U.S.
      SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-KSB/A


(Amendment
      No. 4)





(Mark
      one)


x ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
      THE


SECURITIES
      EXCHANGE ACT OF 1934


For
      the
      fiscal year ended September 30, 2002





o TRANSITION REPORT UNDER SECTION 13 OR 15 (d)


OF
      THE


SECURITIES
      EXCHANGE ACT OF 1934


For
      the
      Transition period from ________ to ____________





Commission
      File Number: 0-24217





YP
      CORP.


(Name
      of
      Small Business Issuer in its Charter)





NEVADA
            
            85-0206668(State
                or other jurisdiction of incorporation or organization)
            
            (IRS
                Employer Identification No.)





4840
                EAST JASMINE STREET, SUITE 105, MESA, ARIZONA
            
            85205(Address
                of principal executive offices)
            
            (Zip
                Code)





(480)
      654-9646


(Issuer’s
      telephone number)





Securities
      registered under Section 12(b) of the Exchange Act: NONE





Securities
      registered under Section 12(g) of the Exchange Act:





COMMON
      STOCK, $.001 PAR VALUE


(Title
      of
      Class)





YP.NET,
      INC.


(Former
      Name)




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x No o .





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB o .











Registrant’s
      revenues for its most recent fiscal year were $12,618,126.





The
      aggregate market value of the common stock held by non-affiliates computed
      based
      on the closing price of such stock on January 7, 2003 was approximately
      $1,677,062.




The
      number of shares outstanding of the registrant’s classes of common stock, as of
      January 7, 2003 was 43,963,222.











**EXPLANATORY
      NOTE**




This
      Amendment on Form 10-KSB/A (this “Amendment”) amends the Annual Report on Form
      10-KSB for the year ended September 30, 2002, as originally filed by YP Corp.
      on
      January 14, 2003 (the “Original Filing”), and as amended by Amendment No. 1 on
      Form 10-KSB/A filed on April 10, 2003, and further amended by Amendment No.
      2 on
      Form 10-KSB/A filed on July 8, 2003, and further amended by Amendment No. 3
      on
      Form 10-KSB/A filed on January 22, 2004, solely for the purpose of revising
      Part II, Items 6 and 7, to amend and restate the disclosure with
      respect to our accounting for shares issued to, and subsequently recovered
      from,
      certain non-performing consultants during 1999 and 2000. The historical
      financial statements generated by predecessor management reflected an expense
      upon issuance of the shares and a reversal of this expense when it was deemed
      (through a settlement agreement or judgment) that these shares would be
      returned. However, after further analysis and consultation with the Securities
      and Exchange Commission, it was determined to be inappropriate to recognize
      the
      initial expense and its subsequent reversal as no services were rendered by
      these consultants. Instead, the issuance of these shares will be reflected
      as
      temporary equity, together with a related receivable, until the shares were
      returned. The net decrease to cumulative after-tax income of approximately
      $510,000 relates to shares issued in 1999 that were expected to be returned
      but,
      for various reasons, cannot be obtained. Such amounts will continue to be
      reflected as expense in the year granted and our revised statements will no
      longer reflect the reversal of this expense.





In
      addition, in connection with the filing of this Amendment and pursuant to the
      rules of the Securities and Exchange Commission, we are including with this
      Amendment a currently dated consent of our independent public accountants and
      certain currently dated certifications.




Except
      as
      described above, no other changes have been made to the Original Filing. This
      Amendment continues to speak as of the date of the Original Filing, and, except
      a specifically stated herein, we have not updated the disclosures contained
      in
      this Amendment to reflect any events that occurred at a date subsequent to
      the
      filing of the Original Filing. The filing of this Form 10-KSB/A is not a
      representation that any statements contained in items of the Original Filing
      other than that information being amended are true or complete as of any date
      subsequent to the date of the Original Filing. The filing of this Form 10-KSB/A
      shall not be deemed an admission that the Original Filing or the amendments
      made
      thereto, when made, included any untrue statement of a material fact or omitted
      to state a material fact necessary to make a statement not
      misleading.











**TABLE
      OF CONTENTS**





**Item**
            **Page**Part
                II
            1Item
                6. Managements’ Discussion and Analysis
            1Item
                7. Financial Statements
            5Report
                of Independent Registered Public Accounting
                Firm
            7Consolidated
                Financial Statements:Consolidated
                Balance Sheet at September 30,
                2002
            8Consolidated
                Statements of Operations for the Years Ended
                September 30, 2002 and September 30, 2001
            9Consolidated
                Statements of Stockholder’s Equity for the Years
                Ended September 30, 2002 and September 30, 2001
            10Consolidated
                Statements of Cash Flows for the Years Ended
                September 30, 2002 and September 30, 2001
            12Notes
                to Consolidated Financial Statements
            14Part
                III
            30Item
                13. Exhibits
            30Signatures
            30


*Table
            of Contents*




PART
      II





ITEM
      6.
      MANAGEMENT’S DISCUSSION AND ANALYSIS





OVERVIEW





We
      provide Internet-based yellow page listing services on our YP.Net website.
      We
      acquired Telco Billing, Inc. in June 1999 as a wholly owned subsidiary, and,
      as
      a result of this acquisition, changed our primary business focus to become
      an
      electronic yellow page directory service. Our website enables users to search
      for yellow page listings in the United States. We charge our customers for
      a
      Preferred Listing of their businesses on searches conducted by consumers on
      our
      website.





The
      Company was originally incorporated in Nevada in 1996 as Renaissance Center,
      Inc. Renaissance Center and Nuclear Corporation merged in 1997. Our articles
      of
      incorporation were restated in July 1997 and our name was changed to Renaissance
      International Group, Ltd. Our name was subsequently changed to RIGL Corporation
      in July 1998. With the acquisition of Telco and shift of the focus of our
      business, our corporate name was again changed to YP.Net, Inc., effective
      October 1, 1999. The new name was chosen to reflect our focus on Internet-based
      yellow page services.





In
      order
      to ensure the accuracy and completeness of the Company’s financial information
      in May, 2002, the independent members of the Company’s Board of Directors
      engaged the services of Jerrold Pierce, the former Senior Special Agent of
      the
      Criminal Investigations Division of the Internal Revenue Service for seven
      western states. Mr. Pierce performs unannounced inspections of the Company’s
      financial records at least once every quarter. Mr. Pierce reports his findings
      directly to the independent members of the Board, and to the Board in its
      entirety. To date, Mr. Pierce has found no irregularities with current
      management





RESULTS
      OF OPERATIONS





Fiscal
      Year End September 30, 2002 Compared to Fiscal Year End September 30,
      2001.





Revenue
      for the year ended September 30, 2002 ("Fiscal 2002") was $12,618,126 compared
      to $13,501,966 for the year ended September 30, 2001 ("Fiscal 2001"). The
      decrease in revenue is principally the result of a change in revenue recognition
      on direct billings. In Fiscal 2002, revenue on direct billings was recognized
      only as cash was collected in order to be more conservative. In Fiscal 2001,
      direct revenue was recognized upon providing the Preferred Listing service
      and a
      reserve against such revenues was established in accordance with SAB #101.
      Management believes that recognizing direct billings as revenue upon cash
      collection is more conservative than its previous methodology.





We
      utilize direct mailings as our primary marketing program and this program
      generates our principal revenue of the Company. Our subscribing customers
      increased to 113,565 at September 30, 2002, approximately a 24 % increase
      for the fiscal year.





Cost
      of
      Services for Fiscal 2002 were $3,497,678 compared to $6,150,085. The decrease
      in
      cost of services is due to a decrease resulting from lower dilution (i.e.,
      unbillable customer phone numbers, customer credits, LEC charge-backs) in 2002
      compared to 2001 resulting from the previously mentioned improvement in the
      Company’s LEC billing filtering process. We have been able to reduce our
      dilution expenses with the third party billing companies, as the Company becomes
      better able to track its individual subscriber billings and collections, The
      Company ceased its relationship with a billing company due to the higher cost
      of
      doing business with this third party biller. The Company reduced its total
      billing related expenses by $3,826,000 in the year ended September 30, 2002
      primarily due to its ability to challenge dilution charges made by these third
      party billers.





1
 *Table
            of Contents*





General
      and administrative expenses for Fiscal 2002 were $4,754,665 compared to
      $3,987,040 for Fiscal 2001. The increase was principally the result of increased
      staffing costs of $953,000 and legal and professional fees of approximately
      $182,000. These higher costs were partially offset by lower expense of
      consultants and rent expense. The Company added staff in anticipation of adding
      an outbound customer service group and to begin performing more of the billing
      process in-house.





Sales
      and
      marketing expenses for Fiscal 2002 were $963,868 compared to $688,349 for Fiscal
      2001. The increase was principally the result of our re-instituting our
      marketing efforts in Fiscal 2002. The marketing expenses are attributed to
      our
      direct response marketing, which is our primary source of attracting new
      customers. In Fiscal 2001, the Company’s management decided to cease all direct
      mail marketing efforts until we had entered into a final settlement agreement
      with the FTC. In July 2001 we entered into a settlement agreement and
      voluntarily complied with the order set forth by the FTC. See our Form 10-QSB
      for the period ended June 30, 2001.





Operating
      income in Fiscal 2002 was $2,820,625 compared to $2,073,066 in Fiscal 2001
      representing an increase of approximately 36%. Income before income taxes was
      $3,182,814 in Fiscal 2002 and $1,317,698 in Fiscal 2001, an increase of over
      140%. The increases in both operating income and income before income taxes
      were
      the result of the substantial savings in the billing company and LEC dilution
      expenses and lower interest expense due to lower debt levels in Fiscal 2002.
      The
      Company is likely to continue to experience lower billing expenses as a
      percentage of revenue but not on the level of the gains experienced in Fiscal
      2002. However, the Company intends to increase its marketing efforts in the
      short term resulting in higher marketing expenses.





The
      cost
      of the Yellow-Page.Net URL was capitalized at its cost of $5,000,000. The URL
      is
      amortized on an accelerated basis over the twenty-year term of the licensing
      agreement. Amortization expense on the URL was $399,833 for the year ended
      September 30, 2002. Annual amortization expense in future years related to
      the
      URL is anticipated to be approximately $200,000-300,000





Interest
      expense for Fiscal 2002 was $92,341 compared to $571,248 for Fiscal 2001. The
      decrease in interest expense was a result of decreased debt due to the repayment
      of approximately $800,000 of debt in Fiscal 2002.





