Windows Smart Card

Aladdin Knowledge Systems Ltd., a global leader in information security and licensing, today announced the availability of the new generation ASE II – Aladdin Smartcard Environment. ASE is fully compliant with the PC/SC standard, which provides a uniform model for interfacing smart card readers and cards with PCs, and has been approved by Microsoft as a PC/SC Partner.

“We are excited that Aladdin Knowledge Systems is delivering the ASE II Kit for smart card development,” said Microsoft’s Edmund Muth, Group Product Manager for Windows NT Server and Infrastructure Products’ Marketing. “Windows smart card developers will benefit from the comprehensive and easy development environment provided by this toolkit.” Aladdin’s ASE II is listed as a Microsoft PC/SC Partner at [www.microsoft.com/smartcard][1].

With its industry-leading smart card reader, and full compliance with the PC/SC standard created by Microsoft, HP and Bull and others, ASE continues to be the number one provider of rapid PC-based smart card development tools.

Aladdin VP of Smart Card Products, Dov Sharon confirmed the company’s commitment to maintaining ASE II’s leadership in this market: “Internet growth is fueling a huge demand for security solutions because of the boom in electronic commerce. The latest research from Jupiter Communication shows that by the year 2000, 26% of Internet transactions will be done with smart cards.” He continued: “There are a host of other applications already in use for smart cards, and to exploit this market, developers need a single, easy-to-use and comprehensive tool kit. In developing ASE as the ‘Smart Card Solution in a Box’ Aladdin fully meets this demand, and we are delighted with Microsoft’s recognition of the excellence of our product.”

APPLICATIONS

Aladdin’s ASE II will be useful for designers of virtually all kinds of Internet-based commerce. Successful applications developed and deployed with the first generation of ASE products include Access Control, Prepayment Vending Systems Authentication, Digital Signature, Health Care and Software Distribution. Further details of such applications can be seen on Aladdin’s Web site.

TECHNICAL DETAILS/FEATURES

The key components of ASE II are:

–ASEDrive Pro, the most versatile smart card drive on the market with highly secure architecture supporting industry standards, internal and external connection interfaces and various power options. Other new features include support for additional memory card protocols, optional real-time clock for time signatures, and a new ergonomic design.

–ASESoft, the smart software environment is PC/SC compliant. ASESoft offers same host multi-drive and multi-application support, asynchronous tracking of reader/drive events, a comprehensive library of administrative, diagnostic and script tools as well as card editing utilities. ASESoft is designed so that even a relatively inexperienced programmer can easily develop applications and bring them rapidly to the market.

–ASECards include memory, protected memory, CPU and Crypto cards, all of which can be accessed via a single base Application Programming Interface (API). This facilitates the easy integration of various card types into user applications.

Aladdin Knowledge Systems is a global leader in secure software licensing, distribution and management. Aladdin develops, manufactures and markets software security, license management and smart card systems. Aladdin’s products include the HASP(R) and Hardlock(R) hardware/software platforms, which manage and monitor software licensing and prevent unauthorized use of computer programs; and ASE(R) – The Aladdin Smartcard Environment – a suite of smart card application development tools for integrating smart cards with PCs.

Aladdin is an ISO 9002 accredited company with headquarters in Tel Aviv, Israel, with 5 international offices and distributors in more than 40 countries, serving over 20,000 clients worldwide. For more information, visit the Aladdin home page at .

HASP, Hardlock, and ASE are registered trademarks, and Privilege is a trademark, of Aladdin Knowledge Systems, Ltd. All other product and/or company names are trademarks or registered trademarks of their respective owners.

[1]: http://www.microsoft.com/smartcard

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SmartTalk Revenues Up 74%

SMARTALK(SM) TeleServices, Inc. today reported record financial results for the quarter ended September 30, 1997. For the third quarter of 1997, revenues grew to $20,565,622, from $11,796,890 reported for the second quarter of 1997 and $4,588,844 reported for the third quarter last year. The Company reported net income for the quarter of $478,637, or $0.03 per share, compared with a net loss of $666,345, or a net loss of $0.05 per share, for the second quarter of 1997, and a net loss of $1,162,184, or $0.12 per share, for the third quarter last year. Gross margin for the third quarter of 1997 improved to 42.6% over 24.6% reported for the third quarter of 1996.

