<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

(Mark One)

{  X  }    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
           EXCHANGE ACT OF 1934


For the fiscal year ended                    December 31, 2001
                           -----------------------------------------------------

                                       OR

{    }     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934


For the transition period from _____________________ to ________________________


Commission File Number                            0-13716
                       ---------------------------------------------------------

                         North Pittsburgh Systems, Inc.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


              Pennsylvania                                  25-1485389
------------------------------------------     ---------------------------------
   (State or other jurisdiction of             (IRS Employer Identification No.)
   incorporation or organization)


4008 Gibsonia Road, Gibsonia, Pennsylvania                  15044-9311
------------------------------------------      --------------------------------
 (Address of Principal Executive Offices)                    (Zip Code)

Registrant's telephone number, including area code        724/443-9600
                                                   -----------------------------

Securities registered pursuant to Section 12(b) of the Act:


   Title of Each Class                 Name of each exchange on which registered
---------------------------            -----------------------------------------
         None                                       Not Applicable


                                             (Cover page continued on next page)
<PAGE>

Securities registered pursuant to Section 12(g) of the Act:


                   Common Stock, par value $.15625 per share
--------------------------------------------------------------------------------
                                (Title of Class)


                     SECTION 13 OR 15(d) FILING REQUIREMENTS
                     ---------------------------------------

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
    -----                ----


                         DISCLOSURE PURSUANT TO ITEM 405

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. { }


          AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES
          -------------------------------------------------------------

Based on the average of the bid and asked prices on March 12, 2002, the
aggregate market value of the voting stock held by non-affiliates of the
Registrant is $221,699,000. (Includes 1,552,710 shares beneficially owned by
Directors and Officers as a group.)


          OUTSTANDING SHARES OF EACH CLASS OF REGISTRANT'S COMMON STOCK
          -------------------------------------------------------------

                   Class                     Outstanding at March 12, 2002
                   -----                     -----------------------------

Common Stock, Par Value $.15625 per share           15,005,000 shares


                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------

The information for Item 10, Directors and Executive Officers of the Registrant;
Item 11, Executive Compensation; Item 12, Security Ownership of Certain
Beneficial Owners and Management; and Item 13, Certain Relationships and Related
Transactions, has been incorporated into Part III of this Form 10-K by reference
to Registrant's Definitive Proxy Statement to be filed pursuant to Regulation
14A within 120 days after December 31, 2001.
                                                             (End of cover page)
<PAGE>

                                     PART I


Item 1.           Description of Business.
-------           -----------------------

           (a)    General Development of Business:
                  -------------------------------

           North Pittsburgh Systems, Inc. (the Registrant), organized May 31,
1985, is a holding company and has no operating function. Its predecessor, North
Pittsburgh Telephone Company (North Pittsburgh or NPTC), a telephone public
utility incorporated in 1906, became a wholly-owned subsidiary of the Registrant
on May 31, 1985. Penn Telecom, Inc. (Penn Telecom) became a wholly-owned
subsidiary of the Registrant on January 30, 1988. Prior to this date, Penn
Telecom was a wholly-owned subsidiary of North Pittsburgh. Penn Telecom is
certificated as a Competitive Access Provider (CAP) and a Competitive Local
Exchange Carrier (CLEC) and has entered into these businesses. Other principal
business activities of Penn Telecom consist of the sale, rental and servicing of
telecommunications equipment to end users, the resale of bulk billed message
toll services and high capacity intercity facilities. Pinnatech, Inc.
(Pinnatech), a wholly-owned subsidiary of the Registrant formed in 1995,
provides Internet related services including dial up access, digital subscriber
line (DSL) circuits, Web design and Web hosting. The Registrant, NPTC, Penn
Telecom and Pinnatech operate under the provisions of the Pennsylvania Business
Corporation Law. No significant changes in the mode of conducting business by
the Registrant or its subsidiaries have occurred since the beginning of the
fiscal year ended December 31, 2001.

           (b)    Financial Information About Industry Segments:
                  ---------------------------------------------

           This paragraph is not applicable. The Registrant, through North
Pittsburgh, Penn Telecom and Pinnatech, is engaged in the business of providing
wireline telecommunications services and equipment, which is considered by the
Registrant to be a single segment.

           (c)    Narrative Description of Business:
                  ---------------------------------

           (1)    Business Done and Intended To Be Done:
                  -------------------------------------

                  (i)    Principal Services Rendered.
                         ---------------------------

                  The Registrant, through North Pittsburgh, Penn Telecom and
Pinnatech, is engaged in providing the following wireline telecommunications
services and equipment to customers generally located in Western Pennsylvania.

                  North Pittsburgh is an incumbent local exchange carrier (ILEC)
which furnishes wireline telecommunications services to end user customers and
interexchange toll providers, in portions of Allegheny, Armstrong, Butler and
Westmoreland Counties.

                  Penn Telecom is a CLEC, interexchange carrier (IXC) and CAP
that furnishes wireline telecommunications services throughout Western
Pennsylvania.

                                       1
<PAGE>

           Pinnatech is an Internet service provider (ISP) which furnishes
Internet access and broadband services throughout Western Pennsylvania.

           The principal categories of service rendered by North Pittsburgh,
Penn Telecom and Pinnatech are as follows:

                         Local Network Services. Both North Pittsburgh and Penn
                         ----------------------
Telecom provide local (dial tone), custom calling features and local private
line services to residential and business customers in their respective service
territories.

                         Network Access Services. Both North Pittsburgh and Penn
                         -----------------------
Telecom provide IXCs, cellular mobile radio service (CMRS) providers and other
local exchange carriers (LECs) with access to their switched access facilities
for the completion of interstate and intrastate long distance toll calls and
also extended area service (EAS) calls. In addition, North Pittsburgh and Penn
Telecom provide IXCs, CMRS providers, ISPs, other LECs and end user customers
access to private line network facilities for use in transporting voice and data
services. These private line data services are referred to as special access and
utilize a variety of technologies such as Digital Data Services, Frame Relay,
Asynchronous Transfer Mode (ATM), Synchronous Optical Network (SONET), DS-1,
DS-3, OC-3, etc.

                         North Pittsburgh, Penn Telecom and Pinnatech all
provide broadband DSL service to end user customers and ISPs on both a wholesale
and retail basis. North Pittsburgh and Penn Telecom utilize their own facilities
to provide DSL service. Pinnatech is engaged in the resale of DSL services
utilizing facilities purchased on a wholesale basis from North Pittsburgh and
Penn Telecom. All companies are in direct competition in the broadband market
with the cable providers in their respective territories and, to a certain
extent, satellite providers. Outside of the North Pittsburgh service territory,
Penn Telecom and Pinnatech are also in competition with other ILECs and CLECs.

                         Long Distance Toll Service. North Pittsburgh provides
                         --------------------------
intrastate, intraLATA long distance toll service to residential and business
customers throughout its service area. Penn Telecom provides interstate and
intrastate long distance toll service on a resale basis to residential and
business customers throughout Western Pennsylvania. Both Penn Telecom and North
Pittsburgh are in direct competition with other IXCs and wireless providers in
these markets.

                         Internet Access Service. Pinnatech provides access to
                         -----------------------
the Internet to end users utilizing both dial-up and broadband facilities such
as Frame Relay, DSL and ATM which it purchases on a wholesale basis from North
Pittsburgh and Penn Telecom. North Pittsburgh is a reseller of Internet access
over its own broadband DSL facilities to end-users. North Pittsburgh purchases
the Internet access services from Pinnatech on a wholesale basis.

                         Pinnatech also provides virtual hosting services, web
page design and creation and e-commerce enabling technologies to customers.
Internet access service revenues are classified within other operating revenues
on the Registrant's Consolidated Statement of Earnings.

                                       2
<PAGE>

                         Directory Advertising, Billing and Other Services.
                         -------------------------------------------------
North Pittsburgh receives revenues from the sale of advertising space in
telephone directories and from billing and collection activities. Directory
advertising is subject to competition from a number of sources and, to date,
efforts to meet such competition have been successful. Billing and collection
services are provided to various IXCs, including Penn Telecom.

                         Telecommunications Equipment. Penn Telecom sells, rents
                         ----------------------------
and services telecommunications equipment to customers generally in the Western
Pennsylvania area. Penn Telecom has been able to sustain its equipment business
activities in a strong, competitive market.

                         Operating Revenues. The respective amounts of operating
                         ------------------
revenues contributed by local network services, long distance and access
services, telecommunications equipment sales, directory advertising and billing
and collection services and other operating revenues during each of the last
three fiscal years are set forth in the Financial Statements and Schedules
provided in response to Item 8 and are incorporated herein by reference.

                  (ii)   Other Services.
                         --------------

                         Cellular Partnerships. North Pittsburgh and Alltel
                         ---------------------
Cellular Association of South Carolina, L.P. are Limited Partners with a
partnership interest of 3.6 percent each and Cellco Partnership, d.b.a. Verizon
Wireless, is both a General and a Limited Partner with partnership interests of
40.0 and 52.8 percent, respectively, in the Pittsburgh SMSA Limited Partnership,
which provides cellular radio service (Cellular Service) in and around the
Pittsburgh Standard Metropolitan Statistical Area (SMSA) as authorized by the
Federal Communications Commission (FCC).

                         North Pittsburgh, Centennial Cellular Telephone Company
of Lawrence (Centennial) and Venus Cellular Telephone Company, Inc. (Venus) are
Limited Partners, each with a partnership interest of 14.29 percent, and ALLTEL
Communications, Inc. (Alltel), successor to 360(Degree) Communications Inc., is
the General Partner with a partnership interest of 57.13 percent, in
Pennsylvania RSA 6(I) Limited Partnership, which provides Cellular Service in a
Rural Service Area (RSA) consisting of Clarion and Lawrence Counties and the
Northern portions of Armstrong and Butler Counties. Alltel's proposed sale of
its general partnership interest to Verizon Wireless is presently in litigation,
with Venus attempting to exercise a right of first refusal for the purchase of
Alltel's entire interest. Earlier, North Pittsburgh and Centennial had declined
to exercise their rights of first refusal. North Pittsburgh is not actively
participating in the litigation.

                         North Pittsburgh and Venus are Limited Partners with
partnership interests of 23.67 and 16.67 percent, respectively, and Cellco
Partnership, d.b.a. Verizon Wireless, is the General Partner with a partnership
interest of 59.66 percent, in Pennsylvania RSA 6(II) Limited Partnership, which
provides Cellular Service in an RSA consisting of the Southern portions of
Armstrong and Butler Counties. In September of 2000, Centennial, a former
Limited Partner, sold its 14.29 percent partnership interest in a proportionate
manner to North Pittsburgh, Venus and Cellco Partnership. North Pittsburgh paid
$1,003,000 for the additional

                                       3
<PAGE>

3.38 percent partnership interest it acquired, which increased North
Pittsburgh's overall partnership interest from 20.29 percent to 23.67 percent.

                         Boulevard Communications. Boulevard Communications,
                         ------------------------
L.L.P. (Boulevard) is a Pennsylvania Limited Liability Partnership CAP equally
owned by the Registrant and a company in the Armstrong Group. It provides
point-to-point data services to businesses in Western Pennsylvania including
access to Internet Service Providers, connections to interexchange companies and
high-speed data transmission.

                  (iii)  Status of New Products.
                         ----------------------

                         This paragraph is not applicable. The Registrant and
its subsidiaries have not made public any information concerning new products or
services that would require the investment of a material amount of the assets of
the Registrant or that otherwise would be material.

                  (iv)   Equipment Availability.
                         ----------------------

                         The Registrant and its subsidiaries have not
encountered, nor do they anticipate, any difficulty in obtaining a ready supply
of telecommunications equipment from manufacturer suppliers. Although certain
individual suppliers may each supply more than 10 percent of their equipment
requirements, the Registrant and its subsidiaries are not primarily dependent
upon any one supplier and alternative suppliers of telecommunications equipment
are readily available.

                  (v)    Certificates, Franchises, Etc. and Licenses.
                         -------------------------------------------

                         North Pittsburgh holds valid, continuing and subsisting
rights, certificates, franchises, licenses (other than those mentioned in the
following paragraph) and renewable permits adequate for the conduct of its
business in the territory it serves, none of which contains any burdensome
restrictions. However, see Regulatory Matters under paragraph (c)(3) of Item 7
concerning, inter alia, the impact of the Telecommunications Act of 1996 (the
1996 Act.)

                         North Pittsburgh has FCC licenses to operate a private
operational telephone maintenance radio service station (WIK 838 expiring on
March 20, 2011) and a non-commercial private license for its own maintenance
radio service and other purposes (call sign WPCD 845 expiring on April 29,
2003). North Pittsburgh has not encountered in the past, nor does it anticipate
in the future, any difficulty in renewing these FCC licenses.

                  (vi)   Seasonality of Business.
                         -----------------------

                         None of the business activities of the Registrant or
its subsidiaries are seasonal.

                                       4
<PAGE>

                  (vii)  Practices Relating to Working Capital.
                         -------------------------------------

                         This paragraph is not applicable. No special practices
relating to working capital have been adopted by the Registrant or its
subsidiaries. (See Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations.)

                  (viii) Customers.
                         ---------

                         No material part of the overall business of the
Registrant or its subsidiaries is dependent upon a single customer or a few
customers, the loss of any one or more of whom would have a materially adverse
effect on its business.

                  (ix)   Backlog of Orders.
                         -----------------

                         The Registrant and its subsidiaries do not have a
significant backlog of service and installation orders. Improvements and
expansion of their facilities are, to the extent possible, made in anticipation
of demands for service and a reasonable and adequate inventory is maintained to
meet the requirements of customers.

                  (x)    Renegotiation of Profits or Termination of Contracts.
                         ----------------------------------------------------

                         The Registrant and its subsidiaries do not have a
material portion of their business subject to renegotiation of profits or
termination of contracts or subcontracts at the election of the Government.

                  (xi)   Competition.
                         -----------

                         The competitive environment faced by the Registrant in
respect to the services provided by it or by its subsidiaries is fully discussed
under paragraph (c)(1)(i) of this Item 1 and under paragraph (c)(3) of Item 7.

                  (xii)  Research Activities.
                         -------------------

                         The Registrant and its subsidiaries do not engage in
any research activities relating to the development of new products or services
or the improvement of existing products or services, and no amounts have been
expended in the past three years for such activities.

                  (xiii) Environmental Matters.
                         ---------------------

                         Compliance with federal, state and local provisions
which have been adopted regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment have not
materially affected the capital expenditures, earnings and competitive position
of the Registrant and its subsidiaries.

                                       5
<PAGE>

                  (xiv)  Employees.
                         ---------

                         At December 31, 2001, the Registrant, through all of
its subsidiaries, employed 402 persons.



