**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-KSB/A**


(Amendment
      No. 1)





(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, 2001





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.NET,
      INC.**


(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)





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 o No x .





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 $15,084,917.




The
        aggregate market value of the common stock held by non-affiliates computed
        based
        on the closing price of such stock on November 23, 2001 was approximately
        $3,110,714.
 
 The
        number of shares outstanding of the registrant’s classes of common stock, as of
        November 23, 2001 was 43,813,680.














**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, 2001, as originally filed by YP Corp.
      on
      December 31, 2001 (the “Original Filing”), 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
            6Report
                of Independent Registered Public Accounting
                Firm
            7Consolidated
                Financial
                Statements:Consolidated
                Balance Sheet at September 30,
                2001
            8Consolidated
                Statements of Operations for the Years
                Ended September 30, 2001 and September 30, 2000
            9Consolidated
                Statements of Stockholder’s Equity for
                the Years Ended September 30, 2001 and September 30,
                2000
            10Consolidated
                Statements of Cash Flows for the Years
                Ended September 30, 2001 and September 30, 2000
            12Notes
                to Consolidated Financial
                Statements
            14Part
                III
            28Item
                13.       Exhibits
            28Signatures
            28


Table
            of
            Contents




PART
      II





ITEM
                6.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS





This
      Form
      10-KSB, including documents incorporated herein by reference, contains
      forward-looking statements within the meaning of the Private Securities
      Litigation Reform Act of 1995. Such statements include, but are not limited
      to,
      projections of revenues, income or loss, capital expenditures, acquisitions,
      plans for future operations, financing needs or plans, the impact of economic
      and business factors and plans relating to our products or services, as well
      as
      assumptions relating to the foregoing. The words "believe," "expect,"
      "estimate," "anticipate," "may," and "project" and similar expressions generally
      identify forward-looking statements. Forward-looking statements are inherently
      subject to risks and uncertainties, some of which cannot be predicted or
      quantified. Future events and actual results could differ materially from those
      set forth in, contemplated by, or underlying our forward-looking statements.
      Statements in this Form 10-KSB, including those set forth in "Risk Factors,"
      as
      well as statements incorporated by reference herein that are included in
      "Business," and other sections of this Annual Report on Form 10-KSB describing
      factors, among others, that could contribute to or cause such difference.





Although
      we believe that the assumptions underlying the forward-looking statements in
      this Form 10-KSB are reasonable, any of these assumptions could prove
      inaccurate. In addition, our business and operations are subject to substantial
      risks, some of which are identified in this report and which increase the
      uncertainties inherent in the forward-looking statements included in this Form
      10-KSB. There can be no assurance that the results contemplated in these
      forward-looking statements will be realized.





The
      inclusion of forward-looking information should not be regarded as a
      representation by us or any other person that the future events, plans or
      expectations contemplated will be achieved. We disclaim any obligation to
      subsequently revise forward-looking statements to reflect subsequent events
      or
      circumstances or the occurrence of unanticipated events.





OVERVIEW





We
      provide Internet-based yellow page listing services on our Yellow-Page.Net
      and
      yp.net websites. We acquired Telco 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 listing service. Our websites serve as a search
      engine for yellow page listings in the United States and Canada. We charge
      our
      customers for a preferred listing of their businesses on searches conducted
      by
      consumers on our websites.





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.





RESULTS
      OF OPERATIONS





Fiscal
      Year End September 30, 2001 Compared to Fiscal Year End September 30,
      2000.





Revenue
      for the year ended September 30, 2001 ("Fiscal 2001") was $13,501,966 compared
      to $15,836,422 for the year ended September 30, 2000 ("Fiscal 2000"). Our
      revenue decreased primarily due to the application of Staff Accounting Bulletin
      #101 ("SAB 101") to our subscription revenue. Under SAB #101, revenue generally
      is realized or realizable and earned when all of the following criteria are
      met:





1
 *Table
            of Contents*





1.
            Pervasive
                evidence of an arrangement exits


2.
            Delivery
                has occurred or services have been rendered


3.
            The
                seller’s price to the buyer is fixed or determinable AND


4.
            Collectibility
                is reasonably assured.





In
      regards to the subscription/direct invoice gross revenue, and at the
      recommendation of our auditor we believed that SAB #101 applies and there should
      be impairment to gross revenue since we meet all the criteria except item #4.
      The collectibility of subscription revenue, in the past, has been between 7%
      -
      13% and we have recorded an allowance for bad debt to reflect the bad debt
      as
      required. Therefore this year our gross revenue for subscription revenues has
      been reduced by $1,900,000 in compliance with SAB #101.





Presently,
      our new operations department has reevaluated and re-filtered our subscription
      customers and we have experienced increases in cash collected from the invoice
      billings. Progressing forward through the year, we expect a higher collection
      of
      subscription receivable since new procedures and processes have been implemented
      in operations.





We
      utilize direct mailings as our primary marketing program and this program
      generates our principal revenue of the Company. Our subscribing customers
      increased to 114,409 at December 31, 1999, 129,457 at March 31, 2000, 143,292
      at
      June 30, 2000 and 130,592 at September 30, 2000, a 21% increase for the fiscal
      year. Our subscribing customers decreased to 123,408 at December 31, 2000,
      103,187 at March 31, 2001, 99,862 at June 30, 2001 and 91,348 at September
      30,
      2001. The decrease in our customers for Fiscal 2001 is primarily due to
      management’s decision to stop all direct mail marketing efforts until we had
      entered into a final settlement agreement with the FTC. In August 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.





