U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20594

                                   FORM 10-KSB

(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 OR THE  TRANSITION  PERIOD FROM January 1, 2001 TO December
31, 2001.

                         Commission file number 0-27145
                                                -------

                           1st NET TECHNOLOGIES, INC.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)


           Colorado                                      33-0756798
------------------------------              ------------------------------------
(State or jurisdiction of                   (I.R.S. Employer Identification No.)
incorporation or organization)

                             1869 W. Littleton Blvd.
                               Littleton, CO 80120
                    ----------------------------------------
                    (Address of principal executive offices)


       Registrant's telephone number, including area code: (303) 738-8994
                                                           --------------

            Securities registered under Section 12(b) and/or 12(g) of
                               the Exchange Act:

                          Common Stock, $.001 par value
                          -----------------------------
                                (Title of Class)

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
                                        ---      ---

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

State Issuer's revenues for its most recent fiscal year:  $37,652.

The  aggregate  market  value as of  March  28,  2001 of  voting  stock  held by
non-affiliates of the Registrant was $141,872.30 based upon the closing price on
the NASD's Bulletin Board market as of that date.

As of March 28, 2001,  6,393,392 shares of Registrant's  Common Stock, $.001 par
value, were issued and outstanding.

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                                TABLE OF CONTENTS

                                                        Page
                                                        ----
PART I

  ITEM 1.  DESCRIPTION OF BUSINESS                       3
  ITEM 2.  DESCRIPTION OF PROPERTY                       6
  ITEM 3.  LEGAL PROCEEDINGS                             7
  ITEM 4.  SUBMISSION OF MATTERS TO A VOTE
           OF SECURITY HOLDERS                           8

PART II

  ITEM 5.  MARKET FOR COMMON EQUITY
           AND RELATED SHAREHOLDER MATTERS               8
  ITEM 6.  MANAGEMENT'S DISCUSSION AND
           ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS                     8

  ITEM 7.  FINANCIAL STATEMENTS                         12
  ITEM 8.  CHANGES IN AND DISAGREEMENTS
           WITH ACCOUNTANTS                             13


PART III

  ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS,
           PROMOTERS AND CONTROL PERSONS;
           COMPLIANCE WITH SECTION 16(a) OF
           THE EXCHANGE ACT                             13
  ITEM 10. EXECUTIVE COMPENSATION                       15
  ITEM 11. SECURITY OWNERSHIP OF CERTAIN
           BENEFICIAL OWNERS AND MANAGEMENT             16
  ITEM 12. CERTAIN RELATIONSHIPS AND
           RELATED TRANSACTIONS                         16

  ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K             17

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PART I

ITEM 1.  Description of Business

THIS  ANNUAL  REPORT ON FORM 10-KSB  CONTAINS  FORWARD-LOOKING  STATEMENTS  THAT
INVOLVE RISKS AND UNCERTAINTIES. THESE STATEMENTS RELATE TO THE COMPANY'S FUTURE
PLANS,  OBJECTIVES,  EXPECTATIONS  AND INTENTIONS AND MAY BE IDENTIFIED BY WORDS
LIKE "BELIEVE,"  "EXPECT," "MAY," "WILL," "SHOULD," "SEEK," OR "ANTICIPATE," AND
SIMILAR  EXPRESSIONS.  OUR ACTUAL  RESULTS  COULD DIFFER  MATERIALLY  FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING  STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING  THOSE  SET FORTH IN THIS  BUSINESS  SECTION  AND UNDER  "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" BELOW.

1st Net Technologies,  Inc. (the "Company") had, prior to August 2001, primarily
been in the Internet commerce and services business since its inception in 1997.
During the twelve  (12) months  ended  December  2001,  the  Company's  Board of
Directors decided to suspend its California operations and, subsequently,  moved
the Company's  headquarters  to Colorado,  its original state of  incorporation.
With the closing of its California  operations,  the Company currently maintains
no  business  operations,   other  than  to  manage  its  remaining  assets  and
liabilities.

In October 2001, the Company retained the services of Corporate Reorganization /
Bankruptcy  Specialist  in order to determine a course of action that might best
provide  the  Company  with the  opportunity  to remain a going  concern.  As of
12/31/01, the Company continues to have discussions with its unsecured creditors
to determine  their  willingness to negotiate  their claims against the Company.
The  Company  has a limited  amount of capital  from which to pay its  remaining
obligations.  If the Company is unable to  negotiate  favorable  and final terms
with its remaining  creditors,  the Company may have to seek protection from its
creditors  through a Chapter  XI or  Chapter  VII  filing,  at some point in the
future. To date, no definitive decision has been made with regard to this course
of action.

Our  historical  financial  information  contained in this Annual Report on Form
10-KSB is that of 1st Net Technologies, Inc. and its subsidiary corporation, SSP
Management Corp., and is presented on a consolidated basis, where necessary. The
prior  year  comparative  information  has  been  restated  due to a  change  of
accounting method for the Company's investment in CTG.

The Company currently maintains one subsidiary corporation, SSP Management Corp.
In January 1999, we acquired a 100% interest in SSP Management Corp., a Colorado
corporation ("SSP"),  from a private company that is considered a related party.
SSP was  wholly  owned  by  Entrepreneur  Investments,  LLC  ("EI")  whose  sole
shareholder,  James H. Watson,  Jr., our current  Chairman/President/CEO,  was a
member of 1st Net's Board of Directors at the time of  acquisition.  Through our

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acquisition of that company, we built several  investment-oriented  Internet Web
sites and on-line newsletter publications. In December 1999, we made a strategic
decision to divest ourselves of the SSP types of clients and services and, where
applicable,  to sell our  information-based  assets to companies whose long-term
objective was to  participate in that  business.  Accordingly,  we completed the
sale of some of our online newsletters to other unrelated  companies in February
and August 2000 and this subsidiary is no longer active in its former business.

At December 31, 2001, SSP and 1st Net Technologies continue to hold common stock
in the following former clients:

Name of Company         Status        Owner        # of shares owned at 12/31/01
---------------         ------        -----        -----------------------------

a) MediQuik, Inc.       Account        SSP               60,000 common
b) Zootech, Inc.        Account        SSP                5,000 common
c) Allwest System       Account        1st Net               33 common
d) Phelps Engineer      Account        1st Net           21,000 common
e) Uniprime Capital     Account        1st Net            2,035 common
f) Zootech, Inc.        Account        1st Net           17,000 common

a) Nickleby's, Inc.     Certificate    1st Net          235,500 common
b) CTG                  Certificate    1st Net        2,120,114 common
c) Laforza, Inc.        Certificate    1st Net          200,000 common

All the above,  except  Nicklebys.com  and  Children's  Technology  Group (CTG),
currently  trades  on  either  the  NASD's  Bulletin  Board  system or the "Pink
Sheets."

In May 1999, we acquired a  controlling  interest in The  Children's  Technology
Group, Inc. ("CTG") (formerly  Tummybusters,  Inc.), a Nevada  corporation.  The
business  model of CTG is to build a safe and enjoyable  Internet  community for
children on-line. Prior to its acquisition by 1st Net, James H. Watson, Jr., our
Chairman/President/CEO served as a member of the boards of directors of both CTG
and 1st  Net.  Prior  to  December  31,  2000,  the  Company  accounted  for its
investment in  Children's  Technology  Group,  Inc.  ("CTG") in accordance  with
Accounting  Principle  Board  ("APB")  Opinion No. 16.  Under this  method,  the
Company  consolidated  CTG's financial  statements with its own. During the year
ended  December 31, 2000, CTG issued  additional  shares of its common stock and
preferred stock to the public resulting in a change in the Company's  ownership.
Because  of the change in  ownership,  the  Company no longer has a  controlling
interest in CTG. In addition,  the Company no longer has any influence  over the
affairs of CTG. Accordingly, at December 31, 2001, the Company accounted for its
ownership  of  3,922,614  shares of CTG's  common stock at cost in the amount of
$121,730  and  restated  prior period  financial  statements  due to a change in
reporting entity.

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On  December  28,  2000,  we entered  into a  "Technology  Rescission  and Stock
Purchase and Sale Agreement"  with a former  subsidiary  Mariah  Communications,
Inc.  Subject  to the terms and  conditions  set  forth in this  Agreement,  the
parties agreed to rescind and cancel a prior "Technology Agreement," dated April
15,  1998.  Under  the  Agreement,  Mariah  agreed  to return  and  deliver  all
technology it received  under the prior  agreement to 1st Net and 1st Net agreed
to return  and  deliver  to Mariah the stock  certificate  evidencing  4,000,000
Mariah Common Shares owned of record and beneficially by 1st Net.  Further,  1st
Net agreed to issue 493,600  newly-issued,  restricted shares of common stock to
Mariah in  consideration  for Mariah's  forgiveness  our  re-payment of the cash
consideration which was part of the prior agreement and, Mariah's forgiveness of
our re-payment and the cancellation of a $95,109 unpaid Loan,  together with all
unpaid, accrued interest.

SALE OF INTERNET PORTALS

In December 1999, we made a strategic  decision to divest ourselves of the types
of clients serviced by our subsidiary SSP Management and, where applicable, sell
our  information-based  assets to  companies  whose  long-term  objective  is to
participate in the investor information business.