           (d) Financial Information About Geographic Areas. All of the
               --------------------------------------------
Registrant's operations are located in the United States. See financial
information provided in Item 14.




Item 2.           Properties.
-------           ----------


           The Registrant owns in fee one of the office/warehouse buildings,
which houses the operations of Penn Telecom, and Penn Telecom owns the other.

           The materially important physical properties of North Pittsburgh, all
owned in fee (except some rights-of-way) and most of which are held subject to
certain mortgage and security agreements executed in connection with loans
through the Rural Utilities Service, consist generally of any and all property
required to operate a modern telecommunications network and include principally
land, buildings, central office equipment, long distance switching facilities,
transmission facilities, pole lines, aerial cable, underground cable, aerial
wire, buried cable, buried wire, distribution wire, underground conduit,
furniture, office and computer equipment, garage facilities, vehicles and work
equipment. Such facilities are fully utilized except that improvement and
expansion of those facilities are, to the extent possible, made in anticipation
of the demand for service. All of the foregoing properties are located within
Allegheny, Armstrong, Butler and Westmoreland Counties in Western Pennsylvania.

           From January 1, 1997 to December 31, 2001, the Registrant made gross
property additions of approximately $99,465,000 (which is about 49.5% of the
original cost of the present telephone plant) and property retirements of
approximately $24,096,000. The Registrant's 2002 construction program, subject
to adjustment for economic conditions, postponements of housing developments,
etc., is projected to approximate 2001 levels, with capital expenditures in the
range of $13.0 million to $14.0 million.

                                       6
<PAGE>

Item 3.           Legal Proceedings.
-------           -----------------

           As of the date hereof, except for regulatory matters before the
Pennsylvania Public Utility Commission (PA PUC) and FCC, including matters which
could result in the expansion of competition, there were no material pending
legal or governmental proceedings directly involving the Registrant or its
subsidiaries, other than ordinary routine litigation or ordinary routine utility
matters incidental to the business and matters as to which the Registrant and
its subsidiaries are insured.





Item 4.           Submission of Matters to a Vote of Security Holders.
------            ---------------------------------------------------

           No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 2001.

                                       7
<PAGE>

        ADDITIONAL ITEM FOR PART I - EXECUTIVE OFFICERS OF THE REGISTRANT
        -----------------------------------------------------------------

           Information regarding the Registrant's Executive Officers and
Chairman of the Board of Directors is provided below. In addition to the
positions and business experience related to the Registrant, additional
information related to North Pittsburgh Telephone Company, the Registrant's
predecessor and principal subsidiary, is also presented.



Executive Officers of the Registrant:
------------------------------------

                                                       Positions and Offices
     Name and Business Experience        Age      with Registrant (1), (2) & (3)
     ----------------------------        ---     -------------------------------


Charles E. Thomas, Jr.                   59            Chairman, Board of
      Registrant and North                                   Directors
      Pittsburgh Telephone Company:
      Chairman of the Board of
      Directors since 1998;
      Director since 1993; Partner
      in the law firm of Thomas,
      Thomas, Armstrong & Niesen,
      Harrisburg, PA, which has been
      retained as general counsel
      to the Registrant since the
      formation of this firm in
      1991; Partner in the law firm
      of Thomas & Thomas from 1977
      to 1990.



Harry R. Brown                           65            Director and President
      Registrant: Director since
      1989; President since 1998;
      Vice President from 1992 to
      1998. North Pittsburgh
      Telephone Company: Director
      since 1989; President and
      General Manager since 1998;
      Vice President - Operations
      from 1987 to 1998; Assistant
      Vice President - Operations
      from 1986 to 1987; Network
      Engineering Manager from 1984
      to 1986; Equipment Supervisor
      from 1975 to 1984.

                                       8
<PAGE>

                                                       Positions and Offices
     Name and Business Experience        Age      with Registrant (1), (2) & (3)
     ----------------------------        ---     -------------------------------


Allen P. Kimble                          55            Director, Vice President
      Registrant: Director since                       and Treasurer
      1998; Vice President since
      1989; Treasurer since
      incorporation in 1985;
      Secretary from 1993 to 1998.
      North Pittsburgh Telephone
      Company: Director since 1998;
      Vice President since 1989;
      Treasurer since 1979;
      Secretary from 1993 to 1998;
      Assistant Vice President from
      1987 to 1989; Assistant
      Secretary from 1977 to 1993.



N. William Barthlow                      47            Vice President and
      Registrant: Vice President                       Secretary
      since 1994; Secretary since
      1998; Assistant Secretary
      from 1993 to 1998; Assistant
      Vice President from 1990 to
      1994. North Pittsburgh
      Telephone Company: Vice
      President - Marketing and
      Revenues since 1994;
      Secretary since 1998;
      Assistant Secretary from 1993
      to 1998; Assistant Vice
      President - Revenue
      Requirements from 1989 to
      1994; Revenue Requirements
      Manager from 1987 to 1989.



Kevin J. Albaugh                         50            Vice President
      Registrant: Vice President
      since 1999. North Pittsburgh
      Telephone Company: Vice
      President - Regulatory
      Affairs since 1999; Manager
      and Assistant Vice President
      - Revenues from 1997 to 1998;
      Revenue Requirements
      Supervisor from 1993 to 1997.

                                       9
<PAGE>

                                                      Positions and Offices
     Name and Business Experience        Age      with Registrant (1), (2) & (3)
     ----------------------------        ---     -------------------------------


Frank A. Macefe                          53            Vice President
      Registrant: Vice President
      since 1999. North Pittsburgh
      Telephone Company: Vice
      President - Sales since 1999;
      Assistant Vice President -
      Marketing from 1989 to 1998;
      Marketing Manager from 1979
      to 1989; Marketing Supervisor
      from 1978 to 1979.



Albert W. Weigand                        43            Vice President
      Registrant: Vice President
      since 1999. North Pittsburgh
      Telephone Company: Vice
      President - Operations since
      1999; Assistant Vice
      President - Operations from
      1997 to 1998; Sr. Planning
      Engineer from 1995 to 1997;
      Planning Engineer from 1986
      to 1995; Customer Equipment
      Supervisor from 1984 to 1986;
      Customer Equipment Engineer
      from 1979 to 1984.



(1)      Directors. Messrs. Thomas, Brown and Kimble were elected as Directors
         ---------
         at the 2001 Annual Meeting of Shareholders held May 18, 2001 to serve
         until the 2002 Annual Meeting of Shareholders. Messrs. Thomas, Brown
         and Kimble will be nominees for reelection as Directors at the Annual
         Meeting of Shareholders to be held May 17, 2002.

(2)      Officers. All of the foregoing officers were elected to their
         --------
         respective offices at a Board of Directors' Organizational Meeting
         which followed the May 18, 2001 Annual Meeting of Shareholders.
         Executive employment agreements with Messrs. Brown, Kimble, Barthlow,
         Albaugh, Macefe and Weigand set forth the terms and conditions of their
         employment.

(3)      Arrangements. There are no arrangements or understandings between any
         ------------
         of the above executive officers and any other person pursuant to which
         they were elected as an officer.

                                       10
<PAGE>

                                     PART II




Item 5.  Market for Registrant's Common Equity and Related Stockholders Matters.
------   ----------------------------------------------------------------------



         (a)      Market Information:
                  ------------------


         The Registrant's Common Stock is registered with the Securities and
Exchange Commission pursuant to Section 12(g) of the Securities Exchange Act of
1934 and, effective January 10, 1997, the Registrant's Common Stock commenced
trading on the Nasdaq National Market tier of the Nasdaq Stock Market under the
Symbol `NPSI'. Prior thereto, the stock was not listed on any Stock Exchange and
was considered as being traded on the OTC (Over-the-Counter) market. The Nasdaq
High and Low sales prices for the Registrant's Common Stock for each quarter of
2001 and 2000 are listed below:


                                  2001         2001        2000        2000
                                  High         Low         High        Low
                                  ----         ---         ----        ---
First Quarter                  $  12.313    $  9.625   $  15.063   $  12.563
Second Quarter                    15.990      10.250      14.750      11.750
Third Quarter                     15.000      11.430      14.750      12.250
Fourth Quarter                    18.970      12.890      14.250      10.563



         (b)      Approximate Number of Holders of Common Stock:
                  ---------------------------------------------


         Calculated on the basis of the number of shareholder accounts, the
Registrant had approximately 2,660 common shareholders on March 12, 2002.

                                       11
<PAGE>

         (c)      Common Stock Dividends:
                  ----------------------


         Cash dividends declared per share by the Registrant on the outstanding
shares of Common Stock in 2001 and 2000 were as follows:

                                                 2001                   2000
                                                 ----                   ----


 First Quarter                                $       .17            $       .16
 Second Quarter                                       .17                    .17
 Third Quarter                                        .17                    .17
 Fourth Quarter                                       .17                    .17
                                              -----------            -----------

                                              $       .68            $       .67
                                              ===========            ===========



         (d)      Sale of Equity Securities:
                  -------------------------


         There were no sales of equity securities by the Registrant during the
twelve months ended December 31, 2001.





Item 6.  Selected Financial Data (Amounts in Thousands Except Per Share Data).
------   --------------------------------------------------------------------



         The following summary of Selected Financial Data for the years 2001 -
1997 should be read in conjunction with the consolidated financial statements
and notes included elsewhere in this report.

                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                   2001              2000             1999               1998               1997
                                               ------------     ------------      ------------       ------------       ------------
<S>                                                  <C>            <C>               <C>               <C>               <C>
Operating revenues                             $     86,444         $  77,851         $  70,322         $  66,375         $  65,554

Operating expenses                                   66,399            65,141            50,837            44,377            44,090
                                                  ---------         ---------         ---------         ---------         ---------

     Net operating revenues                          20,045            12,710            19,485            21,998            21,464

Interest expense                                     (3,733)           (3,140)           (2,263)           (1,884)           (1,710)

Interest income                                       1,118             1,367               976             1,308               608

Sundry income, net                                      406             2,960             3,320             2,360             1,493

Net gain on sale of
     investment*                                         --                --                --                --            14,516
                                                  ---------         ---------         ---------         ---------         ---------

Earnings before income
     taxes                                           17,836            13,897            21,518            23,782            36,371

Income tax expense                                    7,474             6,008             8,833             9,264            14,186
                                                  ---------         ---------         ---------         ---------         ---------

Net earnings                                   $     10,362         $   7,889         $  12,685         $  14,518         $  22,185
                                                  =========         =========         =========         =========         =========

Average common shares
     outstanding                                     15,005            15,005            15,005            15,005            15,019
                                                  =========         =========         =========         =========         =========

Basic and diluted earnings
     per share                                 $        .69         $     .53         $     .85         $     .97         $    1.48
                                                  =========         =========         =========         =========         =========

Dividends declared per share
     of Common Stock                           $        .68         $     .67         $     .64         $     .65         $     .56
                                                  =========         =========         =========         =========         =========

Total assets                                   $    168,963         $ 160,954         $ 147,792         $ 135,315         $ 127,833
                                                  =========         =========         =========         =========         =========

Long-term debt                                 $     47,202         $  45,377         $  38,940         $  32,196         $  27,037
                                                  =========         =========         =========         =========         =========

Long-term obligations under
     capital lease                             $      7,607         $   7,137         $      --         $      --         $      --
                                                  =========         =========         =========         =========         =========

</TABLE>


*Net gain on sale of investment in 1997 was a result of a gain recognized in
conjunction with the sale of the Registrant's investment in the common stock of
Conquest Telecommunications Services Corporation.

                                      13
<PAGE>

                                                             30
Item 7.           Management's Discussion and Analysis of Financial Condition
                  -----------------------------------------------------------
                  and Results of Operations (Amounts in Thousands Except Per
                  ----------------------------------------------------------
                  Share Data and Operating Statistics).
                  ------------------------------------


           The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in this annual report is forward-looking, such as
information relating to the effects of regulation and competition. Such
forward-looking statements are based on the estimates and assumptions of
management and are subject to risks and uncertainties. The Registrant's actual
results, performance or achievements could differ materially from the results
expressed in or implied by these forward-looking statements.

                  (a)    Results of Operations.
                         ---------------------

                  Net earnings for 2001 were $10,362, or $.69 per share,
compared to net earnings of $7,889, or $.53 per share for 2000 and $12,685, or
$.85 per share for 1999. These fluctuations were attributable to the following
factors:

                         (1)   Operating Revenues.
                               ------------------

                               2001/2000
                               ---------

                               Total operating revenues increased $8,593 (11.0%)
during 2001. This increase was primarily the result of increases in local
network services of $4,710 (30.5%), long distance and access services of $2,064
(3.9%), telecommunications equipment sales of $338 (15.9%) and other operating
revenues of $1,883 (36.3%), offset partially by a decrease in directory
advertising, billing and other services of $402 (14.7%).

                               Increases in local network service revenues of
$4,710, or 30.5%, were attributable to several factors, one of which was a rate
band reclass at NPTC which received PA PUC approval and became effective in
December of 2000. As the density of customers in NPTC's serving area and
immediate surrounding territories covered by extended area service agreements
increased during the late 1990's and 2000, several of the exchanges in NPTC's
territory grew into the next rate band and qualified for an increase in local
rates, which contributed approximately $1,350 of the $2,219 increase in NPTC's
basic area revenues. The remainder of the increase was due to a higher average
number of lines in service than the prior year as well as NPTC's revenue neutral
Chapter 30 filing, which became effective in December of 2001 and added
approximately $150, with a corresponding decrease in long distance and access
services. Also, Penn Telecom's basic area revenues increased $1,144 due to
continued successful penetration south of NPTC's territory in the city of
Pittsburgh and surrounding areas as well as north of NPTC's territory in the
city of Butler, PA. Penn Telecom's basic access lines installed increased from
3,915 as of December 31, 2000, to 8,912 as of December 31, 2001. In addition,
primary rate interface (PRI) circuits grew from 30 circuits to 151 circuits over
the same period. In addition, vertical feature revenues

                                       14
<PAGE>

increased $806 in 2001, due to continued penetration in NPTC's existing
territory as well as growth in the number of customers at Penn Telecom.

                               The increase in long distance and access service
revenues of $2,064, or 3.9%, was attributable to an increase in high capacity
circuits sold (special access revenues) and an increase in access minutes for
both NPTC and Penn Telecom, offset partially by lower toll revenues. Special
access revenues increased $1,372 at NPTC and $1,118 at Penn Telecom, mostly as a
result of large increases in the number of DS-1 and DS-3 circuits sold.
Interstate and intrastate access revenues increased approximately $400, mostly
as a result of increased access revenues at Penn Telecom due to the growth in
customers producing originating and terminating access revenues. Toll revenues
decreased approximately $825 due to a decrease in intraLATA toll revenues at
NPTC, partially offset by a growth in both intraLATA and interLATA toll revenues
at Penn Telecom. The decrease in intraLATA toll revenues at NPTC was mostly a
result of a decrease in market share and loss of minutes of use to such
competition as cellular and to a decrease in the average billed rate due to the
development of additional calling plans to meet the competitive environment.
This decrease was partially offset by an increase in both intraLATA and
interLATA toll revenues at Penn Telecom due to the successful bundling of toll
with local calling packages. As of December 31, 2001, 75% of Penn Telecom's CLEC
customers subscribed to one of its toll packages.

