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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

   For the fiscal year ended: June 30, 2001 Commission file number: 000-23291

                               DigiTEC 2000, Inc.
             (Exact name of Registrant as specified in its charter)

           Nevada                                       54-1287957
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

     99 Madison Avenue, 3rd Floor
          New York, New York                                      10016
(Address of principal executive offices)                        (Zip Code)

                                 (212) 944-8888
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: None

   Securities registered pursuant to Section 12 (g) of the Act:
                     Common Stock, par value $.001 per share

Check  whether  the Issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding
12 months (or for such shorter  period that the  registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes |X| No |_|

Check if there is no  disclosure of  delinquent  filers  pursuant to Item 405 of
Regulation S-K is not contained herein,  and will not be contained,  to the best
of the Registrant's  knowledge,  in definitive  proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. |X|

The Issuer's  net revenues for its most recent  fiscal year ending June 30, 2001
was $50,309,223.

The aggregate market value of the Registrant's Common Stock, par value $.001 per
share  (the  "Common  Stock"),  held by  non-affiliates  of the  Registrant  was
$982,990.50  on January 18, 2002,  based on the closing sale price of the Common
Stock on the Over The Counter (Bulletin Board) market on that date.

Check  whether the Issuer has filed all  documents  and  reports  required to be
filed by Section 12, 13, or 15(d) of the  Securities  Exchange Act of 1934 after
the distribution of securities under a plan confirmed by the court.
Yes |X|   No |_|

The number of outstanding shares of the Registrant's  Common Stock as of January
18, 2002 was 7,058,998.

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                       DOCUMENTS INCORPORATED BY REFERENCE

Sections of the Registrant's  Definitive Proxy Statement (as defined in Part III
herein) for its Annual  Meeting of  Stockholders  scheduled  to be held on March
15, 2002.

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                               DIGITEC 2000, INC.
                                TABLE OF CONTENTS

                                     PART I
                                                                                          Page No.
                                                                                          --------
                                                                                      
Item 1     Description of Business                                                           3
Item 2     Description of Property                                                          16
Item 3     Legal Proceedings                                                                16
Item 4     Submission of Matters to Vote of Security Holders                                17

                                     PART II

Item 5     Market for Registrant's Common Stock and Related Stockholder Matters             17
Item 6     Management's Discussion and Analysis of Financial Condition and
              Results of Operations                                                         18
Item 7     Consolidated Financial Statements and Supplementary Data                         23
Item 8     Changes in and Disagreements with Accountants on Accounting and
              Financial Disclosure                                                          23

                                    PART III

Item 13    Exhibits, Financial Statement Schedules and Reports on Form 10-KSB               23




                                       2



                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

The Company was  organized  as a Nevada  corporation  in May 1987 under the name
Yacht Havens  International Corp, which was subsequently changed in July of 1995
to Promo Tel, Inc.  ("Promo  Tel-Nevada").  In August of 1995,  Promo Tel-Nevada
merged with Promo Tel,  Inc.  ("Promo  Tel-Delaware"),  a Delaware  corporation,
exchanging   1,333,334   shares  of  the  Company's   previously   unissued  and
unregistered  common stock for all of the outstanding  shares of common stock of
Promo  Tel-Delaware.  In October  of 1996,  the  Company  formally  amended  its
Articles  of  Incorporation  to change the legal name of the  Company to DigiTEC
2000, Inc.

DigiTEC 2000,  Inc. and its wholly owned  subsidiary  POS TEC Systems,  LLC (the
"Company") are primarily engaged in the creation,  distribution and marketing of
consumer prepaid  telephone  calling cards. The Company's  prepaid cards provide
consumers  with a  competitive  alternative  to the  traditional  pre-subscribed
long-distance telecommunications services, credit/calling cards and conventional
coin and other operator assisted  long-distance  services.  It currently markets
its prepaid products  throughout the New York/New Jersey  metropolitan area (the
"Metro  Area").  The  Company's  prepaid  telephone  calling  cards  are sold in
approximately 100 cities in twenty-nine U.S. states.

