10-K 1 doc1.txt ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2001 COMMISSION FILE NO. 1-13830 TELESOFT CORP. (Name of Registrant as specified in its charter) ARIZONA 86-0431009 (State of Incorporation) (IRS Employer Identification No.) 3443 NORTH CENTRAL AVENUE #1800 PHOENIX, ARIZONA 85012 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (602) 308-2100 SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: Title of Class Name of each exchange on which registered -------------- ----------------------------------------- COMMON STOCK, NO PAR VALUE PACIFIC STOCK EXCHANGE, INC. SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT : NONE Indicate by check mark whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 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 X NO --- Indicate by check mark if there is no disclosure of delinquent filer in response to Item 405 of Regulation S-K contained in this form and no disclosure will be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K X --- Registrant's revenues from continuing operations for its most recent fiscal year were $20,167,847. As of February 22 2002, the number of shares of Common Stock outstanding was 1,415,833 and the aggregate market value of the Common Stock (based on the closing price on that date) held by non-affiliates of the Registrant was $1,403,992. ================================================================================ PART I ITEM 1. BUSINESS. GENERAL Telesoft Corp. (the "Company" or "Telesoft") provides billing and customer care solutions to educational institutions, corporations and government agencies. The Company offers the following integrated hardware and proprietary software systems and services: the STS Outsourcing Program, Customized Billing Outsourcing Services, TelMaster Telemanagement System, Telesoft Recovery Services (TRS) and Distribution Control System. HISTORICAL HIGHLIGHTS The Company was incorporated in Arizona in May 1982. From 1982 to 1986, the Company focused primarily on its Distribution Control System product line. In 1986, the Company began to shift its focus to developing and marketing proprietary software and integrated systems to serve the long distance telecommunications and data management and call processing needs of the university and college market. In April 1996, the Company acquired Telesoft Acquisition Corp II, d.b.a. GoodNet ("GoodNet"), an Arizona-based internet service provider, to deploy a nationwide ATM network to sell high-speed connectivity to high-bandwidth users. In January 1998, the Company sold GoodNet to Winstar Communications, Inc. ("Winstar"). See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Discontinued Operations". During fiscal 1999, the Company began redirecting its focus to the TelMaster Telemanagement System product. Also during fiscal 1999, the Company established a new division, Telesoft Recovery Services. This division assists large organizations in analyzing, recovering and optimizing their telecommunications expenditures. The Company's executive offices are located at 3443 North Central Avenue, Suite 1800, Phoenix, Arizona 85012, and its telephone number is (602) 308-2100. The Company's website is located at www.telesoft.com. PRODUCTS AND SERVICES The Company's products and services are broken down as follows: (1) System Sales and Maintenance (a) TelMaster Telemanagement System (b) Distribution Control System (c) Software and Hardware Recurring Maintenance (2) Telesoft Recovery Services (3) STS Outsourcing Program (4) Customized Billing Outsourcing Services -2- SYSTEM SALES AND MAINTENANCE The Company offers the following integrated hardware and proprietary software systems and services: the Telecommunications Management System, TelMaster and the Distribution Control System. Telecommunications Management System and TelMaster. The Telecommunications Management System ("TMS") is a proprietary text-based software solution used by universities, Fortune 1000 companies and the health care and governmental agency markets to manage telephony data for billing and ad-hoc reporting purposes. TMS is comprised of a series of software modules and is typically sold in a package including hardware, software, installation, training and on-going hardware and software maintenance. TelMaster is Telesoft's third generation telemanagement system. Based on client server technology, this product was released in the fourth quarter of 1996. During fiscal 1999, the Company began developing a custom convergence billing, reporting and support system for Pacific Bell and MCI customer care services in connection with the long-term contract between Pacific Bell and MCI and the State of California to supply telecommunications services to state government agencies ("CALNET contract"). Since the CALNET contract between Pacific Bell, MCI and the State of California was terminated in April 2001 the Company is no longer developing this system. TelMaster Web is Telesoft's fourth generation telemanagement system, which was first released and implemented in March 2000. TelMaster Web is an integrated suite of products, including secured web based budget center reporting, enterprise directory and administration, trouble ticketing, change management, and a powerful ad-hoc reporting tool and scheduler. The products billed encompass all forms of telecommunication expenditures, including long distance, cellular, pagers and local calls. Invoice Processing System (IPS) is a TelMaster product that enables customers who utilize the program to quickly detect billing errors and realize immediate cost savings. This module-based system streamlines tracking, validating and processing large volumes of telecommunications invoices. IPS empowers businesses to manage their invoices effectively across locations with a customizable, adaptable and user-friendly tool. During 2001, TelMaster product implementations were initiated for 35 new customers including Delta Airlines, Compaq Computer Corporation, GE Financial Assurance, Johns Hopkins University, Wellpoint Health Networks, State of Wyoming, and White Sands Missile Range in conjunction with Harris Network Support. Distribution Control System. The Company has offered the DCS product since 1982. DCS is an automated control solution for the wholesale distribution industry. The Company includes extensive on-site training and maintenance services as part of its DCS package. The fully integrated software package has a modular design, which includes applications for sales order processing, inventory control, accounts receivable and sales analysis. DCS runs on the IBM RS6000 server family. DCSWEB is a newly introduced Java-based business-to-business software module. This fully integrated web offering provides electronic catalog publishing with real time inventory control and a flexible pricing shopping-cart system. TELESOFT RECOVERY SERVICES During the second quarter of fiscal 1999, the Company hired two executives to run its Telesoft Recovery Services ("TRS") division headquartered in New Jersey. These individuals have 21 years of combined industry experience in two leading companies. The TRS division assists large organizations in analyzing, recovering and optimizing their telecommunications expenditures. TRS revenues are generated on a contingency basis, whereby fees are earned only when TRS customers obtain refunds or realize cost savings. The customers that generated the most TRS revenues during fiscal 2001 were Bank of New York, Ixnet, Telecheck, First Union, and North Shore LIJ Health System. -3- STUDENT TELEPHONE SERVICES (STS) OUTSOURCING PROGRAM The Company provides an outsourcing program to universities and colleges to establish long distance resale programs to residence hall students, off-campus students, administrative staff and faculty. Through its Student Telephone Services Outsourcing Program ("STS Program"), the Company offers a complete billing solution which includes the following services: (1) production and distribution of marketing literature for the program, (2) on-site solicitation and registration of program participants, (3) installation of hardware and billing software, (4) collection, costing and processing of long-distance billing data, (5) production and distribution of individual bills, (6) on-site or remote customer service center, (7) management of accounts receivable and collections, (8) clearing-house services for the various suppliers involved with the program, and (9) financial reporting services to the university or college on the performance of the program. Telesoft administers and operates its STS Program on a turnkey basis on 52 university and college campuses of various sizes, including Rutgers College, the University of Southern California, Fordham University and Long Island University. Telesoft also has sold the system, software and services required to administer the STS Program to approximately 75 campuses of various sizes nationwide, including Yale University, State University of New York at Oswego, Case Western Reserve University, the University of Oklahoma, Auburn University and Fairfield University. Once a sale is consummated, the Company maintains and services the hardware and software under renewable one-year maintenance contracts. CUSTOMIZED BILLING OUTSOURCING SERVICES The Company provides customized billing outsourcing applications to Fortune 1000 companies and governmental agencies in conjunction with large interexchange carriers and RBOCs. The Company also provides customized billing services for Verizon Data Solutions, Adelphia, and McGraw Hill. -4- COMPETITION The telecommunications industry is highly competitive and subject to rapid technological change. Failure to keep pace with technological advances could adversely affect the Company's competitive position and future prospects. In order to maintain or improve its position, the Company must continue to enhance its current products and develop new products and services in a timely fashion. In connection with its telemanagement system division, the Company competes with Peregrine Systems, Telco Research, Stonehouse Technologies, Inc., ISI Infortext and Pinnacle products, all of which provide telemanagement systems and services to the university, health care, government and general business markets. In connection with its recovery services division, the Company competes with Profit