                               Telecommunications equipment sales increased
$338, or 15.9%, due to an increase in private branch exchange and additional
equipment sales. The majority of the increase was due to partially depressed
sales for the year ended December 31, 2000, as a result of accelerated purchases
in 1998 and 1999 to address potential Y2K concerns.

                               The increase in other operating revenues of
$1,883, or 36.3%, was primarily due to the growth in DSL revenues of $1,435 as
combined DSL lines (both wholesale and retail) increased from 2,360 as of
December 31, 2000, to 4,800 as of December 31, 2001. In addition, net
uncollectible revenue charges decreased due to improved cash collection from
both retail customers as well as carriers.

                               The decrease in directory advertising, billing
and other services of $402, or 14.7%, was mostly due to a decrease of $350 in
carrier billing and collection revenues. NPTC has contracts with several
interexchange carriers and other telecommunications companies in which it earns
fees for performing billing and collection services on behalf of these
companies. NPTC has seen the volume of services and calls billed on behalf of
these companies decrease in the past year, mostly as a result of more companies
bringing these functions in-house.

                               2000/1999
                               ---------

                               Total operating revenues increased $7,529 (10.7%)
during 2000. This increase was primarily the result of increases in local
network services of $1,667 (12.1%), long distance and access services of $5,725
(12.3%) and other operating revenues of $940 (22.1%), offset partially by a
decrease in telecommunications equipment sales of $865 (29.0%). Increased local
network service revenues were attributable to customer growth for

                                       15
<PAGE>

both NPTC and Penn Telecom, growth in second lines and expanded penetration of
enhanced services. Higher long distance and access services were attributable to
an increase in the number of customers and minutes of use for both NPTC and Penn
Telecom, and an increase in high capacity circuits sold. The increase in other
operating revenues was primarily due to the growth of Internet access customers
and an increase in both wholesale and retail DSL lines. Telecommunications
equipment sales decreased as a result of lower key system, private branch
exchange and additional equipment sales, mostly due to partially depressed sales
as a result of accelerated purchases in 1998 and 1999 to address potential Y2K
concerns.

                         (2)   Operating Expenses and Net Revenues.
                               -----------------------------------

                               2001/2000
                               ---------

                               Total operating expenses for 2001 increased
$1,258 (1.9%) over the preceding year. The change was primarily the result of
increases in network and other operating expenses of $879 (2.0%), depreciation
and amortization expenses of $581 (3.5%) and telecommunications equipment
expenses of $173 (11.1%), offset partially by a decrease in state and local
taxes of $375 (11.8%).

                               The increase in network and other operating
expenses of $1,258, or 1.9%, was due to increased expenses at Penn Telecom,
partially offset by decreases in expenses at NPTC and Pinnatech. CLEC variable
costs at Penn Telecom, such as the leasing of unbundled network elements (UNEs)
for non-facilities based access lines increased with the overall growth in
access lines and revenue. Collocation costs also increased as Penn Telecom
expanded into additional incumbent central offices during 2001. In addition,
personnel and operating costs grew larger in order to support the revenue growth
and overall growth of the network.

                               At NPTC, network and other operating expenses for
the year ended December 31, 2001 decreased by approximately $1,600 from the
prior year due to a cost reduction program instituted in the first quarter of
2001. As mentioned under the Regulatory Matters section of this report
(paragraph (c)(3) of this section), the clear intent of the 1996 Act as well as
some current FCC and PA PUC regulatory proceedings is to open up the
telecommunications market to competition. Although NPTC has yet to see any
material impact on its revenues or loss of access lines, it has adopted a pro-
active approach to cost reduction. The cost reduction program involved not only
the elimination of direct external expenses such as a large reduction in the use
of outside contractors, but also involved improving operating procedures.
Internal processes and procedures have been re-engineered to maximize both labor
and material usage as well as inventory levels. In addition, with the recent
completion of the five-year modernization of NPTC's network during 2001,
maintenance expense has decreased from prior year levels as legacy equipment has
been upgraded and/or replaced.

                               At Pinnatech, network and other operating
expenses for the year ended December 31, 2001 decreased approximately $2,100
from the prior year. The decrease was a result of the cessation of costs related
to the operating activities and eventual shut down of the Nauticom Sports
Network (NSN) in December of 2000.

                                       16
<PAGE>

                               The growth in depreciation and amortization
expenses of $581, or 3.5%, was the direct result of the growth in fixed assets
to service current and future customer needs. The Registrant has made gross
property additions of $99.5 million over the past five years to implement
state-of-the-art switching transmission and transport facilities, an extensive
fiber network, broadband capability via DSL technology to 97% of NPTC's lines
and to support the build-out of the Penn Telecom CLEC operations.

                               The increase in telecommunications and equipment
expense of $173, or 11.1%, was a direct result of the increase in
telecommunications equipment sales of 15.9%.

                               The decrease in state and local taxes of $375, or
11.8%, was mostly attributable to a reduction in public utility realty tax
assessment (PURTA) expense in 2001 from a settled prior year overpayment as well
as a decrease in Pennsylvania capital stock tax due to a 17% reduction in
millage rates from the prior year.

                               Overall, the increase in total operating revenues
of $8,593, coupled with the increase in total operating expenses of $1,258,
resulted in a 57.7% increase in net operating revenues in 2001 as compared to
2000.

                               2000/1999
                               ---------

                               Total operating expenses for 2000 increased
$14,304 (28.1%) over the preceding year. The change was primarily the result of
increases in network and other operating expenses of $11,950 (37.7%) and
depreciation and amortization expenses of $3,063 (22.4%), offset partially by a
decrease in telecommunications equipment expenses of $762 (32.8%). The increase
in network and other operating expenses resulted from several factors. First,
there was an increase in personnel and operating costs due to an expansion of
the existing NPTC business to service the needs of its territory which is
located within a growing commercial and residential market. Penn Telecom's
operating expenses also grew larger with an increase in personnel and other
expenses due to start-up activities associated with the growth of its CLEC in
its foothold north of the city of Pittsburgh as well as an expansion into the
city of Pittsburgh and all surrounding areas. This expansion was facilitated
through the implementation of a long-term strategic relationship with an
electric utility to lease fiber optic loops throughout the entire Pittsburgh
region. The operating expenses of Pinnatech also increased as a result of the
expansion of its Internet-related activities and attempted expansion of its NSN.
The NSN was closed in the fourth quarter of 2000 (as discussed in more detail in
paragraph (c)(2) of this section), resulting in a pre-tax restructuring charge
of $972 in network and other operating expenses. Finally, advertising expense
increased approximately $2 million from 1999 as the Registrant promoted the
expansion effort described above for all companies which in turn contributed to
the overall revenue growth of $7,529 (10.7%) in 2000 as compared to revenue
growth of $3,947 (5.9%) in 1999.

                               The growth in depreciation and amortization
expenses of $3,063, or 22.4%, was the direct result of the growth in fixed
assets to service current and future customer needs. The Registrant made gross
property additions of $103 million during the five-year period from January 1,
1996 through December 31, 2000 for the purpose, inter alia, of implementing
state-of-the-art switching transmission and transport facilities, an extensive
fiber

                                       17
<PAGE>

network, broadband capability via DSL technology and to support the build-out of
Penn Telecom's CLEC operations.

                               The decrease in telecommunications and equipment
expenses of $762 (32.8%) was a direct result of the decrease in
telecommunications equipment sales of 29.0%.

                               Overall, the increase in total operating revenues
of $7,529, coupled with the increase in total operating expenses of $14,304,
resulted in a 34.8% decrease in net operating revenues in 2000 as compared to
1999.

                         (3)   Other Items.
                               -----------

                               2001/2000
                               ---------

                               Interest expense increased in 2001 by $593 due to
increased debt borrowings. Interest income decreased $249 in 2001 primarily due
to the liquidation of available for sale debt securities and the general
decrease in short term money market rates for temporary investments during 2001.
The net decrease in sundry income of $2,554 was primarily due to a $1,996
decrease in realized gains on the sale of securities as the majority of the
Registrant's available for sale equity portfolio was liquidated in the prior
year, a $70 decrease in dividend income from not holding those equity securities
in 2001, and $213 in non-operating expenses associated with tax adjustments to
prior years cellular parternships' returns.

                               2000/1999
                               ---------

                               Interest expense increased in 2000 by $877 due to
increased debt borrowings. Interest income increased $391 in 2000 primarily due
to increased investments in temporary fixed income, as opposed to equity,
securities. The net decrease in sundry income of $360 was primarily due to
one-time gains recorded in 1999 from a cellular partnership transaction and the
sale of NPTC's remaining pay phone business, offset in part by higher realized
gains on the sale of available for sale securities in 2000.

                  (b)    Liquidity and Capital Resources.
                         -------------------------------

                                                                December 31,
                                                              2001        2000
                                                           ----------   --------

Cash and temporary investments                              $35,299      $19,240
Working capital                                             $32,937      $26,569
Long-term debt (including current maturities)               $51,327      $48,896


                  Cash and temporary investments were $35,299 at December 31,
2001 as compared to $19,240 at December 31, 2000. The increase was due to the
strong cash flows from operations of $32,257 (an increase of $9,625 from the
prior year), the liquidation of available for sale securities throughout the
year, with the proceeds being reinvested into

                                       18
<PAGE>

temporary investments, and an $11,827 decrease in capital expenditures during
2001. The decrease in capital expenditures was mostly a result of the completion
of a five-year network modernization plan in which North Pittsburgh established
36 new carrier serving areas, installed over 225 route miles of fiber and over
260 route miles of copper and upgraded central office equipment with
state-of-the-art products and technologies. North Pittsburgh, through its
modernization plan, not only improved the quality of the voice services and
enhanced features available to its customers, but also upgraded its network to
provide DSL capability to over 97% of its existing access lines. The year 2001
marked the return to a more normalized level of capital expenditures for North
Pittsburgh, a level that should continue into the foreseeable future.

                  Temporary excess funds were invested in short-term cash
equivalents with maturity dates scheduled to coincide with tax payment due
dates, debt principal payments, etc. Management expects to continue the
investment of such excess funds in 2002, which should enable the Registrant to
satisfactorily meet all short-term obligations.

                  Working capital was $32,937 at December 31, 2001 as compared
to $26,569 at December 31, 2000. The increase in working capital was a result of
the increase in cash flows from operating activities and a decrease in capital
expenditures, as described previously in this section, as well as a decrease in
the restructuring liabilities associated with the shut-down of the NSN in
December of 2000.

                  The increase in long-term debt was a result of $6,253 of funds
advanced to finance capital additions, offset by the scheduled $3,822 of
principal repayments in 2001. In 1996, North Pittsburgh was granted approval for
a loan from the Federal Financing Bank (FFB) guaranteed by the Rural Utilities
Service (RUS) in the maximum principal amount of $75 million. The maximum
principal amount has been and will be advanced periodically over a total six-
year period for qualified capital expenditure projects, as defined in the loan
agreement, to furnish and improve telephone service in rural areas. All advances
have a maturity date of December 31, 2012. The total amount outstanding at
December 31, 2001 to the FFB under this loan was $33,938. As of December 31,
2001, North Pittsburgh had $5,196 of qualified capital expenditures that were
eligible to be drawn against this facility. In addition, North Pittsburgh had
principal payments outstanding of $17,389 at December 31, 2001 from loan
advances from the Rural Telephone Bank (RTB) made from 1977 through 1987. The
advances from the RTB have maturity dates ranging from 2009 through 2019.

                  The notes payable to the RTB are secured by a supplemental
Mortgage Agreement executed by North Pittsburgh, which provides that
substantially all of the property, plant and equipment of North Pittsburgh,
which approximates a net book value of $77 million, are subject to a lien or a
security interest. Such agreement contains restrictions regarding dividends and
other distributions by North Pittsburgh. Under these restrictions, unless
certain working capital and net worth levels are maintained, North Pittsburgh is
not permitted to pay dividends on its capital stock (other than in shares of
capital stock), or to make any other distributions to its shareholders or
purchase, redeem or retire any of its capital stock or make any investment in
affiliated companies. As a result of these restrictions, $3,997 of North
Pittsburgh's retained earnings were available for dividends to the Registrant as
of December 31, 2001. Taking into consideration the North Pittsburgh
restrictions, consolidated retained

                                       19
<PAGE>

earnings of the Registrant of approximately $21,387 were available for dividends
and other distributions to shareholders as of December 31, 2001.

                  The original six-year advancement period for the RUS loan ends
in November of 2002, at which time North Pittsburgh has the option of executing
a three-year extension of the advancement period through November of 2005. The
unadvanced amount of this facility as of December 31, 2001 was $34,764.

                  North Pittsburgh also has available through June of 2004 a $10
million line of credit with the Rural Telephone Finance Cooperative at a rate of
prime plus 1 1/2%. No borrowings have taken place against this line of credit.

                  A summary of the Registrant's significant contractual
obligations and commitments as of December 31, 2001 is as follows:

                                               Debt Principal      Capital Lease
                                               --------------      -------------
2002                                              $ 4,125              $1,592
2003                                                4,194               1,592
2004                                                4,268               1,592
2005                                                4,347               1,450
2006                                                4,431               1,272
Thereafter                                         29,962               4,362

                  Capital expenditure commitments for the purchase and
installation of new equipment at December 31, 2001 amounted to approximately
$1.0 million, with such amount being part of the 2002 construction program,
which is projected to be in the range of $13.0 million to $14.0 million.

                  Management expects cash flows provided by operating activities
and cash reserves in 2002 to be sufficient to service long-term debt and capital
lease obligations, to pay dividends and to finance all non-RUS qualified
projects. The Registrant has the necessary cash flows from operations and cash
reserves to internally finance 100% of its capital expenditures. However, due to
the low cost financing available through the RUS for qualified North Pittsburgh
capital expenditures, the Registrant may continue to request advancements from
the RUS facility.

