U.S.
      SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-KSB/A


(Amendment
      No. 2)





(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, 2000





 ̈ TRANSITION REPORT UNDER SECTION 13 OR 15 (d)


OF
      THE


SECURITIES
      EXCHANGE ACT OF 1934


For
      the
      Transition period from ____________ to ____________





Commission
      File Number: 0-24217





YP
      CORP.


(Name
      of
      Small Business Issuer in its Charter)





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





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





(480)
      654-9646


(Issuer’s
      telephone number)





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





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





COMMON
      STOCK, $.001 PAR VALUE


(Title
      of
      Class)





YP.NET,
      INC.


(Former
      Name)





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





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  ̈ .
















Registrant’s
      revenues for its most recent fiscal year were $15,836,422.





The
      aggregate market value of the common stock held by non-affiliates computed
      based
      on the closing price of such stock on December 31, 2000 was approximately
      $8,704,667.





The
      number of shares outstanding of the registrant’s classes of common stock, as of
      December 31, 2000 was 41,450,798.





DOCUMENTS
      INCORPORATED BY REFERENCE





Portions
      of the registrant’s Proxy Statement to be filed with the Commission in
      connection with registrant’s annual meeting to be held in May 1, 2001 are
      incorporated by reference in Part III of this Form 10-KSB.





Transitional
      Small Business Disclosure Format: Yes  ̈ No x











**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, 2000, as originally filed by YP Corp.
      on
      January 16, 2001 (the “Original Filing”), and as amended by Amendment No. 1 on
      Form 10-KSB/A filed on August 16, 2001, 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
            4Report
                of Independent Registered Public Accounting
                Firm
            5Consolidated
                Financial Statements:Consolidated
                Balance Sheet at September 30,
                2000
            6Consolidated
                Statements of Operations for the Years
                Ended September 30, 2000 and September 30, 1999
            7Consolidated
                Statements of Stockholder’s Equity for the
                Years Ended September 30, 2000 and September 30, 1999
            8Consolidated
                Statements of Cash Flows for the Years Ended
                September 30, 2000 and September 30, 1999
            10Notes
                to Consolidated Financial
                Statements
            12Part
                III
            28Item
                13.Exhibits
            28Signatures
            28





*Table
            of Contents*





PART
      II





ITEM
                6.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS





Certain
      statements in this report are forward-looking statements that involve risks
      and
      uncertainties. Several factors could cause actual results to differ materially
      from those described in such forward-looking statements. These include our
      ability to manage growth, involvement in litigation, competition in the
      advertising market, ongoing contractual relationships, dependence upon key
      personnel, changes in customer attrition and the adoption of new, or changes
      in,
      accounting policies or practices and estimates and the application of such
      policies, practices and estimates, and federal and state governmental
      regulation, specifically in the areas of Internet advertising products and
      services.





OVERVIEW





We
      provide Internet-based yellow page listing services on our Yellow-Page.Net
      and
      yp.net Web sites. We acquired Telco Billing, Inc. in June 1999, and as a result
      of this acquisition changed our primary business focus to become an electronic
      yellow page listing service. Our Web sites 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 through
      our Web sites.





With
      the
      acquisition of Telco, we discontinued our prior operations in the multi-media
      software and medical billing and practice management areas. We completed closing
      down our operations in these areas in the fiscal quarter ended December 31,
      1999. We anticipate continued operations in our Internet yellow page listings
      business and in other Internet-based product areas. We have experienced
      continued increases in competition in the electronic yellow page market, and
      continue to seek joint venture and investment acquisition opportunities to
      potentially lessen the effects of competition in the electronic yellow page
      markets.





From
      March 1999 to February 2000, all former officers resigned or were removed.
      During this same period, all but one of the former directors resigned. On
      February 3, 2000 a new Board of Directors was constituted. The current Board
      members are Angelo Tullo, Walter Vogel, Daniel L. Coury, Sr., Wallace Olsen,
      Jr., DeVal Johnson, Gregory B. Crane and Harold A. Roberts. This change was
      initiated in part by changes in core business endeavors and strategies resulting
      from the acquisition of Telco and our focus on the Internet electronic yellow
      page advertising business and due to a lack of confidence in former management’s
      ability to successfully operate this business.





YP.Net
      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 later 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 our Internet-based yellow page
      services.





FISCAL
      2000 OPERATIONS





We
      utilized direct mailings as our primary marketing program. At October 1, 1999,
      we had 103,133 customers subscribing to our services. 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. We believe the increase in our customer base for these periods was
      primarily a result of our marketing efforts. The FTC filed a temporary
      restraining order on YP.Net and 12 days later the order was lifted and we began
      our negotiations with the FTC to settle the matter. The FTC did not ban us
      from
      sending any direct mail solicitations however, it was managements’ decision to
      not send any new direct mailers to new customers until the mail solicitation
      piece had been reviewed and approved by the FTC. We have been in negotiations
      on
      the design and contents of the mailer piece and we anticipate that a final
      order
      from the FTC is possible within the next 60 days. In Fiscal 2001 we intend
      to
      send out direct mail solicitations designed and approved by the FTC and will
      continue our marketing efforts and growth of our customer base. In March 2000,
      we implemented a customer contact program to attempt to increase our customer
      satisfaction and decrease customer attrition. We believe that this program
      has
      and will continue to provide these results. In the upcoming fiscal year we
      will
      continue our customer contact program to develop and market new products to
      our
      existing customer base.





1
 *Table
            of Contents*





On
      December 6, 1999, prior management entered into an engagement with McGladry
      & Pullen, LLP (“M&P”) to conduct the audit of our financial statements
      for the fiscal year ended September 30, 1999. M&P estimated the cost to
      prepare the fiscal year end audit to be from $75,000 to $150,000 with an
      estimated completion date of January 28, 2000. We incurred and paid audit fees
      of $150,000 in the three months ended March 31, 2000 in addition to the $150,000
      incurred and paid in the previous three month period. In January 2000, M&P
      informed management that the estimated cost to complete the audit would be
      an
      additional $200,000. In February 2000, after the new Board of Directors was
      appointed, M&P was dismissed as our auditors. The Board of Directors
      appointed a new independent auditor, King, Weber & Associates, P.C.





