assurance that the contracts already in place will support the Company through a
full year of operations. Management is attempting to raise additional capital
from various sources and is positioning the Company to move into other product
lines and technologies. However, there can be no assurances that the Company
will be successful in accomplishing these objectives. The financial statements
do not include any adjustments relating to the recoverability and classification
of assets and liabilities that might be necessary should the Company be unable
to continue as a going concern.

F-8
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of
ConSyGen-Texas and its wholly-owned subsidiary, ConSyGen-Arizona. Significant
intercompany accounts and transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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 these estimates.

RECLASSIFICATIONS

Certain items in prior year financial statements have been reclassified to
conform to the current period presentation.

REVENUE RECOGNITION

Revenues from fixed-price contracts are principally recognized on
achievement of specified performance milestones negotiated with customers. This
method, which recognizes revenues on substantially the same basis as the
percentage-of-completion method, is used because management considers milestones
to be the best available measure of progress on these contracts. Provision for
estimated losses on uncompleted contracts is made in the period in which such
losses are determinable.

Revenue for "Counterfeit Cop" product sales is recognized upon product
shipment to customers and resellers.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents. The
carrying amount of all cash and cash equivalents approximates fair value because
of the short-term maturity of these instruments.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the related assets, which ranges from three to ten
years except real property which is depreciated over 40 years.

DEBT ISSUANCE COSTS

Costs associated with the Company's debt financing transactions have been
capitalized. Such costs are being amortized over the terms of the related
agreements. At May 31, 2000, debt issuance costs are amortized over a 5 to 15
year period.

F-9
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000

RESEARCH AND DEVELOPMENT

Research and development expenditures, including the cost of software
development, are expensed as incurred.

INVENTORIES

Inventories consist of units of the Company's "Counterfeit Cop" and work in
process on certain unbilled and unearned service contracts. Counterfeit Cop
inventory is recorded at the lower of cost or market on a FIFO (first-in,
first-out) basis.

STOCK-BASED COMPENSATION

Statements of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, ("SFAS 123") established accounting and disclosure requirements
using a fair-value based method of accounting for stock-based employee
compensation. In accordance with SFAS 123, the Company has elected to continue
accounting for stock based compensation using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." The pro forma effect of the fair value method is discussed
in Note 10.

FINANCIAL INSTRUMENTS

Financial instruments consist primarily of cash, accounts receivable, and
obligations under accounts payable, accrued expenses, debentures, notes payable,
mortgage debt and capital lease instruments. The carrying amounts of cash,
accounts receivable, accounts payable and accrued expenses approximate fair
value because of the short maturity of those instruments. The carrying value of
the Company's capital lease arrangements approximates fair value because the
instruments were valued at the retail cost of the equipment at the time the
Company entered into the arrangements. Because the mortgage debt was recently
incurred, the estimated fair value of the mortgage debt approximates the
outstanding principal balance at May 31, 2000. The fair value of the related
party notes payable cannot be estimated because of the affiliated nature of the
agreements. The fair value of the convertible debentures could not be estimated
because of the convertible features of the debentures and the matters discussed
in Note 6.

INCOME TAXES

The Company accounts for income taxes under SFAS No. 109, ACCOUNTING FOR
INCOME TAXES. In accordance with SFAS No. 109, deferred tax assets and
liabilities are established for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled.

F-10
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000

LOSS PER SHARE

Net loss per share is calculated using the weighted average number of
shares of common stock outstanding during the year. In 1998, the Company adopted
SFAS No. 128 EARNINGS PER SHARE the effect of such was not material.