Sales
      and
      marketing expenses for Fiscal 2001 was $688,349 compared to $1,619,113 for
      Fiscal 2000. The decrease was principally the result of our decreased or ceasing
      of all marketing efforts. The marketing expenses are attributed to our direct
      response marketing, which is our primary source of attracting new customers.
      The
      decrease in our marketing expenses for Fiscal 2001 is primarily due to
      management’s decision 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.





General
      and administrative expenses for Fiscal 2001 were $3,987,040 compared to
      $5,392,860 for Fiscal 2000, due primarily to the application of SAB #101
      discussed above, causing a reduction in bad debt expense of approximately $1.3
      million in Fiscal 2001.





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 $447,087 for the year ended
      September 30, 2001. Annual amortization expense in future years related to
      the
      URL is anticipated to be approximately $300,000.





Interest
      expense for Fiscal 2001 was $571,248 compared to $853,761 for Fiscal 2000.
      The
      decrease in interest expense was a result of decreased debt due to the
      acquisition of Telco and the acquisition of the URL Yellow-Page.Net. The
      reduction in interest expense is also related to the payoff of Finovia Financial
      credit facility in June 2001.





2
 *Table
            of Contents*





During
      Fiscal 2001, we have no available federal net operating loss carryforwards
      relating to Telco and federal net operating loss carryforwards of $4,021,753
      relating to YP.Net. During Fiscal 2001, we had no state net operating loss
      carryforwards relating to Telco and state net operating loss carryforwards
      of
      $1,967,691 relating to YP.Net. Separate return limitations may limit our
      abilities to utilize these net operating loss carryforwards.





Net
      profits for Fiscal 2001 were $777,264, or $.02 per share, compared to
      $3,436,127, or $.09 per share for Fiscal 2000.





LIQUIDITY
      AND CAPITAL RESOURCES





Our
      cash
      balance increased to $683,847 for Fiscal 2001 from a $219,613 for Fiscal 2000.
      We funded working capital requirements primarily from cash generated from
      financing activities and utilized cash in operating activities and investing
      activities and the reduction of debt. We have no credit facility with Finovia
      Financial as that debt was paid off in June 2001.





*Operating
      Activities* .
      Cash
      provided by operating activities was $3,880,158 for Fiscal 2001 compared to
      $960,303 for Fiscal 2000. The principal source of our operations revenue is
      from
      sales of electronic yellow page advertising.





*Investing
      Activities* .
      Cash
      used by investing activities was $165,672 for Fiscal 2001 compared to $211,803
      for Fiscal 2000. We purchased $28,520 of computer equipment in Fiscal 2001
      compared to $211,803 of additional computer equipment to upgrade and replace
      incompatible equipment for Fiscal 2000. In Fiscal 2001 we advanced $137,152
      to
      an affiliate and the note was repaid in full in October 2001.





*Financing
      Activities* .
      Cash
      flows used from financing activities were $3,250,252 for Fiscal 2001 compared
      to
      $784,211 for Fiscal 2000. We had cash outflow from the repaid our credit
      facility and Matthew Markson Ltd. of $3,199,452 for Fiscal 2001 compared to
      $1,657,781 for Fiscal 2000. We purchased treasury stock in the amount of $50,800
      for Fiscal 2001. We had cash inflow from the financing arrangements in the
      amount of $789,241 for Fiscal 2000 and we realized inflow from the sale of
      common stock of $84,329 for Fiscal 2000.





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 and $2,000,000 as a carry-back from Matthew & Markson Ltd.
      Management has dedicated payments in the amount of $100,000 per month for the
      payment of the VanSickle note. Management has 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. 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.





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 eight months. The amortization lives are based on
      estimated attrition rates. During Fiscal 2001 we paid $3,781,485 in advertising
      and marketing compared to $3,206,576 in Fiscal 2000. Management anticipates
      the
      outlays for direct-response advertising to remain consistent over the next
      year.





3
 *Table
            of Contents*





We
      do not
      intend to incur significant capital expenditures in the near
      future.





FUTURE
      OUTLOOK





For
      fiscal year 2002 we expect to continue our customer direct response program
      whereby we contact our existing customers for their many mini-web-page
      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 Simple. Net, Inc. to
      provide both customer and technical services. Simple.Net is an Internet service
      provider ("ISP") that currently operates with us in a joint venture capacity.





We
      have
      offered our customers a dial-up ISP and are currently gaining customers weekly.
      Our dial-up ISP backbone provider is Level 3 and is providing a Tier 1 network
      that will ultimately provide the dial-up service for YP.net dial-up customers
      and Simple. Net, Inc. through our joint venture arrangement. 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.





We
      have
      entered into a billing agreement with OAN Billing, Inc. ("OAN"). This contract
      will provide us with another billing integrator that will allow us to broaden
      our billing area among all LECs. OAN is a reputable billing company that will
      provide us more flexibility and will reduce our concentration of billing risk
      with billing integrators.





We
      have
      entered into a credit card processing agreement with Bank of American. This
      agreement will provide us with the ability to expeditiously process our
      subscription invoices on a recurring basis. That is we will be able to process
      monthly billing in a recurring batch by this method we will be able to have
      a
      higher collection of our subscription revenue.





We
      have
      filed a preliminary 14-C information statement to increase our authorized common
      stock and create Class B and Class C preferred shares. We intend to offer our
      shareholders class B and C preferred shares. The preferred offer was at the
      request of our shareholders that were looking for an avenue to receive income
      rather than waiting for the gains in equity. "See item 4, Submission of Matter
      to Vote to Security Holders" Having received no comments back from the SEC
      to
      our Preliminary 14-C Information Statement, management will file a 14-C
      definitive statement and do a formal offering. See our Form 14-C filed with
      the
      SEC on November 1, 2001





Management
      believes that the future of this company will be based on its ability to market
      business services to its proprietary business customer base. We are actively
      seeking potential acquisitions and mergers to broaden our services offered
      to
      our customer base. We are presently seeking companies that will provide a
      diversified revenue stream with a strong revenue model that will provide more
      services to our existing customers. Management believes its strong financial
      controls and operating philosophy will help generate profits from its future
      acquisitions for the benefit of its shareholders.