For the nine months ended September 30, 1997, revenues reached $39,730,845 up 381% from $8,266,864 reported for the same nine month period a year ago. The Company reported a net loss of $498,005, or $0.03 per share, compared with a net loss of $3,433,370, or a net loss of $0.37 per share, for the first nine months of 1996. Gross margin for the nine months ended September 30, 1997 increased to 40.2% compared with 25.0% reported for the same nine months in 1996.

The majority of SMARTALK’s revenues come from decremented minutes, which are the number of minutes of consumer usage of the Company’s services. Minutes decremented for the third quarter were 91,207,466 compared with 54,824,541 for the quarter ending June 30, 1997, and 23,510,042 decremented minutes for the quarter ended September 30, 1996.

Personal Identification Numbers (PINs) are used by certain of the Company’s customers to access the SMARTALK system. The Company tracks activated PINs as an indication of unique, new card accesses into the Company’s calling processing network. In the third quarter ending September 30, 1997, the Company reported 1,770,574 new PIN activations compared with 693,447 PINs activated for the quarter ending June 30, 1997 and 262,872 PINs activated for the quarter ending September 30, 1996.

“Our financial performance continued to improve during the third quarter. This is our twelfth consecutive quarter of revenue growth, which can be attributed to the Company’s quality product and management’s focus on its core competencies,” stated Robert H. Lorsch, SMARTALK’s Chairman and CEO.

SMARTALK Vice Chairman and COO, Erich L. Spangenberg, stated, “We are continuing to execute on our business plan that includes our core business growth as well as acquisitive growth. The third quarter results reflect our ability to leverage our size, scale and scope. SMARTALK is benefiting from reductions in long distance transport rates and increased utilization of our company-owned call-processing platforms. We anticipate this trend will continue, resulting in a favorable impact on our gross margin. We are pleased with our ability this quarter to deliver on our commitment of positive earnings.”

Strengthening Management Team – Appointment of Former MCI Executive as President

SMARTALK also announced it has strengthened the senior management team and has hired Jeff Lindauer as President of SMARTALK. Mr. Lindauer, who brings more than 15 years of telecommunications experience most recently as head of MCI’s prepaid phone card division, resigned yesterday from MCI and will immediately assume his new position with SMARTALK. He will have input in all Company operations including marketing, sales, production and distribution among others. Mr. Lorsch continues in his positions as Chairman and CEO, with no changes of responsibility. Mr. Spangenberg, formerly President and COO, has been named Vice Chairman and COO, and will continue to focus on acquisitive growth and integration, and will continue to supervise overall Company operations.

Lauren Becker, who joined SMARTALK in August as Vice President of Marketing after previously serving as Vice President of Marketing at Blockbuster Music, has been promoted to Senior Vice President of Marketing. Rich Teich, co-founder and Executive Vice President; Andrew Folck, Vice President, Finance and CFO; Gene Russell, Senior Vice President of Sales; and David Hamburger, Vice President – Legal Affairs and General Counsel, continue in their respective positions.

“We recognize the need to continue strengthening our management team to keep pace with the Company’s growth. Jeff comes with the experience of working as senior management for a major carrier and with the expertise to run MCI’s prepaid calling card division,” stated Mr. Lorsch. “In a little over a year, Jeff turned MCI’s prepaid calling card group into one of the highest performing prepaid calling card businesses in the market. He has specific talents, knowledge and understanding of the industry, as well as the proven ability to work with our retail customers which should contribute to our growth. We are excited about having him join our executive team.”

Mr. Lindauer stated, “I’m very excited about the future of this business. It’s rare when you have the opportunity to capitalize on positive market characteristics that have significant revenue volume, growth and margin attributes. This business offers exactly that. Coupled with very scalable distribution and an unlimited supply line of minutes from carriers you have a consumer product marketer’s dream. SMARTALK has assembled the right elements to leverage this enormous opportunity.”

Added Mr. Spangenberg, “Jeff possesses the talent, vision and motivation that will allow us to realize our objective of becoming the dominant prepaid communications company. We find Jeff’s industry experience and success to present a unique and attractive opportunity. I look forward to working with Jeff and executing on our business plan.”