During
      the year ended September 30, 2002, the Company structured certain transactions
      related to its merger with Telco that allowed the Company to utilize net
      operating losses that were previously believed to be unavailable or limited
      under the change of control rules of Internal Revenue Code 382. The deferred
      income tax asset related to these net operating losses recorded at September
      30,
      2001, was partially offset by a valuation allowance of approximately $773,000.
      That valuation allowance was eliminated and recognized as a benefit in the
      year
      ended September 30, 2002. Due to these changes, the Company recognized income
      tax benefits of $917,000 that are included as part of the overall tax provision
      for the year ended September 30, 2002. At September 30, 2002 the Company has
      utilized all of its federal and state net operating losses.





Net
      profits for Fiscal 2002 were $2,840,731, or $0.06 per share, compared to
      $777,264, or $.02 per share for Fiscal 2001. The increase in net income resulted
      from the increased subscribing customer count and associated revenue cited
      above
      with a less than corresponding increase in expenses cited above as well as
      the
      usage by the Company of remaining net operating losses which reduced the income
      tax provision from the previous fiscal year.





LIQUIDITY
      AND CAPITAL RESOURCES





2
 *Table
            of Contents*





Our
      cash
      balance increased to $767,108 for Fiscal 2002 from $683,847 for Fiscal 2001.
      We
      funded working capital requirements primarily from cash generated from operating
      activities and utilized cash in investing activities and financing activities,
      primarily through repayments of debt.





*Operating
      Activities* .
      Cash
      provided by operating activities was $1,158,015 for Fiscal 2002 compared to
      $3,880,158 for Fiscal 2001. The principal source of our operations revenue
      is
      from sales of Internet yellow page advertising. The decrease in cash provided
      from operations resulted from an increase in the Company’s accounts receivable
      and customer acquisition costs due to the increased subscribing customer count
      resulting from our marketing solicitation program.





*Investing
      Activities* .
      Cash
      used by investing activities was $244,077 for Fiscal 2002 compared to $165,672
      for Fiscal 2001. We purchased $77,632 of computer equipment in Fiscal 2002
      compared to $28,520 of computer equipment in Fiscal 2001. Increased computer
      purchases in Fiscal 2002 resulted from growth in the customer base in Fiscal
      2002 and in preparation for anticipated future growth in the customer
      base.





*Financing
      Activities* .
      Cash
      flows used from financing activities were $830,677 for Fiscal 2002 compared
      to
      $3,250,252 for Fiscal 2001. We had cash outflow of approximately $800,000 in
      Fiscal 2002 relating to the repayment of debt and cash outflow in Fiscal 2001
      resulting from the repayment of our credit facility relating to Matthew Markson
      Ltd. of $3,199,452. During Fiscal 2002, the Company established a Trade
      Acceptance Draft program with Actrade Financial Technologies which enables
      the
      Company to borrow up to $150,000. A trade acceptance draft ("TAD") is a draft
      signed by the Company made payable to the order of a vendor providing services
      to the Company. AcTrade provides payment to the vendor and collects from the
      Company the amount advanced to the vendor (plus interest) under extended payment
      terms, generally 30, 60 or 90 days. When used, the Company pays a rate of 1%
      per
      month of the amount of the TAD. There is no term to the agreement with Actrade
      and either party may terminate the agreement at any time.





We
      incurred debt in the acquisition of the license right to the Yellow-Page.Net
      URL. A total of $4,000,000 was borrowed, $2,000,000 from Joseph and Helen
      VanSickle, $1,000,000 from shareholders of the Company and $2,000,000 as a
      Note
      from Matthew & Markson Ltd. Management which has dedicated payments in the
      amount of $100,000 per month for the payment of the VanSickle note. This note
      was paid in full subsequent to year end. Management had also dedicated payments
      to the Matthew & Markson note in the amount of $100,000 per month, with the
      provision that no payment be made if we have less than 30 days operating capital
      reserved, or if we are in an uncured default with any of our lenders. The
      original note has been paid in full while a balance of $115,866 remains on
      another note to Matthew & Markson. (see "Certain Relationships"). A total of
      4,500,000 shares of our common stock were issued to secure these notes and
      are
      held in escrow.





Collections
      on accounts receivables are received primarily through the billing service
      integrators under contract to administer this billing and collection process.
      The billing service providers generally do not remit funds until they are
      collected. The billing companies maintain holdbacks for refunds and other
      uncertainties. Generally, cash is collected and remitted to us over a 90 to
      120
      day period subsequent to the billing dates. In August 2002, the Company entered
      into a new agreement with its primary billing service provider, IGT, whereby
      cash is remitted to us on a sixty day timetable beginning November 2002.





We
      market
      our products primarily through the use of direct mailers to businesses
      throughout the United States. We generally pay for these marketing costs when
      incurred and amortize the costs of direct-response advertising on a
      straight-line basis over eighteen months. The amortization lives are based
      on
      estimated attrition rates. During Fiscal 2002 we paid $2,258,006 in advertising
      and marketing compared to $3,781,485 in Fiscal 2001. Management anticipates
      the
      outlays for direct-response advertising to remain consistent over the next
      year.





3
 *Table
            of Contents*





The
      acquisition of Telco by the Company called for the issuance of 17,000,000 new
      shares of stock in exchange of the existing shares of Telco. As part of that
      agreement, the Company gave the former shareholders the right to "Put" back
      to
      the Company certain shares of stock at a minimum stock price of 80% of the
      current trading price with a minimum strike price of $1.00. The net effect
      of
      which was that each of the former Telco shareholders could require the Company
      to repurchase shares of stock of the Company at a minimum cost of $10,000,000.
      The agreement required the Company to attain certain market share
      levels.





The
      "Puts" were renegotiated and retired. As part of the renegotiated settlement,
      the Company provided a credit facility of up to $10,000,000 to each of the
      former Telco shareholders (Mathew & Markson and Morris & Miller. See
      Item 11.), collateralized by the stock held by these shareholders, with interest
      at least 0.25 points higher than the Company’s average cost of borrowing.
      Additional covenants warrant that no more that $1,000,000 can be advanced at
      any
      point in time and no advances can be made in excess with out allowing at least
      30 days operating cash reserves or if the Company is in an uncured default
      with
      any of its lenders. At September 30, 2002, the Company had advanced $233,073
      under this agreement.





On
      September 20, 2002, the Company entered into Executive Consulting Agreements
      with Sunbelt Financial Concepts Inc. ("Sunbelt"), Advertising Management and
      Consulting Services, Inc. ("AMCS") and Advanced Internet Marketing Inc. ("AIM")
      relating to the employment of three executive managers and their respective
      staffs. (See Certain Relationships and Related Transactions"). As part of these
      agreements a Flex Compensation program was instituted. Under these agreements,
      each of Sunbelt, AMCS and AIM may annually draw up to $220,000, $50,000 and
      $30,000 respectively subject to sufficient cash on hand at the Company. The
      amounts are increased by 10% annually and also contain a Due on Sale Clause,
      whereby if there is a change of control of the Company, as defined, then the
      respective agreements allows each to receive the greater of 30% of the amounts
      due under the respective agreements or 12 months worth of fees.





FUTURE
      OUTLOOK





For
      fiscal year 2003 we expect to continue our customer satisfaction program whereby
      we contact our existing customers for their many Mini-Webpage(TM) information
      and to develop and market new products. We also are generating a new revenue
      source to provide customer service and technical services to related and
      industry entities. We presently have agreements with Dial-Up Services, Inc.
      (dba
      Simple.Net) to provide both customer and technical services. Simple.Net is
      an
      Internet service provider ("ISP") beneficially owned by a director (Deval
      Johnson) of the Company. SN charges the Company’s customers $2.50 per month for
      internet access. (See Footnote 12 to the financial statements).





We
      have
      offered our customers Internet access services and are currently gaining
      customers weekly. Our dial-up ISP backbone provider is Simple.Net. Under our
      current provider’s network, over 65 percent of the US’s population has the
      ability to dial to a local point of presence. The remaining population will
      be
      allowed access through an 800 number solution. This revenue stream will prove
      vital in expanding our ability to reach various customer needs.





Our
      future success will depend on our ability to integrate continually and
      distribute information services of broad appeal. Our ability to maintain our
      relationships with content providers and to build new relationships with
      additional content providers is critical to our marketing plan.





4
 *Table
            of Contents*





FACTORS
      WHICH MAY AFFECT FUTURE OPERATING RESULTS





Set
      forth
      below and elsewhere in this Annual Report and in the other documents we file
      with SEC, including the most recent Form 10-QSB, are risks and uncertainties
      that could cause actual results to differ materially from the results
      contemplated by the forward-looking statements contained in the Annual
      Report.





GROSS
      MARGINS MAY DECLINE OVER TIME: We expect that gross margins may be adversely
      affected because we have determined that profit margins from the electronic
      yellow pages offerings that we have profited from in the past have fluctuated.
      We have experienced a decrease in revenue from the LEC from the effects of
      the
      Competitive Local Exchange Carriers (CLEC) that are participating in providing
      local telephone services to customers. We have begun to address this problem
      and
      we are implementing data filters to reduce the effects of the CLEC’s. We have
      also sought other billing methods to reduce the adverse effects of the CLEC
      billings. These other billing methods may be cheaper or more expensive than
      our
      current LEC billing and we have not yet determined if they will be less or
      more
      effective. We continue to look for profitable Internet opportunities; however
      there are no assurances that we will be successful, and presently we have no
      acquisitions in progress.





DEPENDENCE
      ON KEY PERSONNEL: Our performance is substantially dependant on the performance
      of our executive officers and other key employees and our ability to attract,
      train, retain and motivate high quality personnel, especially highly qualified
      technical and managerial personnel. The loss of services of any executive
      officers or key employees could have a material adverse effect on our business,
      results of operations or financial condition. Competition for talented personnel
      is intense, and there is no assurance that we will be able to continue to
      attract, train, retain or motivate other highly qualified technical and
      managerial personnel in the future.





Since
      our
      Growth Rate may slow, operating results for a particular quarter are difficult
      to predict: We expect that in the future, our net sales may grow at a slower
      rate on a quarter-to-quarter basis than experienced in previous periods. This
      may be a direct cause of the projected changes to our direct marketing Pieces.
      See "MARKETING," above. As a consequence, operating results for a particular
      quarter are extremely difficult to predict. Our ability to meet financial
      expectations could be hampered if we are unable to correct the billing through
      the CLEC markets seen in the fourth quarter continue in the future.
      Additionally, in response to customer demand, we continue to attempt develop
      new
      products to reduce our customer attrition rates.





REGULATORY
      ENVIRONMENT: Existing laws and regulations and any future regulation may have
      a
      material adverse effect on our business. These effects could include substantial
      liability including fines and criminal penalties, preclusion from offering
      certain products or services and the prevention or limitation of certain
      marketing practices. As a result of such changes, our ability to increase our
      business through Internet usage could also be substantially
      limited.