Convertible debt (Note 6) and outstanding options (Note 10) were not
considered in the calculation for diluted loss per share for the years ended May
31, 2000 and 1999 because the effect of their inclusion would be anti-dilutive.
The following presents the computation of basic and diluted loss per share from
continuing operations:

<TABLE>
<CAPTION>
Per Per
(Loss) Shares share (Loss) Shares share
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net (Loss) $(7,342,822) $(4,945,805)
Preferred stock dividends --
Discontinued operations 14,154 97,073
----------- -----------
Loss from continuing operations (7,328,668) (4,848,732)

BASIC LOSS PER SHARE

Loss available to common stockholders $(7,328,668) 17,461,779 $(0.42) $(4,848,732) 15,363,146 $(0.32)
----------- ---------- ------ ----------- ---------- ------
Effect of dilutive securities N/A N/A

DILUTED LOSS PER SHARE $(7,328,668) 17,461,779 $(0.42) $(4,848,732) 15,363,146 $(0.32)
----------- ---------- ------ ----------- ---------- ------
</TABLE>

Debentures convertible to 1,584,673 shares of common stock and options and
warrants to purchase 5,382,102 shares of common stock were outstanding at May
31, 2000. Debentures convertible to 3,051,929 shares of common stock and options
and warrants to purchase 2,109,260 shares of common stock were outstanding at
May 31, 1999. These securities were excluded from the computation of diluted
earnings per share because the effect of their inclusion would be anti-dilutive.

ADVERTISING EXPENSES

The Company expenses its advertising expenses as incurred. Advertising
expense totaled $29,609 and $301,970 for the years end May 31, 2000 and 1999
respectively. Advertising expense is included in selling general and
administration expenses in the accompanying statements of operations.

F-11
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

2000
----------
Land $ 152,792
Building and improvements 743,511
Computers 668,560
Furniture and fixtures 141,711
Automobile 20,171
----------
1,726,745
----------
Less: Accumulated depreciation 495,817
----------
$1,230,928
==========

Total property and equipment includes $69,699 under capital leases at May
31, 2000. Related accumulated amortization on these leases was $16,131.

NOTE 4 - NOTES PAYABLE

Notes payable consist of the following:

May 31, 2000

Note payable, bearing interest at 10% per
Annum, no stated maturity and unsecured. $ 30,000

Note payable, non-interest bearing, payable
on demand, and unsecured. As additional
consideration to the lender for making the
loan, the Company issued 25,000 shares of
its common stock to the lender. 25,000

Note payable, non-interest bearing,
payable on demand and unsecured. 5,000

Notes payable to officers and directors,
non-interest bearing, payable on demand,
and unsecured. 278,369

Note payable, due January 1, 2000 interest
at 24% per annum, collateralized by a personal
guarantee by a director. 75,000
----------
Total notes payable $ 413,369
==========

F-12
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000

NOTE 5 - MORTGAGE

On April 6, 1999, the Company obtained a mortgage on its building for
$550,000. The loan bears interest at 13% and is payable over a 15-year period in
monthly principal and interest payment of $6,959.

In the year ended May 31, 2000, the Company borrowed additional amounts from
outside parties using the building and related land as collateral on such
borrowings. During the year ended May 31, 2000, the Company borrowed $740,000
and provided second mortgages on such amounts. The notes bear interest ranging
from 18% to 24% per annum. These notes also were issued at discounts totaling
$158,776. Due to the short term nature of the debt, the discounts have been
amortized as interest expense in the accompanying statement of operations for
the year ended May 31, 2000.

The following represents future principal payments for mortgages and other debt
for the years ending May 31:

Convertible
Mortgage Notes Payable Debentures Total
----------- ---------- ----------- -----------
2001 $ 754,665 $ 413,369 $ -- $ 1,168,034
2002 16,689 16,689
2003 18,993 1,838,000 1,856,993
2004 21,614 21,614
2005 24,598 24,598
thereafter 439,614 -- -- 439,614
----------- ---------- ----------- -----------
Total 1,276,173 413,369 1,838,000 3,527,542
Less current portion 754,665 413,639 -- 1,168,034
----------- ---------- ----------- -----------
Long-term portion $ 521,508 $ -- $ 1,838,000 $ 2,359,508
=========== ========== =========== ===========

NOTE 6 - CONVERTIBLE DEBENTURES

On May 29, 1998, the Company completed a private placement of $3,500,000 in
principal amount of convertible debentures. The debentures bear interest at 6%
per annum and have a maturity date of May 29, 2003. The debentures include
warrants to purchase 105,000 shares of the Company's common stock ("Warrant
Shares"). The aggregate net proceeds to the Company after payment of finders'
fees and expenses was approximately $3,200,000. Included in the finders' fees
paid in connection with the placement of the convertible debentures, the Company
issued warrants to purchase 10,000 shares of its common stock.

