<PAGE>



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                   For the fiscal year ended December 31, 2001

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

             For the transition period from _________ to __________

                        Commission file number: 333-37654

                            9278 COMMUNICATIONS, INC.
--------------------------------------------------------------------------------
               (Name of small business registrant in its charter)


          DELAWARE                                  13-4165136
---------------------------------------    -------------------------------------
   (State or jurisdiction of                     (I.R.S. Employer
  incorporation or organization)              Identification Number)

                 1942 WILLIAMSBRIDGE ROAD, BRONX, NEW YORK 10461

--------------------------------------------------------------------------------
                    (Address of principal executive offices)

Registrant's telephone number, including area code:  (718) 887-9278

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

       Title of each                  Name of each exchange on which registered

          None                                    Not applicable
- -----------------------------         ----------------------------------------


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

                                      None
--------------------------------------------------------------------------------

         Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
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. [X] Yes [ ] No

         Indicate by checkmark if disclosure of delinquent filers pursuant to
Item


<PAGE>



405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]

         The aggregate market value of the common stock held by non-affiliated
stockholders of the registrant, as of March 28, 2002, was $3,954,163.

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

         The number of shares outstanding of the registrant's common stock, as
of March 28, 2002, was 23,932,912.


                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None


2
<PAGE>




                                     PART I

ITEM 1.           BUSINESS.

General

         We are a value-added integrator of telecommunications services and
technologies, specializing in the distribution of prepaid phone cards. We offer
over 200 different prepaid card products, including over 120 private label
cards, through a network of over 1,000 private distributors. Our headquarters is
in New York City and historically a majority of our sales were generated in the
New York metropolitan area. In recent years, we have established distribution
centers in California, Maryland, Connecticut and Illinois, as well as additional
distribution centers in Upstate New York and the New York metropolitan area, and
we have established strategic relationships with distributors in Canada and
United Kingdom during 2002. Through this network we estimate that our products
are sold through over 50,000 retail outlets. Several of our private label
products are marketed under national or international brand names, such as
Absolute(TM) or Extra(TM), and in some cases also under localized product
variations and names tailored to meet the needs or preferences of localized
markets. We are continuously seeking to introduce new proprietary or third-party
telecommunications related products into our growing distribution channels,
including prepaid wireless products and prepaid direct dial long distance
services, and to expand upon our existing business relationships with the United
States telecommunications companies and large national prepaid card providers we
work with. In 2001, we commenced pre-paid phone card sales through our Internet
Website 9278.comTM. Though our website, consumers can purchase 9278 phone cards
over the Internet from a selection of over 40 cards, searchable by various
criteria, e.g., rates, brand name, country, etc., and receive immediate delivery
of the card's access number and PIN codes via e-mail.


Industry Overview

         Prepaid phone cards have been widely used throughout Europe and Asia
for more than fifteen years. Currently being issued in over 140 countries, the
prepaid phone card market has grown to an estimated $20 billion dollar worldwide
industry.

         Prepaid phone cards were introduced into the North American marketplace
by small long distance consolidators and resellers, which purchase a high volume
of long distance minutes from major carriers at rates significantly lower than
those that could be obtained by individuals and small businesses and which then
resell those minutes to their established customer base. Originally introduced
to meet very specific telephony applications, prepaid telecommunications
services have evolved into a widely accepted solution by both businesses and
consumers. More recently, major long distance carriers such as AT&T, WorldCom
and Sprint have committed considerable resources to the prepaid phone card
market.

         Prepaid phone cards are a reliable, convenient and cost-effective
alternative to coin-operated calling, collect calling, operator assisted calls
and standard credit calling cards. Unlike credit calling cards, which provide
virtually unlimited credit and impose surcharges on long distance services,
prepaid phone cards are paid for in advance and provide finite amounts of


3
<PAGE>


calling time. Shaped like a credit card, the prepaid phone card easily fits into
a standard wallet. Generally, the front face denotes the denomination of the
card, and the back of the cards contains a scratch-off surface covering the card
number and personal identification number (a "PIN").

         Most domestic prepaid cards utilize remote memory technology, which
permits users to place local, long distance and international calls from any
touch-tone phone by dialing a toll-free or local access number to connect to a
prepaid phone card switching platform. After being prompted to enter a PIN, the
caller is advised of the value remaining on the card and is prompted to enter
the telephone number to be called. The call is then routed to its destination.
The per-minute charges for the call are automatically deducted from the prepaid
account corresponding to the PIN as the call progresses.

         Prepaid phone cards are distributed through a vast network of retail
outlets, including convenience stores, newsstands, grocery stores and discount
stores. While prepaid phone card products are also sold through vending machines
and, more recently, over Internet websites, the vast majority of phone card
sales are still made through retail outlets. In the New York metropolitan area,
where the majority of the Company's distribution occurs, we estimate that
prepaid phone cards are sold at tens of thousands of retail outlets.

         The retail outlets are serviced by independent distributors, which
often distribute newspapers or other items to the retail outlets. Typically, a
wholesale distributor, like us, purchases large quantities of prepaid phone
cards from a long distance carrier or reseller, and sells the cards in smaller
quantities, together with cards from other carriers, to the independent
distributor for ultimate distribution to the retail outlet. The discount from
face value at which cards are bought and sold by the participants in the
distribution chain varies depending upon the carrier and the features of the
card, such as local versus toll free dial-up access, or the rates and geographic
regions for which the card can be used.

Products and Services

         We are primarily a wholesale distributor of prepaid phone cards,
distributing over 200 different types of prepaid phone cards issued from a
variety of telecommunications carriers, including over 120 private label cards.
The long distance rates available to users of these cards are between 10% and
50% less than the rates for international calls placed by traditional methods.
Generally, each type of prepaid phone card is available in $5, $10 and $20
denominations. With the exception of the private label phone cards, which we
print and activate ourselves, we purchase pre-printed, pre-activated phone cards
from each of the applicable telecommunications carriers and distribute the cards
through our network of over 1,000 independent distributors, predominantly in the
New York, New Jersey, Connecticut and Washington, D.C. markets, although we have
recently expanded into the mid-west, west-coast and international markets.

         Historically, we predominantly distributed prepaid phone cards for most
of the major telecommunications carriers, including PT-1 Communications,
WorldCom, Qwest Communications and AT&T. During 2000, we shifted our focus to
developing private label cards in conjunction with top tier carriers and
marketing these cards under brand names owned by us.

         We currently offer over 120 private label cards, serviced by several
long distance carriers, predominantly Worldcom, including, and "Absolute(TM),"
"Traveling," "Nickel USA(TM)," and "Extra(TM)," which are serviced by WorldCom
and


4
<PAGE>



"Bollywood Cities(TM)," and 9278 Africa(TM), which are serviced by Qwest.
Generally, we determine the design, rates and target market of the cards based
upon our perception of market demand. The "Absolute" and "Extra" brand names are
marketed in numerous varieties (e.g., "Absolute Europe(TM)," "Absolute New
York(TM)," and "Absolute Chicago(TM),") designed to target the needs of certain
markets or provide localized features. Private label cards serve as lucrative
promotional items and can also be used to help generate brand name awareness.
These private label cards are exclusive to us and, unlike the other types of
prepaid phone cards which we distribute, we control the discounts for these
products, leading to higher margins. Private label cards constituted over 60% of
our sales in 2000 and over 70% of our sales in 2001.

         Our retail customers can use the prepaid phone cards we distribute at
any touch tone telephone by dialing an access number, followed by a PIN assigned
to each card and the telephone number the customer seeks to reach. The carrier's
switch completes the call, and its debit card platform reduces the outstanding
balance of the card during the call. We believe that many of our customers use
prepaid cards as their primary means of making long distance calls due to:

         o        Attractive rates;

         o        Reliable service;

         o        Ease of monitoring and budgeting long distance spending; and

         o        The appealing variety of calling cards offered to different
                  market segments.

         One of our focuses has been on distribution in certain ethnic markets
in the U.S. that generate high levels of international traffic to specific
countries. As a result, we have become one of the premiere phone card
distribution channels in the New York City area, which has many such ethnic
markets. Recent immigrants and members of ethnic communities are heavy users of
international long distance, given their desire to keep in touch with family
members and friends back home. In addition, recent immigrants often do not have
established credit histories necessary to establish accounts with traditional
long distance carriers. An example of one of our products marketed to a specific
ethnic group is the Bollywood Phone Card, from which we generated over
$15,000,000 in revenues in 2001. There are approximately 465,000 Indians,
Pakistanis, and Bengalis residing in the vicinity of New York City. The
Bollywood Phone Card is designed for and has become a household name for peoples
from the sub-continent of India, who, by using the card to place long distance
calls to that region, receive deep discounts on rates. Other examples are 9278
Vietnam, with attractive rates to Vietnam.

         We have over 1,000 independent wholesalers and retailers throughout the
New York, New Jersey and Connecticut areas and in other areas. These customers
serve as a network, purchasing cards from us and further distributing them to an
estimated 50,000 retail outlets. Generally, each customer operates on a net 21
payment cycle. In 2001, one of our customers, Sohel Distributor, Inc., accounted
for over 11% of our revenues. Sohel Distributor Inc., is owned by the brother of
our Chief Executive Officer and controlling stockholder.

Strategy

         Our goal is to solidify our position as a dominant player in the
pre-paid distribution industry by continuously expanding the breadth of our



5
<PAGE>


distribution network and by offering the most sought after pre-paid products to
the marketplace. Our focus also continues to be on building brand name awareness
for "9278" with the consumer base, the distribution networks, and with
telecommunications carriers. By shifting our product offerings to include a
greater percentage and variety of 9278 private label cards, we have strengthened
our position as a broad-based, value added telecommunications services
corporation.

         We anticipate continued growth in our client base and market share of
the prepaid card industry through internal expansion and by strategic
acquisition of other distributors. We believe that this presents the opportunity
for us to secure a significant share of the North American market and to expand
into international markets such as Europe, Asia and the Pacific Rim.

         In 2001 we implemented a retail e-commerce strategy that has expanded
the geographic reach of our distribution. We expect that this distribution
channel will also create operational efficiencies and ultimately increase
margins.

         To date, the ultimate consumer of mass market prepaid phone cards have
been travelers, niche market card collectors and new immigrants needing access
to the North American and/or international telecommunications systems servicing
these customers. To remain competitive, we will be conducting a targeted
marketing program to distributors, retailers and corporations. In addition, we
will seek out strategic partners who currently provide distribution and
marketing of prepaid cards to different customers or regions as a means of
increasing overall market share.


Competition

         The telecommunications services industry generally, and the prepaid
phone card industry specifically, is intensely competitive, rapidly evolving and
subject to constant technological change. There are several large and numerous
small competitors in the industry, and we expect to face continuing competition
based on price and service offerings from existing competitors and new market
entrants. In addition, the increasing prevalence of the Internet and emerging
technologies seeking to establish Internet telephony pose potential competitive
threats to the market for long distance telephone services. The principal
competitive factors in the market include:

         o        Price;

         o        Quality of service;

         o        Breadth of geographic presence;

         o        Customer service;

         o        Reliability;

         o        Network capacity; and

         o        Availability of enhanced communications services.

6
<PAGE>


         Our competitors include:

         o        Other distributors of prepaid products, such as Union
                  Telecard Alliance and Blackstone Calling Card;

         o        Telecommunications companies that produce their own prepaid
                  products, such as IDT and Qwest; and

         o        Other telecommunications companies, such as AT&T, Worldcom and
                  Total-Tel USA.

         Some of our competitors have substantially greater financial, technical
and marketing resources, larger customer bases, longer operating histories,
greater name recognition and more established relationships in the industry than
we have. As a result, certain of these competitors may be able to adopt more
aggressive pricing policies, which could hinder our growth.

Government Regulation

         The provision of telecommunications services is regulated by the
federal and state governments of the United States. Federal laws and regulations
promulgated by the Federal Communications Commission apply to interstate and
international telecommunications, while state regulatory authorities have
jurisdiction over telecommunications services that originate and terminate
within the same state. Various other international authorities also may seek to
regulate telecommunications services originating in their respective countries.
However, as of the date of this report, we are not aware of any requirement for
government approval to manufacture, distribute and/or market prepaid phone
cards.

Employees

         As of February 28, 2002, we had 102 full-time employees. Of these, 44
were sales and marketing personnel, 12 were management and finance personnel, 6
were information technology personnel and 40 were general and administrative
personnel. None of our personnel are covered by a collective bargaining
agreement. We have never experienced an employment-related work stoppage and
consider our employee relations to be satisfactory.


ITEM 2.   PROPERTIES

         Our executive offices are located at 1942 Williamsbridge Road, Bronx,
New York, where we lease approximately 3,500 square feet, pursuant to a sublease
agreement that expires on November 30, 2008. The aggregate annual base rental
for this space is $66,000. We sublet these premises from an officer and director
of ours, on terms substantially the same as those under which the officer leases
the space.

         We also lease approximately 2,600 square feet, located at 1938
Williamsbridge Road, Bronx, New York, pursuant to a lease that expires in March
2008. This space is used as additional office space and as a warehouse location
for the off-site storage of our products. The annual rent for such space is
$102,000.

         In addition, we lease approximately 2,700 square feet, located at 1965
Williamsbridge Road, Bronx, New York to house our ecommerce, telemarketing and



7
<PAGE>


customer service operations. We lease this space pursuant to a lease agreement
that expires on November 30, 2003. The aggregate annual base rental for this
space is $60,000.