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 as well
      as
      the fact that we have not been performing our direct marketing at this time.
      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.





**We
      expect to make Future Acquisitions where Advisable and Acquisitions involve
      Numerous Risks:** The
      Internet business is highly competitive, and as such, our growth is dependent
      upon market growth, our ability to enhance our existing products and our ability
      to introduce new products on a timely basis. One of the ways we will address
      the
      need to develop new products through the acquisition of other companies.
      Acquisitions involve numerous risks, including difficulties in integrating
      the
      operations, technologies, and products of the acquired companies; the risk
      of
      diverting management’s attention from normal daily operations of the business;
      risks of entering markets in which we have no or limited direct prior experience
      and where competitors in such markets have stronger market positions;
      insufficient revenue to offset increased expenses associated with acquisitions;
      and the potential loss of key employees of the acquired companies. Mergers
      and
      acquisitions of high-technology companies are inherently risky, and there is
      no
      assurance that our previous or future acquisitions will be successful and not
      have a material adverse affect on our business, operating results, or financial
      condition. We must also manage any growth effectively. Failure to manage growth
      effectively and successfully integrate acquisitions we may make could have
      a
      material adverse effect on our business and operating results.





5
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            of Contents*





**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





**YP.NET,
      INC.**


**TABLE
      OF CONTENTS**





**Pages**REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            7CONSOLIDATED
                FINANCIAL STATEMENTS:Consolidated
                Balance Sheet at September 30, 2001
            8Consolidated
                Statements of Operations for the years ended September 30, 2001 and
                September 30, 2000
            9Consolidated
                Statements of Stockholders’ Equity for the Years ended September 30, 2001
                and September 30, 2000
            10Consolidated
                Statement of Cash Flows for the year ended ears ended September 30,
                2001
                and September 30, 2000
            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, 2001 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, 2001, and the consolidated results of its
        operations and cash flows for each of the two years in the period ended
        September 30, 2001, in conformity with accounting principles generally accepted
        in the United States of America.
 
 As
        described Note 1, the Company restated its financial statements for the years
        ended September 30, 2001 and 2000.
 
 
 /s/   Epstein,
        Weber & Conover, PLC
 Scottsdale,
        Arizona
 December
        20, 2001
 (except
        for the restatement of financial statements
 described
        in Note 1, for which the date in November 18, 2005)




7
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            of Contents*





YP.NET,
      INC.





CONSOLIDATED
      BALANCE SHEET


SEPTEMBER
      30, 2001








ASSETS:CURRENT
                ASSETSCash
            
            $
            683,847Accounts
                receivable, net of allowance of $1,035,993
            
            
            2,870,109Customer
                acquisition costs, net of accumulated amortization of
                $3,588,242Prepaid
                expenses and other assets
            
            
            20,169Deferred
                income taxes
            
            
            414,397Total
                current assets
            
            
            4,181,766PROPERTY
                AND EQUIPMENT, net
            
            
            374,885DEPOSITS
            
            
            23,287INTELLECTUAL
                PROPERTY- URL, net of accumulated amortization of
                $1,077,916
            
            
            3,932,084ADVANCES
                TO AFFILIATE
            
            
            116,316DEFERRED
                INCOME TAXES
            
            
            672,574RECEIVABLE
                - COMMON STOCK TO BE RETURNED
            
            
            115,978TOTAL
                ASSETS
            
            $
            9,416,890LIABILITIES
                AND STOCKHOLDERS’ EQUITY:CURRENT
                LIABILITIES:Accounts
                payable
            
            $
            314,904Accrued
                liabilities
            
            
            76,234Notes
                payable - current portion
            
            
            888,236Income
                taxes payable
            
            
            1,222,318Total
                current liabilities
            
            
            2,501,692NOTES
                PAYABLE - long term portion
            
            
            410,669Total
                liabilities
            
            
            2,912,361TEMPORARY
                EQUITY - Common stock to be returned, 82,500 shares issued and
                outstanding
            
            
            115,978STOCKHOLDERS’
                EQUITY:Common
                stock, $.001 par value, 50,000,000 shares authorized, 43,885,464
                issued
                and outstanding
            
            
            43,886Paid
                in capital
            
            
            4,592,525Treasury
                stock at cost
            
            
            (171,422
            )Retained
                earnings
            
            
            1,923,562Total
                stockholders’ equity
            
            
            6,388,551TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            9,416,890




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, 2001 AND SEPTEMBER 30, 2000





2001
            
            2000NET
                REVENUES
            
            $
            13,501,966
            
            $
            15,836,422OPERATING
                EXPENSES:Cost
                of services
            
            
            6,150,085
            
            
            5,234,906General
                and administrative expenses
            
            
            3,987,040
            
            
            4,804,710Sales
                and marketing expenses
            
            
            688,349
            
            
            1,619,113Franchising
                expenseDepreciation
                and amortization
            
            
            603,426
            
            
            616,660Total
                operating expenses
            
            
            11,428,900
            
            
            12,275,539OPERATING
                INCOME
            
            
            2,073,066
            
            
            3,561,033OTHER
                (INCOME) AND EXPENSESInterest
                expense and other financing costs
            
            
            571,248
            
            
            853,761Interest
                income
            
            
            (7,342
            )
            
