Letter to Shareholders

Dear Fellow Shareholders:

The year 2001 marked the second consecutive year of strong bottom-line success for our company. We earned $9.1 million in 2001 and $8.2 million in 2000. Total assets grew 44 percent to over $26 million, year-end cash was $12 million and net book value per share increased 52 percent to $3.97 at December 31, 2001.

In the past two years, we repurchased one million shares of common stock in our July 2001 self-tender offer at $5.25 per share and paid a $0.52 per share special cash dividend to shareholders in April 2000.

Our performance reflects a long-term strategy of building value in the companies we own and reaping the rewards of this value creation on an irregular basis. Typically, our companies are early stage information technology companies that often report operating losses. They are investing in product development and marketing initiatives with the expectation of creating future value. Depending upon the required accounting treatment which is based on our ownership and control of each company, we will typically include all or part of these losses in our financial results. The following two examples demonstrate our strategy and process.

In 2001, our results include $17.8 million earned on the sale of our affiliate company, PaySys International, Inc., to First Data Corporation. In late 1993, we first became involved with PaySys, a firm specializing in software for credit card transaction processing, in a turnaround situation. We acquired approximately 50 percent of the company for a total purchase price of $3 million and were actively engaged in PaySys’ management as it revitalized its product offering and competitive position. In the late 1990’s, we sold part of our ownership for $4.5 million cash when PaySys secured significant venture funding for new product development initiatives. As a result of these transactions, our ownership declined to just over 30 percent although we continued to be the single largest shareholder in PaySys. We received cash proceeds of $17.8 million in the 2001 sale of PaySys to First Data Corporation and an additional payment of $4.3 million in repayment of a bridge loan.

The second example involves Risk Laboratories, a software company focused on the risk management industry. In 1997, we acquired more than 30 percent of Risk, an early stage software development company at the time, for a total of $350,000. We were actively engaged in this affiliate’s strategy and oversight and negotiated its sale to a strategic partner in 2000. We received $8.8 million cash and reported a gain of $8.6 million on the sale transaction. In 2001, the buyer purchased part of our remaining interest in Risk for an additional $1.9 million in cash and earnings.

In July 2001, we acquired a controlling interest in VISaer, Inc., a software company that develops and sells software to worldwide commercial aviation customers for their maintenance, repair and overhaul (MRO) operations. In the acquisition, we converted an existing loan to VISaer into new preferred stock of VISaer and increased our ownership from 40 percent to 65 percent. As a result, we consolidate VISaer’s operations effective July 1, 2001. We recorded non-recurring, non-cash acquisition related charges of $6.4 million in the third quarter 2001 to reduce the carrying value of intangible assets acquired in the transaction. VISaer’s operating losses are likely to continue through 2002 as it incurs new product development expense to complete a Web-native version of its MRO software. On a positive note, United Parcel Service has signed a multi-million dollar contract with VISaer to license VISaer’s new MRO software. Contract advances are funding part of the development effort and the recognition of all contract revenue is being deferred until the software is complete, which is expected to occur in early 2003.

Our other consolidated companies, ChemFree and QS Technologies, operated on a cash positive basis in each of the last two years with moderate revenue growth year-to-year. Corporate operating expenses are approximately one million per year, before giving consideration to any interest or investment income the company will earn. We believe we have a strong cash position to support current operations and to acquire or increase our ownership in promising companies that we believe can create significant shareholder value over the next three to five years.

One opportunity we are considering is Delos Payment Systems, a development stage software company that was spun off to PaySys’ shareholders in April 2001. We own 27 percent of Delos and loaned the company $1.5 million in 2001 to support its product development initiative. Effective early January 2002, as a result of Delos’ failure to repay the loan at maturity, we acquired control of Delos and will consolidate its operating losses as of January 2002. The accounting treatment on consolidation may generate approximately one million dollars in goodwill or other intangible assets that we will need to evaluate for impairment and a possible non-cash write down given the risks associated with Delos at this stage of its development. We have made an additional loan of $1.5 million to Delos to protect our initial investment during our extensive due diligence process. While we believe Delos’ technology and market opportunity are impressive, we are carefully evaluating the risks associated with this pre-revenue company. If we decide to move forward with an acquisition, we will own a significant majority of Delos.

We remain committed to identifying, nurturing and operating early stage technology companies and to taking an active role in creating sustainable companies that provide value to their customers and shareholders. We encourage you to read the Annual Report on Form 10-K which follows this letter for a detailed description of our consolidated and affiliate companies and our financial results for 2001.

J. Leland Strange

President and Chief Executive Officer