         We also maintain sales and distribution offices in eight additional
sites, servicing principally their respective local markets. These branch
offices combine office and warehouse facilities. The following table sets forth
certain information with respect to such branch offices.


<TABLE>
<CAPTION>
-------------------------------------- ------------------- -------------------------------- -----------------------------
<S>                                    <C>                 <C>                              <C>
Location                               Square feet         Lease Expiration date            Annual base rent
-------------------------------------- ------------------- -------------------------------- -----------------------------
1601 South Vermont, Suite 103          1,870               August 9, 2006                   $30,240
Los Angeles, CA
-------------------------------------- ------------------- -------------------------------- -----------------------------
1099 North Avenue                      900                 December 31, 2004                $18,000
Bridgeport, CT
-------------------------------------- ------------------- -------------------------------- -----------------------------
6635 West Ceramack Road                2,340               December 31, 2006                $22,844
Berwyn, IL
-------------------------------------- ------------------- -------------------------------- -----------------------------
13824 Old Columbia Pike                1,160               October 14, 2003                 $17,400
Silver Springs, MD
-------------------------------------- ------------------- -------------------------------- -----------------------------
416 4th Avenue                         3,200               June 30, 2004                    $36,000
Brooklyn, NY
-------------------------------------- ------------------- -------------------------------- -----------------------------
483 Freedom Plains Road                900                 November 30, 2002                $11,400
Poughkeepsie, NY
------------------------------------- ------------------- -------------------------------- -----------------------------
9929 Queens Blvd                       900                 January 31, 2004                 $16,140
Rego Park, NY
-------------------------------------- ------------------- -------------------------------- -----------------------------
1569 Central Park Ave                  3,500               June 30, 2005                    $33,600
Yonkers, NY
-------------------------------------- ------------------- -------------------------------- -----------------------------
</TABLE>


ITEM 3.           LEGAL PROCEEDINGS.

         We are subject to certain legal proceedings and claims which have
arisen in the ordinary course of our business. These actions when ultimately
concluded will not, in the opinion of management, have a material adverse effect
on our financial position, results of operations or liquidity.


ITEM 4.             SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

                           None



8
<PAGE>



                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information

         Our common stock is quoted on the over-the-counter bulletin board
("OTCBB") of the Nasdaq Stock Market under the symbol "NTSE". The following
table sets forth the range of the high and low bid quotations for our common
stock for the periods indicated. Such market quotations reflect inter-dealer
prices, without mark-up, mark-down or commission and may not necessarily
represent actual transactions.

                                    High                 Low
                                    ----                 ---

        2001
        ----
        First quarter               $1.59               $0.61
        Second quarter               0.74                0.40
        Third quarter                0.51                0.36
        Fourth quarter               0.37                0.20

        2000
        ----
        First quarter               $4.81               $2.63
        Second quarter               3.25                1.28
        Third quarter                1.80                0.91
        Fourth quarter               1.94                0.78

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

         As of April 1, 2002, there were approximately 360 holders of record of
our common stock and the closing bid quotation of our common stock on the OTCBB
was $0.36 per share.

Dividend Policy

         We do not intend to pay future dividends and intend to reinvest any
earnings into our business to finance future growth. Accordingly, our Board of
Directors does not anticipate declaring any cash dividends in the foreseeable
future.

Recent Sales of Unregistered Securities

         On March 22, 2001, Sajid Kapadia, an officer and director of ours,
agreed to amend the repayment terms of a $2.0 million promissory note made to
him by us in December 1999. As amended, the terms provide for principal
repayments by us of (i) $1.0 million on March 31, 2002, and (ii) $1.0 million on
December 31, 2002. Mr. Kapadia had previously extended the payment terms of this
promissory note, in June 2000. At that time, in consideration for his agreement
to extend the repayment terms of the note, we issued him a warrant to purchase
200,000 shares of our common stock at an exercise price of $1.625 per share. The
warrant vested immediately as to 100% of the shares of common stock underlying
the warrant and is exercisable for ten years from the date of the grant. These
transactions were exempt from registration pursuant to Section 4(2) of the


9
<PAGE>


Securities Act of 1933 (the "Act").


ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                         For the Year Ended December 31,
                         -------------------------------
                        (in thousands, except share data)
---------------------------------- ------------------ ------------------- ------------------- ------------------- ----------------
                                         2001                2000                1999                1998                1997
                                         ----                ----                ----                ----                ----
<S>                                    <C>                 <C>                <C>                 <C>                    <C>
---------------------------------- ------------------ ------------------- ------------------- ------------------- ----------------

Net Sales                              $200,177            $80,763            $78,090             $22,169                $160

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

Cost of Sales                           189,212             77,793             75,473              21,487                 142

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

Operating Expenses                        9,924              5,599              2,028                 602                  17

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

Earnings (loss) before income              $721            $(3,419)               $12                 $80                  $1
taxes
---------------------------------- ------------------ ------------------- ------------------- ------------------- ----------------

Earnings (loss) per common share           $.03             $(0.16)            $(0.02)              $0.00               $0.00
---------------------------------- ------------------ ------------------- ------------------- ------------------- ----------------

Weighted-average shares                24,500,881       20,902,060         19,659,629          14,900,000          14,900,000

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

                                            As at December 31,
                                            ------------------
                                              (in thousands)

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

                                       2001                  2000                1999                1998
                                       ----                  ----                ----                ----

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

Current Assets                        $32,879             $14,562              $6,827              $3,400

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

Total Assets                           37,968              19,141               7,144               3,543

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

Convertible Notes Payable                 176                  --

---------------------------------- ------------------ ------------------- ------------------- ------------------- ----------------
</TABLE>



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<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

         The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto set forth in Item 7 of this
Annual Report. In addition to historical information, this discussion and
analysis contains forward-looking statements that involve risks, uncertainties
and assumptions, which could cause actual results to differ materially from
management's expectations. Factors that could cause differences include, but are
not limited to, expected market demand for the Company's products, fluctuations
in pricing for products distributed by the Company and products offered by
competitors, as well as general conditions of the telecommunications
marketplace.

Overview

         To date, our principal source of revenue has been the marketing and
distribution of prepaid phone cards. We market and distribute branded prepaid
phone cards, which are produced by a variety of telecommunications long distance
carriers and resellers, as well as private label proprietary prepaid phone cards
produced exclusively for us by various long distance carriers and/or resellers.

         Prepaid phone cards are distributed through a vast network of retail
outlets, including convenience stores, newsstands, grocery stores and discount
stores. The retail outlets are serviced by independent distributors, which often
distribute newspapers or other items to the retail outlets. We purchase large
volumes of branded prepaid phone cards from the long distance carrier or
reseller and sell the cards in smaller quantities, together with cards from
other carriers and/or private label cards we distribute, to the independent
distributor, for ultimate distribution to retailer outlet.

         We purchase branded cards at a discount from the face value of the
card, and resell them to the distributor at a slightly lower discount. The
difference between the two discount rates, typically from 1% to 8%, represents
the gross margin we retain. We purchase branded cards on varying terms, from
C.O.D. to an as used basis. Sales of our products are generally made on a net 21
basis.

         Private label cards are generally designed and produced by us,
utilizing card numbers and PINs provided by the telecommunications carrier or
reseller providing the long distance service for the card. We incur the upfront
expense of printing the phone cards. However, we do not pay the long distance
carrier until it activates the cards, which occurs upon our sale to the
distributor. Accordingly, through the use of private label cards, our cost of
inventory is significantly reduced, as purchases are effectively made on an
as-needed basis. In addition, private label cards generally provide us with the
ability to achieve a greater gross margin percentage, typically ranging from 5%
to 8%. During the past two years, we have continued to increase our sales of
private label cards, both on an absolute dollar volume and as a percentage of
our sales. During the year ended December 31, 2001, we sold over 120 varieties
of private label cards which accounted for in excess of 70% of our total
revenues.

         We continue to seek to expand our geographic reach and to increase our
sales. In recent years, we have established distribution centers in California,
Maryland, Connecticut,Illinois, Upstate New York, as well as additional


11
<PAGE>


distribution centers in the New York metropolitan area, and we have established
strategic relationships with distributors in Canada and United Kingdom. In
addition, in 2001, we commenced pre-paid phone card sales through our Internet
Website 9278.com(TM). Through our website, consumers worldwide can purchase 9278
phone cards over the Internet from a selection of over 40 cards, searchable by
various criteria, e.g., rates, brand name, country, etc., and receive immediate
delivery of the card's access number and PIN codes via e-mail.

         We are seeking to develop and acquire rights to additional prepaid
telecommunications services and other prepaid products or services to diversify
our product offerings and increase our overall gross margin. In the short-term,
additional costs related to the development or acquisition of such products may
have an impact on our net profits.


Results of Operations


YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

Net sales increased by approximately $120 million to $200.2 million for the year
ended December 31, 2001, up over 148% from net sales of $80.7 million for the
year ended December 31, 2000. The increase in net sales was primarily due to our
geographic expansion since the third quarter of calendar year 2000 and
continuing in the first three quarters of 2001. In the third quarter of 2000 we
acquired two businesses (in Yonkers, New York and Silver Springs, Maryland) that
accounted for $27,437,000 of sales for the year ended December 31, 2001. In
December 2000, we acquired Reliable Networks, Inc., a competitor of ours located
in Queens, New York, which accounted for $36,342,000 of sales for the year ended
December 31, 2001. In January 2001, we opened an office in Connecticut, which
accounted for an aggregate of $8,469,000 in sales for the year ended December
31, 2001. In May 2001, we opened a new office in Los Angeles, California, which
accounted for $14,991,000 in sales for the year ended December 31, 2001. In
August 2001, we opened a new location in Brooklyn, New York, which accounted for
$3,655,000 in sales since its inception and in September 2001 we opened a new
location in Chicago, Illinois, which accounted for $5,079,000 in sales since its
inception. Starting July 2001, we began actively selling phone cards over the
Internet. Internet sales accounted for $6,649,000 for the year ended December
31, 2001. For the year ended December 31, 2001, same location sales for our
Bronx office increased by approximately $21,939,000 or 29% to $98,667,000 in
2001 from $76,728,000 in the prior year.

Gross profit increased to approximately $11 million in 2001, as compared to
approximately $3 million in 2000, principally as a result of increased volume
and as a result of higher gross margins. As a percentage of sales, gross profit
for 2001 increased to 5.48%, as compared to 3.68% for the year ended December
31, 2000. This increase in gross profit was attributable to the addition of
higher margin private label cards, slightly offset by the decrease in margins
attributable to branded products and increasing competition from additional
cards entering the marketplace.

Operating expenses for the year ended December 31, 2001 increased by $4,325,000
to $9,924,000, an increase of 77% over operating expenses of $5,599,000 for the
year ended December 31, 2000. Of this, general and administrative expenses
increased by $2,358,000 or 53% to $6,810,000 for 2001 as compared to $4,452,000
for 2000. This increase was primarily due to the increase in salaries by
$969,000 to $1,998,000 in 2001 as compared to $1,029,000 in 2000 resulting from


12
<PAGE>


additional personnel required for new offices, direct sales efforts and Internet
customer service. Included in the general and administrative expenses is the
cost of processing credit card sales over the Internet in the amount of $225,000
for the year 2001. Rent expenses increased by $180,000 to $308,000 in 2001 as
compared to $128,000 in 2000 as the company continued to add new locations and
expand its existing facilities. Professional fees increased by $393,000 to
$1,172,000 in 2001 as compared to $779,000 in 2000. The increase in professional
fees was due to legal and accounting fees incurred primarily in connection with
lawsuits settled in 2001 and legal and accounting costs incurred in connection
with opening new locations during the year. Travel and related expenses
increased by $197,000 whereas telephone and utilities increased by $189,000.
Other general and administrative expenses increased due to the company opening
additional locations and expenses related to increase in sales volume.

Selling expenses increased by $1,680,000 or 306% to $2,229,000 in 2001 as
compared to $549,000 during the year 2000. Of this, $330,000 was increases in
promotional expenses incurred in connection with the Company promoting its
private label cards during the year 2001. The commission expense increased by
$892,000 as the Company hired commissioned salespersons in 2001 to promote its
sales. Advertising costs increased by $658,000 to $817,000 in 2001
from $159,000 in 2000 as the company increased the sales of its private label
cards and sales over the Internet. Trade shows expense was reduced by $138,000
as a result of negotiated packages, and cost of printing of trade publications
were reduced by $63,000 as the company utilized its in-house facilities in
designing these publications.

Provision for bad and doubtful debts increased by $287,000 to $885,000 in 2001
as compared to $598,000 in 2000 an increase of 48% over prior year. This
increase is nominal compared to the 148% increase in sales.

Other Expenses decreased by $470,000 to $320,000 in 2001, as compared to
$790,000 during the year 2000. Included in other expenses is a one-time charge
for amount payable to an ex-vendor in connection with a litigation settlement in
the amount of $203,000.

We had net earnings of $656,000 for 2001 as compared to net loss of $3,444,000
for the year ended December 31, 2000.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

Net sales increased $2.6 million to $80.7 million for the year ended December
31, 2000, up 3.3% from net sales of $78.1 million for the year-ended December
31, 1999. The increase in net sales was due to the addition of new distributors
during calendar year 2000.