            (802
            )Other
                Income
            
            
            191,462
            
            
            (82,846
            )Total
                other expense
            
            
            755,368
            
            
            770,113INCOME
                BEFORE INCOME TAXES
            
            
            1,317,698
            
            
            2,790,920INCOME
                TAX PROVISION (BENEFIT)
            
            
            540,434
            
            
            (645,207
            )NET
                INCOME
            
            $
            777,264
            
            $
            3,436,127NET
                INCOME PER SHARE:Basic
            
            $
            0.02
            
            $
            0.09Diluted
            
            $
            0.02
            
            $
            0.09WEIGHTED
                AVERAGE COMMON SHARES OUTSTANDING:Basic
            
            
            40,738,839
            
            
            40,120,829Diluted
            
            
            40,738,839
            
            
            40,120,829





The
      accompanying notes are an integral part of these consolidated financial
      statements. Per share amounts may not total due to rounding of individual
      components.





9
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            of Contents*





YP.NET,
      INC.





CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE


YEARS
      ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000





COMMON
                STOCK
            
            PREFERRED
                A
            
            TREASURY
            
            PAID-IN
            
            ACCUMULATEDSHARES
            
            AMOUNT
            
            SHARES
            
            AMOUNT
            
            STOCK
            
            CAPITAL
            
            DEFICIT
            
            TOTALBALANCE
                OCTOBER 1, 1999
            
            
            38,231,853
            
            $
            38,232
            
            
            1,700,000
            
            $
            1,700
            
            $
            (69,822
            )
            $
            3,792,374
            
            $
            (2,289,829
            )
            $
            1,472,655Common
                stock issued for exercised options
            
            
            53,611
            
            
            54
            
            
            
            
            
            
            
            
            
            
            
            84,275
            
            
            
            
            
            84,329Common
                stock issued as board of directors’ fees
            
            
            550,000
            
            
            550
            
            
            
            
            
            
            
            
            
            
            
            114,950
            
            
            
            
            
            115,500Common
                stock issued to former officer to convert preferred shares and as
                final
                compensation settlement
            
            
            200,000
            
            
            200
            
            
            (200,000
            )
            
            (200
            )
            
            
            
            
            89,800
            
            
            
            
            
            89,800Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,436,127
            
            
            3,436,127BALANCE
                SEPTEMBER 30, 2000
            
            
            39,035,464
            
            $
            39,036
            
            
            1,500,000
            
            $
            1,500
            
            $
            (69,822
            )
            $
            4,081,399
            
            $
            1,146,298
            
            $
            5,198,411





(CONTINUED)





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





10
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            of Contents*





YP.NET,
      INC.





CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE


YEARS
      ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 (CONTINUED)








COMMON
                STOCK
            
            PREFERRED
                A
            
            TREASURY
            
            PAID-IN
            
            ACCUMULATEDSHARES
            
            AMOUNT
            
            SHARES
            
            AMOUNT
            
            STOCK
            
            CAPITAL
            
            DEFICIT
            
            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
            
            $
            43,885
            
            
            -
            
            $
            -
            
            $
            (171,422
            )
            $
            4,592,525
            
            $
            1,923,562
            
            $
            6,388,551





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, 2001 AND SEPTEMBER 30, 2000








CASH
                FLOWS FROM OPERATING ACTIVITIES:
            
            2001
            
            2000Net
                income
            
            $
            777,264
            
            $
            3,436,127Adjustments
                to reconcile net income to net cash provided by (used in) operating
                activities:Depreciation
                and amortization
            
            
            156,343
            
            
            144,993Issuance
                of common stock as compensation for services
            
            
            148,800
            
            
            205,300Penalties
                related to acquisition debt paid by issuance of debt, warrants and
                stock
            
            
            917,967
            
            
            -Deferred
                income taxes
            
            
            (421,457
            )
            
            (645,207
            )Provision
                for uncollectible accounts
            
            
            (760,859
            )
            
            1,590,840Amortization
                of intellectual property
            
            
            447,083
            
            
            471,667Changes
                in assets and liabilities:Trade
                and other accounts receivable
            
            
            1,617,467
            
            
            (4,345,544
            )Customer
                acquisition costs
            
            
            37,654
            
            
            403,002Other
                receivables
            
            
            -
            
            
            77,182Prepaid
                and other current assets
            
            
            79,060
            
            
            39,621Other
                assets
            
            
            (11,500
            )
            
            -Accounts
                payable
            
            
            161,089
            
            
            48,014Accrued
                liabilities
            
            
            (251,894
            )
            
            (243,432
            )Deferred
                Financing Costs
            
            
            21,250
            
            
            102,500Income
                taxes payable
            
            
            961,891
            
            
            -Deferred
                revenue
            
            
            -
            
            
            (324,760
            )Net
                cash provided by operating activities
            
            
            3,880,158
            
            
            960,303CASH
                FLOWS FROM INVESTING ACTIVITIES:Advances
                made to affiliate
            
            
            (137,152
            )
            
            -Purchases
                of equipment
            
            
            (28,520
            )
            
            (211,803
            )Net
                cash (used in) investing activities
            
            
            (165,672
            )
            
            (211,803
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Principal
                repayments on borrowings from line of credit
            
            
            (1,577,547
            )
            
            789,241Principal
                repayments on notes payable
            
            
            (1,621,905
            )
            
            (1,657,781
            )Purchase
                of treasury stock
            
            
            (50,800
            )Proceeds
                from sale of common stock
            
            
            -
            
            
            84,329Net
                cash (used)/provided by financing activities
            
            
            (3,250,252
            )
            