The  Company's  principal  products  are the F/X (R) series  ("F/X (R)") and the
DIRECT (R) series  ("DIRECT  (R)")  prepaid phone cards.  The Company's  prepaid
products  are  marketed  through an extensive  network of  distributors  and are
currently  available  in  approximately   20,000  independent  retail  locations
throughout  the United  States.  The  Company's net sales were  $50,309,223  and
$13,733,119 for the fiscal years ended June 30, 2001 and 2000, respectively.

The  Company's  target  markets  include  ethnic  communities  with  substantial
international long distance usage. The Company believes that consumers typically
use its prepaid  products as their primary  means of making long distance  calls
due to (i) competitive rates, (ii) reliable service,  (iii) convenience and (iv)
the  inability  of a portion  of the  Company's  end users to attain  the credit
necessary  to have  pre-subscribed  or other  types of  postpaid  long  distance
service.

Brand awareness is important to commercial success in the intensely  competitive
prepaid  phone card  market.  The Company has  developed  and promoted its brand
awareness  through the design of its prepaid  cards as well as the high level of
service provided to the users of its prepaid cards. The Company  currently sells
its prepaid products through its wholly owned point-of-sale subsidiary,  POS TEC
Systems,  LLC ("POS  TEC"),  and through  the  Company's  internal  distribution
network.

The Private  Securities  Litigation  Reform Act of 1995 provides a "safe harbor"
for  forward-looking  statements.  Certain  information  included in this Annual
Report on Form 10-KSB for the year ended June 30, 2001 is forward-looking within
the meaning of Section 27A of the  Securities Act of 1933 and Section 21E of the
Securities Act of 1934,  including statements that contain the words "believes,"
"anticipates,"  "expects,"  "plans,"  "intends,"  or  other  similar  words  and
phrases. Such forward-looking  statements include, among other things, the plans
of the Company to expand its operations as a sales,  marketing and  distribution
company,   to  improve  its  overall  financial   performance,   to  expand  its
infrastructure,  and to develop new products and services and competition in the
marketplace.  Such  forward-looking  information  also  includes  the  Company's
expectations affecting the markets for its products, such as changes in the U.S.
and  international  regulatory  environment  and the  overall  demand  for  long
distance telecommunication  services. Such forward-looking  information involves
important factors that could significantly affect expected results in the future
and  potentially  cause them to differ  materially  from those  expressed in any
forward-looking  statements made by, or on behalf of, the Company. These factors
include,  but are not limited  to,  uncertainties  relating to general  economic
conditions,   government   regulatory   and  taxation   policies,   pricing  and
availability of underlying  telecommunications  services provided to the Company


                                       3



by its  suppliers,  technological  developments  and changes in the  competitive
environment in which the Company operates.  Each such forward-looking  statement
is qualified by reference to the following cautionary statements.

Changes  in the  factors  set forth  above or in other  factors  unknown  to the
Company at this time may cause the Company's  results to differ  materially from
those discussed in the forward-looking  statements. The factors described herein
are those that the  Company  believes  are  significant  to the  forward-looking
statements contained herein and reflect  management's  subjective judgment as of
the date hereof, which is subject to change.  However, not all factors which may
affect such forward-looking statements have been set forth. The Company does not
undertake to update any forward-looking  statement that may be made from time to
time by, or on behalf of, the Company.

HISTORY

The Company initiated a strategy of becoming a facilities based carrier in April
of 1998.  To  accomplish  this  strategy,  the  Company  migrated  its brands to
dedicated platforms and entered into a Service Agreement with Innovative Telecom
Corporation  ("Innovative"),  substantially all of the operating assets of which
were  subsequently  acquired  and  reorganized  as Enhanced  Global  Convergence
Services,  Inc.,  pursuant  to which  Innovative  agreed to  provide  processing
services  for the Company  utilizing  its  switching  facilities  and  platforms
located  at 60 Hudson  Street,  New York,  NY (the  "Hudson  Street  Facility").
However,  the Company was unable to fund the necessary carrier deposits,  prepay
for telecommunications  services, and to secure sufficient network facilities to
provide  competitive  rates  to  its  consumers.   Significant  returns  of  its
facilities-based  cards and the loss of  control  over  processed  call  minutes
further  aggravated the liquidity  difficulties  of the Company during this time
period.