On February  23, 2000,  SSP sold  certain  related  assets to  MarketByte,  LLC.
("MarketByte")  in exchange for a note receivable  totaling  $200,000 and 10% of
any future non-cash  consideration received by Marketbyte in connection with the
assets, through June 2, 2002. Under this Asset Purchase Agreement,  in the event
that the  consideration  received from Marketbyte  through June 2, 2002 does not
equal or exceed  $750,000,  Marketbyte  will be  required to pay the Company the
difference between $750,000 and the consideration previously paid to the Company
in connection with the original Asset Purchase  Agreement.  Subsequently,  there
have been two amendments to this Agreement to date. They are:

In October 2000, the Company  agreed to amend its Agreement  with  MarketByte to
read,  "Upon  expiration of the contract  period of this  Agreement,  and should
Seller (Company) not have received the total sum of Six Hundred Thousand Dollars
($600,000) in cash and market value securities received or excess thereof, Buyer
(MarketByte)  shall  agree to  renegotiate  in  order to make up the  difference
between those amounts  received by Seller and Six Hundred  Thousand  Dollars and
such shall become due and owing immediately upon such date and the conclusion of
the  aforementioned  negotiation." In  consideration  for agreeing to reduce the
total value of the agreement by $150,000, the Company received from Buyer 50,000
shares of marketable securities, which were valued at $3.00 per share.

In December 2001,  the Company again agreed to amend the  MarketByte  Agreement.
This amendment states that "By mutual agreement Buyer and Seller do hereby agree
to extend the payment  period of such  non-cash  consideration  as  follows:  a)
MarketByte  shall continue to pay 10% of any/all  non-cash  consideration  (i.e.
securities) it receives  during its normal course of business until such time as

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the full amount owed has been received by Seller, with no specified time limit,"
and, "the parties also agree that as of the executed date of this Supplement the
total amount of non-cash  consideration due to the Seller is $370,886.25,  which
is figured by subtracting the amounts  already paid by Buyer to date,  minus the
original amount owed of $400,000."

At 12/31/01,  MarketByte is current on all payments due to the Company under the
aforementioned Agreement and Amendments.

In August 2000, SSP's two remaining newsletter publications and their respective
databases  were sold to a different  unaffiliated  party,  Millennium  Financial
Publishing, LLC. (MFP) for an aggregate of $115,000 in cash and promissory notes
for the remainder of the $1.5 million  aggregate  purchase price.  Subsequent to
the close of those agreements, MFP paid payments to the Company totaling $50,000
before  becoming in default on those  Agreements.  During the 2nd Qtr. 2001, the
Company filed suit against MFP in District Court, Arapahoe County,  Colorado for
breach of contract and failure to pay under the promissory notes executed by the
companies. On or about February 28, 2002, the Company decided to settle its suit
with MFP in  consideration  of them  paying  us  $2,500  in cash and  $5,000  in
marketable  securities,  as well as returning  to the Company the  non-exclusive
rights to the databases and the exclusive rights to the other properties sold.

EMPLOYEES

As  of  December  31,  2001,  the  Company  had  no  employees  other  than  our
President/CEO Mr. Watson.  Mr. Watson currently receives no compensation for his
services,  other than  reimbursements  for  expenses  incurred  on behalf of the
Company.

ITEM 2. Description of Property.

The  Company  maintains  its  executive  offices  at  1869 W.  Littleton  Blvd.,
Littleton,  Colorado  80120.  Presently,  its office space is provided rent free
from Mr. Watson, our Chairman/President/CEO.

Our  property and  equipment  as of December  31, 2001  consists of certain idle
equipment at an estimated value of $6,000.

We were under certain  capital lease  obligations  during 2000.  During 2001, we
defaulted on all capital leases  obligations due to suspension of our operations
and returned all leased equipment.  At December 31, 2001, we estimated  $197,215
in defaulted capital and office lease obligations.

ITEM 3. Legal Proceedings.

As  described  in Item 1 above,  we  decided to settle  our  pending  litigation
against Millennium  Financial  Publishing,  LLC ("MFP") in February 2002. Should
MFP not deliver the remaining agreed upon compensation,  we may have to continue
to pursue this suit.

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The Company has been a party to three (3)  creditor  lawsuits  filed  against us
during 2001.

     1) The first  suit was  filed by Bowne of Los  Angeles,  California  in the
amount of $61,235.25. On December, 28,2001, the Company settled the lawsuit with
Bowne by making a one-time,  final  payment to them in the amount of  $7,000.00.
The plaintiff has since withdrawn this lawsuit.

     2) The second suit was filed by Integrant, Inc. of San Diego, California in
the amount of $81,349.00.  On December 28, 2001, the Company settled the lawsuit
with  Integrant  by making a  one-time,  final  payment to them in the amount of
$12,500.00. The plaintiff has since withdrawn this lawsuit.

     3) The third suit was filed by L.A. Commercial Group, Inc. in the amount of
$2,665.71. This lawsuit is still pending as of 12/31/01.

The Company has been a party to one (1) other lawsuit filed against us in 2001.

     1) During 2001,  the Company was named as a Defendant in a wrongful  action
lawsuit filed in Superior  Court of the State of  California,  for the County of
San Diego by Bradley L. Jacobs,  et al. The claims against the Company had to do
with a Crossclaim  against these defendants that was filed in the Superior Court
of California,  unbeknownst to 1st Net Technologies.  In February 2002, the case
against  the  Company  was  dismissed  as a result of a Court Order based upon a
Motion for Summary Judgment filed by 1st Net. As a result of this dismissal, the
Company should have no further liability in this case.

There was one (1) California  Labor Board claim filed against the Company during
2001. The claim is still pending as of 12/31/01.

All suits above,  except MFP,  were filed in San Diego County,  California.  The
Company  has  recorded  the  above  litigation   liabilities  in  its  financial
statements.

ITEM 4. Submission of Matters to a Vote of Security Holders

We did not submit any matters to a vote of security  holders  during the Quarter
ended December 31, 2001.

PART II

ITEM 5. Market for Common Equity and Related Shareholder Matters.

Our common  stock  trades on the NASD's  Bulletin  Board system under the symbol
"FNTT."  Although  an active  trading  market for our Common  Stock has at times
existed  in the  past,  currently  our  shares  are  only  sporadically  traded.
Consequently, no meaningful market information is currently available.

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To date, we have paid no dividends and do not anticipate  paying dividends until
we receive revenues in an amount which management determines to be sufficient.

The number of record  holders of the  Company's  $.001 par value Common Stock at
March 31, 2001, was approximately 1,500.

During the quarter ended December 31, 2001, we issued no additional securities.

ITEM 6. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

This  discussion may contain  forward-looking  statements that involve risks and
uncertainties.  Our  actual  results  may  differ  materially  from the  results
discussed in such  forward-looking  statements.  Factors that might cause such a
difference  include,  but are not  limited  to,  those  discussed  in "Risks and
Uncertainties" below. We undertake no obligation to release publicly the results
of any  revisions  to these  forward-looking  statements  to  reflect  events or
circumstances arising after the date hereof.

OVERVIEW

Prior to August 2001, 1st Net  Technologies,  Inc. (the "Company") had primarily
been in the Internet commerce and services business since its inception in 1997.
During the twelve  (12) months  ended  December  2001,  the  Company's  Board of
Directors decided to suspend its California operations and, subsequently,  moved
the Company's  headquarters to Colorado,  its state of  incorporation.  With the
closing of its California operations,  the Company maintains no current business
operations,  other than to manage its  remaining  assets  and  liabilities.  The
Company  maintains  one  subsidiary   corporation;   SSP  Management  Corp.  Our
historical  financial  information  contained in this Form 10-KSB is that of 1st
Net Technologies, Inc. and SSP on a consolidated basis.

Prior  year  consolidated  statements  of  operations  and cash  flows have been
restated to reflect a change in reporting entity due to the divesture of a prior
consolidated subsidiary,  Children's Technology Group (CTG). We lost control and
influence over CTG during 2001 due to CTG's issuance of additional  common stock
and preferred  stock.  At December 31, 2001, we own  approximately  23% of CTG's
outstanding common stock.

RESULTS OF  OPERATIONS  FOR THE YEARS ENDED  DECEMBER  31, 2001 AND DECEMBER 31,
2000.

Net loss increased 233% ($576,319) in 2001 compared to ($172,995) in 2000 due to
the following changes in revenues and expenses.

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Revenue and operating expenses

The  Company's  revenues  from  technology  consulting,  user fees and marketing
services during 2001 decreased  $151,986 or 77% from $166,859 in 2000 to $37,652
in 2001.  The decrease  was  primarily  attributable  to the  suspension  of our
operations in 2001.

Operating  expenses  consist of product  development,  marketing and general and
administrative   expenses  through  August  2001.  Operating  expenses  totaling
($460,183) in 2001 decreased  $1,613,640 or 78% from  ($2,073,823)  in 2000. The
significant decrease in operating expenses was attributable to the suspension of
our  operations  and the  reduced  expenses  related to merger  and  acquisition
activities in 2001.

Other Income and Expense

Included in other  income  were gains from sales of  marketable  securities  and
investments  totaling  $51,273  in 2001  compared  to  $1,220,877  in 2000.  The
decrease in gains from sales of marketable securities was due to SSP's divesture
of its  Internet  newsletters  operations  in 2000.  The  Company has now almost
completely  divested  itself of  securities  obtained  in the course of business
during prior years.  The Company charged  unrealized loss on investments held to
operations  in the amount of  ($17,298)  in 2001 and  ($100,000)  in 2000 due to
permanent  decline  in value in the  investment  held.  The  Company  recognized
$34,375 in gain on sale of assets in 2001 vs.  $513,962 in 2000.  Gain from sale
of  assets   arose  from  SSP's  sales  of  Internet   magazines   during  2000.
Additionally, the Company recorded ($76,524) in loss on disposal of property and
equipment  due to  suspension  of  operations  in 2001 and  ($290,800)  in asset
impairment  due to notes  receivable  restructure  and  disposal of property and
equipment.

Interest  expense  totaled  ($7,771) in 2001 compared to ($77,864) in 2000.  The
decrease in interest expense was due to a reduced level of notes payable and the
termination  of capital  leases in 2001 as compared to 2000.  Interest and other
income  totaled  $7,982 in 2001  compared to $29,394 in 2001.  The  reduction of
interest income was due to lack of cash on hand by the company in 2001.