During
      the third quarter ended June 30, 2000 and fourth quarter ended September 30,
      2000 our expenditures for legal fees were substantially increased for due to
      the
      FTC orders and negotiations, and the additional expenditures to become current
      with the SEC filings that were previously delinquent. Management expects the
      legal expenditures for those periods to not reoccur.





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 $149,166 for the year ended
      September 30, 1999. Annual amortization expense in future years related to
      the
      URL is anticipated to be approximately $250,000.





RESULTS
      OF OPERATIONS





The
      acquisition of Telco was treated as a reverse merger for financial accounting
      purposes. As a result of being treated as a reverse merger, Telco was deemed
      to
      be the acquiring entity. For financial accounting purposes, Telco was considered
      to have engaged in a recapitalization and acquired the assets of RIGL as of
      June, 1999. As a result of this treatment, the financial statements for the
      year
      ended September 30, 1999 are the historic statements of Telco with the
      operations of “old” RIGL being included from June, 1999 forward. The financial
      statements for the fiscal year ended September 30, 2000 include operations
      of
      both YP.Net and Telco for the entire period.





Fiscal
      Year End September 30, 2000 Compared to Fiscal Year End September 30,
      1999.





Revenues
      for the year ended September 30, 2000 (“Fiscal 2000”) increased 84% to
      $15,836,422 from $8,572,185 during the year ended September 30, 1999 (“Fiscal
      1999”). The increase in revenue is principally the result of Telco’s operations
      for the full fiscal period. Prior to the acquisition, no material operations
      had
      been commenced.





Sales
      and
      marketing expenses for Fiscal 2000 were $1,619,113 as compared to $2,613,338
      for
      the Fiscal 1999. The increase was principally the result of expended marketing
      due to the operations of Telco. The marketing expenses are attributed to our
      direct response marketing, which is our primary source of attracting new
      customers.





2
 *Table
            of Contents*





General
      and administrative expenses for Fiscal 2000 was $4,804,710 as compared to
      $1,731,209 for Fiscal 1999. The increase was principally the result of billing
      fees due to the operations of Telco and the increase in consulting fees, legal
      fees, and accounting fees. The general expenses are attributed to the additional
      costs to become current on our SEC filings and substantial legal fees to
      negotiate with the FTC.





Interest
      expense for Fiscal 2000 was $853,761 compared to $410,319 for Fiscal 1999.
      The
      increase in interest expense was a result of increased debt due to the
      acquisition of Telco and the acquisition of the URL Yellow-Page.Net.





At
      Fiscal
      2000 we had unused Federal net operating losses of $2,296,723 available under
      Internal Revenue Code 382 - change in control rules expiring from 2011 through
      2014. The Company has no available net operating loss carryforwards under the
      separate return limitation year and has unavailable net operating loss
      carryforwards of $2,296,723. The Company may utilize the unavailable net
      operating loss carryforwards of $2,296,723 upon generating taxable income in
      YP.Net, Inc rather than in the company’s wholly owned subsidiary Telco Billing,
      Inc.





Net
      profits for Fiscal 2000 were $3,436,127, or $.09 per share, compared to losses
      of $3,262,598, or ($.15) per share for Fiscal 1999.





LIQUIDITY
      AND CAPITAL RESOURCES





Our
      cash
      balance decreased to $219,613 at Fiscal 2000 from a $255,324 at Fiscal 1999.
      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 a credit facility used primarily to finance
      our receivables.





*Operating
      Activities* .
      Cash
      provided by operating activities increased for Fiscal 2000 to $960,303 compared
      to cash used by operating activities of $691,780 from Fiscal 1999, a 172%
      increase. The principal source of our operations revenue is from sales of
      electronic yellow page advertising.





*Investing
      Activities* .
      Cash
      used by investing activities was $211,803 for Fiscal 2000 compared to $106,512
      for Fiscal 1999. We purchased $211,803 of additional computer equipment to
      upgrade and replace incompatible equipment for Fiscal 2000 compared to $203,662
      for Fiscal 1999. We used $3,000,000 for partial payment of the purchase of
      the
      20-year license right to the URL Yellow-Page.Net, the domain name for our Web
      site. We obtained cash in the amount of $3,124,150, which was utilized in the
      business combination.





*Financing
      Activities* .
      Cash
      flows used from financing activities were $784,211 in Fiscal 2000 compared
      to
      cash flow provided from financing activities of $1,023,364 for Fiscal 1999,
      a
      123% increase. We had cash inflow from the financing arrangements in the amount
      of $789,241 for Fiscal 2000 compared to $788,306 for Fiscal 1999 and from the
      sale of common stock of $84,329 for Fiscal 2000 compared to $629,681 for Fiscal
      1999. We had cash outflow for notes paid in the amount of $1,657,781 for Fiscal
      2000 compared to $394,623 for Fiscal 1999.





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 YP.Net has less than 30 days operating
      capital reserved, or if it is in an uncured default with any of its lenders.
      A
      total of 4,500,000 shares were issued to secure these notes and are held in
      escrow.





3
 *Table
            of Contents*





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 YP.Net over a 90
      to
      120 day period subsequent to the billing dates.





YP.Net
      markets it products primarily through the use of direct mailers to businesses
      throughout the United States. YP.Net generally pays for these marketing costs
      when incurred 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. During the Fiscal 2000 YP.Net paid $3,206,576
      compared to fiscal 1999, YP.Net paid $2,029,575 for direct-response advertising.
      Management anticipates the outlays for direct-response advertising to remain
      consistent over the near term.





YP.Net
      does not intend to incur significant capital expenditures in the near
      term.