Therefore  in  lieu  of  continuing  the  development  of  its  operations  as a
facilities-based  carrier,  in November of 1998 the Company initiated a strategy
of  focusing  on the sales,  marketing  and  distribution  of prepaid  telephone
calling cards. In connection with the initiation of such strategy,  TecNet, Inc.
("TecNet"),  a wholly  owned  subsidiary  of Telephone  Electronics  Corporation
("TEC"),  and the holder of  approximately  21% of the  Company's  Common Stock,
began to provide significant telecommunications services to the Company, as well
as to finance its current operations and to carry the unprocessed minutes on the
Company's remaining  facilities-based  calling cards.  Beginning in May of 1999,
the Company  terminated  its  facilities-based  products  and TecNet  became the
primary  provider of bundled  prepaid  calling cards to the Company and the sole
carrier  for  carrying  the traffic and  processing  the minutes  related to the
prepaid calling cards.

The Company  purchases  the majority of its prepaid  cards in bulk at a discount
below the face value of the  prepaid  cards,  which are  subsequently  resold to
either  independent  distributors or to retail  locations  serviced by its field
representatives  depending  upon the locality of the  distribution.  The Company
receives the majority of its gross margin on the  difference  between  discounts
given to  customers  and the  discounts  received  from  TecNet.  The  Company's
customers  are  provided  with  access  to local,  domestic  long  distance  and
international  telephone  services  through  toll-free  and local  access  calls
directed  to  call  processing  platforms  operated  by  TecNet.  The  Company's
customers can use the Company's  prepaid card at any touch tone telephone simply
by  dialing  the  toll-free  or local  access  number,  followed  by a  Personal
Identification Number ("PIN") assigned to each card and the telephone number the
customer  wishes to reach.  Prior to  connection,  the caller is informed of the
remaining  dollar  balance on the card and the number of minutes  available  for
usage. The platform provider  switches  processed calls to the long distance and
local carriers for call completion,  and the prepaid cards' remaining balance is
debited for the cost of the call.

In February of 1999,  the Company began to receive  semi-monthly  operating cash
advances from TecNet through the issuance of 10% demand  promissory notes. As of
June 30, 2001, the Company had an outstanding  balance on such loans  (including
accrued  interest) from TecNet in the amount of $10,884,333  and TecNet provided
approximately  $43.8  million in  telecommunications  services for the year then
ended.  As of June 30, 2001 (and through the issuance date of this  report),  no
formal written  agreement  exists between the Company and TecNet with respect to
the terms of repayment for such services, and the Company is dependent on TecNet
to provide financing and  telecommunications  support. There can be no assurance


                                       4



that  TecNet can or will  continue  to provide  such  services,  to finance  the
current  operations or to provide the Company with bundled prepaid calling cards
at comparable rates in future periods.

GROWTH STRATEGY

The Company intends to capitalize on the growth opportunities within the prepaid
phone card market using: (i) TecNet's network facilities and economies of scale;
(ii) brand  awareness of the  Company's  established  prepaid  cards;  (iii) the
Company's  position as a significant  conduit of  telecommunications  traffic to
various  international  destinations;  (iv) the Company's  distribution  network
through  which the  Company  can market,  distribute  and sell new and  existing
products;  and (v) the  Company's  experience  in  identifying  and marketing to
ethnic  communities  and other  consumers in the United States with  significant
long distance usage requirements.