The Company recorded gain on liabilities settlement in the amount of $144,975 in
2001  compared  to  $-0-  in  2000  due  to its  effort  to  settle  outstanding
liabilities in 2001.

LIQUIDITY AND CAPITAL RESOURCES

To date,  we have been funded  through sale of equity  securities  received from
services,  advances and loans from related party, sale of SSP's operations,  and
proceeds from equity offerings. At December 31, 2001, the Company had cash and a
net working capital deficit of $4,582 and ($706,058),  respectively.  Our future
source of capital will come from the remaining note  receivable from prior sales
of SSP's operations and disposal of equity securities held by the Company.

As of December 31, 2001,  we had total  assets of  $182,364,  including  current
assets of $55,110, investments of $121,232 and $6,000 in property and equipment.
We had total liabilities (current) of $761,168 as of December 31, 2991. We had a
retained loss of ($6,678,706) and a shareholders' deficit of ($578,826).

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Net cash used in  operations  was  ($420,048) in 2001 because of the net loss of
($576,319)  incurred  during  the  period,  offset by  depreciation  expense  of
$58,326,  non-cash  compensation  of  $12,500,  various  non-cash  net losses of
$136,701  and a net change in current  assets and  liabilities  in the amount of
(68,554).  Cash provided by investing activities was $299,604 in 2001 because of
net proceeds from sales of investments in the amount of $119,790,  proceeds from
payment of note receivable in the amount of $179,114 and $700 received from sale
of equipment. Cash provided by financing activities was $125,278 in 2001 because
of $85,000 from sale of common  stock,  $80,278 in loans from related  party and
$40,000 in repayment of notes to related party.

On a going forward  basis,  1st Net and its 100% owned  subsidiary  SSP maintain
only minimal  holdings of marketable  securities.  It is  impossible  however to
ascertain  the actual  amounts that will be  eventually  realized by the Company
when these  securities  are sold.  Management is not sure that proceeds from the
sale of  investments  held in addition to cash  payments to be received from the
transactions described above, will be sufficient to make up projected shortfalls
from the results of its operations through the next twelve months.

Prior to August  2001, a majority of our capital  resources  was expended on: 1)
salaries  and  benefits  to our  employees,  2) to  service  our debt  burden to
vendors, and 3) to our professional  consultants.  Since September 2001, we have
eliminated our employee burden completely. Today, our greatest needs for capital
are to pay fees to our outside consultants,  primarily legal and accounting, and
to continue trying to service and eliminate our debt burden with past vendors.

Our main  source  of  capital  is our Asset  Purchase  and Loan  Agreement  with
MarketByte,  LLC. Entered into during the first quarter of 2000, SSP concluded a
sale of its newsletter  OTCjournal.com for a $200,000.00 note receivable and 10%
of the gross  non-cash  compensation  the buyer  realizes  from the operation of
OTCjournal.com. To date there is approximately, $420,000.00 remaining to be paid
to SSP from that contract, including $50,000 due on June 2, 2002 and $370,000 in
future other considerations.  Whereas, there can be no assurance that MarketByte
can and will continue to honor its financial commitment under this Agreement.

On July 11, 2001, the Company issued an option (Option #1) to purchase 1,250,000
common  shares of its holdings in Children's  Technology  Group to DOC Partners,
LLC (DOC) of Golden,  Colorado.  The option carried a strike price of $0.125 per
share. On February 11, 2002, DOC exercised that option by issuing a check in the
amount of $156,250.00 to the Company. On January 11, 2002, the Company agreed to
issue a second and final option  (Option #2) to DOC for 1,370,114  common shares
at an exercise  price of $0.225 per share.  This  option  expires on January 11,
2003. At March 28, 2002, the Company holds 2,120,114 common shares in Children's
Technology Group.

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<PAGE>

RISKS AND UNCERTAINTIES

The risks and uncertainties  described below are those that we currently deem to
be material and that we believe are specific to our Company.  If any of these or
other  risks  actually  occurs,  the  trading  price of our Common  Stock  could
decline. We have a history of losses and absent the gains on securities held and
sold and our asset sale(s), we would have suffered a significantly  greater loss
in 2001.  Also,  because we expect our  operating  losses to  continue  into the
future,  we  may  never  be  profitable.   We  had  an  accumulated  deficit  of
($6,678,706)  at December 31, 2001.  We incurred  net losses of  ($576,319)  and
($172,995) for the years ended December 31, 2001 and 2000,  respectively.  While
we are unable to predict accurately our future operating expenses,  we currently
expect these expenses to decrease  substantially,  year over year, as we seek to
find a business combination that would be a suitable fit for the Company on a go
forward basis. If we fail to find a suitable business to acquire or combine with
we will not succeed.

We are much less likely to succeed than a business with an established operating
history.  You should  consider an investment in our stock in light of the risks,
uncertainties and difficulties  frequently  encountered by early-stage companies
in new markets such as ours. We may not be able to  successfully  address any or
all of these  risks.  Failure  to  adequately  do so could  cause our  business,
results of operations and financial  condition to suffer.  Our future  financial
performance also will depend, in part, on our ability to diversify our offerings
by successfully  developing,  introducing and gaining customer acceptance of new
products. We cannot assure you, however, that we will be successful in achieving
market acceptance of any new products that we develop or acquire. Any failure or
delay in diversifying our existing offerings could harm our business, results of
operations and financial condition.

We face  increasing  competition  from  better-established  companies  that have
significantly  greater resources.  Many of our current and potential competitors
could enjoy substantial competitive advantages, such as:

     *  Greater corporate name recognition and larger marketing budgets and
        resources;
     *  Established marketing relationships and access to larger customer
        bases; and
     *  Substantially greater financial, technical and other resources.

In order to be  successful  we will need to seek out,  identify,  and  negotiate
certain  favorable  terms with an  existing  business  entity or  concept  whose
operations  may be a good  fit  for  the  Company.  However,  problems  commonly
associated with such a transaction  may eventually  cause us to fail. Our future
success will depend in part upon the ability of our  management  to  effectively
negotiate  such a  transaction.  Such a  transaction  may require us to hire and
train additional  personnel to manage the expanded operations.  In addition,  we
will  be  required  to  continue  to  improve  our  operational,  financial  and
management  controls and our  reporting  systems and  procedures.  If we fail to
successfully  manage these  processes,  we may be unable to proceed forward as a

                                       12
<PAGE>

going concern.  If we acquire any companies or technologies in the future,  they
could prove  difficult to integrate,  disrupt our business,  dilute  shareholder
value and adversely affect operating results. We may acquire or make investments
in  complementary  companies,  services  and  technologies  in the future.  As a
result, if we fail to properly evaluate and execute acquisitions or investments,
our business and prospects will be seriously harmed.

If we have to go to court and litigate for any reason, it will be time consuming
and expensive. Therefore, the threat of creditor lawsuits could adversely affect
the Company's ability as a going concern.

In the future, we may seek to license additional  technology or content in order
to enhance our current  features or to introduce new  services.  There can be no
assurance  that any such licenses will be available on  commercially  reasonable
terms,  if at all.  The loss of or  inability to obtain or maintain any of these
technology licenses could result in delays in introduction of new services until
equivalent  technology,  if available,  is identified,  licensed and integrated,
which  could  have a  material  adverse  effect  on  our  business,  results  of
operations and financial condition.

We are not sure of the scope or the  impact on us of all of the laws,  rules and
regulations that are likely to affect our business in the future.

The securities industry in the United States is subject to extensive  regulation
under both federal and state laws.  In  addition,  the  Securities  and Exchange
Commission (the  "Commission"),  the NASD,  various stock  exchanges,  and other
regulatory  bodies,  such  as  state  securities  commissions,   require  strict
compliance  with  their  rules and  regulations.  As a matter of public  policy,
regulatory  bodies are charged with safeguarding the integrity of the securities
and other  financial  markets and with  protecting  the  interests  of customers
participating  in those  markets.  Our failure to comply with any of these laws,
rules  or   regulations   could  result  in  censure,   fine,  the  issuance  of
cease-and-desist  orders,  any of which could have a material  adverse effect on
our business, financial condition and operating results.

ITEM 7. Financial Statements

     Financial Statements are included on Pages F-1 through F-15.

ITEM 8. Changes in and Disagreements With Accountants on Accounting and
        Financial Disclosure.

On March 28, 2001, we dismissed Argy & Company as our principal accountant.  The
decision to change accountants was approved by our Board of Directors.


Neither of the reports of Argy & Company on our financial statements for each of
the past two  fiscal  years  ended  December  31,  1998 and  December  31,  1999
contained an adverse  opinion or disclaimer of opinion,  nor was any such report
modified as to  uncertainty,  audit scope or  accounting  principles.  We do not

                                       13
<PAGE>

believe that there were any  disagreements  with Argy & Company on any matter of
accounting scope or procedure during the subsequent interim period through March
28, 2001,  which, if not resolved to Argy & Company's  satisfaction,  would have
caused  Argy  &  Company  to  make  reference  to  the  subject  matter  of  the
disagreement(s) in connection with its reports.