The Company entered into a dispute with the four debenture holders in
September 1998. The holders submitted requests for conversion of the debentures
and the Company would not honor that request. The dispute had led to claims and
counter claims filed by both parties in Canadian and U.S. courts. On April 11,
2000, the Company entered into a settlement agreement with the debenture holders
settling all claims by all parties. The Company agreed to honor the terms of the
debentures and to pay damages to the debenture holders of $350,000. The damages
may be paid in shares of the Company's common stock. During the year ended May
31, 2000, principal amounts of the debentures totaling $1,662,000 were converted
to 1,548,678 shares of the Company's common stock. Additionally, the Company
issued 323,219 shares of its common stock as payment of accrued interest and
damages.

F-13
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000

The debentures are convertible into the Company's common stock at a rate
equal to the lesser of $4.88 per share or 80% of the average closing bid price
of the common stock for the five day period immediately preceding the applicable
conversion date. The warrants are exercisable at a rate of $4.88 per share and
may be exercised as to one third of the Warrant Shares at any time after May 29,
1998, as to another one third, after November 29, 1998, as to the remaining one
third after May 29, 1999. The warrants expire on May 29, 2003.

The debentures may be converted at any time after 120 days from issue by
the holder through the maturity date. Mandatory conversion is effected on the
maturity date if the debentures have not yet been converted as of that date. The
debentures contain certain restrictions on future borrowings, allow for interest
to be paid in additional shares of the Company's common stock. The debentures
limit the number the shares issuable under conversion and exercise of warrants
to 3,051,929.

The debt was recorded at the face amount of the debentures. The initial
conversion rate of the debentures and the exercise price of the warrants were at
rates equal to or greater than the quoted market price of the Company's common
stock at the date of issuance. Management believes that there was no value to
ascribe to the warrants at the time of issuance.

The debentures are to be repaid by conversion into common stock except in
the event of default, in which case, repayment is to be made in cash. The
Company has incurred several events of default as defined by the debenture. The
technical defaults relate to the failure to make interest payments and failure
to honor the holders' request to convert the debentures. Accordingly, as stated
in the debenture agreement, the debt is classified as current.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company leases certain computer equipment under a non-cancelable
operating lease, which expires in 2002. Rental expense under this operating
lease was $4,240 for the year ended May 31, 2000. Future minimum rental
commitments are as follows for the years ended May 31:

2001 $ 25,437
2002 21,198
--------
Total $ 46,635
========

CAPITAL LEASES

The Company leased certain software, computer and other equipment under
capital leases. Future minimum lease payments are as follows for the years ended
May 31:

2001 $ 32,355
2002 $ 26,481
2003 $ 19,215
2004 $ 12,717
--------
Total $ 90,768
Less amount representing interest 20,200
--------
Present value of minimum lease payments 70,568
Less current portion 21,740
--------
Long-term portion $ 48,828
========

F-14
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000

PURCHASE COMMITMENT

The Company has committed to pay certain creditors what are effectively
royalties on the basis of sales of the Counterfeit Cop. On one such agreement,
the Company has committed to a minimum payment of $75,000 regardless of the
sales of the product. The $75,000 is accrued at May 31, 2000.