The Company has identified the following  short-term goals: (i) reduce its costs
of  providing  services as a percentage  of sales,  which will allow the Company
both to begin to achieve  gross margins and to increase its  competitiveness  in
the  marketplace;  (ii) improve its cash  generated from  operations;  and (iii)
increase its existing  revenue base by  increasing  its market share in existing
geographic  markets and  penetrating  new  geographic  markets.  There can be no
assurance that the Company will be able to achieve its short-term goals, and for
the foreseeable future, the Company's  dependence on TecNet to provide financing
will continue.

The Company has identified the following strategies in conjunction those goals:

1.  TELECOMMUNICATIONS  SERVICES.  The  Company is  negotiating  with  TecNet to
upgrade  TecNet's  existing  telecommunications   points-of-presence   ("POP's")
throughout the United States to process prepaid card traffic.  In addition,  the
Company  is using  the  telecommunications  POP's of  TecNet  to  originate  and
terminate  traffic  in  Mexico.  The  Company  is  operating  on five  dedicated
platforms and is supplying  services from these  platforms to its current brands
of prepaid calling cards.

2.  INTRODUCTION OF LOCAL ACCESS CARDS. The Company is introducing  Local Access
Cards ("LAC's") in most of the markets that it currently  services and into many
of the markets into which it is expanding its operations.  The Company's overall
strategy is to introduce LAC's in major  metropolitan areas in alliance with top
tier carriers,  while  continuing to provide both  competitive  rates and a high
quality  product in current  markets.  LAC's  provide the customer  with a local
access  (seven-digit) number to call to access a debit card platform without the
need to dial an 800 number. This feature not only simplifies the use of the card
for the customer,  it further reduces the Company's cost of providing service by
eliminating  the costs  associated  with the  provision of an 800 number and the
non-billable  charges for use of the 800 number. This cost reduction is expected
to  further  increase  the  Company's  competitiveness  in  the  marketplace  by
providing increased pricing flexibility.

The Company  introduced  its first LAC product,  New York  Direct,  in the prior
fiscal year which was received  positively by customers.  In August of 1999, the
Company began  offering its New Jersey  Direct and LA Direct LAC's,  which allow
customers in the New Jersey and Los Angeles markets the ability to call anywhere
in the  continental  United  States  for 3.9  cents per  minute  after a 49 cent
connection fee. The cards also provide customers with competitive  international
rates  for  many  African,  Latin  American,   Asian,  Caribbean,  and  European
countries. In addition, the Company launched its Dallas Direct LAC subsequent to
fiscal  year-end and is  anticipating  favorable  market  acceptance and revenue
growth in the targeted market.

3. EXPANSION OF THE COMPANY'S RETAIL DISTRIBUTION  NETWORK.  The Company intends
to increase  its  distribution  network by  expanding  its  coverage  within the
markets it  currently  serves and by  extending  this  network into new markets,
including those markets where new LACs are being  established.  The Company will
also  evaluate the  possibility  of acquiring  existing or new  distributors  to
internalize its  distribution  system and to improve margins in existing markets
or as a means of establishing a presence in new markets.

4. INTRODUCTION OF NEW PRODUCTS AND SERVICES. The Company intends to continue to
identify niches of the  international and domestic long distance market in which
to offer new  prepaid  products.  The Company  believes  that it will be able to


                                       5



capitalize on its brand awareness and  effectively  market these products to new
and existing customers.

In response to overall  competition,  the Company began  offering lower rates on
its DigiTEC Direct and F/X Mexico branded calling cards in June of 2000, as well
as on the LAC's,  New York  Direct,  New Jersey  Direct  and Dallas  Direct.  In
addition,  existing  per-minute  rates and access  charges  were lowered on long
distance calls to Brazil,  China,  Ecuador,  Honduras,  El Salvador,  Guatemala,
Jamaica, Laos, Mexico, Peru,  Philippines,  Poland, and Puerto Rico. The DigiTEC
Direct card now offers customers the ability to call anywhere in the continental
United States for 2.9 cents per minute with a 49 cent  connection fee. LAC rates
were decreased to 1.0 cent per minute with a 49 cent connection fee. The Company
believes that offering highly competitive rates will significantly  increase the
overall number of prepaid minutes sold in these key markets.