On March 28, 2001, we engaged Cordovano and Harvey,  P.C. as our new independent
accountants. During the two most recent fiscal years and through March 28, 2001,
we have not consulted with Cordovano and Harvey,  P.C.  regarding either (i) the
application of accounting principles to a specific transaction, either completed
or proposed;  or consulted with Cordovano and Harvey, P.C. regarding the type of
audit opinion that might be rendered on our financial statements  (Cordovano and
Harvey,  P.C. has not provided us with any reports or advice,  either written or
oral,  that  would be an  important  factor  in  reaching  a  decision  as to an
accounting,  auditing or financial reporting issue); or (ii) any matter that was
either  the  subject  of a  disagreement,  as  that  term  is  defined  in  Item
304(a)(1)(iv)  of  Regulation  S-K and the related  instructions  to Item 304 of
Regulation  S-K,  or a  reportable  event,  as  that  term  is  defined  in Item
304(a)(1)(iv)  of Regulation  S-K. We did,  however,  consult with Cordovano and
Harvey,  P.C.  regarding  our  responses  to  SEC  comments  to our  Form  10-SB
Amendments #2 and #4.

PART III

ITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act.

     The Directors and Officers of the Company are as follows:

    Name                        Age       Positions and Offices Held
    ----                        ---       --------------------------

James H. Watson, Jr.            39       President, Chairman, Chief Executive
                                         Officer, Chief Financial Officer and
                                         Director
Daniel Nye                      46       Director

F. Scott Quattromani            32       Director

There is no family relationship between any Director or Executive Officer of the
Company.

The Company presently has no committees.

Set forth below are the names of all  Directors  and  Executive  Officers of the
Company,  all  positions  and offices with the Company held by each such person,
the period  during which he has served as such,  and the business  experience of
such persons during at least the last five years:

                                       14
<PAGE>

James H. Watson, Jr., 38, has served as our President since December 2000 and as
our Chief  Executive  Officer and Chairman of our Board of Directors  since June
30, 1999.  He has been a member of our Board since 1997.  Mr.  Watson  currently
devotes  40-50%  of his time to our  business.  Mr.  Watson is  Founder  and the
General  Managing  Member  of  Entrepreneur  Investments,  LLC  (EI),  a private
financial consulting and investment firm that specializes in the unique needs of
development  stage  companies.  Started in 1996, EI has worked hand in hand with
both public and private  companies,  assisting them with such critical issues as
corporate  capitalization,   mergers/acquisitions,   management  placement,  and
business strategy. From 1995 - 1996, he was a Founder and Chief Operating Member
of N8  Concepts,  LLC, a private  company  that  specialized  in  sports-related
trademark  licensing  and event  management.  Mr.  Watson  has served on various
Boards in recent years including Probook, Inc., Nicklebys.com,  Inc., Children's
Technology Group, Inc., and Mariah  Communications.  At present, Mr. Watson sits
on only one other  Board that being  Technology  Consulting  Partners,  Inc.,  a
Denver based technology  placement and consulting company.  Mr. Watson graduated
from the University of Tennessee / Chattanooga  in 1985 with a Bachelors  degree
in Political Science/Public Administration.

Scott  Quattromani,  32,  joined 1st Net in November  2000 and has held  various
positions  with the Company in the past  including:  Secretary,  Treasurer,  and
Chief  Operations  Officer.  Today,  Mr.  Quattromani  only involvement with the
Company is that of a member of the Board of Directors.  After serving four years
in the U.S. Navy's Special Warfare Community,  he graduated summa cum laude with
a Bachelor of Arts Degree in Government and Political  Science from George Mason
University  in 1995 and earned his law degree from the  University  of San Diego
School of Law in 1997,  and LLM in  Taxation  from the  University  of San Diego
School of Law in 1998. As a BIA Fellow, he also completed  extensive  coursework
in financial analysis at the University of San Diego School of Business, and was
awarded the Ernest W. Hahn Scholarship,  the Home Builders Council  Scholarship,
and the Burnham Foundation  Scholarship.  Mr. Quattromani began his legal career
as a tax  consultant  with Ernst & Young  LLP,  and later as an  associate  with
Procopio  Cory  Hargreaves  & Savitch  LLP,  San Diego's  premiere  business and
technology law firm. Mr. Quattromani was first admitted into the practice of law
in California  in 1998 and is also  licensed to appear before the U.S.  District
Court, Southern District of California and the United States Tax Court.

SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE

Based solely on a review of Forms 3 and 4 and  amendments  thereto  furnished to
the  Company  during its most recent  fiscal  year,  and Forms 5 and  amendments
thereto  furnished to the Company  with respect to its most recent  fiscal year,
and  certain  written  representations,  no persons  who were either a director,
officer,  or  beneficial  owner of more than 10% of the  Company's  Common Stock
failed  to file on a timely  basis  reports  required  by  Section  16(a) of the
Exchange Act during the most recent fiscal year.

                                       15
<PAGE>

ITEM 10.  Executive Compensation.

The following  table sets forth the  annualized  base salary that we paid to our
Chief Executive Officer. Mr. James H. Watson became our CEO on June 29, 1999 and
did not receive any cash  compensation for serving in such capacity during 1999,
2000, or 2001.  All other  compensation  for our executives or directors has not
exceeded  $100,000  on an  annualized  basis.  Prior  to  1997,  we had not paid
compensation  to  executives.  We reimburse  our officers and  directors for any
reasonable out-of-pocket expenses incurred on our behalf.

<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

                               ANNUAL COMPENSATION
                           ---------------------------
NAME AND PRINCIPAL                                      Restricted   Securities
POSITION                   Year     Salary     Bonus      Stock      Underlying       Other
                                                          Awards      Options      Compensation
------------------         ----   ---------  --------   ----------   ----------    ------------
<S>                        <C>     <C>       <C>         <C>         <C>           <C>
James H. Watson, Jr.       2001      _          0           0             0             0
  Chairman and Chief       2000      0          0           0             0             0
  Executive Officer        1999      0          0           0             0             0
  since June 29, 1999
</TABLE>

COMPENSATION OF DIRECTORS

When traveling from out-of-town,  members of the Board of Directors are eligible
for  reimbursement  for  their  travel  expenses  incurred  in  connection  with
attendance  at  Board  meetings  and  meetings  of  committees  of the  Board of
Directors. Non-employee directors will be paid $1,000 for their participation in
Board or Board committee meetings.  Non-employee directors will also be eligible
for  initial  options  granted  upon  becoming  a member of the Board and annual
option grants so long as they remain on the Board.



OPTION GRANTS

No option or warrant  grants were issued during the quarter  ended  December 31,
2001.

EMPLOYMENT AGREEMENTS

Currently,  no employment  agreements exist with any of the Company's  executive
officers.

                                       16
<PAGE>

ITEM 11.  Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth information regarding the beneficial ownership of
the shares of the Common Stock (the only class of shares outstanding) of 1st Net
on  December  31,  2001 (at which date there were  6,945,892  shares  issued and
outstanding), by each person known by us to be the beneficial owner of more than
five  percent of the  outstanding  shares of our Common Stock and by each person
known by us to be a director or nominee or executive officer owning a beneficial
interest in our equity securities.

Name and Address of             Amount of       Percent of
Beneficial Owner(a)           Class (Shares)      Class          Title of Class
-------------------           --------------    -----------      --------------
Entrepreneur Investments,
LLC (a)(b)                     118,500             1.71%          Common Stock

APJW, Inc. (a)(b)              600,000             8.64%          Common Stock

All Officers and Directors
as a Group (One Person)        718,500            10.34%          Common Stock

-----------------------

(a) All entities or persons  listed have sole voting and  investment  power with
respect  to their  shares of Common  Stock,  except to the extent  authority  is
shared by spouses under applicable law.

(b) James H. Watson is the managing  member of Entrepreneur  Investments,  LLC.,
and also the sole shareholder/owner of APJW, Inc.

CHANGES IN CONTROL.  We are not aware of any arrangement that might
result in a change in control of 1st Net in the future.

ITEM 12. Certain Relationships and Related Transactions.

During  2000 we issued  options to Scott  Baker,  an Officer  and  Director,  to
purchase  up to  100,000  shares of our Common  Stock,  as an  incentive  to his
employment.  Such  options are not earned or vested  until after his first (50%)
and second  (remaining 50%) years of employment with the Company.  During fiscal
year 2001,  we  cancelled  the option  agreement  with Mr. Baker in exchange for
agreeing to issue him 25,000 restricted common shares.

On February  16, 2001,  and April 20, 2001 APJW,  Inc.,  an  affiliate  company,
loaned the Company  $25,000.00 and $10,000.00,  respectively,  in exchange for a
promissory  note. The  promissory  notes carried an interest rate of one percent
per month and matured on demand.  On June 7, 2001, the Company repaid $15,000.00
of the principal plus accrued  interest of $1,500.00.  On December 17, 2001, the


                                       17
<PAGE>

Company repaid the remaining  principal due of $20,000.00 plus accrued  interest
of $1,200.00.  APJW, Inc.  currently owns 600,000 shares of our common stock and
is our largest single shareholder.  The sole  owner/shareholder of APJW, Inc. is
Mr. Watson, the Company's Chairman and President.

Entrepreneur Investments,  LLC ("EI ") currently owns approximately 1.71% of our
outstanding  shares.  The  Company  has  borrowed  funds from EI, and we owed EI
$75,078.00   and  $29,800.00  on  December  31,  2001  and  December  31,  2000,
respectively.  For the fiscal year ended  December  31,  2000,  we had  interest
expense of $35,000.00  on loans from EI.  During the fiscal year ended  December
31, 2001, we had no interest expense on loans from EI.

In September 2000, Daniel Nye, a Director, personally loaned the Company $50,000
in exchange for a  promissory  note.  The note  carried an interest  rate of ten
percent  (10%)  annually with a one (1) year term.  In September  2001,  Mr. Nye
agreed to extend the note for six (6)  additional  months.  On June 7, 2001,  we
paid interest accrued on this loan totaling $2,500.00.  On February 12, 2002, we
paid the  entire  principal  due of  $50,000  and Mr.  Nye  agreed  to waive all
remaining,  accrued interest. Mr. Nye was not an affiliate of the Company at the
time the loan was granted.