Gross profit increased to $2,970,000 in 2000, as compared to $2,617,000 in 1999,
principally as a result of increased volume. As a percentage of sales, gross
profit for 2000 increased to 3.68%, as compared to 3.35% for the year ended
December 31, 1999. This increase in gross profit was attributable to the
addition of higher margin private label cards, slightly offset by the decrease
in margins attributable to branded products and increasing competition from
additional cards entering the marketplace.

Operating expenses for the year ended December 31, 2000 increased by $3,571,000
to $5,599,000, an increase of 176% over operating expenses of $2,028,000 for the
year ended December 31, 1999. Included in the operating expenses was a one time
write off of bad debts of $594,000 from a customer. In addition, general and
administrative expenses increased to $4,452,000 for 2000, as compared to


13

<PAGE>



$1,143,000 for 1999. This increase was primarily due to the increase in
salaries, constituting $1,029,000 in 2000, as compared to $184,000 in 1999, the
one time recognition of public relations costs of $875,000, that resulted from
our issuing 800,000 shares of common stock under a four year consulting
agreement, and an increase in professional fees to $769,000 in 2000 as compared
to $442,000 in 1999. The increase in professional fees was due to legal,
accounting and consulting fees incurred primarily in connection with the
acquisitions of iLink Telecom and Reliable Networks and certain litigation
instituted by former vendors and customers.

Other expenses increased by $213,000 to $790,000 in 2000 as compared to $577,000
during the year 1999. Included in other expenses for 2000 was a charge to
operations of $555,000, primarily resulting from and a one-time write off for
goodwill that resulted from the 1999 acquisition of iLink Telecom, Inc. and we
recorded a $58,000 unrealized loss on investment in marketable securities.

We incurred a net loss of $3,444,000 for 2000 as compared to net income of
$7,000 for the year ended December 31, 1999. The decrease in net income was
primarily due to the one-time charges described above that total $2,145,000 and
the significant professional fees we incurred in connection with the
acquisitions. For purposes of earnings per share, net income (loss) attributable
to common stock for 1999 reflects a net loss of $368,000. This gives effect to
recognition of a beneficial conversion feature of $375,000 attributable to the
outstanding series B convertible preferred stock we issued in December 1999.

CAPITAL RESOURCES

At December 31, 2001, we had total current assets of approximately $32,879,000.
This included $4,336,000 in cash, $1,051,000 in restricted cash, $12,969,000 of
inventory and $14,374,000 of accounts receivable. Our cash balances vary
significantly from day-to-day due the large volume of purchases and sales we
make from the various prepaid phone card companies and the numerous distributors
to whom we sell cards. Although we had current liabilities of $35,620,000 at
December 31, 2001, we believe that the nature of such liabilities and the cash
flow we are generating from operations enable us to have adequate liquidity to
fund our operations. We believe that cash flow from operations in fiscal 2002
should permit our current assets to exceed our current liabilities at the end of
such year.

We are continuously renegotiating credit terms with their telephone card
suppliers. The favorable changes in terms from our vendors has eliminated the
temporary cash crunches that have occurred in the past due to the restrictive
credit terms previously made available to us from the telecommunications
companies we buy branded cards from, as compared to the credit terms we make
available to our customers.


14
<PAGE>



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


                   9278 Communications, Inc. and Subsidiaries

                          INDEX TO FINANCIAL STATEMENTS




<TABLE>
<CAPTION>

                                                                                                             Page
                                                                                                             ----
<S>                                                                                                        <C>
Report of Independent Certified Public Accountants                                                            F-2

Consolidated Balance Sheets as of December 31, 2001 and 2000                                               F-4 - F-5

Consolidated Statements of Operations for the years ended
    December 31, 2001, 2000 and 1999                                                                          F-6

Consolidated Statement of Shareholders' Equity for the years
    ended December 31, 2001, 2000 and 1999                                                                  F-7 - F-8

Consolidated Statements of Cash Flows for the years ended
    December 31, 2001, 2000 and 1999                                                                        F-9 - F-10

Notes to Consolidated Financial Statements                                                                 F-11 - F-28

</TABLE>



                                      F-1

<PAGE>




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




Board of Directors and Shareholders of
    9278 COMMUNICATIONS, INC.


We have audited the accompanying consolidated balance sheet of 9278
Communications, Inc. and Subsidiaries as of December 31, 2001, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of 9278
Communications, Inc. and Subsidiaries as of December 31, 2001, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.

We have also audited Schedule II - Valuation and Qualifying Accounts for the
year ended December 31, 2001. In our opinion, this schedule presents fairly, in
all material respects, the information required to be set forth therein.

/s/ GRANT THORNTON LLP


Melville, New York
April 5, 2002


                                      F-2
<PAGE>



                   (LETTERHEAD OF FRIEDMAN ALPREN & GREEN LLP)



                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors of
    9278 Communications Inc.


We have audited the accompanying consolidated balance sheet of 9278
Communications, Inc. and Subsidiaries as of December 31, 2000, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the years ended December 31, 2000 and 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of 9278 Communications,
Inc. and Subsidiaries as of December 31, 2000, and the results of their
operations and their cash flows for the years ended December 31, 2000 and 1999,
in conformity with accounting principles generally accepted in the United States
of America.

We have also audited Schedule II--Valuation and Qualifying Accounts for each of
two years in the period ended December 31, 2000. In our opinion, this schedule
presents fairly, in all material respects, the information required to be set
forth therein.

/S/  FRIEDMAN ALPREN & GREEN LLP



New York, New York
March 23, 2001


                                      F-3
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                  December 31,


<TABLE>
<CAPTION>
                                     ASSETS                                                2001                   2000
                                                                                       ------------            -----------
<S>                                                                                 <C>                   <C>
CURRENT ASSETS
    Cash and cash equivalents                                                          $  4,335,936          $  4,114,651
    Restricted cash                                                                       1,051,215
    Marketable securities                                                                                          20,962
    Accounts receivable, net of allowance of $760,000
       in 2001 and $675,000 in 2000                                                      13,058,773             5,780,690
    Accounts receivable - related party                                                   1,315,011             1,064,143
    Inventories                                                                          12,969,347             3,582,040
    Prepaid expenses and other current assets                                               149,044
                                                                                       ------------            ----------

         Total current assets                                                            32,879,326            14,562,486


PROPERTY AND EQUIPMENT, NET                                                               1,306,884               653,597


GOODWILL, NET                                                                             3,624,071             3,884,159


OTHER ASSETS                                                                                158,187                40,743
                                                                                         ----------            ----------
                                                                                        $37,968,468           $19,140,985
                                                                                         ==========            ==========
</TABLE>



        The accompanying notes are an integral part of these statements.


                                      F-4
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                  December 31,


<TABLE>
<CAPTION>
                      LIABILITIES AND SHAREHOLDERS' EQUITY                                2001                  2000
                                                                                      -------------         -------------
<S>                                                                                     <C>                   <C>
CURRENT LIABILITIES
    Accounts payable and accrued expenses                                               $34,590,301           $14,366,329
    Accounts payable - related party                                                        318,950               227,944
    Current maturities of notes and advances payable, Shareholder                           570,100               904,936
    Current maturities of capital lease obligations                                          45,549                48,023
    Current maturities of convertible notes payable                                          35,824
    Income taxes payable                                                                     59,250                24,255
                                                                                        -----------           -----------

                                                                                         35,619,974            15,571,487
         Total current liabilities


NOTES AND ADVANCES PAYABLE,
    SHAREHOLDER, less current maturities                                                                        2,000,000


CAPITAL LEASE OBLIGATIONS, less current maturities                                           85,974               103,071


CONVERTIBLE NOTES PAYABLE, less current maturities                                          140,146


COMMITMENTS AND CONTINGENCIES


SHAREHOLDERS' EQUITY
    Convertible preferred stock Class B, $.001 par value; 5,000,000 shares
       authorized; 505 shares issued and outstanding in 2000                                                      505,000
    Common stock - $.001 par value; 40,000,000 shares authorized; 22,932,912
       and 23,166,969 shares issued and outstanding in 2001 and 2000,
       respectively                                                                          22,933                23,166
    Capital in excess of par value                                                        8,248,458             7,743,252
    Accumulated deficit                                                                  (6,149,017)           (6,804,991)
                                                                                         -----------           -----------
                                                                                          2,122,374             1,466,427
                                                                                        -----------           -----------
                                                                                        $37,968,468           $19,140,985
                                                                                         ==========            ==========

</TABLE>


The accompanying notes are an integral part of these statements.


                                      F-5
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                             Year ended December 31,



<TABLE>
<CAPTION>
                                                                     2001                 2000                  1999
                                                               ---------------      ---------------       ---------------
<S>                                                               <C>                   <C>                   <C>
Net sales                                                         $200,177,380          $80,763,042           $78,089,670
Cost of sales                                                      189,212,225           77,792,807            75,472,736
                                                                   -----------          -----------          ------------
         Gross profit                                               10,965,155            2,970,235             2,616,934
                                                                   -----------          -----------          ------------
Operating expenses
    Selling                                                          2,228,816              549,336               365,255
    General and administrative                                       6,809,862            4,451,533             1,142,881
    Provision for bad debts                                            885,282              598,474               519,962
                                                                   -----------          -----------          ------------
                                                                     9,923,960            5,599,343             2,028,098
                                                                   -----------          -----------          ------------
         Operating profit (loss)                                     1,041,195           (2,629,108)              588,836
Other expense
    Interest expense                                                   116,821              175,994                23,454
    Litigation settlement                                              203,000                    -                     -
    Loss on disposal of assets                                               -              555,447                     -
    Unrealized loss on investment                                            -               58,473                     -
    Loss attributable to major supplier                                      -                    -               553,547
                                                                   -----------          -----------          ------------
                                                                       319,821              789,914               577,001
                                                                   -----------          -----------          ------------
         Earnings (loss) before income taxes                           721,374           (3,419,022)               11,835
Income tax provision                                                    65,400               25,404                 5,000
                                                                   -----------          -----------          ------------
         NET EARNINGS (LOSS)                                           655,974           (3,444,426)                6,835
Preferred stock dividend                                                 -                  -                     375,000
                                                                   -----------          -----------          ------------
Net earnings (loss) attributable to common
    stock                                                         $    655,974          $(3,444,426)          $  (368,165)
                                                                   ===========          ===========          ============
Earnings (loss) per common share
    Basic and diluted                                                   $0.03               $(0.16)               $(0.02)
                                                                   ===========          ===========          ============
Weighted-average shares
    Basic and diluted                                               24,500,881           20,902,060            19,659,629
                                                                   ===========          ===========          ============

</TABLE>

The accompanying notes are an integral part of these statements.


                                      F-6
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                  Years ended December 31, 2001, 2000 and 1999



<TABLE>
<CAPTION>
                                                Convertible preferred
                                                        stock                    Common stock               Treasury stock
                                               ----------------------     ------------------------    ------------------------
<S>                                            <C>           <C>          <C>           <C>           <C>            <C>
                                               Shares        Amount         Shares        Amount        Shares         Amount
                                               -------      --------      ---------     ---------     ---------      ---------

Balance at January 1, 1999                                                      200      $  1,000

Contribution of common stock by
    founding shareholders                                                        23                         (23)     $ 350,721
Reissuance of treasury stock                                                    (23)                         23       (350,721)
Effective stock split of 74,500 shares
    at merger                                                            14,899,800        13,900
Effective acquisition of ilink excluding
    contemporaneous private placement                                     4,259,629         4,259
Issuance of common stock through private
    placement                                                               500,000           500
Issuance of preferred stock through
    private placement                           1,500     $1,500,000
Dividends declared
Imputed preferred stock dividend
    attributable to the beneficial
    conversion feature

Net income
                                            ---------    -------------- -------------------------         -----    ------------

Balance at December 31, 1999
    (carried forward)                           1,500      1,500,000     19,659,629        19,659           -            -


<CAPTION>
                                             Additional
                                               paid-in     Accumulated
                                               capital       decicit           Total
                                             ----------- -------------       --------
<S>                                          <C>            <C>            <C>

Balance at January 1, 1999                   $  199,000    $    72,600     $  272,600

Contribution of common stock by
    founding shareholders                       350,721                       701,442
Reissuance of treasury stock                                                 (350,721)
Effective stock split of 74,500 shares
    at merger                                   (13,900)
Effective acquisition of ilink excluding
    contemporaneous private placement           451,061                       455,320
Issuance of common stock through private
    placement                                   999,500                     1,000,000
Issuance of preferred stock through
    private placement                                                       1,500,000
Dividends declared                                          (3,065,000)    (3,065,000)
Imputed preferred stock dividend
    attributable to the beneficial
    conversion feature                          375,000       (375,000)

Net income                                                       6,835          6,835
                                             ------------- -------------     --------

Balance at December 31, 1999
    (carried forward)                         2,361,382     (3,360,565)       520,476

</TABLE>




                                      F-7
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

           CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (CONTINUED)

                  Years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                               Convertible preferred
                                                       stock                   Common stock               Treasury stock
                                              ----------------------     -------------------------   -------------------------
                                              Shares         Amount         Shares        Amount        Shares         Amount
                                              -------       --------      ---------     ---------     ---------      ---------
<S>                                             <C>       <C>            <C>              <C>                      <C>
(brought forward)                               1,500     $1,500,000     19,659,629       $19,659                  $     -

Conversion of preferred stock to
   common stock                                  (995)      (995,000)       873,340           873
Issuance of common stock through
   private placement                                                        529,000           529
Issuance of common stock to officer
   in exchange for advances payable                                         250,000           250
Issuance of common stock for
   services rendered                                                        855,000           855
Issuance of common stock upon
   acquisition of Reliable Networks,
   Inc.                                                                   1,000,000         1,000
Net loss
                                            ---------    ----------------------------------------   ------------   ------------

Balance at December 31, 2000                      505        505,000     23,166,969        23,166        -              -

Conversion of preferred stock to
   common stock                                  (505)      (505,000)       776,013           777
Repurchase and retirement of
   common stock                                                          (1,010,070)       (1,010)
Net income
                                            ---------    ----------------------------------------   ------------   ------------

BALANCE AT DECEMBER 31, 2001                    -        $               22,932,912       $22,933        -         $     -
                                           ==========     =========      ==========        ======   ============    ===========
</TABLE>


<TABLE>
<CAPTION>
                                             Additional
                                              paid-in      Accumulated
                                              capital        decicit            Total
                                             -------------------------        --------
<S>                                           <C>           <C>            <C>
(brought forward)                             $2,361,382    $(3,360,565)   $   520,476

Conversion of preferred stock to
   common stock                                  994,127
Issuance of common stock through
   private placement                             997,471                       998,000
Issuance of common stock to officer
   in exchange for advances payable              499,750                       500,000
Issuance of common stock for
   services rendered                             929,186                       930,041
Issuance of common stock upon
   acquisition of Reliable Networks,
   Inc.                                        1,961,336                     1,962,336
Net loss                                                     (3,444,426)    (3,444,426)
                                              -------------  ----------     ----------

Balance at December 31, 2000                   7,743,252     (6,804,991)     1,466,427

Conversion of preferred stock to
   common stock                                  504,223
Repurchase and retirement of
   common stock                                      983                           (27)
Net income                                                      655,974        655,974
                                              ------------- -----------    -----------

BALANCE AT DECEMBER 31, 2001                  $8,248,458    $(6,149,017)   $ 2,122,374
                                               =========     ==========     ==========

</TABLE>



The accompanying notes are an integral part of this statement.