            (784,211
            )(DECREASE)/INCREASE
                IN CASH
            
            
            464,234
            
            
            (35,711
            )CASH,
                BEGINNING OF YEAR
            
            
            219,613
            
            
            255,324CASH,
                END OF YEAR
            
            $
            683,847
            
            $
            219,613





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, 2001 AND 2000








SUPPLEMENTAL
                CASH FLOW INFORMATION:2001
            
            2000Interest
                Paid
            
            $
            421,013
            
            $
            833,993Income
                taxes paid
            
            $
            -0-
            
            $
            -0-





SUPPLEMENTAL
                SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:2001
            
            2000Note
                payable issued in payment of debt extension fee
            
            $
            550,791
            
            $
            -0-Value
                of common stock issued as payment of debt extension fee
            
            $
            360,000
            
            $
            -0-Liability
                incurred for purchase of treasury stock
            
            $
            50,800
            
            $
            -0-




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, 2001 AND 2000





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 all business 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. Accordingly, the historical
      financial statements have been restated after giving effect to the June 16,
      1999, acquisition of the Company. The financial statements have been prepared
      to
      give retroactive effect to October 1, 1998, of the reverse acquisition completed
      on June 16, 1999, and represent the operations of Telco. Consistent with reverse
      acquisition accounting: (i) all of Telco’s assets, liabilities, and accumulated
      deficit, are reflected at their combined historical cost (as the accounting
      acquirer) and (ii) the preexisting outstanding shares of the Company (the
      accounting acquiree) are 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 includes the accounts and results
      of operations of the Company and Telco, its wholly owned subsidiary, for the
      years ended September 30, 2001 and September 30, 2000.




Restatement
        of Financial Statements
  Subsequent
        to the issuance of the Company’s financial statements as of September 30, 2001,
        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, 2001 of a decrease in net income of $1,035,017
        from $1,812,281 to $777,264 and a decrease in the net income per share from
        per
        share from $0.04 to $0.02. The change in accounting had no effect on cash
        flows
        or on the net equity at September 30, 2001.


2.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES





Cash 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, 2001,
      cash
      deposits exceeded those insured limits by $580,000.





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.





14
 *Table
            of Contents*





Customer
      acquisition 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 eight months. The amortization lives
      are based on estimated attrition rates. The Company capitalized expenditures
      of
      $575,000 and $1,177,000 during the years ended September 30, 2001 and 2000
      respectively. The Company amortized those capitalized amounts at $613,000 and
      $1,580,000 during the years ended September 30, 2001 and 2000
      respectively.





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 $75,000 and $30,000 for the years ended September
      30,
      2001 and 2000 respectively.





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 $156,343 and $144,993 for the years ended
      September 30, 2001 and 2000 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
      fees are generally included on the telephone bills of the customers. 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.





Revenue
      for billings to certain customers whom are billed directly by the Company and
      not through the LEC’s, is recognized on the basis of cash received due to poor
      experience associated with the collection of such billings. The Company
      recognizes revenue on these billings on estimated future collections which
      are
      determined on the basis of historical collections.





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 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.





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.





Recently
      Issued Accounting Pronouncements :
      In
      December 1999, the Securities and Exchange Commission issued Staff Accounting
      Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements. SAB
      No.
      101 summarizes the staff’s views in applying generally accepted accounting
      principles to revenue recognition in financial statements. Management believes
      that the Company’s revenue recognition policies have complied with those
      prescribed in SAB 101 and therefore, the adoption of SAB No. 101 did not have
      a
      material effect on the Company’s revenues or revenue recognition policy. In June
      2001, the Financial Accounting Standards Board issued Statements of Financial
      Accounting Standards No.’s 141 Business Combinations and 142 Goodwill and Other
      Intangible Assets. The Company has reviewed the provisions of the new accounting
      pronouncements and 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 Company will likely be required to review its process of analyzing
      the carrying value of its intangible assets.





Impairment
      of long-lived assets is assessed by the Company for impairment whenever there
      is
      an indication that the carrying amount of the asset may not be recoverable.
      Recoverability of these assets is determined by comparing the forecasted
      undiscounted cash flows generated by those assets to the assets’ net carrying
      value. The amount of impairment loss, if any, is measured as the difference
      between the net book value of the assets and the estimated fair value of the
      related assets.





16
 *Table
            of Contents*




3.
              ACCOUNTS
                  RECEIVABLE





The
      Company provides billing information to third party billing companies for the
      majority of its monthly billings. Billings submitted are "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 for 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 historical experience and subsequent
      information received from the billing companies. The Company estimates
      uncollectible account balances and provides an allowance for such
      estimates.





The
      Company entered into a customer billing service agreement with Integretel,
      Inc.
      Integretel provides billing and collection and related services. Determining
      the
      net realizable value requires an estimation of both uncollectible receivables
      or
      any returns and allowances. The trade receivable due from Integretel at
      September 30, 2001 was $2,126,219. These receivables have been reduced by an
      allowance for doubtful accounts of $637,866.





The
      Company also entered into a customer billing service agreement with Enhanced
      Services Billing, Inc. (ESBI). ESBI provides billing and collection and related
      services very similar to Integretel discussed above. Determining the net
      realizable value requires an estimation of both uncollectible receivables or
      any
      returns and allowances. The trade receivable due from ESBI at September 30,
      2001
      was $1,146,644 less aggregated amounts for telco fees, and reserve holdbacks
      based on dilution. This trade receivable has been reduced by an allowance for
      doubtful accounts of $298,127.