New Business

SMARTALK also announced today it has sold into new retail accounts representing 2,000 additional storefronts during the third quarter, including CompUSA Inc., one of the nation’s leading retailers and resellers of personal computers and related products and services; Pep Boys, the nation’s leading automotive aftermarket retail and service chain; ACE Cash Express, Inc., one of the nation’s largest providers of retail financial services; Pamida Holdings Corporation, a mass merchandise retailer operating stores in Midwestern, North Central and Rocky Mountain states; Fingerhut Companies, Inc., a leading database marketing company, and others. With the addition of these new retailers, and the completion of recently announced acquisition agreements, SMARTALK has distribution agreements that give the Company access to more than 100,000 retail locations in North America and the UK.

Included in the new retailers are:

— CompUSA, which will sell SMARTALK-branded prepaid calling cards in 134 CompUSA Computer Superstore locations situated in 61 major metropolitan markets across the U.S.

— Pep Boys, which will sell Pep Boys-branded prepaid phone cards manufactured by SMARTALK in 659 Pep Boys and PartsUSA locations in 33 states, the District of Columbia and Puerto Rico. This agreement marks SMARTALK’s entry into the automotive aftermarket industry.

— Fingerhut Companies, Inc., which will sell 30-minute, 60- minute and 120-minute SMARTALK-branded prepaid phone cards through the Fingerhut catalog in the first quarter of 1998 with an expected circulation of 14 million copies. As part of this agreement, Fingerhut will sponsor the give away of a 30-minute SMARTALK prepaid phone card with the purchase of certain telecommunications equipment through the Fingerhut catalog.

— ACE Cash Express, Inc., one of the national’s largest providers of retail financial services, will sell SMARTALK prepaid phone cards in its more than 690 centers located in 29 states and the District of Columbia.

— Pamida Holdings Corporation, which operates 150 general merchandise stores in fifteen Midwestern, North Central, and Rocky Mountain states, will sell custom Pamida-branded “Home Town Values” prepaid phone cards, which will be offered through special point-of-sale displays at each check-out lane in every Pamida store.

SMARTALK also announced arrangements to sell SMARTALK-branded prepaid phone cards with Kinney Drugs, which operates 49 stores located in upstate New York; Red Apple Market, which has 48 stores in New York City; Super 1 Foods, which has 25 stores in Texas and Louisiana; Schwegmann Giant Super Markets, which has 26 stores in Louisiana and Mississippi, and Bartell Drugs with 44 stores in the Pacific Northwest as well as Brookshire Grocery to sell Brookshire- branded prepaid phone cards in that company’s 104 stores located in Texas, Louisiana and Arkansas.

“I’m pleased with SMARTALK’s ability to continue to expand its retail distribution channel,” said Mr. Lorsch. “These sales are a result of the company’s core sales and marketing efforts and clearly demonstrate the strength of our national brand position at retail. We continue to see numerous opportunities for additional growth from the addition of more top quality retailers such as Pep Boys, Comp USA, Pamida, Fingerhut and others, and alternative distribution channels such as the Choice Hotel and HFS relationships.”

Acquisition of Cardinal

SMARTALK also announced today that it has acquired privately- held, Toronto-based Cardinal VoiceCard Limited, a leading provider of prepaid telephone card services in Canada in an all stock transaction valued at approximately $2.1 million.

Cardinal VoiceCard Limited’s client base includes Silcorp, which operates Mac’s, Mike’s and Becker’s convenience stores; Atlantic Stores; Money Mart check cashing outlets; International News newsstands; Petro-Canada gas stations; and Rent-A-Centre rent-to-own stores, amongst others, representing over 1,700 storefronts. Cardinal VoiceCard Limited also provides promotional phone cards in Canada for clients such as Coca-Cola, Travelodge and Ho-Lee-Chow restaurants. The Cardinal operation will be known as SMARTALK-Canada and will report to Mr. Teich. Joining SMARTALK as Managing Director of the Canadian office will be Steve Barrett who founded Cardinal VoiceCard Limited and is also the founding chairman of the Canadian PhoneCard Association.

Mr. Lorsch added, “We are excited about our international expansion both into the Canadian market through our new SMARTALK- Canada subsidiary and our recently announced move into the European market through our partnership with highly respected WH Smith, which gives us access to 55,000 retail outlets.”