                                      F-8
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             Year ended December 31,


<TABLE>
<CAPTION>
                                                                             2001             2000            1999
                                                                         -----------      -----------       --------
<S>                                                                    <C>               <C>              <C>
Cash flows from operating activities
    Net income (loss)                                                     $  655,974      $(3,444,426)      $      6,835
    Adjustments to reconcile net income (loss) to net cash
       provided by (used in) operating activities
          Depreciation and amortization                                      511,175          186,524            66,296
          Provision for doubtful accounts                                    885,282          598,474           519,962
          Loss attributable to major supplier                                      -                -           553,547
          Issuance of common stock for services rendered                           -          930,041                 -
          Unrealized loss on investments                                           -           58,473                 -
          Loss on sale of equipment                                                -          555,447                 -
          Changes in assets and liabilities, net of assets
              acquired and liabilities assumed
                  Restricted cash                                         (1,051,215)               -                 -
                  Accounts receivable                                     (8,015,461)      (2,773,661)       (1,689,999)
                  Accounts receivable - related party                       (250,868)        (849,143)                -
                  Inventories                                             (9,319,292)      (2,279,869)       (1,471,334)
                  Prepaid expenses and other current assets                 (149,044)          30,749           (30,749)
                  Other assets                                               (18,149)         (46,366)           (5,339)
                  Accounts payable and accrued expenses                   20,110,295       11,560,750          (132,023)
                  Accounts payable - related party                            91,006          227,944                 -
                  Income taxes payable                                        34,995           22,255            (6,551)
                                                                         -----------      -----------      ------------
         Net cash provided by (used in) operating activities               3,484,698        4,777,192        (2,189,355)
                                                                         -----------      -----------      ------------
Cash flows from investing activities
    Acquisition of property and equipment                                   (878,969)        (491,942)         (122,104)
    Acquisition of businesses                                               (207,742)      (1,000,000)                -
    Disposition of marketable securities                                      20,962               -                  -
    Cash received in merger                                                        -               -              5,410
    Merger transaction costs                                                       -               -            (55,681)
                                                                         -------------    -----------      ------------
         Net cash used in investing activities                            (1,065,749)      (1,491,942)         (172,375)
                                                                         -----------      -----------      ------------
Cash flows from financing activities
    Notes and advances payable, shareholder, net                          (2,334,836)        (128,585)          633,521
    Principal payments on capital lease obligations                          (38,771)         (66,206)          (45,567)
    Proceeds from convertible notes payable                                  203,000                -                 -
    Principal payments on convertible notes payable                          (27,030)               -                 -
    Repurchase and retirement of common stock                                    (27)               -                 -
    Issuance of common stock                                                       -          998,000         1,000,000
    Issuance of preferred stock                                                    -                -         1,500,000
    Dividends paid                                                                 -                -         (1,065,000)
                                                                         -----------     -----------       ------------
         Net cash provided by (used in) financing activities              (2,197,664)         803,209         2,022,954
                                                                         -----------     ------------      ------------
         NET INCREASE (DECREASE) IN CASH
             AND CASH EQUIVALENTS                                            221,285        4,088,459          (338,776)
Cash and cash equivalents, beginning of year                               4,114,651           26,192           364,968
                                                                         -----------     ------------      ------------
Cash and cash equivalents, end of year                                   $ 4,335,936      $ 4,114,651      $     26,192
                                                                         ===========      ===========      ============
</TABLE>



                                      F-9
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                             Year ended December 31,


<TABLE>
<CAPTION>
                                                                             2001             2000              1999
                                                                         -----------      -----------       --------
<S>                                                                    <C>              <C>               <C>
Supplemental disclosures of cash flow information:
   Cash paid during the year for
     Interest                                                          $     122,742    $     175,994     $      16,787
     Income taxes                                                             30,405           10,565            11,551

Noncash investing and financing activities:
   Equipment acquired under capital leases                             $      19,200    $      75,000      $    121,240
   Conversion of notes and advances payable, shareholder for
       common stock                                                                           500,000
   Conversion of preferred stock to common stock                             505,000          995,000
   Notes issued for accrued dividends                                                                         2,000,000
   Issuance of common stock for net noncash assets received
       in merger                                                                                                455,320
   Additional paid-in capital arising from contribution
       of treasury shares                                                                                       350,721

   Acquisition of Reliable Networks, Inc.
     Net assets acquired                                                                  $    38,687
     Goodwill                                                                               3,901,313
                                                                                          -----------
                                                                                            3,940,000
                                                                                          -----------
Less
   Common stock issued                                                                        970,000
   Contingent consideration - common stock                                                    970,000
   Promissory notes payable                                                                 1,000,000
                                                                                          -----------
                                                                                            2,940,000
                                                                                          -----------
Cash paid                                                                                 $ 1,000,000
                                                                                          ===========
</TABLE>





The accompanying notes are an integral part of these statements.

                                      F-10

<PAGE>


                   9278 Communications, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2001, 2000 and 1999



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The Company distributes prepaid telephone calling cards to distributors and
     retail establishments through its various sales locations throughout the
     United States.

     9278 Communications, Inc. is the successor-consolidated entity formed by
     the merger, on December 10, 1999, of 9278 Distributor Inc. (the "Company")
     and iLink Telecom, Inc. ("iLink"). iLink was originally incorporated in
     Colorado on December 10, 1997 and was reincorporated in Nevada on July 14,
     1998. Concurrent with the merger, iLink, a publicly held company and the
     legally surviving parent company, changed its name to 9278 Communications,
     Inc. This event has been given retroactive treatment in these financial
     statements. The Company was incorporated in New York on April 17, 1997 and
     reincorporated in Delaware on April 3, 2000. This reincorporation had no
     impact on the Company's authorized stock.

     A summary of the significant accounting policies consistently applied in
     the preparation of the accompanying consolidated financial statements
     follows:

     1.  Principles of Consolidation

         The accompanying consolidated financial statements include the accounts
         of 9278 Communications, Inc. and its wholly-owned subsidiaries, 9278
         Distributors, Inc., 9278 DotCom, Inc., E-Store Solution, Inc. and
         Reliable Acquisition Corp. (hereinafter, the "Company"). All
         significant intercompany transactions and balances have been eliminated
         in consolidation.

     2.  Cash and Cash Equivalents

         Cash and cash equivalents include all cash and highly liquid
         investments with an original maturity of three months or less.

     3.  Inventories

         Inventories, which consist of prepaid telephone cards, are stated at
         the lower of cost (first-in, first-out) or market.


                                      F-11
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 2001, 2000 and 1999



NOTE A (CONTINUED)

     4.  Property and Equipment

         Property and equipment are stated at cost. Depreciation and
         amortization are provided for, using straight-line and accelerated
         methods, in amounts sufficient to relate the cost of depreciable assets
         to operations over their estimated service lives. Leased property under
         capital leases is amortized over the shorter of the service lives of
         the assets or the term of the lease. Repairs and maintenance are
         charged to operations as incurred.

     5.  Goodwill

         Goodwill represents the excess purchase price paid by the Company over
         the estimated fair value of net assets acquired and is being amortized
         on a straight-line basis over fifteen years. The amortization of such
         excess was approximately $260,000 and $17,000 for the years ended
         December 31, 2001 and 2000, respectively. Accumulated amortization
         totaled approximately $277,000 and $17,000 for the years ended December
         31, 2001 and 2000, respectively.

         In June 2001, the Financial Accounting Standards Board issued
         Statements of Financial Accounting Standards No. 141 ("SFAS No. 141"),
         "Business Combinations," and SFAS No. 142, "Goodwill and Other
         Intangible Assets" ("SFAS No. 142"). For all business combinations
         initiated after June 30, 2001, SFAS No. 141 eliminates the
         pooling-of-interests method of accounting and requires the purchase
         method of accounting, including revised recognition criteria for
         intangible assets other than goodwill. Under SFAS No. 142, which is
         effective for years beginning after December 15, 2001, goodwill and
         indefinite-lived intangible assets are no longer amortized but are
         reviewed annually, or more frequently if impairment indicators arise,
         for impairment. Intangible assets that have finite lives will continue
         to be amortized over their useful lives and reviewed for impairment in
         accordance with Statement of Financial Accounting Standards No. 121
         ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets
         and for Long-Lived Assets to Be Disposed of", as amended. The Company
         has elected to adopt SFAS No. 142 for the year beginning January 1,
         2002. The impact of adopting SFAS No. 142 is not expected to be
         material to the consolidated financial statements. The Company will
         continue to amortize goodwill under its current method until January 1,
         2002, the first day of the SFAS No. 142 implementation year. Once
         adopted, annual goodwill amortization of $260,000 will no longer be
         recorded.


                                      F-12
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 2001, 2000 and 1999



NOTE A (CONTINUED)

         In accordance with the new standards, during 2002, the Company will
         perform a transitional fair value-based impairment test. If the fair
         value is less than the recorded value at January 1, 2002, the Company
         will record an impairment loss during 2002 as a cumulative effect of a
         change in accounting principle.

     6.  Long-lived Assets

         Long-lived assets are reviewed for impairment whenever events or
         changes in circumstances indicate that the carrying amount of an asset
         or group of assets may not be fully recoverable. If an impairment
         indicator is present, the Company evaluates recoverability by a
         comparison of the carrying amount of the assets to future undiscounted
         net cash flows that the Company expects to generate from these assets.
         If the assets are impaired, the Company recognizes an impairment charge
         equal to the amount by which the carrying amount exceeds the fair value
         of the assets. Assets to be disposed of are reported at the lower of
         carrying values or fair values, less estimated costs of disposal.

         On February 28, 2000, and again on October 8, 2000, the Company sold
         all of the assets acquired in the acquisition of iLink and recognized a
         loss on sale of $555,447, primarily attributable to the write-off of
         the related goodwill.

         In June 2001, the Financial Accounting Standards Board issued
         Statements of Financial Accounting Standards No. 143 ("SFAS No. 143"),
         "Accounting for Asset Retirement Obligations," which is effective for
         years beginning after June 15, 2002. SFAS No. 143 addresses legal
         obligations associated with the retirement of tangible long-lived
         assets that result from the acquisition, construction, development or
         normal operation of a long-lived asset. The standard requires that the
         fair value of a liability for an asset retirement obligation be
         recognized in the period in which it is incurred if a reasonable
         estimate of fair value can be made. Any associated asset retirement
         costs are to be capitalized as part of the carrying amount of the
         long-lived asset and expensed over the life of the asset. The Company
         has elected to adopt SFAS No. 143 for the year beginning January 1,
         2002. The impact of adopting SFAS No. 143 is not expected to be
         material to the consolidated financial statements.

         In August 2001, the Financial Accounting Standards Board issued
         Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"),
         "Accounting for the Impairment or Disposal of Long-Lived Assets," which
         is effective for fiscal years beginning after December 15, 2001. SFAS
         No. 144 clarifies accounting and reporting for assets held for sale,
         scheduled for abandonment or


                                      F-13
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 2001, 2000 and 1999



NOTE A (CONTINUED)

         other disposal, and recognition of impairment loss related to the
         carrying value of long-lived assets. The Company has elected to adopt
         SFAS No. 144 for the year beginning January 1, 2002. The impact of
         adopting SFAS No. 144 is not expected to be material to the
         consolidated financial statements.