Recovery Group and Teldata Control Inc., both of which provide recovery services to the Fortune 1000 market. In connection with its STS Program, the Company competes with AT&T, which provides long distance telephone service on a resale basis and offers long distance billing services to universities. The Company also competes with MCI WorldCom, Sprint and other long distance providers which market long distance services to the public and directly to college campuses. The STS product also competes with calling cards, prepaid cards and cellular/wireless service. The Company believes that the factors for its success include quality, technical capability, reliability, price and promptness of performance. While the Company has competed successfully against the foregoing companies, most, if not all, of the Company's existing and potential competitors have longer operating histories and significantly greater financial, technical, sales, marketing and human and other resources than the Company. Most, if not all, of these companies have greater name recognition and a larger installed base than the Company. The Company's competitors could, in the future, introduce products and services with more features and lower prices than the Company's product and service offerings. These companies also could fund existing or new products and services with other products or services to compete with the Company. While the Company has operated successfully against such competition in the past, there can be no assurance that it will be able to do so in the future. MAJOR CUSTOMERS AND SUPPLIERS Prior to December 1, 2000, one telecommunications company provided the Company with a significant portion of its long distance telecommunications services. For fiscal 2001 and 2000, multiple telecommunication companies provided long distance services to the Company, and, accordingly, there was no supplier that accounted for greater than 10% of the Company's expenses. During the fiscal years ended November 30, 2001, 2000 and 1999, the Company did not have any customers that accounted for greater than 10% of its revenues. SALES AND MARKETING The Company's sales staff consists of nine people who are responsible for all of the Company's marketing and sales efforts. Sales personnel are paid on both a salary and commission basis. The Company's executive officers also devote a substantial amount of their time to developing and maintaining personal relationships with the Company's customers and with prospective new customers. -5- RESEARCH AND DEVELOPMENT The Company conducts an active and ongoing research and development program that focuses on developing new and improved software products, and particularly those that are compatible with or enhance existing programs. Research and development costs for the fiscal years ended November 30, 2001, 2000, and 1999 were $528,000, $1,168,000, and $1,424,000, respectively. These costs have been expensed during their respective fiscal years. Research and development costs have a current annual run-rate of approximately $609,000. REGULATION The Company's business is subject to various federal and state regulations. Commencement of new services frequently requires licenses from public utilities commissions. There is no assurance that the Company or its customers, if required, will be successful in their efforts to obtain necessary licenses or regulatory approvals. The Company's inability to secure any necessary licenses or approvals could have a material adverse effect on its business. In addition to specific regulations, the Company is subject to all federal, state and local rules and regulations imposed upon businesses generally. The cost of regulatory compliance is an additional cost of doing business for the Company. The Company cannot predict the impact, if any, that future regulation or regulatory changes may have on its business. WARRANTIES The Company offers a 90-day warranty on hardware and software and an extended warranty program in connection with the Company's service and maintenance programs. The Company has not had any material claims made under its warranty program. PATENTS, TRADEMARKS, LICENSES AND COPYRIGHTS The Company regards its software as proprietary and attempts to protect it with copyrights, trademarks, and though the use of trade secret laws and restrictions on disclosure, copying and transferring title. The Company also attempts to preserve its proprietary rights by contractual non-disclosure safeguards and restrictions on transferability in its software license agreements. Additionally, the Company does not provide the source codes for its products to its customers. The Company's products are not patented and are not the subject of any current patent application, nor is it anticipated that any of its products will be patented. Existing copyright laws afford only limited practical protection for its software. Accordingly, despite precautions taken by the Company, it may be possible for unauthorized third parties to copy certain portions of the Company's products and to obtain and use information that the Company regards as proprietary. Key officers and employees have assigned to the Company certain technical and other information and patent rights, if any, acquired by them during their employment by the Company and after termination of their employment with the Company, if such information or rights arose out of information obtained by them during their employment. They also have agreed not to use or disclose any such information for a period of two years following termination of their employment. In spite of these precautions, it may be possible for competitors or users to copy aspects of the Company's products or to obtain information that the Company regards as trade secrets. However, the Company believes that due to the rapid pace of innovation within its industry, factors such as technological and creative skills of its personnel are more important to establishing and maintaining a technology leadership position within the industry than are the various legal protections of its technology. The Company believes that its products and technology do not infringe on any proprietary rights of others, although there can be no assurance that third parties will not assert infringement claims in the future. The Company has not obtained trademark or trade name registration on the use of the names "TelMaster," "TRS," "Student Telephone Services," "STS Service Bureau," "SunDial Program," "DCS" or "Sunbelt Business Computers." The Company is in the process of investigating the feasibility and protection that might be afforded by registration of these names, or as trademarks or trade names on a national, regional or local basis. -6- SEASONALITY The Company generally completes the sale of the majority of STS Program system installations in the university market during the spring and early summer months. The implementation and installation of these systems and services typically occurs during the summer months. Revenues derived from STS Programs begin in the fall and weaken during winter holiday and the summer months when students are on vacation. As a result, the Company's revenues have consistently been highest during the second and fourth quarters. BACKLOG For the TelMaster and related products, backlog arises due to software customization and implementation, which may not be completed for several months after a sales contract is signed. As of November 30, 2001, systems sold, but not yet recognized as revenue, totaled approximately $1,230,000. Backlog is not material to any other segments of the Company's business since the Company ships and installs its software and systems promptly upon receipt of customers' orders. While the Company tends to experience higher installation activity on university campuses during the summer months for its STS division, it has not historically had problems installing its products and performing its services in a timely fashion. EMPLOYEES As of February 22, 2002, the Company had 124 full-time employees, five of which are in executive positions, 16 are engaged in sales and marketing, 30 are in software development and support, 29 are in customer service and the balance are in various administrative and support positions. The Company's employees are not covered by a collective bargaining agreement. The Company considers its employee relations to be satisfactory. ITEM 2. PROPERTIES. In January 1998, the Company signed a ten-year lease for approximately 30,000 square feet of office space in Phoenix, Arizona. The Company's obligations under the terms of this lease were approximately $452,000, $421,000, and $392,000 for the fiscal years ended November 30, 2001, 2000, and 1999, respectively. In July 1999, the Company entered into a lease for approximately 2,100 square feet of office space in Cranford, New Jersey, which housed its Telesoft Recovery Services operations. This lease expired in July 2001. The Company's obligations under the terms of this lease were approximately $25,000, $44,000 and $15,000 for fiscal 2001, 2000 and 1999, respectively. In June 2001, the Company entered into a lease for approximately 5,500 square feet of office space in Cranford, New Jersey, which houses its Telesoft Recovery Services operations. This lease expires in November 2002. The Company's obligation under the terms of this lease was approximately $68,000 for fiscal 2001. There were no obligations under this lease during fiscal 2000 and 1999. -7- ITEM 3. LEGAL PROCEEDINGS. The Company is not involved as a party to any legal proceedings other than various claims and lawsuits arising in the normal course of its business, none of which, in the opinion of the Company's management, are individually or collectively material to the Company's business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted to security holders through the solicitation of proxies or otherwise during the fourth quarter of the fiscal year covered by this report. -8- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The following table sets forth, for the fiscal periods shown, representative high and low bid prices of the Company's common stock as reported by the Nasdaq SmallCap Market. The prices represent inter-dealer quotations, which do not include retail mark-ups, mark-downs or commissions and may not necessarily represent actual transactions.