ITEM
      7.
      FINANCIAL STATEMENTS




5




**YP.NET,
      INC.**





**TABLE
                OF CONTENTS**
            **Page**REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            7CONSOLIDATED
                FINANCIAL STATEMENTS:Consolidated
                Balance Sheet at September 30, 2002
            8Consolidated
                Statements of Operations for the years ended September 30, 2002 and
                September 30, 2001
            9Consolidated
                Statements of Stockholders’ Equity for the years ended September 30, 2002
                and September 30, 2001
            10Consolidated
                Statements of Cash Flows for the years ended September 30, 2002 and
                September 30, 2001
            12NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS
            14


6
 *Table
            of Contents*


**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
        FIRM**
 
 
 
 To
        the
        Stockholders and Board
 of
        Directors of YP Corp.:
  We
        have
        audited the accompanying consolidated balance sheet of YP Corp. and subsidiaries
        as of September 30, 2002 and the related statements of operations, stockholders’
equity and cash flows for the each of the two years in the period then ended.
        These financial statements are the responsibility of the Company’s management.
        Our responsibility is to express an opinion on these financial statements
        based
        on our audits.
  We
        conducted our audit in accordance with the auditing standards generally accepted
        in the United States. Those standards require that we plan and perform the
        audits to obtain reasonable assurance about whether the financial statements
        are
        free of material misstatement. An audit includes examining, on a test basis,
        evidence supporting the amounts and disclosures in the financial statements.
        An
        audit also includes assessing the accounting principles used and significant
        estimates made by management, as well as evaluating the overall financial
        statement presentation. We believe our audits provide a reasonable basis
        for our
        opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the consolidated financial position of YP Corp. and
        subsidiaries as of September 30, 2002, and the consolidated results of its
        operations and cash flows for each of the two years in the period ended
        September 30, 2002, in conformity with accounting principles generally accepted
        in the United States of America.
 
 As
        described in Note 1, the Company restated its financial statements for the
        years
        ended September 30, 2002 and 2001.
 
 
 /s/   
        Epstein, Weber & Conover, PLC
 Scottsdale,
        Arizona
 December
        2, 2002
 (except
        for the restatement of financial statements
 described
        in Note 1, for which the date is November 18, 2005)


7
 *Table
            of Contents*





YP.NET,
INC.





CONSOLIDATED
      BALANCE SHEET


SEPTEMBER
      30, 2002





ASSETS:CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            767,108Accounts
                receivable, net
            
            
            3,561,808Prepaid
                expenses and other current assets
            
            
            64,211Total
                current assets
            
            
            4,393,127ACCOUNTS
                RECEIVABLE - long term portion
            
            
            513,485CUSTOMER
                ACQUISITION COSTS, net of accumulated amortization of
                $718,594
            
            
            1,418,227PROPERTY
                AND EQUIPMENT, net
            
            
            274,459DEPOSITS
                AND OTHER ASSETS
            
            
            150,725INTELLECTUAL
                PROPERTY- URL, net of accumulated amortization of
                $1,481,148
            
            
            3,578,542ADVANCES
                TO AFFILIATES
            
            
            233,073RECEIVABLE
                - COMMON STOCK TO BE RETURNED
            
            
            115,978DEFERRED
                INCOME TAXES
            
            
            96,036TOTAL
                ASSETS
            
            $
            10,773,652LIABILITIES
                AND STOCKHOLDERS’ EQUITY:CURRENT
                LIABILITIES:Accounts
                payable
            
            $
            195,396Accrued
                liabilities
            
            
            182,797Notes
                payable - current portion
            
            
            352,362Deferred
                income taxes
            
            
            87,221Income
                taxes payable
            
            
            486,243Total
                current liabilities
            
            
            1,304,019NOTES
                PAYABLE - long-term portion
            
            
            115,866Total
                liabilities
            
            
            1,419,885TEMPORARY
                EQUITY - Common stock to be returned, 82,500 shares issued and
                outstanding
            
            
            115,978STOCKHOLDERS’
                EQUITY:Series
                E convertible preferred stock, $.001 par value, 200,000 shares authorized,
                131,840 issued and outstanding, liquidation preference
                $39,552
            
            
            11,206Common
                stock, $.001 par value, 50,000,000 shares authorized, 43,853,624
                issued
                and outstanding
            
            
            43,854Paid
                in capital
            
            
            4,590,351Treasury
                stock at cost
            
            
            (171,422
            )Retained
                earnings
            
            
            4,763,800Total
                stockholders’ equity
            
            
            9,237,789TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            10,773,652





The
      accompanying notes are an integral part of these consolidated financial
      statements.





8
 *Table
            of Contents*





YP.NET,
      INC.





CONSOLIDATED
      STATEMENTS OF OPERATIONS


FOR
      THE
      YEARS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001







2002
            
            2001NET
                REVENUES
            
            $
            12,618,126
            
            $
            13,501,966OPERATING
                EXPENSES:Cost
                of services
            
            
            3,497,678
            
            
            6,150,085General
                and administrative expenses
            
            
            4,754,665
            
            
            3,987,040Sales
                and marketing expenses
            
            
            963,868
            
            
            688,349Depreciation
                and amortization
            
            
            581,290
            
            
            603,426Total
                operating expenses
            
            
            9,797,501
            
            
            11,428,900OPERATING
                INCOME
            
            
            2,820,625
            
            
            2,073,066OTHER
                (INCOME) AND EXPENSESInterest
                expense and other financing costs
            
            
            92,341
            
            
            571,248Interest
                income
            
            
            (17,682
            )
            
            (7,342
            )Other
                Income
            
            
            (436,848
            )
            
            191,462Total
                other expense
            
            
            (362,189
            )
            
            755,368INCOME
                BEFORE INCOME TAXES
            
            
            3,182,814
            
            
            1,317,698INCOME
                TAX PROVISION (BENEFIT)
            
            
            342,082
            
            
            540,434NET
                INCOME
            
            $
            2,840,732
            
            $
            777,264NET
                INCOME PER SHARE:Basic
            
            $
            0.06
            
            $
            0.02Diluted
            
            $
            0.06
            
            $
            0.02WEIGHTED
                AVERAGE COMMON SHARES OUTSTANDING:Basic
            
            
            44,024,329
            
            
            40,738,839Diluted
            
            
            44,024,329
            
            
            40,738,839




The
      accompanying notes are an integral part of these consolidated financial
      statements.





9
 *Table
            of Contents*




YP.NET,
      INC.





CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE


YEARS
      ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001





COMMON
                  STOCK
              
              PREFERRED
                  A
              
              TREASURY
              
              PAID-IN
              
              RETAINEDSHARES
              
              AMOUNT
              
              SHARES
              
              AMOUNT
              
              STOCK
              
              CAPITAL
              
              EARNINGS
              
              TOTALBALANCE
                  OCTOBER 1, 2000
              
              
              39,035,464
              
              $
              39,036
              
              
              1,500,000
              
              $
              1,500
              
              $
              (69,822
              )
              $
              4,081,399
              
              $
              1,146,298
              
              $
              5,198,411Common
                  stock issued for consulting services
              
              
              850,000
              
              
              850
              
              
              
              
              
              
              
              
              
              
              
              147,950
              
              
              
              
              
              148,800Common
                  stock issued for extension on debt
              
              
              4,000,000
              
              
              4,000
              
              
              
              
              
              
              
              
              
              
              
              356,000
              
              
              
              
              
              360,000Cancellation
                  of preferred stock
              
              
              
              
              
              
              
              
              (1,500,000
              )
              
              (1,500
              )
              
              
              
              
              
              
              
              
              
              
              (1,500
              )Purchase
                  of treasury stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (101,600
              )
              
              
              
              
              
              
              
              (101,600
              )Value
                  of common stock warrants issued
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              7,176
              
              
              
              
              
              7,176Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              777,264
              
              
              777,264BALANCE
                  SEPTEMBER 30, 2001
              
              
              43,885,464
              
              $
              43,886
              
              
              -
              
              $
              -
              
              $
              (171,422
              )
              $
              4,592,525
              
              $
              1,923,562
              
              $
              6,388,551
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements
  10
 *Table
            of Contents*
  YP.NET,
        INC.
 
 CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE
 YEARS
        ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001 (CONTINUED)
 
  COMMON
                  STOCK
              
              PREFERRED
                  E
              
              TREASURY
              
              PAID-IN
              
              RETAINEDSHARES
              
              AMOUNT
              
              SHARES
              
              AMOUNT
              
              STOCK
              
              CAPITAL
              
              EARNINGS
              
              TOTALBALANCE
                  OCTOBER 1, 2001
              
              
              43,885,464
              
              $
              43,886
              
              
              -
              
              $
              -
              
              $
              (171,422
              )
              $
              4,592,525
              
              $
              1,923,562
              
              $
              6,388,551Common
                  stock issued for services
              
              
              100,000
              
              
              100
              
              
              
              
              
              
              
              
              
              
              
              8,900
              
              
              
              
              
              9,000Series
                  E preferred stock issued in exchange for common shares
              
              
              (131,840
              )
              
              (132
              )
              
              131,840
              
              
              11,206
              
              
              
              
              
              (11,074
              )
              
              
              
              
              -Series
                  E preferred stock dividends
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (494
              )
              
              (494
              )Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,840,732
              
              
              2,840,732BALANCE
                  SEPTEMBER 30, 2002
              
              
              43,853,624
              
              $
              43,854
              
              
              131,840
              
              $
              11,206
              
              $
              (171,422
              )
              $
              4,590,351
              
              $
              4,763,800
              
              $
              9,237,789




The
      accompanying notes are an integral part of these consolidated financial
      statements





11
 *Table
            of Contents*





YP.NET,
      INC.