*Financial
      Institution Lending Agreements* .
      We have
      an existing asset-based collateralized line of credit with Finova Capital
      Corporation. Because of certain technical defaults under the terms of the loan
      agreement, which occurred under prior management, Finova exercised its right
      to
      terminate the agreement. We have entered into letter agreements whereby Finova
      has agreed to forbear the exercise of any of its available remedies through
      March 3, 2001. Our line of credit has been reduced to $1,400,000 for the period
      of November 6, 2000, $1,200,000 for the period of December 5, 2000 and
      $1,000,000 for the period of February 7, 2001. Management is seeking other
      potential lenders that specialize in financing businesses utilizing LEC
      billings. We do not anticipate these changes to have an adverse affect on our
      ability to continue operating at our current levels.








ITEM
                7.
            FINANCIAL
                STATEMENTS





**YP.NET,
      INC.**


**TABLE
      OF CONTENTS**





**Pages**REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            5CONSOLIDATED
                FINANCIAL STATEMENTS:Consolidated
                Balance Sheet at September 30, 2000
            6Consolidated
                Statements of Operations for the years ended September 30, 2000 and
                September 30, 1999
            7Consolidated
                Statements of Stockholders’ Equity for the Years ended September 30, 2000
                and September 30, 1999
            8Consolidated
                Statement of Cash Flows for the year ended ears ended September 30,
                2000
                and September 30, 1999
            10NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS
            12





4
 *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, 2000 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 audit.
 
 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, 2000, and the consolidated results of its
        operations and cash flows for each of the two years in the period ended
        September 30, 2000, in conformity with accounting principles generally accepted
        in the United States of America.
 
 As
        described in Note 1, the Company restated its financial statements for the
        years ended September 30, 2000 and 1999.
 
 
 /s/  
                  Epstein, Weber & Conover, PLCScottsdale,
                  ArizonaDecember
                  20, 2000(except
                  for the restatement of financial statementsdescribed
                  in Note 1, for which the date is November 18,
                  2005)





5
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            of Contents*





YP.NET,INC.





CONSOLIDATED
      BALANCE SHEET


SEPTEMBER
      30, 2000





ASSETS:CURRENT
                ASSETSCash
            
            $
            219,613Accounts
                receivable, net of allowance of $1,796,852
            
            
            3,705,881Customer
                acquisition costs, net of accumulated amortization of
                $2,975,678
            
            
            230,898Prepaid
                expenses and other assets
            
            
            99,229Deferred
                income taxes
            
            
            771,382Total
                current assets
            
            
            5,027,003PROPERTY
                AND EQUIPMENT, net
            
            
            502,708DEPOSITS
            
            
            13,287INTELLECTUAL
                PROPERTY- URL, net of accumulated amortization of $630,833
            
            
            4,379,167DEFERRED
                FINANCING COSTS
            
            
            21,250RECEIVABLE
                - COMMON STOCK TO BE RETURNED
            
            
            1,689,239TOTAL
                ASSETS
            
            $
            11,632,654LIABILITIES
                AND STOCKHOLDERS’ EQUITY:CURRENT
                LIABILITIES:Accounts
                payable
            
            $
            103,015Accrued
                liabilities
            
            
            328,128Line
                of credit
            
            
            1,577,547Notes
                payable - current portion
            
            
            2,370,019Income
                taxes payable
            
            
            260,427Total
                current liabilities
            
            
            4,639,136DEFERRED
                INCOME TAXES
            
            
            105,868Total
                liabilities
            
            
            4,745,004COMMITMENTS
                AND CONTINGENCIES
            
            
            -TEMPORARY
                EQUITY - Common stock to be returned, 1,525,000 shares issued and
                outstanding
            
            
            1,689,239STOCKHOLDERS’
                EQUITY:Series
                B preferred stock, $.001 par value, 2,500,000 shares designated,
                1,500,000
                issued
            
            
            1,500Common
                stock, $.001 par value, 50,000,000 shares authorized, 39,035,464
                issued
                and outstanding
            
            
            39,036Paid
                in capital
            
            
            4,081,399Treasury
                stock at cost
            
            
            (69,822
            )Retained
                earnings
            
            
            1,146,298Total
                stockholders’ equity
            
            
            5,198,411TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            11,632,654





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





6
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            of Contents*





YP.NET,
      INC.





CONSOLIDATED
      STATEMENTS OF OPERATIONS


FOR
      THE YEARS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999





2000
            
            1999NET
                REVENUES
            
            $
            15,836,422
            
            $
            8,572,185OPERATING
                EXPENSES:Cost
                of services
            
            
            5,234,906
            
            
            4,760,026General
                and administrative expenses
            
            
            4,804,710
            
            
            1,731,209Sales
                and marketing expenses
            
            
            1,619,113
            
            
            2,345,873Depreciation
                and amortization
            
            
            616,660
            
            
            192,469Total
                operating expenses
            
            
            12,275,539
            
            
            9,029,577OPERATING
                INCOME/(LOSS)
            
            
            3,561,033
            
            
            (457,392
            )OTHER
                (INCOME) AND EXPENSESInterest
                expense
            
            
            853,761
            
            
            410,319Interest
                income
            
            
            (802
            )
            
            (5,401
            )Other
                Income
            
            
            (82,846
            )
            
            -Total
                other expense
            
            
            770,113
            
            
            404,918INCOME/(LOSS)
                BEFORE DISCONTINUED OPERATIONS AND INCOME TAXES
            
            
            2,790,920
            
            
            (862,310
            )INCOME
                TAX (BENEFIT) PROVISION
            
            
            (645,207
            )
            
            240,119INCOME/(LOSS)
                FROM CONTINUING OPERATIONS
            
            
            3,436,127
            
            
            (1,102,429
            )LOSS
                FROM DISCONTINUED OPERATIONSLoss
                from operations of medical billing services segment (no effect for
                income
                taxes)
            
            
            -
            
            
            (221,194
            )Loss
                from abandonment of medical billing services segment (no effect for
                income
                taxes)
            
            
            -
            
            
            (1,671,510
            )Total
            
            
            -
            
            
            (1,892,704
            )NET
                INCOME/(LOSS)
            
            $
            3,436,127
            
            $
            (2,995,133
            )NET
                INCOME/(LOSS) PER SHARE:Basic:Continuing
                operations
            
            $
            0.09
            
            $
            (0.05
            )Discontinued
                operations
            
            
            -
            
            
            (0.09
            )Total
                Basic
            
            $
            0.09
            
            $
            (0.13
            )Diluted:Continuing
                operations
            
            $
            0.09
            
            $
            (0.05
            )Discontinued
                operations
            
            
            -
            
            
            (0.09
            )Total
                Diluted
            
            $
            0.09
            
            $
            (0.13
            )WEIGHTED
                AVERAGE COMMON SHARES OUTSTANDING:Basic
            
            
            40,120,829
            
            
            22,223,757Diluted
            
            
            40,120,829
            
            
            22,223,757





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





7
 *Table
            of Contents*





YP.NET,
      INC.





CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE


YEARS
      ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999





COMMON
                STOCK
            
            PREFERRED
                A
            
            TREASURY
            
            PAID-IN
            
            ACCUMULATEDSHARES
            
            AMOUNT
            
            SHARES
            
            AMOUNT
            
            STOCK
            
            CAPITAL
            
            DEFICIT
            
            TOTALBALANCE
                OCTOBER 1, 1998
            
            
            17,000,000
            
            $
            17,000
            
            
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            972,769
            
            $
            989,769Reverse
                merger
            
            
            14,714,603
            
            
            14,715
            
            
            
            
            
            
            
            
            (69,822
            )
            
            1,777,670
            
            
            
            
            
            1,722,563Common
                stock issued for service rendered
            
            
            769,500
            
            
            770
            
            
            
            
            
            
            
            
            
            
            
            1,043,319
            
            
            
            
            
            1,044,089Common
                stock issued for cash
            
            
            847,750
            
            
            848
            
            
            
            
            
            
            
            
            
            
            
            627,985
            
            
            
            
            
            628,833Common
                stock issued as collateral for on note payable
            
            
            2,000,000
            
            
            2,000
            
            
            
            
            
            
            
            
            
            
            
            (2,000
            )
            
            
            
            
            0Common
                stock placed in escrow as collateral on debt
            
            
            2,500,000
            
            
            2,500
            
            
            
            
            
            
            
            
            
            
            
            (2,500
            )
            
            
            
            
            0Employee
                preferred stock grants
            
            
            
            
            
            
            
            
            1,700,000
            
            
            1,700
            
            
            
            
            
            (1,700
            )
            
            
            
            
            0Conversion
                of debt
            
            
            400,000
            
            
            400
            
            
            
            
            
            
            
            
            
            
            
            349,600
            
            
            
            
            
            350,000Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,262,598
            )
            
            (3,262,598
            )BALANCE
                SEPTEMBER 30, 1999
            
            
            38,231,853
            
            $
            38,232,
            
            
            1,700,000
            
            $
            1,700
            
            $
            (69,822
            )
            $
            3,792,374
            
            $
            (2,289,829
            )
            
            1,472,655





(CONTINUED)




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





8
 *Table
            of Contents*





YP.NET,
      INC.





CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE


YEARS
      ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999 (CONTINUED)




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





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





9
 *Table
            of Contents*





YP.NET,
      INC.





CONSOLIDATED
      STATEMENTS OF CASH FLOWS FOR THE


YEARS
      ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999





CASH
                FLOWS FROM OPERATING ACTIVITIES:
            
            2000
            
            1999Net
                income/(loss)
            
            $
            3,436,127
            
            $
            (3,262,598
            )Adjustments
                to reconcile net income to net cash provided by (used in) operating
                activities:Loss
                from discontinued operations
            
            
            -
            
            
            221,194Loss
                on abandonment of net assets of discontinued operations
            
            
            -
            
            
            1,671,510Depreciation
                and amortization
            
            
            144,993
            
            
            30,338Issuance
                of common stock as compensation for services
            
            
            205,300
            
            
            1,045,783Loss
                on disposal of equipment
            
            
            -
            
            
            89,319Deferred
                income taxes
            
            
            (645,207
            )
            
            (20,307
            )Conversion
                of accrued interest to common stock
            
            
            -
            
            
            100,000Provision
                for Uncollectible Accounts
            
            
            1,590,840
            
            
            -Amortization
                of intellectual property
            
            
            471,667
            
            
            149,166Changes
                in assets and liabilities (net of business acquisitions and
                divestures):Trade
                and other accounts receivable
            
            
            (4,345,544
            )
            
            (124,826
            )Customer
                acquisition costs
            
            
            403,002
            
            
            (264,981
            )Other
                receivables
            
            
            77,182
            
            
            (32,671
            )Prepaid
                and other current assets
            
            
            (84,579
            )
            
            (9,616
            )Other
                assets
            
            
            -
            
            
            49,525Accounts
                payable
            
            
            48,014
            
            
            (71,348
            )Accrued
                liabilities
            
            
            (119,232
            )
            
            202,118Deferred
                Financing Costs
            
            
            102,500
            
            
            -Income
                taxes payable
            
            
            -
            
            
            260,427Deferred
                revenue
            
            
            (324,760
            )
            
            324,760Cash
                provided by continuing operations
            
            
            960,303
            
            
            357,793Cash
                used by discontinued operations
            
            
            -
            
            
            (1,049,573
            )Net
                cash provided/(used) by operating activities
            
            
            960,303
            
            
            (691,780
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchases
                of equipment
            
            
            (211,803
            )
            
            (230,662
            )Purchase
                of intellectual property
            
            
            -
            
            
            (3,000,000
            )Cash
                acquired in business acquisition
            
            
            -
            
            
            3,124,150Net
                cash (used in) investing activities
            
            
            (211,803
            )
            
            (106,512
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from borrowings on line of credit
            
            
            789,241
            
            
            788,306Principal
                repayments on notes payable
            
            
            (1,657,781
            )
            
            (394,623
            )Proceeds
                from sale of common stock
            
            
            84,329
            
            
            629,681Net
                cash (used)/provided by financing activities
            
            
            (784,211
            )
            
            1,023,364(DECREASE)/INCREASE
                IN CASH
            
            
            (35,711
            )
            
            225,072CASH,
                BEGINNING OF YEAR
            
            
            255,324
            
            
            30,252CASH,
                END OF YEAR
            
            $
            219,613
            
            $
            255,324





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





10
 *Table
            of Contents*





YP.NET,
      INC.




