EURONET WORLDWIDE INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-K

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

For the fiscal year ended December 31, 2001
Commission File Number 000-22167

EURONET WORLDWIDE, INC.
(Exact name of the Registrant as specified in its charter)

DELAWARE
(State of other jurisdiction of incorporation or organization)

74-2806888
(I.R.S. employer identification no.)

4601 COLLEGE BOULEVARD
SUITE 300
LEAWOOD, KANSAS 66211
(913) 327-4200
(Address and telephone number of the Registrant's principal executive offices)

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.02
par value

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

At February 20, 2002, the Registrant had 23,035,994 shares of common stock (the
"Common Stock") outstanding, and the aggregate market value of the Common Stock
held by non-affiliates of the Registrant was approximately $317 million. The
aggregate market value was determined based on the closing price of the Common
Stock on February 20, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders in 2002, which will be filed with the Securities and Exchange
Commission no later than 120 days after December 31, 2001, are incorporated by
reference into Part III.

PART I

ITEM 1. BUSINESS
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Overview

We are a leading provider of secure electronic financial transaction
solutions. We provide financial payment middleware, financial network gateways,
outsourcing, and consulting services to financial institutions, retailers and
mobile phone operators. We operate an independent automated teller machine
"ATM") network of 2,999 ATMs in Europe (and until January 2002 in the United
States), and through our software subsidiary, Euronet USA, Inc. ("Euronet USA"),
we offer a suite of integrated software solutions for electronic payment and
transaction delivery systems. We offer comprehensive electronic payment
solutions consisting of ATM network participation, outsourced ATM management
solutions and software solutions. Our principal customers are banks and other
companies such as mobile phone operators that require electronic financial
transaction processing services. With nine offices in Europe, one in Indonesia,
one in Egypt and two in the United States, we offer our solutions in more than
60 countries around the world.

The first company in the Euronet group was established in 1994 as a
Hungarian limited liability company. We began operations in 1995, setting up a
processing center and installing our first ATMs in Budapest, Hungary. We
commenced operations in Poland and Germany in 1995 and 1996, respectively. The
Euronet group was reorganized on March 6, 1997 in connection with its initial
public offering, and at that time the operating entities of the Euronet group
became wholly owned subsidiaries of Euronet Services Inc., a Delaware
corporation.

Until December 1998, we devoted substantially all of our resources to
establishing and expanding an ATM network and outsourced ATM management services
business in Central Europe (including Hungary, Poland, the Czech Republic,
Croatia and Romania) and Germany. On December 2, 1998, we acquired Euronet USA
(formerly Arkansas Systems, Inc.), a U.S. company that produces electronic
payments systems software for retail banks and is the leading electronic payment
software system for the IBM A/S 400 platform. As a result of this acquisition,
we were able to offer a broader and more complete line of services and solutions
to the retail banking market, including software solutions related not only to
ATMs, but also to point-of-sale ("POS"), credit and debit card operations and
internet and PC banking. We have invested in software research, development and
delivery capabilities and have integrated our ATM business and software
business. These two complementary businesses present strong cross selling
opportunities within our combined customer base and new opportunities to
leverage the core infrastructure and software to provide innovative value-added
e-commerce products and services.

Since 1999, we expanded our presence to Western Europe and in
particular the United Kingdom. As of December 31, 2001, we operated 567 ATMs in
the United Kingdom.

We changed our name from Euronet Services Inc. to Euronet Worldwide,
Inc. in August 2001.

We currently operate in two principal business segments. The first is
the Processing Services Segment, which comprises our proprietary ATM network,
outsourced management of ATMs for banks and various new processing services that
we provide for banks and mobile phone companies through our ATM network and
managed ATMs, such as mobile phone recharge services. Our second principal
segment is the Software Solutions Segment, which provides transaction processing
software solutions to banks that permit them to operate ATMs and POS terminals
and process financial transactions from those devices and the internet.

Market Opportunity

Processing Services Segment

Our Processing Services Segment provides services to banks and mobile
phone companies primarily in the developing markets of Central Europe and
Southern Europe (Hungary, Poland, Czech Republic, Croatia and Greece), the
developed countries of Western Europe (Germany, France, and the United Kingdom)
and, until January 2002, the United States. These markets present similar market
opportunities for our services, although we believe there are greater
opportunities for transaction growth in our core ATM services business in the
developing countries.

Our ATM network permits cardholders to make cash withdrawal, balance
inquiry and other transactions with cards issued by banks. The number of
transactions that are made on our ATMs depends very much on the

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number of bank cards that have been issued in the country where the ATM is
located. In the developing markets, the number of cards currently issued per
person is substantially lower than in the developed markets but is increasing
rapidly. We believe that transaction levels in the developing markets will
increase eventually to approximate those of the developed markets as banks bring
new customers into the banking system and issue more cards to their existing
customers. Therefore, the growth rates that we expect to achieve from
transaction-based revenues in developing markets are higher than in developed
markets.

In the developed European markets, there are fewer ATMs located away
from bank branches than in the United States. We believe that there are
opportunities in these markets to provide ATM access in places where our
experience suggests that customers use ATMs often, such as in shopping malls and
large retail outlets.

Economic development in the developing markets also influences the
growth rates we expect for certain other services that we offer. For example,
banks that are seeking to expand and develop their business in developing
markets are good potential clients for our existing ATM network, as we can
provide their customers access to ATMs that we have already installed in those
markets without the banks having to install ATMs themselves. Likewise, we offer
banks outsourced ATM services whereby we will establish a network of ATMs for
banks and operate those ATMs for a fixed monthly fee or a combination of a fixed
fee and a monthly fee. We also expect demand for our mobile recharge services to
grow more rapidly in developing countries as mobile phone penetration rates
increase.

In all of our markets except the United Kingdom, when a bank cardholder
conducts a transaction on one of the ATMs in our network, we receive a fee from
the cardholder's bank for that transaction. The bank pays us this fee either
directly or indirectly through a central switching and settlement network. When
paid indirectly, this fee is referred to as the "interchange fee". All of the
banks in a shared ATM and POS switching system establish the amount of the
interchange fee by agreement.

In the United Kingdom we are permitted to charge a transaction fee
directly to the person using the ATMs (which is referred to as "surcharging").
This surcharge is in place of the interchange fee and we determine its amount.
The surcharge currently ranges from GBP 1 to GBP 1.5 ($1.45 to $2.18), which is
substantially higher than the interchange fee determined by banks in the United
Kingdom, which is currently GBP 0.43 ($0.62). This permits us to realize more
income per transaction in the United Kingdom than most of our other markets and
makes it possible to operate profitable ATMs in locations with lower transaction
levels. Our aggressive roll-out of ATMs in the United Kingdom during 2001 was
based on the ability to surcharge there. The continuance of an aggressive
roll-out of ATMs in the United Kingdom is dependent on our ability to find
additional sites for ATMs that are capable of highly profitable transaction
levels. Certain machines that we have installed recently in the United Kingdom
had transaction levels that are lower that those of machines installed earlier.
This is partially due to the fact that transaction levels are lower at ATM
machines at Post Office sites and at sites at which cash is replenished by
merchants. Although these ATMs are profitable, they are generating returns that
are lower than we expected. We are examining a number of responses to this
situation, including using lower cost machines at these sites or reducing our
roll-out of machines in the United Kingdom. A decision to reduce our rate of
roll-out of ATMs or the continuing weakness of performance of certain ATMs could
result in a decrease in growth in our revenues and operating profits.

We believe that banks in both the developing and developed markets are
becoming more receptive to outsourcing the operation of their ATMs and POS
networks. The operation of these devices requires expensive hardware and
software and specialized personnel. We have these resources available and offer
them to banks under outsourcing contracts that provide that the banks pay a
monthly or transaction based fee to us. This arrangement reduces substantially
the investment a bank needs to make in order to operate its ATMs and POS
terminals. We believe there are opportunities for developing our outsourcing
business in all of our markets.

During 2001, we earned $2.3 million in revenues from providing
transaction switching and ATM monitoring services to banks located in the U.S.
Our processing company in Little Rock, Arkansas, EFT Network Services LLC (which
operated under the trade name "DASH") provided these services. We sold the DASH
operations to ALLTEL Information Services, Inc. on January 4, 2002 (see Note 29
to the Consolidated Financial Statements--Subsequent Events). Although the terms
of the DASH sale do not restrict our ability to establish a new processing
center in the U.S., we do not currently view the U.S. as a growth market for our
ATM services and we do not currently intend to re-establish that business in the
U.S.
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Throughout 2001, we reduced the number of ATMs we have in France in
response to new stringent safety requirements for off branch ATMs. As of
December 31, 2001 we had 68 ATMs in France and we were generating an operating
loss in that market. The new safety requirements were established in response to
pressure from the French unions representing cash delivery employees and will
come fully into effect on January 1, 2003. The requirements make it uneconomical
to operate off branch ATMs in France and we therefore expect to close our off
branch network of ATMs in France by January 1, 2003. We may continue to provide
outsourced management of ATMs in France. We do not expect the closure of the
French business to have a material impact on our financial results.

Software Solutions Segment

Although our Software Solutions Segment is headquartered in the United
States, approximately 75% of our software customers are overseas and in
particular in developing markets. This is largely because our core software
product, the Integrated Transaction Management system ("ITM") is a relatively
small and inexpensive package that is appropriate for banks with smaller
transaction processing needs. ITM is the preferred transaction processing
software for banks that operate their back office software using the IBM AS/400
iSeries platform, which is also a relatively inexpensive, expandable hardware
platform. We believe there will continue to be demand for our ITM software from
smaller banks in the developed markets and throughout the developing world as
new banks are established. Once a customer purchases our core software, we
provide a series of modules, upgrades and maintenance services that often result
in recurring revenues for us.

Strategy

We believe that the expansion and enhancement of our ATM network, both
in existing markets and new markets, will remain a core business strategy. We
continually strive to make our networks more efficient by eliminating the lowest
performing ATMs and installing new ATMs in good locations. We also have been and
will continue to focus heavily on the development of our outsourced management
solutions with fixed fee arrangements. We believe that increasing the number of
bank-owned ATMs that we operate under management agreements will provide
continued growth while minimizing the capital we place at risk.