LEGAL PROCEEDINGS

On August 10, 1999, Thomas S. Dreaper, former President and CEO of
ConSyGen, Inc. served an action which was filed in the United States District
Court for the District of Nevada against the Company and A. Lewis Burridge, its
President and CEO to receive indemnification in regards to lawsuit filed by
ConSyGen $3.5 million debenture holders, reimbursement of expenses he has
incurred, for damages for breach of the indemnification contract in an amount in
excess of $75,000 and exemplary and punitive damages in an amount in excess of
$1,000,000. The claims against the Company by the debenture holders have been
settled. However, the plaintiff continued to make claims against the Company
including the $75,000 discussed above and a claim for 1,000,000 options to
purchase the Company's common stock at $1 per share. The Company intends to
vigorously defend its positions. The case is likely to be scheduled for trial in
2001 but the outcome of this litigation cannot yet be estimated.

The Company entered into a dispute with a customer whereby the customer has
claimed breach of contract for various reasons for services performed by the
Company. The customer has made claims of $1,060,600. The Company agreed to
settle the case by dropping its claim for the $97,400 balance in accounts
receivable due from this customer. The customer made a counter offer to settle
for the balance of the accounts receivable balance plus $100,000. The court has
requested that the parties enter arbitration to settle the matter. The Company
intends to vigorously defend its positions. The outcome of this litigation
cannot yet be estimated.

CONCENTRATION OF CREDIT RISK

The Company's cash, cash equivalents and accounts receivable are subject to
potential credit risk. The Company's cash management and investment policies
restrict investments to highly-liquid investments. The Company's net accounts
receivable includes estimates for uncollectable balances. At May 31, 2000, the
Company has provided an allowance of $97,400 for a single customer.
Approximately 58% of the net accounts receivable balance at May 31, 2000, is
comprised by a balance due from one customer.

NOTE 8 - INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

A deferred tax liability of $20,450 existed at May 31, 2000, relating to
book and tax differences in the bases of property and equipment.

F-15
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000

A deferred tax asset at May 31, 2000 totaling $11,185,000 was primarily
offset by a valuation allowance of $11,165,000 and the deferred tax liability.
The valuation allowance was provided due to the uncertainty of future
realization of federal and state net operating loss carryforwards that give rise
to approximately $10,630,000 of the deferred tax asset. The balance of the
deferred tax asset relates to differences in book and tax accounting relative to
the compensated absences, deferred compensation to employees related to stock
options totaling $499,496 and allowances on accounts receivable of $55,520. The
Company has federal and state net operating loss carryforwards of $27,024,000 at
May 31, 2000. The federal loss carryforwards expire in 2010 through 2019 and
state loss carryforwards expire 2000 through 2004.

Income taxes for years ended May 31:

2000 1999
----------- -----------
Current Benefit $ 3,051,000 2,091,000
Deferred Benefit (Provision) (3,051,000) (2,091,000)
----------- -----------
Net income tax provision $ -0- -0-
=========== ===========

The income tax benefit of $3,051,000 and $2,091,000 generated for the years
ended May 31, 2000 and 1999 respectively were offset by increases in the
valuation allowance of $3,051,000 and $2,078,000 respectively. The valuation
allowance was increased due to uncertainties as to the Company's ability to
generate sufficient taxable income to utilize the net operating loss
carryforwards.

A reconciliation for the differences between the effective and statutory
income tax rates is as follows:

2000 1999
------------------ ------------------
Federal statutory rates $(2,484,181) (34)% $(1,682,604) (34)%
State income taxes (584,413) (8)% (395,907) (8)%
Valuation allowance for operating
loss carryforwards 3,051,216 42% 2,078,818 42%
Other 17,348 --% (307) --%
----------- ---- ----------- ----
Effective rate $ -0- -0-% $ -0- -0-%
=========== ==== =========== ====

NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIT)

TREASURY STOCK

In March 1998, the Company purchased 70,000 shares of its common stock for
$400,000 in cash from a former consultant.

COMMON STOCK

During the year ended May 31, 2000, the Company issued shares of its common
stock to certain consultants as consideration for services rendered by those
consultants. A total of 1,382,000 shares were issued in these transactions. The
transactions were valued at the trading price of the Company's common stock at
the date on which the transactions were committed. The value of $1,233,048
represents the trading value net of a 10% discount applied for trading
restrictions on the stock issued.