CONSOLIDATED
      STATEMENT OF CASH FLOWS, (CONTINUED)


FOR
      THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999








SUPPLEMENTAL
      CASH FLOW INFORMATION:





2000
            
            1999Interest
                Paid
            
            $
            833,993
            
            $
            64,677Income
                taxes paid
            
            $
            -0-
            
            $
            -0-





SUPPLEMENTAL
      SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:





2000
            
            1999Conversion
                of debt to common stock
            
            $
            -0-
            
            $
            250,000Note
                payable issued for purchase of intellectual property
            
            $
            -0-
            
            $
            2,000,000Common
                stock issued for business acquisition
            
            $
            -0-
            
            $
            1,722,563





11
 *Table
            of Contents*





YP.NET,
      INC.





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999





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.





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
      year ended September 30, 2000. The consolidated results of operations and cash
      flows for the year ended September 30, 1999 include that of Telco for the year
      ended September 30, 1999, and YP.Net (formerly RIGL) from the June 16, 1999
      acquisition date through September 30, 1999. 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.




Restatement
      of Financial Statements




Subsequent
        to the issuance of the Company’s financial statements as of September 30, 2000,
        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 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 has the effect in the year ended September
        30, 2000 of an increase in net income of $588,150 from $2,847,977 to $3,436,127
        and an increase in the net income per share from per share from $0.07 to
        $0.09.
        The change in accounting had no effect on cash flows or on the net equity
        at
        September 30, 2000.


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,
      2000, cash deposits exceeded those insured limits by $110,000.





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





12
 *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
      $1,177,000 and $1,464,000 during the years ended September 30, 2000 and 1999
      respectively. The Company amortized those capitalized amounts at $1,580,000
      and
      $1,237,000 during the years ended September 30, 2000 and 1999
      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 $30,099 and $168,744 for the years ended September
      30,
      2000 and 1999 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 $144,993 and $30,338 for the years ended
      September 30, 2000 and 1999 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.





Some
      customers subscribe for a full year of service and pay in advance for the
      service. The revenue associated with these subscriptions is deferred and
      recognized ratably over twelve months.





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.





13
 *Table
            of Contents*





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.





Net
      loss 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
      is
      reflected as temporary equity, together with a related receivable, in the
      accompanying consolidated balance sheet until such times that the shares are
      retrieved.





Impairment
      of Long-Lived 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.





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 the 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.





14
 *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, 2000 was $2,135,486. These receivables have been reduced by an
      allowance for doubtful accounts of $640,646.





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,
      2000
      was $2,944,316 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 $765,522.





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, 2000 was $32,247. The Company
      experienced significant dilution from the billing companies during the year
      ended September 30, 2000. The billing companies began increasing their holdbacks
      on billing submittals because of submittals being rejected by the LEC’s due to
      incompatible billing information. The Company has attempted to resolve these
      matters with the billing companies. The Company has resubmitted billing company
      rejections of $862,000 subsequent to September 30, 2000, that relate to services
      provided prior to September 30, 2000. This amount is included in the gross
      accounts receivable balances at September 30, 2000. The Company’s management
      believes that problems associated with the billing information have been
      resolved and that the collection of these receivables, net of applicable
      reserves, will occur in the normal course of the Company’s operations





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.





15
 *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. 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 an 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 $471,667 and
      $149,166 for the years ended September 30, 2000 and 1999
      respectively.





5.
            PROPERTY
                AND EQUIPMENT





Property
      and equipment consisted of the following at September 30, 2000:





Leasehold
                improvements
            
            $
            317,507Furnishings
                and fixtures
            
            
            197,261Office
                and computer equipment
            
            
            248,487Total
            
            
            763,255Less
                accumulated depreciation
            
            
            (260,547
            )Property
                and equipment, net
            
            $
            502,708





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 gross cost of the office equipment
      and leasehold improvements being utilized by the affiliated entity was
      approximately $250,000 at September 30, 2000.





6.
            NOTES
                PAYABLE AND LINE OF CREDIT





Notes
      payable at September 30, 2000 are comprised of the following:





16
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1,7000,000
                Revolving line of credit, interest at the prime rate plus 6% (15.5%
                at
                September 30, 2000). The facility is limited to 70% of eligible accounts
                receivable. All assets of the Company collateralize the credit facility.
                The credit facility expires on February 4, 2001 under the amended
                forbearance agreement.
            
            $
            1,577,547Term
                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.
            
            
            5,503Note
                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.
            
            
            600,000Note
                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
            
            
            1,764,516Totals
            
            
            3,947,566Less
                current portion
            
            
            (3,947,566
            )Long-term
                portion
            
            $
            -0-





The
      line
      of credit facility has been operated under a forbearance agreement with the
      lender since August 4, 2000, due to certain defaults by the Company of the
      loan
      agreement. Under the forbearance agreement, the lender has agreed to continue
      making advances in accordance with the original loan agreement as amended by
      the
      forbearance agreement. The Company and the lender continue to operate the credit
      facility subsequent to the forbearance termination date of November 2, 2000.
      The
      forbearance agreement was extended to January 4, 2001, and then to February
      7,
      2001 changes eligible accounts receivables from 60% to 50% and total line
      availability from $1,700,000 to $1,000,000. The original loan agreement expired
      on August 31, 2003. However, the Company is actively seeking to replace the
      existing credit facility through a different lender. Management believes that
      it
      will be successful in making that replacement. However, there can be no
      assurances that the Company will obtain a new line of credit facility.
      Management also, believes that the lender under the current line of credit
      facility will allow the Company to continue making draws until a replacement
      facility is in place.