As of February 22, 2002, there were 379 holders of record of the Company's common stock. Although the Company has no limitations or restrictions on declaring dividends, the Company has not declared or paid dividends on its Common Stock and does not expect to declare or pay dividends in fiscal 2002. RECENT SALES OF UNREGISTERED SHARES During the quarter ended November 30, 2001, the Company did not make any sales of unregistered securities. -9- ITEM 6. SELECTED FINANCIAL DATA The following selected financial data are derived from the financial statements of the Company which have been audited by Semple & Cooper, LLP, independent certified public accountants, for the years ended November 30, 2001 and 2000 and by BDO Seidman, LLP, independent certified public accountants, for the years ended November 30, 1999, 1998 and 1997. Such selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's financial statements and related notes set forth in Item 8 herein.

------------------------ (1) Figures reflect results from continuing operations. -10- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FORWARD LOOKING INFORMATION This report 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. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements including uncertainties regarding the effectiveness of initiatives to sell, introduce and implement the TelMaster product and to maintain our Student Telephone Services customer base. Certain factors which may cause such a difference include, but are not limited to, the following: the impact of increased competition from competitors with significant financial resources and market share; and the amount and rate of growth in general and administrative expenses associated with building a strengthened corporate infrastructure to support operations. BACKGROUND The Company began as a value-added reseller in the wholesale distribution of accounting software (Distribution Control System) in 1982. During the fiscal year ended November 30, 2001, the Company derived approximately 54% of its revenues from its STS Outsourcing Program. The balance of revenues were derived from hardware, software, maintenance and other services in the university, Fortune 1000, governmental and wholesale distribution markets. The Company has adapted to fast-paced market changes by shifting its resources from providing generic or general system hardware and software to providing a full range of services in its specialty niches. The Company is continuously developing new products and services to maintain and expand its market share. The core focus of the Company is its TelMaster software suite of modules and its recovery services division. Both segments are geared primarily to large entities including Fortune 1000 corporations, governmental agencies and educational institutions. -11-

RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2001 COMPARED TO THE FISCAL YEAR ENDED NOVEMBER 30, 2000 Revenues decreased to $20,167,847 for the fiscal year ended November 30, 2001, compared to $24,613,309 for the fiscal year ended November 30, 2000. The Company's revenue is derived from four principal product lines and services: System Sales and Maintenance, TRS, STS Outsourcing Programs (STS) and Customized Billing Outsourcing Services. Revenues from System Sales and Maintenance were $6,006,768 for the fiscal year ended November 30, 2001 compared to $6,302,107 for the fiscal year ended November 30, 2000, a decrease of 4.7%. TelMaster sales and maintenance related revenues increased by $1,072,036, or 27.5%, to $4,966,652 for the fiscal year ended November 30, 2001 compared to $3,894,616 for the fiscal year ended November 30, 2000. The increase in TelMaster revenues from fiscal 2000 to fiscal 2001 was related to a $1,524,000 increase in revenues from general TelMaster system sales, offset by a $329,500 decrease in revenues related to the CALNET contract, which was terminated in April 2001. Additionally, maintenance revenue decreased by $122,000 due to many customers transitioning from the Company's prior telemanagement software product to TelMaster. The Company anticipates that maintenance revenues for the TelMaster product may replace maintenance revenues lost from the prior contracts and revenues will return to prior levels. However, there can be no assurance that this will happen. -12- The DCS product revenues declined 10.1%, or $112,762, to $1,003,744, due to a decrease in demand for its text-based software. The Company expects this trend to continue in fiscal 2002. In December 2000, the Company completed the sale of the RATEX division, and as a result, RATEX revenues declined 97.2%, or $1,254,613, to $36,372 for the fiscal year ended November 30, 2001 compared to $1,290,985 for the fiscal year ended November 30, 2000. Revenues from TRS, which are generated through the Company's wholly-owned subsidiary, Telesoft Recovery Corp., increased 76%, or $1,034,532, to $2,394,996 for the year ended November 30, 2001 from $1,360,464 for the fiscal year ended November 30, 2000. We expect TRS revenues to continue to increase at a more moderate level. STS Program revenues were $10,884,348 for the fiscal year ended November 30, 2001 compared to $15,990,614 for the fiscal year ended November 30, 2000, a 31.9% decrease. This decrease was primarily due to market pressure from competing long-distance communications products, including calling cards, wireless services and the Internet. During fiscal 2000, the Company adjusted to these market pressures by lowering its retail rates and renegotiating its wholesale rates with its suppliers. Based on declining revenue, the Company has reduced selling, general and administrative expenses, including a reduction in staff to adjust to the reduction in subscribers, traffic and revenues. The Company expects STS Program revenues to decrease in the 2001-2002 and 2002-2003 academic year, based on decreases in long distance usage and its customer base. For the fiscal years ended November 30, 2001 and 2000, revenues from Customized Billing Outsourcing Services were $881,735 and $960,124, respectively. This decrease is primarily a result of lower billing volume for one of the Company's primary customers.

Total gross profit decreased 3.6% to $11,368,016 for the fiscal year ended November 30, 2001 from $11,786,744 for the fiscal year ended November 30, 2000. Cost of goods sold was approximately 68.0% and 71.5% of STS revenues for the fiscal years ended November 30, 2001 and 2000, respectively. The increased emphasis on fixed fee structures resulted in a more moderate decrease in gross profits of 23.4% compared to the 31.9% decrease in revenues from this division. Cost of goods sold as a percentage of system sales and maintenance revenues were 23.3% and 21.1% for the fiscal years ended November 30, 2001 and 2000, respectively. This increase was due to a higher proportion of professional services-related revenue, which have a lower gross profit margin. General and administrative expenses decreased by 11.0%, or $1,370,676, in fiscal 2001 to $11,045,318 from $12,415,994 in fiscal 2000. This decrease was primarily due to a reduction in human resources and other cost-cutting efforts implemented by the Company during the last two fiscal quarters of 2000 and the first and fourth fiscal quarters of 2001. Also contributing to the decrease was the decrease in human resource costs resulting from the sale of the RATEX -13- division. The $286,000 gain from the sale of RATEX was largely offset by a $290,000 charge taken for the issuance of common stock to the TRS executives in lieu of cash compensation under their employment agreements. RATEX related expenses for fiscal 2001 and 2000 were approximately $50,000 and $1,010,000, respectively. TRS had operating expenses of $1,778,183 and $1,036,676 during fiscal 2001 and 2000, respectively. The Company's general and administrative expenses as a percentage of gross profit were 97.2% and 105.3% for fiscal 2001 and 2000, respectively. The Company expects general and administrative expenses as a percentage of gross profit to decrease over time as revenues for TelMaster systems and TRS increase. Other income decreased to $1,214 for fiscal 2001 from $319,406 for fiscal 2000. This decrease was attributable to the sale of 7,434 shares of common stock of Amdocs Ltd. for $296,439, through which the Company realized a $145,189 gain on the sale in fiscal 2000. Additionally during fiscal 2000, the Company realized a $168,782 return of premium on a key-person insurance policy. There was a $142,370 provision for income taxes for fiscal 2001 compared to a $40,600 benefit from income taxes for fiscal 2000. Fiscal 2001 resulted in net income of $174,001 compared to a net loss of $50,121 in fiscal 2000. -14-

RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2000 COMPARED TO THE FISCAL YEAR ENDED NOVEMBER 30, 1999 Revenues decreased to $24,613,309 for the fiscal year ended November 30, 2000, compared to $29,377,592 for the fiscal year ended November 30, 1999. The Company's revenue is derived from four principal product lines and services: System Sales and Maintenance, TRS, STS Outsourcing Programs (STS) and Customized Billing Outsourcing Services. The Company's Network Services division, which began operations in December 1998, was discontinued in August 1999 due to unsatisfactory performance. Revenues from System Sales and Maintenance were $6,302,107 for the fiscal year ended November 30, 2000 compared to $7,856,532 for the fiscal year ended November 30, 1999, a decrease of 19.8%. TelMaster sales and maintenance related revenues increased by $241,695, or 6.7%, to $3,894,616 for the year ended -15- November 30, 2000 compared to $3,652,921 for the year ended November 30, 1999. The increase in TelMaster revenues from fiscal 1999 to fiscal 2000 was related to a $430,000 increase in revenues from the ongoing development of a custom convergence billing, reporting and support system for Pacific Bell and MCI customer care services for the State of California's CALNET contract, and offset by a $190,000 decrease in other TelMaster system sales. The DCS product revenues declined 19.9%, or $277,111, to $1,116,506 and RATEX product revenues declined 54.1% or $1,519,009 to $1,290,985 for the year ended November 30, 2000 compared to the year ended November 30, 1999. The decline in revenues in these segments was the result of a decrease in demand for these text-based software products. In December 2000, the Company completed the sale of the RATEX division. TRS, which began operations in March 1999, had revenues of $1,360,464 and $135,778 during fiscal 2000 and 1999, respectively. STS Program revenues were $15,990,614 for the fiscal year ended November 30, 2000 compared to $19,815,617 for the fiscal year ended November 30, 1999, a 19.3% decrease. This decrease was primarily a result of market pressure from competing means of communication including pre-paid cards, other calling cards, wireless services and the Internet. During fiscal 2000, the Company adjusted to these market pressures by lowering its retail rates and renegotiating its wholesale rates with its suppliers. The impact of these new rates began during the fourth fiscal quarter (September-November), which represents the first three months of the 2000-2001 academic year. Revenues for the fourth quarter of fiscal 2000 were 23.2% lower than the fourth quarter of fiscal 1999. Historically, the calling patterns during September through November are indicative of calling patterns for the balance of the academic year. Based on this decline in revenue, the Company has attempted to reduce selling, general and administrative expenses, including a reduction in staff to adjust to the reduction in subscribers, traffic, and revenues. For the fiscal years ended November 30, 2000 and 1999, revenues from Customized Billing Outsourcing Services were $960,124 and $1,404,230, respectively. In December 1998, the Company formed a Network Services division to sell telecommunication services, including dial tone and data transport services, via strategic agent relationships with Regional Bell Operating Companies. This division was discontinued in August 1999 due to unsatisfactory performance. Network Services had revenues of $165,435 during fiscal 1999. Total gross profit decreased 6.4% to $11,786,744 for the fiscal year ended November 30, 2000 from $12,596,754 for the fiscal year ended November 30, 1999. Cost of goods sold was approximately 71.5% and 74.5% of STS revenues for the fiscal years ended November 30, 2000 and 1999, respectively. This decrease was primarily due to continued pressure on the price of long distance services from the Company's suppliers. Cost of goods sold as a percentage of system sales and maintenance revenues were 21.1% and 25.2% for the fiscal years ended November 30, 2000 and 1999, respectively. This improvement was due to a higher percentage of TelMaster sales, which have a higher gross profit rate than the RATEX and DCS products. General and administrative expenses increased by 9.5%, or $1,080,926, in fiscal 2000 to $12,415,994 from $11,335,068 in fiscal 1999. This increase was primarily due to an increase in human resources in the areas of TelMaster research and development, implementation, sales, and support services, as well as the addition TRS division. Research and development costs incurred and expensed during the fiscal years ended November 30, 2000 and 1999 were $1,168,000 and $1,424,000, respectively. Sales and support related expenses increased $1,090,000 from fiscal 1999 to fiscal 2000. TRS had operating expenses of $1,036,000 and $454,000 during the fiscal years ended November 30, 2000 and 1999, respectively. The Network Services division contributed $291,000 to operating expenses in fiscal 1999. General and administrative expenses as a percentage of revenues were 50.4% and 38.6% for fiscal 2000 and 1999, respectively. The Company expects general and administrative expenses as a percentage of revenues to decrease over time, as revenues for TelMaster systems increase. During the fourth quarter of fiscal 2000 and into the first quarter of fiscal 2001, the Company has attempted to reduce selling, general and -16- administrative expenses, including a reduction in staff. These adjustments resulted in a decrease in general and administrative expenses of $303,000 to $3,031,000 for the fourth quarter fiscal 2000 compared to $3,334,000 in the fourth quarter of fiscal 1999. Other income increased to $319,406 for fiscal 2000 from $2,623 in fiscal 1999. This increase was attributable to the sale of 7,434 shares of common stock of Amdocs Ltd. for $296,439, through which the Company realized a $145,189 gain on the sale. Additionally, the Company realized a $168,782 return of premium on a key-person insurance policy. There was a $40,600 benefit from income taxes for fiscal 2000 compared to a provision for income taxes of $579,800 for fiscal 1999. Fiscal 2000 resulted in a loss from continuing operations of $50,121 compared to income from continuing operations of $1,249,043 in fiscal 1999. This was primarily attributable to increased investments made during fiscal 2000 in human resources supporting the TelMaster product line, coupled with decreased revenues for the DCS, RATEX and STS product lines. These declines were offset by growth in the TRS division, resulting in $324,000 of operating income from this division in fiscal 2000 compared to a $318,000 operating loss in fiscal 1999. DISCONTINUED OPERATIONS Effective January 12, 1998, the Company, together with the minority shareholders of GoodNet, entered into an agreement with Winstar to sell the Company's Internet services subsidiary for approximately $22.0 million, consisting of $3.5 million cash and shares of common stock of Winstar having an aggregate market value of approximately $18.5 million. Under the terms of the agreement, the Company received approximately $3,500,000 in cash plus 479,387 shares of Winstar restricted common stock, which had an aggregate fair market value of approximately $13.9 million as of the close of business on January 12, 1998. After commissions and related legal expenses, the Company realized an approximate $13.2 million pretax gain on the sale in the first quarter of fiscal 1998. Additionally, the Company received $235,000 in cash to offset GoodNet's net cash disbursements from December 12, 1997 through the date of the sale. -17- MATERIAL CHANGES IN FINANCIAL POSITION Cash and cash equivalents increased to $540,726 at November 30, 2001 from $41,434 at November 30, 2000. During fiscal 2001, the Company used approximately $81,800 in cash to purchase property and equipment for its continuing operations compared to $598,000 during fiscal 2000. Additionally, the Company used $146,575 in cash to purchase treasury stock during fiscal 2001 compared to $298,061 during fiscal 2000. Accounts receivable decreased to $4,952,652 as of November 30, 2001 from $8,160,650 as of November 30, 2000 ($4,567,380 and $7,737,213, net of allowance for uncollectibles as of November 30, 2001 and 2000, respectively). This $3,207,998 decrease was primarily due to an approximate $3,208,000 decrease in overall revenues for the fourth quarter of fiscal 2001 compared to the fourth quarter of fiscal 2000. Accounts payable and accrued liabilities decreased $2,414,066 to $2,696,839 as of November 30, 2001 from $5,110,905 as of November 30, 2000. This decrease was primarily due to an approximate $2,229,000 decrease in STS cost of sales from the fourth quarter of fiscal 2000 to the fourth quarter of fiscal 2001. LIQUIDITY AND CAPITAL RESOURCES At November 30, 2001, the Company's balance sheet reflected cash of $540,726. The Company believes that anticipated cash flows from its business will be adequate to supply currently anticipated operating requirements for the Company for the next 12 months. However, there can be no assurance that the Company will not require additional funding within this time frame. The Company may be required to raise additional funds through public or private financing, strategic relationships, or other arrangements. There can be no assurance that such additional funding, if needed, will be available on terms attractive to the Company, or at all. Furthermore, any additional equity financing may be dilutive to existing stockholders. ACCOUNTING PRONOUNCEMENTS In August 2001, the Financial Accounting Standards Board issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for the disposal of a segment of a businessSFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company expects to adopt SFAS No. 144 December 1, 2002. The Company does not believe the adoption of SFAS No. 144 will have a material impact on its results of operations. -18- ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. As of November 30, 2001, the Company has no derivative financial instruments, other financial instruments, or long-term debt obligations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and supplementary financial information are included herewith commencing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. -19- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth certain information with respect to the Company's directors and executive officers.