We believe that all of the related party  transactions  discussed  above were on
terms no less  favorable to us than we would have  received if the  transactions
were negotiated with disinterested third parties.

Item 13. Exhibits and Reports on Form 8-K.

     Reports on Form 8-K:

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

     Exhibits:

No Exhibits are filed as part of this report.

-----------------------


SIGNATURES

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

                               1st Net Technologies, Inc.

Dated: March 28, 2002          By: /s/ James H. Watson, Jr.
       --------------              ---------------------------------------------
                                   James H. Watson, Jr., Chief Executive Officer
                                   Officer and Principal Accounting Officer of
                                   the Registrant

                                       18

<PAGE>

                           1ST NET TECHNOLOGIES, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                            Page
                                                                            ----


Independent auditors' report .............................................   F-2

Consolidated balance sheet at December 31, 2001 ..........................   F-3

Consolidated statements of operations for the years
   ended December 31, 2001 and 2000 ......................................   F-4

Consolidated statement of changes in shareholders'
   deficit for the years ended December 31, 2001 and 2000 ................   F-5

Consolidated statements of cash flows for the years ended
   December 31, 2001 and 2000 ............................................   F-6

Notes to consolidated financial Statements ...............................   F-7


<PAGE>


To the Board of Directors and Shareholders
1st Net Technologies, Inc.

                          INDEPENDENT AUDITORS' REPORT

We  have  audited  the  accompanying  consolidated  balance  sheet  of  1st  Net
Technologies,  Inc. (a Colorado corporation) and Subsidiary,  as of December 31,
2001  and  the  related  consolidated  statements  of  operations,   changes  in
shareholders'  deficit and cash flows for the years ended  December 31, 2001 and
2000. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audit.

We conducted our audit 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 consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  consolidated  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
audit provides 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  1st  Net
Technologies,  Inc., as of December 31, 2001 and the results of their operations
and  their  cash  flows for the  years  ended  December  31,  2001 and 2000,  in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying  consolidated  financial statements have been prepared assuming
the  Company  will  continue  as a  going  concern.  As  shown  in Note 2 to the
consolidated   financial  statements,   the  Company  has  incurred  net  losses
throughout its entire operating history  resulting in an accumulated  deficit of
$6,678,706 at December 31, 2001.  This and other factors  discussed in Note 2 to
the  consolidated  financial  statements  raise a  substantial  doubt  about the
ability of the  Company to continue as a going  concern.  Management's  plans in
regard to those matters are also  described in Note 2. The Company's  ability to
achieve its plans with regard to those matters, which may be necessary to permit
the realization of assets and satisfaction of liabilities in the ordinary course
of business, is uncertain.  The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

As more fully discussed in Note 2 to the financial statements,  the accompanying
consolidated financial statements for the year ended December 31, 2000 have been
restated due to a change in the reporting entity, with which we concur.

/s/ Cordovano and Harvey, P.C.
------------------------------
Cordovano and Harvey, P.C.
Denver, Colorado
March 20, 2002


<PAGE>

                           1ST NET TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEET

                                December 31, 2001

                                     ASSETS
Current assets:
     Cash .................................................   $     4,582
     Note receivable (Note 4) .............................        47,060
     Marketable securities (Note 5) .......................         3,468
                                                              -----------

     Total current assets .................................        55,110

Investments, at cost (Note 6) .............................       121,232
Idle equipment, at cost net of accumulated
     depreciation of $9,598 (Note 7) ......................         6,000
                                                              -----------

                                                              $   182,342
                                                              ===========

                      LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
     Accounts payable and accrued liabilities .............   $   157,226
     Indebtedness to related party (Note 3) ...............        75,078
     Notes payable, related party (Notes 3 and 8) .........        55,000
     Lease obligations (Note 9) ...........................       197,215
     Accrued payroll and payroll taxes ....................        87,734
     Restructuring reserve (Note 12) ......................       188,915
                                                              -----------

     Total current liabilities ............................       761,168
                                                              -----------

Commitments and contingencies (Note 12) ...................          --

Shareholders' deficit: (Note 10)
     Preferred stock, $0.001 par value, 10,000,000
         shares authorized -0- shares issued
         and outstanding ..................................          --
     Common stock, $0.001 par value, 40,000,000
         shares authorized, 6,945,892 shares issued
         and outstanding ..................................         6,946
     Common stock warrants ................................       177,022
     Additional paid in capital ...........................     5,915,912
     Accumulated deficit ..................................    (6,678,706)
                                                              -----------

     Total shareholders' deficit ..........................      (578,826)
                                                              -----------

                                                              $   182,342
                                                              ===========

          See accompanying summary of accounting policies and notes to
                       consolidated financial statements.

                                       F-3
<PAGE>

<TABLE>
                           1ST NET TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<CAPTION>
                                                                   For the Years Ended
                                                                        December 31,
                                                                --------------------------
                                                                   2001           2000
                                                                -----------    -----------
                                                                                 (Restated)
<S>                                                             <C>            <C>
Revenues:
     Technology consulting, user fees and marketing services    $    37,652    $   166,859

Operating expenses ..........................................       460,183      2,073,823
                                                                -----------    -----------

Loss from operations ........................................      (422,531)    (1,906,964)

Other income and expense:
     Realized gain/(loss) on investments sold ...............        51,273      1,370,877
     Unrealized gain/(loss) on investments held .............       (17,298)      (100,000)
     Interest expense .......................................        (7,771)       (77,864)
     Gain on sale of assets .................................        34,375        513,962
     Loss on disposal of property and equipment (Note 7) ....       (76,524)          --
     Asset impairment (Note 4 and 7) ........................      (290,800)          --
     Other income ...........................................         7,979           --
     Interest and dividend income ...........................             3         29,394
                                                                -----------    -----------

Loss before provision for income taxes and extraordinary item      (721,294)      (170,595)

Provision for income taxes (Note 11) ........................          --           (2,400)
                                                                -----------    -----------

Net loss before extraordinary item ..........................      (721,294)      (172,995)
                                                                -----------    -----------

     Gain on liabilities settlement (Note 12) ...............       144,975           --
                                                                -----------    -----------

Net loss ....................................................   $  (576,319)   $  (172,995)
                                                                ===========    ===========

     Basic and diluted loss per share .......................   $     (0.08)   $     (0.03)
                                                                ===========    ===========

Weighted average common shares outstanding:
     Basic and diluted ......................................     6,808,648      5,993,833
                                                                ===========    ===========
</TABLE>


          See accompanying summary of accounting policies and notes to
                       consolidated financial statements.

                                       F-4
<PAGE>

<TABLE>
                           1ST NET TECHNOLOGIES, INC.
           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
                 For the Years ended December 31, 2001 and 2000
<CAPTION>


                                       Common Stock          Common       Additional                     Other            Total
                               -------------------------     stock          paid in      Accumulated   comprehensive   shareholders'
                                  Shares       Amount       warrants        Capital        deficit     income (loss)     deficit
                               -----------   -----------   -----------    -----------    -----------    -----------    -----------

<S>                            <C>           <C>           <C>            <C>            <C>            <C>            <C>
Balance at January 1, 2000....   5,753,700   $     5,754   $   275,272    $ 6,631,411    $(7,314,699)   $   669,064    $   266,802

Shares issued to employees
  (Note 10) ..................      58,592            59          --           49,941           --             --           50,000

Common stock issued in
   exchange for technology ...     250,000           250          --          282,250           --             --          282,500

Net proceeds from issuance
   of common stock by CTG ....        --            --            --           25,000           --             --           25,000

Additional paid-in capital
   from issuance of
   preferred stock by CTG
   in excess of cost-basis
   in CTG ....................        --            --            --        2,150,006           --             --        2,150,006

Issuance of common stock
   in connection with
   rescission of Mariah
   purchase ..................     493,600           493          --          137,715           --             --          138,208

Adjustment to reflect the
   rescission of the
   Mariah purchase and its
   exclusion from the
   Company's consolidated
   financial results .........        --            --            --         (854,144)       540,806           --         (313,338)

Comprehensive loss:
       Net loss ..............        --            --            --             --       (1,931,871)          --       (1,931,871)

       Unrealized loss on
       investements held
       for sale, net of
       realized gains and
       losses ................        --            --            --             --             --         (657,779)      (657,779)
                               -----------   -----------   -----------    -----------    -----------    -----------    -----------

Balance at December 31, 2000..   6,555,892         6,556       275,272      8,422,179     (8,705,764)        11,285          9,528

Warrants expired (Note 10)....        --            --         (98,250)          --             --             --          (98,250)

Shares sold through private
   placement at $.25 per
   share (Note 10) ...........     340,000           340          --           84,660           --             --           85,000

Shares issued in exchange
   for services pursuant
   to employment agreement
  (Note 10) ..................      25,000            25          --            6,225           --             --            6,250

Shares issued in exchange
   for rescission of
   options (Note 10) .........      25,000            25          --            6,225           --             --            6,250

Adjustment to reflect the
   change in reporting
   entity (Note 2) ...........        --            --            --       (2,603,377)     2,603,377           --             --

Comprehensive loss:
       Net loss ..............        --            --            --             --         (576,319)          --         (576,319)

       Unrealized loss on
       investments held
       for sale, net of
       realized gains and
       losses ................        --            --            --             --             --          (11,285)       (11,285)
                               -----------   -----------   -----------    -----------    -----------    -----------    -----------

Balance, December 31, 2001....   6,945,892   $     6,946   $   177,022    $ 5,915,912    $(6,678,706)   $      --      $  (578,826)
                               ===========   ===========   ===========    ===========    ===========    ===========    ===========
</TABLE>


          See accompanying summary of accounting policies and notes to
                       consolidated financial statements.