We have expanded our outsourced management solutions beyond ATMs to
include card management and additional services such as POS terminal management,
prepaid mobile operator solutions and mobile phone banking and bill payment. We
support these services using our proprietary software products. The introduction
of value-added services for delivery over our ATM network has resulted in
increased transactions and revenues. In the last two years, we developed and
entered into a number of agreements for a new line of services involving the use
of our ATM networks and central processing infrastructure to provide users of
mobile phones the ability to purchase prepaid mobile phone time on ATMs and on
the mobile phones themselves. We contract with mobile phone providers to
facilitate their sale of mobile phone time, and are paid a commission on each
sale, often a percentage of the value of the mobile phone time purchased. In
this connection, we also contract with banks to be able to use their ATMs for
the sale of the mobile phone time, thereby expanding the distribution networks
we can offer to mobile phone operators. Our revenues from mobile phone recharge
solutions in 2001 were insignificant but we plan to continue pursuing this
business, which provides very high margin revenues for us.

We downsized our Software Solutions Segment in 2001 to bring expenses
in line with revenues, and this segment's improved results have contributed to
our overall results in 2001. We have made significant progress in reducing
software delivery times and adding resources to enhance and expand our software
products. Software products are now an integral part of our product lines, and
our investment in research, development, delivery and customer support reflects
our ongoing commitment to an expanded customer base. We have found that there
are significant opportunities for cross-selling processing services to our
software solutions customers and that our ability to develop, adapt and control
our own software gives us credibility with our processing services customers. In
addition, during 2001 we signed agreements under which we will use our software
in lieu of cash as our initial capital contributions to new transaction
processing joint ventures that we have planned for 2002 (one in Malaysia and one
in Yugoslavia). This is permitting us to enter these new markets without any
cash outlay. Therefore, although revenues from our Software Solutions Segment
are not currently growing significantly, we view it as a valuable piece of our
overall business strategy.
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Operations

Processing Services Segment

Overview

At December 31, 2001 and 2000 we operated 2,999 and 2,634 ATMs,
respectively. The major source of revenue generated by our ATM network is
transaction revenue. The transactions processed by the ATM network increased by
30% from 52.7 million transactions in 2000 to 68.4 million transactions in 2001.
Revenue sources of the Processing Services Segment also include outsourced
management revenue, which is revenue from operating ATMs that we do not own,
prepaid mobile phone voucher revenue and advertising revenue. The number of ATMs
operated under outsourced management agreements increased from 734 at December
31, 2000 to 915 ATMs at December 31, 2001.

Our experience is that the level of transactions on our networks is
subject to substantial seasonal variation. Transaction levels have consistently
been much higher in the last quarter of the year due to increased use of ATMs
during the holiday season. There is a drop in the level of transactions in the
first quarter, during which transaction levels are generally the lowest we
experience during the year. As an example, transactions in the first quarter of
2001 were approximately 11% lower over our entire network than in the second
quarter. Transactions in the fourth quarter 2001 were approximately 4% higher
over our entire network than in the third quarter. Since revenues of the
Processing Services Segment are primarily transaction based, this segment is
directly affected by this seasonality. In years prior to 2001, we believe our
aggressive roll-out of ATMs lessened the impact of seasonal variations on our
overall transaction levels and revenues, as transactions from new ATMs
compensated for reduction in overall transaction levels.

ATM network growth in 2001 is attributable to transaction growth and
additional outsourcing contracts in our established markets, in particular
Poland, Hungary, the Czech Republic, Croatia and the United States as well as
the roll out of additional ATMs in the United Kingdom. Of the net 365 ATMs added
to the network, 250 ATMs are located in the United Kingdom. The past increases
in ATMs in the UK does not necessarily predict future growth in ATMs in this
market. The ability to continue growing the UK market is dependent upon the
ability to find suitable sites with high transaction volume potential. There is
some likelihood that we will have to relocate certain ATMs installed in the UK
during 2001 because they probably will not mature to acceptable transaction
levels.

ATM Transaction Processing

Our ATMs are able to process transactions for holders of credit and
debit cards issued by or bearing the logos of banks and international card
organizations such as American Express, Diners Club International, VISA,
MasterCard and EUROPAY. This is accomplished through our agreements and
relationships with these banks, international credit and debit card issuers and
international associations of card issuers.

In a typical ATM transaction, the transaction is routed from the ATM to
our processing center, and then to the card issuer for authorization. Once
authorization is received, the authorization message is routed back to the ATM
and the transaction is completed. The card issuer is responsible for
authorization of ATM transactions processed on our ATMs.

The card issuer pays us a transaction processing fee, even for certain
transactions that are not completed because they fail to receive authorization.
The fees we charge to the card issuers are independent of any fees charged by
the card issuers to cardholders in connection with the ATM transactions. We do
not charge cardholders a fee for using our ATMs, except in the UK where we
charge a "surcharge" fee that currently ranges between GBP 1 and GBP 1.50 on
each cash withdrawal transaction.

We monitor the number of transactions made by cardholders on our
network. These include cash withdrawals, balance inquiries, deposits and certain
denied (unauthorized) transactions. We do not bill certain transactions on our
network to banks, and we have excluded these transactions for reporting
purposes. The number of transactions processed over our entire ATM network
increased as follows: 15.5 million in 1998, 32.9 million in 1999, 52.7 million
in 2000 and 68.4 million in 2001. The number of transactions processed monthly
grew from approximately 5.3 million in December 2000 to approximately 6.6
million in December 2001.
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A number of factors affect the transaction volumes processed on any
given ATM, including location of the ATM and the amount of time the ATM has been
installed at that location. Our experience is that the number of transactions on
a newly installed ATM is initially very low and increases for varying periods of
from three to twelve months after installation, depending upon the market, as
consumers become familiar with the location of the machine. As the ATM network
has matured, the number of transactions per ATM has increased. We have an
ongoing policy of re-deploying under-performing ATMs to locations that we
believe are better for transaction volumes. We anticipate that future
transaction growth at our ATMs will depend heavily upon increased card issuance
in developing markets and continued re-deployment of ATMs to better locations.

We believe that the location of ATMs is one of the most important
factors in determining the success of an ATM network. Key target locations for
our ATMs include (i) major shopping malls, (ii) busy intersections, (iii) local
smaller shopping areas offering grocery stores, supermarkets and services where
people routinely shop, (iv) mass transportation hubs such as city bus and subway
stops, rail and bus stations, airports and gas stations, and (v) tourist and
entertainment centers such as historical sections of cities, cinemas, and
recreational facilities.

Recognizing that convenience and reliability are principal factors in
attracting and retaining ATM customers, we have invested in the establishment of
advanced ATM machines and monitoring systems, as well as redundancies to protect
against network interruption. We centrally monitor the performance and cash
positions of our ATMs around the clock, and dispatch local operations and
maintenance contractors to service the machines. Our ATMs in all markets except
Germany are linked by satellite or land based telecommunications lines to our
processing centers.

Other Products and Services

Our network constitutes a distribution network through which financial
and other products or services may be sold at a low incremental cost. We have
developed added value services in addition to basic cash withdrawal and balance
inquiry transactions. These new services include sale of prepaid mobile phone
time, bill payment and "mini-statement" transactions. We have an ongoing
commitment to develop innovative new products and services to offer our
Processing Services customers and will implement additional services as markets
develop.

In November 1999, we began to sell pre-paid mobile telephone vouchers
on our networks in Hungary and Poland. In May and October 2000, we added this
service to our Czech Republic and Croatian ATM networks, respectively. As of
December 31, 2001, we have twelve agreements of which eight are live with mobile
operators in various markets. In Poland we have signed contracts with all of the
mobile operators. In September 2001, we entered into a joint venture with a
Malaysian group to establish a company to provide this service in Malaysia and
other Asian countries, including China.

Since May 1996, we have been selling advertising on our network.
Advertising clients can put their advertisements on the video screens of our
ATMs, on the receipts issued by the ATMs and on coupons dispensed with cash from
the ATMs.

Card Acceptance or Sponsorship Agreements

Our agreements with banks and international card organizations
generally provide that all credit and debit cards issued by the customer bank or
organization may be used at all ATM machines we operate in a given market. In
many markets, we have agreements with a bank under which we are designated as a
service provider for the acceptance of cards bearing international logos, such
as Visa and Mastercard (which we refer to as "sponsorship agreements"). These
card acceptance or sponsorship agreements allow us to receive transaction
authorization directly from the card issuing bank or international card
organization. Our agreements generally provide for a term of three to seven
years and are automatically renewed unless either party gives notice of non
renewal prior to the termination date. In some cases, the agreements are
terminable by either party upon six months' notice. We are generally able to
connect a bank to our network within 30 to 90 days of signing a card acceptance
agreement. Generally, the bank provides the cash needed to complete transactions
on the ATM, although we have contracted for cash supply with a cash supply bank
in the U.K.

Under our card acceptance agreements and many of our outsourced
management agreements, we are required to maintain insurance on the cash in the
ATMs. We also maintain insurance against vandalism and theft of the ATMs
themselves. During 2001 the number of incidents of theft and vandalism grew in
certain markets, and claims for all ATM-related losses during the year
(including cash losses, property, and business interruption from

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inoperable ATMs) were approximately $0.9 million. Insurance for ATM related
risks is increasing, both as a result of these losses and overall increases in
insurance rates following the September 11 terrorist incident.

The ATM transaction fees we charge under our card acceptance agreements
vary depending on the type of transaction (which are currently cash withdrawals,
balance inquiries, mobile air time sales, deposits and transactions not
completed because authorization is not given by the relevant card issuer) and
the quantity of transactions attributable to a particular card issuer.

Our agreements generally provide for payment in local currency.
Transaction fees are sometimes denominated in U.S. Dollars or inflation
adjusted. Transaction fees are billed on terms no longer than one month.

Outsourced Management Solutions

We offer complete outsourced management services to banks and other
organizations using our processing center's full suite of secure electronic
financial transaction processing software. Our outsourced management services
include management of an existing bank network of ATMs, development of new ATM
networks on a complete turn-key basis (as we are doing for Citibank in Greece),
management of POS networks, management of credit and debit card bases and other
financial processing services. These services include 24-hour monitoring from
our processing centers of each individual ATM's status and cash condition,
coordinating the cash delivery and management of cash levels in the ATM and
automatic dispatch for necessary service calls. They also include real- time
transaction authorization, advanced monitoring, network gateway access, network
switching, 24-hour customer services, maintenance services, settlement and
reporting. We already provide these services to existing customers and we have
invested in the necessary infrastructure. As a result, any new agreements we
sign for outsourced management services would provide additional revenue with
lower incremental cost.

Our outsourced management agreements, other than in Germany, provide
for fixed monthly management fees in addition to fees payable for each
transaction. Therefore, the transaction fees under these agreements are
generally lower than under card acceptance agreements. The fees payable under
our outsourced management agreement in Germany are purely transaction based and
include no fixed component.