CONSOLIDATED
      STATEMENTS OF CASH FLOWS FOR THE


YEARS
      ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001







CASH
                FLOWS FROM OPERATING ACTIVITIES:
            
            2002
            
            2001Net
                income
            
            $
            2,840,732
            
            $
            777,264Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            581,290
            
            
            603,426Issuance
                of common stock as compensation for services
            
            
            9,000
            
            
            148,800Penalties
                related to acquisition debt paid by issuance of debt, warrants and
                stock
            
            
            -
            
            
            917,967Deferred
                income taxes
            
            
            1,078,157
            
            
            (421,457
            )Provision
                for uncollectible accounts
            
            
            1,375,226
            
            
            (760,859
            )Changes
                in assets and liabilities:Accounts
                receivable
            
            
            (2,580,410
            )
            
            1,617,467Customer
                acquisition costs
            
            
            (1,224,983
            )
            
            37,654Prepaid
                and other current assets
            
            
            (44,042
            )
            
            79,060Deposits
                and other assets
            
            
            (127,438
            )
            
            (11,500
            )Accounts
                payable
            
            
            (119,511
            )
            
            161,089Accrued
                liabilities
            
            
            106,069
            
            
            (230,644
            )Income
                taxes payable
            
            
            (736,075
            )
            
            961,891Net
                cash provided by operating activities
            
            
            1,158,015
            
            
            3,880,158CASH
                FLOWS FROM INVESTING ACTIVITIES:Advances
                made to affiliate
            
            
            (116,757
            )
            
            (137,152
            )Expenditures
                for intellectual property
            
            
            (49,688
            )
            
            -Purchases
                of equipment
            
            
            (77,632
            )
            
            (28,520
            )Net
                cash used for investing activities
            
            
            (244,077
            )
            
            (165,672
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Principal
                repayments on borrowings from line of credit
            
            
            -
            
            
            (1,577,547
            )Principal
                repayments on notes payable
            
            
            (830,677
            )
            
            (1,621,905
            )Purchase
                of treasury stock
            
            
            -
            
            
            (50,800
            )Net
                cash used for financing activities
            
            
            (830,677
            )
            
            (3,250,252
            )INCREASE
                IN CASH AND CASH EQUIVALENTS
            
            
            83,261
            
            
            464,234CASH
                AND CASH EQUIVALENTS, beginning of year
            
            
            683,847
            
            
            219,613CASH
                AND CASH EQUIVALENTS, end of year
            
            $
            767,108
            
            $
            683,847





The
      accompanying notes are an integral part of these consolidated financial
      statements.





12
 *Table
            of Contents*





YP.NET,
      INC.





CONSOLIDATED
      STATEMENT OF CASH FLOWS, (CONTINUED)


FOR
      THE
      YEARS ENDED SEPTEMBER 30, 2002 AND 2001







SUPPLEMENTAL
      CASH FLOW INFORMATION:





2002
            
            2001Interest
                Paid
            
            $
            99,541
            
            $
            421,013Income
                taxes paid
            
            $
            -0-
            
            $
            -0-





SUPPLEMENTAL
      SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:





2002
            
            2001Common
                stock issued for services
            
            $
            9,000
            
            $
            148,800Note
                payable issued in payment of debt extension fee
            
            $
            -0-
            
            $
            550,791Value
                of common stock issued as payment of debt extension fee
            
            $
            -0-
            
            $
            360,000Common
                stock exchanged for Series E ConvertiblePreferred
                Stock
            
            $
            11,206
            
            $
            -0-Liability
                incurred for purchase of treasury stock
            
            $
            -0-
            
            $
            50,800





The
      accompanying notes are an integral part of these consolidated financial
      statements.





13
 *Table
            of Contents*





YP.NET,
      INC.





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      YEARS ENDED SEPTEMBER 30, 2002 AND 2001








1.
                ORGANIZATION
                    AND BASIS OF
                    PRESENTATION





YP.Net,
      Inc. (the "Company"), formally RIGL Corporation, had previously attempted to
      develop software solutions for medical practice billing and administration.
      The
      Company had made acquisitions of companies performing medical practice billing
      services as test sites for its software and as business opportunities. The
      Company was not successful in implementing its medical practice billing and
      administration software products and looked to other business opportunities.
      The
      Company acquired Telco Billing Inc. ("Telco") in June 1999, through the issuance
      of 17,000,000 shares of the Company’s common stock. Prior to its acquisition of
      Telco, RIGL had not generated significant or sufficient revenue from planned
      operations. Telco was formed in April 1998, to provide advertising and directory
      listings for businesses on its Internet web site in a " Yellow
      Page "
      format.
      Telco provides those services to its subscribers for a monthly fee. These
      services are provided primarily to businesses throughout the United States.
      Telco became a wholly owned subsidiary of YP.Net, Inc. after the June 16, 1999
      acquisition.





At
      the
      time that the transaction was agreed to, the Company had 12,567,770 common
      shares issued and outstanding. As a result of the merger transaction with Telco,
      there were 29,567,770 common shares outstanding, and the former Telco
      stockholders held approximately 57% of the Company’s voting stock. For financial
      accounting purposes, the acquisition was a reverse acquisition of the Company
      by
      Telco, under the purchase method of accounting, and was treated as a
      recapitalization with Telco as the acquirer. Consistent with reverse acquisition
      accounting: (i) all of Telco’s assets, liabilities, and accumulated deficit were
      reflected at their combined historical cost (as the accounting acquirer) and
      (ii) the preexisting outstanding shares of the Company (the accounting acquiree)
      were reflected at their net asset value as if issued on June 16, 1999. The
      accompanying financial statements represent the consolidated financial position
      and results of operations of the Company and include the accounts and results
      of
      operations of the Company and Telco, its wholly owned subsidiary, for the years
      ended September 30, 2002 and September 30, 2001. Certain reclassifications
      have
      been made to the September 30, 2001 balances to conform to the 2002
      presentation.




Restatement
      of Financial Statements




Subsequent
      to the issuance of the Company’s financial statements as of September 30, 2002,
      and the year then ended, the Company determined that the accounting for its
      common stock issued to, and subsequently recovered from, certain non-performing
      consultants during 1999 and 2000 should not have been expensed when originally
      issued as had been previously reported. The subsequent recovery of these shares
      was recorded as an item in other income at the same value at which they were
      originally issued. It has been determined to be inappropriate to recognize
      the
      initial expense and its subsequent reversal as no services were rendered by
      these consultants. Instead, the issuance of these shares will be reflected
      as
      temporary equity, together with a related receivable, until the shares were
      returned. The change in accounting for the recovery of the shares has the effect
      in the year ended September 30, 2002 of a decrease in net income of $1,035,017
      from $3,696,463 to $2,840,732 and a decrease in the net income per share from
      per share from $0.08 to $0.06.





Additionally,
      the Company’s consolidated statement of operations for the year ended September
      30, 2002, had previously reported net revenues of $13,232,743 which has been
      decreased by $614,617 due to reclassifications of certain customer refunds
      of
      $313,716 previously reported in cost of services and $300,901 of revenue
      generated for services performed for an affiliate being reclassified as other
      income. These changes had no effect on net income for the year ended September
      30, 2002. It was also noted that 3,081,500 shares of issued common stock had
      been improperly included in the outstanding shares. These shares were actually
      treasury shares and therefore should be excluded from the number of shares
      outstanding. The Company corrected the error by reclassifying the par value
      of
      those shares of $3,082 from the common stock account to the paid in capital
      account. This matter had the effect of overstating the weighted average shares
      outstanding.





2.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES





Cash
      and Cash Equivalents: This
      includes all short-term highly liquid investments that are readily convertible
      to known amounts of cash and have original maturities of three months or less.
      At times cash deposits may exceed government insured limits. At September 30,
      2002, cash deposits exceeded those insured limits by $563,000.





Principles
      of Consolidation :
      The
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiary, Telco Billing, Inc. All significant intercompany
      accounts and transactions are eliminated.





Customer
      Acquisition Costs :
      These
      costs represent the direct response marketing costs that are incurred as the
      primary method by which customers subscribe to the Company’s services. The
      Company purchases mailing lists and sends advertising materials to prospective
      subscribers from those lists. Customers subscribe to the services by positively
      responding to  those
      advertising materials which serve as the contract for the subscription. The
      Company capitalizes and amortizes the costs of direct-response advertising
      on a
      straight-line basis over eighteen months, the estimated average period of
      retention for new customers. The Company capitalized costs of $1,941,000 and
      $575,000 during the years ended September 30, 2002 and 2001 respectively. The
      Company amortized $719,000  and
      $613,000, respectively, of these capitalized costs during the years ended
      September 30, 2002 and 2001.





14
 *Table
          of Contents*




The
        Company also incurs advertising costs that are not considered direct-response
        advertising. These other advertising costs are expensed when incurred. These
        advertising expenses were $245,000 and $75,000 for the years ended September
        30,
        2002 and 2001 respectively.
 
 Property
        and Equipment: Property
        and equipment is stated at cost less accumulated depreciation. Depreciation
        is
        recorded on a straight-line basis over the estimated useful lives of the
        assets
        ranging from 3 to 5 years. Depreciation expense was $178,058 and $156,343
        for
        the years ended September 30, 2002 and 2001 respectively.
 
 Revenue
        Recognition :
        The
        Company’s revenue is generated by customer subscriptions of directory and
        advertising services. Revenue is billed and recognized monthly for services
        subscribed in that specific month. The Company utilizes outside billing
        companies to transmit billing data, much of which is forwarded to Local Exchange
        Carriers ("LEC’s") that provide local telephone service. Monthly subscription
        billings are generally included on the telephone bills of the customers.
        Due to
        billings submitted by the Company being subject to adjustment by the billing
        companies and the LEC’s, the Company recognizes revenue based on net billings
        accepted by the LEC’s. Due to the periods of time for which adjustments may be
        reported by the LEC’s and the billing companies, the Company estimates and
        accrues for dilution and fees reported subsequent to year-end for initial
        billings related to services provided for periods within the fiscal year.
        Revenues generated under billings through the LEC’s were approximately
        $12,311,000 and $13,005,000 for the fiscal years ended September 30, 2002
        and
        September 30, 2001 respectively.
 
 Revenue
        for billings to certain customers whom are billed directly by the Company
        and
        not through the LEC’s, is recognized based on estimated future collections.
        Collections under this billing process have historically been poor. Monthly
        direct bill subscription fee revenue is recognized as earned within the month
        for which the service is provided. However, these monthly billings are adjusted
        to take into consideration the poor collection experience. The Company
        continuously reviews this estimate for reasonableness based on its collection
        experience. Revenues generated under direct billings were $651,000 and $529,000
        for the years ended September 30, 2002 and 2001 respectively.
  Income
        Taxes :
        The
        Company provides for income taxes based on the provisions of Statement of
        Financial Accounting Standards No. 109, Accounting for Income Taxes, which,
        among other things, requires that recognition of deferred income taxes be
        measured by the provisions of enacted tax laws in effect at the date of
        financial statements.
 