Trade
      subscription receivables, which are directly administered and carried by the
      Company, are valued and reported at net realizable value, the net amount
      expected to be received. This amount may or may not be necessarily the amount
      received. Determining the net realizable value requires an estimation of both
      uncollectible accounts or any returns and allowances. The net trade
      subscriptions receivable at September 30, 2001 was $395,000. The Company
      experiences significant dilution from 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 can be affected by
      holdbacks, fees and other matters that are determined by the LEC’s and the
      billing companies.





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.





17
 *Table
            of Contents*





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. An extension fee of $200,000 was paid by the
      Company 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 substantiates the net book value of the asset. The Company will periodically
      analyze the net book value of this asset and determine if impairment has
      occurred. The URL is amortized on an accelerated basis over the twenty-year
      term
      of the licensing agreement. Amortization expense on the URL was $447,083 and
      $471,667 for the years ended September 30, 2001 and 2000
      respectively.





5.
            PROPERTY
                AND EQUIPMENT





Property
                and equipment consisted of the following at September 30,
                2001:Leasehold
                improvements
            
            $
            319,150Furnishings
                and fixtures
            
            
            197,261Office
                and computer equipment
            
            
            275,364Total
            
            
            791,775Less
                accumulated depreciation
            
            
            (416,889
            )Property
                and equipment, net
            
            $
            374,886





The
      Company has provided certain equipment and 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 utilized by the Company. The net book value of the office
      equipment and leasehold improvements being utilized by the affiliated entity
      was
      approximately $136,000 at September 30, 2001.





18
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6.
            NOTES
                PAYABLE AND LINE OF CREDIT





Notes
                payable at September 30, 2001 are comprised of the following:Term
                loan from bank. Original balance of $40,525. Repayment terms require
                monthly installments of principal and interest of $1,844. Interest
                at 8.5%
                per annum. Due January 13, 2001. Collateralized by
                equipment.
            
            $
            1,805Note
                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, 2001. Collateralized by 2,000,000 shares
                of the
                Company’s common stock. Note is currently in default.
            
            
            400,000Note
                payable to former Telco shareholder for balance of URL purchase price
                (Note 4). Repayment terms require monthly installments of principal
                and
                interest at 20% per annum of $100,000 and due upon demand. Collateralized
                by 2,000,000 shares of the Company’s common stock. Note is currently in
                default.
            
            
            346,309Note
                payable to former Telco shareholder, 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, 2001.
                Due
                September 25, 2004. Collateralized by all assets of the
                Company.
            
            
            550,791Totals
            
            
            1,298,905Less
                current portion
            
            
            (888,236
            )Long-term
                portion
            
            $
            410,669





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. The deferred tax consequences of
      temporary differences in reporting items for financial statement and income
      tax
      purposes are recognized, if appropriate. Realization of the future tax benefits
      related to the deferred tax assets is dependent on many factors, including
      the
      Company’s ability to generate taxable income within the net operating loss
      period. The Company has considered these factors in reaching its conclusion
      as
      to the valuation allowance for financial reporting purposes.





At
      September 30, 2001 the Company has unused federal net operating losses of
      $4,021,753 that may be unavailable under Internal Revenue Code 382 - change
      in
      control rules - expiring from 2011 through 2014. The Company may utilize the
      unavailable net operating loss carryforwards upon generating taxable income
      in
      that operating entity. At September 30, 2001 the Company had unused state net
      operating losses of $1,967,691 that may be unavailable under the change in
      control rules expiring 2003.





Income
      taxes for years ended September 30, is summarized as follows:





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2001
            
            2000Current
                Provision
            
            $
            271,878
            
            $
            1,762,649Deferred
                Provision (Benefit)
            
            
            268,556
            
            
            (2,407,856
            )Net
                income tax (benefit) provision
            
            $
            540,434
            
            $
            (645,207)
            )





A
      reconciliation for the differences between the effective and statutory income
      tax rates for years ended September 30, is as follows:




2001
            
            2000Federal
                statutory rates
            
            $
            448,017
            
            
            34
            %
            $
            948,913
            
            
            34
            %State
                income taxes
            
            
            94,275
            
            
            6
            %
            
            167,455
            
            
            6
            %Utilization
                of valuation allowance
            
            
            
            
            
            
            
            
            (1,762,649
            )
            
            (63
            )%Other
            
            
            (1,858
            )
            
            -
            
            
            1,074
            
            
            -Effective
                rate
            
            $
            540,434
            
            
            40
            %
            $
            (645,207
            )
            
            (23
            )%





Deferred
      tax assets totaling approximately $1,975,000 at September 30, 2001 are comprised
      of $512,000 for differences in book and tax bases of accounts receivable and
      intangible assets and approximately $1,463,000 relates to net operating loss
      carryforwards which is partially offset by a valuation allowance of $773,000,
      resulting in a net deferred tax asset of approximately $1,202,000. The valuation
      allowance was provided due to the uncertainty of future realization of certain
      federal and state net operating loss carryforwards because of restrictions
      on
      the utilization of such carryforwards due to the change in control rules under
      Internal Revenue Code Section 382. The valuation allowance decreased $1,305,260
      in the year ended September 30, 2000, due to resolution of uncertainties as
      to
      the Company’s ability to generate sufficient taxable income to utilize the net
      operating loss carryforwards that could be utilized. There was no change in
      the
      valuation allowance in the year ended September 30, 2001. At September 30,
      2001,
      there was a deferred tax liability of approximately $115,000 related to the
      differences in book and taxes bases of property and equipment.




8.
              LEASES





The
      Company leases its office space under long-term operating leases expiring
      through 2003. Rent expense under these leases was $175,464 and $176,637 for
      the
      years ended September 30, 2001 and 2000. The Company consolidated office space
      from a variety of locations to a single facility effective with the Telco
      merger. The Company has subleased the former Telco office space.