                  (c)    Other Information.
                         -----------------

                         (1)   Critical Accounting Policies.
                               ----------------------------

                         Certain accounting policies are very important to the
portrayal of the Registrant's financial condition and results of operations and
require management's most subjective or complex judgments. These policies are as
follows:

                                       20
<PAGE>

                               Revenue Recognition
                               -------------------

                               Revenues are recognized when local network, long
distance, and access services are provided. Local service and intrastate long
distance and access service revenues are subject to the jurisdiction of the PA
PUC. The Registrant participates in interstate pooling arrangements with other
telephone companies. Such pools are funded by access service charges regulated
by the FCC. Revenue earned through pooling is initially recorded based on
estimates. The Registrant has settled substantially all access service
arrangements through 2000. Revenues from equipment sales are recorded after
equipment has been installed and accepted by the customer.

                               Nonrefundable up-front activation fees associated
with the provisioning of telephone service, when material, are deferred and
recognized over the expected term of the customer relationship.

                               Impairment of Long-Lived Assets
                               -------------------------------

                               Based upon the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Registrant
reviews assets for impairment whenever events or changes in circumstances
indicate that the carrying value of the assets may not be recoverable. A
determination of impairment (if any) is made based on estimates of future cash
flows. The Registrant determined that there was no impairment to the carrying
value of such assets in 2001, 2000 or 1999.

                               Valuation of Accounts Receivable
                               --------------------------------

                               Management reviews accounts receivable to
determine which are doubtful of collection. In making the determination of the
appropriate allowance for doubtful accounts, management considers the
Registrant's accounts receivable aging schedules, history of write-offs,
relationships with its customers and the overall credit worthiness of its
customers.

                               Income Taxes
                               ------------

                               In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment.

                               The judgments used in applying the above policies
are based on management's evaluation of the relevant facts and circumstances as
of the date of the financial statements. Actual results may differ from those
estimates. See additional discussions in this Management's Discussion and
Analysis of Financial Condition and Results of Operations.

                                       21
<PAGE>

                         (2)   NSN Restructuring.
                               -----------------

                               In the fourth quarter of 2000, the Registrant
shutdown the NSN. The sports network division of Pinnatech had been providing
broadcasts of high school and small college sporting events as well as other
sports programming. During 2000, the NSN had expanded its coverage from Western
Pennsylvania into several other states. Although the growth in the popularity of
the site and concept met management's expectations, the revenue generating
model, based mostly on advertising revenues, failed to support the projected
level of continued capital investment and operating expenses.

                               A pretax charge of $972 was recorded during 2000
in network and other operating expenses to cover the restructuring costs
associated with the shutdown of the NSN. The total charges reduced net income by
$632.

                               The business restructuring charge of $972
included restructuring liabilities of $671 and asset impairments of $301. The
restructuring liabilities consisted of $432 for employee severance payments and
related taxes for 30 people who were involuntarily terminated, $122 for future
operating lease expense associated with a leased facility under contract which
will no longer be used and $117 for other charges associated with the
restructuring. As of December 31, 2000, all employees had been terminated and
all severance payments and related taxes had been paid.

                               During 2001, the Registrant satisfied all
remaining obligations with the exception of the remaining future operating lease
payments. Total net cash expenditures during 2001 totaled $331. An additional
net $277 was recorded as expense in 2001, due primarily to the settlement of a
contract for satellite equipment and airtime above the Registrant's original
estimate and the inability to generate the estimated sub-lease contracts for the
facility under lease, offset partially by the sale of NSN fixed assets with a
net book value of $31 for a gain. As of December 31, 2001, the remaining
restructuring accrual liability was $154.

                         (3)   Regulatory Matters.
                               ------------------

                         Both North Pittsburgh and Penn Telecom are subject to
regulatory oversight by the PA PUC for intrastate services and the FCC for
interstate services. The PA PUC and the FCC have broad powers of supervision and
regulation over public utilities with respect to service and facilities, rates
and charges, securities, the encumbering or disposition of public utility
properties, accounting and various other matters.

                         In 1996, Congress passed the 1996 Act, which has the
goal of opening the telecommunications industry to further competition for all
services. The 1996 Act prohibits state legislative or regulatory restrictions or
barriers to entry regarding the provision of local telephone service. It also
requires most incumbent local exchange carriers to interconnect with the
networks of other telecommunications carriers, unbundle their services into
network elements, offer their telecommunications services at wholesale rates to
allow the resale of such services and allow other telecommunications

                                       22
<PAGE>

carriers to locate equipment on their premises. Local exchange telephone
carriers are also required to compensate each other for the transport and
termination of calls.

                         The FCC has issued a number of Rulemakings that
continue to implement the requirements of the 1996 Act. The clear intent of the
1996 Act was to open up the local exchange market to competition. The 1996 Act
appears to mandate, among other items, that North Pittsburgh, at some point in
time, permit the resale of its services at wholesale rates, provide number
portability, if feasible, provide dialing parity, provide interconnection to any
requesting carrier for the transmission and routing of telephone exchange
service and exchange access and provide access to network elements.

                         North Pittsburgh's wireline operations are considered
Rural under the 1996 Act and are exempt from certain of the foregoing
obligations unless, in response to a bona fide request for interconnection, the
PA PUC removes that exemption. North Pittsburgh along with 17 other rural
companies in Pennsylvania was granted a temporary suspension to July 10, 2002 of
certain interconnection requirements in the 1996 Act applicable to incumbent
local exchange carriers as they relate to non-facilities based competition.

                         The provision of interstate toll and access services by
North Pittsburgh and Penn Telecom is subject to the regulatory scrutiny of the
FCC. Terms, conditions and rates for interstate toll and access services are
filed in interstate tariffs for review and approval by the FCC. However,
effective August 1, 2001, the FCC no longer requires non-dominant interstate
toll providers, including Penn Telecom, to file tariffs for their interstate
toll services. Penn Telecom now informs its toll customers of the rates, terms
and conditions through written notice to its customers.

                         In October of 2001, the FCC adopted an Order referred
to as the Multi Association Group, or MAG Order, that modified the interstate
access charge rules and universal service support system for rate-of-return
(ROR) incumbent LECs. North Pittsburgh is subject to this Order. According to
the FCC, the new rules, which went into effect January 1, 2002, are intended to
accomplish the following three (3) goals: 1) align the interstate access rate
structure more closely with the manner in which costs for access are incurred;
2) replace implicit support for universal service with explicit support that is
portable to all eligible telecommunications carriers on a competitively neutral
basis; and 3) provide certainty and stability for small and mid-sized local
telephone companies serving rural and high-cost areas by permitting these
carriers to continue to set rates based on a ROR of 11.25%, thereby encouraging
investment in rural America.

                         The MAG Order had the following effects: 1) increased
flat rate charges referred to as Subscriber Line Charges (SLCs) that are billed
to residential and business customers; and 2) decreased per minute of use
switched access charges billed to interexchange toll providers that originate
and terminate traffic on the LECs network.

                         The MAG Order also created a new universal service
support mechanism, Interstate Common Line Support (ICLS). The ICLS will replace
the Carrier Common Line (CCL) charge, which was previously billed to
interexchange toll providers. The ICLS will be phased in beginning July of 2002
and the CCL will be eliminated as of July of 2003. The initial

                                       23
<PAGE>

effect of the implementation of the MAG Order on North Pittsburgh is expected to
be revenue neutral. A number of parties have filed Petitions for Reconsideration
regarding certain issues contained in the MAG Order. The outcome of these
Petitions is unknown at this time. Because the outcome of these proceedings is
uncertain at this time, North Pittsburgh is unable to predict the specific
long-term effect that the MAG Order will have on its revenues and operations.

                         Penn Telecom, as a CLEC, was not directly affected by
the MAG Order, as it does not currently offer services in the areas served by
incumbent LECs that were subject to the Order.

                         At the same time the MAG Order was adopted, the FCC
also issued a Further Notice of Proposed Rulemaking seeking comment on an
incentive regulation plan for incumbent LECs which are now under ROR regulation
in the interstate jurisdiction. Because the outcome of this proceeding is not
yet known, North Pittsburgh is not able to predict the specific effect that it
will have on its operations and revenues.

                         In February of 2002, the FCC issued a Notice of
Proposed Rulemaking (NPRM) regarding the possible classification of wireline
broadband Internet access as an information service rather than a
telecommunications service. Should the FCC adopt this finding, it may remove
network based broadband offerings such as DSL services from regulation under the
FCC Act. Such deregulation of broadband services would generally be viewed as
favorable to North Pittsburgh in that these broadband services would not have to
be offered to competing CLECs on an unbundled basis. However, in the NPRM, the
FCC also asked whether it should extend universal service fund (USF)
requirements to not only facilities based wireline Broadband Internet Service
Providers (BISPs), but also wireless, cable TV and satellite BISPs.

                         Should the FCC extend a USF contribution requirement to
all BISPs, both North Pittsburgh and Penn Telecom would be affected. Because the
outcome of this proceeding is unknown at this time, neither North Pittsburgh nor
Penn Telecom is able to determine the specific effect such action would have on
their operations and revenues.

                         In February of 2002, the FCC issued a Further Notice of
Proposed Rulemaking regarding the possible reformation of the system for
assessing and recovering USF funds. In addition to asking whether BISPs should
contribute as described above, the FCC has also asked for comment on whether it
should assess carrier contributions based on the number and capacity of
connections that contributing carriers provide to customers, rather than on the
current method which is based on the interstate revenues they earn.

                         Should the FCC move to reform the current system for
assessing and recovering USF funds, both North Pittsburgh and Penn Telecom would
be affected by the change. Because the outcome of this proceeding is unknown at
this time, neither North Pittsburgh nor Penn Telecom is able to determine the
specific effect such action would have on their operations and revenues.

                                       24
<PAGE>

                         Effective January 22, 2001, North Pittsburgh moved from
ROR regulation in the intrastate jurisdiction to an alternative form of
regulation, which is a price cap plan. Under North Pittsburgh's price cap plan,
rates for non-competitive intrastate services are allowed to increase based on
an index that measures economy wide price increases less a productivity offset.
There is no limitation on earnings under this plan. The terms of the plan also
allow North Pittsburgh to rebalance rates once each year in order to allow North
Pittsburgh to gradually realign its intrastate rate structure on a more rational
basis in order to meet future competition. In addition, as competition develops
in the future, North Pittsburgh may file with the PA PUC to declare certain
services competitive and thereby be freed from all rate regulation for those
services. In return for approval of the alternative form of regulation, North
Pittsburgh has committed to continue to upgrade its network in the future to
ensure that all its customers will have access to broadband services. While
there is no immediate impact to North Pittsburgh's operations and revenues under
the price cap plan, it is North Pittsburgh's view that the plan as approved will
aid North Pittsburgh in meeting competition in the future.

                         Historically, North Pittsburgh's wireline operations
have not experienced significant competition in its franchised service area.
However, as a result of the passage of the 1996 Act, North Pittsburgh's local
wireline operations are experiencing increased competition from various sources,
including, but not limited to, large end users installing their own networks,
IXCs, satellite transmission services, cellular communications providers, cable
television companies, radio-based personal communications companies, CAPs and
other systems capable of completely or partially bypassing local telephone
facilities.

                         Specifically, the PA PUC, in an order entered April 10,
2001, granted AT&T Communications and its affiliate, TCG Pittsburgh, (AT&T/TCG)
authority to provide local dial tone services as a facilities-based CLEC in the
service areas of eight (8) telephone companies in Western Pennsylvania,
including North Pittsburgh, utilizing cable TV facilities. However, due to
changes in business plans and a corporate reorganization, AT&T/TCG in January of
2002 determined not to pursue their request for authority as a CLEC in those
rural service areas.

                         Although North Pittsburgh cannot predict the specific
effects of competition on its local telephone business, it is intent on taking
advantage of the various opportunities that competition should provide. North
Pittsburgh is currently addressing potential competition by focusing on improved
customer satisfaction, reducing costs, increasing efficiency, restructuring
rates and examining new product offerings and new markets for entry.

                         At the same time, Penn Telecom is actively expanding
its CLEC operations outside of North Pittsburgh's service territory, with
customers having been added in Verizon's (formerly Bell Atlantic) and Sprint's
traditional service territories.

                         The provisions of intrastate toll and access services
are subject to regulatory scrutiny of the PA PUC. Terms, conditions and rates
for intrastate toll and access services are filed in intrastate tariffs for
review and approval by the PA PUC.

                         On September 30, 1999, the PA PUC issued an Order
dealing with a variety of issues impacting LECs in Pennsylvania. Referred to as
the Global Proceeding, the Order dealt with certain issues that affected North
Pittsburgh. Specifically, the

                                       25
<PAGE>

Order allowed North Pittsburgh to rebalance and lower access charges in order to
prepare North Pittsburgh to meet competition in its serving area. The reduction
in access charges was offset in part by reimbursements from an interim state USF
that is funded by all telecommunications providers (excluding wireless) in the
state. Because the rebalancing and reduction of access charges was offset by
reimbursement from the fund, North Pittsburgh has not experienced any
significant impact on operations or revenues as a result of the Global Order.
The PA PUC, in the Global Order, indicated that it would commence another
proceeding on or after January 2, 2001 to examine further changes to the USF and
possible additional access charge reform. By Secretarial Letter dated February
1, 2002, the PA PUC granted a coalition of telephone companies, including North
Pittsburgh, a ninety (90) day extension until April 15, 2002 in which to submit
a proposal to the PA PUC outlining proposed changes in access charges and the
fund along with a timeline for these changes.

                         The 1996 Act, FCC and PA PUC regulatory proceedings and
the thrust towards a fully competitive marketplace have created some uncertainty
in respect to the levels of North Pittsburgh's revenue growth in the future.
However, its unique location in a growing commercial/residential suburban
traffic corridor to the north of the City of Pittsburgh, its state-of-the-art
switching transmission and transport facilities and its extensive fiber network
place North Pittsburgh in a solid position to meet competition and minimize any
loss of revenues. In addition, North Pittsburgh continues to make its network
flexible and responsive to the needs of its customers to meet competitive
threats. New services, access line and DSL growth and anticipated usage growth
are expected to lessen or offset any reductions in North Pittsburgh's revenue
sources. At the same time, Penn Telecom continues its CLEC edge-out strategy in
the Pittsburgh metropolitan area and the city of Butler, PA, while taking
advantage of the opportunities afforded by the 1996 Act and the introduction of
competition into the toll, local wireline and broadband markets.

                         (4)   Transactions with Related Parties.
                               ---------------------------------

                         In 1998, the Registrant entered into an agreement to
outsource certain data processing functions to a third party processor
(Processor). The Registrant and the Processor are related by a common
shareholder and director. Payments to the Processor under this agreement were
$3,196, $2,807 and $2,553 in 2001, 2000 and 1999, respectively. During 2001,
2000 and 1999, the Registrant paid approximately $42, $106 and $101,
respectively, to the law firm of a member of the Board of Directors for
various legal services. As of December 31, 2001, the Registrant had amounts
outstanding of $241 and $275 to the Processor and law firm, respectively.