--------------------------------------------- (1) Member of Audit Committee. (2) Member of Compensation Committee. Michael F. Zerbib has been President and Chief Executive Officer of the Company since February 2000 and Chief Financial Officer, Treasurer and a director of the Company since 1990. He holds a Bachelor of Science degree in finance and a Master's degree in taxation and financial accounting from Arizona State University. Mr. Zerbib also holds a certification from the Arizona State Board of Accountancy. Joseph W. Zerbib has been Chairman of the Board of Directors since 1982. From 1982 to February 2000, he served as President and Chief Executive Officer of the Company. Thierry E. Zerbib has been Vice President-Technologies, Secretary and a director of the Company since 1982. He holds dual degrees in computer science and math from Tel Aviv University, Israel. Brian H. Loeb has been Vice President since 1982 and a director of the Company since 1992. Cecile Silverman has been a director of the Company since June 1995. Ms. Silverman is a certified public accountant and has been self-employed since 1989. From 1975 to 1989, she was a partner at the firm of Schwartz, Cohen & Co. Ms. Silverman specializes in tax planning for corporations and individuals, as well as representing clients before various governmental agencies. She graduated from Syracuse University with a degree in accounting. -20- Kalvan Swanky has been a director of the Company since June 1995. Since 1986, he has been employed by Storage Technology Corporation ("STC"), which develops, manufactures and distributes computer memory devices. Mr. Swanky has held a number of positions with STC, most recently as Direct Sales Manager for Arizona and Nevada. He received a Bachelor of Science degree from the University of Colorado. Todd P. Belfer has been a director of the Company since April 2001. Mr. Belfer has served as a director of Vitrix Inc. (OTCBB: VTTX) since April 1999, as chairman of the board of directors of Vitrix Inc. since November 1999, and as a director of its wholly-owned subsidiary since April 1996. Since February 1994, Mr. Belfer also has served as a director of M.D. Labs, Incorporated, a private Arizona-based company. Mr. Belfer also co-founded Employee Solutions, Inc. in May 1990, and served as its executive vice president and a director from 1991 to 1996. Mr. Belfer received a Bachelor of Science degree in Finance and Economics from the University of Arizona. Joseph W. Zerbib is the father of Thierry E. Zerbib and Michael F. Zerbib and the father-in-law of Brian H. Loeb. Accordingly, Thierry E. Zerbib and Michael F. Zerbib are brothers and Brian H. Loeb is the brother-in-law of Thierry E. Zerbib and Michael F. Zerbib. BOARD MEETINGS AND COMMITTEES During the fiscal year ended November 30, 2001, the Board of Directors held four meetings. All directors attended these meetings. Audit Committee. The Board of Directors maintains an Audit Committee, which currently is composed of Cecile Silverman, Kalvan Swanky and Todd Belfer. The responsibilities of the Audit Committee include, in addition to such other duties as the Board of Directors may specify, (i) receiving reports with respect to loss contingencies, the public disclosure or financial statement notation of which may be legally required, (ii) annually reviewing and examining those matters that relate to a financial and performance audit of the Company's stock option plans, (iii) recommending to the Board of Directors the selection, retention and termination of the Company's independent accountants, (iv) reviewing the professional services, proposed fees and independence of such accountants, and (v) providing for the periodic review and examination of management performance in selected aspects of corporate responsibility. The Audit Committee held three meetings during the fiscal year ended November 30, 2001. Compensation Committee. The Board of Directors maintains a Compensation Committee, which currently is composed of Cecile Silverman, Kalvan Swanky and Michael Zerbib. The responsibilities of the Compensation Committee include, in addition to such other duties as the Board of Directors may specify, (i) reviewing and recommending to the Board of Directors the salaries, compensation and benefits of the Company's executive officers and key employees, (ii) reviewing any related party transactions on an ongoing basis for potential conflicts of interest, and (iii) administering the Company's stock plans. The Compensation Committee held one meeting during the fiscal year ended November 30, 2001. -21- COMPENSATION OF DIRECTORS The members of the Board of Directors do not receive any cash compensation for serving as directors. However, the Company reimburses the independent directors for their reasonable out-of-pocket expenses in connection with their attendance at meetings. In April 1996, the Company granted immediately exercisable options to purchase 1,000 shares of Common Stock to each of Ms. Silverman and Mr. Swanky. The options were exercisable at a price of $4.75 per share through April 2001. In October 1996, the Company granted each of Ms. Silverman and Mr. Swanky immediately exercisable options to purchase 1,000 shares of Common Stock at a price of $3.00 per share through October 2001. In October 1997, the Company granted each of Ms. Silverman and Mr. Swanky immediately exercisable options to purchase 1,000 shares of Common Stock at a price of $2.9375 per share through October 2002. None of the options granted were pursuant to any stock option plan. During the year ended November 30, 2000, both Ms. Silverman and Mr. Swanky exercised 1,792 options, including 1,000 and 792 options with an exercise price $2.9375 and $3.00, respectively, in connection with the Company's self-tender offer. They each received $7,679 of net proceeds. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers, directors and persons who beneficially own more than ten percent of the Company's Common Stock to file reports of ownership and changes in ownership with the Commission. These reporting persons also are required to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on its review of the copies of such forms furnished to it and representations that no other reports were required, the Company believes that all Section 16(a) reporting requirements were complied with during the fiscal year ended November 30, 2001. -22- ITEM 11. EXECUTIVE COMPENSATION. SUMMARY COMPENSATION TABLE The following table sets forth the total compensation received by the chief executive officer and each additional executive officer whose compensation exceeded $100,000, paid to the named individuals for services rendered in all capacities to the Company and its subsidiaries for the fiscal years ended November 30, 2001, 2000 and 1999.

(1) Michael Zerbib acted as Chief Financial Officer and Treasurer until February 1, 2000. Since February 1, 2000, he has served as President, Chief Executive Officer, Chief Financial Officer and Treasurer. (2) Joseph Zerbib acted as President and Chairman of the Board until February 1, 2000. Since February 1, 2000, he has served as Chairman of the Board. The executive officers of the Company named above routinely receive other benefits from the Company, the amounts of which are customary in the industry. The Company has concluded, after reasonable inquiry, that the aggregate amounts of such benefits during the years ended November 30, 2001, 2000 and 1999 did not exceed the lesser of $50,000 or 10% of the compensation set forth above as to any named individual. -23- OPTION GRANTS AND EXERCISES IN FISCAL 2001 No options were granted to or exercised by the Company's executive officers during fiscal 2001. STOCK OPTION PLANS 1995 and 1996 Incentive Stock Option Plans. The Board of Directors adopted the 1995 Incentive Stock Option Plan ("1995 ISO Plan") on February 1, 1995 and the 1996 Incentive Stock Option Plan ("1996 ISO Plan") on April 15, 1996. The shareholders subsequently approved these plans. The terms and conditions of these plans are substantively similar. Each of the plans authorizes the Company to grant to key employees both nonqualified options and options intended to qualify as incentive options under Section 422 of the Internal Revenue Code. The plans are administered by the compensation committee, which has the authority to interpret their provisions, to establish and amend rules for their administration, to determine the types and amounts of awards to be made pursuant to the plans, subject to the plans' limitations, and to approve recommendations made by management of the Company as to who should receive awards. There are 264,000 shares authorized for grant under the 1995 ISO Plan. As of November 30, 2001, there were no common stock options outstanding under the 1995 ISO Plan. There are 260,000 shares authorized for grant under the 1996 ISO Plan. As of November 30, 2001, options to purchase 4,000 shares of common stock were outstanding under the 1996 ISO Plan. These options are held by certain employees of the Company at an exercise price of $5.875 per share. 1997 Performance Equity Plan ("1997 Plan"). On October 2, 1997, the board of directors adopted the 1997 Plan. On May 15, 1998, the board of directors amended the 1997 Plan. The shareholders subsequently approved the 1997 Plan. The board of directors has authorized 1,000,000 shares for grant under the 1997 Plan. Awards consist of stock options (both nonqualified options and options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended), restricted stock awards, deferred stock awards, stock appreciation rights and other stock-based awards, as described in the 1997 Plan. The 1997 Plan is administered by the compensation committee, which determines the persons to whom awards will be granted, the number of awards to be granted and the specific terms of each grant, including the vesting thereof, subject to the provisions of the 1997 Plan. As of November 30, 2001, options to purchase 136,719 shares of common stock were outstanding under the 1997 Plan. These options are held by certain employees of the Company at exercise prices ranging from $1.3125 to $4.875 per share. -24- ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information as of February 22, 2002, with respect to (i) those persons or groups known to the Company to beneficially own more than 5% of the Company's Common Stock, (ii) each director, (iii) each executive officer whose compensation exceeded $100,000 in the fiscal year ended November 30, 2001, and (iv) all directors and executive officers as a group. The information is determined in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934 ("Exchange Act") based upon information furnished by the persons listed or contained in filings made by them with the Securities and Exchange Commission ("Commission"). Except as indicated below, the shareholders listed possess sole voting and investment power with respect to their shares.