                                       F-5
<PAGE>

<TABLE>
                           1ST NET TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<CAPTION>
                                                                    For the Years Ended
                                                                       December 31,
                                                                  -----------------------------
                                                                     2001            2000
                                                                  -----------  ----------------
                                                                                 (Restated)
<S>                                                               <C>            <C>
Operating activities
Net loss ......................................................   $  (576,319)   $  (173,795)
Adjustments to reconcile net loss to net cash flows from
     operating activities:
     Depreciation and amortization ............................        58,326         30,278
     Loss on disposal of property and equipment ...............        76,524          1,497
     Loss on rescission of Mariah purchase ....................          --          358,208
     Gain on sale of assets ...................................       (34,375)      (513,962)
     Asset impairment .........................................       290,800           --
     Realized gain on investments sold ........................       (51,273)    (1,370,877)
     Gain on liabilities settlement ...........................      (144,975)          --
     Reduction of note payable in exchange for services .......          --           (8,000)
     Stock-based employee compensation ........................        12,500           --
     Stock-based payments for services and technology .........          --          282,500
     Unrealized loss on decline of restricted stock investment         17,298        100,000
     Changes in operating assets and liabilities:
        Accounts receivable ...................................         2,316         65,182
        Other assets ..........................................      (113,132)       (43,602)
        Accounts payable and accrued liabilities ..............        42,262        199,588
                                                                  -----------    -----------

Net cash used in operating activities .........................      (420,048)    (1,072,983)

Investing activities
Additions to property and equipment ...........................          --          (41,014)
Proceeds from sales of equipment ..............................           700           --
Adjustment to reflect the rescission of the Mariah purchase ...          --         (313,338)
Net proceeds from sales of marketable securities ..............       119,790      1,632,181
Proceeds from payment of notes and loans receivable ...........       179,114        139,789
                                                                  -----------    -----------

Net cash provided by investing activities .....................       299,604      1,417,618

Financing activities
Repayments of capital lease obligations .......................          --          (41,960)
Additions to notes payable ....................................        80,278           --
Repayments of notes payable ...................................       (40,000)      (306,172)
Net proceeds from issuance of common stock ....................        85,000           --
                                                                  -----------    -----------

Net cash provided by (used in) financing activities ...........       125,278       (348,132)
                                                                  -----------    -----------

Change in cash ................................................         4,834         (3,497)

Cash at beginning of period ...................................          (252)         3,245
                                                                  -----------    -----------

Cash at end of period .........................................   $     4,582    $      (252)
                                                                  ===========    ===========

Supplemental  disclosures of cash flow information:
     Cash paid during the period for:
        Interest ..............................................   $     7,471    $    77,864
                                                                  ===========    ===========
        Income taxes ..........................................   $      --      $      --
                                                                  ===========    ===========
</TABLE>


          See accompanying summary of accounting policies and notes to
                       consolidated financial statements.

                                       F-6
<PAGE>


                           1st NET TECHNOLOGIES, INC.
                   Notes to Consolidated Financial Statements


1.   Organization

1st Net  Technologies,  Inc.  ("the  Company" or "1st Net") was primarily in the
Internet  commerce and services business in 2000 and during the first six months
of 2001. The Company  terminated its operations and moved its  headquarter  from
San Diego, California to Denver, Colorado in August 2001.

The Company conducted business through SSP Management Corp. ("SSP"),  its wholly
owned  subsidiary,  during the periods  presented.  SSP provided Internet public
relations and Internet  newsletters and sold substantially all of its operations
in 2000. At December 31, 2001, SSP remains wholly owned by 1st Net.

2.   Significant accounting policies

Going concern

The Company's  financial  statements  have been prepared under the assumption it
will continue as a going concern.  However,  the Company has incurred net losses
throughout  its history  resulting in an  accumulated  deficit of  $6,678,706 at
December 31, 2001.  These  factors raise  substantial  doubt about the Company's
ability  to  continue  as a  going  concern.  Realization  of a  portion  of the
Company's assets in the accompanying  financial statements is dependent upon the
continued operation of the Company. In order to continue operations, the Company
must raise  additional funds through  incurring new debt,  raising new equity or
liquidating investment securities held.

Principles of consolidation

The consolidated  financial  statements  include the accounts of the Company and
SSP in 2001, and SSP and Mariah  Communications  Inc. in 2000.  All  significant
intercompany  accounts and transactions  have been eliminated in  consolidation.
SSP had  shareholders  and  management  in  common  with 1st Net  prior to their
acquisition.  The  accompanying  financial  statements  have been  prepared on a
consolidated  basis as if common control was  established as of the inception of
SSP.

Change of accounting treatment in reporting entity

Prior to January 1, 2001, the Company accounted for its investment in Children's
Technology  Group,  Inc.  ("CTG") in accordance with Accounting  Principle Board
("APB")  Opinion  No. 16.  Under this  method,  the Company  consolidated  CTG's
financial  statements  with its own during  2000.  As of  January  1, 2001,  the
Company  began  accounting  for its  investment  in CTG at  cost  due to loss of
control over CTG. At December 31, 2001,  the Company owns  approximately  23% of
the  outstanding  common  stock  in CTG.  In  accordance  with APB No.  20,  the
financial  statements  have been restated to show financial  information for the
new  reporting  entity for the year ended  December 31, 2000. As a result of the
restatement,  the Company reduced its associated  additional paid in capital and
retained losses by $2,603,377.

                                       For the Year Ended December 31, 2000
                                    -----------------------------------------
                                    As reported     Less CTG        Restated
                                    -----------    -----------    -----------
Revenue .........................   $   247,099    $    80,240    $   166,859
Expenses ........................    (5,348,034)    (3,274,211)    (2,073,823)
Other income ....................     1,789,532         55,563      1,733,969
Minority interest in subsidiaries     1,382,732      1,382,732           --
                                    -----------    -----------    -----------
Net loss ........................   $(1,928,671)   $(1,755,676)   $  (172,995)
                                    ===========    ===========    ===========
EPS .............................   $     (0.32)                  $     (0.03)
                                    ===========                   ===========
Weighted average
shares outstanding ..............     5,993,833                     5,993,833
                                    ===========                   ===========

                                       F-7
<PAGE>


                           1st NET TECHNOLOGIES, INC.
                   Notes to Consolidated Financial Statements


Estimates and assumptions

Preparing  financial  statements  requires  management  to  make  estimates  and
assumptions  that affect the reported amounts of assets,  liabilities,  revenue,
and  expenses.  Examples  include  provisions  for bad  debts  and the  value of
securities  received in exchange for  services.  Actual  results may differ from
these estimates.

Reclassification

Certain  amounts in the 2000  financial  statements  have been  reclassified  to
conform to the 2001 presentation.

Cash and cash equivalents

The Company  considers  all liquid  interest-earning  investments  with original
maturities  of three months or less to be cash  equivalents.  There were no cash
equivalents at December 31, 2001.

Investments

Marketable  securities  are  stated at market  value as  determined  by the most
recently  traded price of the security at the balance sheet date.  The Company's
marketable securities have been classified as  available-for-sale  securities in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". The unrealized gains and
losses on available-for-sale  securities are reported as a separate component of
shareholders' equity, using specific identification method.

Equity  investments  in private  companies with no readily  determinable  market
value  are  carried  at cost  and are  adjusted  only  for  other-than-temporary
declines in fair value, distributions of earnings and additional investments.

Computer software costs

Computer  software  costs are  expensed  as  incurred.  Statement  of  Financial
Accounting Standards (SFAS) 86, Accounting for the Costs of Computer Software to
Be Sold, Leased, or Otherwise Marketed, does not materially affect the Company.

Costs incurred to develop the Company's  website are  capitalized  and amortized
over its estimated  useful life in accordance to the Emerging  Issues Task Force
Issue No. 00-2 ("EITF 00-2"), "Accounting for Web Site Development Costs".

Property and equipment

Property and equipment consists primarily of office equipment and furniture,  is
stated  at cost and is  depreciated  using  the  straight-line  method  over the
estimated  useful lives of the assets of three to five years.  Expenditures  for
maintenance and repairs are expensed;  expenditures  for lease  improvements are
generally  capitalized.  Upon sale or retirement of an asset,  the related costs
and accumulated  depreciation are removed from the accounts and any gain or loss
is recognized.  When events or changes in circumstances indicate that assets may
be  impaired,   an  evaluation  is  performed  comparing  the  estimated  future
undiscounted cash flows associated with the asset to the asset's carrying amount
to determine if a write-down  to market value or  discounted  cash flow value is
required.

Fair value of financial instruments

The Company  estimates  the fair value of its  monetary  assets and  liabilities
based  upon  existing  interest  rates  related to such  assets and  liabilities
compared to current rates of interest for instruments  with a similar nature and
degree of risk.  The Company  estimates  that the carrying value of its monetary
assets and liabilities approximates their fair value as of December 31, 2001.

                                       F-8
<PAGE>


                           1st NET TECHNOLOGIES, INC.
                   Notes to Consolidated Financial Statements



Revenue recognition

Revenue is recognized when earned.  The Company's revenue  recognition  policies
are  in  compliance  with  all  applicable  accounting  regulations,   including
Securities and Exchange  Commission Staff  Accounting  Bulletin No. 101, Revenue
Recognition,   American  Institute  of  Certified  Public  Accountants   (AICPA)
Statement of Position (SOP) 97-2,  Software Revenue  Recognition,  and SOP 98-9,
Modification  of SOP 97-2, With Respect to Certain  Transactions.  Revenues from
technology  consulting,  user fees and marketing services are recognized ratably
over the contract period in accordance with the period in which the services are
performed.  Revenues attributable to undelivered  elements,  including technical
support  are  recognized  ratably on a  straight-line  basis  over the  contract
period.