                         (5)   Inflation and Changing Prices.
                               -----------------------------

                         During the three most recent fiscal years, inflation
and changing prices did not have a significant impact on net sales and on income
from continuing operations.

                                       26
<PAGE>

                         (6)   Regulatory Assets.
                               -----------------

                         Management does not believe that the Registrant has any
significant regulatory assets or liabilities under Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation". Historically, the Registrant has monitored closely the economic
lives of plant in service and has adjusted depreciable lives as necessary to
conform to generally accepted accounting principles.

                         (7)   New Accounting Pronouncements.
                               -----------------------------

                         In July, 2001, the Financial Accounting Standards Board
issued SFAS No. 142, "Goodwill and Other Intangible Assets". The pronouncement
is effective for the Registrant's year beginning January 1, 2002. As of December
31, 2001, the Registrant had a net book value of $561 in equity method goodwill
(recorded under "Investments") as the result of the purchase of additional
interest in the Pennsylvania RSA 6(II) Limited Partnership in September, 2000.
SFAS No. 142 discontinues the amortization of equity method goodwill and
prescribes that the Registrant continue to test for impairment in accordance
with Accounting Principles Board (APB) Opinion 18. As the annual amortization of
the goodwill was only $30, the Registrant does not believe that this
pronouncement will have a significant impact on the consolidated financial
statements.

                         In June, 2001, the Financial Accounting Standards Board
issued SFAS No. 143, "Accounting for Asset Retirement Obligations". The
pronouncement is effective for the Registrant's year beginning January 1, 2003.
The Registrant does not expect this pronouncement will have a significant impact
on the consolidated financial statements.

                         In August, 2001, the Financial Accounting Standards
Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets". The pronouncement is effective for the Registrant's year
beginning January 1, 2002. The Registrant does not expect that this
pronouncement will have a significant impact on the consolidated financial
statements.




Item 7A.          Quantitative and Qualitative Disclosure About Market Risk
--------          ---------------------------------------------------------
                  (Amounts in Thousands).
                  ----------------------


                  The Registrant's limited exposure to market risk for changes
in interest rates relates primarily to the Registrant's long-term debt
obligations. The Registrant primarily enters into debt obligations to support
capital expenditures. The Registrant currently has no cash flow exposure due to
rate changes for long-term debt obligations, as all obligations contain fixed
rates. As of December 31, 2001, the Registrant had debt obligations of $51,327
with an average interest rate of 5.81%. Based on borrowing rates currently
available to the Registrant for loans with similar terms and maturities, the
estimated fair value of long-term debt as of

                                       27
<PAGE>

December 31, 2001 was $51,526. The only exposure to market risk for changes in
interest rates would be in the event that the Registrant prepays its debt, at
which time a debt premium or discount would be calculated based on current RUS
borrowing rates.

                  The Registrant does not use derivative financial instruments
in its investment portfolio or for any other purpose.



Item 8.           Financial Statements and Supplementary Data.
                  -------------------------------------------


                  Financial statements meeting the requirements of Regulation
S-X and the supplementary financial information specified by Item 302 of
Regulation S-K are attached to this document.



Item 9.           Changes in and Disagreements with Accountants on Accounting
-------           -----------------------------------------------------------
                  and Financial Disclosure.
                  ------------------------


                  This paragraph is not applicable. There has not been a change
of accountants in the past 24 months nor has any disagreement on any matter of
accounting principles or practices been reported on Form 8-K during the same
time period.




                                    PART III



Item 10.          Directors and Executive Officers of the Registrant.
--------          --------------------------------------------------

                  and



Item 11.          Executive Compensation.
--------          ----------------------

                  and

                                       28
<PAGE>

Item 12.          Security Ownership of Certain Beneficial Owners and
-------           ---------------------------------------------------
                  Management.
                  ----------

                  and



Item 13.          Certain Relationships and Related Transactions.
-------           ----------------------------------------------


                  Information in respect to executive officers of the Registrant
is included herein as a separate Additional Item for Part I under the caption
"Executive Officers of the Registrant" and follows Item 4. The other information
required by Items 10, 11, 12 and 13 has been omitted from this report since the
Registrant expects to file a Definitive Proxy Statement pursuant to Regulation
14A involving, inter alia, the election of Directors not later than 120 days
after the end of the fiscal year covered by this report and such information is
incorporated into Part III of this Form 10-K by reference thereto.




                                     PART IV



Item 14.          Exhibits, Financial Statement Schedules and Reports on
-------           ------------------------------------------------------
                  Form 8-K.
                  --------

                  (a) The following documents of the Registrant and its
subsidiaries are filed as part of this report:

                  1.     Financial Statements:
                         --------------------

                         Consolidated Balance Sheets as of December 31, 2001 and
                         2000

                         Consolidated Statements of Earnings for the Years Ended
                         December 31, 2001, 2000 and 1999

                         Consolidated Statements of Shareholders' Equity and
                         Comprehensive Income for the Years Ended December 31,
                         2001, 2000 and 1999

                         Consolidated Statements of Cash Flows for the Years
                         Ended December 31, 2001, 2000 and 1999

                         Notes to Consolidated Financial Statements

                                       29
<PAGE>

                  2.     Financial Statement Schedules:
                         -----------------------------

                         Condensed Financial Information of Registrant for the
                         Years Ended December 31, 2001, 2000 and 1999

                         Valuation and Qualifying Accounts and Reserves Years
                         Ended December 31, 2001, 2000 and 1999

                         All schedules other than those listed above have been
                         omitted because the information is either not required
                         or is set forth in the financial statements or notes
                         thereto.

                  3.     Exhibits:
                         ---------

                         The Exhibit Index for Annual Reports on Form 10-K and
                         the applicable Exhibits for this report may be found
                         under the caption OTHER INFORMATION, which follows the
                         signature pages.

                  (b)    Reports on Form 8-K. No reports on Form 8-K were filed
                         -------------------
during the quarter ended December 31, 2001.

                  (c)    Exhibits Required by Item 601 of Regulation S-K.  See
                         -----------------------------------------------------
(a)(3) above.

                  (d)    Financial Statement Schedules. The financial statement
                         -----------------------------
schedules listed in Item 14(a)(2) are hereby filed as part of this Form 10-K.

                                       30
<PAGE>

                                   SIGNATURES




           Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.





                         NORTH PITTSBURGH SYSTEMS, INC.
                         ------------------------------
                                   Registrant







By /s/ H. R. Brown                           By /s/ C. E. Thomas, Jr.
   -------------------------------              ---------------------------
       H. R. Brown                                   C. E. Thomas, Jr.
       President, Director, and                      Chairman of the Board
       Principal Executive Officer




Date       March 28, 2002                    Date       March 28, 2002
     -----------------------------                -------------------------
<PAGE>

           Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.





By  /s/ A. P. Kimble
   ---------------------------------------------
       A. P. Kimble
       Director, Vice President, Treasurer and
       Principal Financial and Accounting Officer




Date      March 28, 2002
    ---------------------------------------------









By /s/ C. E. Cole
   ---------------------------------------------
       C. E. Cole
       Director




Date      March 28, 2002
    ---------------------------------------------
<PAGE>

                                OTHER INFORMATION

                  Exhibit Index for Annual Reports on Form 10-K
                  ---------------------------------------------

<TABLE>
<CAPTION>

Exhibit No.                                 Subject                                           Applicability
-----------                                 -------                                           -------------
<S>                        <C>                                                  <C>
     (2)                   Plan of acquisition, reorganization,                 Not Applicable
                           arrangement, liquidation or
                           succession

     (3)(i)                Articles of Incorporation                            Provided  in  Quarterly  Report  on  Form
                                                                                10-Q for the quarter ended June 30, 1996
                                                                                and Incorporated Herein by Reference.

     (3)(ii)               By-Laws                                              Provided  in  Annual Report on Form 10-K
                                                                                for the year ended  December 31, 1998 and
                                                                                Incorporated Herein by Reference.

     (4)                   Instruments defining the rights                      Provided in Registration of Securities of
                           of security holders, including                       Certain Successor Issuers on Form 8-B filed
                           indentures                                           June 25, 1985 and Incorporated Herein by
                                                                                Reference

     (9)                   Voting trust agreement                               Not Applicable

    (10)                   Material contracts                                   Provided  in  Quarterly  Report  on  Form
                                                                                10-Q for the quarter ended September 30,
                                                                                1999 and Incorporated Herein by Reference.

    (11)                   Statement re computation of per                      Attached Hereto
                           share earnings

    (12)                   Statement re computation of ratios                   Not Applicable

    (13)                   Annual report to security holders,                   Not Applicable
                           Form 10-Q or quarterly report to
                           security holders

</TABLE>
<PAGE>

<TABLE>
<CAPTION>

  Exhibit No.                            Subject                                        Applicability
-------------                            -------                                        -------------

<S>                        <C>                                                  <C>
    (16)                   Letter re change in certifying                       Not Applicable
                           accountant

    (18)                   Letter re change in accounting                       Not Applicable
                           principles

    (21)                   Subsidiaries of the Registrant                       Attached Hereto

    (22)                   Published report regarding matters                   Not Applicable
                           submitted to vote of security
                           holders

    (23)                   Consent of experts and counsel                       Not Applicable

    (24)                   Power of attorney                                    Not Applicable

    (99)                   Additional Exhibits                                  Not Applicable

</TABLE>
<PAGE>

                         NORTH PITTSBURGH SYSTEMS, INC.
                                AND SUBSIDIARIES

                        Consolidated Financial Statements
                            and Schedule (Form 10-K)

                        December 31, 2001, 2000 and 1999

                   (With Independent Auditors' Report Thereon)
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES



                                Table of Contents



                                                                           Page

Independent Auditors' Report                                                 1

Consolidated Financial Statements:
    Consolidated Balance Sheets as of December 31, 2001 and 2000             2
    Consolidated Statements of Earnings for the Years Ended
       December 31, 2001, 2000 and 1999                                      4
    Consolidated Statements of Shareholders' Equity and Comprehensive
       Income for the Years Ended December 31, 2001, 2000 and 1999           5
    Consolidated Statements of Cash Flows for the Years Ended
       December 31, 2001, 2000 and 1999                                      7
    Notes to Consolidated Financial Statements                               9

Consolidated Financial Statement Schedules:

I   Condensed Financial Information of Registrant for the
    Years Ended December 31, 2001, 2000 and 1999                            25

II  Schedule II - Valuation and Qualifying Accounts and Reserves
    Years Ended December 31, 2001, 2000 and 1999                            30
<PAGE>

                          Independent Auditors' Report


The Board of Directors
North Pittsburgh Systems, Inc.:


We have audited the consolidated financial statements of North Pittsburgh
Systems, Inc. and subsidiaries (the Company) as listed in the accompanying table
of contents. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedules as listed in
the accompanying table of contents. These consolidated financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit 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 that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of North Pittsburgh
Systems, Inc. and subsidiaries at December 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.



/s/ KPMG LLP

Pittsburgh, Pennsylvania
February 22, 2002
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                           December 31, 2001 and 2000
                             (Amounts in Thousands)
<TABLE>
<CAPTION>

                       Assets                                                                  2001        2000
                                                                                             --------    -------
<S>                                                                                        <C>          <C>
Current assets:
   Cash and temporary investments                                                            $ 35,299     19,240
   Marketable securities available for sale (note 2)                                              244      5,026
   Accounts receivable:
     Customers, net of allowance for doubtful accounts
       of $415 and $559, respectively                                                           5,404      5,077
     Access service settlements and other                                                       8,606      8,159
   Prepaid expenses                                                                               496        462
   Inventories of construction and operating
    materials and supplies                                                                      2,548      4,783
   Federal and state income taxes (note 7)                                                         --         16
   Deferred income taxes (note 7)                                                               1,249        933
                                                                                             --------    -------
         Total current assets                                                                  53,846     43,696

Property, plant and equipment (note 4):
     Land                                                                                         475        475
     Buildings                                                                                 13,531     13,071
     Equipment                                                                                173,714    173,293
     Assets held under capital lease (note 5)                                                  10,363      8,875
                                                                                             --------    -------
                                                                                              198,083    195,714

       Less accumulated depreciation and amortization                                          99,660     99,176
                                                                                             --------    -------
                                                                                               98,423     96,538

     Construction-in-progress                                                                   2,875      7,540
                                                                                             --------    -------
         Total property, plant and equipment, net                                             101,298    104,078

Investments (note 3)                                                                           11,891     11,170
Deferred financing cost                                                                           590        675
Other assets                                                                                    1,338      1,335
                                                                                             --------    -------
                                                                                             $168,963    160,954
                                                                                             ========    =======
</TABLE>
                                       2                             (Continued)
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                           December 31, 2001 and 2000
                             (Amounts in Thousands)

<TABLE>
<CAPTION>
                           Liabilities and Shareholders' Equity                                        2001                    2000
                                                                                                    ---------               -------
<S>                                                                                                 <C>                       <C>
Current liabilities:
     Current portion of long-term debt (note 4)                                                     $   4,125                 3,519
     Obligation under capital lease (note 5)                                                              926                   747
     Accounts payable                                                                                   7,764                 6,992
     Dividend payable                                                                                   2,551                 2,551
     Other accrued liabilities                                                                          3,938                 3,318
     Federal and state income taxes (note 7)                                                            1,605                    --
                                                                                                    ---------               -------
            Total current liabilities                                                                  20,909                17,127

Long-term debt (note 4)                                                                                47,202                45,377
Obligation under capital lease (note 5)                                                                 7,607                 7,137
Deferred income taxes (note 7)                                                                         10,483                 9,645
Accrued pension and postretirement benefits (note 6)                                                    6,476                 5,781
Other liabilities                                                                                       1,944                 1,693
                                                                                                    ---------               -------
            Total liabilities                                                                          94,621                86,760

Shareholders' equity:
     Capital stock - common stock, par value $.15625;
       authorized 50,000 shares;
       issued 15,040 shares and
       outstanding 15,005 shares                                                                        2,350                 2,350
     Capital in excess of par value                                                                     2,215                 2,215
     Retained earnings (note 4)                                                                        70,342                70,183
     Less cost of treasury stock (35 shares)                                                             (508)                 (508)
     Accumulated other comprehensive income - unrealized
      loss on available for sale securities, net (notes 2 and 7)                                          (57)                  (46)
                                                                                                    ---------               -------
            Total shareholders' equity                                                                 74,342                74,194
                                                                                                    ---------               -------
                                                                                                    $ 168,963               160,954
                                                                                                    =========               =======
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                       Consolidated Statements of Earnings