5.  INTERNATIONAL   SERVICES.  The  Company  currently  targets  consumers  with
significant international long distance usage, such as immigrants and members of
ethnic  communities  in  large  metropolitan   areas,  by  delivering   reliable
international  long distance services at competitive rates. The Company believes
that the  international  long  distance  market  provides,  and will continue to
provide,  an attractive  opportunity given its size and expected growth rate. In
addition,  the  Company  intends to  capitalize  on its brand  awareness  within
certain ethnic  communities in the United States by offering  international long
distance  services  to  selected  countries  to  which  its  customers  direct a
substantial  number  of  calls,  including  the  possible  establishment  of  an
International  Division to focus upon  marketing  the  Company's  prepaid  cards
outside the United States.

6. POINT OF SALE. The Company through, POS TEC, acquired the assets of Total POS
Systems  LLC in  March  of  1999,  which  included  approximately  1,500  retail
locations.  In August 1999,  the Company  commenced  operations  in an effort to
secure  a  market   leadership   position   in  the  "point  of  sale"   prepaid
telecommunications  sector to market  existing and future  brands of its prepaid
cards.  POS TEC utilizes  point of sale  technology  that allows  retailers  the
ability to utilize  traditional  credit card  processing  terminals  to activate
prepaid telecommunications products and other prepaid services directly on site.
Point of sale  activation is emerging  technology that will dominate the prepaid
industry  with  rapid  penetration  and wide  spread  acceptance,  as it  brings
dramatic  improvements  in the areas of  inventory  management,  theft and fraud
prevention,  revenue  settlement  and detailed sales  reporting to  distribution
channels.  The Company believes that retailers and their consumers are generally
familiar with the POS  terminals  because they are often used when making credit
card  purchases.  Merchants with existing  terminals have them  reprogrammed  to
activate the Company's  prepaid  cards,  and the Company  provides  terminals to
retail  establishments  without  such  devices who desire to sell the  Company's
prepaid products.  The Company's POS prepaid cards contain a magnetic stripe and
are "swiped" through the terminal which reads the magnetic stripe on the back of
the card and sends  information to a host server.  This information is processed
and retransmitted to the applicable telecommunications platform, thus activating
the card for use by the customer. Funds are electronically  transferred from the
merchant to the Company after card activation.

There  can be no  assurance  that  the  Company  will  be able  to  achieve  its
short-term goals, and for the foreseeable  future,  the Company's  dependence on
TecNet to provide financing will continue.

INDUSTRY HISTORY

The  prepaid  phone card  business is a  relatively  recent  development  in the
telecommunications  service  industry.  Prepaid local and long distance  calling
cards began to develop in the United States during  1988-1989 using a technology
developed  in Europe in the early  1980s that  relied  upon  either an  embedded
microchip  or a magnetic  strip on each card and a  telephone  set device with a
built in "reader" to access information contained on the cards. Although several
telephone  carriers  introduced  the microchip  and magnetic  strip cards in the
U.S.,  the results  were  disappointing  and the  product  did not attain  sales
volumes necessary for commercial success.  The European technology had developed
primarily  as a  replacement  for coin  operated  public  pay  telephones.  This
technology  worked  reasonably well in areas where a monopoly  telephone service
provider had the ability to set widespread  standards for the cards, readers and


                                       6



rates per minute of usage.  However, in the U.S. with many independent telephone
providers,  several  versions  of  technologies  soon  developed  that  were not
compatible  (i.e.  a caller in the New  York/New  Jersey  Metro Area (the "Metro
Area")  purchasing  one type of card from one  provider was not able to use that
card with other types of  telephones  installed  by that  provider or at certain
public pay phones installed by other  providers).  Other drawbacks  included the
significant cost of the reader telephone sets, high maintenance costs associated
with  the  remote  reader  equipment  and the  inability  to use the  card  with
non-reader telephone sets.