Comprehensive income

The Company has adopted  SFAS No. 130,  Reporting  Comprehensive  Income,  which
requires that all components of comprehensive  income,  including net income, be
reported in the financial statements in the period in which they are recognized.
Comprehensive  income is defined as the  change in equity  during a period  from
transactions  and other events and  circumstances  from non-owner  sources.  Net
income (loss) and other  comprehensive  income,  including  unrealized gains and
losses on investments  held for sale, shall be reported net of their related tax
effect,   to  arrive  at   comprehensive   income  (loss).   Accumulated   other
comprehensive  income  (loss)  totaled $-0- and $11,284  (restated)  in 2001 and
2000, respectively.

Earnings per share

Earnings  per share is computed in  accordance  with SFAS No. 128,  Earnings Per
Share and SEC Staff Accounting Bulletin (or SAB) No. 98. Under the provisions of
SFAS No. 128,  basic earnings per share is computed by dividing the net loss for
the period by the weighted  average number of common shares  outstanding  during
the period.  Diluted earnings per share is computed by dividing the net loss for
the period by the weighted average number of common and common equivalent shares
outstanding during the period. Under the provisions of SAB No. 98, common shares
issued for nominal  consideration are included in the per share  calculations as
if they were outstanding for all periods presented.

Potentially  dilutive securities include options and warrants that were excluded
from basic and diluted earnings per share because of their anti-dilutive effect.
Anti-dilutive securities outstanding totaled 861,200 and 536,200 at December 31,
2001 and 2000, respectively.

Stock-based compensation

The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), and related interpretations
in accounting for its employee stock options because the alternative  fair value
accounting   provided  for  under  SFAS  No.  123,  Accounting  for  Stock-Based
Compensation,  requires  the  use of  option  valuation  models  that  were  not
developed  for use in valuing  employee  stock  options.  Under APB 25, when the
exercise  price of the  Company's  employee  stock  options is not less than the
deemed fair value for the underlying stock on the date of grant, no compensation
expense is  recognized.  At the time stock  options  were  granted,  the Company
believed that the exercise  price was at a price not less than the fair value of
the underlying common stock.

3.   Related party transactions

Rent

The Company rented office space from Entrepreneur  Investments,  Inc. ("EI"), an
affiliate,  during 2000.  Rent expense  paid to the  affiliate  totaled $-0- and
$140,878 in 2001 and 2000, respectively.

                                       F-9
<PAGE>

                           1st NET TECHNOLOGIES, INC.
                   Notes to Consolidated Financial Statements


Advances and loans

The Company  borrowed  funds for working  capital from EI, an affiliate,  during
2000 and 2001.  Borrowings from the affiliate are non-interest bearing unless so
stated at the time funds are advanced.  The Company borrowed $45,278 and $20,000
from the  affiliate  and made  payments  of $-0- and  $275,000 in 2001 and 2000,
respectively.  At December 31, 2001, the Company is indebted to EI in the amount
of $75,078.  Interest expense from borrowings totaled $0 and $35,000 in 2001 and
2000, respectively.

On February 16, 2001,  APJW,  Inc.  ("APJW"),  an affiliate,  loaned the Company
$25,000  pursuant to a promissory  note. The promissory note carries an interest
rate of one  percent per month and matures on demand.  On April 20,  2001,  APJW
loaned the  Company  additional  $10,000  pursuant  to a  promissory  note.  The
promissory note carries an interest rate of one percent per month and matures on
demand.  The Company  repaid $15,000 on June 6, 2001 and $20,000 on December 17,
2001.  The Company paid $2,700 of interest  expense on the two notes in 2001. At
December 31, 2001, the Company owes $-0- to APJW.

Warrants

On January 10, 2001, the Company granted  warrants to purchase 525,000 shares of
common stock at $3.00 per share to four related parties as follows:

Related Party                                   Warrants
--------------------------------------------------------
Entrepreneur Investments, LLC ............      300,000
Jeffery M. Chatfield .....................       25,000
Gregory D. Writer, Jr ....................      100,000
Clifford J. Smith ........................      100,000
                                             ----------
                                             ----------
                                                525,000
                                             ==========

These warrants were issued in satisfaction of a stock option agreement with each
of the  respective  parties,  which was  agreed  to in  January  1999;  however,
executed copies of the stock option agreement were not subsequently delivered to
the parties.  The stock option  agreement with each of the parties was rescinded
in  exchange  for the  warrants.  The  warrants  vested as of the grant date and
expire on January 10, 2004.

The Company  recorded  stock-based  compensation  totaling  $-0- for the 525,000
warrants granted on January 10, 2001. The Company has accounted for the warrants
under the fair  value  method in  accordance  with the  Statement  of  Financial
Accounting  Standard No. 123. Market price of the stock is $.27 per share on the
date of grant.

Asset sales

In January 2001, the Company sold certain  operational  assets,  consisting of a
trade name,  marketing process,  and multimedia  properties to a former employee
for a note receivable and a 25 percent equity interest in the former  employee's
new business.  On December 15, 2001, the Company and the former  employee agreed
to terminate  the  agreement.  Pursuant to the  termination  letter,  the former
employee  returned the assets  purchased  and the Company  released its claim to
note receivable and equity interest in its former employee's new business.

4.   Notes Receivable

On February 23, 2000, SSP sold an Internet  newsletter  published by the Company
along with certain  related  assets to  Marketbyte,  L.L.C.  ("Marketbyte")  for
$200,000  in note and  $550,000  in other  future  consideration.  Other  future
consideration consists of 10% of any future consideration received by Marketbyte
in  connection  with the  newsletter  through June 2, 2002.  SSP and  Marketbyte
amended  the sale  agreement  in October  2000 and again in December  2001.  The
amended terms reduced other future  consideration  from $550,000 to $400,000 and
cancelled the June 2, 2002 due date for other future considerations.  Marketbyte
paid $150,000 towards the note and $29,114 in other considerations in 2001.

                                      F-10
<PAGE>

                           1st NET TECHNOLOGIES, INC.
                   Notes to Consolidated Financial Statements


At December 31, 2001, Marketbyte promised to pay SSP $50,000 on June 2, 2002 and
10% of its future revenue until the remaining  $370,886 in other  considerations
is paid in full.  At December 31, 2001,  SSP recorded a note  receivable  in the
amount $301,610,  and an allowance for credit losses in the amount $254,550. The
allowance  for credit  losses  represents  the net present  value of $370,886 in
future other  considerations.  The value of the note receivable is discounted at
an interest rate of 15% per annum. SSP recorded  $277,640 in impairment  expense
as a result of the  amendments in accordance  with FASB No. 118,  "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures".

In July 2000, SSP agreed to sell its two other Internet  newsletters  along with
certain related assets to Millennium Financial  Publishing,  LLC ("Millennium").
The Company is scheduled to receive consideration totaling $1,500,000 in various
stages.  The Company has chosen to recognize the gain on sale of the  newsletter
in accordance with the  installment  method due to  uncertainties  in connection
with the  receipt  of  future  payments  from the  buyer.  Millennium  has since
defaulted  on the note after its initial  installment  payment of  approximately
$50,000.  The Company is pursuing  legal  action  against  Millennium  Financial
Publishing.  There is no  assurance  the  Company  will be able to  recover  any
financial consideration.

5.   Marketable Securities

Marketable  securities  are  stated at their  fair  value and  consisted  of the
following at December 31, 2001:

                                   Unrealized    Unrealized     Fair
      2001                Cost        Gain          Loss        Value
-----------------------------------------------------------------------------
Equity Securities       $ 20,766    $ -         $ (17,298)     $ 3,468


The Company  received net proceeds  from sale of equity  securities  held in the
amount of $119,790 and  $1,632,181  and realized a gain in the amount of $51,273
and  $1,370,877,  in  2001  and  2000  respectively.  The  Company  recorded  an
accumulated  comprehensive  gain/(loss) on available-for-sale  securities in the
amount of $-0- and  ($11,285) at December 31, 2001 and 2000,  respectively.  The
Company included $17,298 and $100,000 in net unrealized holding loss in earnings
during  2001 and  2000  due to  permanent  decline  in  value of the  investment
securities held.

6.   Investments

At January 1, 2001,  the cost basis in the 4,172,614  shares of CTG common stock
was $146,232.  On June 28, 2001, the Company,  CTG and a third party investor in
CTG  entered  into a shares  exchange  and  option  agreement.  Pursuant  to the
agreement,  the Company  returned  250,000  shares of CTG stock in exchange  for
$25,000 in July 2001.  Upon receiving the $25,000 from CTG, the Company  granted
the third party  investor an option to purchase  1,250,000  shares of CTG common
stock owned by 1st Net at $.125 per share.  At December  31,  2001,  the Company
holds 3,922,614 shares of CTG common stock valued at $121,730. Additionally, the
Company  agreed to return  552,500  shares of its CTG's common stock  holding in
exchange  with 552,500  shares of 1st Net's common stock owned by CTG. The share
exchange has not been consummated at December 31, 2001.

The Company holds various other equity  investments  in other private  companies
valued at cost after  allowance for permanent  decline in value in the amount of
$502 at December 31, 2001.

7.   Property and equipment

In August 2001,  the Company  returned all property  under capital leases to the
financial institutions and gave the remaining of its property and equipment to a
third party vendor for unpaid  office  lease  obligation.  The Company  retained
certain equipment and its associated  software at December 31, 2001. The Company
expects  to  dispose  the  remaining   equipment  in  its  foreseeable   future.
Depreciation expense was $58,326 and $75,769 in 2001 and 2000, respectively. The
Company recorded an associated loss on asset disposal and impairment cost in the
amount of $13,160 in 2001 in accordance with FAS 121,  "Impairment of Long-Lived
Assets and Long-lived Assets to Be Disposed Of".