Future
      minimum annual lease payments and sublease rentals under operating lease
      agreements for years ended September 30:





Rents
            
            Sublease
              Rentals2002
            
            $
            392,862
            
            $
            203,5002003
            
            
            95,598
            
            
            -$
            488,460
            
            $
            203,500


20
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9.
            STOCKHOLDERS’
                EQUITY





Telco
      Acquisition





The
      Company issued 17,000,000 shares of its Common Stock in connection with the
      Telco acquisition. The transaction was valued at the book value of the net
      assets of RIGL as of the date of the transaction.





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, 2001, the Company issued 850,000 shares of common stock to officers,
      directors and consultants valued at $148,800. During the year ended September
      30, 2000, the Company issued 550,000 shares of its common stock valued at
      $115,500 to members of the board of directors as consideration and payment
      for
      directors’ fees. These amounts exclude the shares issued to nonperforming
      consultants described in Note 2 “Summary of Significant Accounting Policies -
      Temporary Equity”.





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.




Treasury
      Stock





During
      the year ended September 30, 2001, the Company acquired 254,000 shares of its
      common stock from a single stockholder. The Company agreed to purchase the
      common stock for $101,600. The Company paid cash of $50,800 prior to September
      30, 2001 and accrued the remaining $50,800 due at September 30,
      2001





Other





During
      the year ended September 30, 2000, the Company agreed to settle all outstanding
      issues with a former officer by agreeing to convert 200,000 shares of Series
      B
      preferred stock held by this individual to 200,000, shares of common stock.
      The
      conversion was set at the original conversion rate for the preferred shares.
      However, under the original terms, the preferred shares were not convertible
      until the occurrence of certain "trigger events". Those "trigger events" had
      not
      occurred but the former officer was allowed to convert as part of the settlement
      agreement. The conversion was recorded at the estimated value of the common
      stock on the date of the conversion.





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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 preferred shares are convertible to common stock
      at
      the option of the holder. The shares are convertible at varying rates depending
      upon the trading price of the common stock at the time of conversion. The
      initial conversion rate is 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, 2000, 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 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.





New
      management has renegotiated the "Puts", by which the "Puts" were retired and
      the
      Company provided a credit facility of up to $5,000,000 to the former Telco
      shareholders, collateralized by the stock held by the 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 capital plus reserve or if the company
      is in
      an uncured default with any of its lenders.





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.





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The
      Company has also entered into a customer billing service agreement with Enhanced
      Services Billing, Inc. (ESBI). ESBI provides billing and collection and related
      services associated to the telecommunications industry. The agreement term
      is
      for two years, automatically renewable in one-year increments unless appropriate
      notice to terminate is given by either party. The agreement automatically renews
      on December 3, 2001, unless either party gives notice of termination 91 days
      prior to that renewal date. Under the agreement, ESBI bills, collects and remits
      the proceeds to Telco net of reserves for bad debts, billing adjustments,
      telephone company fees and ESBI 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, ESBI may at its own discretion increase
      the reserves and holdbacks under this agreement. 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 all paid after
      September 30, 2001. 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.





11.
            NET
                INCOME PER SHARE





Net
      income 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 no preferred stock dividends in the years ended
      September 30, 2001 and 2000. Warrants to purchase 500,000 shares of common
      stock
      were excluded from the calculation for the year ended September 30, 2001. 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.





Preferred
      stock convertible to 1,500,000 shares of common stock were not considered in
      the
      calculation for diluted earnings per share for the year ended September 30,
      2000
      because the ability to convert is contingent upon the Company attaining certain
      stock price and profitability goals. None of which was met at September 30,
      2000. Also, warrants to purchase 350,000 shares of common stock were not
      considered in the calculation for diluted earnings per share for the year ended
      September 30, 2000 because the exercise price of the warrants is greater than
      the average common stock price for the period, therefore the effect of their
      inclusion would be antidilutive. Also excluded from the calculation for the
      year
      ended September 30, 2000, were 890,334 shares of common stock that are in
      dispute.





23
 *Table
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The
      following presents the computation of basic and diluted loss per share from
      continuing operations:





2001
            
            
            
            
            
            2000Income
            
            Shares
            
            Per
              Share
            
            Income
            
            Shares
            
            Per
                shareNet
                income
            
            $
            777,264
            
            
            
            
            $
            3,436,127Preferred
                stock dividendsIncome
                from continuing operations
            
            
            777,264
            
            
            
            
            
            
            
            
            3,436,127BASIC
                EARNINGS PER SHARE:Income
                Loss available to common stockholders
            
            $
            777,264
            
            
            40,738,839
            
            $
            0.02
            
            $
            3,436,127
            
            
            40,120,829
            
            $
            0.09Effect
                of dilutive securities
            
            
            N/A
            
            
            
            
            
            
            
            
            N/ADILUTED
                EARNINGS PER SHARE
            
            $
            777,264
            
            
            40,738,839
            
            $
            0.02
            
            $
            3,436,127
            
            
            40,120,829
            
            $
            0.09





12.
            RELATED
                PARTY TRANSACTIONS





The
      Company from time to time advances and borrows funds from Board members and
      other related entities. At September 30, 2001, the Company was owed
      approximately $116,000 along with $6,190 in accrued interest and also owed
      $10,386 to such entities.