Conclusion

SMARTALK and its wholly owned subsidiary, SMARTALK TeleServices (U.K.) Ltd., recently announced a definitive agreement to distribute SMARTALK prepaid calling cards in the United Kingdom through D Services which gives SMARTALK access to 55,000 WH Smith retail outlets in the UK. SMARTALK additionally announced a definitive agreement to acquire the retail prepaid business from Frontier Corporation, which will add 4,000 retail locations, including Merit Stations, King Sooper, Southwest Supermarkets, Acme Supermarkets, Qwik Shops and Wegmans. Additionally, the expected completion of SMARTALK’s previously announced acquisition of ConQuest Telecommunications Services Corp. will create an Ohio operation and will add retail distribution agreements with such companies as Winn-Dixie, Marathon Oil, SuperAmerica, Pick Qwik Food Stores, and others.

With the addition of these new retailers, and the completion of recently announced acquisition agreements, SMARTALK will have distribution agreements giving access to more than 40,000 locations in the U.S. and an additional 56,000 internationally.

SMARTALK currently maintains distribution agreements with mass merchandisers, consumer electronics retailers, supermarkets and home office superstores, such as Office Depot, Future Shop, Venture Stores, The Good Guys, Staples, Service Merchandise, Jewel/Osco Combo Stores, Osco Drug, Sav-On Drug, OfficeMax, Dominick’s Finer Foods, Eckerd Drug, Food4Less, Ralphs Supermarkets, Bradlees, Marshall Field’s, Best Buy, and Builders Square, as well as university book stores and convenience stores. SMARTALK also offers specialized value-added promotional phone card programs to corporate clients including Gillette, Hewlett-Packard, Wells Fargo Bank, Nabisco, Pfizer and Prudential Securities. The Company maintains strategic marketing partnerships with Choice Hotels and HFS, the two largest hotel franchisers in the US, along with Simon DeBartolo Group, the largest publicly traded real estate company and operator of shopping malls in North America.

Based in Los Angeles, with additional offices in Boston, Orlando, Toronto and San Francisco, SMARTALK is a member of the Telecommunications Resellers Association, International Telecard Association and the Consumer Electronics Manufacturer’s Association.

Note: Certain statements made herein that are not historical are forward-looking within the meaning of the Private Securities Litigation Reform act of 1995. Such statements include, but are not limited to, the receptivity of retailers’ customers to the Company’s products and services, and the ability of the Company to complete the previously-announced acquisitions of ConQuest Telecommunications Services Corp. and the retail prepaid phone card business of Frontier Corporation, which impact the calculation of the Company’s total retail outlets, and the ability of the Company to successfully integrate ConQuest’s and Frontier’s operations into the Company operations, and the anticipation of continued trends. Investors are cautioned that all forward-looking statements involve risks and uncertainties including, without limitation, risks related to market acceptance and consumer demand for the Company’s products and services and pricing dependence on third-party vendors. The Company’s agreements with its distributors generally do not assure that the Company will generate a specific level of revenue and are terminable on relatively short notice. Investors who seek more information about the Company’s business and relevant risk factors may wish to review the Company’s SEC reports, including, but not limited to, its Annual Report on Form 10-K for 1996, and quarterly reports on Form 10-Q.

SMARTALK TELESERVICES INC.
STATEMENT OF OPERATIONS
(unaudited)

Quarter Ended
September 30,
—————
1997 1996
:_ :_

Revenues $20,565,622 $4,588,844

Gross profit $8,769,135 $1,129,404

Net income (loss) $478,637 $(1,162,184)

Net income (loss) per share $0.03 $(0.12)

Weighted average
outstanding shares 16,846,271 9,335,348

Decremented minutes 91,207,466 23,510,042

PINs activated 1,770,574 262,872

——— Quarter-Over-Quarter ———

3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr.
1997 1997 1997 1996
:_ :_ :_ :_

Revenues $20,565,622 $11,796,890 $7,368,333 $6,754,196

Gross profit $8,769,135 $4,592,836 $2,607,585 $2,756,780

Net income (loss) $478,637 $(666,345) $(310,297) $320,822

Net income (loss) per share $0.03 $(0.05) $(0.02) $0.03

Weighted average
outstanding shares 16,846,271 13,940,285 12,897,674 12,378,826

Decremented minutes 91,207,466 54,824,541 35,221,086 27,906,751

PINs activated 1,770,574 693,447 437,055 348,106

Details

TSYS Promotions

Total System Services, Inc. has promoted Daniel J. Charron and Barry J. Tompkins to Group Vice President.