By 1992,  advances in computers and telephone switch technology  allowed several
companies to introduce cards that could be used from any touch-tone telephone in
the U.S. This technology relies upon network-based  intelligence,  including the
management  of the debit card  databases.  A card using this  technology  merely
contains the designated  access number,  the PIN that identifies the card to the
network  and  instructions  for using  the card.  The card  itself  contains  no
technology such as a chip or magnetic strip.  There are no card readers or other
forms of remote special equipment required for use of the card. The card is more
analogous  to a  "debit  account"  in  which a fixed  amount  of  money is first
deposited  and the account is then  debited for services as they are used by the
person  with  access to the PIN  number.  When the  prepaid  account  balance is
depleted,  the remote debit card database  computer of the prepaid card provider
automatically closes it. Thereafter, the card has no further value.

The market for prepaid  phone cards has grown  substantially,  from an estimated
$25 million in 1992 to an estimated  $3.4 billion in 2000,  making it one of the
fastest growing segments of the  telecommunications  industry.  In 2000, prepaid
calling cards accounted for 54% of the total prepaid  telecommunications market.
Based on industry  reports,  the total number of U.S.  households  using prepaid
calling  cards  will grow from 29.8  million  in 2000 to 49.3  million  by 2005.
Additionally,  overall  revenues  are  expected  to grow to  approximately  $5.3
billion by 2005, which represents a compound annual growth rate of 9.2% over the
forecast period.

Overall,   the  prepaid   calling  card  market  still  largely  caters  to  the
credit-challenged,   ethnic  minorities  and  low-income   consumers.   Although
historically,  these segments have accounted for  approximately 85% of the total
prepaid market,  the typical prepaid calling card user is becoming less defined.
Other than the ethnic immigrant and budget-conscious  prepaid consumer, there is
a growing casual segment that buys prepaid calling cards and uses them either as
a convenience or as a  cost-controlling  item. The college student market is one
of the fasted  growing  segments  and is helping to bridge the gap  between  the
minority,  low-income  segment and  mainstream  consumers  with middle and upper
income levels. Business users are also on the rise. Businesses are using prepaid
calling  cards  increasingly  as  promotional  tools,  for  fundraising,   sales
incentives,  employee recognition, market research and for internal cost control
purposes.  With the appeal of prepaid  telephone  services  spreading beyond the
confines of the  credit-challenged,  most U.S.  households  are now aware of the
existence of prepaid calling cards.

The prepaid calling card market has evolved into more of a "marketing"  business
rather than a pure product  play.  The general  trend within the industry can be
broken down  basically  into three areas.  First,  ongoing price declines in the
long  distance  market have  directly  affected  the price of the  prepaid  long
distance calls.  Second,  the fiercely  competitive nature of the prepaid market
has removed "price" as the overall succeeding factor.  Lastly,  although network
and call quality may be an issue for some of the low-end prepaid card providers;
the  majority of the  telecommunication  service  providers  offer  similar high
quality connections.  As a result,  companies competing within the prepaid phone
card segment are  discovering  that the  differentiating  factor between service
providers is the creativity of their marketing  organizations and the quality of
their merchandising and promotional materials.

The Company has identified  three  distinct  divisions of the prepaid phone card
market.  These three divisions are utility card products,  which are sold in the
retail market to consumers and businesses,  corporate/affinity card products and
promotional  card products.  The Company  intends to continue to concentrate its
efforts in the utility card market.


                                       7



TELECOMMUNICATIONS PRODUCTS AND SERVICES OF THE COMPANY

The principal products of the Company are prepaid phone cards currently marketed
under four primary brand names,  including  DigiTEC Direct,  F/X Mexico,  Dallas
Direct and New York Direct,  that allow users to access  domestic long distance,
international  long distance,  and local telephone  services from any touch tone
telephone set in the U.S. Each of the brands targets a potential  market segment
by providing  competitive rates to specific  geographic areas. The Company plans
to introduce new products as it identifies new market niches for its services.