F-16
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000

WARRANTS

The Company has issued warrants to purchase common stock. At May 31, 2000,
there were 115,000 warrants issued in connection with the issuance of the
convertible debentures. These warrants have an exercise price of $5.00 and
expire in 2003.

As part of a private offering in May and June, 2000, the Company issued
4,498,000 units, consisting of one share of common stock and an entitlement of
one warrant for one share of our common stock at $1.50 per share, with the
underlying shares and warrants to be included in a planned registration filing.
The Company may redeem the warrants within a 30-month period from their
effective date. Redemption may occur when the closing price of the Company's
common stock exceeds $2.75 for five consecutive days in a 90-day period prior to
our notice to the warrant-holder; the warrant-holder then has 30 days to
exercise their warrant.

NOTE 10 - STOCK OPTIONS

The Company grants stock options from time to time to executives and key
employees. The options are available for grant under several option plans. The
plans generally cover key employees and other "Non-Employee Participants" and
grants typically vest over five years and expire ten years from the date of
grant. The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," and continues to account for stock based compensation using the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Accordingly, no compensation cost
has been recognized for the stock options granted with no intrinsic value at the
date of grant. However, during the year ended May 31, 2000, the Company granted
870,000 options to certain employees that had exercise prices less than the
trading value of the underlying common stock at the date of grant. The resulting
compensation expense for the vested portion of those grants, for the year ended
May 31, 2000, was $727,455. Had compensation cost for the Company's stock
options been determined based on the fair value at the grant date for awards in
2000 and 1999, consistent with the provisions of SFAS No. 123, the Company's net
loss and loss per share would have been increased to the pro forma amounts
indicated below:

2000 1999
------------ ------------
Net Loss - as reported $ (7,342,822) $ (4,945,835)
Net Loss - pro forma $ (8,074,485) $ (5,857,984)
Basic Loss per share - as reported $ (0.42) $ (0.32)
Basic Loss per share - pro forma $ (0.46) $ (0.38)

Diluted loss per share on a pro forma basis is not presented because the
effect of such would be anti-dilutive.

During the year ended May 31, 2000, the Company repriced options
outstanding to certain employees. There were 1,555,000 options, granted in
previous years that were repriced in the year ended May 31, 2000. The original
exercise price on the repriced options varied from $1.75 to $5.50. The repriced
options all were repriced to $0.50 per share. In accordance with Interpretation
of APB Opinion No. 25, Accounting for Transactions Involving Stock Compensation,
issued by the Financial Accounting Standards Board, these repriced options
constitute variable awards and require the Company to recognize compensation
expense on the basis of the difference between the $0.50 exercise price and the
trading price of the Company's stock to the extent the trading price exceeds the
exercise price of $0.50 at the balance sheet date. As a result of the re-pricing
of these options, the Company has recognized $436,000 in compensation expense
for the year ended May 31, 2000.

F-17
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000

Under the provisions of SFAS No. 123, the number of options used to
determine net earnings and earnings per share under a pro forma basis were;
proportionately vested options granted of 2,392,000 for the year ended May 31,
2000 and 715,000 proportionately vested options for the year ended May 31, 1998.

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions for years
ended May 31:

2000 1999
------- -------
Dividend yield None None
Volatility 2.472 2.806
Risk free interest rate 6.00% 5.75%
Expected asset life 5 years 5 years

The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options, which have no vesting or transferability
restrictions. These matters were taken into consideration when estimating the
fair value of the Company's options. However, the Company's options have
characteristics significantly different than traded options.

Under the various option plans, the total number of shares of common stock
that may be granted is 10,500,000. At May 31, 2000, 7,311,158 have been granted
under those plans.