Commenting on the announcement, Chairman of the Board and CEO Richard W. Ussery stated, “Dan and Barry have been great examples of devoted team members and have proven their excellent leadership abilities. We are proud that they are a part of our team and look forward to their continued leadership in the future.”

Charron joined TSYS in 1991 as Manager of the Business Operations Group. In 1993, he became the Project Manager of the Distributed Systems Product Development Group before being promoted to Assistant Vice President and Associate Director of Business Services later that same year. Charron was promoted to Vice President and Director of Conversions/Project Management in 1995. He currently serves as the Director of the TS2 Conversion Department. Prior to joining TSYS, Charron served in the United States Army Corps of Engineers where he held various leadership roles including Platoon Leader, Executive Officer and Detachment Commander. He received a Bachelor of Science in Civil Engineering/Construction Management from the United States Military Academy at West Point, NY, and an M.B.A. from Georgia State University.

Tompkins joined Columbus Bank and Trust Company in June of 1975 in the Authorizations Department. In 1977, he transferred to the Operations Department as a Computer Operator and, in 1978, to the Programming Department as a Programmer. When TSYS became a separate company in 1983, Tompkins moved with his department to the new company. In 1987, he became the Programming Manager of the Conversions Department, and, in 1989, he was made the Programming Manager for the NationsBank team. Tompkins was promoted to Vice President in 1994. He currently serves as the manager of all programming resources for the NationsBank team. Tompkins received a Bachelor of Business Administration from Columbus State University in 1981.

Headquartered in Columbus, Ga., TSYS is one of the world’s largest credit, debit, commercial and private-label card processing companies, serving card issuing institutions located throughout the United States, Puerto Rico, Canada and Mexico, representing more than 90 million cardholder accounts. TSYS provides a comprehensive on-line system of data processing services marketed as THE TOTAL SYSTEMâ. In 1996, TSYS formed a joint venture with Visa® U.S.A. to create Vital Processing Services L.L.C. (www.vitalps.com), a leading full-service merchant services provider. TSYS’ 1996 revenues totaled $311.6 million; the company is an 80.7 percent owned subsidiary of Synovus Financial Corp. (NYSE: “SNV”) ([www.synovus.com][1]), a $9.0 billion asset, multi-financial services company that also includes 34 banking affiliates in four Southeastern states, a full-service brokerage firm, a comprehensive trust services provider and a mortgage services company. TSYS’ Internet address is [www.totalsystem.com][2].

[1]: http://www.synovus.com
[2]: http://www.totalsystem.com

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G&D Supplies NYC VISA Cash Pilot

G&D was the major supplier to ’96 Summer Olympic Games Visa Cash pilot

Giesecke & Devrient America Inc. (G&D) announced Thursday that the firm is a leading supplier of Visa Cash(R) cards for Citibank’s innovative smart card project involving more than 700 merchants in Upper Manhattan.

The New York program is the largest smart card project conducted in the U.S. today. This is the second time G&D has participated in a major test of the Visa Cash program, the previous one being the 1996 Summer Olympic Games smart card program in Atlanta where G&D supplied nearly one million cards in the largest implementation of Visa Cash in the U.S. market.

The New York Smart Card Program is an unprecedented alliance involving Citibank, Visa, Chase Manhattan Bank, and MasterCard. In this major project, Citibank and Chase are providing more than 50,000 cards to their customers on Manhattan’s Upper West Side to explore the financial and technological advantages of an electronic payment system designed as an alternative to checks, cash, and coins at the retail level.

“The Citibank smart card program represents an important technological milestone in the development of cashless payment systems in the U.S.,” stated Juergen Nehls, a member of G&D’s board of directors and the head of G&D’s Cards and Payment Systems Division.

Looking to the future, Nehls observed that, “usage of electronic purses, such as the Visa Cash card, will expand from everyday shopping to complex payment systems on the Internet, to closed environments such as stadiums and amusement parks. G&D’s experience in developing secure and innovative payment systems for the world’s leading commercial banks make our firm the ideal partner as the smart card revolution gets underway in the U.S.”