 Financial
        Instruments :
        Financial instruments consist primarily of cash, accounts receivable, and
        obligations under accounts payable, accrued expenses and notes payable. The
        carrying amounts of cash, accounts receivable, accounts payable, accrued
        expenses and notes payable approximate fair value because of the short maturity
        of those instruments. The Company has applied certain assumptions in estimating
        these fair values. The use of different assumptions or methodologies may
        have a
        material effect on the estimates of fair values.
  15
 *Table
            of Contents*
  Net
        Income Per Share :
        Net
        income per share is calculated using the weighted average number of shares
        of
        common stock outstanding during the year. The Company has adopted the provisions
        of SFAS No. 128, Earnings Per Share.
 
 Use
        of
        Estimates :
        The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting period.
        Actual results could differ from those estimates.
 
 Significant
        estimates made in connection with the accompanying financial statements include
        the estimate of dilution and fees associated with LEC billings and the estimated
        reserve for doubtful accounts receivable.
 
 Stock-Based
        Compensation :
        Statements of Financial Accounting Standards No. 123, Accounting for Stock-Based
        Compensation, ("SFAS 123") established accounting and disclosure requirements
        using a fair-value based method of accounting for stock-based employee
        compensation. In accordance with SFAS 123, the Company has elected to continue
        accounting for stock based compensation using the intrinsic value method
        prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
        Stock
        Issued to Employees." The proforma effect of the fair value method is discussed
        in Note 15.
 
 Temporary
        Equity: During
        fiscal 1999 and 2000, the Company issued 925,000 shares and 600,000 shares,
        respectively, to consultants and other third parties whereupon it was
        subsequently determined that the consultants did not perform under the terms
        of
        the related agreements. The Company has pursued legal action against the
        consultants and third parties and expect the shares to be retrieved. The
        value
        of such shares, totaling $1,689,239, was not recorded as expense but rather
        was
        reflected as temporary equity, together with a related receivable until such
        times that the shares are retrieved. During fiscal 2001, 1,442,500 of these
        shares were returned.
 
 Impairment
        of Long-lived Assets :
        The
        Company assesses long-lived assets for impairment in accordance with the
        provisions of SFAS 121, Accounting for the Impairment of Long-Lived Assets
        and
        for Long-Lived Assets to be Disposed Of. SFAS 121 requires that the Company
        assess the value of a long-lived asset whenever there is an indication that
        its
        carrying amount may not be recoverable. Recoverability of the asset is
        determined by comparing the forecasted undiscounted cash flows generated
        by said
        asset to its carrying value. The amount of impairment loss, if any, is measured
        as the difference between the net book value of the asset and its estimated
        fair
        value.
 
 Recently
        Issued Accounting Pronouncements :
        In June
        2001, the Financial Accounting Standards Board (the FASB) issued Statement
        of
        Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.
        The Company will be required to adopt SFAS No. 142 at the beginning of its
        2003
        fiscal year. The Company is currently reviewing the impact of adoption of
        SFAS
        142, but does not believe the adoption of such will have a material effect
        on
        the financial position and results of operations of the Company.
  16
 *Table
            of Contents*
  In
        June
        2001, the FASB issued Statement of Financial Accounting Standards No.43,
        Accounting for Asset Retirement Obligations. The Company is currently reviewing
        the impact of adoption of SFAS 143, but does not believe the adoption of
        such
        will have a material effect on the financial position and results of operations
        of the Company.
 
 In
        August
        2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal
        of
        Long-Lived Assets. The Company will be required to adopt SFAS No. 144 at
        the
        beginning of its 2003 fiscal year. SFAS No. 144 supersedes SFAS 121, but
        carries
        over most of its general guidance. The Company is currently reviewing the
        impact
        of adoption of SFAS 144, but does not believe the adoption of such will have
        a
        material effect on the financial position and results of operations of the
        Company. However, the provisions of SFAS will be applied to long-lived assets
        such as the URL.
 
 3.
              ACCOUNTS
                  RECEIVABLE
 
 The
        Company provides billing information to third party billing
        companies  for
        the
        majority of its monthly billings. Billings submitted are sorted and analyzed
        for
        accuracy and completeness ("filtered") by these billing companies and the
        LEC’s.
        Net accepted billings are recognized as revenue and accounts receivable.
        The
        billing companies remit payments to the Company on the basis of cash ultimately
        received from the LEC’s by those billing companies. The billing companies and
        LEC’s charge fees for their services which are netted against the gross accounts
        receivable balance. The billing companies also apply holdbacks to the
        remittances for potentially uncollectible accounts. These dilution amounts
        will
        vary due to  numerous
        factors and the Company may not be certain as to the actual amounts of dilution
        on any specific billing submittal until several months after that submittal.
        The
        Company estimates the amount of these charges and holdbacks based on historical
        experience and subsequent information received from the billing companies.
        The
        Company also estimates uncollectible account balances and provides an allowance
        for such estimates. The billing companies retain certain holdbacks that may
        not
        be collected by the Company for a period extending beyond one year. These
        balances have been classified as long-term assets in the accompanying balance
        sheet.
  The
        Company experiences significant dilution of its gross billings by the billing
        companies. The Company negotiates collections with the billing companies
        on the
        basis of the contracted terms and historical experience. The Company’s cash flow
        may be affected by holdbacks, fees, and other matters which are determined
        by
        the LEC’s and the billing companies. The Company entered into a customer billing
        service agreement with Integretel, Inc. Integretel provides the majority
        of the
        Company’s billings, collections, and related services. The net receivable due
        from Integretel at September 30, 2002 was $3,955,218, including an allowance
        for
        doubtful accounts of $1,695,093.
 
 At
        September 30, 2002, the Company still had certain amounts due from Enhanced
        Services Billing, Inc. (ESBI). In prior years, ESBI provided billing and
        collection services very similar to Integretel, discussed above, but was
        gradually phased out during the year. The receivable due from ESBI at September
        30, 2002 of $154,037 has been fully reserved as collectibility of the remaining
        amount is doubtful.
 
 Subscription
        receivables that are directly billed by the Company are valued and reported
        at
        the estimated future collection amount. Determining the expected collections
        requires an estimation of both uncollectible accounts and returns and
        allowances. The net subscriptions receivable at September 30, 2002 was $108,659.
  17
 *Table
            of Contents*
  Gross
        accounts receivable and the aggregate related allowance was  $5,944,422
        and $1,869,129 at September 30, 2002. The following allowances  on
        accounts receivable existed at September 30, 2002:
 
 Allowance
                  for doubtful accounts
              
              $
              1,034,899Allowance
                  for billing company holdbacks
              
              
              545,608Allowance
                  for LEC holdbacks
              
              
              288,622Total
              
              $
              1,869,129
 
 The
        Company expensed billing fees to the LEC’s and third party billing companies of
        $1,718,573 and $5,544,906 for the years ended September 30, 2002 and 2001
        respectively.
 
 4.
              INTELLECTUAL
                  PROPERTY
 
 In
        connection with the Company’s acquisition of Telco, the Company was required to
        provide accelerated payment of license fees for the use of the Internet domain
        name or Universal Resource Locator (URL) Yellow-page.net .
        Telco
        had previously entered into a 20-year license agreement for the use of the
        URL
        with one of its two 50% stockholders. The original license agreement required
        annual payments of $400,000. However, the agreement stated that upon a change
        in
        control of Telco, a $5,000,000 accelerated payment is required to maintain
        the
        rights under the licensing agreement. The URL holder agreed to discount the
        accelerated payments from $8,000,000 to $5,000,000 at the time of the
        acquisition. The Company agreed to make that payment upon effecting the
        acquisition of Telco.
 
 The
        Company made a $3,000,000 cash payment and issued a note payable for $2,000,000
        to acquire the licensing rights of the URL. The Company also issued 2,000,000
        shares of its common stock to be held as collateral on the note. The note
        payable was originally due on July 15, 1999. The Company failed to make the
        $2,000,000 payment when due. The repayment terms were renegotiated to extend
        the
        due date to January 15, 2000. The Company was required to pay an extension
        fee
        of $200,000 at that time. The Company again renegotiated the repayment terms
        on
        April 26, 2000, to a demand note, with monthly installments of $100,000,
        subject
        to all operating requirements, which, management believes, have subsequently
        been met by the  Company.
 
 In
        the
        year ended September 30, 2001, the former URL holder claimed that it was
        due
        additional amounts for the prior loan extensions. The Company reached a
        settlement with the former URL holder that required the Company to issue
        to the
        former URL holder, 4,000,000 shares of the Company’s common stock, warrants to
        purchase 500,000 shares of the Company’s common stock  and
        a
        note payable for $550,000. The Company recorded an expense of approximately
        $917,000 related to the settlement representing the principal amount of the
        note
        payable, $360,000 as the fair value of the 4,000,000 common shares and $7,176
        as
        the fair value of the warrants. The value of the common stock was determined
        on
        the basis of the quoted trading price of the shares on the date of the
        agreement. The fair value of the warrants was determined on the using the
        Black-Scholes option pricing model. The URL is recorded at its cost net of
        accumulated amortization. Management believes that the Company’s business is
        dependent on its ability to utilize this URL given the recognition of the Yellow
        page term.
        Also, its current customer base relies on the recognition of this term and
        URL
        as a basis for maintaining the subscriptions to the Company’s service.
        Management believes that the current revenue and cash flow generated through
        use
        of Yellow-page.net supports
        the carrying of the asset. The Company periodically analyzes the carrying
        value
        of this asset to determine if impairment has occurred. No such impairments
        were
        identified during the year ended September 30, 2002. The URL is amortized
        on an
        accelerated basis over the twenty-year term of the licensing agreement.
        Amortization expense on the URL was $403,232 and $471,667 for the years ended
        September 30, 2002 and 2001 respectively.
  18
 *Table
            of Contents*
  5.
              PROPERTY
                  AND EQUIPMENT
 
 Property
        and equipment consisted of the following at September 30, 2002:
 
 Leasehold
                  improvements
              
              $
              332,492Furnishings
                  and fixtures
              
              
              108,629Office
                  and computer equipment
              
              
              256,588Total
              
              
              697,709Less
                  accumulated depreciation
              
              
              (423,250
              )Property
                  and equipment, net
              
              $
              274,459
 
 The
        Company has provided certain office equipment and leasehold improvements
        to an
        affiliated entity at no cost to that affiliated entity. This arrangement
        was
        made as part of the Company’s original default settlement with the prior owners
        of the URL discussed in Note 4. The Company retains title and control of
        these
        assets; however, they are not being used by the Company. The net book value
        of
        the office equipment and leasehold improvements being utilized by the affiliated
        entity was approximately $60,000 at September 30, 2002.
 