Segment Results

The cost of operating ATMs varies from country to country. On a per ATM
or transaction basis, the operating cost depends on the proportions of fixed and
variable cost, and therefore the stage of development of a new country market,
the number of ATMs in that market and the number of transactions. As the network
reaches a more mature stage, the operating costs begin to resemble fixed costs,
with increases in revenue generating incrementally less operating costs.

Direct operating costs as a percentage of ATM network revenue decreased
from 83% in 1999 to 66% in 2000 and to 57% in 2001. We intend to continue to
improve the ratio of direct operating costs to revenue as the network continues
to mature and growth continues in higher margin outsourcing management
solutions.

For a discussion of revenues and operating profits/losses of the
Processing Services Segment during each of the last three fiscal years,
including a breakdown for each geographic sub-segment and the percentages
thereof attributable to ATM transaction processing, please see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Comparison of operating results for the years ended December 31,
2001, 2000 and 1999--Processing Services Segment".

Software Solutions Segment

Overview

Through our subsidiary Euronet USA, we offer an integrated suite of
card and retail transaction delivery applications for the IBM AS/400 platform
referred to as the "Integrated Transaction Management" (ITM) system. The core
systems of this product provide for transaction identification, transaction
routing, security, transaction detail logging, network connections,
authorization interfaces and settlement. Front-end systems in this product
support ATM and POS management, telephone banking, internet banking, kiosks, and
workstation authorization. These systems provide a comprehensive solution for
ATM, debit or credit card management and bill payment facilities. We now also
offer Goldnet, a shared electronic financial transaction network solution that
allows us to

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authorize, switch and settle transactions for multiple banks. We use Goldnet for
our own EFT requirements in eight countries in Europe.

We are in the process of repositioning Euronet USA in the market
through development and release of a new set of products that leverage Euronet
USA's traditional core product lines, including a new, platform independent Java
based transaction processing software package with wireless banking and
messaging modules and a set of mobile phone prepaid recharge solutions. It has
become apparent, based on market reaction to these new products, that these new
products and solutions rather than Euronet USA's traditional ITM solution will
be the primary source of software solutions revenues in the future.

We have invested significant resources in increasing the delivery
pipeline for our software solutions and expanding customer service. We have
expanded our European headquarters in Budapest to provide comprehensive delivery
and support for our European customer base. We have made further investments in
research and development of a number of new e-commerce and m-commerce products
that should enhance the segment's performance in the future.

Segment Results and Software Sales Backlog

Software Solutions Segment revenue is derived from three main sources:
software license fees, professional service fees and software maintenance fees.
Software license fees are the initial fees we charge for the licensing of our
proprietary application software to customers. We charge professional service
fees for customization, installation and consulting services provided to
customers. Software maintenance fees are the ongoing fees we charge to customers
for the maintenance of the software products.

The Software Solutions Segment revenue for the year ended December 31,
2001 was approximately $15.2 million, of which software license fees accounted
for 20%, professional service fees accounted for 44% and software maintenance
fees accounted for 33%. The remaining 3% of revenue was miscellaneous revenue
including margins on hardware sales. We do not breakdown revenues for this
segment on a geographic basis.

Revenues from software licensing agreement contracts are recognized
over the contract term using the percentage of completion method based on the
percentage of services that are provided compared with the total estimated
services to be provided over the entire contract. Revenue from time and material
service contracts is recognized as the services are provided. Revenues from
software licensing agreement contracts representing newly released products
deemed to have a higher than normal risk of failure during installation are
recognized on a completed contract basis whereby revenues and related costs are
deferred until the contract is complete. Maintenance revenue is recognized over
the contractual period or as services are performed. Revenue in excess of
billings on software license agreements contracts is recorded as unbilled
receivables and is included in current assets. Billings in excess of revenue on
software license agreements contracts is recorded as deferred revenue and is
included in current liabilities until such time the above revenue recognition
criteria are met.

We define "software sales backlog" as fees specified in contracts which
have been executed by us and for which we expect recognition of the related
revenue within one year. At December 31, 2001 the revenue backlog was $2.5
million, as compared to December 31, 2000 when the revenue backlog was $3.5
million and at December 31, 1999 when the revenue backlog was $3.1 million. The
decrease in backlog from December 31, 2000 results principally from the timing
of software sales. We intend to continue to focus on expediting the delivery and
implementation of software in an effort to deliver existing backlog sales, while
simultaneously replenishing the backlog through continuing product sales growth.
The increase in backlog from December 31, 1999 as compared to 2000 resulted
principally from growth in software sales.

For a discussion of revenues and operating losses of the Software
Solutions Segment during each of the last three fiscal years, please see "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations--Comparison of operating results for the years ended December 31,
2001, 2000 and 1999--Software Solutions Segment".

Research and Development

We have made an ongoing commitment to the development, maintenance and
enhancement of our products and services. We regularly engage in research and
development activities aimed at the development and delivery of new products,
services and processes to our customers, including bill payment and presentment,
telephone banking

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products, applications for wireless application protocol ("WAP") enabled
customer touch points, other wireless banking products, prepaid mobile phone
recharge products, browser based ATM software products and internet banking
solutions. We are also making significant improvements to our core software
products.

Our research and development costs for computer products to be sold,
leased or otherwise marketed totaled $5.0 million for 2001, $6.7 million for
2000 and $3.2 million for 1999. Of this figure, $1.3 million was capitalized
under our accounting policy requiring the capitalization of development costs on
a product-by-product basis once technological feasibility is established through
the completion of a detail program design or the creation of a working model of
the product. Technological feasibility of computer software products is
established when we have completed all planning, designing, coding, and testing
activities that are necessary to establish that the product can be produced to
meet its design specifications including functions, features, and technical
performance requirements. Technological feasibility is evidenced by the
existence of a working model of the product or by completion of a detailed
program design.

Technology and Processing Facilities

ATM Hardware

We use IBM/Diebold and NCR ATMs. We currently have long term contracts
with these manufacturers to purchase ATMs at contractually defined prices which
include quantity discounts. However, there are no contractually defined
commitments with respect to quantities to be purchased. Because we operate the
largest Pan-European ATM network, we have substantial negotiating leverage with
ATM manufacturers and we believe we have received favorable prices as compared
to lower volume purchasers. The wide range of advanced technology available from
IBM/Diebold and NCR provides our customers with state-of-the-art electronics
features and reliability through sophisticated diagnostics and self-testing
routines. Our ATMs are modular and upgradable so that they can be adapted to
provide additional services in response to changing technology and consumer
demand. This allows us to modify our ATMs to provide new services without
replacing our existing network infrastructure.

Telecommunications

Strong back office central processing support is a critical factor in
the successful operation of an ATM network. Each ATM (other than ATMs in
Germany) is connected to a Euronet processing center through satellite or
land-based telecommunications depending upon physical location, reliability of
the communications supplier and cost. Because we strive to ensure very high
levels of reliability for our network, we rely primarily on satellite
telecommunications to the processing center in Budapest for most of our ATM
connections in Central Europe. Our Budapest processing center is, in most cases,
linked by VSAT telecommunications to the card issuers. The VSAT
telecommunications providers generally guarantee uninterrupted service for 99.9%
of the time. ATMs in France are linked to the processing center in Budapest by
land telephone lines.

We continually strive to improve the terms of our agreements with our
telecommunications providers and have entered into multi-country agreements with
lower rates for service. In this regard, new agreements are negotiated
periodically with our VSAT suppliers, establishing a lower communication cost
per ATM that takes into account transaction volume growth.

Our agreements with our satellite telecommunications providers contain
certain assurances with respect to the repair of satellite malfunction to ensure
continuous reliable communications for the network. As the reliability of land
based telecommunications improves in the emerging economies in which we do
business, we may rely more heavily on them because they are generally less
expensive than satellite telecommunications.

Processing Centers

Our primary processing center is in our offices in Budapest, Hungary.
It is staffed 24 hours a day, seven days a week and consists of two production
IBM AS/400 computers which run the Euronet USA Gold Net ATM software package, as
well as a real time back up AS/400. The back up machine provides high
availability during a failure of either production AS/400. The Budapest
processing center also includes two AS/400s used for product and connection
testing and development. Our software is a state of the art software package
that conforms to all relevant industry standards and has been installed in at
least 60 countries worldwide. The Budapest processing center's computers operate
our ATMs and interface with the local bank and international transaction
authorization centers.

9

To protect against power fluctuations or short-term interruptions, the
Budapest processing center has full uninterruptable power supply systems with
battery back-up to service the network in case of a power failure. The Budapest
processing center's data back-up systems would prevent the loss of transaction
records due to power failure and permit the orderly shutdown of the switch in an
emergency. The center also has a gasoline powered generator available to supply
electrical power to the processing center in the event of a prolonged power
outage.

In July 2001, our Budapest processing center was certified to process
transactions on ATMs in the U.K. by the LINK switch. We thus became the only
foreign company that has been certified in this fashion. We view this
certification as significant and as a validation of the high quality of our
processing center.

Until the end of 2001 we had a second processing center in Little Rock,
Arkansas. This center processed transactions for approximately 531 ATMs in the
U.S. as of December 31, 2001. We sold this center on January 4, 2002 to ALLTEL
Information Systems together with the other assets of EFT Network Services, LLC.
(see Note 29 to the Consolidated Financial Statements--Subsequent Events).

Competition

Processing Services Segment

Our principal Processing Services competitors in markets outside the
United Kingdom include ATM networks owned by banks and regional networks
consisting of consortiums of local banks. In the U.K., principal competitors
include individual banks operating proprietary ATM networks as well as several
independent, non-bank owned ATM networks that operate over one thousand ATMs. In
the U.K. we are encountering direct competition for ATM sites from these other
independent networks, which sometimes offer higher amounts of rent for ATM sites
than we do. In the future, large, well financed companies that operate ATMs,
such as EDS or American Express, may also establish ATM networks in competition
with us in various markets. Competitive factors in our Processing Services
business include network availability and response time, price to both the bank
and to its customers, ATM location and access to other networks.

There are many companies that offer electronic recharge services for
mobile phone airtime in the markets where we do business, particularly through
use of POS terminals. These companies include Sonera Smart Trust, ITG, Hypercom,
PreNet, e-Vita and Sicap. We believe, however, that we have a competitive
advantage in that we offer recharge solutions on all customer touch points,
including ATMs, POS terminals, mobile phones and the internet, and we process
the financial transactions associated with the recharge.

Software Solutions Segment

We believe we are the leading supplier of electronic financial
transaction processing software for the IBM AS/400 platform. Other suppliers
service the software requirements of large mainframe systems and UNIX based
platforms.