The cards developed and manufactured by G&D, featuring Visa Cash, are being issued by Citibank to its local customers. Consumers will be able to load cash value onto the cards at special loading kiosks located throughout the Upper West Side. The smart cards’ stored value can be used to purchase goods and services at a variety of merchants including restaurants, food stores, dry cleaners, and other retail establishments.

The Citicard, Citibank’s ATM card, and the stand alone, reloadable “Money Card,” provide a convenient alternative to cash for small-value transactions, while offering significant savings in cash handling costs for participating merchants and banks.

“G&D has been an important and responsive supplier of our branded Citicard smartcards for the New York City Smart Card Program. Their products have performed well, they met their delivery schedules and quality targets, and often went beyond the usual to help us meet our schedules,” commented Henry Lichstein, vice president of Horizon Planning at Citibank.

ABOUT CITIBANK

Citibank is a subsidiary of Citicorp (NYSE: CCI), a global financial services organization serving consumers, businesses, government, and financial institutions through 3,200 locations in 98 countries and territories. In the metropolitan New York City area, Citibank serves customers and small businesses through a network of 217 branches.

ABOUT GIESECKE & DEVRIENT

Giesecke & Devrient GmbH is a world leader in the development and production of cards and card systems, including microprocessor, memory, and magnetic stripe cards. A privately-held Munich-based corporation, Giesecke & Devrient employs 4,300 people worldwide in its operating units in Germany, Belgium, Spain, Mexico, China, Russia, Singapore, South Africa, and the United States.

The rapidly expanding G&D America manages 950 employees and is a wholly- owned subsidiary of Giesecke and Devrient. The Virginia-based company focuses its North American sales and development efforts on products for G&D’s Card and Card Systems Division and its pioneering currency processing systems which are used by major central banks and leading commercial banks throughout the world.

As one of the largest manufacturers of secure magnetic stripe and chip cards in North America, G&D operates production and research facilities in Cleveland; Bedford, Mass.; and Philadelphia; as well as in Toronto and Mexico City. Visa Cash(R) is a registered trademark of Visa International. Citicard is a registered trademark of Citicorp.

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Contactless Card Manufacturer Struggles

Racom Systems, Inc. a pioneer in the development of contactless smart cards, reported its unaudited financial results for the third quarter ended September 30, 1997, with a net loss of $791,701 or ($.06) per share on revenues of $69,218.

These results compare to a net loss of $876,889 or ($.07) per share on revenues of $76,456 for the corresponding prior year period, and a net loss of $762,969 or ($.06) per share on revenues of $336,815 during the second quarter of the same year.

“At the end of the quarter two major contracts had not been closed as expected,” said Richard Horton, President and CEO of Racom. “While we are disappointed in our inability to close these contracts and the resulting negative impact on our quarterly earnings, we believe the prospects for a successful outcome are quite good. We remain enthusiastic about the explosive potential of smart cards and are confident that our business plan is on track for addressing this market.”

Racom generates revenues principally from fee-based development projects, sale of its smart card products and selective licensing of its technology. Licensing and project-related revenues are typically billed in stages based upon completion of milestones and therefore quarterly financial results have historically fluctuated significantly. Racom is now expanding its engineering, marketing and sales efforts to address substantially larger business opportunities, with emphasis on generating recurring revenues from product sales and services. A primary example of such an opportunity is Racom’s participation as a founding member of the Tran$Cash Consortium which offers full turnkey, entrepreneurial solutions for electronic fare, toll collection and E-ticketing in major transportation markets.

Racom Systems, Inc., headquartered in Denver, Colorado, develops and delivers smart card-based systems that automate transactions for electronic commerce, information technology and industrial automation. Whether at home, work or play, Racom’s systems put people in charge of their lives with solutions that provide secure, convenient and personalized access to money, information, property, and services. For further information about Racom, its technology and products, contact Racom at its Web address, , by telephone at (303) 771-2077, or by fax at (303) 771-4708.

Investors should carefully consider the preceding information as well as other information contained in this press release before making an investment in the Common Stock. Information contained in this press release contains “forward-looking statements” which can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “should” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. No assurance can be given that the future results covered by the forward-looking statements will be achieved. The following matters constitute cautionary statements identifying important factors with respect to such forward-looking statements, including certain risks and uncertainties, that could cause actual results to vary materially from the future results covered in such forward-looking statements. Other factors could also cause actual results to vary materially from the future results covered in such forward-looking statements.