 6.
              NOTES
                  PAYABLE AND LINE OF CREDIT
 
 Notes
                  payable at September 30, 2002 are comprised of the following:Note
                  payable to stockholders, original balance of 2,000,000, interest
                  at 10%
                  per annum. Repayment terms require monthly installments of $100,000
                  plus
                  interest. Due January 11, 2002. Collateralized by 2,000,000 shares
                  of the
                  Company’s common stock. Note was paid off subsequent to September 30,
                  2002.
              
              $
              205,362Note
                  payable to former Telco stockholders, original balance of $550,000,
                  interest at 10.5% per annum. Repayment terms require monthly installments
                  of principal and interest of $19,045 beginning December 15, 2002.
                  Stated
                  maturity September 25, 2004. Collateralized by all assets of the
                  Company.
              
              
              115,866Trade
                  acceptance draft, interest at 12.25% per annum, due November 4,
                  2002.
                  Collateralized by certain trade accounts receivable.
              
              
              147,000468,228Less
                  current portion
              
              
              352,362Totals
              
              $
              115,866
 
 Subsequent
        to year-end, the Company settled the outstanding amount due on the note payable
        to stockholder resulting in an immaterial gain on extinguishment.
 
 The
        note
        payable to the former Telco stockholders totaled $550,000 at the beginning
        of
        the fiscal year. In accordance with instructions that the Company received
        from
        said stockholders, the Company has made payments to third parties on behalf
        of
        the stockholders and applied those payments as reductions to the note payable.
        Said stockholders are not a part of management or on the Board of Directors
        of
        the Company. Payments on the note were accelerated at the option of the Company.
        Although the note calls for monthly payments of $19,045, the Company would
        not
        be required to make another payment until February 2004 under the original
        repayment provisions of the note. The full remaining balance of $115,866
        is due
        in the year ended September 30, 2004.
  19
 *Table
            of Contents*
  The
        trade
        acceptance draft is effected similarly to factoring accounts receivable.
        The
        Company enters into separate financing agreements with the lender for specific
        accounts receivable.
 
 7.
              PROVISION
                  FOR INCOME TAXES
 
 Deferred
        income taxes reflect the net tax effects of temporary differences between
        the
        carrying amounts of assets and liabilities for financial reporting purposes
        and
        the amounts used for income tax purposes. During the year ended September
        30,
        2002, the Company structured certain transactions related to its merger with
        Telco that allowed the Company to utilize net operating losses that were
        previously believed to be unavailable or limited under the change of control
        rules of Internal Revenue Code 382. The deferred income tax asset of
        approximately $1,463,000 related to these net operating losses recorded at
        September 30, 2001, was partially offset by a valuation allowance of
        approximately $773,000. That valuation allowance was eliminated and recognized
        as a benefit in the year ended September 30, 2002. Due to these changes,
        the
        Company recognized an income tax benefit of approximately $917,000 included
        as
        part of the tax benefit for the year ended September 30, 2002. At September
        30,
        2002 the Company has utilized all of its federal and state net operating
        losses.
 
 Income
        taxes for years ended September 30, is summarized as follows:
 
 2002
              
              2001Current
                  Provision
              
              $
              376,582
              
              $
              271,878Deferred
                  Provision
              
              
              (34,500
              )
              
              268,556Net
                  income tax provision
              
              $
              342,082
              
              $
              540,434
 
 A
        reconciliation of the differences between the effective and statutory income
        tax
        rates for years ended September 30, is as follows:
 
 2002
              
              
              
              2001Federal
                  statutory rates
              
              $
              1,082,228
              
              
              34
              %
              $
              448,017
              
              
              34
              %State
                  income taxes
              
              
              222,811
              
              
              7
              %
              
              94,275
              
              
              6
              %Utilization
                  of valuation allowance
              
              
              (
                  773,424
              )
              
              (43
              )%
              
              -
              
              
              -Change
                  in estimate of NOL due to structuring changes
              
              
              (143,575
              )
              
              (4
              )%
              
              -
              
              
              -Other
              
              
              (45,958
              )
              
              (1
              )%
              
              (1,858
              )
              
              -Effective
                  rate
              
              $
              342,082
              
              
              (7
              )%
              $
              540,434
              
              
              40
              %
 
 At
        September 30, 2002, deferred income tax assets totaling $695,940 were comprised
        of $494,252, $101,956, and $99,733 related to differences in book and tax
        bases
        of accounts receivable, stock based compensation and intangible assets
        respectively. During the year ended September 30, 2002 the valuation allowance
        was reduced by approximately $773,000. There was no change in the valuation
        allowance in the year ended September 30, 2001.
  20
 *Table
            of Contents*
  At
        September 30, 2002 deferred tax liabilities of $687,127 were comprised of
        $581,473 and $105,654 related to differences in book and tax bases of customer
        acquisition costs and property and equipment, respectively.
 
 8.
              LEASES
 
 The
        Company leases its office space and certain equipment under long-term operating
        leases expiring through fiscal year 2005. Rent expense under these leases
        was
        $145,052 and $175,464 for the years ended September 30, 2002 and 2001,
        respectively.
 
 Future
        minimum annual lease payments under operating lease agreements for years
        ended
        September 30 are as follows:
 
 2003
              
              $
              138,0152004
              
              
              42,4172005
              
              
              28,278Total
              
              $
              208,710
 
 9.
              STOCKHOLDERS’
                  EQUITY
 
 Common
        Stock Issued for Services
 
 The
        Company has historically granted shares of its common stock to officers,
        directors and consultants as payment for services rendered. The value of
        those
        shares was determined based on the trading value of the stock at the dates
        on
        which the agreements were made for the services. During the year ended September
        30, 2002, the Company issued 100,000 shares of common stock to officers and
        directors valued at $9,000. During the year ended September 30, 2001, the
        Company issued 850,000 shares of common stock to officers, directors and
        consultants valued at $148,800
 
 Common
        Stock Issued for Debt Extension
 
 The
        former holder of the Yellow-page.net .
        URL
        made a claim against the Company in the year ended September 30, 2001. The
        former URL holder claimed that it was owed $1,000,000 that represented a
        loan
        extension fee for an extension given in 1999. The Company disputed the claim
        but
        ultimately settled with the former URL holder. The settlement agreement required
        the Company to pay the former URL holder $550,000, 4,000,000 shares of the
        Company’s common stock and warrants for and additional 500,000 shares of the
        Company’s common stock. The Company recorded an expense of approximately
        $917,000 related to the settlement representing the principal amount of the
        note
        payable, $360,000 as the fair value of the 4,000,000 common shares and $7,176
        as
        the fair value of the warrants. The value of the common stock was determined
        on
        the basis of the quoted trading price of the shares on the date of the
        agreement. The fair value of the warrants was determined on the using the
        Black-Scholes option pricing model.
 
 Series
        E Convertible Preferred Stock
 
 During
        the year ended September 30, 2002, the Company created a new series of capital
        stock, the Series E Convertible Preferred Stock. The Company authorized 200,000,
        $0.001 par value shares. The shares carry a $0.30 per share liquidation
        preference and accrue dividends at the rate of 5% per annum on the liquidation
        preference per share, payable quarterly from legally available funds. If
        such
        funds are not available, dividends shall continue to accumulate until they
        can
        be paid from legally available funds. Holders of the preferred shares shall
        be
        entitled, after two years from issuance, to convert them into common shares
        on a
        one-to-one basis together with payment of $0.45 per converted
        share.
  21
 *Table
            of Contents*
  During
        the year ended September 30, 2002, pursuant to an existing tender offer,
        holders
        of 131,840 shares of the Company’s common stock exchanged said shares for an
        equal number of the Series E Convertible Preferred shares, at the then $0.085
        market value of the common stock. As of September 30, 2002, the liquidation
        preference value of the outstanding Series E Convertible Preferred Stock
        was
        $39,552, and dividends totaling $494 had been accrued and paid associated
        with
        said shares.
 
 Treasury
        Stock
 
 During
        the year ended September 30, 2001, the Company acquired 254,000 shares of
        its
        common stock from a single stockholder for $101,600. At September 30, 2002,
        there were 3,858,500 shares of stock held in treasury.
 
 Other
 
 The
        Company granted 1,700,000 shares of Series B preferred stock to certain
        employees during the year ended September 30, 1999. The Series B preferred
        stock
        has no stated dividend. The Series B preferred shares were convertible to
        common
        stock at the option of the holder. The shares were convertible at varying
        rates
        depending upon the trading price of the common stock at the time of conversion.
        The initial conversion rate was one share of common for each share of preferred.
        Conversion may not occur until certain "trigger events" occur and all rights
        with respect to the preferred shares terminate on November 30, 2004. "Trigger
        events" are defined as trading prices of the Company’s common stock reaching or
        exceeding $5 through $10 per share and net income reaching or exceeding
        $5,000,000. No value was assigned to the preferred shares in the accompanying
        balance sheet nor was any compensation expense recognized for the year ended
        September 30, 2001, because the preferred shares were not exercisable at
        the
        time of issuances because of the failure of the Company to meet the "trigger
        events". Subsequently, management has cancelled the Series B preferred stock
        and
        rescinded those issuances and all shares of the Series B preferred stock
        were
        returned as of September 30, 2001.
 
 10.
              COMMITMENTS
                  AND CONTINGENCIES
 
 Telco
        Billing
 
 The
        acquisition of Telco by the Company called for the issuance of 17,000,000
        new
        shares of stock in exchange of the existing shares of Telco. As part of that
        agreement, the Company gave the former shareholders the right to "Put" back
        to
        the Company certain shares of stock at a minimum stock price of 80% of the
        current trading price with a minimum strike price of $1.00. The net effect
        of
        which was that each of the former Telco shareholders could require the Company
        to repurchase shares of stock of the Company at a minimum cost of $10,000,000.
        The agreement required the Company to attain certain market share
        levels.
 