                  Years ended December 31, 2001, 2000 and 1999

                  (Amounts in Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                                                                     2001                 2000                1999
                                                                                   --------              ------              ------
<S>                                                                                <C>                   <C>                 <C>
Operating revenues:
     Local network services                                                        $ 20,142              15,432              13,765
     Long distance and access services                                               54,452              52,388              46,663
     Directory advertising, billing
      and other services                                                              2,324               2,726               2,664
     Telecommunication equipment sales                                                2,458               2,120               2,985
     Other operating revenues                                                         7,068               5,185               4,245
                                                                                   --------              ------              ------
                                                                                     86,444              77,851              70,322
Operating expenses:
     Network and other operating expenses (note 8)                                   44,516              43,637              31,687
     Depreciation and amortization (note 1)                                          17,335              16,754              13,691
     State and local taxes                                                            2,815               3,190               3,137
     Telecommunication equipment expenses                                             1,733               1,560               2,322
                                                                                   --------              ------              ------
                                                                                     66,399              65,141              50,837
                                                                                   --------              ------              ------
         Net operating revenues                                                      20,045              12,710              19,485

Other expense (income), net:
     Interest expense                                                                 3,733               3,140               2,263
     Interest income                                                                 (1,118)             (1,367)               (976)
     Sundry income, net                                                                (406)             (2,960)             (3,320)
                                                                                   --------              ------              ------
                                                                                      2,209              (1,187)             (2,033)
                                                                                   --------              ------              ------
         Earnings before income taxes                                                17,836              13,897              21,518

Provision for income taxes (note 7)                                                   7,474               6,008               8,833
                                                                                   --------              ------              ------
         Net earnings                                                              $ 10,362               7,889              12,685
                                                                                   ========              ======              ======
Average common shares outstanding                                                    15,005              15,005              15,005
                                                                                   ========              ======              ======
Basic and diluted earnings per share                                               $    .69                 .53                 .85
                                                                                   ========              ======              ======
Dividends per share                                                                $    .68                 .67                 .64
                                                                                   ========              ======              ======

</TABLE>


See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
    Consolidated Statements of Shareholders' Equity and Comprehensive Income

                  Years ended December 31, 2001, 2000 and 1999

                             (Amounts in Thousands)
<TABLE>
<CAPTION>
                                                                                                        Accumulated
                                                                      Capital in                           other         Total
                                                           Common     excess of   Retained    Treasury  comprehensive shareholders'
                                                           stock      par value   earnings     stock       income        equity
                                                         --------     ---------   --------     -------  ------------- -------------
<S>                  <C> <C>                             <C>            <C>        <C>          <C>          <C>         <C>
Balances at December 31, 1998                            $  2,350       2,215      69,265       (508)        484         73,806

Comprehensive income:
     Net income                                                --          --      12,685         --          --         12,685
     Other comprehensive income:
       Unrealized holding gains (losses) arising
        during the period                                                                                    484
       Less:  Reclassification adjustments for
               net gains included in net income                                                             (125)
                                                                                                            ------
       Net unrealized change in investment
        securities, net of tax effect of $267                                                                359            359
                                                                                                                         ------
Comprehensive income                                                                                                     13,044

Dividends declared on common stock                             --          --      (9,603)        --          --         (9,603)
                                                         --------       -----      ------       ----         ---         ------
Balances at December 31, 1999                               2,350       2,215      72,347       (508)        843         77,247

Comprehensive income:
    Net income                                           $     --          --       7,889         --          --          7,889
    Other comprehensive income:
      Unrealized holding gains (losses) arising
       during the period                                                                                     344
      Less:  Reclassification adjustments for
              net gains included in net income                                                            (1,233)
      Net unrealized change in investment                                                                 ------
       securities, net of tax effect of $(631)                                                              (889)          (889)
                                                                                                                        -------
Comprehensive income                                                                                                      7,000

Dividends declared on common stock                             --          --     (10,053)        --          --        (10,053)
                                                         --------       -----      ------       ----         ---        -------
Balances at December 31, 2000                               2,350       2,215      70,183       (508)        (46)        74,194

</TABLE>

                                       5                             (Continued)
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
    Consolidated Statements of Shareholders' Equity and Comprehensive Income

                  Years ended December 31, 2001, 2000 and 1999

                             (Amounts in Thousands)

<TABLE>
<CAPTION>
                                                                                                        Accumulated
                                                                    Capital in                              other         Total
                                                        Common      excess of   Retained    Treasury   comprehensive   shareholders'
                                                        stock       par value   earnings     stock         income         equity
                                                      --------     -----------  --------    --------   -------------   -------------

<S>                                                  <C>                         <C>                                     <C>
Comprehensive income:
  Net income                                         $     --           --       10,362         --           --          10,362
  Other comprehensive income:
    Unrealized holding gains (losses) arising
     during the period                                                                                       24
    Less:  Reclassification adjustments for
            net gains included in net income                                                                (35)
                                                                                                         ------
    Net unrealized change in investment
     securities, net of tax effect of $(7)                                                                  (11)            (11)
                                                                                                         ------        --------
Comprehensive income                                                                                                     10,351

Dividends declared on common stock                         --           --      (10,203)        --           --         (10,203)
                                                     --------        -----       ------       ----       ------         -------
Balances at December 31, 2001                        $  2,350        2,215       70,342       (508)         (57)         74,342
                                                     ========        =====       ======       ====       ======         =======

</TABLE>

See accompanying notes to consolidated financial statements.

                                       6
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                  Years ended December 31, 2001, 2000 and 1999

                             (Amounts in Thousands)
<TABLE>
<CAPTION>
                                                                                          2001              2000              1999
                                                                                       --------          --------          --------
<S>                                                                                    <C>                  <C>              <C>
Cash from operating activities:
     Net earnings                                                                      $ 10,362             7,889            12,685
     Adjustments to reconcile net earnings
        to net cash provided by operating activities:
           Depreciation and amortization                                                 17,335            16,754            13,691
           Gain on sale of marketable securities                                            (59)           (2,056)             (208)
           Equity income of affiliated companies                                         (1,378)             (926)             (921)
           Investment tax credit amortization                                               (24)              (29)              (69)
           Deferred income taxes                                                            529                16               999
           Changes in assets and liabilities:
              Accounts receivable                                                          (774)             (419)           (1,908)
              Inventories of construction and
                 operating materials and supplies                                         2,235               (29)             (735)
              Deferred financing costs, prepaid
                 expenses and other assets                                                   48               219              (325)
              Accounts payable                                                              772               (94)              330
              Other accrued liabilities                                                     895               504               132
              Accrued pension and postretirement benefits                                   695             1,124               253
              Federal and state income taxes                                              1,621              (321)             (615)
                                                                                       --------          --------          --------
                    Total adjustments                                                    21,895            14,743            10,624
                                                                                       --------          --------          --------
                    Net cash provided by operating activities                            32,257            22,632            23,309

Cash used for investing activities:
     Expenditures for property and equipment                                            (12,750)          (24,577)          (25,378)
     Net salvage and cost of removal on retirements                                        (318)              369               268
                                                                                       --------          --------          --------
                    Net capital additions                                               (13,068)          (24,208)          (25,110)

     Purchase of marketable securities available for sale                                (1,044)           (6,983)           (9,968)
     Proceeds from sale of marketable securities
        available for sale                                                                5,868            19,515             8,450
     Investments in affiliated entities                                                      --            (1,003)               --
     Distributions from affiliated entities                                                 657               374               943
                                                                                       --------          --------          --------
                    Net cash used for investing activities                               (7,587)          (12,305)          (25,685)
</TABLE>

                                       7                             (Continued)
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                  Years ended December 31, 2001, 2000 and 1999

                             (Amounts in Thousands)


<TABLE>
<CAPTION>
                                                                                         2001               2000              1999
                                                                                       --------          --------          --------
<S>                                                                                    <C>                 <C>               <C>
Cash used for financing activities:
     Cash dividends                                                                    $(10,203)           (9,903)           (9,453)
     Retirement of debt                                                                  (3,822)           (2,982)           (1,990)
     Proceeds from issuance of debt                                                       6,253            10,309             9,513
     Payment of capital lease obligation                                                   (839)             (991)               --
                                                                                       --------          --------          --------
                    Net cash used for financing activities                               (8,611)           (3,567)           (1,930)
                                                                                       --------          --------          --------
                    Net increase (decrease) in cash and
                       temporary investments                                             16,059             6,760            (4,306)

Cash and temporary investments at beginning of year                                      19,240            12,480            16,786
                                                                                       --------          --------          --------
Cash and temporary investments at end of year                                          $ 35,299            19,240            12,480
                                                                                       ========          ========          ========
Supplemental disclosures of cash flow information:
     Interest paid                                                                     $  3,641             2,910             2,175
                                                                                       ========          ========          ========
     Income taxes paid                                                                 $  4,950             6,342             8,250
                                                                                       ========          ========          ========
</TABLE>

Supplemental disclosure of noncash financing activities:
     Capital lease obligations of $1,488 and $8,875 were incurred
        during 2001 and 2000, respectively, when a subsidiary of the Company
        entered into a lease for new equipment.

See accompanying notes to consolidated financial statements.

                                       8
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999

                 (Amounts in Thousands, Except Per Share Data)





(1)    Summary of Significant Accounting Policies

       (a)    Basis of Presentation and Consolidation

              The consolidated financial statements include the accounts of
              North Pittsburgh Systems, Inc. (the Company) and its subsidiaries,
              North Pittsburgh Telephone Company (NPTC), Penn Telecom, Inc.
              (PTI) and Pinnatech, Inc. The Company provides telecommunication
              services and equipment to its customers generally located in
              western Pennsylvania. All significant intercompany accounts and
              transactions have been eliminated in consolidation.

              The preparation of the consolidated financial statements in
              conformity with accounting principles generally accepted in the
              United States of America requires management to make estimates and
              assumptions that affect the reported amounts of assets,
              liabilities, revenues and expenses and disclosure of contingent
              assets and liabilities. The estimates and assumptions used in the
              accompanying consolidated financial statements are based upon
              management's evaluation of the relevant facts and circumstances as
              of the date of the financial statements. Actual results may differ
              from the estimates and assumptions used in preparing the
              accompanying consolidated financial statements.

       (b)    Revenue Recognition

              Revenues are recognized when local network, long distance, and
              access services are provided. Local service and intrastate long
              distance and access service revenues are subject to the
              jurisdiction of the Pennsylvania Public Utility Commission (PUC).
              The Company participates in interstate pooling arrangements with
              other telephone companies. Such pools are funded by access service
              charges regulated by the Federal Communications Commission.
              Revenue earned through pooling is initially recorded based on
              estimates. The Company has settled substantially all access
              service arrangements through 2000. Revenues from equipment sales
              are recorded after equipment has been installed and accepted by
              the customer.

              Nonrefundable up-front activation fees associated with the
              provisioning of telephone service, when material, are deferred and
              recognized over the expected term of the customer relationship.

       (c)    Marketable Securities

              Marketable securities available for sale are recorded at fair
              value, based on quoted market prices. Changes in value of
              available for sale securities are included as a separate component
              of shareholders' equity and comprehensive income. Costs of
              investments sold are determined on the basis of specific
              identification.

                                       9
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999

                 (Amounts in Thousands, Except Per Share Data)





       (d)    Investments

              The Company's investments in limited partnerships are carried at
              cost plus equity in accumulated net profits or losses.

       (e)    Property, Plant and Equipment

              Property, plant and equipment is recorded at cost. Retirements
              relating to replacements of telephone plant and equipment are
              accounted for in accordance with applicable regulations of the
              PUC. Accordingly, the original costs of facilities retired, plus
              costs of removal, net of salvage or other credits, are charged to
              accumulated depreciation. When other property is retired or
              otherwise disposed of, any gain or loss is recognized in income.

              Depreciation on telephone plant and equipment in service is
              provided on a straight-line basis over estimated useful lives of
              10 to 30 years for buildings and 5 to 20 years for equipment.
              Depreciation as a percentage of average depreciable plant and
              equipment in service amounted to 8.8%, 9.3% and 8.7% in 2001, 2000
              and 1999, respectively.

              Expenditures for maintenance, repairs and renewals are charged to
              operations as incurred.

       (f)    Impairment of Long-Lived Assets

              Based upon the provisions of Statement of Financial Accounting
              Standards No. 121, "Accounting for the Impairment of Long-Lived
              Assets and for Long-Lived Assets to be Disposed Of", the Company
              reviews assets for impairment whenever events or changes in
              circumstances indicate that the carrying value of the assets may
              not be recoverable. A determination of impairment (if any) is made
              based on estimates of future cash flows. The Company has
              determined that there has been no impairment to the carrying value
              of such assets in 2001, 2000 or 1999.

       (g)    Inventories

              Inventories consist of telecommunication equipment and parts to
              provide service to, or to make sales to, the Company's customers.
              Inventories are valued at the lower of cost (using the moving
              average method) or market.

       (h)    Accounts Receivable

              The Company provides telecommunication services to customers
              (business and residential) located in western Pennsylvania and
              access connectivity to interexchange carriers. Access service
              settlements and other principally represent amounts due from
              interexchange carriers.

                                       10
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999

                 (Amounts in Thousands, Except Per Share Data)





              Management reviews accounts receivable to determine which are
              doubtful of collection. In making the determination of the
              appropriate allowance for doubtful accounts, management considers
              the Company's accounts receivable aging schedules, history of
              write-offs, relationships with its customers, and the overall
              credit worthiness of its customers.

       (i)    Income Taxes

              Income taxes are accounted for under the asset and liability
              method. Deferred tax assets and liabilities are recognized for the
              future tax consequences attributable to differences between the
              financial statement carrying amounts of existing assets and
              liabilities and their respective tax bases and operating loss and
              tax credit carryforwards. Deferred tax assets and liabilities are
              measured using enacted tax rates expected to apply to taxable
              income in the years in which those temporary differences are
              expected to be recovered or settled. The effect on deferred tax
              assets and liabilities of a change in tax rates is recognized in
              income in the period that includes the enactment date.

              Investment tax credits applicable to assets acquired or committed
              for by January 1, 1986, are being amortized over the average
              useful lives of the assets to which they relate.

              The Company and its subsidiaries file a consolidated federal
              income tax return.

       (j)    Cash Equivalents

              For purposes of the consolidated statements of cash flows, the
              Company considers all temporary investments purchased with a
              maturity of three months or less to be cash equivalents. Under
              conditions of the Company's loan agreement with the Rural
              Utilities Services, the Company has cash of $245 and $764 for 2001
              and 2000, respectively, that is restricted in use.

       (k)    Pension and Other Postretirement Benefits

              The Company provides pension and other postretirement benefits to
              substantially all of its employees and eligible retirees. Benefits
              provided by these plans are expensed over the estimated working
              lives of employees.

       (l)    Comprehensive Income

              Comprehensive income consists of net income and net unrealized
              gains (losses) on securities, net of income tax, and is presented
              in the consolidated statements of shareholders' equity and
              comprehensive income.