7.
            BUSINESS
                COMBINATION





On
      June
      16, 1999, the Company exchanged 17,000,000 shares of common stock for all of
      the
      common stock of Telco Billing Company ("Telco"). Prior to the merger, the
      Company had not yet commenced material operations. For financial accounting
      purposes, the acquisition was accounted for as a reverse merger and was treated
      as a Recapitalization with Telco as the acquirer. The accompanying financial
      statements present the historical cost bases of assets and liabilities and
      results of operations of Telco. Subsequent to the merger, the Company ceased
      its
      previous operations and abandoned assets related to those operations. The
      remaining Company assets are recorded at their historical cost. The
      Recapitalization of Telco reflects the book value of the net assets of RIGL
      as
      of the date of the merger as of June 16, 1999 of $1,722,563.





8.
            DISCONTINUED
                OPERATIONS





Effective
      with the acquisition of Telco on June 16 1999, the Company determined that
      it
      would abandon its efforts to develop and market the medical practice billing
      and
      administration business. The operations for this segment are reflected as
      discontinued operations in the accompanying statement of operations. Revenues
      of
      this segment were $160,154 for the year ended September 30, 1999. The Company
      divested asset balances totaling $1,646,000 related to this segment. The
      disposed components are as follows:





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Capitalized
                software costs
            
            $
            673,000Goodwill
            
            
            152,000Security
                deposits
            
            
            62,000Receivables
            
            
            436,000Other
            
            
            323,000Total
            
            $
            1,646,000





9.
            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, 2000 the Company has unused Federal net operating losses of
      $3,985,962 available under Internal Revenue Code 382 - change in control rules
      expiring from 2011 through 2014. The Company has no available net operating
      loss
      carryforwards under the separate return limitation year and has unavailable
      net
      operating loss carryforwards of $2,029,258. The Company may utilize the
      unavailable net operating loss carryforwards of $2,029,258 upon generating
      taxable income in that operating entity.





Prior
      to
      the acquisition date of June 16, 1999 RIGL agreed to assume the tax liability
      of
      Telco for the taxable income generated prior to June 16, 1999. The provision
      for
      income taxes for the year ended September 30, 1999, is computed based on the
      pretax income generated prior to the acquisition of Telco. The current income
      tax provision of $260,427, less a net deferred benefit $20,478, related to
      Telco
      for the year ended September 30, 1999, has been included in the statement of
      income.





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





2000
            
            1999Current
                Provision (Benefit)
            
            $
            1,762,649
            
            $
            (1,246,486
            )Deferred
                Benefit (Provision)
            
            
            (2,407,856
            )
            
            1,486,177Net
                income tax (benefit) provision
            
            $
            (645,207
            )
            $
            240,119





The
      net
      income tax provision of $240,119 incurred for the year ended September 30,
      1999,
      was allocated to continuing operations. This provision amount relates primarily
      to taxable income of Telco prior to the acquisition. The loss from discontinued
      operations generated additional net operating loss carryforwards, which were
      fully offset by a valuation allowance resulting in no tax effect.





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





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2000
            
            
            
            1999Federal
                statutory rates
            
            $
            948,913
            
            
            34
            %
            $
            1,027,643
            )
            
            (34
            )%State
                income taxes
            
            
            167,455
            
            
            6
            %
            
            (241,798
            )
            
            (
                8
            )%Utilization
                of valuation allowance
            
            
            (1,762,649
            )
            
            (63
            )%
            
            -Provision
                due to income generated prior to merger
            
            
            -
            
            
            
            
            
            260,597
            
            
            6
            %Valuation
                allowance for operating loss carryforwards
            
            
            
            
            
            
            
            
            1,232,077
            
            
            42
            %Other
            
            
            1,074
            
            
            -
            
            
            16,886
            
            
            -Effective
                rate
            
            $
            (645,207
            )
            
            (23
            )%
            $
            240,119
            
            
            6
            %





Deferred
      tax assets totaling $1,438,797 are comprised of $665,514 for differences in
      book
      and tax bases of accounts receivable and intangible assets and approximately
      $773,283 relates to net operating loss carryforwards which is offset by a an
      equal valuation allowance resulting in a net deferred income tax asset of
      $665,514. The valuation allowance was provided due to the uncertainty of future
      realization of federal and state net operating loss carryforwards that give
      rise
      to approximately $773,283 of the deferred tax asset 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.





10.
            LEASES





The
      Company leases its office space under long-term operating leases expiring
      through 2003. Rent expense under these leases was $176,637 and $87,250 for
      the
      years ended September 30, 2000 and 2001. However, as part of an agreement with
      the sub lessee of one of the properties, the Company paid $124,000 in the form
      of shares of the Company’s common stock to that sub lessee. That amount was
      capitalized and is being amortized over the remaining term of the lease. Rent
      expense for the year ended September 30, 2000 includes $40,000 for the
      amortization of that capitalized amount. The Company consolidated office space
      from a variety of locations to a single facility in the year ended September
      30,
      1999. 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, 2000:





Rents
            
            Sublease
                Rentals2000
            
            $
            351,095
            
            $
            202,5712001
            
            
            407,676
            
            
            280,2122002
            
            
            392,862
            
            
            265,3982003
            
            
            95,598
            
            
            -$
            1,247,231
            
            $
            748,181





11.
            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.





19
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Actions
      of the Board





Significant
      blocks of stock have been issued to former officers and consultants for services
      rendered. It is not possible to determine the effect, if any, of bringing
      current the required Exchange Act of 1934 ("the 1934 Act") filings and the
      financial statements and disclosures contained therein, may have on the actions
      of current or former shareholders of the Company affected by these transactions.
      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. The expense
      for
      that consideration is 90% of the trading value of the shares to factor in a
      discount for the regulatory restrictions on trading of those shares. During
      the
      year ended September 30, 2000, the Company issued 500,000 shares of common
      stock
      to consultants valued at $463,950. During the year ended September 30, 1999,
      the
      Company issued 769,500 shares to former officers and consultants valued at
      $1,044,089. These amounts exclude 1,525,000 shares valued at $1,689,239 that
      were issued to non-performing consultants and third parties in 1999 and 2000
      for
      which such shares are expected to be retrieved. The Company has reflected the
      value of these shares as temporary equity outside of permanent stockholders’
equity, together with a corresponding receivable in the accompanying
      consolidated balance sheet.