 The
        "Puts" were renegotiated and retired. As part of the renegotiated settlement,
        the Company provided a credit facility of up to $10,000,000 to each of the
        former Telco shareholders (Mathew & Markson and Morris & Miller),
        collateralized by the stock held by these shareholders, with interest at
        least
        0.25 points higher than the Company’s average cost of borrowing. Additional
        covenants warrant that no more that $1,000,000 can be advanced at any point
        in
        time and no advances can be made in excess with out allowing at least 30
        days
        operating cash reserves or if the Company is in an uncured default with any
        of
        its lenders. The advance agreement has no stipulated expiration date. At
        September 30, 2002, the Company had advanced $233,073 under this agreement.
        The
        interest rate on these advances was 8% at September 30,2002. Based on the
        requirement for 30 days cash reserve, the Company estimates that the maximum
        balance that could be drawn under this agreement at September 30, 2002 is
        approximately $525,000. At September 30, 2002 ,$233,073 was drawn on the
        advance
        agreement.
  22
 *Table
            of Contents*
  Billing
        Service Agreements
 
 The
        Company has entered into a customer billing service agreement with Integretel,
        Inc. (IGT). IGT provides billing and collection and related services associated
        to the telecommunications industry. The agreement term is for two years,
        automatically renewable in two-year increments unless appropriate notice
        to
        terminate is given by either party. The agreement will automatically renew
        on
        September 1, 2003, unless either party gives notice of termination 90 days
        prior
        to that renewal date. Under the agreement, IGT bills, collects and remits
        the
        proceeds to Telco net of reserves for bad debts, billing adjustments, telephone
        company fees and IGT fees. If either the Company’s transaction volume decreases
        by 25% from the preceding month, less than 75% of the traffic is billable
        to
        major telephone companies, IGT may at its own discretion increase the reserves
        and holdbacks under this agreement. IGT handles all billing information and
        collection of receivables. The Company’s cash receipts on trade accounts
        receivable are dependent upon estimates pertaining to holdbacks and other
        factors as determined by IGT. IGT may at its own discretion increase the
        reserves and holdbacks under this agreement.
 
 The
        Company has also entered into an agreement with ACI Billing Services, Inc.
        ACI
        provides billing and collection and related services associated to the
        telecommunications industry.
 
 These
        agreements with the billing companies provide significant control to the
        billing
        companies over cash receipts and ultimate remittances to the Company. The
        Company estimates the net realizable value of its accounts receivable on
        historical experience and information provided by the billing companies
        reflecting holdbacks and reserves taken by the billing companies and
        LEC’s.
 
 United
        States Federal Trade Commission (FTC)
 
 The
        Company was a subject of an FTC investigation pertaining to claims made of
        deceptive marketing practices. The Company has reached an agreement with
        the FTC
        requiring the Company to make certain changes to mailing and promotional
        materials and notify certain customers that a refund of past paid service
        fees
        is available. The settlement requires the Company to notify approximately
        11,000
        customers. Each of those customers may receive a refund of up to $12.50.
        At
        September 30, 2001, the Company accrued $45,413 which was paid in the year
        ended
        September 30, 2002. Management does not believe that there will be any
        additional material refunds. The Company may also be required to pay certain
        expenses incurred in the FTC investigation. The Company intends to contest
        payment of these expenses but believes that if such is a requirement of any
        final settlement with the FTC, the amount could range from $50,000 to
        $70,000.
  23
 *Table
            of Contents*
  11.
              NET
                  INCOME PER SHARE
 
 Net
        loss
        per share is calculated using the weighted average number of shares of common
        stock outstanding during the year. Preferred stock dividends are subtracted
        from
        the net income to determine the amount available to common shareholders.
        There
        were $494 and $ 0 preferred stock dividends in the years ended September
        30,
        2002 and 2001, respectively. Warrants to purchase 500,000 shares of common
        stock
        were excluded from the calculation for the year ended September 30, 2002.
        The
        exercise price of those warrants was greater than the trading value of the
        common stock and therefore inclusion of such would be anti-dilutive. Also
        excluded from the calculation were 131,840 shares of Series E Convertible
        Preferred Stock issued during the year ended September 30, 2002, which are
        considered anti-dilutive due to the cash payment required by the holders
        of the
        securities at the time of conversion.
 
 The
        following presents the computation of basic and diluted loss per share from
        continuing operations:
 
 2002
              
              2001Income
              
              Shares
              
              PerShare
              
              Income
              
              Shares
              
              Per
                  shareNet
                  Income
              
              $
              2,840,731
              
              
              
              
              
              
              
              $
              777,264Preferred
                  stock dividends
              
              
              (494
              )
              
              
              
              
              
              
              
              -Income
                  available to common Stockholders
              
              $
              2,840,237
              
              
              
              
              
              
              
              $
              777,264BASIC
                  EARNINGS PER SHARE:Income
                  available to common stockholders
              
              $
              2,840,237
              
              
              44,024,329
              
              $
              0.06
              
              $
              777,264
              
              
              40,738,839
              
              $
              0.02Effect
                  of dilutive securities
              
              
              N/A
              
              
              N/A
              
              
              
              
              
              N/A
              
              
              N/ADILUTED
                  EARNINGS PER SHARE
              
              $
              2,840,237
              
              
              44,024,329
              
              $
              0.06
              
              $
              777,264
              
              
              40,738,839
              
              $
              0.02
  12.
              RELATED
                  PARTY TRANSACTIONS
 
 During
        the years ended September 30, 2002 and 2001, the Company entered into the
        related party transactions with Board members, officers and affiliated entities
        as described below:
 
 Directors
        & Officers
 
 Board
        of
        Director fees for the years ended September 30, 2002 and 2001 were $101,120
        and
        $45,000 respectively. The Company also paid entities owned or controlled
        by
        certain board members $147,625 and $147,000 in 2002 and 2001, respectively,
        for
        consulting services other than routine Board duties. At September 30, 2002,
        $40,000 of the 2002 amount was accrued but unpaid. The Company also granted
        100,000 shares of common stock to certain directors as part of their Board
        of
        Director fees for the year ended September 30, 2002. During the year ended
        September 30, 2002, the Company made loans to its Chief Executive Officer
        and
        its Chief Financial Officer. The Board of Directors approved the loans as
        part
        of the officers’ respective compensation packages. The loans carried an 8%
        interest rate and were collateralized by shares of Company common stock owned
        by
        the officers’ valued at the greater of $1.00 per share or the current market
        price of the shares. The loans to the CEO and CFO totaled approximately $200,000
        and $17,000 respectively. At September 30, 2002, the loan to the CEO was
        repaid
        and a bonus of a similar amount was paid. In May 2002, the CFO resigned.
        The
        Company believes the value of the collateral may not be sufficient to cover
        the
        outstanding loan balance. Thus, the Company has fully reserved the balance
        due
        on the loan.
  24
 *Table
            of Contents*
  At
        September 30, 2002, the Company had advanced $15,000 to its CEO related to
        his
        fiscal 2003 compensation and recorded a corresponding receivable. This amount
        will be amortized to compensation expense during the 2003 fiscal year. During
        the year ended September 30, 2001, the Company paid an entity controlled
        by its
        CEO approximately $158,000 for consulting services. During the years ended
        September 30, 2002 and 2001, the Company paid approximately $70,000 and $67,000,
        respectively, to an entity owned by its former CFO for other professional
        services. During the year ended September 30, 2002, the Company paid
        approximately $27,000 to an entity owned by its former COO for certain
        consulting services he provided to the Company subsequent to his June 2002
        termination of employment.
  Simple.Net,
        Inc. ("SN")
 
 The
        Company has contracted with Simple.Net, Inc. ("SN"), an internet service
        provider owned by a director of the Company, to provide internet dial-up
        and
        other services to its customers. SN has sold said services to the Company
        at
        below market rate prices from time to time. During the years ended September
        30,
        2002 and 2001, the Company paid SN approximately $55,000 and $68,000,
        respectively for said services. At September 30, 2002, $40,963 due SN was
        accrued in accounts payable.
 
 In
        addition, SN pays a monthly fee to the Company for technical support and
        customer service provided to SN’s customers by the Company’s employees. The
        Company charges SN for these services according to a per customer pricing
        formula:
 
 Customer
        Service & Management Agreement fees are calculated by number of customer
        records of SN multiplied by a base cost of $1.02. Technical Support fees
        are
        calculated by number of customer records of SN multiplied by a base cost
        of 60
        cents.
 
 For
        the
        years ended September 30, 2002 and 2001, the Company recorded revenues of
        approximately $300,901 and $22,813, respectively, from SN for these
        services.
 
 Prior
        to
        July 2002, the Company provided accounting functions to SN for a $2,500 monthly
        fee. This arrangement was canceled in July 2002. The principal stockholders
        of
        the Company have provided significant financing to SN in the form of interest
        bearing loans. Said stockholders are not involved in the management of or
        represented on the boards of the Company or SN.
 
 Commercial
        Finance Services d/b/a/ HR Management ("CFS")
 
 The
        Company leases its employees from Commercial Finance Services, Inc. d/b/a
        HR
        Management (CFS). CFS provides factoring and financing services as well as
        act
        as a professional employer organization ("PEO") for small to mid-sized
        companies. CFS does not provide any services to the Company, other than those
        of
        a PEO. The majority of the Company’s payroll is paid via CFS. This arrangement
        allows the Company to offer additional employee benefits by sharing those
        costs
        with other clients of CFS. The Company pays CFS a monthly fee of $2,800 for
        payroll and benefit administration. The majority owner of CFS is Central
        Account
        Services, Inc.(CAS). CAS is partially owned by the Company’s primary legal
        counsel (3% ownership) and its former CFO (4% ownership). The remaining
        ownership of CAS is unrelated to the Company. The principal stockholders
        of the
        Company have provided significant financing to CFS in the form of an interest
        bearing loan. Said stockholders are not involved in the management of or
        represented on the boards of the Company or SN.
  25
 *Table
            of Contents*
  Business
        Executive Services, Inc.
 
 The
        Company has contracted with Business Executive Services, Inc. ("BESI"), an
        entity affiliated through certain common management, for processing of direct
        mail solicitation, welcome letters, and other customer communications. BESI
        subleases a portion of the Company’s office space. The Company pays a base fee
        of $15,750 per month plus a fee based on a per mail piece price of $0.015
        based
        on the number of mail pieces prepared and sent. The floor amount is adjusted
        quarterly. During the year ended September 30, 2002, the Company paid $176,149
        to BESI related to this agreement.
 
 A
        director (Greg Crane) of the Company was employed, through an employee leasing
        arrangement, by BESI and received a salary of approximately $2,000 per month
        from BESI and bonuses in an undetermined amount. Mr. Crane is no longer employed
        by BESI. BESI has no ownership in the Company. The Company paid BESI $90,000
        under this arrangement.
 
 Advertising
        Management & Consulting Services, Inc.
 
 Advertising
        Management& Consulting Services Inc. ("AMCS"), is a marketing and
        advertising company experienced in designing Direct Marketing Pieces, insuring
        compliance with regulatory authorities for those pieces and designing new
        products that can be mass marketed through the mail. AMCS’ president is a
        director of the Company.
 
 The
        Company outsources the design and testing of its many direct mail pieces
        to AMCS
        for a monthly fee of $20,000 per month. AMS is also solely responsible for
        the
        new products that have been added to the Company’s website and is working on new
        mass-market products to offer the Company’s customers.
 