---------------------------------- * Less than 1%. (1) Unless otherwise indicated, the address of each of the persons listed is c/o Telesoft Corp., 3443 North Central Avenue, Suite 1800, Phoenix, Arizona 85012. (2) A person is deemed to be the beneficial owner of voting securities that can be acquired by such person within 60 days from February 22, 2002 upon the exercise of options, warrants or convertible securities. Each beneficial owner's percentage ownership is determined by assuming that options, -25- warrants or convertible securities that are held by such person (but not those held by any other person) and which are exercisable within 60 days of February 22, 2002, have been exercised. (3) Represents shares of common stock owned by T.P.B. Investment Limited Partnership, an Arizona limited partnership of which Mr. Belfer is the general partner. (4) Includes 57,270 shares of common stock issuable upon exercise of currently exercisable options. (5) Includes those shares of common stock deemed to be included in the respective beneficial ownership of Michael F. Zerbib, Thierry E. Zerbib, Brian H. Loeb, Joseph W. Zerbib, Kalvan Swanky, Ms. Cecile Silverman and Todd Belfer. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. In March 2000, in connection with his retirement as the Company's President and Chief Executive Officer, Joseph Zerbib, who currently serves as the Company's Chairman of the Board, sold all of his 293,750 shares of the Company's common stock back to the Company at a price of $7.25 per share, for an aggregate of $2,129,688. In April 2000, the Company entered into an agreement with each of Michael Zerbib, Thierry Zerbib and Brian Loeb, pursuant to which each of them agreed to make available to the Company up to $1,000,000 at the Company's request. In May 2000, their agreements were amended to increase the amount to $1,350,000. Draw downs were payable on May 31, 2001 and had an annual interest rate of 10%. Each loan was secured by the Company's assets. Pursuant to a second amendment to their agreements in April 2001, each of the officers agreed to extend $350,000 of their loans until August 31, 2001. A third amendment to their agreements in July 2001 extended their loans until November 30, 2001. During the years ended November 30, 2001 and 2000, interest expense in connection with these notes was $41,089 and $115,754, respectively. As of November 30, 2001, there were no amounts outstanding under the notes and no interest was due thereon. The Board of Directors has adopted a policy that all future material transactions and loans between the Company and its executive officers, directors, employees and affiliates will be subject to the approval of the majority of independent and disinterested directors and that such transactions and loans, and any forgiveness of loans, will be on terms that are no less favorable to the Company than those that are generally available from unaffiliated third parties. -26-

* Filed herewith (1) Filed with Registration Statement No. 33-91234-LA, dated June 30, 1995. (2) Filed with Form 10-KSB/A for the fiscal year ended November 30, 1996 (3) Filed with Definitive Proxy Statement dated June 16, 1998 (4) Filed with Form 10-Q for the quarter ended May 31, 2001 (5) Filed with Form 10-Q for the quarter ended August 31, 2001 -27-

(c) Reports on Form 8-K There were no Current Reports on Form 8-K filed during the quarter ended November 30, 2001. -28- SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TELESOFT CORP. Dated: February 25, 2002 By /s/ Michael F. Zerbib ------------------------------------- Michael F. Zerbib, President and Chief Executive Officer In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature and Title Date --------------------- ---- /s/ Michael F. Zerbib February 25, 2002 ------------------------------------------------------- Michael F. Zerbib, President, Chief Executive Officer, Chief Financial Officer, Treasurer and Director (and principal accounting officer) /s/ Joseph W. Zerbib February 25, 2002 ------------------------------------------------------- Joseph W. Zerbib, Chairman of the Board of Directors /s/ Thierry E. Zerbib February 25, 2002 ------------------------------------------------------- Thierry E. Zerbib, Vice President - Technologies, Secretary and Director /s/ Brian H. Loeb February 25, 2002 ------------------------------------------------------- Brian H. Loeb, Vice President and Director /s/ Cecile Silverman February 25, 2002 ------------------------------------------------------- Cecile Silverman, Director /s/ Kalvan Swanky February 25, 2002 ------------------------------------------------------- Kalvan Swanky, Director /s/ Todd P. Belfer February 25, 2002 ------------------------------------------------------- Todd P. Belfer, Director -29- TELESOFT CORP. AND SUBSIDIARIES INDEX TO THE FINANCIAL STATEMENTS PAGE Report of Independent Certified Public Accountants F-2 - F-3 Consolidated Balance Sheets as of November 30, 2001 and 2000 F-4 Consolidated Statements of Operations for the years ended November 30, 2001, 2000 and 1999 F-5 - F-6 Consolidated Statements of Changes in Stockholders' Equity for the years ended November 30, 2001, 2000 and 1999 F-7 Consolidated Statements of Cash Flows for the years ended F-8 - F-9 November 30, 2001, 2000 and 1999 Notes to the Consolidated Financial Statements F-10 - F-27 F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders Telesoft Corp. and Subsidiaries We have audited the accompanying consolidated balance sheets of Telesoft Corp. and Subsidiaries as of November 30, 2001 and 2000 and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Telesoft Corp. and Subsidiaries at November 30, 2001 and 2000 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Semple & Cooper, L.L.P. Phoenix, Arizona January 18, 2002 F-2 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders Telesoft Corp. and Subsidiaries We have audited the consolidated statements of operations, stockholders' equity, and cash flows of Telesoft Corp. and Subsidiaries for the year ended November 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Telesoft Corp. and Subsidiaries for the year ended November 30, 1999 in conformity with accounting principles generally accepted in the United States of America. /s/ BDO Seidman, LLP Los Angeles, California January 14, 2000 F-3

(1) As restated for comparative purposes only. The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-4