Competitors of the Software Solutions Segment compete primarily in the
following four areas: (i) ATM, network and point-of-sale software systems, (ii)
internet banking software systems, (iii) credit card software systems and (iv)
wireless banking software systems. The principal competitor with respect to ATM,
network and point-of-sale software systems is Applied Communications Inc.
("ACI") based in Omaha, Nebraska which enjoys a large market share due to its
early entry into the financial systems software market and a client base of
larger banks and financial institutions. Oasis Software International, based in
Toronto, Canada, also competes in the area of ATM, network and point-of-sale
software systems. Internet banking software systems competitors include Edify
Corporation, a division of S1 Corporation based in Santa Clara, California and Q
UP Systems Inc. based in Austin, Texas. Both Edify Corporation and Q UP Systems
Inc. have started operations during the last decade and specialize in internet
banking systems. Our principal competitor with respect to credit card software
systems is PaySys International Inc., based in Orlando, Florida. Competitors in
the wireless banking software market include 724 Solutions, based in Toronto,
Canada and Brokat AG, based in Stuttgart, Germany.

Competitive factors in the Software Solutions business include price,
technology development and the ability of software systems to interact with
other leading products.

10

Employees

Our business is highly automated and we outsource many of its
specialized, repetitive functions such as ATM maintenance and installation, cash
delivery and security. As a result, our labor requirements for operation of the
network are relatively modest and are centered on monitoring activities to
ensure service quality and cash reconciliation and control. We also have a
customer service department to interface with cardholders to investigate and
resolve reported problems in processing transactions.

Our roll-out of ATMs, our development of new products and individual
bank connections and our expansion into new markets creates a need for qualified
staff on many levels. We require skilled staff to identify desirable locations
for ATMs and negotiate ATM lease agreements. In addition, ensuring consistency
in quality and approach in new markets and proper coordination and
administration of our expansion requires staff in the areas of technical
operations, financial analysis, project management, human resources,
communications, marketing and sales. We believe that our future success will
depend in part on our ability to continue to recruit, retain and motivate
qualified management, technical and administrative employees. The success of our
Software Solutions business in particular depends upon the ability to hire and
retain highly qualified computer engineers and programmers.

As of December 31, 2000, we had 478 employees. In the first quarter
2001 we reduced staffing, primarily in Little Rock and Budapest, in a
reorganization of our software business. We had 384 employees as of December 31,
2001.

We have a European head office organization, European software delivery
and support center and European processing center in Budapest, Hungary. We have
an office in Little Rock, Arkansas where Euronet USA is based. Our corporate
headquarters is in Leawood, Kansas. None of our employees is currently
represented by a union. We have never experienced any work stoppages or strikes
by our workforce.

Government Regulation

We have received advice from banking supervisory authorities or local
counsel in each of the markets in which we do business to the effect that our
business activities in those markets do not constitute "financial activities"
subject to licensing. Any expansion of our activity into areas which are
qualified as "financial activity" under local legislation may subject us to
licensing and we may be required to comply with various conditions in order to
obtain such licenses. Moreover, the interpretations of bank regulatory
authorities as to the activity we currently conduct might change in the future.
We monitor our business for compliance with applicable laws or regulations
regarding financial activities.

Under German law, ATMs in Germany may be operated only by licensed
financial institutions. We therefore may not operate our own ATM network in
Germany and in that market we act only as a subcontractor providing certain
ATM-related services to a sponsor bank. As a result, our activities in the
German market currently are entirely dependent upon the continuance of the
agreement with our sponsor bank, or the ability to enter into a similar
agreement with another bank in the event of the termination of such agreement.
In April 2000, we entered into a new sponsorship agreement with DiBa Bank
canceling an agreement with Service Bank, our previous sponsor bank. We believe,
based on our experience, that we should be able to find a replacement for DiBa
if the agreement with DiBa is terminated for any reason. However, the inability
to maintain the DiBa agreement or to enter into a similar agreement with another
bank upon a termination of the DiBa agreement could have a material adverse
effect on our operations in Germany.

Introduction of the Euro

Starting January 1, 2002, our ATMs in Germany, France and Greece began
dispensing Euros rather than the former currencies of those countries. The
transition to the Euro from such currencies did not require significant expense
on our part. The existence of a single currency in these countries may provide
opportunities for operating efficiencies.

Trademarks

We have filed applications for registration of certain of our
trademarks including the names "Euronet" and "Bankomat" and/or the blue diamond
logo in Hungary, Poland, the Czech Republic, Slovakia, and Sweden. These
applications have been granted in Hungary, Poland and Croatia but are still
pending in the other countries. Certain

11

trademark authorities have notified us that they consider the trademarks
"Euronet" and "Bankomat" to be generic and therefore not protected by trademark
laws. This determination does not affect our ability to use the Euronet
trademark in those markets. However, it would prevent us from stopping other
parties from using it in competition with Euronet. We have purchased a
registration of the "Euronet" trademark in the class of ATM machines in Germany,
France, the United Kingdom and certain other Western European countries.

During 2000 and 2001, we filed patent applications for a number of our
new software products and processes, including our recharge services and a
browser based ATM operating system. Technology in the areas in which we operate
is developing very rapidly and we are aware that many other companies have filed
patent applications for similar products. The procedures of the U.S. patent
office make it impossible for us to predict whether our patent applications will
be approved or will be granted priority dates that are earlier than other
patents that have been filed for similar products or services. If other
applicants are granted priority dates that are earlier than ours, and their
patents are considered to cover technology that has been incorporated into our
systems, we may be required to pay royalties to the holders of such patents in
order to continue to use such technology. This could materially and adversely
affect our business.

Executive Officers of the Registrant

The name, age, period of service and position held by each of our
Executive Officers are as follows:

Name Age Served Since Position Held
- ---- --- ------------ -------------

Michael J. Brown 45 June 1994 Chairman and Chief Executive Officer
Daniel R. Henry 36 June 1994 Director, President and Chief Operating Officer
Jeffrey B. Newman 47 January 1997 Executive Vice President -- General Counsel
Kendall Coyne 46 May 2001 Chief Financial Officer
Miro Bergman 39 December 1998 Executive Vice President - EMEA General Manager
James P. "Jim" Jerome 44 October 1999 Executive Vice President, Managing Director -- Euronet Software
Division

Michael J. Brown is one of the founders of our company and has served
as its Chief Executive Officer since 1994. In 1979 Mr. Brown founded Innovative
Software, a computer software company that was merged with Informix in 1988. Mr.
Brown served as President and Chief Operating Officer of Informix from February
1988 to January 1989. He served as President of the Workstation Products
Division of Informix from January 1989 until April 1990. In 1993 Mr. Brown was a
founding investor of Visual Tools, Inc. Visual Tools, Inc. was acquired by
Sybase Software in February 1996. Mr. Brown received a B.S. in Electrical
Engineering from the University of Missouri-Columbia in 1979 and a M.S. in
Molecular and Cellular Biology at the University of Missouri-Kansas City in
1996. Mr. Brown has been a Director of Euronet since its incorporation in
December 1996 and he previously served on the boards of Euronet's predecessor
companies. Mr. Brown's term will expire in July 2004. Mr. Brown is married to
the sister of Mr. Henry's wife.

Daniel Henry founded our predecessor company with Michael Brown in 1994
and served as Chief Operating Officer until September 2001 when he was appointed
President. Mr. Henry is responsible for all of our operations, including the
United States and overseas. He is also responsible for our expansion into other
countries and the development of new markets. Prior to joining us, Mr. Henry was
a commercial real estate broker for five years in the Kansas City metropolitan
area where he specialized in the development and leasing of premiere office
properties. Mr. Henry received a B.S. in Business Administration from the
University of Missouri-Columbia in 1988. Mr. Henry has been a Director of the
Company since its incorporation in December 1996 and he previously served on the
boards of our predecessor companies. His term as Director will expire in May
2003. Mr. Henry is married to the sister of Mr. Brown's wife.

Jeffrey B. Newman joined us as Vice President and General Counsel on
January 31, 1997. Prior to this, he practiced law in Paris with the law firm of
Salans Hertzfeld & Heilbronn and then with the Washington, D.C. based law firm
of Arent Fox Kintner Plotkin & Kahn, PLLC, of which he was a partner from 1993
until joining the Company in 1997. He established the Budapest office of Arent
Fox Kintner Plotkin & Kahn, PLLC in 1991. He is a member of the Virginia,
District of Columbia and Paris bars. He received a B.A. in Political Science and
French from Ohio University and law degrees from Ohio State University and the
University of Paris.

12

Kendall Coyne joined us in May 2001 as Chief Financial Officer.
Before joining us, Mr. Coyne was Vice President of Aerie Network Services,
Inc. of Denver, Colorado, a start-up fiber-optic telecommunications company.
Prior to that, Mr. Coyne spent four years at Sprint PCS as Vice President and
Director of Tax Policy. Mr. Coyne holds a masters degree from Rockhurst
University, Kansas City, MO, a BBA in Accounting from the University of New
Mexico, Anderson School of Management and is a Certified Public Accountant.

Miro Bergman joined us in 1997 as country manager for the Czech
Republic. He subsequently became an area director responsible for our operations
in Central Europe, and is now the Managing Director for the entire Europe,
Middle East, and Africa region. Prior to joining us, Mr. Bergman was with
First Bank System from 1992 to 1996 as vice president in charge of the bank's
off-premise ATM business of over 1,200 ATMs. He also served as vice president of
new Visa Co-Brand card program initiatives. From 1988 to 1992, Mr. Bergman
worked for Citicorp-Diners Club in various card management and marketing
positions. Mr. Bergman received a bachelors degree in business administration
from the University of New York at Albany and an M.B.A. from Cornell University.

Jim Jerome currently serves as Executive Vice President and Managing
Director of our software division. He joined us in October 1999, managing the
delivery of products and services. Previously, he had served in various
capacities with Electronic Banking Services since 1994. From 1992 to 1994 he was
a senior account executive, responsible for commercial banks and west-coast
clients, and from 1990 to 1992 he was conversion manager for the Houston
Regional Service Center. Prior to that, Mr. Jerome was a senior systems analyst
at First City National Bank in Austin, Texas. Mr. Jerome served in various
profitability systems capacities with Republic Bank of Houston from 1982 to
1983. His industry affiliations include serving as a director on the Electronic
Funds Transfer Association Board, the Base24 User Group, and as a board member
of the Exchange Network Advisory Council. He received his degree in business
administration from the State University of New York in 1979.