The
      Company engaged an entity owned by the Chief Executive Officer for consulting
      services. The costs related to this engagement for the year ended September
      30,
      2001 were approximately $158,000. The Company’s Chief Financial Officer also
      provided other professional services to the Company through an entity wholly
      owned by this officer. The costs related to these services for the year ended
      September 30, 2001 were approximately $67,000. The Board of Directors’ fees for
      the year ended September 30, 2001 were approximately $45,000. The Company also
      compensated certain members of the Board of Directors for services other than
      routine duties of the Board. Fees paid to Board members for other services
      in
      the year ended September 30, 2001 were approximately $147,000. Fees paid to
      Board members in the year ended September 30, 2000 were $150,000. The Company
      also granted 550,000 shares of common stock to members of the Board of Directors
      as directors’ fees in the year ended September 30, 2000.





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
      $136,000 at September 30, 2001. 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.





24
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            of Contents*





The
      Company has contracted the services of several related entities in its daily
      operations. The Company leases its employees from an entity in which certain
      officers have financial interests. The Company also has a contract with a
      related entity to provide dial-up services to the Company’s customers. This
      affiliated entity’s president is on the Company’s Board of Directors. For the
      year ended September 30, 2001, the Company had recorded $10,000 in deposits
      due
      from this entity. Another affiliated entity provides customer service and
      technical support to the Company’s customers, and this entity’s president is
      also on the Company’s Board of Directors. The Company has recorded revenues of
      $22,813 and costs of sales of $67,948 related to the activities contracted
      for
      form this entity for the year ended September 30, 2001.





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, 2001,
      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 by two third party billing companies. The Company is dependent upon
      those two billing companies 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 the stock options
      granted to employees. There were no options granted in the years ended September
      30, 2001 and 2001 nor was there any additional vesting of options previously
      granted.





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, 2001, the Company had granted an aggregate of 1,212,000 options
      under this plan. 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, 2001 and 2000.




The
      summary of activity for the Company’s stock options is presented below:




2001
            
            2000
            
            Weighted
              Average
              Exercise
              PriceOptions
                outstanding at beginning of year
            
            
            -0-
            N/A1,107,000
            
            $
            1.34Granted
            
            
            -0-
            
            
            -0-Exercised
            
            
            -0-
            N/A
            
            (53,611
            )
            $
            1.00Terminated/Expired
            
            
            -0-
            
            
            (
                1,053,389
            )Options
                outstanding at end of year
            
            
            -0-
            
            
            -0-Options
                exercisable at end of year
            
            
            -0-
            
            
            -0-Options
                available for grant at end of year
            
            
            1,341,389
            
            
            1,341,389Price
                per share of options outstanding
            
            
            N/A
            
            
            N/AWeighted
                average remaining contractual lives
            
            
            N/AWeighted
                Average fair value of options granted during the year
            
            
            N/A








25
 *Table
            of Contents*





The
      Company has issued warrants in connection with certain debt and equity
      transactions. Warrants outstanding are summarized as follows:




2001
            
            2000Weighted
              Average
              Exercise
              Price
            
            
            
            Weighted
              Average
              Exercise
              PriceWarrants
                outstanding at beginning of year
            
            
            350,000
            
            $
            2.00
            
            
            1,355,000
            
            $
            2.00Granted
            
            
            500,000
            
            $
            2.12
            
            
            -0-Expired
            
            
            (350,000
            )
            $
            2.00
            
            
            (1,005,000
            )
            $
            2.00Exercised
            
            
            -0-
            
            
            
            
            
            -0-Outstanding
                at September 30,
            
            
            500,000
            
            $
            2.12
            
            
            350,000
            
            $
            2.00





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 value of each warrant grant
      is
      estimated on the date of grant using the Black-Scholes option-pricing model
      with
      the following assumptions for year ended September 30, 2001:





Dividend
                yield
            NoneVolatility
            0.491Risk
                free interest rate
            4.18%Expected
                asset life
            2.5
                years




The
      500,000 warrants outstanding at September 30, 2001, 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 no contributions to the plan for the years
      ended September 30, 2001 and 2000.





26
 *Table
            of Contents*





16.
            QUARTERLY
                FINANCIAL DATA (UNAUDITED)





Subsequent
      to filing the interim financial statements included on Form 10-QSB for the
      periods ending December 31, 1999, March 31, 2000, June 30, 2000, December 31,
      2000, March 31, 2001, and June 30, 2001, 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:




**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
              )




**Quarter
                  Ended****December
                  31,**
                **1999**
              
              **March
                  30,**
                **2000**
              
              **June
                  30,**
                **2000**
              
              **September
                  30,**
                **2000****Quarterly
                  Data Per 10-Q Filings**Net
                  revenues
              
              $
              2,297,480
              
              $
              3,826,077
              
              $
              4,247,263
              
              
              naGross
                  profit
              
              
              1,221,995
              
              
              2,172,961
              
              
              2,008,425
              
              
              naNet
                  income (loss)
              
              
              (637,515
              )
              
              1,151,920
              
              
              1,032,809
              
              
              naEarnings
                  (loss) per share information:Basic
              
              $
              (0.02
              )
              $
              0.03
              
              $
              0.03
              
              
              naDiluted
              
              $
              (0.02
              )
              $
              0.03
              
              $
              0.03
              
              
              na**Revised
                  Quarterly Data**Net
                  revenues
              
              $
              2,297,480
              
              $
              3,826,077
              
              $
              4,247,263
              
              $
              5,465,602Gross
                  profit
              
              
              1,221,995
              
              
              2,172,961
              
              
              2,008,425
              
              
              5,198,135Net
                  income (loss)
              
              
              (49,366
              )
              
              1,151,921
              
              
              1,032,809
              
              
              1,300,764Earnings
                  (loss) per share information:Basic
              
              
              (0.00
              )
              $
              0.03
              
              $
              0.03
              
              $
              0.03Diluted
              
              
              (0.00
              )
              $
              0.03
              
              $
              0.03
              
              $
              0.03




*
      * * * *
      *





27
 *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




28