     7.  Income Taxes

         Income taxes are accounted for in accordance with Statement of
         Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting of
         Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities
         are recognized for the future tax consequences attributable to
         differences between the financial statement carrying amounts of
         existing assets and liabilities and their respective tax basis.
         Deferred tax assets and liabilities are measured using enacted tax
         rates expected to apply to taxable income in the years in which those
         temporary differences are expected to be recovered or settled. Under
         SFAS No. 109, the effect on deferred tax assets and liabilities of a
         change in tax rates is recognized in income in the period that includes
         the enactment date.

     8.  Earnings Per Share

         Basic earnings (loss) per share is determined by dividing the Company's
         net earnings (loss) by the weighted-average shares outstanding. Diluted
         earnings per share include the dilutive effects of outstanding stock
         option and warrants. Excluded from the calculation of diluted earnings
         per share are 210,000, 235,000 and 23,000 options and warrants to
         purchase the Company's common stock in 2001, 2000 and 1999,
         respectively, as their inclusion would have been antidilutive.

     9.  Stock-Based Compensation Plans

         The Company maintains two stock option plans, as more fully described
         in Note J to the consolidated financial statements, which are accounted
         for using the "intrinsic value" method pursuant to the provisions of
         Accounting Principles Board Opinion No. 25, "Accounting for Stock
         Issued to Employees," and related interpretations, and, accordingly,
         recognizes no compensation expense. Therefore, the Company has elected
         the disclosure provisions only of Statement of Financial Accounting
         Standards No. 123, "Accounting for Stock-Based Compensation."


                                      F-14
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 2001, 2000 and 1999



NOTE A (CONTINUED)

    10.  Revenue Recognition

         Revenue is recognized from sales when products are shipped and title
         passes to the customer. Sales incentives in the form of free products
         given to the Company's distributors are classified as a reduction of
         revenues.

    11.  Advertising

         Advertising costs are expensed as incurred and totaled $817,000,
         $159,000 and $125,000 in 2001, 2000 and 1999, respectively.

    12.  Shipping and Handling Fees and Costs

         The Company includes fees billed to a customer relating to shipping and
         handling costs in net sales. All shipping and handling expenses
         incurred by the Company are included in cost of sales.

    13.  Uses of Estimates and Fair Value of Financial Instruments

         In preparing financial statements in conformity with accounting
         principles generally accepted in the United States of America,
         management is required to make estimates and assumptions that affect
         the reported amounts of assets and liabilities and the disclosure of
         contingent assets and liabilities at the date of the financial
         statements and revenues and expenses during the reporting period.
         Actual results could differ from those estimates.

         Management of the Company believes that the fair value of financial
         instruments, consisting of cash, accounts receivable and debt,
         approximates carrying value due to the immediate or short-term maturity
         associated with its cash and accounts receivable and the interest rates
         associated with its debt.

    14.  Reclassifications

         Certain reclassifications have been made to the prior year financial
         statements to conform to the current year presentation.


                                      F-15
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 2001, 2000 and 1999



NOTE B - SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following is a summary of the Company's unaudited quarterly operating
     results for the years ended December 31, 2001 and 2000.

<TABLE>
<CAPTION>
                                                             Three months ended
                     --------------------------------------------------------------------------------------------------------
                     December 31, September 30,    June 30,   March 31,   December 31, September 30,  June 30,      March 31,
                         2001         2001          2001        2001          2000        2000          2000          2000
                     ----------   ----------     ---------    ---------   ----------   ----------    ---------    -----------
<S>                  <C>          <C>           <C>          <C>          <C>          <C>          <C>          <C>
    Sales           $57,423,182   $55,736,568   $49,578,900  $37,438,730  $26,990,325  $20,032,204  $16,857,595  $16,882,918

    Gross profit      1,959,143     3,091,352     3,191,235    2,723,425       91,019    1,141,104    1,037,185      700,927

    Net earnings
        (loss)*      (1,630,486)      219,996     1,082,827      983,637   (3,160,719)     102,225      106,329     (492,261)

    Earnings (loss)
        per share*
        Basic            $(0.07)        $0.01         $0.05        $0.04       $(0.14)       $0.00        $0.01       $(0.02)
        Diluted           (0.07)         0.01          0.05         0.04        (0.14)        0.00         0.00        (0.02)

    Weighted-average
        common
        outstanding
            Basic     24,942,982   23,942,982    23,643,089   23,593,153   22,284,038   20,561,849   20,152,356   20,003,337
            Diluted   24,942,982   23,942,982    23,643,089   23,593,153   22,284,038   20,561,849   21,302,023   20,003,337

    * As adjusted to reflect the provision for officer's compensation
</TABLE>



     During the fourth quarter of 2001, the Company recognized approximately
     $1,945,000 of losses, which include the following significant items: bad
     debt expense of $812,000, a provision for officers compensation of
     $450,000, a decline in the gross profit due to lower selling prices and
     additional selling expenses associated with the Company's geographic
     expansion.

     During the fourth quarter of 2000, the Company recognized approximately
     $3,161,000 of losses, which include the following significant items:
     $875,000 for management consulting and public relations services; a 1.7%
     gross profit erosion of approximately $1,400,000 due to unfavorable product
     cost variances from estimated costs; $294,000 of additional accounts
     receivable reserves; $58,000 of unrealized losses on investments and a
     $192,000 loss on the sale of the balance of the iLink assets acquired,
     primarily consisting of the write-off of the related goodwill.


NOTE C - ACQUISITIONS

     On January 23, 2001, the Company acquired certain assets of two of its
     distributors in an asset purchase transaction, wherein it acquired accounts
     receivable, inventories, fixed assets and customer lists of the
     distributors, net of accounts payable. The Company paid $100,000 in excess
     of its net assets for the


                                      F-16
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 2001, 2000 and 1999



NOTE C (CONTINUED)

     customer lists. The assets acquired and liabilities assumed were recorded
     at estimated fair values. The consolidated statements of operations include
     the results of this acquisition beginning January 23, 2001. A summary of
     the transactions is as follows:

      Assets purchased
          Accounts receivable                              $ 147,904
          Inventories                                         68,015
          Other assets                                         5,500
          Customer lists                                     100,000
                                                            --------
                                                             321,419

      Liabilities assumed
          Accounts payable                                  (113,677)
                                                            --------
      Net assets acquired                                  $ 207,742
                                                            ========
      Cash paid                                            $ 207,742
                                                            ========

     Pro forma results of operations are not presented, as they are not material
     to the historical results presented herein.

     Acquisition of Reliable Networks, Inc.

     On December 8, 2000, the Company acquired, through its wholly-owned
     subsidiary, Reliable Acquisition Corp., all of the outstanding common stock
     of Reliable Networks, Inc. ("Reliable") in a business combination accounted
     for by the purchase method of accounting. Reliable had total sales of
     approximately $35 million in 1999. The assets acquired and liabilities
     assumed were recorded at estimated fair values based on information
     currently available and on current assumptions as to future operations. The
     consolidated statements of operations include the results of Reliable
     beginning December 8, 2000.

     The Company paid a total of $3,940,000 for Reliable, which consisted of
     $1,000,000 in cash, $1,000,000 in promissory notes, and 1,000,000 shares of
     common stock valued at $970,000. An additional 1,000,000 shares of common
     stock, also valued at $970,000, was recorded as contingent consideration
     because the Company deemed it probable that certain contingency provisions
     in the merger agreements would be met. Such conditions were met during the
     year ended December 31, 2001.


                                      F-17
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 2001, 2000 and 1999



NOTE C (CONTINUED)

     The following unaudited pro forma information presents the results of
     operations of the Company as if the acquisition had taken place on January
     1, 1999:

                                            Year ended December 31,
                                     -----------------------------------------
                                         2000                       1999
                                     --------------           ----------------

      Net sales                       $125,714,692               $113,246,565
      Net loss                          (3,472,509)                  (293,879)
      Loss per share                         $(.15)                     $(.02)

     Acquisition of iLink

     The Company consummated the reverse acquisition of iLink on December 10,
     1999. The Company's shareholders were issued 14,900,000 iLink shares in
     exchange for the 200 shares of the Company. For accounting purposes, the
     shares retained by the original shareholders of iLink, subject to certain
     adjustments, are treated as being issued by the Company to effect the
     merger, hence the term "reverse acquisition." These shares were valued at
     $155,000 based upon an independent valuation of iLink. In addition to the
     value of these shares, the Company's acquisition cost includes the eight
     shares (post-split equivalent of 596,000 shares) issued to a creditor of
     iLink valued at $123,330, legal fees of $42,455, and investment banker fees
     of $13,226, for total acquisition costs of $334,011.

     Concurrent with the closing of the merger, iLink completed two private
     placements pursuant to which it sold 500,000 new common shares for
     $1,000,000 and 1,500 convertible preferred shares for $1,500,000.

     Immediately prior to the closing of the merger, the Company declared a
     $3,000,000 dividend ($15,000 per share), of which $1,000,000 was paid in
     cash and the balance of $2,000,000 in the form of a two-year promissory
     note (Note H). The payment of $1,000,000 was funded by the private
     placements consummated as of that date.

     Also prior to the merger, iLink issued 300,000 shares in satisfaction of
     $300,000 in debt, issued 190,000 shares for services upon the achievement
     of certain vesting provisions and also issued 200,000 common shares for
     advisory and related services in connection with the private placement and
     merger.


                                      F-18
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 2001, 2000 and 1999



NOTE C (CONTINUED)

     The following unaudited pro forma information presents the results of
     operations of the Company as if the acquisition had taken place on January
     1, 1999:

                                                  Year ended
                                                 December 31,
                                                     1999
                                                 ------------

             Net sales                           $78,121,200
             Net loss                             (1,497,438)
             Loss per share                            $(.08)


NOTE D - INVESTMENTS AND OTHER TRANSACTIONS

     On September 1, 2000, the Company entered into an agreement with Rapid
     Release Research, LLC ("Rapid Release"), a company that is in the business
     of providing services for management consulting, business advisory,
     shareholder information and public relations (the "Consulting Agreement").
     Rapid Release will be used to inform the public of the potential investment
     merit of the Company and its securities, thereby increasing investor
     recognition and market liquidity and improving shareholder value, and to
     assist the Company in acquisitions, mergers and other financial
     transactions. This agreement was for a period of four years. The Company
     issued Rapid Release 800,000 shares of its common stock and has recognized
     the expense from this agreement based on the market value of the stock of
     the Company at the date of issue, which was $875,040

     On January 29, 2001, the Company acquired, for a nominal amount, a 27%
     equity interest in DMS Acquisition Corp., (a Delaware corporation) as an
     inducement to enter into a long-term distribution agreement with DMS
     Acquisition Corp. DMS Acquisition Corp. is a facility-based carrier of
     long-distance telephone service. On February 8, 2001, DMS Acquisition Corp.
     was a party to a triangular merger with Capital One Ventures Corp. (an OTC
     publicly traded company) with Capital One Ventures Corp. as the surviving
     entity. DMS Acquisition Corp. became a wholly-owned subsidiary of Capital
     One Ventures Corp. Simultaneous with the merger, Capital One Ventures Corp.
     changed the corporate name to Cirus Telecom, Inc. ("Cirus"). As a result of
     the merger, the Company's equity interest of 10,800,000 shares of Cirus was
     diluted to 18%. The Company's investment in Cirus was restricted and
     subject to other conditions pursuant to the distribution agreement. The
     investment in Cirus is accounted for at cost and is not material to the
     Company's financial position.



                                      F-19
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 2001, 2000 and 1999



NOTE D (CONTINUED)

     On September 26, 2001, under the terms of the Consulting Agreement between
     Rapid Release and the Company, Rapid Release returned to the Company
     800,000 shares of the Company's common stock in exchange for 600,000 shares
     of Cirus stock held by the Company. As additional consideration, the two
     parties mutually agreed to declare the Consulting Agreement as null and
     void. The Company also delivered 60,000 shares of Cirus stock to a
     consulting firm, for its services in negotiating this settlement agreement.
     The Company has recorded no gain or loss from this transaction.

     On September 26, 2001, the Company transferred the balance of 10,140,000
     shares of Cirus stock back to Cirus in exchange for (i) Cirus' consent to
     the September 26, 2001 transaction between the Company and Rapid Release;
     (ii) 210,070 shares of the Company's common stock held by certain
     shareholders of Cirus; and (iii) an unconditional release from the
     Distribution Agreement dated February 6, 2001, signed between Cirus and the
     Company, from the day of its inception.

     On September 30, 2001, the Company retired 1,010,070 shares of its common
     stock it received from the above settlements.


NOTE E - PREFERRED STOCK

     During the year ended December 31, 2001, the Company converted 505 shares
     of Class B, $.001 par value convertible preferred stock into 776,013 shares
     of common stock.


NOTE F - RESTRICTED CASH

     Restricted cash consists of the following at December 31, 2001:

      Amounts invested in certificate of deposit,
          which is pledged as collateral for a letter
          of credit issued by the bank                               $1,000,000

      Amounts invested in certificate of deposit,
          held by bank as collateral for deposited
          funds returned for insufficient funds by
          customers' bank                                                51,215


                                      F-20
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 2001, 2000 and 1999



NOTE G - PROPERTY AND EQUIPMENT

     Property and equipment consist of the following at December 31:

<TABLE>
<CAPTION>
                                                                  Estimated
                                                                 useful life
                                                                   (years)                 2001                 2000
                                                                -------------          -------------        --------
<S>                                                             <C>                    <C>                  <C>
      Furniture and equipment                                        5 - 7               $   483,164             $129,997
      Automobiles                                                    5 - 7                   224,566              205,066
      Computer equipment                                             5                       731,685              346,206
      Leasehold improvements                                         3 - 8                   245,729              105,707
                                                                                          ----------              -------

                                                                                           1,685,144              786,976
      Less accumulated depreciation
          and amortization                                                                   378,260              133,379
                                                                                          ----------              -------
                                                                                          $1,306,884             $653,597
                                                                                           =========              =======
</TABLE>


    Depreciation and amortization expense for property and equipment for the
    years ended December 31, 2001, 2000 and 1999 was approximately $242,000,
    $115,000 and $66,000, respectively.