ITEM 2. PROPERTY.
- -----------------

Our executive offices are located in Leawood, Kansas. The European head
office and European Processing Center are located in Budapest, Hungary. We also
maintain offices in Warsaw, Zagreb, Prague, Berlin, Paris, Bucharest, Athens,
Cairo, and London; in the United States in Little Rock, Arkansas and in Jakarta,
Indonesia. All of our offices are leased. Our office leases provide for initial
terms of 24 to 84 months.

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

We are not currently involved in any material legal proceedings.

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

Not applicable.

13

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- -------------------------------------------------------------------------------

Market Information

From March 1997 to November 8, 1999, the Common Stock was quoted on the
NASDAQ National Market under the symbol EEFT. On November 8, 1999, our listing
was shifted to the NASDAQ SmallCap Market. We recently applied to have our
Common Stock listed on the NASDAQ National Market. As of the date of this
report, our application is still pending. The following table sets forth the
high and low closing prices for the Common Stock for the periods indicated:

2001 2000
---------------------------------------- ---------------------------------------
Quarter High Low Quarter High Low
---------- ------- ------- ---------- ------- -------

Fourth 18.20 11.54 Fourth 8.25 4.00
Third 14.00 8.45 Third 9.13 6.94
Second 9.00 5.40 Second 10.00 5.25
First 8.06 4.50 First 10.63 6.00

Dividends

Since our inception, no dividends have been paid on the Common Stock.
We do not intend to distribute dividends for the foreseeable future.

Holders

At December 31, 2001 and 2000 there were approximately 107 and 103
record holders of the Common Stock, respectively.

Private Placements and Issuances of Equity.

In February 2002, we entered into subscription agreements for the sale
of 625,000 shares of Common Stock. These agreements were signed with accredited
investors in transactions exempt from registration pursuant to the exemptions
provided in Section 4(2) and Regulation D of the Securities Act. The purchase
price of each share was $20.00. We received aggregate proceeds of approximately
$12 million from the private placement.

ITEM 6. SELECTED FINANCIAL DATA.
- ------- ------------------------

SELECTED CONSOLIDATED FINANCIAL DATA

The summary consolidated financial data set forth below have been
derived from, and are qualified by reference to, our audited consolidated
financial statements and the notes thereto, prepared in conformity with
generally accepted accounting principles as applied in the United States ("U.S.
GAAP"), which have been audited by KPMG Polska Sp. z o.o., independent public
accountants. We believe that the period-to-period comparisons of our financial
results are not necessarily meaningful due to our significant acquisitions in
December 1998 and January 1999, and should not be relied upon as an indication
of future performance. The following information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein.

14

Year Ended December 31,
----------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
(in thousands, except for share and per share data)

Consolidated Statements of Operations Data:
Revenues:
ATM network and related revenue $ 49,129 $ 36,913 $ 26,503 $ 11,525 $ 5,290
Software and related revenue 15,042 15,827 14,969 356 -
------------ ------------ ------------ ------------ ------------

Total 64,171 52,740 41,472 11,881 5,290

Operating expenses:
Direct operating costs 28,101 24,988 22,830 10,036 3,717
Salaries and benefits 24,874 29,265 24,350 9,723 3,796
Selling, general and administrative 8,051 11,531 10,725 8,650 4,468
Depreciation and amortization 9,112 10,384 10,238 4,955 1,731
In-process research and development
write-off - - - 1,020 -
Asset write down - 11,968 - - -
Share compensation expense - - 127 108 108
------------ ------------ ------------ ------------ ------------

Total operating expenses 70,138 88,136 68,270 34,492 13,820
------------ ------------ ------------ ------------ ------------

Operating loss (5,967) (35,396) (26,798) (22,611) (8,530)

Other income/expenses:
Interest income 282 1,089 1,950 2,514 1,609
Interest expense (9,471) (10,829) (10,899) (7,826) (1,152)
Foreign exchange gain/(loss), net 5,300 (3,227) (2,110) (1,911) 8
------------ ------------ ------------ ------------ ------------

Loss before income tax benefit/(expense) (9,856) (48,363) (37,857) (29,834) (8,065)
Income tax benefit/(expense) 2,030 (1,188) 4,746 (1,430) 100
------------ ------------ ------------ ------------ ------------

Loss before extraordinary item (7,826) (49,551) (33,111) (31,264) (7,965)
Extraordinary gain, net 8,496 - 2,196 2,889 -
------------ ------------ ------------ ------------ ------------

Net income/(loss) $ 670 $ (49,551) $ (30,915) $ (28,375) $ (7,965)
============ ============ ============ ============ ============

Income/(loss) per share - basic and diluted:
Loss before extraordinary item $ (0.40) $ (3.00) $ (2.17) $ (2.06) $ (0.64)
Extraordinary gain 0.43 - 0.14 0.19 -
------------ ------------ ------------ ------------ ------------

Net income/(loss) 0.03 $ (3.00) $ (2.03) $ (1.87) $ (0.64)
============ ============ ============ ============ ============
Weighted avg. number of shares
outstanding 19,719,253 16,499,699 15,252,030 15,180,651 $ 12,380,962
============ ============ ============ ============ ============

15

As of December 31,
-------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ---------------- -------------- -------------- --------------
(in thousands, except Summary Network Data)

Consolidated Balance Sheet Data:

Cash and cash equivalents $ 8,818 $ 7,151 $ 15,037 $ 55,614 $ 7,516
Restricted cash 1,877 2,103 10,929 12,972 847
Investment securities - - 750 3,149 31,944
Trade accounts receivable, net 9,292 9,485 7,888 5,681 647
Other current assets 6,130 4,459 4,928 4,614 1,857
------------ ------------ ------------ ------------ ------------

Total current assets 26,117 23,198 39,532 82,030 42,811

Net property, plant and equipment 29,551 31,657 36,693 33,182 24,088
Intangible assets, net 1,975 2,604 16,259 12,464 -
Other long-term assets 3,748 3,431 4,360 5,762 3,134
------------ ------------ ------------ ------------ ------------

Total assets 61,391 $ 60,890 $ 96,844 $ 133,438 $ 70,033
============ ============ ============ ============ ============

Current liabilities 23,289 $ 20,466 $ 26,938 $ 18,739 $ 9,315
Obligations under capital leases,
excluding current installments 7,643 8,034 6,397 6,809 11,330
Notes payable 38,146 77,191 72,800 83,720 -
Other long-term liabilities - - 202 - 169
------------ ------------ ------------ ------------ ------------

Total liabilities 69,078 105,691 106,337 109,268 20,814

Total stockholders' (deficit)/equity (7,687) (44,801) (9,493) 24,170 49,219
------------ ------------ ------------ ------------ ------------

$ 61,391 $ 60,890 $ 96,844 $ 133,438 $ 70,033
============ ============ ============ ============ ============

Summary Network Data:

Number of operational ATMs at end of
period 2,999 2,634 2,283 1,271 693
ATM transactions during the period 68,388,780 52,663,000 32,938,000 15,467,000 5,758,000

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS.
- --------------

General Overview

We are a leading provider of secure electronic financial transaction
solutions. We provide financial payment middleware, financial network gateways,
outsourcing, and consulting services to financial institutions, retailers and
mobile phone operators. We operate an independent automated teller machine, ATM,
network of approximately 3,000 ATMs in Europe and, until January 2002, the
United States. Through our software subsidiary, Euronet USA Inc. (formerly,
Arkansas Systems, Inc.), we offer a suite of integrated software solutions for
electronic payment and transaction delivery systems. We offer comprehensive
electronic payment solutions consisting of ATM network participation, outsourced
ATM management solutions and software solutions. Our principal customers are
banks and other companies such as retail outlets that require transaction
processing services. With 13 offices worldwide, we offer our solutions in more
than 60 countries around the world.

We and our subsidiaries operate in two business segments: (1) a segment
providing secure processing of financial transactions (the "Processing Services
Segment"); and (2) a segment producing application software for the processing
of secure electronic financial transactions (the "Software Solutions Segment").
In addition, our management divides the Processing Services Segment into three
sub-segments: "Central European Sub-segment" (including Hungary, Poland, the
Czech Republic, Croatia, Greece and Romania), "Western European Sub-segment"

16

(including Germany, France and the United Kingdom) and "Other Processing
Services Sub-segment" (including the United States and unallocated processing
center costs). These business segments, and their sub-segments, are supported by
a corporate service segment, which provides corporate and other administrative
services that are not directly identifiable with the two business segments (the
"Corporate Services Segment"). We evaluate performance based on profit or loss
from operations before income taxes not including nonrecurring gains and losses.
We have restated prior period segment information to conform to the current
period's presentation (see Note 20 to the Consolidated Financial
Statements--Business segment information).

Critical Accounting Policies

Our critical accounting policies are as follows:

Software Revenue Recognition

Revenues from software licensing agreement contracts are recognized
over the contract term using the percentage of completion method based on the
percentage of services that are provided compared with the total estimated
services to be provided over the entire contract. Revenue from time and material
service contracts is recognized as the services are provided. Revenues from
software licensing agreement contracts representing newly released products
deemed to have a higher than normal risk of failure during installation are
recognized on a completed contract basis whereby revenues and related costs are
deferred until the contract is complete. Maintenance revenue is recognized over
the contractual period or as services are performed. Revenue in excess of
billings on software license agreements contracts is recorded as unbilled
receivables and is included in current assets. Billings in excess of revenue on
software license agreements contracts are recorded as deferred revenue and is
included in current liabilities until such time the above revenue recognition
criteria are met.

Capitalization of Software Development Costs

We apply SFAS 2 and 86 in recording research and development costs.
Research costs aimed at the discovery of new knowledge with the hope that such
knowledge will be useful in developing a new product or service or a new process
or technique or in bringing about significant improvement to an existing product
or process are expensed as incurred (see Note 25 to the Consolidated Financial
Statements--Research and Development). Development costs aimed at the
translation of research findings or other knowledge into a plan or design for a
new product or process or for a significant improvement to an existing product
or process whether intended for sale or use are capitalized on a
product-by-product basis when technological feasibility is established.

Technological feasibility of computer software products is established
when we have completed all planning, designing, coding, and testing activities
that are necessary to establish that the product can be produced to meet its
design specifications including functions, features, and technical performance
requirements. Technological feasibility is evidenced by the existence of a
working model of the product or by completion of a detail program design. The
detail program design must (a) establish that the necessary skills, hardware,
and software technology are available to produce the product, (b) be complete
and consistent with the product design, and (c) have been reviewed for high-risk
development issues, with any uncertainties related to identified high-risk
development issues being adequately resolved.

Accounting for Income Taxes

We have significant tax loss carryforwards and other temporary
differences which are recorded as deferred tax assets and liabilities. Deferred
tax assets realizable in future periods are recorded, net of a valuation
allowance based on an assessment of each individual entity's ability to generate
sufficient taxable income within an appropriate period.