The summary of activity for the Company's stock options is presented
below:

<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Exercise Exercise
2000 Price 1999 Price
----------- ----- ----------- -----
<S> <C> <C> <C> <C>
Options outstanding at beginning of year 5,045,354 $1.75 5,020,803 $2.09
Granted 2,625,421 $0.60 2,445,000 $1.53
Exercised (838,312) $0.70 (67,448) $1.32
Terminated/Expired (1,565,361) $1.66 (2,353,001) $2.10
Options outstanding at end of year 5,267,102 $1.05 5,045,354 $1.75
Options exercisable at end of year 4,071,786 $1.38 1,994,260 $2.26
Options available for grant at end of year 3,188,420 813,841

Price per share of options Outstanding $0.50-$4.75 $0.82-$4.75

Weighted average remaining contractual lives 7.9 years 7.2 years

Weighted average fair value of options granted
during the year $ 0.56 $ 0.42
</TABLE>

F-18
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000

NOTE 11 - DISCONTINUED OPERATIONS

The Company has not continued to market its Consygen 2000 Conversion
Services. The Company has not historically met its goals for revenue in its
conversion services business. The Company has had numerous contracts for its
conversion services and believes it has successfully completed those contracts.
However, the volume of such services has not met management's expectations nor
has that volume resulted in profitable operations. Therefore the Company
determined that it would abandon its efforts to develop and market the year 2000
conversion services business. The operations for this segment are reflected as
discontinued operations in the accompanying statement of operations. Revenues of
this segment were $214,385 and $708,754 for the years ended May 31, 2000 and
1999 respectively. The Company had no material asset balances directly related
to this business segment other than accounts receivable.

NOTE 12 - PURCHASED SOFTWARE

On June 16, 1999, the Company entered into an agreement with a third party to
acquire certain software. The software was represented to have unique
capabilities related to data base retrieval. The Company acquired the software
in connection with its attempts to move into other product lines including
internet commerce. The original purchase price for the software was $600,000.
The Company had estimated at the time of purchase that an additional $275,000
would be required to complete development of the software. The Company paid
$180,000 cash at the date of purchase but failed to make the $420,000 payment
due on July 30, 1999. The Company received a 30 day extension of the July 30,
1999 due date by making a payment of $50,000 against the balance due. The
Company later made a determination that the software would require significant
additional development and believed that the capabilities of the software were
misrepresented by the seller. The Company failed to make the final payment of
$370,000 and has written off the software cost of $230,000.

NOTE 13 - SUBSEQUENT EVENTS

Subsequent to May 31, 2000, the Company granted 125,000 options to purchase
the Company's common stock. The options are exercisable at the closing price of
the Company's common stock on the date of grant.

As part of a private offering in May and June, 2000, the Company issued
4,498,000 units, consisting of one share of common stock and an entitlement of
one warrant for one share of our common stock at $1.50 per share, with the
underlying shares and warrants to be included in a planned registration filing.
We may redeem the warrants within a 30-month period from their effective date.
Redemption may occur when the closing price of our common stock exceeds $2.75
for five consecutive days in a 90-day period prior to our notice to the
warrant-holder; the warrant-holder then has 30 days to exercise their warrant.

NOTE 14 - RELATED PARTY TRANSACTIONS

During the year ended May 31, 2000, the Company borrowed $226,000 from one
of its shareholders and member of the board of directors. The debt is unsecured
and non-interest-bearing.

F-19
<PAGE>
EXHIBIT INDEX

2 Plan of Acquisition between the Registrant and the stockholders of
ConSyGen, Inc., an Arizona corporation, dated August 28, 1996, filed
as Exhibit 2 to the Registrant's Current Report on Form 8-K dated
September 5, 1996 and incorporated herein by reference.

3.1 Articles of Incorporation of the Registrant, as amended. (1)

3.2 Amended and Restated By-Laws of the Registrant. (4)

4.1 Specimen common stock certificate, filed as Exhibit 4.B to the
Registrant's Registration Statement on Form S-18, File No. 33-22900 -
FW, and incorporated herein by reference.