    Property and equipment under capital leases totaled approximately $215,440
    and $196,240 and accumulated amortization on such property and equipment
    aggregated approximately $61,185 and $30,063 at December 31, 2001 and 2000,
    respectively.


NOTE H - NOTES PAYABLE - SHAREHOLDER

     On December 10, 1999, the Company declared $3,000,000 in dividends, of
     which $1,000,000 was paid. On December 13, 1999, the Company executed a
     promissory note for $2,000,000 for the declared but unpaid dividends,
     payable to the Company's chief executive officer, who is also a
     shareholder. A principal payment of $1,000,000 was originally due on June
     13, 2000, and the second payment originally payable on December 13, 2001.
     On March 22, 2001, the Company amended the terms of these promissory notes
     to defer both payments to March 31, 2002 and December 31, 2002,
     respectively. The final payment is accelerated if the Company's gross
     revenue exceeds $10 million in each of any six consecutive calendar months
     or exceeds $60 million in any six-month period. During the year-ended
     December 31, 2001, the Company made principal payments aggregating
     $1,430,000. Interest is payable at a rate of 8%. Interest expense on this
     note was $90,100 and $160,000 for the years ended December 31, 2001 and
     2000, respectively.


                                   F-21


<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 2001, 2000 and 1999



NOTE I - INCOME TAXES

     The provision (benefit) for income taxes is summarized as follows:

<TABLE>
<CAPTION>
                                                                2001                   2000                 1999
                                                              ---------             ---------              ------
<S>                                                             <C>               <C>                     <C>
      Current
          Federal                                               $31,400               $  -                  $  -
          State                                                  34,000                25,404                5,000
                                                                 ------                ------               ------
                                                                 65,400
      Deferred                                                     -                     -                     -
                                                                 ------                ------               ------
                                                                $65,400               $25,404               $5,000
                                                                 ======                ======               ======
</TABLE>


     The actual income tax expense (benefit) differs from the Federal statutory
rate as follows:

<TABLE>
<CAPTION>
                                                 2001                      2000                   1999
                                        -----------------------   --------------------     ------------------
                                          AMOUNT           %       Amount           %       Amount          %
                                        ----------     -------    --------      -------     ------      -----
<S>                                     <C>              <C>     <C>             <C>       <C>            <C>
      Federal statutory rate            $ 245,000        34.0 %  $(1,171,000)    (34.0)%   $ 2,000        15.0 %
      State income taxes, net of
         Federal income tax benefit        22,044         2.0         25,404       0.1       5,000        42.2
      Utilization of net operating
         loss carryforwards              (201,644)      (31.0)                                              .

      Valuation allowance                                          1,171,000      34.0      (2,000)      (15.0)
                                       ----------      ------    -----------     -----      ------       -----
                                       $   65,400         5.0 %  $    25,404       0.1%    $ 5,000        42.2%
                                        =========      ======    ===========     =====     =======       =====
</TABLE>



                                      F-22
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 2001, 2000 and 1999



NOTE I (CONTINUED)

     The tax effects of temporary differences which give rise to deferred tax
     assets at December 31, 2001 and 2000 are summarized as follows:

<TABLE>
<CAPTION>
                                                                                            2001              2000
                                                                                        ------------      -----------
<S>                                                                                     <C>               <C>
      Deferred tax assets
          Allowance for doubtful accounts                                                $   342,000      $   303,750
          Accrued compensation                                                               213,750
          Net operating loss carryforwards                                                   576,000        1,208,430
          Federal AMT credit                                                                  14,400                -
                                                                                         -----------      -----------

                Gross deferred tax assets                                                  1,146,150        1,512,180

      Valuation allowance                                                                 (1,146,150)      (1,512,180)
                                                                                         -----------      -----------
      Net deferred tax asset                                                             $         -      $         -
                                                                                         ===========      ===========
</TABLE>


     At December 31, 2001, the Company has net operating loss carryforwards for
     Federal income tax purposes aggregating approximately $1,280,000 expiring
     in 2020.


NOTE J - STOCK OPTION PLANS AND WARRANTS

     The Company established a nonqualified stock option plan pursuant to which
     options to acquire a maximum of 500,000 shares of the Company's common
     stock were exercisable (the "1993 Plan"). Under the terms of the Plan, the
     options, which expire ten years after grant, are exercisable at prices
     equal to the fair market value of the common stock at the date of the grant
     and become exercisable in accordance with terms established at the time of
     the grant. At December 31, 2001, there were 477,000 shares available for
     grant under the 1993 Plan.

     In March 2001, the Company adopted, subject to shareholder approval, its
     2001 Stock Option Plan (the "2001 Plan") and reserved 5,000,000 shares of
     common stock thereunder. Options are nonqualified and are granted at a
     price equal to the fair market value of the Company's common stock at the
     date of grant. At December 31, 2001, all 5,000,000 shares were available
     for grant under the 2001 Plan.

     On June 13, 2000, in consideration for an officer's agreement to amend the
     repayment terms of a $2,000,000 promissory note, the Company issued a
     ten-year nonqualified warrant to purchase 200,000


                                      F-23
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 2001, 2000 and 1999



NOTE J (CONTINUED)

     shares of the Company's common stock at an exercise price of $1.625 per
     share (which represented the fair market value of the underlying common
     stock at the time of grant). The warrant, which vested immediately, is
     exercisable through June 2010 (Note H).

     On June 1, 2000, pursuant to an employment agreement between the Company
     and an officer, the Company issued nonqualified options to purchase 10,000
     shares of common stock, at an exercise price of $4.00 per share. The
     options vested 100% upon grant and are exercisable for three years from the
     date of grant.

     On March 15, 2000, the Company issued ten-year nonqualified options to
     purchase 25,000 shares of common stock, at an exercise price of $4.00 per
     share to a director of the Company. The options vested as to 50% of the
     underlying shares on September 15, 2000 and the balance vested on March 15,
     2001.

     On June 9, 1999, the Company issued to employees qualified options to
     purchase 23,000 shares of common stock at an exercise price of $5.25. These
     options were exercisable by June 9, 2000 and expired unexercised.

     The following is a summary of activity with respect to stock options and
warrants:

<TABLE>
<CAPTION>
                                                                                                           Weighted-average
                                                                  Shares           Price per share         price per share
                                                                  ------          -----------------      -----------------
<S>                                                                <C>                  <C>                      <C>
       Outstanding at January 1, 1999                              -
           Granted                                                 23,000               $5.25                    $5.25
                                                                 --------

       Outstanding at December 31, 1999                            23,000               $5.25                    $5.25
           Granted                                                235,000           1.63 to 4.00                  1.98
           Expired                                                (23,000)              5.25                      5.25
                                                                 --------

       Outstanding at December 31, 2000                           235,000           1.63 to 4.00                  1.98
           Forfeited                                              (25,000)              4.00                      4.00
                                                                 --------

       Outstanding at December 31, 2001                           210,000           1.63 to 4.00                  1.16
                                                                  =======

       Balance exercisable at December 31, 2001                   210,000
                                                                  =======
</TABLE>



                                      F-24
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                             December 31, 2001, 2000 and 1999



NOTE J (CONTINUED)

     The following table summarizes significant ranges of outstanding and
     exercisable options and warrants at December 31, 2001:

<TABLE>
<CAPTION>
                                             Options and warrants outstanding             Options and warrants exercisable
                                    -------------------------------------------------     --------------------------------
                                                          Weighted-        Weighted-                            Weighted-
                                                           average          average                              average
               Ranges of                                  remaining        exercise                             exercise
            exercise prices             Shares          life in years        price            Shares              price
            ---------------            --------         -------------      ---------         --------           ---------
<S>                                    <C>                  <C>               <C>            <C>                   <C>
            $1.63                      200,000              8.45              $1.63          200,000               $1.63
            $4.00                       10,000              1.42               4.00           10,000                4.00
</TABLE>


     The weighted-average fair value on the grant date was $1.96 for options and
     warrants issued during the year ended December 31, 2000. No options or
     warrants were granted during the year ended December 31, 2001.

     Pro forma earnings and earnings per share are not presented as the pro
     forma information is not materially different from the Company's reported
     results.


NOTE K - RELATED PARTY TRANSACTIONS

     Pursuant to an acquisition, the Company issued three promissory notes with
     a 5% interest rate aggregating $1,000,000 due in various times through June
     2001. At December 31, 2001, the promissory notes have been paid in full.

     Sales of inventory to a customer who is related to an officer of the
     Company were approximately $21,125,000, $4,390,000 and $9,500,000 for the
     years ended December 31, 2001, 2000 and 1999, respectively. The Company
     also purchased inventory from this customer in the amount of $11,151,000
     and $6,323,000 during the years ended December 31, 2001 and 2000,
     respectively. The Company did not purchase inventory from this customer
     during the year ended December 31, 1999. Sales to this related party
     represented 11% and 12% of total sales during the years ended December 31,
     2001 and 1999, respectively. No other single customer represented greater
     than 10% of total sales during the three years in the period ended December
     31, 2001.

     The Company leases certain office space pursuant to a sublease agreement
     with the Company's Chairman at an annual rental of $63,000 during the years
     ended December 31, 2001 and 2000.


                                      F-25
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 2001, 2000 and 1999



NOTE L - CONCENTRATIONS

        The Company made purchases from one prepaid telephone calling card
        supplier which aggregated approximately 43% and 16% of total purchases
        during the years ended December 31, 2001 and 2000, respectively.
        Additionally, liabilities to this supplier aggregated approximately 59%
        and 31% of total accounts payable and accrued expenses at December 31,
        2001 and 2000.

        The Company made purchases from two separate prepaid telephone card
        suppliers which aggregated approximately 13% and 15% of total purchases
        during the years ended December 31, 2001 and 2000, respectively.


NOTE M - COMMITMENTS AND CONTINGENCIES

     Litigation

     For the year ended December 31, 1999, purchases from one telephone card
     supplier were approximately 55% of total purchases. In November 1999, the
     Company commenced an action against this supplier to recover damages
     resulting from cancellation of the telephone card purchases by the Company.
     The supplier subsequently countersued. In the Company's opinion, with which
     its legal counsel concurs, no material liability will result from the
     countersuit. The Company incurred a loss of $553,547, which was reflected
     in the fourth quarter of 1999. The Company subsequently mitigated, in
     substantial part, its reliance on this supplier by increasing its purchases
     from other vendors. On September 30, 2001, in order to avoid protracted
     litigation and mounting legal fees, the Company decided to settle the case,
     wherein it agreed to pay $250,000 to the supplier over a period of four
     years beginning in August 2001, pursuant to a nonnegotiable, convertible
     promissory note (the "Convertible Note"). This amount is payable in four
     monthly installments of $7,500 and 44 subsequent monthly installments of
     $5,000, each exclusive of interest. The Company has recorded a $203,000
     charge representing the net present value of the settlement amount. The
     Convertible Note contains conditions, whereby, upon occurrence of an event
     of default, as defined, the supplier shall have the right to convert 100%
     of the unpaid principal balance, plus an additional $200,000 (the "Default
     Amount") into fully paid nonassessable shares of the Company's common stock
     at a conversion price equal to the greater of the fair market value of the
     common stock on the date of default ($0.20 at December 31, 2001) or $1.00
     per share.


                                      F-26
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 2001, 2000 and 1999



NOTE M (CONTINUED)

     Aggregate annual maturities of the Convertible Note are summarized as
follows:

                          Year ending December 31,
                          ------------------------
                              2002                              $ 35,824
                              2003                                50,020
                              2004                                55,258
                              2005                                34,868
                                                                --------
                                                                $175,970
                                                                ========

     In November 1999, a distributor of the Company's prepaid telephone cards
     instituted an action for approximately $575,000, based on a purported
     breach of oral contract by the Company. The Company filed an answer and
     counterclaim against the distributor for approximately $575,000 of unpaid
     invoices.

     On September 30, 2001, the Company settled its case against this
     distributor and received $50,000, writing off approximately $525,000 of
     uncollectible receivables. In previous years, the Company had provided an
     allowance for this doubtful account equal to the total of the unpaid
     invoices.

     The Company from time to time is subject to other certain legal proceedings
     and claims which have arisen in the ordinary course of its business. These
     actions when ultimately concluded will not, in the opinion of management,
     have a material adverse effect upon the financial position, results of
     operations or liquidity of the Company.

     Employment Agreements

     On December 10, 1999, the Company entered into a three-year employment
     agreement with its chief executive officer. Base salary for each of the
     three years will be $200,000, $225,000 and $250,000, respectively. At the
     end of the three-year period, the employment agreement will automatically
     be extended for an additional year without any action by the Company or the
     chief executive officer, unless there is a submitted written notice four
     months prior to expiration of the agreement by either party. In addition to
     the base salary, the Company will compensate the chief executive officer
     with cash bonuses and stock option grants based on the Company's economic
     performance.