The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-5

The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-6

The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-7

The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-8

(1) As restated for comparative purposes only. The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-9 TELESOFT CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Telesoft Corp. (the "Company" or "Telesoft"), an Arizona corporation, was incorporated on May 4, 1982. The Company provides four principal continuing product lines and services: long distance and telecommunications division, d.b.a. Student Telephone Services (STS); Customized Billing Outsourcing Services; computer software and hardware sales, d.b.a. Sunbelt Business Computers (SBC); and its telecommunications audit subsidiary, Telesoft Recovery Corp (TRC). The long distance and telecommunications division is primarily involved in long distance and telecommunication services to higher education institutions. The software and hardware division is primarily involved in the design, distribution, installation, and maintenance of computer hardware and software systems. The Company markets its products throughout the United States. The Company originally operated as B.P. & J Investors, Ltd., d.b.a. Sunbelt Business Computers. Effective April 12, 1995, the Company changed its name to Telesoft Corp. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Telesoft Corp., together with its wholly owned subsidiaries, Telesoft Acquisition Corp and Telesoft Recovery Corp., and its former 71% owned subsidiary, Telesoft Acquisition Corp II, d.b.a. GoodNet ("GoodNet"). (See Note 18) All significant intercompany accounts and transactions have been eliminated. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash and cash equivalents for the purposes of reporting cash flows. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company has cash and cash equivalents, receivables, accounts payable and accrued liabilities for which the carrying value approximates the fair value due to the short-term nature of these instruments. LONG-LIVED ASSETS Statement of Financial Accounting Standards No.121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121") issued by the Financial Accounting Standards Board ("FASB") is effective for financial statements for fiscal years beginning after December 15, 1995. The standard establishes guidelines regarding when impairment losses on long-lived assets, which include plant and equipment, and certain identifiable intangible assets, should be recognized and how impairment losses should be measured. The Company adopted SFAS 121 during the year ended November 30, 1997. The Company does not believe any assets are impaired as of November 30, 2001. INVENTORY Inventory is stated at the lower of cost, first-in, first-out (FIFO) method, or market. Inventory quantities are reviewed periodically for obsolescence. The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-10 TELESOFT CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation is provided for on the straight-line method over the estimated useful lives of the assets. The average lives range from three to seven years. The gain or loss on disposal of assets is reflected in earnings, and the cost and related accumulated depreciation are removed from the accounts. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred. Leasehold improvements are recorded at cost and amortized over the shorter of the lives of the leases or estimated useful lives. COMPUTER SOFTWARE COSTS The Company capitalizes software development costs in accordance with Financial Accounting Standards Board Statement No. 86 ("FASB 86"). FASB 86 requires software development costs to be capitalized when technological feasibility is reached and discontinued when the product is ready for sale. Software development costs not qualifying for capitalization are expensed as research and development costs. Capitalized costs are amortized on product-by-product basis using the greater of the straight line method over the product's remaining estimated economic life or the ratio of the current year's gross revenues to the total of a product's current year and anticipated revenues. The Company evaluates the estimated net realizable value of each software product at each balance sheet date and records write-downs for any products for which net book value is in excess of net realizable value. REVENUE RECOGNITION The Company recognizes revenues as follows: Revenue from computer software sales is recognized upon delivery if no customization is necessary, and on the percentage-of-completion method if customization is needed, in accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition. The Company uses the contract phases completed to measure progress towards completion, each contract is divided into four distinct phases, each valued at 25% of the total contract. Revisions in cost estimates and recognition of losses on these contracts are reflected in the accounting period in which the facts become known. Maintenance contract revenue is recognized ratably over the life of the contract. Revenue from telecommunication recovery services is recognized when the service has been performed and the customer has received their refund. Revenue from collection of long-distance charges is recognized as the charges are incurred. The Company accrues revenues from customers based upon actual usage as reported on billings received from long-distance carriers and estimates the amount of unbilled revenues based upon number of days in the billing cycle and past usage by customers. Revenue from customized billing outsourcing is recognized when services are completed. DEFERRED REVENUE Deferred revenue represents deferred income from maintenance contracts. The income is recognized ratably over the applicable lives of the respective contracts. The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-11 TELESOFT CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) INCOME TAXES The Company accounts for income taxes in accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. STOCK COMPENSATION In October 1995, the Financial Accounting Standards Board issued Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"), which became effective during the year ended November 30, 1997. The Company has adopted the disclosure-only provisions of SFAS No. 123. WARRANTIES The Company offers a warranty of 90 days on hardware and software and an extended warranty program in connection with the Company's service and maintenance programs. The Company has not had any material claims made under its warranty program to date. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share of common stock were computed by dividing net earnings (loss) by the weighted average number of common shares. Diluted earnings (loss) per share are computed based on the weighted average number of shares of common stock and dilutive securities outstanding during the period. Dilutive securities are options that are freely exercisable into common stock at less than market exercise prices. Dilutive securities are not included in the weighted average number of shares when inclusion would increase the earnings per share or decrease the loss per share. ACCOUNTING PRONOUNCEMENTS: In August 2001, the Financial Accounting Standards Board issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for the disposal of a segment of a businessSFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company expects to adopt SFAS No. 144 December 1, 2002. The Company does not believe the adoption of SFAS No. 144 will have a material impact on its results of operations. The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-12 TELESOFT CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. CONCENTRATION OF CREDIT RISK: The Company maintains cash balances at various financial institutions. The Federal Deposit Insurance Corporation insures deposits not in excess of $100,000 on deposit at each institution. At November 30, 2001, the Company had uninsured cash and cash equivalent bank balances of approximately $766,000. Suppliers Prior to December 1, 2000, one telecommunications company provided the Company with a significant portion of its long distance telecommunications services. For fiscal 2001 and 2000, multiple telecommunications companies provided long distance services to the Company and, accordingly, no supplier accounted for greater than 10% of the Company's expenses. For the fiscal year ended November 30, 1999, fees paid to this company totaled approximately $2,323,000. As of November 30, 2001, the outstanding amount due to this service provider was approximately $44,700. Customers During the years ended November 30, 2001, 2000 and 1999, the Company did not have any customers that accounted for greater than 10% of its revenues. 3. Investment Securities: As of November 30, 2001 and 2000, the Company had no investment securities. Investment income for the years ended November 30, 2001, 2000 and 1999:

The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-13 TELESOFT CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. RESTRICTED CASH: At November 30, 2001, restricted cash represents cash held in a savings account in lieu of a security deposit for a TRS office lease. This lease expires in November 2002. 5. ACCOUNTS RECEIVABLE: At November 30, 2001 and 2000, accounts receivable include billed and unbilled amounts, as follows:

Unbilled accounts receivable represent amounts earned but not billed for long distance telephone service. At November 30, 2001, accounts receivable by product line is as follows:

At November 30, 2000, accounts receivable by product line is as follows:

6. INVENTORY: At November 30, 2001 and 2000, inventory consists primarily of finished products. The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-14 TELESOFT CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. PROPERTY AND EQUIPMENT: At November 30, 2001 and 2000, property and equipment consists of:

Depreciation and amortization expense was $415,844, $504,477, and $400,295 for the fiscal years ended November 30, 2001, 2000, and 1999, respectively. 8. COMPUTER SOFTWARE COSTS: At November 30, 2001and 2000, computer software costs capitalized are:

Amortization expense from continuing operations related to computer software cost during the years ended November 30, 2001, 2000, and 1999 was $50,325, $115,183, and $145,295, respectively. 9. INTANGIBLES: At November 30, 2001, there were no intangibles included in the Company's balance sheet. At November 30, 2000, intangibles consisted of:

There was no amortization expense during the years ended November 30, 2001, 2000 and 1999. The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-15 TELESOFT CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. INCOME TAXES: The components of the provision for (benefit from) income taxes for the years ended November 30, 2001, 2000, and 1999 consist of:

The Company's tax expense differs from the expense calculated using the statutory federal income tax rate for the following reasons:

The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-16 TELESOFT CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. INCOME TAXES: (CONTINUED) The income tax effect of temporary differences between financial and tax reporting gives rise to the deferred income tax assets and liabilities as follows:

The Company believes that it is likely to realize the net deferred tax asset subject to the Company's ability to generate profits in the future. Accordingly, no valuation allowance has been provided. The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-17 TELESOFT CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. STOCKHOLDERS' EQUITY: SERIAL PREFERRED STOCK The Company is authorized to issue 10,000,000 shares of serial preferred stock, no par value. As of November 30, 2001 and 2000, there were no shares issued or outstanding. COMMON STOCK WARRANTS During the year ended November 30, 1995, the Company issued 125,000 common stock warrants to the underwriters of the Company's initial public offering in exchange for $100. The warrants were exercisable at $7.20 per warrant for a period of four years beginning July 1, 1996. As of November 30, 1999, 125,000 common stock warrants were outstanding. As of November 30, 2000, these common stock warrants expired. DIVIDEND POLICY The Company has no limitations or restrictions for declaring dividends. As of November 30, 2001, no dividends have been declared. TREASURY STOCK The Board of Directors has authorized the repurchase of up to 10% of the Company's outstanding stock. During the years ended November 30, 2001, 2000, and 1999, the Company repurchased 90,995, 102,106, and 37,000 shares of its common stock on the open market for $146,575, $298,061, and $184,305, respectively. SELF-TENDER OFFER On February 3, 2000, the Company commenced an offer to repurchase up to 2.3 million shares of its common stock pursuant to a "Dutch auction" self-tender offer. On March 24, 2000, the tender offer expired. Pursuant to the tender offer, the Company repurchased a total of 2.3 million shares of its common stock. The purchase price for the shares of common stock was $7.25 per share and the proration factor was 60.22 percent. The Company redeemed 1,938,816 common shares for $14,056,416 and 351,352 common stock options for $1,112,674. Included in the common shares redeemed were 1,031,663 shares of the Company's common stock redeemed from affiliates of the Company for an aggregate of approximately $7,480,000. Additionally, the Company repurchased all 293,750 shares of common stock owned by Joseph Zerbib for $2,129,688. As of November 30, 2001, affiliates of the Company owned 695,837 shares or 49.1% of the outstanding common stock of the Company. Expenses incurred related to the tender offer were $85,991. The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-18 TELESOFT CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. STOCK PLANS: INCENTIVE STOCK OPTION PLANS Effective February 1, 1995, the Board of Directors adopted the 1995 Incentive Stock Option Plan (ISOP). Under the 1995 ISOP, a total of 264,000 shares are reserved for issuance at the discretion of the compensation committee. As of November 30, 2001, there were no common stock options outstanding under the 1995 ISOP. Effective April 15, 1996, the Board of Directors adopted an additional stock plan, the 1996 ISOP. The shareholders approved this plan on August 7, 1996. Under the 1996 ISOP, a total of 260,000 shares are reserved for issuance at the discretion of the compensation committee. As of November 30, 2001, options to purchase 4,000 shares of common stock were outstanding under the 1996 ISOP. These options are held by certain employees of the Company at an exercise price of $5.875 per share. The 1995 ISOP and 1996 ISOP authorize the Company to grant to key employees both nonqualified options and options intended to qualify as incentive options under Section 422 of the Internal Revenue Code. The plans are administered by the compensation committee, which has authority to interpret their provisions, to establish and amend rules for their administration, to determine the types and amounts of awards to be made pursuant to the plans, subject to the plans' limitations, and to approve recommendations made by management of the Company as to who should receive awards. On October 2, 1997, the board of directors adopted the 1997 Performance Equity Plan. On May 15, 1998, the board of directors amended the 1997 Plan. The shareholders subsequently approved the 1997 Plan. The board of directors has authorized 1,000,000 shares for grant under the 1997 Plan. Awards consist of stock options (both nonqualified options and options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code, restricted stock awards, deferred stock awards, stock appreciation rights and other stock-based awards, as described in the 1997 Plan. The 1997 Plan is administered by the compensation committee, which determines the persons to whom awards will be granted, the number of awards to be granted and the specific terms of each grant, including the vesting thereof, subject to the provisions of the 1997 Plan. As of November 30, 2001, options to purchase 136,719 shares of common stock were outstanding under the 1997 Plan. These options are held by certain employees of the Company at exercise prices ranging from $1.3125 to $4.875 per share. The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-19 TELESOFT CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. STOCK PLANS: (CONTINUED) The following table summarizes stock option activity:

Available for grant at: (a) November 30, 2000 1,373,771 November 30, 2001 1,383,281 (a) Available for grant includes shares that may be granted as either stock options or restricted stock, as determined by the Committee. Following is a summary of the status of options outstanding at November 30, 2001:

The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-20 TELESOFT CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. STOCK PLANS: (CONTINUED) OTHER OPTIONS No other options were granted during the years ended November 30, 2001, 2000 and 1999. STOCK BASED COMPENSATION All stock options issued to employees have an exercise price not less than the fair market value of the Company's common stock on the date of grant. In accordance with accounting for such options utilizing the intrinsic value method, there is no related compensation expense recorded in the Company's financial statements for the fiscal years ended November 30, 2001, 2000 and 1999. Had compensation cost for stock-based compensation been determined based on the fair value of the options at the grant dates consistent with the method of SFAS 123, the Company's net income (loss) and diluted earnings (loss) per share for the fiscal years ended November 30, 2001, 2000 and 1999 would have been reduced to the pro-forma amounts presented below:

The fair value of the option grants is estimated as of the date of grant utilizing the Black-Scholes option-pricing model with the following weighted average assumptions for grants in 2001, 2000 and 1999; expected life of options of one to three years, expected volatility of 51% in 2001, 64% in 2000, and 24% in 1999, risk-free interest rates of 8%, and a 0% dividend yield. The weighted average fair value at date of grant for options granted during 2001, 2000, and 1999 approximated $0.44, $1.08, and $1.03, respectively. The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-21 TELESOFT CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Related Party Transactions: Related party debt In April 2000, the Company entered into an agreement with three executive officers, pursuant to which each of them agreed to make available to the Company up to $1,000,000 at the Company's request. In May 2000, their agreements were amended to increase the amount to $1,350,000. Draw downs were payable on May 31, 2001 and had an annual interest rate of 10%. Each loan was secured by the Company's assets. Pursuant to a second amendment to their agreements in April 2001, each of the officers agreed to extend $350,000 of their loans until August 31, 2001. A third amendment to their agreements in July 2001 extended their loans until November 30, 2001. During the years ended November 30, 2001 and 2000, interest expense in connection with these notes was $41,089 and $115,754, respectively. As of November 30, 2000, an aggregate of $1,375,000 principal was outstanding under the notes and no interest was due thereon. As of November 30, 2001, there were no amounts outstanding under the notes and no interest was due thereon. 14. Employee Benefit Plans: The Company maintains a 401(k) profit sharing plan covering substantially all full-time employees. Under the terms of the plan, the employees may elect to contribute a portion of their salary to the plan. The Company has agreed to make matching contributions equal to fifty percent of the first 6% in deferred compensation. In addition, the Company may make discretionary contributions to the plan. For the fiscal year ended November 30, 2001, contributions were $81,850. During the fiscal years 2000 and 1999, the Company made matching contributions equal to fifty percent of the first $500 in deferred compensation plus twenty-five percent of deferrals in excess of $1,000. For the fiscal years ended November 30, 2000, and 1999, contributions were $62,982 and $46,878, respectively. 15. Commitments: Office Lease Commitments The Company is obligated under long-term operating leases for office facilities through the year 2007. As of November 30, 2001, future minimum lease payments due under the non-cancelable operating lease agreements are as follows:

Rent expense under all operating leases amounted to approximately $547,674, $386,224, and $335,000 for the years ended November 30, 2001, 2000, and 1999, respectively. The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-22 TELESOFT CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. Operating Leases: The Company was the lessor of equipment under operating lease agreements that expired in June 2000. The equipment had an original cost basis of $220,000. Accumulated depreciation was $220,000 as of November 30, 2001 and 2000. During the fiscal years ended November 30, 2000 and 1999, the Company received rental income of $47,587. The Company was also the sublessor of office space in Tempe, Arizona. The lease agreement expired in March 2000. During the fiscal years ended November 30, 2000 and 1999, the Company received $37,065 and $33,288, respectively under this agreement. 17. Research and Development: Research and development costs included in general and administrative expenses for the fiscal years ended November 30, 2001, 2000, and 1999 were $528,000, $1,168,000, and $1,424,000, respectively. These costs have been expensed during their respective fiscal years. 18. Discontinued Operations/Sale of GoodNet Effective January 12, 1998, the Company together with the minority shareholders of GoodNet, entered into an agreement with Winstar Communications, Inc. ("Winstar") to sell the Company's Internet services subsidiary, GoodNet, for approximately $22.0 million, consisting of $3.5 million cash and shares of common stock of Winstar having an aggregate market value of approximately $18.5 million. Under the terms of the agreement, the Company received approximately $3,500,000 in cash plus 479,387 shares of Winstar restricted common stock, which had an aggregate fair market value of approximately $13.9 million as of the close of business on January 12, 1998. After commissions and related legal expenses, the Company realized an approximate $13.2 million pretax gain on the sale in the first quarter of fiscal 1998. Additionally, the Company received $235,000 in cash to offset GoodNet's net cash disbursements from December 12, 1997 through the date of the sale. The results of operations of GoodNet have been shown as discontinued operations in the accompanying financial statements. The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-23

The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-24 TELESOFT CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. Earnings per Share: (Continued) At November 30, 2001, options to acquire 113,519 shares of common stock, at various prices per share, were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. At November 30, 2000, warrants and options to acquire 150,229 shares of common stock, at various prices per share, were not included in the computation of diluted EPS because the options had an anti-dilutive effect. At November 30, 1999, warrants and options to acquire 535,200 shares of common stock, at various prices per share, were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-25 TELESOFT CORP. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. SEGMENT INFORMATION The Company's products and services are broken down as follows: (1) System Sales and Maintenance (a) TelMaster Telemanagement System ("TMS") (b) Distribution Control System ("DCS") (c) Software and Hardware Recurring Maintenance Revenue (2) Telesoft Recovery Services ("TRS") (3) STS Outsourcing Program ("STS") (4) Customized Billing Outsourcing Services ("CBS") Following is selected segment information (in thousands except per share items):

The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-26

The Accompanying Notes are an Integral Part of the Consolidated Financial Statements F-27

TELESOFT CORP 10-K