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Nestor up 148%

Nestor, Inc., a leading provider of intelligent software applications, reported revenues of $1,592,344 for the third quarter ended September 30, 1997, an increase of 148% compared to revenues of $640,867 for the third quarter of 1996.

The Company reported a modest net loss in the third quarter ended September 30, 1997, of $61,959 or $0.02 per share, compared to a net loss of $364,731 or $0.05 per share, for the third quarter of 1996.

For the nine-month period ended September 30, 1997, revenues rose 24% to $4,899,489 from $3,953,359 for the comparable period in 1996. Net income for the first nine months of 1997 was $29,116 compared to $371,186 for the first nine months of 1996. Revenue in 1997 and 1996 includes $105,032 and $2,078,000, respectively, and net income in 1997 and 1996 includes $105,032 and $1,140,000, respectively, from the intelligent character recognition (ICR) product line exclusively licensed to National Computer Systems, Inc. in June 1996.

David Fox, President and CFO of Nestor, said “Revenues for the Financial Solutions Division continue to increase with new licensing agreements for our PRISM risk-management products. A series of new PRISM installations signals our continued emergence as a major supplier of risk-management solutions to the financial-services market. Nestor is pleased that its recent partners have begun to generate orders for PRISM in their respective markets.

“CSK Corporation, a Nestor reseller and Japan’s leading independent software services provider, recently completed its first installation of PRISM at a major Japanese financial institution, Nippon Shinpan Card Company, Ltd. In addition, Nestor’s partnership with Total System Services, Inc. (TSYS) is building transaction-fee revenues. On-line use of PRISM began in August 1997 under a licensing agreement signed in the first quarter of this year. TSYS is now providing PRISM to several of their client banks. TSYS is the second largest transaction-processing provider, servicing over 140 financial institutions in the U.S., Puerto Rico, Canada and Mexico.

“Nestor’s strategic alliance with Applied Communications Inc. (ACI) is also building market momentum. During September, ACI executed its first PRISM license with Honor Technologies, Inc. one of the largest electronic funds transfer (EFT) organizations in the U.S.

“In October, a leading Canadian credit-card issuer licensed PRISM directly from Nestor to detect fraudulent transactions in their portfolios. This important PRISM installation in Canada positions us to expand our presence in that market.

“We are seeing only the beginning of the opportunities that exist for our neural-network technology. For example, we are continuing our development of InterSite, an intelligent advertising manager and personalization software for on-line Web site marketing. On October 31, 1997, Nestor Interactive, a wholly-owned subsidiary which develops and markets products for Web site marketing, executed an agreement to provide InterSite to Lycos, Inc. one of the world’s largest Internet navigation providers. InterSite is expected to help with Lycos’ goal of delivering to each on-line user the information best tailored to his or her individual interests.

“Nestor’s Intelligent Sensors subsidiary continues to gain ground with TrafficVision, its video traffic-monitoring product line, which has begun shipping in the U.S. and Korea. Testing of TrafficVision is under way by various Departments of Transportation including Rhode Island, California, Connecticut, and Texas, as well as in Korea, where TrafficVision was recognized as one of the top products in a government traffic-monitoring product comparison.”

Certain information in this press release may include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although the Company believes that the expectations are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved.

Nestor, Inc. is a leading provider of intelligent-decision-support solutions for the financial-services industry. Nestor’s client/server products incorporate innovative pattern-recognition technologies ideally suited for data-intensive, mission-critical decision applications in real-time environments. The Company’s products for financial institutions support fraud detection and case management for credit, debit, retail and corporate card fraud, as well as merchant fraud; database marketing; and Internet customer- support applications. Nestor’s patented technology is also being applied to intelligent-decision applications addressing a variety of other markets, including real-time traffic management, and intelligent character recognition. Nestor’s technology is also available embedded in the Ni1000 Recognition Accelerator(TM) chip (developed with Intel Corporation) and the IBM ZISC(TM) digital integrated neural network chip. More information can be obtained via the Company’s web site at .

All trademarks are the property of their respective owners.