In assessing the realizability of deferred tax assets, we consider
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. We consider the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, we believe it is more
likely than not that we will realize the benefits of these deductible
differences, net of the existing valuation allowances at December 31, 2001.

17

In the current year, profitability has improved in certain countries in
which we operate. When a sufficient history of taxable income has been
established in these countries, deferred tax assets increasingly will be
considered realizable, and the existing valuation allowances will be reduced.

Estimating the Impairment of Long Lived Assets

We are required to evaluate long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to projected undiscounted future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets on a discounted cash
flow basis. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Future adverse changes in market
conditions could result in an inability to recover the carrying amount of an
asset, thereby possibly requiring an impairment charge in the future.

Comparison of Operating Results for the Years Ended December 31, 2001, 2000 and
1999 -- Overview

Our total revenues increased by $11.5 million or 22% to $64.2 million
for 2001 from $52.7 million for 2000. Such revenues increased by $11.2 million
or 27% to $52.7 million for 2000 from $41.5 million for 1999. The increase in
revenues from 2000 to 2001 was primarily due to two factors: (1) a $12.3 million
increase in Processing Services Segment revenues resulting from the increase in
transaction volumes in ATMs owned by us and an increase in the number of ATMs
operated by us during this period; and (2) offset by a decrease of $0.8 million
in Software Solutions Segment revenues. The increase in revenues from 1999 to
2000 was primarily due to two factors: (1) a $10.4 million increase in
Processing Services Segment revenues resulting from the increase in transaction
volumes in ATMs owned by us and an increase in the number of ATMs operated by us
during this period; and (2) an increase of $0.8 million in Software Solutions
Segment revenues. Revenues for 2001 and 2000 are discussed more fully in the
Segment Results of Operations sections below.

Effective November 1, 2001, we entered into an agreement with ABN AMRO
under which ABN AMRO agreed to pay us $1.1 million to terminate an ATM
management agreement for 106 ATMs and a card agreement between our Hungarian
subsidiary and ABN AMRO. This amount has been included in annual revenue in the
fourth quarter 2001. The contracts that were terminated would have generated
revenues in 2002 and 2003 of $0.9 million and $0.4 million, respectively. The
principal reason for the termination of these agreements was that ABN AMRO
merged with K&H Bank, and K&H Bank had existing relationships with a competing
transaction processing switch service in Hungary.

Total operating expenses decreased by $18.0 million or 20% to $70.1
million for 2001 from $88.1 million for 2000. Such expenses increased by $19.8
million or 30% to $88.1 million for 2000 from $68.3 million for 1999. The
decrease from 2000 to 2001 can be broken down by segment as follows: (1) a $3.7
million increase in Processing Services Segment operating costs due to growth in
the size of the network operations; (2) a $20.4 million decrease in the Software
Services Segment due to write down of certain intangible assets of $11.2 million
in 2000 and reductions in personnel and resources in 2001; and (3) a $1.3
million decrease in Corporate Services Segment operating costs due to reductions
in personnel and resources in 2001. The increase from 1999 to 2000 can be broken
down by segment as follows: (1) a $3.5 million increase in Processing Services
Segment operating costs due to growth in the size of the network operations; (2)
a $15.2 million increase in Software Services Segment due to the write down of
certain intangible assets of $11.2 million and investment in personnel and
resources; and (3) a $1.1 million increase in Corporate Services Segment
operating costs due to the expanded operations. Operating expenses for 2001,
2000 and 1999 are discussed more fully in the Segment Results of Operations
sections below.

We generated operating losses of $6.0 million for 2001 compared to
operating losses of $35.4 million for 2000 and $26.8 million for 1999. The
change from 2000 to 2001 was due to the net effect of three factors: (1) an $8.5
million improvement in the operating results which has generated an operating
income in our Processing Services Segment; (2) a $19.6 million decrease in the
operating loss from our Software Solutions Segment; and (3) a $1.3 million
decrease in the operating loss from our Corporate Services Segment. The
increased operating loss from 1999 to 2000 was due to the net effect of three
factors: (1) a $6.8 million decrease in the operating loss from our Processing
Services Segment; (2) a $14.3 million increase in the operating loss from our
Software Solutions Segment; and (3) a $1.1 million increase in the operating
loss from our Corporate Services Segment. The results of

18

segment operations expenses for 2001, 2000 and 1999 are discussed more fully in
the Segment Results of Operations section below.

Segment Results of Operations for the Years Ended December 31, 2001, 2000 and
1999

(In thousands) Revenues Operating Income/(Loss)
----------------------------------------------------------------------------
Year ended December 31, 2001 2000 1999 2001 2000 1999
------------ ------------ ------------ ------------ ----------- ------------

Processing Services

Central Europe $ 25,236 $ 18,599 $ 12,664 $ 1,612 $ (3,070) $ (8,019)
Western Europe 21,595 16,615 12,637 1,490 (2,286) (3,840)
Other 2,298 1,700 1,202 (673) (709) (1,048)
-------- -------- -------- -------- -------- --------

Total Processing Services 49,129 36,914 26,503 2,429 (6,065) (12,907)
Software Solutions 15,222 16,006 15,149 (1,875) (21,469) (7,141)
Corporate Services - - - (6,521) (7,862) (6,750)
Inter segment eliminations (180) (180) (180) - - -
-------- -------- -------- -------- -------- --------

Total $ 64,171 $ 52,740 $ 41,472 $ (5,967) $(35,396) $(26,798)
======== ======== ======== ======== ======== ========

Comparison of Operating Results for the Years Ended December 31, 2001, 2000 and
1999 -- By Business Segment

Processing Services Segment

Processing Services Revenues

Total segment revenues increased by $12.2 million or 33% to $49.1
million for 2001 from $36.9 million for 2000. Total segment revenues increased
by $10.4 million or 39% to $36.9 million for 2000 from $26.5 million for 1999.
The increase in revenues in 2001 and 2000 was due primarily to the significant
increase in transaction volume and an increase in the number of ATMs operated by
us during these periods. We had 2,283 ATMs installed as of December 31, 1999 and
2,634 ATMs installed as of December 31, 2000. We processed 32.9 million
transactions in 1999, and processed 52.7 million transactions in 2000. In the
year 2001, our owned and operated ATM network increased by 365 ATMs, or 14%,
over 2000 to a total of 2,999 ATMs, of which 70% are owned by us and 30% are
owned by banks or other financial institutions but operated by us through
management agreements. We processed 68.4 million transactions for 2001, an
increase of 15.7 million transactions, or 30%, over 2000.

Revenues for the Central European Sub-segment increased by $6.6 million
or 35% to $25.2 million for 2001 from $18.6 million for 2000. Revenues for this
sub-segment increased by $5.9 million or 46% to $18.6 million for 2000 from
$12.7 million for 1999. The increase in revenues in 2001 and 2000 was largely
the result of an increase in the number of ATMs operated by us over this period.
We increased the number of ATMs that we operated from 1,203 at December 31, 1999
to 1,391 at December 31, 2000 and 1,440 at December 31, 2001.

Revenues for the Western European Sub-segment increased by $5.0 million
or 30% to $21.6 million for 2001 from $16.6 million for 2000. Revenues for this
sub-segment increased by $4.0 million or 32% to $16.6 million for 2000 from
$12.6 million for 1999. The increase in revenues in 2001 and 2000 was largely
the result of an increase in the number of ATMs operated by us over this period.
We increased the number of ATMs that we operated from 621 at December 31, 1999
to 787 at December 31, 2000 and 1,009 at December 31, 2001. During this period
we also increased transaction volumes and increased transaction fees in certain
markets. Of the net 365 ATMs added to the network, 250 ATMs are located in the
United Kingdom. Our aggressive roll-out of ATMs in the United Kingdom during
2001 was based on the ability to charge a transaction fee directly to the person
using the ATMs in this market. The continuance of an aggressive roll-out of ATMs
in the United Kingdom is dependent on our ability to find additional sites for
ATMs that are capable of highly profitable transaction levels. Certain machines
that we have installed recently in the United Kingdom had transaction levels
that are lower that those of machines installed earlier. This is partially due
to the fact that transaction levels are lower at ATM machines at Post Office
sites and at sites at which cash is replenished by merchants. Although these
ATMs are profitable, they are generating returns that are lower than we
expected. We are examining a number of responses to this situation, including
using lower cost machines at these sites or reducing our roll-out of machines in
the United Kingdom. A decision to reduce our rate of roll-out of ATMs or the
continuing weakness of performance of certain ATMs could result in a decrease in
growth in our revenues and operating profits.

19

Revenues for the Other Processing Services Sub-segment increased by $0.6
million or 35% to $2.3 million for 2001 from $1.7 million for 2000. Revenues
from these operations increased by $0.5 million or 42% to $1.7 million for 2000
from $1.2 million for 1999. All revenues from this segment are generated by the
Dash network located in the United States. We sold the Dash network in January
2002 (see Note 29 to the Consolidated Financial Statements--Subsequent Events)
and therefore no revenues will be realized from that business for the year 2002.
As a result, we will no longer report on this Sub-segment.

Of total segment revenue, approximately 86% was attributable to ATMs owned
by us for the year 2001, 87% for 2000 and 94% for the year 1999. Of total
transactions processed, approximately 73% were attributable to ATMs owned by us
for the year 2001, 78% for 2000 and 76% for the year 1999. We expect that in the
future there will be a shift from a largely proprietary ATM network owned by us
to a more balanced mix between proprietary ATMs and customer owned ATMs. We
believe that this trend is a positive development and will provide higher
marginal returns on investments.

The transaction fees that we charge vary for the three types of ATM
transactions that are currently processed on our ATMs: cash withdrawals; balance
inquiries; and transactions not completed because the relevant card issuer does
not give authorization. Transaction fees for cash withdrawals vary from market
to market but generally range from $0.60 to $2.15 per transaction. Transaction
fees for the other two types of transactions are generally substantially less.
Transaction fees payable under the electronic recharge solutions sold by us are
included in Processing Services Segment revenues and vary substantially from
market to market and based upon the specific prepaid solution and the
denomination of prepaid hours purchased. Generally the range of transaction fees
vary from $1.10 to $1.80 per prepaid mobile recharge purchase.

Operating Expenses

Total segment operating expenses increased by $3.7 million or 9% to $46.7
million for 2001 from $43.0 million for 2000. Such expenses increased by $3.6
million or 9% to $43.0 million for 2000 from $39.4 million for 1999. The
increases in 2001 and 2000 were due primarily to costs associated with the
growth in the numbers of ATMs and expansion of our operations during the
periods.