4.2 Form of Common Stock Purchase Warrant used in connection with issuance
of warrants to purchase an aggregate of 1,000,000 shares of the
Registrant's Common Stock, $.003 par value. (2)

4.3 Subscription Agreement used in connection with the Rule 506 sale of
Convertible Debentures in the aggregate principal amount of $3,500,000
(including form of Convertible Debenture, form of Warrant, and form of
Registration Rights Agreement, attached as Exhibits A, B and D,
respectively, to the Subscription Agreement). *

4.4 Form of Common Stock Purchase Warrant to purchase an aggregate of
10,000 shares issued in partial payment of finders' fees in connection
with sale of Convertible Debentures in aggregate principal amount of
$3,500,000. *

4.5 Form of Subscription Agreement used in connection with Rule 506 sale
of 120,000 shares for gross proceeds of $1,080,000. (1)

4.6 Form of Subscription Agreement used in connection with Rule 506 sale
of 152,000 shares for gross proceeds of $882,500. (1)

4.7 Form of Common Stock Purchase Warrant to purchase 200,000 shares
issued to consultant, Howard R, Baer, on August 1, 1997. (1)

4.8 Form of Common Stock Purchase Warrant to purchase 100,000 shares
issued to Howard R, Baer's designee, Kevin C. Baer, on August 1, 1997.
(1)

4.9 Subscription Agreement used in connection with Rule 506 sale of
900,000 shares for gross proceeds of $5,276,250. (3)

4.10 Form of Subscription Agreement used in connection with issuance of
30,747 shares in payment of indebtedness in the aggregate amount of
$250,575. (3)

4.11 Common Stock Purchase Warrant to purchase 100,000 shares issued to a
consultant's designee, Irvington International Limited, as of November
10, 1997. (3)

4.12 Agreement dated as of July 17, 1998 between the Registrant and Tom S.
Dreaper relating to employment and grant of options to purchase
1,000,000 shares of common stock of the Registrant. *

10.7 Registrant's 1996 Non-Qualified Stock Option Plan. (2)

10.8 Registrant's Amended and Restated 1997 Non-Qualified Stock Option
Plan. (3)

10.9 Consulting Agreement between the Registrant and M.H. Meyerson & Co.,
Inc. dated August 19, 1996. (5)
<PAGE>
10.10 Form of Indemnification Contract between the Registrant and each
executive officer and director of the Registrant. (3)

10.11 Agreement between the Registrant and Carriage House Capital, Inc.,
effective as of September 1, 1997, terminating all existing agreements
between the Registrant and Carriage House Capital, Inc., and its
affiliates. (3)

10.12 Settlement Term Sheet between the Registrant and the Debenture Parties
dated March 8, 2000, filed as Exhibit 10.12 to the Registrant's
Current Report on Form 8-K dated March 22, 2000 and incorporated
herein by reference.

10.13 Settlement Agreement and Conditional Release between the Registrant
and the Debenture Parties dated April 20, 2000. *

21 List of Subsidiaries of the Registrant, filed as Exhibit 21 to the
Registrant's Annual Report on Form 10-K for the year ended May 29,
1999, and incorporated herein by reference. *

24 Power of Attorney. *

27 Financial Data Schedule. *

----------
(1) Filed as an Exhibit, with the same Exhibit number, to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended August 31, 1997, and
incorporated herein by reference.
(2) Filed as an Exhibit, with the same Exhibit number, to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended August 31, 1996, and
incorporated herein by reference.
(3) Filed as an Exhibit, with the same Exhibit number, to the Registrant's
Registration Statement on Form S-1, File No. 333-40649, and incorporated
herein by reference.
(4) Filed as an Exhibit, with the same Exhibit number, to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and
incorporated herein by reference.
(5) Filed as Exhibit No. 10.10 to the Registrant's Annual Report on Form 10K
for the year ended May 31, 1997, and incorporated herein by reference.
(6) Filed as Exhibit No. 10.12 to the Registrant's Current Report on Form 8-K
dated March 22, 2000, and incorporated herein by reference.

* Filed herewith