NESTOR, INC.
Consolidated Statements of Operations

Three Months Ended Nine Months Ended

9/30/97 9/30/96 9/30/97 9/30/96

Revenues $1,592,344 $640,867 $4,899,489 $3,953,359

Net income (Loss) $(61,959) $(364,731) $29,116 $371,186

Income (Loss)
Per Common Share $(0.02) $(0.05) $(0.03) $0.01

Primary Shares
Outstanding 9,336,312 8,534,326 9,205,998 11,917,485

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Hot Way to Pay

MasterCard and Opinion Research Corp. released results of a national survey showing 24% of Americans will use a debit card for making purchases this holiday season. The survey also showed that 54% of consumers will use a credit card if they receive an additional discount at the point of sale. About 40% said they would use certain cards if the receive either rebates with their statement or if the purchase is covered under a purchase protection plan.

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Granite Sculptor

Pa-based Destiny Software unveiled a new comprehensive online credit card application development and management system yesterday. ‘Granite Sculptor’ enables issuers to create, manage and market credit card applications across the Internet thus providing a centralized mechanism for controlling the entire process. Using a browser-based interface and a graphical development environment, one person without programming skills, can operate the entire system. ‘Granite Sculptor’ also offers real time statistical reporting, providing issuers with the ability to evaluate the program effectiveness. Destiny’s system also eliminates the need to manage static HTML forms by dynamically generating and presenting each application on the Web. Destiny’s current clients include GE Capital, First USA and Advanta.

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Mastercard’s VPN Up

MasterCard launched a global virtual private network for its transaction processing system yesterday. The new network, development in an alliance with AT&T, will link areas of the world not previously part of the global payments infrastructure and will significantly reduce transaction time. The network incorporates bandwidth-on-demand, reducing the cost to MasterCard members by eliminating the need to maintain excess capacity during off- seasons. MasterCard says VPN, compared to its previous network, has cut transaction time by four-tenths of a second. The MC VPN is handling more than 80% of MasterCard’s current transactions. By late next year members and gateways in Latin America, Asia Pacific, the Middle East and Africa will have migrated to the new network.

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Merr-e-Christmas

The European Web Site launched this week by a consortium of computing, financing, consulting, and shipping firms featuring consumer products from more than twenty European retailers may turn out to be the holiday season’s hottest Web site. Consumers around the world will be able to shop online among major European department stores to small European providers of specialty goods. The site features a search engine function to help match gifts to the profile of friends and family. ‘e-Christmas’ is multi-lingual and provides integrated multi-currency pricing at the point of sale. VISA and MasterCard are both participating in the initiative to educate and increase awareness of the global e-commerce market.

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Gemplus Netsmart Team

Gemplus Corporation (Gemplus) announces that it has signed a value-added reseller agreement with Netsmart Technologies, Inc. of Islip, New York. According to terms of the agreement, Netsmart (NASDAQ: NTST) will develop solutions based on Gemplus’ smart card technologies, and will sell them to the financial and managed care markets.

Netsmart is a software developer and systems integrator of advanced technology, electronic transaction and system products. The company will be utilising Gemplus’ smart card products in its applications that include the CarteSmart System for rapid smart card application development, SmarteFinance transaction processing and settlement system, SmarteCare managed healthcare system, SmarteCampus higher education system and its SmartePay Financial Services Kiosk and Server E-Commerce System.

About Gemplus Corporation

Gemplus Corporation is the North American subsidiary of Gemplus Group (Gemplus), the world’s leading producer of magnetic stripe and smart cards. Gemplus manufactures and sells memory cards, microprocessor cards (both contact and contactless), magnetic stripe cards, as well as electronic tags. It also designs and markets software, terminals and systems; and provides personalisation, consultancy and training services to offer its customers comprehensive solutions.

In 1996, Gemplus’ total sales were $440 million (equivalent to GBP 268 million on 10 November 1997). By the end of 1997, the company will have a production capacity of 900 million plastic and smart cards. Gemplus sells its products world-wide for such applications as public and cellular telephony, financial transactions, loyalty, transportation, education, healthcare, gaming, identity, access control, pay TV, security for computer networks and electronic commerce. Information about Gemplus’ products and services can be found on the World Wide Web at:

About Netsmart

Netsmart is a software developer and systems integrator specialising in distributed network systems for the health, public sector and financial fields. Information about Netsmart’s products can be found on the World Wide Web at:

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