                                       11
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999

                 (Amounts in Thousands, Except Per Share Data)





       (m)    Earnings Per Share

              Basic earnings per share is calculated based upon the weighted
              average number of common shares actually outstanding, and diluted
              earnings per share is calculated based upon the weighted average
              number of common shares outstanding and other potential common
              shares if they are dilutive. The Company has no potential,
              dilutive common shares outstanding.

       (n)    Reclassifications

              Certain prior year amounts have been reclassified to conform with
              the current year's presentation.

       (o)    New Accounting Pronouncements

              In July 2001, the Financial Accounting Standards Board issued SFAS
              No. 142, "Goodwill and Other Intangible Assets". The pronouncement
              is effective for the Company's year beginning January 1, 2002. As
              of December 31, 2001, the Company had a net book value of $561
              in equity method goodwill (recorded under "Investments") as a
              result of the purchase of additional interest in the Pennsylvania
              RSA 6(II) Limited Partnership in September, 2000. SFAS No. 142
              discontinues the amortization of equity method goodwill and
              prescribes that the Company continues to test for impairment in
              accordance with Accounting Principles Board (APB) Opinion 18. As
              the annual amortization of the goodwill was $30, the Company
              does not believe that this pronouncement will have a significant
              impact on the consolidated financial statements.

              In June 2001, the Financial Accounting Standards Board issued SFAS
              No. 143, "Accounting for Asset Retirement Obligations". The
              pronouncement is effective for the Company's year beginning
              January 1, 2003. The Company does not expect this pronouncement
              will have a significant impact on the consolidated financial
              statements.

              In August 2001, the Financial Accounting Standards Board issued
              SFAS No. 144, "Accounting for the Impairment or Disposal of
              Long-Lived Assets". The pronouncement is effective for the
              Company's year beginning January 1, 2002. The Company does not
              expect this pronouncement will have a significant impact on the
              consolidated financial statements.

                                       12
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999

                 (Amounts in Thousands, Except Per Share Data)





(2)    Marketable Securities

       Information about marketable investment securities at December 31, 2001
       and 2000, is as follows:


                                                        2001
                                    --------------------------------------------
                                               Unrealized   Unrealized   Market
                                     Cost         gains       losses     value
                                    ------     ----------   ----------   -------
Available for sale:
  Equity securities                 $  340           4         (100)         244



                                                        2000
                                    --------------------------------------------
                                               Unrealized   Unrealized   Market
                                     Cost         gains       losses     value
                                    ------     ----------   ----------   -------
Available for sale:
  Equity securities                 $  213          --         (127)          86
  Debt securities                    4,892         101          (53)       4,940
                                    ------     ----------   ----------   -------
                                    $5,105         101         (180)       5,026
                                    ======     ==========   ==========   =======

       Proceeds, gross realized gains and gross realized losses from the sale of
       debt and equity securities were $5,868, $113, and $54, respectively, for
       the year ended December 31, 2001 and were $19,515, $2,940, and $884,
       respectively, for the year ended December 31, 2000. Realized gains and
       losses on the sale of marketable securities for the year 1999 were
       immaterial.

                                       13
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999

                 (Amounts in Thousands, Except Per Share Data)





(3)    Investments

       The Company's investments at December 31, 2001 and 2000, consist of the
       following:


                                                              2001         2000
                                                             -------      ------
Investments at equity:
  Investments in cellular limited partnerships               $11,394      10,280
  Boulevard Communications, LLP                                  497         890
                                                             -------      ------
    Total investments                                        $11,891      11,170
                                                             =======      ======



       The Company had no capital calls to maintain its ownership percentages in
       its limited partnership investments in 2001, 2000 and 1999. The Company
       did invest $1,003 in 2000 to acquire additional ownership in a cellular
       limited partnership. The Company received distributions from affiliated
       entities of $657, $374 and $943 in 2001, 2000 and 1999, respectively.


(4)    Long-Term Debt

       Long-term debt as of December 31, 2001 and 2000, was as follows:


                                                             2001          2000
                                                           -------       -------
Notes payable to Rural Telephone
 Bank, maturing at various dates from 2009
  through 2019                                             $17,389        18,363
Notes payable to Federal Financing Bank,
 maturing in 2012                                           33,938        30,533
                                                           -------        ------
                                                            51,327        48,896
 Less current portion of long-term debt                      4,125         3,519
                                                           -------        ------
      Long-term debt                                       $47,202        45,377
                                                           =======        ======



       Principal payments required over the next five years calculated on the
       outstanding indebtedness at December 31, 2001, are: $4,125 in 2002;
       $4,194 in 2003; $4,268 in 2004; $4,347 in 2005; and $4,431 in 2006.

                                       14
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999

                 (Amounts in Thousands, Except Per Share Data)





       The notes payable to the Rural Telephone Bank are secured by a
       supplemental Mortgage Agreement executed by NPTC which provides that
       substantially all of the property, plant and equipment of NPTC, which
       approximates a net book value of $77 million, are subject to a lien or a
       security interest. Such agreement contains restrictions regarding
       dividends and other distributions by NPTC. Under these restrictions,
       unless certain working capital and net worth levels are maintained, NPTC
       is not permitted to pay dividends on its capital stock (other than in
       shares of capital stock), or to make any other distributions to its
       shareholders or purchase, redeem or retire any of its capital stock or
       make any investment in affiliated companies. As a result of the NPTC
       restrictions, $3,997 of NPTC retained earnings were available for
       dividends to the Company as of December 31, 2001.

       As of December 31, 2001, consolidated retained earnings of the Company of
       approximately $21,387 were available for dividends and other
       distributions to shareholders.

       In 1996, the Company was granted approval for a loan from the Federal
       Financing Bank guaranteed by the Rural Utilities Service in the maximum
       principal amount of $75 million. The maximum principal amount will be
       advanced periodically over a six-year period for qualified capital
       expenditure projects, as defined in the loan agreement, to furnish and
       improve telephone service in rural areas. As of December 31, 2001, the
       Company had $5,196 of qualified capital expenditures which were eligible
       to be drawn against this facility. The original six-year advancement
       period ends in November of 2002, at which time the Company has the option
       of executing a three-year extension of the advancement period through
       November of 2005. The unadvanced amount of this facility as of December
       31, 2001 was $34,764.

       Notes payable to the Rural Telephone Bank carry an interest rate of 6.5%.
       Notes payable to the Federal Financing Bank carry interest rates ranging
       from 4.3% to 6.7%.

       Based on borrowing rates currently available to the Company for loans
       with similar terms and maturities, the estimated fair value of long-term
       debt as of December 31, 2001, is $51,526.

       NPTC also has available through June of 2004 a $10 million line of credit
       at a rate of prime plus 1-1/2% with the Rural Telephone Finance
       Cooperative. The line of credit was not used in 2001 or 2000.

                                       15
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999

                 (Amounts in Thousands, Except Per Share Data)





(5)    Capital Lease

       The Company has a capital lease for equipment used in its operations.
       Amortization of the assets held under the capital lease is included
       within depreciation and amortization expense. The capital lease amount
       included in property, plant and equipment is as follows:


                                                       2001                2000
                                                     --------             ------
Capital lease                                        $ 10,363             8,875
Accumulated amortization                                 (793)             (247)
                                                     --------             -----
    Total                                            $  9,570             8,628
                                                     ========             =====




       The following table displays the aggregate minimum lease commitments
       under the capital lease as of December 31, 2001:





2002                                                                 $  1,592
2003                                                                    1,592
2004                                                                    1,592
2005                                                                    1,450
2006                                                                    1,272
Thereafter                                                              4,362
                                                                     --------
                      Total minimum lease commitments                  11,860

Less interest and executory costs                                       3,327
                                                                     --------
                      Present value of minimum lease commitments        8,533

Less current installments                                                 926
                                                                     --------
                      Long-term obligation at December 31, 2001      $  7,607
                                                                     ========


 (6)   Retirement Plan and Other Postretirement Benefit Plans

       Substantially all employees of the Company are covered by a
       noncontributory, defined benefit retirement plan. The benefits are based
       on each employee's years of service and compensation. The Company's
       funding policy is to contribute an amount annually that satisfies at
       least the minimum funding required under the Employee Retirement Income
       Security Act of 1974. The assets of the Plan are held in a trust and are
       invested in a variety of equity and fixed income securities.

                                       16
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999

                 (Amounts in Thousands, Except Per Share Data)





       Eligible retirees of the Company are provided healthcare and life
       insurance benefits until the retiree reaches 65 years of age under an
       unfunded plan.

       The following table sets forth the Plans' change in benefit obligation,
       change in plan assets and reconciliation of funded status at December 31,
       2001 and 2000.

<TABLE>
<CAPTION>


                                                                         Pension benefits                       Other benefits
                                                                  ---------------------------              -------------------------
                                                                    2001                2000               2001                2000
                                                                  --------             ------              -----              -----
<S>                                                               <C>                  <C>                 <C>                <C>
Change in benefit obligation:
  Benefit obligation at beginning
   of year                                                        $ 30,668             28,148              5,466              5,274
  Service cost                                                         885                824                165                153
  Interest cost                                                      2,245              2,071                395                390
  Plan amendments                                                      123                 --                 --                 45
  Curtailment gain                                                      --               (190)                --               (201)
  Special termination benefits                                          --                267                 --                304
  Benefits paid                                                     (1,381)            (1,243)              (364)              (322)
  Actuarial (gain) or loss                                           2,256                791                913               (177)
                                                                  --------             ------              -----              -----
  Benefit obligation at end of year                                 34,796             30,668              6,575              5,466

Change in plan assets:
  Fair value at beginning of year                                   33,798             31,792                 --                 --
  Actual return on plan assets                                        (932)             3,249                 --                 --
  Employer contributions                                                --                 --                364                322
  Benefits paid                                                     (1,381)            (1,243)              (364)              (322)
                                                                  --------             ------              -----              -----
  Fair value at end of year                                         31,485             33,798                 --                 --

Reconciliation of funded status:
  Funded status                                                     (3,311)             3,130             (6,575)            (5,466)
  Unrecognized actuarial (gain)
   or loss                                                           2,009             (3,859)               761               (152)
  Unrecognized transition (asset)                                     (611)              (764)                --                 --
  Unrecognized prior service cost                                    1,255              1,340                 (4)               (10)
                                                                  --------             ------              -----              -----
  Net amount at year end                                          $   (658)              (153)            (5,818)            (5,628)
                                                                  ========             ======              =====              =====
</TABLE>

                                       17
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999

                 (Amounts in Thousands, Except Per Share Data)





       Assumptions used in the calculations as of December 31, 2001, 2000 and
1999, are:

<TABLE>
<CAPTION>
                                                                     Pension benefits                        Other benefits
                                                           ---------------------------------         -------------------------------
                                                              2001         2000         1999         2001         2000         1999
                                                           -------         ----         ----         ----         ----         ----
<S>                                                           <C>          <C>          <C>          <C>          <C>          <C>
Weighted average assumptions:
  Discount rate                                             % 7.00         7.50         7.50         7.00         7.50         7.50
  Expected return on assets                                   8.00         8.00         8.00          N/A          N/A          N/A
  Rate of compensation increase                               4.50         4.50         4.50         4.50         4.50         4.50
</TABLE>



       Net periodic benefit costs include the following:

<TABLE>
<CAPTION>
                                                                     Pension benefits                        Other benefits
                                                           ---------------------------------         -------------------------------
                                                              2001         2000         1999         2001         2000         1999
                                                           -------         ----         ----         ----         ----         ----
<S>                                                        <C>              <C>          <C>          <C>          <C>          <C>
Components of net periodic benefit cost:
  Service cost                                             $   885          824          948          165          153          127
  Interest cost                                              2,245        2,071        1,907          395          390          256
  Expected return on
   plan assets                                              (2,645)      (2,494)      (2,126)          --           --           --
  Amortization of prior
   service cost                                                207          207          227           (6)         (11)         (12)
  Amortization of transition
   (asset)                                                    (153)        (153)        (153)          --           --           --
  Recognized actuarial
   (gain) or loss                                              (34)         (58)          --           --           --          (41)
                                                           -------          ---          ---          ---          ---          ---
  Net periodic benefit cost                                $   505          397          803          554          532          330
                                                           =======          ===          ===          ===          ===          ===
  Additional (gain) or loss due to:
     Curtailment                                                --          (46)          --           --           (8)          --
     Special termination benefits                               --          267           --           --          304           --
                                                           -------          ---          ---          ---          ---          ---
                                                           $    --          221           --           --          296           --
                                                           =======          ===          ===          ===          ===          ===
</TABLE>

                                       18
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999

                 (Amounts in Thousands, Except Per Share Data)





       For purposes of measuring other postretirement benefits, the annual rate
       of increase in the per capita cost of covered benefits (i.e., healthcare
       cost trend rate) for 2001 was 10.0 percent for participants whose
       coverage included Major Medical Insurance, 10.0 percent for participants
       who have Blue Cross/Blue Shield coverage only, and 10.0 percent for
       participants who have Point of Service coverage. The rates were assumed
       to decrease gradually to 5 percent by the year 2008 and remain at that
       level thereafter. Assumed health care cost trend rates have a significant
       effect on the amounts reported for the health care plans. A one
       percentage point change in the assumed health care trend rate would have
       the following effects:

<TABLE>
<CAPTION>
                                                             One                     One
                                                          percentage             percentage
                                                        point increase         point decrease
                                                        --------------         --------------
<S>                                                      <C>                    <C>
Effect on total of service and interest cost
 components for 2001                                          $ 63                   (55)
Effect on 2001 postretirement benefit obligation               584                  (517)
</TABLE>



The Company also has a nonqualified supplemental pension plan covering certain
former and current employees which provides for incremental pension payments to
the extent that income tax regulations limit the amount payable from the
Company's qualified defined benefit retirement plan. The projected benefit
obligation relating to such unfunded plan was approximately $746, $128 and $129
at December 31, 2001, 2000 and 1999, respectively. Pension expense for the plan
was $113 in 2001, $2 in 2000 and $0 in 1999.


