(FORTUNE Magazine) – SUWANEE, GA. Founded 1982 Revenues: $1.2 million Employees: 6 Private

Big Brother may not be a sinister old megalomaniac hiding behind a wall of monitors after all. He may just be a bunch of well-meaning nerds listening to rock music while they change their shirts.

Last January, Algorithm released the Internet WatchDog, which enables a second party--like your boss--to keep a log of every program running on your computer. Originally conceived as a device to help parents know if their kids were sneaking glances at pornography on the Internet, WatchDog has become a tool for businesses. According to Charles River Media in Rockland, Massachusetts, which markets the product, at least 25 Fortune 500 companies use WatchDog to keep an eye on what their workers are doing on their PCs.

WatchDog's a strange product to come from Algorithm, whose CEO, Chris Watkins, defines his vision as trying to foster a "nerd farm where the best minds freely create [technology] to benefit society." Changing jobs at Algorithm is as easy as changing shirts. If one of the company's six employees wants to manage, he puts on a white shirt. If he wishes to be an engineer, he wears green. An operations professional dons blue. "It's about self-governing, accountability, and initiative," says Watkins.

Besides WatchDog, the Algorithm homestead has created an odd mix of 3-D graphics software. One program, called Compu-Ceph, allows orthodontists to meld photos and X-rays to give patients a visual preview of the expected results of dental work. The company also developed an immersive arcade system, called Venturer S2. In one Venturer program, players sit in a fully enclosed capsule and get treated to a simulated ride on a roller coaster. It's good stuff, though this reporter almost got motion sick.

Watkins hopes his software can be applied outside the game world--for instance, in simulation training for the military. But even if his plans succeed, he has no desire to take his beloved "N-farm" public. Instead he plans to grow autonomous "bubbles," like a business-monitoring group and a motion-based trainer division, that could eventually be spun off. --Joe McGowan