Also
      in
      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.





Effects
      of Delinquent Filings on Market Activity





The
      Company is delinquent in its filings under the 1934 Act. Significant trading
      of
      the Company stock has occurred by both related and unrelated parties during
      the
      period subsequent to its filing. It is not possible to determine the effect,
      if
      any, of bringing current the required 1934 Act filings and the financial
      statements and disclosures contained therein, may have on the actions of current
      or former shareholders of the Company affected by these revisions.





Effects
      of Delinquent Filings on Rule 144 and Reg. S Stock Issuances


The
      Company has been delinquent in its public filings but has attempted to keep
      the
      public informed through press releases and 8-K filings while it makes a
      concerted effort to become current in its filings. The Company is determining
      the factual issues of this matter and is currently unable to determine the
      materiality of violations, if any, or their impact on the financial statements
      of the Company.





Other





During
      the year ended September 30, 1999, the Company issued 4,500,000 shares of its
      common stock as collateral on two notes payable. The shares are held in escrow
      pending repayments of the obligations. Both notes have been restructured,
      extending the due dates. The shares are non-voting as long as they are held
      in
      escrow. These shares are not included in the weighted average shares outstanding
      for purposes of calculating the Company’s basic and diluted net income or loss
      per common share for the years ended September 30, 2000 and 1999.





Also
      in
      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.





20
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During
      the year ended September 30, 1999, the Company issued 400,000 shares of its
      common stock as conversion of the remaining balance of a note payable. The
      unpaid principal balance of the note converted was $250,000 and accrued interest
      of $100,000 was also converted.





All
      of
      the above transactions were effected by the issuance of restricted common stock.
      The estimated value was determined to be 90% the closing price of the common
      stock at the date of the transaction. 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. However, all shares
      of the Series B preferred stock were not yet returned at September 30,
      2000.





12.
            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





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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, 2001, unless either party gives notice of termination 90 days
      prior
      to that renewal date. Under the agreement, IGT bills, collects and remits the
      proceeds to Telco net of reserves for bad debts, billing adjustments, telephone
      company fees and IGT fees. If either the Company’s transaction volume decreases
      by 25% from the preceding month, less than 75% of the traffic is billable to
      major telephone companies, IGT may at its own discretion increase the reserves
      and holdbacks under this agreement. IGT handles all billing information and
      collection of receivables. The Company’s cash receipts on trade accounts
      receivable are dependent upon estimates pertaining to holdbacks and other
      factors as determined by IGT. IGT may at its own discretion increase the
      reserves and holdbacks under this agreement.





The
      Company has also entered into 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.





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 believes that it has reached a
      tentative 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. On the basis of the proposed settlement,
      the Company would be required to notify approximately 11,000 customers. Each
      of
      those customers may receive a refund of up to $12.50. Management does not
      believe that the refunds will be material based on prior experience with such
      matters and the documentation requirements by customers to receive 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.





13.
            NET
                INCOME (LOSS) PER SHARE





Net
      loss
      per share is calculated using the weighted average number of shares of common
      stock outstanding during the year. Preferred stock dividends are subtracted
      from
      the net income to determine the amount available to common shareholders. There
      were no preferred stock dividends in the years ended September 30, 2000 or
      1999.





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 (see Note 12).




22
 *Table
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Preferred
      stock convertible to 1,700,000 common shares and warrants to purchase 1,355,000
      shares of common stock were not considered in the calculation for diluted
      earnings per share for the year ended September 30, 1999 because the effect
      of
      their inclusion would be antidilutive. The following presents the computation
      of
      basic and diluted loss per share from continuing operations:








2000
            
            
            
            
            
            1999Income
            
            Shares
            
            Per
                Share
            
            (Loss)
            
            Shares
            
            Per
                shareBASIC
                AND DILUTED EARNINGS PER SHARE:Net
                Income (Loss)
            
            $
            3,436,127
            
            
            30,120,829
            
            $
            0.09
            
            $
            (3,262,598
            )
            
            22,223,757
            
            $
            (0.15
            )Discontinued
                operations
            
            
            -
            
            
            -
            
            
            -
            
            
            1,892,704
            
            
            22,223,757
            
            $
            (0.09
            )Income
                Loss from continuing operations
            
            $
            3,436,127
            
            
            30,120,829
            
            $
            0.09
            
            
            (1,369,894
            )
            
            22,223,757
            
            $
            (0.06
            )





14.
            RELATED
                PARTY TRANSACTIONS





The
      Company compensated certain members of the Board of Directors for services
      other
      than routine duties of the Board. 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.





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 gross cost of the office equipment and leasehold
      improvements being utilized by the affiliated entity was approximately $250,000
      at September 30, 2000. 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





During
      the year ended September 30, 1999, the Company borrowed $500,000 from one of
      its
      shareholders, whom later became a member of the board of directors effective
      February 3, 2000. The Company repaid $250,000 of the balance in cash and the
      board member converted the remaining $250,000 plus $100,000 in accrued interest
      to 400,000 shares of the Company’s common stock. (Also see Note 4).





15.
            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, 2000,
      the
      Company had bank balances exceeding those insured limits of
      $110,000.





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.





23
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            of Contents*





16.
            STOCK
                BASED COMPENSATION





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 year ended September 30, 2000 nor was there any
      additional vesting of options previously granted. Had compensation cost for
      the
      Company’s stock options been determined based on the fair value at the grant
      date for awards in 1999, consistent with the provisions of SFAS No. 123, the
      Company’s net loss and loss per share for the year ended September 30, 1999,
      would have been increased to the pro forma amounts indicated below:





1999Net
                Loss - as reported
            
            $
            (3,262,598
            )Net
                Loss - pro forma
            
            $
            (4,291,586
            )Loss
                per share - as reported
            
            $
            (0.15
            )Loss
                per share - pro forma
            
            $
            (0.19
            )





Under
      the
      provisions of SFAS No. 123, there were 1,212,000 fully vested options and no
      proportionately vested options for the year ended September 30, 1999 used to
      determine net earnings and earnings per share under a pro forma
      basis.