We recorded a $0.8 million write-down of certain ATM hardware assets
associated with the purchase of the Budapest Bank ATM network in May 2000 and
the Service Bank ATM network in March 1999 (see Note 10 to the Consolidated
Financial Statements--Asset Write Down). In addition, we recorded a one-time
gain in our Central European Sub-segment of $1.2 million in 2000. The gain was
related to a change in Hungarian law that eliminates a major portion of our
liability for import taxes on ATM hardware to the Hungarian government. The gain
was included as an element of direct operating costs.

The operating expenses for the Central European Sub-segment increased by
$1.9 million or 9% to $23.6 million for 2001 from $21.7 million for 2000. Such
expenses increased by $1.0 million or 5% to $21.7 million for 2000 from $20.7
million for 1999. The increase in operating expenses in 2001 and 2000 was
largely the result of an increase in the number of ATMs operated by us over this
period. We increased the number of ATMs that we operated from 1,203 at December
31, 1999 to 1,391 at December 31, 2000 and 1,440 at December 31, 2001.

The operating expenses for the Western European Sub-segment increased by
$1.2 million or 6% to $20.1 million for 2001 from $18.9 million for 2000. Such
expenses increased by $2.4 million or 15% to $18.9 million for 2000 from $16.5
million for 1999. The increase in operating expenses in 2001 and 2000 was
largely the result of an increase in the number of ATMs operated by us over this
period. We increased the number of ATMs that we operated from 621 at December
31, 1999 to 787 at December 31, 2000 and 1,009 at December 31, 2001.

The operating expenses for the Other Processing Services Sub-segment
increased by $0.6 million or 25% to $3.0 million for 2001 from $2.4 million for
2000. Such expenses increased by $0.2 million or 9% to $2.4 million for 2000
from $2.2 million for 1999. The operating expenses from this segment are
generated from the Dash network located in the United States and the unallocated
costs associated with our processing facilities. We sold the Dash network in
January 2002. (See Note 29 to the Consolidated Financial Statements - Subsequent
Events).

Direct operating costs in the Processing Services Segment consist primarily
of the following: ATM installation costs; ATM site rentals; and costs associated
with maintaining ATMs, ATM telecommunications, interest on network cash and cash
delivery and security services to ATMs. Such costs increased by $3.6 million or
15% to $28.0 million for 2001 from $24.4 million for 2000. Such costs increased
by $2.5 million or 11% to $24.4

20

million for 2000 from $21.9 million for 1999. The increase in direct operating
costs was primarily attributable to costs was associated with operating the
increased number of ATMs in the network during the periods. Also, intercompany
allocations were made to charge the ATM operations with transaction switching
and bank connection fees associated with the operations central processing
center in Budapest. These allocations totaled $4.8 million, $3.5 million and
$2.9 million for 2001, 2000 and 1999, respectively. Direct operating costs for
2000 include a one-time gain of $1.2 million due to a change in Hungarian law
that eliminates a major portion of our liability for import taxes on ATM
hardware. The components of direct operating costs for 2001, 2000 and 1999 were:

Year ending December 31,
------------------------------------------
2001 2000 1999
------------- ------------- ------------
(In thousands)

ATM communication $ 4,619 $ 4,183 $ 3,982
ATM cash filling and interest on network cash 7,511 7,426 5,900
ATM maintenance 4,259 3,987 2,967
ATM site rental 2,517 2,258 2,421
ATM installation 470 675 783
Transaction processing and ATM monitoring 7,091 5,242 4,205
Other 1,545 600 1,663
------------- ------------- ------------
Total direct operating expenses $ 28,012 $ 24,371 $ 21,921
============= ============= ============

As a percentage of network revenue, direct operating costs have continued
to fall. Such costs fell from 83% to 66% for 1999 and 2000, respectively, to 57%
for 2001. On a per ATM basis the direct operating costs fell from $12,872 per
ATM and $9,807 per ATM for 1999 and 2000, respectively, to $9,340 per ATM for
2001, an improvement of 5% over 2000. On a per transaction basis the direct
operating costs fell from $0.66 per transaction and $0.46 per transaction for
1999 and 2000 to $0.41 per transaction for 2001, an improvement of 11% over
2000.

Costs for segment salaries and benefits increased by $1.8 million or 24% to
$9.2 million for 2001 from $7.4 million for 2000. Such expenses increased by
$0.2 million or 3% to $7.4 million for 2000 from $7.2 million for 1999. The
increase in the year-on-year expenses reflect the continued expansion of the
operations to Western European markets with significantly higher labor costs
than Central Europe as well as some increases in staff levels at the processing
center required to maintain quality service in line with the rising transaction
volumes. As a percentage of Processing Services Segment revenue, salaries and
benefits fell from 27% and 20% for 1999 and 2000, respectively, to 19% for 2001.

Selling, general and administrative costs allocated to the Processing
Services Segment decreased $1.1 million or 46% to $1.3 million for 2001 from
$2.4 million for 2000. Such expenses decreased $0.5 million or 17% to $2.4
million for 2000 from $2.9 million for 1999. The cost decrease for the year 2001
resulted from the net effect of (1) a $1.3 million increase in the allocation of
costs from the selling, general and administrative line of the Budapest
processing center to the operating cost line, from $3.5 million for 2000 to $4.8
million for 2001 and (2) a $0.2 million increase in costs associated with the
expansion of our network operations. The $0.5 million cost decrease for 2000
resulted from the net effect of (1) a $0.6 million increase in the allocation of
costs from the selling, general and administrative line of the Budapest
processing center to the operating cost line, from $2.9 million for 1999 to $3.5
million for 2000 and (2) a $0.1 million increase in costs associated with the
expansion of our network operations.

Depreciation and amortization increased by $0.2 million or 3% to $8.2
million for 2001 from $8.0 million for 2000. Such expenses increased by $0.6
million or 8% to $8.0 million for 2000 from $7.4 million for 1999. The increases
were due primarily to the increase in the number of owned ATMs as discussed
previously. We recorded a $0.8 million write-down of certain ATM hardware assets
for the year ended December 31, 2000, as previously discussed.

Operating Profit/Loss

The total Processing Services Segment posted an operating profit of $2.4
million for 2001 as compared to operating losses of $6.1 million and $12.9
million for 2000 and 1999, respectively, as a result of the factors discussed
above. The Central European Sub-segment recorded an operating profit of $1.6
million for 2001 compared to operating losses of $3.1 million and $8.0 million
for 2000 and 1999, respectively, as a result of the

21

factors discussed above. The Western European Sub-segment had an operating
profit of $1.5 million for 2001 compared to operating losses of $2.3 million and
$3.8 million for 2000 and 1999, respectively, as a result of the factors
discussed above.

The Other Processing Services Sub-segment incurred an operating loss of
$0.7 million for 2000 and 2001, respectively, and an operating loss of $1.0
million for 1999, as a result of the factors discussed above.

Software Solutions Segment

Software Solutions Revenue

Revenues from the Software Solutions Segment decreased by $0.8 million or
5% to $15.2 million before inter-segment eliminations for the 2001 from $16.0
million for 2000. Revenues from this segment increased $0.9 million or 6% to
$16.0 million for 2000 from $15.1 million for the year ended December 31, 1999.
The decrease in revenues from 2000 to 2001 is due to the decrease in sales while
being partially offset by increased maintenance fees earned from sales in 2000
and prior. The increase in revenues from 1999 to 2000 is due to the increased
sales generated by an expanded sales force employed in 1999 and 2000. Software
revenues are grouped into four broad categories: software license fees,
professional service fees, maintenance fees and hardware sales. Software license
fees are the initial fees that we charged the licensing of our proprietary
application software to customers. Professional service fees are charged for
customization, installation and consulting services provided to customers.
Software maintenance fees are the ongoing fees charged to customers for the
maintenance of the software products. Hardware sales revenues are derived from
the sale of computer products and are reported net of cost of sales. The
components of software solutions revenue for 2001, 2000 and 1999 were:

Years ending December 31,
-------------------------------------------
2001 2000 1999
------------- ------------- ------------
(in thousands)

Software license fees $ 3,030 $ 4,117 $ 2,430
Professional service fees 6,765 6,867 8,298
Maintenance fees 5,045 4,487 4,051
Hardware sales 382 535 370
------------- ------------- ------------
Total Software Revenue $ 15,222 $ 16,006 $ 15,149
============= ============= ============

The decrease in software license fees from 2000 to 2001 reflects a decrease
in sales and a change in the mix of contracts signed. In 2001, we signed an
increasing number of contracts that have a larger share of professional services
relative to the license fee. However, decreased overall sales in 2001 offset
some of the mix-related change decreased above. Overall, revenue decreased
slightly reflecting the decrease in sales although the recurring revenue stream
represented by maintenance fees increased. We intend to secure long-term revenue
streams through multi-year maintenance agreements with existing and new
customers. We believe that the revenues of the Software Solutions Segment will
increasingly be derived from our new set of software solutions, including our
wireless banking solutions. The increases in software license fees from 1999 to
2000 were primarily attributable to an increased number of software sales
contracts signed in 2000 as compared to 1999, primarily in the first half of
2000.

Professional service fees are generally realized in connection with the
sale and installation of software, although increasingly professional service
fees are being derived from contracts that do not necessarily have a software
license component.

Software Sales Backlog

We define "software sales backlog" as fees specified in contracts which
have been executed by us and for which we expect recognition of the related
revenue within one year. At December 31, 2001 the revenue backlog was $2.5
million, as compared to December 31, 2000 when the revenue backlog was $3.5
million and at December 31, 1999 when the revenue backlog was $3.1 million. The
decrease in backlog from December 31, 2000 results principally from the timing
of software sales. We intend to continue to focus on expediting delivery and
implementing of software in an effort to deliver existing backlogged sales,
while simultaneously replenishing the backlog through continuing product sales
growth. The increase in backlog from December 31, 1999 as compared to 2000
resulted principally from growth and timing of software sales.

22

There can be no assurance that the contracts included in backlog will
actually generate the specified revenues or that the revenues will be generated
within a one-year period.