                                      F-11
<PAGE>

                           1st NET TECHNOLOGIES, INC.
                   Notes to Consolidated Financial Statements


Property and equipment consists of the following at December 31, 2001:

Computer equipment .......................       $   15,599
Less accumulated depreciation ............           (9,599)
                                                 ----------
                                                 $    6,000
                                                 ==========

8.   Notes payable, related party

The Company's  notes payable to related party  outstanding  at December 31, 2001
consist of the following:

Note payable to Grey Mare, LLC, unsecured, non-interest bearing,
mature date on June 4, 2001 .........................................   $ 5,000

Note payable to a director, unsecured and bearing interest at 10%,
interest only payments due annually in August,
mature date on August 20, 2001, secured by
30,000 shares of 1st Net Technology common stock ....................    50,000
                                                                        -------
                                                                        $55,000
                                                                        =======
Both notes were in default at December 31, 2001.

9.   Lease obligations

The Company  defaulted on its capital lease obligations in 2001 and returned all
of the equipment under capital leases in August 2001. The Company remains liable
for the amount remaining on the leases  estimated at  approximately  $150,000 at
December 31, 2001.

Rent expense  totaled $53,200 and $160,788 for the years ended December 31, 2001
and 2000,  respectively.  The Company  moved out of its leased  office  space in
August 2001 and left certain  equipment  and  furniture as  compensation  to the
lessor.  The remaining  lease  commitment  under the defaulted  operating  lease
totals  $106,400  as of August  2001.  The Company  estimated a remaining  lease
liability of approximately $45,000 at December 31, 2001.

10.  Shareholders' deficit

Preferred stock

1st Net had  472,400  shares of its  Series A  preferred  stock  outstanding  at
January 1, 2000. The Company's  Series A preferred stock was convertible into an
equal  number of common  shares at the time the  common  stock  traded at $5 per
share or higher. This occurred in the first quarter of 2000 and accordingly, all
of the preferred stock was converted into common stock at that time.

Stock-based compensation

The Company issued 50,000 and -0- restricted shares of common stock to employees
during the years ended  December  31, 2001 and 2000,  respectively.  The Company
recognized  compensation  expense for the shares  issued of $12,500 and $-0- for
the year ended December 31, 2001 and 2000. The compensation  expense  recognized
was  calculated  based on the most recent  trading prices of the common stock or
contemporaneous  stock sales at the time management  approved the grant of stock
to employees.

                                      F-12
<PAGE>

                           1st NET TECHNOLOGIES, INC.
                   Notes to Consolidated Financial Statements


Private Placement

In January 2001, the Company commenced a common stock offering of 500,000 shares
of its common stock at $.25 per share.  The Company  relied on an exemption from
registration  under Regulation D of the Securities Act of 1933, as amended.  The
Company received $85,000 in proceeds from issuance of 340,000 shares.

Options and warrants

The Company  accounts  for all stock  options  under SFAS No. 123.  However,  as
permitted by SFAS No. 123, the Company  accounts  for stock  options  granted to
employees  and stock options  granted to  nonemployees,  in a different  manner.
Directors, acting in their capacity as directors, are in the employee category.

The Company has elected to account for stock options  granted to employees under
the "intrinsic value method" whereby no compensation  expense is recorded if the
option's price equals or exceeds the fair value of the underlying stock.

The  Company  accounts  for  stock  options  granted  to  consultants  and other
providers under the "fair value method" whereby compensation expense is recorded
for the  excess of the fair value of the  option  over the  market  price of the
underlying stock.

Under SFAS No. 123,  when the  intrinsic  value method is elected,  compensation
expense is measured  also under the fair value  method,  but  reported on a "pro
forma" basis.

     On June 5, 2000, the Company granted an option to an employee that entitles
     the employee to purchase  100,000  shares of the Company's  common stock at
     $1.00 per share. The market price of the stock on the date of grant was $1.
     The Company recorded no compensation expense in accordance with APB 25. The
     option expires on June 5, 2003.

     On December 15,  2000,  the Company  granted an option to an employee  that
     entitles the employee to purchase  100,000  shares of the Company's  common
     stock at $.50 per share. The market price of the stock on the date of grant
     was $.50. The Company  recorded no compensation  expense in accordance with
     APB 25. The option expires on December 15, 2003.

     On March  31,  2001,  75,000  warrants  expired.  The  Company  recorded  a
     reduction to  previously  recorded  common stock  warrants in the amount of
     $98,250 upon expiration of the warrants.

     On June 30,  2001,  the  Company  issued an employee  25,000  shares of its
     common stock in exchange for the  cancellation of 100,000 options issued on
     June 2, 2000.  The  Company  did not  record a  reduction  in  compensation
     expense associated with the cancellation of the options.

Following  is a schedule of changes in the  Company's  outstanding  warrants and
options for years ended December 31, 2001 and 2000:

                                      F-13
<PAGE>


                           1st NET TECHNOLOGIES, INC.
                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                 Weighted      Weighted Avg
                                                   Number           Avg         Remaining
             Options/Warrants          Number    Exercisable   Exercise Price     Life
-------------------------------------------------------------------------------------------
<S>                                    <C>        <C>            <C>            <C>
Outstanding at January 1, 2000 ....    311,200     311,200       $   4.64         2.5 years
Granted ...........................    200,000
Exercised .........................       --
Cancelled .........................       --
                                      ---------
Outstanding at December 31, 2000       511,200     411,200       $   3.12         3 years
Granted ...........................    525,000
Exercised .........................       --
Cancelled .........................   (175,000)
                                      ---------
Outstanding at December 31, 2001       861,200     861,200       $   3.39         3 years
                                      =========
</TABLE>

Pro Forma

As provided for under SFAS 123, the Company has provided the required additional
pro forma disclosures. In accordance with the intrinsic value method followed by
APB  25,  no  compensation  expense  has  been  recognized  in the  consolidated
statement of operations in connection  with the granting of stock  options.  Had
compensation  cost been  recognized  in  accordance  with the fair value  method
called for by SFAS 123,  the  Company's  net loss in 2000  would have  increased
$68,000  from  ($172,995)  to  ($240,995)  and the loss  per  share  would  have
decreased from ($0.03) to ($0.04).

The fair value of the  options  issued  was  estimated  using the  Black-Scholes
option pricing model with the following  weighted  average  assumptions used for
grants:  dividend yield - 0%; expected  volatility - 80%;  risk-free  investment
rate - 6%;  and an  expected  life  of  four  years.  The  compensation  cost as
generated  by the  Black-Scholes  model  may  not be  indicative  of the  future
benefit, if any, which may be realized by the option holders.  The fair value of
the option grant was $.34 per share.

11.  Income taxes

At December 31, 2001,  the Company has federal and California net operating loss
carryforwards  of  approximately  $6,678,706.  The  federal and  California  net
operating loss carryforwards  will expire in 2022, unless utilized.  Pursuant to
Sections 382 and 383 of the Internal  Revenue Code,  annual use of the Company's
net  operating  loss and credit  carryforwards  may be limited in the event of a
cumulative  change in  ownership  of more than 50%  occurs  within a three  year
testing period. The net change in total valuation  allowance were ($557,646) and
$656,836 in 2001 and 2000 respectively.

The components of the Company's  deferred tax assets as of December 31, 2001 are
shown below.  A valuation  allowance has been  recognized to offset the deferred
tax assets, as the future realization of such assets is uncertain.


   Deferred tax assets from net operating loss carryforwards....... $ 2,270,760

   Valuation allowance.............................................  (2,270,760)
                                                                    ------------
   Net deferred tax assets......................................... $       --
                                                                    ============

A  reconciliation  of the  statutory  tax rates to the  Company's  provision for
income tax expense for the years ended December 31, 2001 and 2000 is as follows:

                                      F-14
<PAGE>

                           1st NET TECHNOLOGIES, INC.
                   Notes to Consolidated Financial Statements


                                                        For the Years Ended
                                                            December 31,
                                                        -------------------
                                                          2001      2000
                                                        -------   --------

    Federal income tax rate........................... (34.0)%    (34.0)%
    State income tax rate, net of federal benefit.....  (5.9)      (5.9)
    Valuation allowance...............................  39.9       39.9
                                                        -------   --------
                                                          -- %        -- %
                                                        =======   ========

12.  Commitments and contingencies

The Company is  currently  involved in disputes  with several  former  employees
concerning compensation and termination decisions. Although the outcome of these
disputes is  indeterminable,  management is confident that these matters will be
settled  favorably.   A  payroll  liability  reserve  has  been  established  in
connection with these disputes in the accompanying financial statements.

The  Company  settled  two  creditors  lawsuits  during  2001 with  Bowne of Los
Angeles, CA and Inegrant of San Diego, CA. As a result of settlement agreements,
the  Company  recorded  $122,196  in gain on  liabilities  settlement  in  2001.
Additionally,  the Company recorded a gain on liabilities  settlement in 2001 in
the amount of $22,779 related to the termination of its proposed  acquisition of
Spirit 32.

The Company is party to a third  lawsuit filed by L.A.  Commercial  Group in the
amount of $2,665. The associated liabilities have been recorded in the financial
statements.

The Company established a liabilities reserve at December 31, 2000 in the amount
of $350,000  due to its plan to  terminate  operations.  The Company  recognized
liabilities  in the amount of  $161,085  in 2001.  At  December  31,  2001,  the
remaining  liabilities  reserve in the amount of  $188,915  was  included in the
financial  statements.  Liabilities  reserve will be  reclassified  into accrued
liabilities at the time when previous incurred expenses are billed.  The Company
will  reduce its  liabilities  reserve at the time when it  determines  that the
Company is no longer subject to such liabilities.

                                      F-15