The
      fair
      value of each option grant is estimated on the date of grant using the
      Black-Scholes option-pricing model with the following assumptions for years
      ended September 30, 2000:





Dividend
                yield
            
            
            NoneVolatility
            
            
            1.771Risk
                free interest rate
            
            
            6.00%Expected
                asset life
            
            
            2.5
                years





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, 2000, 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, 2000 and 1999. During the year ended September
      30,
      1999, the Company granted 1,212,000 options to certain key employees. These
      options all were immediately vested. These options were granted at exercise
      prices of $1.00 to $2.50 the fair market value of the underlying shares on
      the
      date of grant. The options expire five years from date of grant. The summary
      of
      activity for the Company’s stock options is presented below:





24
 *Table
            of Contents*




2000
            
            
            
            1999
            
            Weighted
              Average
              Exercise
              PriceOptions
                outstanding at beginning of year
            
            
            1,107,000
            
            
            $1.34
            
            
            1,374,474
            
            $
            2.27Granted
            
            
            -0-
            
            
            
            
            
            1,212,000
            
            $
            1.31Exercised
            
            
            (53,611
            )
            
            $1.00
            
            
            (105,000
            )
            $
            1.00Terminated/Expired
            
            
            (1,053,389
            )
            
            
            
            
            (1,374,474
            )
            $
            2.27Options
                outstanding at end of year
            
            
            -0-
            
            
            
            
            
            1,107,000
            
            $
            1.34Options
                exercisable at end of year
            
            
            -0-
            
            
            
            
            
            1,107,000Options
                available for grant at end of year
            
            
            1,341,389
            
            
            
            
            
            288,000$
            1.00-Price
                per share of options outstanding
            
            
            N/A
            
            
            
            
            
            2.50Weighted
                average remaining contractual lives
            
            
            N/A
            
            
            
            
            
            4.3
                yearsWeighted
                Average fair value of options granted during the year
            
            
            N/A
            
            
            
            
            $
            0.85





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





2000
            
            1999Weighted
              Average
              Exercise
              Price
            
            
            
            Weighted
              Average
              Exercise
              PriceWarrants
                outstanding at beginning of year
            
            
            1,355,000
            
            $
            2.00
            
            
            3,416,920
            
            $
            2.07Granted
            
            
            -0-
            
            
            1,555,250
            
            $
            2.00Expired
            
            
            (1,005,00
            )
            $
            2.00
            
            
            (3,417,170
            )
            $
            2.05Exercised
            
            
            -0-
            
            
            
            
            
            (200,000
            )Outstanding
                at September 30,
            
            
            350,000
            
            $
            2.00
            
            
            1,355,000
            
            $
            2.00





The
      350,000 warrants outstanding at September 30, 2000, expire as
      follows:





October
                22, 2000
            250,000March
                23, 2001
            100,000





17.
            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 year
      ended September 30, 2000.





25
 *Table
            of Contents*





18.
            QUARTERLY
                FINANCIAL DATA (UNAUDITED)





Subsequent
      to filing the interim financial statements included on Form 10-QSB for the
      periods ending December 31, 1998, March 31, 1999, June 30, 1999, December 31,
      1999, March 31, 2000, and June 30, 2000, 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
      Notes
      2 and 11.





The
      following table sets forth the impact of this change on the following three
      month periods:




26
 *Table
          of Contents*




**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




**Quarter
                  Ended****December
                  31,**
                **1998**
              
              **March
                  30,**
                **1999**
              
              **June
                  30,**
                **1999**
              
              **September
                  30,**
                **1999****Quarterly
                  Data Per 10-Q Filings:**Net
                  revenues
              
              $
              290,087
              
              $
              344,515
              
              $
              1,439,760
              
              
              naGross
                  profit
              
              
              290,087
              
              
              341,709
              
              
              950,660
              
              
              naIncome
                  (loss) before discontinued operations
              
              
              (616,641
              )
              
              (653,697
              )
              
              (238,953
              )
              
              naNet
                  income
              
              
              (616,641
              )
              
              (653,697
              )
              
              (738,953
              )
              
              naEarnings
                  per share information:Basic:Income
                  (loss) per share before discontinued operations
              
              $
              (0.05
              )
              $
              (0.05
              )
              $
              (0.04
              )
              
              naNet
                  loss per share
              
              $
              (0.05
              )
              $
              (0.05
              )
              $
              (0.04
              )
              
              naDiluted:Income
                  (loss) per share before discontinued operations
              
              $
              (0.05
              )
              $
              (0.05
              )
              $
              (0.03
              )
              
              naNet
                  loss per share
              
              $
              (0.05
              )
              $
              (0.05
              )
              $
              (0.03
              )
              
              na**Revised
                  Quarterly Data:**Net
                  revenues
              
              $
              290,087
              
              $
              344,515
              
              $
              1,439,760
              
              $
              6,497,823Gross
                  profit
              
              
              290,087
              
              
              341,709
              
              
              950,660
              
              
              3,177,570Income
                  (loss) before discontinued operations
              
              
              (506,641
              )
              
              (653,697
              )
              
              (238,953
              )
              
              29,397Net
                  loss
              
              
              (506,641
              )
              
              (653,697
              )
              
              (738,953
              )
              
              (1,363,307
              )Earnings
                  per share information:Basic:Income
                  (loss) per share before discontinued operations
              
              $
              (0.04
              )
              $
              (0.05
              )
              $
              (0.04
              )
              $
              0.00Net
                  loss per share
              
              $
              (0.04
              )
              $
              (0.05
              )
              $
              (0.04
              )
              $
              (0.04
              )Diluted:Income
                  (loss) per share before discontinued operations
              
              $
              (0.04
              )
              $
              (0.05
              )
              $
              (0.03
              )
              $
              0.00Net
                  loss per share
              
              $
              (0.04
              )
              $
              (0.05
              )
              $
              (0.03
              )
              $
              (0.04
              )




*
      * * * *
      *





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