Users purchase the Company's cards in denominations of $5.00,  $10.00 and $20.00
at retail locations such as convenience  stores,  vending machines,  newsstands,
delicatessens,  gasoline stations, check cashing centers, supermarkets, and drug
stores.  Each card has  printed  on the back an access  number and a PIN that is
unique to that card. All of the Company's prepaid cards are currently  available
with  instructions  in both  English  and  Spanish.  When the  access  number is
entered, the user is connected to a debit or prepaid card platform switch in the
telephone  network that provides  interactive voice prompts in the user selected
language through the call process. After entering the PIN, the user may dial one
or more destination  telephone  numbers in the same manner as a normal telephone
call.  The  interactive  voice  prompts in the  platform  advise the user of the
minutes remaining available on that card for the dialed destination. The prepaid
account  balance  associated  with each card is  managed by the  platform  which
automatically  deducts for usage. Upon use of all the value stored in the card's
account,  the debit card  database  computer  automatically  instructs the debit
platform to terminate the account  associated  with the card.  Usage charges are
based  upon  values in a "rate  deck"  stored in the  computer  database  of the
platform.  Different  rates are set for domestic  long  distance,  international
calls by country of destination and for local calls.

FACILITIES AND THIRD PARTY SERVICE

The  Company  currently  obtains  its  telecommunications  services  from TecNet
utilizing  their  switching  and platform  facilities  located  primarily at the
Hudson  Street  Facility.  TecNet  activates  the PIN's at the  direction of the
Company,  processes  calls  initiated by the Company's card holders and received
from local and long distance  carriers,  presents  those calls for completion to
designated local and long distance  carriers,  debits the cards' account balance
and  generates  reports  and other  information  on behalf  of the  Company  for
tracking  revenues and usage.  There can be no assurance that TecNet can or will
continue to provide such services in future periods.

MARKETING AND DISTRIBUTION

The  Company   currently   distributes  its  prepaid  cards  primarily   through
independent   distributors,   field   representatives   and  through  POS  TEC's
point-of-sale  terminal  network.  Distributors  purchase prepaid cards from the
Company  at a  discount  from the  retail  value of the card.  The amount of the
discount  depends upon the brand of the card and the dollar  volume of purchases
made by the  distributor.  Master  distributor  agreements  provide  for limited
exclusivity in defined  metropolitan  areas,  subject to the master  distributor
maintaining  an agreed upon monthly  dollar volume of card  purchases.  A master
distributor  has the right to enter  into  local  distribution  agreements  with
sub-distributors  in his territory to which the Company is not a party. Terms of
the discount offered to the  sub-distributor are negotiated directly between the
master distributor and the sub-distributor.  A master distributor is responsible
for supplying the sub-distributor  and may also sell directly to retailers.  The
Company retains the right to supply national accounts directly within the master
distributor's  territory as well as its own direct retail  accounts.  A national
account is generally  defined as a large retailer that operates in more than one
state.

The Company has targeted heavily populated  metropolitan areas, with an emphasis
on areas with significant ethnic community  populations,  in the development and
expansion of its distribution  network.  Many of the Company's  distributors are
members of such  ethnic  communities,  or  otherwise  have  personal or business
relationships in such communities.  In its expansion process the Company intends
to continue  to focus on  geographic  and  metropolitan  areas with  significant
ethnic  community  populations.  The  Company  believes  that the success of its


                                       8



prepaid  cards  has  created   significant  brand  loyalty  and  encourages  its
distributors and retail  locations to actively market the products.  The Company
provides its  distributors and retail locations with advertising and explanatory
materials,  including posters  presenting certain of the Company's current rates
and  detailed  rate  sheets.  The Company  adjusts  its  pricing for  particular
segments in order to target customer  groups,  respond to competitive  pressures
and otherwise increase market share.