 Other
 
 As
        part
        of the Company’s original default settlement with the prior owners of the URL
        discussed in Note 4, the Company has provided certain equipment and improvements
        to an affiliated entity at no cost to that affiliated entity. The Company
        retains title and control of these assets. However, the assets are not being
        utilized by the Company. The net book value of the office equipment and
        leasehold improvements being utilized by the affiliated entity was approximately
        $60,000 at September 30, 2002. The Company is also providing office space
        to
        this entity for substantially below market rental rates. This entity is
        affiliated through commonality of certain management members.
 
 Advances
        to affiliates are summarized as follows at September 30, 2002:
 
 Sunbelt
                  Financial
              
              $
              197,640The
                  Thompson Group
              
              
              16,899Mathew
                  & Markson
              
              
              233,073Total
              
              
              447,612Less
                  allowance
              
              
              (214,539
              )Total
              
              $
              233,073
 26
 *Table
              of Contents*
  13.
              CONCENTRATION
                  OF CREDIT RISK
 
 The
        Company maintains cash balances at banks in Arizona. Accounts are insured
        by the
        Federal Deposit Insurance Corporation up to $100,000. At September 30, 2002,
        the
        Company had bank balances exceeding those insured limits of
        $580,000.
 
 Financial
        instruments that potentially subject the Company to concentrations of credit
        risk are primarily trade accounts receivable. The trade accounts receivable
        are
        due primarily from business customers over widespread geographical locations
        within the LEC billing areas across the United States. The Company historically
        has experienced significant dilution and customer credits due to billing
        difficulties and uncollectible trade accounts receivable. The Company estimates
        and provides an allowance for uncollectible accounts receivable. The handling
        and processing of cash receipts pertaining to trade accounts receivable is
        maintained primarily by a single third party billing company. The Company
        is
        dependent upon this billing company for collection of its accounts receivable.
 
 14.
              STOCK
                  BASED COMPENSATION
 
 From
        time
        to time, the Company issues stock options to executives, key employees and
        members of the Board of Directors. The Company has adopted the disclosure-only
        provisions of Statement of Financial Accounting Standards No. 123, "Accounting
        for Stock-Based Compensation," and continues to account for stock based
        compensation using the intrinsic value method prescribed by Accounting
        Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
        Accordingly, no compensation cost has been recognized for stock options granted
        to employees. There were no options granted in the years ended September
        30,
        2002 and 2001 nor was there any additional vesting of options previously
        granted.
 
 During
        the year ended September 30, 2002, the Company’s shareholders approved the 2002
        Employees, Officers & Directors Stock Option Plan (the 2002 Plan). Under the
        2002 Plan, the total number of shares of common stock that may be granted
        is
        3,000,000. The Plan provides that shares granted come from the Corporation’s
        authorized but unissued common stock. The price of the options granted under
        this plan shall not be less than 100% of the fair market value, or in the
        case
        of a grant to a principal shareholder, not less than 110% of the fair market
        value of such common shares at the date of grant. The options expire 10 years
        from the date of grant. At September 30, 2002, no stock options had been
        granted
        under the 2002 Plan. Under the Employee Incentive Stock Option Plan approved
        by
        the stockholders in 1998, the total number of shares of common stock that
        may be
        granted is 1,500,000. The plan provides that shares granted come from the
        Corporation’s authorized but unissued common stock. The price of the options
        granted pursuant to this plan shall not be less than 100 percent of the fair
        market value of the shares on the date of grant. The options expire from
        five to
        ten years from date of grant. At September 30, 2002, the Company had granted
        an
        aggregate of 1,212,000 options under this plan, all of which had expired
        as of
        September 30, 2001.
 
 In
        addition to the Employee Incentive Stock Option Plan, the Company will
        occasionally grant options to consultants and members of the board of directors
        under specific stock option agreements. There were no such options granted
        in
        the years ended September 30, 2002 and 2001.
 
 At
        September 30, 2002, there were no options exercisable or outstanding. No
        options
        were granted in the years ended September 30, 2002 and 2001. The Company
        has
        issued warrants in connection with certain debt and equity transactions.
        Warrants outstanding are summarized as follows:
  27
 *Table
            of Contents*
  2002
              
              2001Weighted
                  Average Exercise Price
              
              
              
              Weighted
                  Average Exercise PriceWarrants
                  outstanding at beginning of year
              
              
              500,000
              
              $
              2.12
              
              
              350,000
              
              $
              2.00Granted
              
              
              -0-
              
              
              
              
              
              500,000
              
              $
              2.12Expired
              
              
              -0-
              
              
              
              
              
              (350,000
              )
              $
              2.00Exercised
              
              
              -0-
              
              
              
              
              
              -0-Outstanding
                  at September 30,
              
              
              500,000
              
              $
              2.12
              
              
              500,000
              
              $
              2.12
 
 The
        warrants granted in the year ended September 30, 2001 were issued in connection
        with the settlement with the former URL holder (NOTE 4). The exercise prices
        of
        the warrants range from $1.00 to $3.00. The fair values of these warrants
        were
        estimated at the date of grant using the Black-Scholes option-pricing model
        with
        the following assumptions:
 
 Dividend
                  yield
              
              
              NoneVolatility
              
              
              0.491Risk
                  free interest rate
              
              
              4.18
              %Expected
                  asset life
              
              
              2.5
                  years
 
 The
        500,000 warrants outstanding at September 30, 2002, expire in September
        2006.
 
 15.
              EMPLOYEE
                  BENEFIT PLAN
 
 The
        Company maintains a 401(k) profit sharing plan for its employees. Employees
        are
        eligible to participate in the plan upon reaching age 21 and completion of
        three
        months of service. The Company made contributions of $3,400 and $2,300 to
        the
        plan for the years ended September 30, 2002 and 2001.
 
 16.
              OTHER
                  INCOME
 
 Other
        income for the year ended September 30, 2002, includes a gain of $267,000
        related to the rescission of a consulting contract that was entered into
        in a
        prior year (NOTE 9). Also, included is a gain of $130,000, net of legal costs,
        resulting from the settlement of a dispute with one of the Company’s former
        billing companies.
 
 17.
              QUARTERLY
                  FINANCIAL DATA (UNAUDITED)
 
 Subsequent
        to filing the interim financial statements included on Form 10-QSB for the
        periods ending December 31, 2000, March 31, 2001, June 30, 2001, December
        31,
        2001, March 31, 2002, and June 30, 2002, the Company has changed its accounting
        treatment of shares issued to non-performing consultants. The previously
        filed
        interim statements reflected an expense upon issuance of the shares and a
        reversal of this expense when it was deemed (through a settlement agreement
        or
        judgment) that these shares would be returned. However, after further analysis
        and consultation with the Securities and Exchange Commission, it was determined
        to be inappropriate to recognize the initial expense and its subsequent reversal
        as no services were rendered by these consultants. Instead, the issuance
        of
        these shares will be reflected as temporary equity, together with a related
        receivable, until the shares were returned. Such treatment is described in
        Note
        2.
 
 The
        following table sets forth the impact of this change on the following three
        month periods:
  28
 *Table
            of Contents*
  **Quarter
                  Ended****December
                  31,**
                **2001**
              
              **March
                  30,**
                **2002**
              
              **June
                  30,**
                **2002**
              
              **September
                  30,**
                **2002****Quarterly
                  Data Per 10-Q Filings**Net
                  revenues
              
              $
              2,992,993
              
              $
              2,839,438
              
              $
              3,416,953
              
              
              naGross
                  profit
              
              
              1,808,716
              
              
              2,106,037
              
              
              2,248,557
              
              
              naNet
                  income
              
              
              306,349
              
              
              620,288
              
              
              798,742
              
              
              naEarnings
                  per share information:Basic
              
              $
              0.01
              
              $
              0.01
              
              $
              0.02
              
              
              naDiluted
              
              $
              0.01
              
              $
              0.01
              
              $
              0.02
              
              
              na**Revised
                  Quarterly Data**Net
                  revenues
              
              $
              2,992,993
              
              $
              2,839,438
              
              $
              3,416,953
              
              $
              3,368,742Gross
                  profit
              
              
              1,808,716
              
              
              2,106,036
              
              
              2,248,557
              
              
              2,957,139Net
                  income
              
              
              306,349
              
              
              620,286
              
              
              640,728
              
              
              1,273,369Earnings
                  per share information:Basic
              
              $
              0.01
              
              $
              0.01
              
              $
              0.01
              
              $
              0.03Diluted
              
              $
              0.01
              
              $
              0.01
              
              $
              0.01
              
              $
              0.03
 
 **Quarter
                  Ended****December
                  31,**
                **2000**
              
              **March
                  30,**
                **2001**
              
              **June
                  30,**
                **2001**
              
              **September
                  30,**
                **2001****Quarterly
                  Data Per 10-Q Filings**Net
                  revenues
              
              $
              4,526,623
              
              $
              4,138,223
              
              $
              4,033,088
              
              
              naGross
                  profit
              
              
              1,640,271
              
              
              1,697,869
              
              
              1,548,103
              
              
              naNet
                  income
              
              
              518,396
              
              
              578,984
              
              
              428,852
              
              
              naEarnings
                  per share information:Basic
              
              $
              0.01
              
              $
              0.01
              
              $
              0.01
              
              
              naDiluted
              
              $
              0.01
              
              $
              0.01
              
              $
              0.01
              
              
              na**Revised
                  Quarterly Data**Net
                  revenues
              
              $
              4,526,623
              
              $
              4,138,223
              
              $
              4,033,088
              
              $
              804,032Gross
                  profit
              
              
              1,640,271
              
              
              1,697,869
              
              
              1,548,103
              
              
              2,465,638Net
                  income
              
              
              452,396
              
              
              343,817
              
              
              428,852
              
              
              (447,801
              )Earnings
                  per share information:Basic
              
              $
              0.01
              
              $
              0.01
              
              $
              0.01
              
              $
              (0.01
              )Diluted
              
              $
              0.01
              
              $
              0.01
              
              $
              0.01
              
              $
              (0.01
              )
 
 *
        * * * *
        *
  29
 *Table
            of Contents*
  PART
        III
 
 ITEM
        13.
        EXHIBITS
 
 The
        following exhibits are attached hereto.
 
 Exhibit
                  Number
              
              Description23
              
              Consent
                  of Epstein, Weber and Conover P.L.C31
              
              Certification
                  pursuant to SEC Release No. 33-8238, as adopted pursuant to Section
                  302 of
                  the Sarbanes-Oxley Act of 200232
              
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002
  SIGNATURES
 
 In
        accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
        this report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
 
 Dated:
                  November 30, 2005
              
              */s/
                  Peter J. Bergmann*Peter
                  J. Bergmann, Chief Executive
                  Officer
   30