                                      F-27
<PAGE>


                   9278 Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                        December 31, 2001, 2000 and 1999


NOTE M (CONTINUED)

     On March 22, 2001, in consideration for this officer's agreement to further
     amend the repayment terms of a $2,000,000 promissory note (Note H), the
     Company amended the officer's employment agreement whereby the officer
     shall receive an additional bonus equal to 5% of the gross profit of the
     Company, as defined. Such bonus shall be paid in cash, or, at the
     discretion of the officer, in shares of the Company's common stock, based
     upon a per share price equal to 75% of fair market value of the common
     stock. Approximately $450,000 is payable to the officer and is included in
     accounts payable and accrued expenses on the consolidated balance sheet at
     December 31, 2001.

     On December 8, 2000, the Company entered into a two-year employment
     contract with an option to renew for an additional year, with a shareholder
     who is the President of Reliable Acquisition Corp. The base salary for the
     first year was $150,000, plus a cash bonus equal to 15 percent of the
     pretax income of the subsidiary as long as the contract is in effect. The
     compensation for the second year will be $150,000 as determined by the
     Board of Directors.

     Lease Commitments

     The Company leases its main office and sales office facilities and certain
     equipment pursuant to noncancellable operating and capital leases expiring
     through November 2008. The minimum rental commitments under these
     noncancellable leases, at December 31, 2001, are summarized as follows:

<TABLE>
<CAPTION>
                                                                        Operating                      Capitalized
                                                                         leases                          leases
                                                                       ------------                    --------
<S>                                                                   <C>                               <C>
         Year ending December 31,
                2002                                                  $   450,116                       $  60,252
                2003                                                      466,047                          53,268
                2004                                                      317,141                          41,449
                2005                                                      293,865                           2,075
                2006                                                      292,872
                Thereafter                                                470,244
                                                                       ----------
                                                                        2,290,285                         157,044
         Less amount representing interest                                -                                25,521
                                                                       ----------                        --------
         Total minimum lease payments                                  $2,290,285                         131,523
                                                                        =========
         Less current maturities                                                                           45,549
                                                                                                         --------
         Long-term capitalized lease obligations                                                        $  85,974
                                                                                                         ========
</TABLE>


     Rent expense for all operating leases was $234,080, $128,067 and $68,910 in
2001, 2000 and 1999, respectively.


                                      F-28
<PAGE>



                   9278 Communications, Inc. and Subsidiaries

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                  Years Ended December 31, 2001, 2000 and 1999



<TABLE>
<CAPTION>
              Column A                    Column B                    Column C                  Column D          Column E
              --------                    --------         ----------------------------         --------          --------
                                                                      Additions
                                                           ----------------------------
                                                              (1)                (2)
                                                                            Charged to
                                         Balance at        Charged to          other                              Balance
                                          beginning        costs and        accounts -        Deductions -       at end of
             Description                  of period         expenses         describe           describe           period
             -----------                 -----------       ----------     ------------        -----------        --------
<S>                                      <C>                <C>           <C>                <C>                <C>

Allowance for doubtful accounts
    YEAR ENDED DECEMBER 31, 2001         $  675,000       $  885,282        $                  $800,282 (a)      $  760,000
                                         ==========       ==========        ==========         ========          ==========

    Year ended December 31, 2000         $  125,000       $  598,474        $     -            $ 48,474 (a)      $  675,000
                                         ==========       ==========        ==========         ========          ==========

    Year ended December 31, 1999         $     -          $  519,962        $     -            $394,962 (a)      $  125,000
                                         ==========       ==========        ==========         ========          ==========


Valuation allowance-Deferred tax
    YEAR ENDED DECEMBER 31, 2001         $1,512,180       $     -           $     -            $366,030          $1,146,150
                                         ==========       ==========        ==========         ========          ==========

    Year ended December 31, 2000         $     -          $1,512,180        $     -            $   -             $1,512,180
                                         ==========       ==========        ==========         ========          ==========
</TABLE>





(a)      Accounts receivable written  off



<PAGE>



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.


         On April 24, 2001, Friedman Alpren & Green ("Friedman") resigned as our
independent certified public accountant. The reports of Friedman on our
financial statements for the fiscal years ended December 31, 1999 and 2000 did
not contain an adverse opinion, or disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope or accounting principle. Our Board of
Directors approved the decision to change accountants. During our two most
recent fiscal years and subsequent interim periods, there were no disagreements
with Friedman on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedures, which disagreements, if
not resolved to the satisfaction of Friedman would have caused it to make
reference to such disagreement in its reports.

         We engaged Grant Thornton LLP ("GT") to act as our independent
certified public accountant, effective May 14, 2001. During the two most recent
fiscal years and subsequent interim periods, we had not consulted GT regarding
the application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
our financial statements, or any matter that was the subject of a disagreement
or a reportable event.

         On December 28, 1999, we dismissed Ernst & Young LLP ("E&Y")
as our independent certified public accountant. The reports of E&Y on our
financial statements for the fiscal years ended December 31, 1998 and 1997 did
not contain an adverse opinion, or disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope or accounting principle. Our Board of
Directors approved the decision to change accountants. During our two most


15
<PAGE>



recent fiscal years and subsequent interim periods, there were no disagreements
with E&Y on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedures, which disagreements, if
not resolved to the satisfaction of E&Y would have caused it to make reference
to such disagreement in its reports.

         We engaged Friedman Alpren & Green LLP ("Friedman") to act as
Our independent certified public accountant, effective December 28, 1999. During
the two most recent prior fiscal years and subsequent interim periods, the we
have not consulted Friedman regarding the application of accounting principles
to a specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on our financial statements, or any matter that
was the subject of a disagreement or a reportable event.



16
<PAGE>




                                    PART III



ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The following persons are our executive officers and directors as of
the date hereof:


NAME                                AGE       OFFICES HELD
----                                ---       ------------
Sajid Kapadia                       28        Chairman, Chief  Executive Officer
                                                and Director
Haris Syed                          27        President, Secretary and Director
James Scigliano                     58        Chief Financial Officer and
                                                Treasurer
Hanif Bhagat                        28        Director


         SAJID KAPADIA. Mr. Kapadia has been our Chairman, Chief Executive
Officer and a director of ours since December 1999. In April 1997, Mr. Kapadia
founded 9278 Distributor Inc. and served as its President from inception through
its merger with iLink Telecom, Inc., our predecessor. Prior to this, Mr. Kapadia
was involved in several short-term telemarketing positions. Mr. Kapadia has a
degree in mechanical engineering from Gandhi Engineering College in Gujarat,
India.

         HARIS SYED. Mr. Syed has been our President since March 2001 and has
been our Secretary and a director of ours since December 1999. Prior to being
named President, he served as our Chief Operating Officer beginning June 2000.
Before being appointed as our Chief Operating Officer, he was a Vice President
of ours, beginning December 1999. Prior to this, from November 1996 through
December 1999, he was the Vice President of TCI Telecom of NY, a telecom
switching and voice over Internet protocol integrator.

         JIM SCIGLIANO. Mr. Scigliano has been our Chief Financial Officer since
February 2001. Prior to this he served as our Office Manager and Sales
Development Manager, beginning in June 1999. Before joining us, he was the
Office Manager for World Telecommunications Corp., beginning in October 1998,
and a Branch Manager and Assistant Vice President for North Fork Bank, beginning
in January 1997. Before that, he was a Branch Manager and Assistant Vice
President for Citibank.

         HANIF BHAGAT. Mr. Bhagat has been a director of ours since March 2001.
He has provided consulting services to us since January 2001. Prior to this
he was a student at Dawson College in Montreal, Quebec, where he received a
Bachelor of Arts degree in communications.

Board of Directors

         All of our directors hold office until the next annual meeting of
stockholders and the election and qualification of their successors. Our
executive officers are elected annually by the Board of Directors to hold office
until the first meeting of


17
<PAGE>



the Board following the next annual meeting of stockholders and until their
successors are chosen and qualified.

Directors' Compensation

         We reimburse our directors for expenses incurred in connection with
attending Board meetings but we do not pay director's fees or other cash
compensation for services rendered as a director.

ITEM 11.          EXECUTIVE COMPENSATION.

Summary Compensation

         Set forth below is the aggregate compensation for services rendered in
all capacities to us during our fiscal years ended December 31, 2000, 1999 and
1998 by our Chief Executive Officer. No other executive officer of ours had
compensation in excess of $100,000 during the fiscal years ended December 31,
2000 or 1999.



                             SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------
             ANNUAL COMPENSATION                     LONG-TERM COMPENSATION
--------------------------------------------------------------------------------


                                                                          ANNUAL
         NAME AND PRINCIPAL                  SALARY
        POSITION            YEAR          ($)  ($)
--------------------------------------------------------------------------------

Sajid Kapadia,                      2001             $200,000          $475,000
2000           $200,000
Chairman and Chief                  1999             $80,815
Executive Officer

- ------------------------------------------------------------------------------
Haris Syed, President         2001         $150,000
                                            2000               $ 99,231
- ------------------------------------------------------------------------------


         We did not grant any options to the named executive officers.



EMPLOYMENT AGREEMENTS

         Contract with Sajid Kapadia

         On December 10, 1999, we entered into an Employment Agreement with
Sajid Kapadia. Under the terms of this agreement, Mr. Kapadia will serve as our
Chairman of the Board and Chief Executive Officer for an initial term of three
years, which term will be automatically extended for additional one year periods
unless either party submits a notice of non-extension to the other not less than
four months prior to the end of the existing term.

         Pursuant to the agreement, Mr. Kapadia receives a base salary of
$200,000, $225,000 and $250,000 during his first, second and third years of


18
<PAGE>



employment, respectively. In addition, during each year of employment Mr.
Kapadia shall receive cash bonuses and stock option grants in amounts to be
determined by our Board of Directors. We also lease an automobile for Mr.
Kapadia's exclusive use. Mr. Kapadia is also entitled to participate in all
plans adopted for the general benefit of our employees and executive employees.
In March 2001, in consideration for his agreement to extend the payment terms of
a promissory note which we made to him and other consideration, we amended Mr.
Kapadia's employment agreement to provide that he will receive additional bonus
compensation equal to five (5%) percent of our gross profit. This bonus
compensation may be paid in cash, or with restricted shares of our common stock
based upon a price per share 75% of the fair market value of the shares, at Mr.
Kapadia's sole discretion.

         The agreement with Mr. Kapadia automatically terminates upon his death.
In addition, we can terminate the agreement based on Mr. Kapadia's continued
disability, for due cause or without due cause. Mr. Kapadia can terminate his
employment for good reason. If the agreement is terminated for death,
disability, or due cause, we will pay Mr. Kapadia any unpaid base salary and
bonus through the date of termination. If we terminate Mr. Kapadia's employment
for any other reason, or if he terminates it for good reason, we will pay him
his base salary for the remaining term of the agreement, but in no event less
than 24, nor more than 35 months.

         Mr. Kapadia's agreement contains standard provisions regarding
confidentiality and non-competition during the term of his employment.


Compensation Plans

         iLink Telecom, Inc. Non-Qualified Stock Option Plan

         Effective June 1, 1999, iLink Telecom, Inc., our predecessor, adopted
the iLink Telecom, Inc. Non-Qualified Stock Option Plan (the "iLink Plan").
Options granted under the iLink Plan are not intended to be incentive stock
options as defined in Section 422 of the Internal Revenue Code of 1954, as
amended. Our employees, directors, officers, consultants and advisors are
eligible to be granted options pursuant to the iLink Plan. The exercise price of
the options is determined by our Board of Directors.

         Options granted pursuant to the iLink Plan terminate on the date
established by the Board of Directors when the options are granted.

         The iLink Plan is administered by our Board of Directors. The Board of
Directors has the authority to interpret the provisions of the iLink Plan and
supervise the administration of the iLink Plan. In addition, our Board of
Directors is empowered to select those persons to whom options are to be
granted, to determine the number of shares subject to each grant of an option
and to determine when, and upon what conditions or options granted under the
iLink Plan will vest or otherwise be subject to forfeiture and cancellation.

         In the discretion of our Board of Directors, any option granted
pursuant to the iLink Plan may include installment exercise terms so that the
option becomes fully exercisable in a series of cumulating portions. The Board
of Directors may also accelerate the date upon which any options, or any part of
any options, are first exercisable. In the discretion of the Board of Directors
payment for shares of common stock underlying options may be paid through the
delivery of shares of our common stock having an aggregate fair market value


19
<PAGE>



equal to the option price, provided that such shares have been owned by the
option holder for at least one year prior to the exercise. A combination of cash
and shares of common stock may also be permitted at the discretion of the Board
of Directors. Options are generally non-transferable except upon death of the
option holder.

         Our Board of Directors may at any time, and from time to time, amend,
terminate, or suspend the iLink Plan in any manner it deems appropriate,
provided that the amendment, termination or suspension cannot adversely affect
rights or obligations with respect to shares or options previously granted.

         The iLink Plan is not qualified under Section 401(a) of the Internal
Revenue Code, and is not subject to any provisions of the Employee Retirement
Income Security Act of 1974.

         The maximum number of shares of our common stock for which options may
be granted under the iLink Plan is 500,000. If any option expires or is canceled
without having been fully exercised we may regrant that option. Options are not
exercisable after ten years after the date we grant them. Options we grant under
the iLink Plan generally are not transferable and terminate upon severance of
employment.

         As of the date hereof, no options are outstanding under the iLink Plan.