(7)    Income Taxes

       The components of income tax expense are:

                                              2001          2000           1999
                                            -------         -----         -----
Current:
  Federal                                   $ 4,426         3,830         6,093
  State                                       2,543         2,191         1,810
                                            -------         -----         -----
                                              6,969         6,021         7,903
Deferred:
  Federal                                     1,124           390           809
  State                                        (595)         (374)          190
                                            -------         -----         -----
                                                529            16           999
Deferred investment tax credit                  (24)          (29)          (69)
                                            -------         -----         -----
                                            $ 7,474         6,008         8,833
                                            =======         =====         =====

                                       19
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999

                 (Amounts in Thousands, Except Per Share Data)





       The Company's income tax expense differs from income tax expense computed
       at the federal statutory rate of 35 percent due to the following factors:

                                              2001           2000         1999
                                            -------         -----         -----
Statutory federal income tax                $ 6,242         4,864         7,531
State taxes on income (net of
 federal income tax benefit)                  1,158           902         1,300
Change in beginning of year
 valuation allowance                            215           451            86
Investment tax credit                           (24)          (29)          (69)
Tax-exempt interest                              (6)          (34)           --
Other                                          (111)         (146)          (15)
                                            -------         -----         -----
Income tax expense                          $ 7,474         6,008         8,833
                                            =======         =====         =====


       The significant components of deferred income tax expense attributable to
       income from operations are as follows:


                                                       2001      2000       1999
                                                       ----      ----       ----
Deferred tax expense (exclusive of the
 effects of the other components below)                $314      (435)       913
Increase in beginning of year
 valuation allowance                                    215       451         86
                                                       ----      ----       ----
                                                       $529        16        999
                                                       ====      ====       ====

       Additional deferred taxes of $(7) and $(631) were recorded in 2001 and
       2000, respectively, related to unrealized gains and losses on marketable
       securities classified as available for sale (note 2).

                                       20
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999

                 (Amounts in Thousands, Except Per Share Data)





       The tax effects of temporary differences that give rise to significant
       portions of the deferred tax assets and deferred tax liabilities at
       December 31, 2001 and 2000, are presented below:

                                                              2001        2000
                                                           --------      ------
Deferred tax assets:
  Postretirement benefits                                  $ (2,414)     (2,335)
  Deferred compensation                                        (504)       (445)
  Compensated absences, principally due
   to accrual for financial reporting purposes                 (292)       (266)
  Accounts receivable                                          (917)       (634)
  State net operating loss carryforwards                     (2,292)     (1,175)
  Other                                                        (477)       (388)
  Net unrealized loss on available for sale securities          (40)        (33)
                                                           --------      ------
        Total gross deferred tax assets                      (6,936)     (5,276)

    Less valuation allowance                                    820         605
                                                           --------      ------
        Net deferred tax assets                              (6,116)     (4,671)

Deferred tax liabilities:
  Plant and equipment, principally due to
   differences in depreciation                               13,701      12,255
  Pension                                                        93          43
  Amortization of deferred financing costs                      107         127
  Other                                                       1,449         958
                                                           --------      ------
        Total gross deferred tax liability                   15,350      13,383
                                                           --------      ------
        Net deferred tax liability                         $  9,234       8,712
                                                           ========       =====
Unamortized investment tax credit                          $     58          82
                                                           ========       =====

                                       21
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999

                 (Amounts in Thousands, Except Per Share Data)





       The valuation allowance for deferred tax assets relates to state loss
       carryforwards of subsidiaries. The valuation allowance for deferred tax
       assets as of January 1, 2001 and 2000, was $820 and $605, respectively.
       For the year ended December 31, 2001, there was a net increase in the
       valuation allowance in the amount of $215. The net change in the
       valuation allowance for the year ended December 31, 2000, was a net
       increase of $451. In assessing the realizability of deferred tax assets,
       management considers whether it is more likely than not that some portion
       or all of the deferred tax assets will not be realized. The ultimate
       realization of deferred tax assets is dependent upon the generation of
       future taxable income during the periods in which those temporary
       differences become deductible. Management considers the scheduled
       reversal of deferred tax liabilities, projected future taxable income and
       tax planning strategies in making this assessment. Based upon the level
       of historical taxable income and projections for future taxable income
       over the periods which the deferred tax assets are deductible, management
       believes it is more likely than not the Company will realize the benefits
       of these deductible differences, net of the existing valuation allowances
       at December 31, 2001. The amount of the deferred tax asset considered
       realizable, however, could be reduced in the near term if estimates of
       future taxable income during the carryforward period are reduced.

       At December 31, 2001, the Company has net operating loss carryforwards
       for state income tax purposes of $22,944 which are available to offset
       future state taxable income, if any, through 2011.


(8)    Business Restructuring

       In the fourth quarter of 2000, a pretax charge of $972 was recorded in
       network and other operating expenses to cover the restructuring costs
       associated with the shut down of the Nauticom Sports Network (NSN). The
       total charges reduced net income by $632.

       The business restructuring charge of $972 included restructuring
       liabilities of $671 and asset impairments of $301. The restructuring
       liabilities consisted of $432 for employee severance payments and related
       taxes for 30 people who were involuntarily terminated, $122 for future
       operating lease expense associated with a leased facility under contract
       which will no longer be used and $117 for other charges associated with
       the restructuring. As of December 31, 2000, all employees had been
       terminated and all severance payments and related taxes had been paid,
       making the remaining restructuring accrual liability $239 as of December
       31, 2000, with $183 recorded in other accrued liabilities (current) and
       $56 recorded in other liabilities (non-current).

                                       22
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999

                 (Amounts in Thousands, Except Per Share Data)





       During 2001, the Company has satisfied all remaining obligations with the
       exception of the remaining future operating lease payments. Total net
       cash expenditures during 2001 totaled $331. An additional net $277 was
       recorded as expense in 2001, due primarily to the settlement of a
       contract for satellite equipment and airtime above the Company's original
       estimate and the inability to generate the estimated sub-lease contracts
       for the facility under lease, offset partially by the sale of NSN fixed
       assets with a net book value of $31 for a gain. As of December 31, 2001,
       the remaining restructuring accrual liability was $154, with $36 recorded
       in accrued liabilities (current) and $118 recorded in other liabilities
       (non-current).


(9)    Related Party Transaction

       In 1998, the Company entered into an agreement to outsource certain data
       processing functions to a third party processor (Processor). The Company
       and the Processor are related by a common shareholder and director.
       Payments to the Processor under this agreement were $3,196, $2,807, and
       $2,553 in 2001, 2000 and 1999, respectively. During 2001, 2000 and 1999,
       the Company paid approximately $42, $106 and $101, respectively, to a
       member of the Board of Directors law firm for various legal services. As
       of December 31, 2001, the Company had amounts outstanding of $241 and
       $275 to the Processor and law firm, respectively.

                                       23
<PAGE>

                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999

                 (Amounts in Thousands, Except Per Share Data)





 (10)  Unaudited Quarterly Financial Data for 2001 and 2000

       The following are summaries of quarterly financial data for the years
       ended December 31, 2001 and 2000, as reported by the Company:

<TABLE>
<CAPTION>

                                     Unaudited (in thousands, except per share data)
                                     -----------------------------------------------
                                        First      Second       Third      Fourth
                                       quarter     quarter     quarter     quarter
                                     ----------    -------     -------   -----------
<S>                                     <C>         <C>        <C>        <C>
2001
  Operating revenues                    $20,658     21,071     22,628     22,087
  Net operating revenues                  3,204      5,050      5,816      5,975
  Net earnings                            1,474      2,559      3,227      3,102
  Basic and diluted earnings per
   common share                             .10        .17        .22        .21

2000
  Operating revenues                    $18,833     19,969     19,575     19,474
  Net operating revenues                  4,283      3,674      2,412      2,341
  Net earnings                            2,436      3,276      1,158      1,019
  Basic and diluted earnings per
   common share                             .16        .22        .08        .07

</TABLE>


                                       24
<PAGE>

                                                                      Schedule I


                NORTH PITTSBURGH SYSTEMS, INC. (Parent Company)

                 Condensed Financial Information of Registrant

                            Condensed Balance Sheets

                           December 31, 2001 and 2000

                             (Amounts in Thousands)


                                 Assets                         2001       2000
                                                              -------    -------
Current assets:
     Cash and temporary investments                           $   173      1,422
     Marketable securities available for sale                      --      4,940
     Accounts receivable from subsidiary                          134        144
     Accounts receivable - other                                   --         86
                                                              -------    -------
                    Total current assets                          307      6,592

Property, plant and equipment:
     Land                                                         150        150
     Buildings                                                  1,187      1,187
     Equipment                                                     21         21
                                                              -------    -------
                                                                1,358      1,358

        Less accumulated depreciation and amortization            250        210
                                                              -------    -------
                                                                1,108      1,148

Deferred income taxes                                             370         32
Other assets                                                    1,036      1,008
Investment in subsidiaries                                     51,247     51,618
Notes and accounts receivable - subsidiaries                   25,250     17,865
                                                              -------    -------
                                                              $79,318     78,263
                                                              =======    =======


                                                                     (Continued)
                                       25
<PAGE>

                                                                      Schedule I

                 NORTH PITTSBURGH SYSTEMS, INC. (Parent Company)

                  Condensed Financial Information of Registrant

                            Condensed Balance Sheets

                           December 31, 2001 and 2000

                             (Amounts in Thousands)


                  Liabilities and Shareholders' Equity       2001         2000
                                                           --------    --------
Current liabilities:
     Dividend payable                                      $  2,551       2,551
     Accounts payable - subsidiaries                              1           8
     Federal and state income taxes                           1,967       1,426
     Other liabilities                                          457          84
                                                           --------    --------
                    Total current liabilities                 4,976       4,069

Shareholders' equity:
     Common stock                                             2,350       2,350
     Capital in excess of par value                           2,215       2,215
     Retained earnings                                       70,342      70,183
     Less cost of treasury stock                               (508)       (508)
     Accumulated other comprehensive income - unrealized
        loss on available for sale securities, net              (57)        (46)
                                                           --------    --------
                                                             74,342      74,194
                                                           --------    --------
                                                           $ 79,318      78,263
                                                           ========    ========

                                       26
<PAGE>

                                                                      Schedule I


                 NORTH PITTSBURGH SYSTEMS, INC. (Parent Company)

                  Condensed Financial Information of Registrant

                       Condensed Statements of Operations

                  Years ended December 31, 2001, 2000 and 1999

                             (Amounts in Thousands)

                                                 2001         2000        1999
                                               --------    --------    --------
Revenues:
     Dividends from subsidiaries               $ 10,403       7,352      14,302
     Interest income                              1,815       1,549         622
     Nonoperating income                             --         134          79
     Gain on sale of marketable securities           59       2,056         208
                                               --------    --------    --------
                                                 12,277      11,091      15,211
Expenses:
     General office salaries and expenses           507         463         396
     State taxes                                     81         111         109
     Nonoperating expenses                          717          --          --
                                               --------    --------    --------
                                                  1,305         574         505
                                               --------    --------    --------
          Earnings before income taxes and
            equity in overdistributed
            net earnings of subsidiaries         10,972      10,517      14,706

Income taxes                                        222       1,269         123
                                               --------    --------    --------
          Earnings before equity in
            overdistributed net earnings
            of subsidiaries                      10,750       9,248      14,583

Equity in overdistributed net
  earnings of subsidiaries                         (388)     (1,359)     (1,898)
                                               --------    --------    --------
                    Net earnings               $ 10,362       7,889      12,685
                                               ========    ========    ========


                                       27
<PAGE>

                                                                      Schedule I


                 NORTH PITTSBURGH SYSTEMS, INC. (Parent Company)

                  Condensed Financial Information of Registrant

                       Condensed Statements of Cash Flows

                  Years ended December 31, 2001, 2000 and 1999

                             (Amounts in Thousands)


<TABLE>
<CAPTION>
                                                                                         2001               2000              1999
                                                                                       --------          --------          --------
<S>                                                                                    <C>                  <C>              <C>
Cash from operating activities:
     Net earnings                                                                      $ 10,362             7,889            12,685
     Adjustments to reconcile net earnings
       to net cash provided by operating activities:
           Equity in overdistributed earnings of affiliates                                 388             1,359             1,898
           Gain on sale of marketable securities                                            (59)           (2,056)             (208)
           Other adjustments                                                                 13                13                15
           Changes in assets and liabilities:
              Receivables                                                                    96               (61)               (3)
              Dividend receivable                                                            --                --             2,248
              Accounts payable - subsidiaries                                                (7)              (12)               17
              Other liabilities                                                             914             1,038            (1,193)
              Deferred income taxes                                                        (319)                9               (23)
                                                                                       --------          --------          --------
                    Total adjustments                                                     1,026               290             2,751
                                                                                       --------          --------          --------
                    Net cash provided by operating
                     activities                                                          11,388             8,179            15,436
                                                                                       --------          --------          --------
Cash from investing activities:
     Purchases of marketable securities available
      for sale                                                                             (917)           (6,871)           (9,867)
     Proceeds from sale of marketable securities
      available for sale                                                                  5,868            19,515             8,450
     Notes receivable - subsidiaries                                                     (7,385)          (15,035)           (1,670)
                                                                                       --------          --------          --------
                    Net cash used for investing activities                               (2,434)           (2,391)           (3,087)
                                                                                       --------          --------          --------
</TABLE>


                                       28
                                                                     (Continued)
<PAGE>

                                                                      Schedule I


                 NORTH PITTSBURGH SYSTEMS, INC. (Parent Company)

                  Condensed Financial Information of Registrant

                       Condensed Statements of Cash Flows

                  Years ended December 31, 2001, 2000 and 1999

                             (Amounts in Thousands)


<TABLE>
<CAPTION>

                                                                                     2001                2000                1999
                                                                                   --------            --------            --------
<S>                                                                                <C>                   <C>                 <C>
Cash used for financing activities:
     Cash dividends                                                                $(10,203)             (9,903)             (9,453)
                                                                                   --------            --------            --------
                    Net cash used for financing
                     activities                                                     (10,203)             (9,903)             (9,453)
                                                                                   --------            --------            --------
                    Net (decrease) increase in cash
                     and temporary investments                                       (1,249)             (4,115)              2,896

Cash and temporary investments at beginning of year                                   1,422               5,537               2,641
                                                                                   --------            --------            --------
Cash and temporary investments at end of year                                      $    173               1,422               5,537
                                                                                   ========            ========            ========
</TABLE>

See accompanying independent auditors' report


                                       29
<PAGE>

                                                                     Schedule II


                 NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

                 Valuation and Qualifying Accounts and Reserves

                  Years ended December 31, 2001, 2000 and 1999

                             (Amounts in Thousands)


<TABLE>
<CAPTION>

                         Column A                                 Column B         Column C         Column D          Column E
                                                                                  Additions
                                                                 Balance at       charged to                         Balance at
                                                                 beginning        operating                             end
                       Description                               of period         expenses        Deductions        of period
-----------------------------------------------------------     -------------    -------------    --------------    -------------
<S>                                                         <C>                        <C>               <C>              <C>

Allowance for doubtful accounts deducted from
 accounts receivable in the balance sheet:
        2001                                                $         559              442               586              415
                                                                =============    =============    ==============    =============
        2000                                                $         356              788               585              559
                                                                =============    =============    ==============    =============
        1999                                                $         --               446                90              356
                                                                =============    =============    ==============    =============
</TABLE>

See accompanying independent auditors' report.


                                      30