Operating Expenses

Software Solutions Segment operating expenses consist primarily of salaries
and benefits, selling, general and administrative, and depreciation and
amortization. In 2000, we recorded a one-time write down of goodwill and other
identifiable intangible assets associated with our purchase of Euronet USA in
December 1998. As a result of our inability to achieve operating improvements,
including software license and service orders for Euronet USA's traditional core
product (ITM) and cost reductions, the Software Solutions Segment continued
operating at a loss through 2000. We calculated the expected cash flows of our
Software Solutions Segment, which identified an impairment of its long-lived
assets. Accordingly, in 2000, we recorded an impairment charge based on the
present value of expected cash flows of $11.2 million for the write-down of
goodwill and other identifiable intangible assets recorded upon the acquisition
of Euronet USA (see Note 10 to Consolidated Financial Statements--Asset Write
Down). Total segment operating expenses decreased by $20.4 million or 54% to
$17.1 million for 2001 from $37.5 million for 2000. Such expenses increased by
$15.2 million or 68% to $37.5 million for 2000 from $22.3 million for 1999. The
decrease from 2000 to 2001 is primarily the result of (1) the $11.2 million
one-time write down during 2000 discussed above, (2) a reduction in staffing in
the first quarter of 2001, and (3) general cost-reduction efforts in our general
operations. The increase from 1999 to 2000 is primarily the result of (1) the
$11.2 million one-time write down during 2000 discussed above, and (2) headcount
increases intended to increase sales, accelerate development of certain software
enhancements and reduce delivery times for software. The components of the
Software Solutions Segment operating costs for 2001, 2000 and 1999 were:

Year ending December 31,
-------------------------------------------
2001 2000 1999
------------- ------------- ------------
(in thousands)

Direct operating costs $ 269 $ 800 $ 1,089
Salaries and benefits 12,329 18,004 13,953
Selling, general and administrative 3,754 5,266 4,565
Depreciation and amortization 744 2,215 2,683
Asset write down - 11,190 -
------------- ------------- ------------
Total operating expenses $ 17,096 $ 37,475 $ 22,290
============= ============= ============

These staff increases during 1999 and 2000 resulted in a significant
increase in salaries and benefits, which contributed to the net losses of the
Software Solutions Segment for 2000. During the first quarter of 2001 we reduced
our workforce significantly with the primary objective of reducing costs in the
Software Solutions Segment to bring the costs more in line with the anticipated
revenue. The financial impact of these reductions can be seen throughout the
results for 2001.

We have made an ongoing commitment to the development, maintenance and
enhancement of our products and services. As a result of this commitment we have
invested substantial amounts in research and development. In particular, we have
invested and will continue to invest in new software products that will serve as
the underlying application software that permits additional features and
transactions on our ATM network. In addition, we continue to invest in the
on-going development of products that were recently introduced to the market.
Our research and development costs incurred for computer products to be sold,
leased or otherwise marketed decreased $1.7 million or 25% to $5.0 million for
2001 from $6.7 million for 2000. Such costs increased $3.5 million or 109% to
$6.7 million for 2000 from $3.2 million for 1999. Of these total figures, $1.3
million, $1.0 million and $0.3 million were capitalized, during the years ended
December 31, 2001, 2000 and 1999 respectively, in accordance with our accounting
policy requiring the capitalization of development costs on a product by product
basis once technological feasibility is established. Technological feasibility
of computer software products is established when we have completed all
planning, designing, coding, and testing activities that are necessary to
establish that the product can be produced to meet its design specifications
including functions, features, and technical performance requirements.

23

Operating Loss

The Software Solutions Segment incurred an operating loss of $1.9 million
for 2001, $21.5 million for 2000 and $7.1 million for 1999, as a result of the
factors discussed above.

Corporate Services Segment

Operating Expenses

Operating expenses for the Corporate Services Segment decreased by $1.4
million or 18% to $6.5 million for 2001 from $7.9 million for 2000. Such costs
increased by $1.1 million or 16% to $7.9 million for 2000 from $6.8 million for
1999. The components of the Corporate Services Segment operating costs for 2001,
2000 and 1999 were:

Year ending December 31,
-------------------------------------------
2001 2000 1999
------------- ------------- ------------
(in thousands)

Salaries and benefits $ 3,362 $ 3,813 $ 3,335
Selling, general and administrative 3,017 3,841 3,270
Depreciation and amortization 142 208 145
------------- ------------- ------------
Total direct operating expenses $ 6,521 $ 7,862 $ 6,750
============= ============= ============

The cost control measures that were implemented in 2001 are the primary
reasons for these decreased expenditures, including the workforce reductions
during the first quarter of 2001. In 2000 due to the expansion in the company's
network infrastructure there was an increase in corporate and administrative
capabilities. In January 2001 we began to reclassify certain salary and benefits
expense to the Processing Services Other Sub-segment to better reflect the
actual job responsibilities performed.

Non-operating Results

Interest Income

Interest income decreased to $0.3 million for 2001 from $1.1 million for
2000 and from $2.0 million for 1999. The decreases are the result of lower
average cash balances during 2001.

Interest Expense

Interest expense decreased to $9.5 million for 2001 from $10.8 million for
2000 and $10.9 million for 1999. The decrease from 2000 to 2001 was due to a
reduction in the notes payable as a result of significant debt/equity swaps
during 2001 and exchange rate differences as the majority of the debt is
denominated in Euro. The decrease from 1999 to 2000 was due to exchange rate
differences as the majority of the debt is denominated in Euro.

Foreign Exchange Gain/Loss

We had a net foreign exchange gain of $5.3 million for 2001, as compared to
exchange losses of $3.2 million for 2000 and $2.1 million for 1999. Exchange
gains and losses that result from re-measurement of certain assets and
liabilities are recorded in determining net income or loss. A portion of our
assets and liabilities are denominated in Euros, including capital lease
obligations, notes payable (including the notes issued in our public bond
offering), cash and cash equivalents, investments, and forward foreign exchange
contracts. It is our policy to attempt to match local currency receivables and
payables. The foreign currency denominated assets and liabilities give rise to
foreign exchange gains and losses as a result of U.S. dollar to local currency
exchange movements.

Extraordinary Gain

During 2001, in sixteen separate transactions, we exchanged 97,700 units
(principal amount of DEM 97.7 million) of our Senior Discount Notes and 293,100
warrants for 3,238,650 shares of Common Stock. These exchanges were accounted
for as an extinguishment of debt with a resulting $8.2 million (net of
applicable income

24

tax expense of $0.6 million) recognized as an extraordinary gain on such
extinguishment. The extinguishment gain (pre-tax) represents the difference
between the allocated carrying value of the debt and any related warrants
extinguished ($39.0 million) and the fair market value of the Common Stock
issued ($29.3 million), offset by the write-off of the allocated unamortized
deferred financing costs ($0.9 million). These transactions were exempt from
registration in accordance with Section 3(a)(9) of the Securities Act.

During 2001, in a single transaction, we exchanged 8,750 (principal face
amount of DEM 8.75 million) of our Senior Discount Notes for two new Senior
discount notes having an aggregate face amount of $2.9 million (the "New
Notes"). The interest, repayment and other terms of the New Notes are identical
to those of the Senior Discount Notes for which they were exchanged, except that
(i) the principal amount was reduced as indicated in the previous sentence, (ii)
we have the right to prepay the New Notes at any time at our option by paying
the "Accreted Value" of the Notes, and (iii) the new notes are governed by a new
Note Purchase Agreement rather than the indenture under which the Senior
Discount Notes were issued and the New Notes therefore are not covered by any of
the provisions of such indenture relating to action by the trustee, voting or
maintenance of listing on a stock exchange. This exchange has been accounted for
as an extinguishment of debt and issuance of new debt with a resulting $0.2
million (net of applicable income tax expense of $0.5 million) recognized as an
extraordinary gain on such extinguishment. The extinguishment gain (pre-tax)
represents the difference between the allocated carrying value of the debt
extinguished ($3.3 million) and the fair market value of the New Notes issued
($2.5 million), offset by the write-off of the allocated unamortized deferred
financing costs ($0.1 million). This transaction was exempt from registration in
accordance with Section 3(a)(9) of the Securities Act.

During 2001, in a single transaction, we exchanged bonds with face amount
$2.1 million of our Senior Discount Notes for 104,750 shares of Common Stock.
This exchange has been accounted for as an extinguishment of debt with a
resulting $0.1 million (net of applicable income tax expense of $0.1 million)
recognized as an extraordinary gain on such extinguishment. The extinguishment
gain (pre-tax) represents the difference between the allocated carrying value of
the debt and any related warrants extinguished ($2.0 million) and the fair
market value of the Common Stock issued ($1.7 million). These transactions were
exempt from registration in accordance with Section 3(a)(9) of the Securities
Act.

During 1999, we repurchased notes with a face value of DM 22.0 million and
65,850 warrants for a total purchase price of $5.2 million. This repurchase was
accounted for as an extinguishment of debt with a resulting $2.2 million (net of
income taxes of $0.6 million) recognized as an extraordinary gain on such
extinguishment. The extinguishment gain represents the difference between the
allocated carrying value of the debt extinguished ($8.1 million) and the
consideration paid ($5.0 million), offset by the write-off of the allocated
unamortized deferred financing costs ($0.3 million). Of the total purchase price
of $5.2 million, $0.2 million was allocated to the warrants based on their fair
market value at the time of purchase and recorded as an adjustment to additional
paid-in capital.

The Senior Discount Notes that were acquired by us in the above exchanges
have not been retired. We will consider additional repurchases of our Senior
Discount Notes if opportunities arise to complete such transactions on favorable
terms.

Net Income/Loss

We recorded net income of $0.7 million for 2001, as compared to a $49.6
million net loss for 2000 and a $30.9 million net loss for 1999, as a result of
the factors discussed above.

Liquidity and Capital Resources

Up to 2001 we had sustained negative cash flows from operations and had
financed our operations and capital expenditures primarily through the proceeds
from the 1998 issue of Deutsche Mark denominated notes payable, the 1997 public
equity offering, equipment lease financing and private placements of equity
securities. The net proceeds of such transactions, together with revenues from
operations and interest income have been used to fund aggregate net losses of
approximately $123.1 million, investments in property, plant and equipment of
approximately $58.4 million and acquisitions of $24.6 million.

At December 31, 2001 we had cash and cash equivalents of $8.8 million
included in working capital of $2.8 million. We had $1.9 million of restricted
cash held as security with respect to cash provided by banks participating in
our ATM network, to cover guarantees on financial instruments and as deposits
with customs officials (See Note 6 to the Consolidated Financial
Statements--Restricted Cash). In addition to the assets shown

25

on the balance sheet at December 31, 2001 we held repurchased notes payable with
a face value of 154.8 million Deutsche Marks ($70.1 million as at December 31,
2001 based on a USD to DM rate of 1:2.2079) and a fair market value at December
31, 2001 of $56.1 million (See Note 21 to the Consolidated Financial
Statements--Financial Instruments).

On June 28, 2000 we entered into an unsecured revolving credit
agreement (the "Credit Agreement"), which provide