         2001 Stock Option Plan

         In March 2001, we adopted our 2001 Stock Option Plan (the "2001 Plan").
The purpose of the 2001 Plan is to further our growth, development and financial
success by providing additional incentives and personal interest in our company
by those responsible for securing our continued growth and success.

         The 2001 Plan is administered by our Board of Directors, and provides
for the grant to our employees of both incentive options, intended to qualify
under Section 422 of the Internal Revenue Code, and non-qualified options to
purchase our common stock. The compensation committee, or Board of Directors if
there is no compensation committee, will grant options subject to a vesting
schedule, conditions, restrictions and other provisions.

         The price of the shares subject to each option will be equal to the
fair market value of the shares on the date we grant them. However, if we grant
incentive stock options to an individual owning more than 10% of the total
combined voting power of all classes of our stock, the exercise price of the
options will not be less than 110% of the fair market value of the underlying
shares on the date of grant, as required by Section 162(m) of the Internal
Revenue Code. If the aggregate fair market value of our shares with respect to
which incentive stock options are exercisable by any person for the first time
during any calendar year exceeds $100,000, the options will be treated as
non-qualified options.

         A holder of options to purchase our common stock under the 2001 Plan
may exercise the options by delivery to us of cash equal to the exercise price,
or with approval of the board of directors, shares of our common stock equal to
the exercise price, a promissory note equal to the exercise price, or a
combination of these forms of payment.

         If the outstanding shares of our common stock are changed into or


20
<PAGE>



exchanged for a different number or kind of shares or other securities by reason
of reorganization, merger, consolidation, reclassification or combination of
shares, we will make adjustments in the number and kind of shares for the
purchase of which options may be granted.

         The holders of options under our 2001 Plan will not be considered
shareholders of ours unless and until certificates representing shares of our
common stock have been issued by us to such holders.

         The maximum number of shares of our common stock for which options may
be granted under the 2001 Plan is 5,000,000. If any option expires or is
canceled without having been fully exercised we may regrant that option. Options
are not exercisable after ten years after the date we grant them. Options we
grant under the 2001 Plan generally are not transferable and terminate upon
severance of employment.

         As of the date hereof, no options are outstanding under the 2001 Plan.

Compensation Committee Interlocks and Insider Participation

         Each member of our Board of Directors participates in the determination
of the level of compensation of our executive officers. Two of such directors,
Sajid Kapadia and Haris Syed, are officers of ours.

Limitation of Liability and Indemnification Matters

         Article nine of our certificate of incorporation provides that the
personal liability of our directors will be eliminated to the fullest extent
permitted by the provisions of paragraph (7) of subsection (b) of ss.102 of the
General Corporation Law of the State of Delaware, as the same may be amended and
supplemented.

         Article ten of our certificate of incorporation provides that we will,
to the fullest extent permitted by the provisions of the General Corporation Law
of the State of Delaware, as now or hereafter in effect, indemnify all persons
whom we may indemnify under such provisions. The indemnification provided by
this section shall not limit or exclude any rights, indemnities or limitations
of liability to which any person may be entitled, whether as a matter of law,
under our bylaws, by agreement, vote of our stockholders or disinterested
directors, or otherwise. Except as specifically required by the General
Corporation Law of the State of Delaware, as the same exists or may be amended,
none of our directors of will be liable to us or our stockholders for monetary
damages for breach of his or her fiduciary duty as a director. No amendment to
or repeal of this provision of our certificate of incorporation will apply to or
have any effect on the liability or alleged liability of any director for or
with respect to any acts or omissions of that director occurring prior to the
amendment or repeal.

         Under Section 145 of the Delaware General Corporation Law, we have the
power, under certain circumstances, to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
contemplated action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director, officer,
employee or agent of ours, or is or was serving at our request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses, including attorneys' fees, and
judgments against, fines and amounts paid in settlement actually and reasonably


21
<PAGE>


incurred by him in connection with the action, suit or proceeding.

         Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, or persons controlling us
pursuant to the foregoing provisions, we have been informed that, in the opinion
of the SEC, that type of indemnification is against public policy as expressed
in the Act and is therefore unenforceable.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The following table sets forth information as of the date hereof, based
on information obtained from the persons named below, with respect to the
beneficial ownership of shares of our common stock by (i) each of our directors,
(ii) our named executive officer, (iii) each person known by us to be the owner
of more than 5% of our outstanding shares of common stock and (iv) all executive
officers and directors as a group.

         Unless otherwise indicated, we believe that all persons named in the
table have sole voting and investment power with respect to all shares of common
stock beneficially owned by them. A person is deemed to be the beneficial owner
or securities that can be acquired by such person within 60 days from the date
of this prospectus upon exercise of options, warrants or convertible securities.
Each beneficial owner's percentage ownership is determined by assuming that all
options, warrants or convertible securities that are held by that person, but
not those held by any other person, and which are exercisable within 60 days of
the date of this prospectus have been exercised and converted. This table
assumes a base of 23,593,173 shares of common stock outstanding as of the date
hereof, before any consideration is given to outstanding options, warrants or
convertible securities.

         Unless otherwise noted, the address for each of the persons listed
below is: c/o 9278 Communications, Inc., 1942 Williamsbridge Road, Bronx,
New York 10461.


                                              APPROXIMATE PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL HOLDER     NUMBER OF SHARES    OF CLASS
-------------------------------------    ----------------      --------
Sajid Kapadia..............               13,355,125(1)          56.13%

Haris Syed.........                          194,000(2)            *

Hanif Bhagat................                       0               *

All executive officers and directors
 as a group (4 persons).....              13,549,125           59.1%
       ----------------------------------------------------

       *         Less than 1%

(1)      Does not includes warrants to purchase 200,000 shares of our
         common stock currently held by Mr. Kapadia, which expire on
         June 13, 2010.
(2)      Represents shares of common stock held by KAPH Groups, Inc.,
         a company 100% owned by Mr. Syed.


22
<PAGE>


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         In March 2001, Sajid Kapadia, an officer and director of ours, agreed
to amend the repayment terms of a $2.0 million promissory note made to him by us
at the time of the merger between iLink Telecom, Inc., our predecessor, and 9278
Distributor Inc., in December 1999. As amended, the terms provide for principal
repayments by us of (i) $1.0 million on March 31, 2002, and (ii) $1.0 million on
December 31, 2002. In consideration for his agreement to extend the payment
terms of the note and other consideration, we amended Mr. Kapadia's employment
agreement to provide that he will receive an annual bonus equal to five (5%)
percent of our gross profit. This bonus compensation may be paid in cash, or
with restricted shares of our common stock based upon a price per share 75% of
the fair market value of the shares, at Mr. Kapadia's sole discretion. Mr.
Kapadia had previously extended the payment terms of this promissory note, in
June 2000. At that time, in consideration for his agreement to extend the
repayment terms of the note, we issued him a warrant to purchase 200,000 shares
of our common stock at an exercise price of $1.625 per share. The warrant vested
immediately as to 100% of the shares of common stock underlying the warrant and
is exercisable for ten years from the date of the grant.

         In December 2000, we acquired Reliable Networks, Inc., a company
controlled by Nasir Ghesani, an officer of ours. Mr. Ghesani was not an officer
of ours at the time of the acquisition. In connection with the acquisition, Mr.
Ghesani was issued: (i) a cash payment in the amount of $1.0 million, (ii)
1,000,000 shares of our common stock, and (iii) three promissory notes, in the
aggregate amount of $1.0 million. Pursuant to the terms of our agreement with
Mr. Ghesani, we issued an additional 1,000,000 shares of our common stock to Mr.
Ghesani which was due to him in December 2001.

         In March 2000, we sold an aggregate of 154,000 shares of our common
stock to six different investors at a price of $2.00 per share and exchanged
250,000 shares of our common stock for $500,000 of advances from Sajid Kapadia,
an officer and director of ours. Haris Syed, an officer and director of ours,
purchased 37,500 shares in this offering. Sohel Kapadia, the brother of an
officer of ours, purchased 32,500 shares in this offering.

         In December 1999, iLink Telecom, Inc., our predecessor, agreed to
purchase 9278 Distributor Inc., a company controlled by Sajid Kapadia, an
officer and director of ours. Mr. Kapadia was not an officer or director of
iLink. In connection with that merger, the shareholders of 9278 Distributor were
issued an aggregate of 14,900,000 shares of our common stock, as well as a
dividend of $3.0 million, of which $1.0 million was paid in December 1999 and
the balance of $2.0 million was in the form of a two-year promissory note. Of
these shares, 13,205,125 were issued to Mr. Kapadia. In addition to such shares,
Mr. Kapadia was granted proxies to vote an aggregate of 2,150,000 additional
shares of our common stock.

         In December 1999, we entered into a sublease agreement with Sajid
Kapadia, an officer and director of ours, pursuant to which we sublease the
entire premises at 1942 Williamsbridge Road, Bronx, New York as our corporate
offices, at an annual rent of $63,000. The rental terms of the sublease
agreement are substantially the same as the terms under which Mr. Kapadia leases
the space.

             We sell phone cards to Sohel Distributors Inc. ("SDI"), a company
owned by a brother of our Chief Executive Officer. Sales to SDI were
approximately $21,125,000, $4,390,000 and $9,500,000 for the years ended


23
<PAGE>


December 31, 2001, 2000 and 1999, respectively. We also purchased inventory from
SDI in the amount of $11,151,000 and $6,323,000 during the years ended December
31, 2001 and 2000, respectively. We did not purchase inventory from SDI during
the year ended December 31, 1999.


24
<PAGE>




                                     PART IV

ITEM 13.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
                  FORM 8-K.

(a)      The following documents are filed as part of this report:

         (1)      Financial Statements.  See Index to Consolidated Financial
                  Statements in Item 8 hereof.

         (2)      Financial Statement Schedules.

                  SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

         (3)      Exhibits.


Exhibit Number    Description of Exhibit
--------------    ----------------------

     2.1          Agreement and Plan of Merger, dated December 17, 1999, among
                  iLink Telecom, Inc., 9278 Distributors Acquisition Corp. and
                  9278 Distributor Inc. (3)

     2.2          Agreement and Plan of Merger, dated April 24, 2000, between
                  the Company and 9278 Communications, Inc., a Nevada
                  corporation (5)

     2.3          Agreement and Plan of Merger, dated December 8, 2000, among
                  Reliable Networks, Inc., Nasir Ghesani, Reliable Acquisition
                  Corp. and the Company (6)

     3.1          Certificate of Incorporation of the Company (5)

     3.2          Bylaws of the Company (5)

     4.1          Specimen Common Stock Certificate of the Company (2)

     4.2          Non-Qualified Stock Option Plan of the Company (4)

     4.3          2001 Stock Option Plan of the Company (7)

     4.4          Amended and Restated Promissory Note, in the Amount of $2.0
                  million, made by the Company to Sajid Kapadia, dated December
                  10, 1999 (7)

     4.5          Promissory Note, in the amount of $400,000, made by the
                  Company to Nasir Ghesani, dated December 8, 2000 (6)

     4.6          Promissory Note, in the amount of $100,000, made by the
                  Company to Nasir Ghesani, dated December 8, 2000 (6)

     4.7          Promissory Note, in the amount of $500,000, made by the
                  Company to Nasir Ghesani, dated December 8, 2000 (6)


25
<PAGE>



     10.1         Employment Agreement, dated December 10, 1999, between the
                  Company and Sajid Kapadia (4)

     10.2         Employment Agreement, dated December 8, 2000, between the
                  Company, Reliable Acquisition Corp. and Nasir Ghesani (6)

     10.3         Amendment, dated March 22, 2000, to Employment Agreement
                  between the Company and Sajid Kapadia (7)

     21.1         Subsidiaries of the Company (1)


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

     (1)          Filed herewith

     (2)          Incorporated by reference from the Company's registration
                  statement on Form SB-2 (Registration No. 333-84845)

     (3)          Incorporated by reference from the Company's report on Form
                  8-K, dated December 10, 1999

     (4)          Incorporated by reference from the Company's report on Form
                  10-KSB for the year ended December 31, 1999

     (5)          Incorporated by reference from the Company's report on Form
                  10-QSB for the three-month period ended March 31, 2000

     (6)          Incorporated by reference from the Company's report on Form
                  8-K, dated December 8, 2000

     (7)          Incorporated by reference from the Company's report on Form
                  10KSB for the year ended December 31, 2000

(b)  Reports on Form 8-K.

We filed the following Current Reports on Form 8-K during the fiscal year ended
December 31, 2001:

         On May 1, 2001, we filed a current report on Form 8-K to announce the
resignation of our independent accountants.

         On February 9, 2001 and on April l3, 2001, we amended a previously
filed current report on Form 8-K to disclose financial and other information
concerning an acquisition of a business effected in 2000.


26
<PAGE>



                                   SIGNATURES

         Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                             9278 COMMUNICATIONS, INC.

Date:  May 13, 2002                      By: /s/ Sajid Kapadia
                                                ------------------------------
                                                Sajid Kapadia, Chairman,
                                                Chief Operating Officer
                                                and Director

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report on Form 10-K has been signed below by the following persons in the
capacities and on the dates indicated:

/s/ Sajid Kapadia                                          May 13, 2002
- -----------------------------------
Sajid Kapadia
Chairman, Chief Executive Officer, Director
(Principal Executive and Accounting Officer)



/s/ Haris Syed                                             May 13, 2002
---------------------
Haris Syed
President and Director



/s/ Hanif Bhagat                                           May 13, 2002
---------------------
Hanif Bhagat
Director


27