CUSTOMER SERVICE

The Company believes that effective and convenient multilingual customer service
is essential to attracting  and  retaining  customers.  The  Company's  customer
service center handles customer  inquiries,  including those relating to prepaid
phone card  balances,  prepaid  phone card  availability,  rates and call detail
records.  As of June 30, 2001, the Company  employed  approximately 27 full-time
and 1 part-time  customer service  representatives,  most of which are fluent in
multiple  languages.  Customer  service is provided  twenty-four  hours per day,
seven days per week.

PREPAID PHONE CARD PRODUCTION AND INVENTORY CONTROL

The Company  controls its prepaid phone card inventory by sequence number and by
physical count. Generally, the cards are received,  stored, and shipped from the
Company's  headquarters.  Physical  inventory  is counted  on a daily  basis and
reconciled  against all incoming card  deliveries  and outgoing  shipments.  All
PIN's are inactive when the cards arrive at the Company's facility and the cards
are  inoperable  until the  individual  PIN  numbers  are  activated.  PIN's are
activated upon shipment from the Company's  facility to distributors in order to
minimize  the  number of  prepaid  cards with  activated  PINs in its  facility.
Prepaid cards shipped to POS providers are shipped in an inactive  state and are
activated by "swiping" them through the POS terminal at the point of sale to the
end user, thus increasing the security  associated with the transfer and sale of
the prepaid cards.

PIN's are created  electronically  with unique  inventory  and batch codes.  The
Company  currently relies on TecNet to provide software support to track prepaid
phone card information and deactivate  specified PIN's in certain instances such
as nonpayment, mistaken activation or theft.

COMPETITION

The nation's  three  largest long  distance  providers,  AT&T,  MCI Worldcom and
Sprint,  which  together  generated  a  significant  majority  of the  aggregate
revenues  of  all  U.S.  long  distance  interexchange  carriers,  dominate  the
multi-billion dollar U.S. long distance telecommunications  industry. Other long
distance companies, some with national capabilities, accounted for the remainder
of the market.  Based on published  Federal  Communications  Commission  ("FCC")
estimates,  toll service revenues of U.S. long distance  interexchange  carriers
have  grown  from  $38.8  billion  in 1984 to over  $100  billion  in 2000.  The
aggregate  market  share of all  interexchange  carriers  other than  AT&T,  MCI
WorldCom  and Sprint has grown from 2.6% in 1984 to  approximately  25% in 1999.
During the same period, the market share of AT&T declined from approximately 90%
to   approximately   40%.  The  Company   believes  that  these  trends  in  the
telecommunications  market have  created  opportunities  for the growth of niche
market telecommunications providers such as the Company.

Since  1984,  international  revenues  have  grown  five  fold from less that $4
billion  in 1984 to over $20  billion  in 2000.  The  total  number of calls has
increased from  approximately  500 million in 1984 to approximately 8 billion in
2000.  Retail rates in the  international  long distance market have declined in
recent  years and,  as  competition  in this  segment of the  telecommunications
industry  continues to intensify,  the Company believes that this downward trend
is likely to continue.  Although there can be no assurance, the Company believes
that any  reduction in rates will be offset in whole or in part by  efficiencies
attributable  to the planned  expansion of the Company's  services as well as by
lower  transmission  costs per minute  resulting  from the  Company's  increased
volume of minutes.


                                       9



TECHNOLOGY AND OBSOLESCENCE

The telecommunications industry is subject to a very high level of technological
change. The international  telecommunications industry is undergoing a period of
rapid  technological and regulatory changes that have resulted in several market
opportunities for emerging  telecommunication  service  providers.  According to
industry statistics, in 1998, the international long distance telecommunications
industry  accounted  for  approximately  93 billion  minutes of use,  an overall
increase  of  12%  from  83  billion  minutes  of  use  in  1997,  and  up  from
approximately 34 billion minutes of use in 1990.  Existing  competitors are more
than likely to continue to develop new  services  that they offer to  consumers.
The  ability of the  Company to compete  effectively  in the  telecommunications
industry  will also  depend  upon the  Company's  ability to develop  additional
products and services that appeal to its intended end users.

GOVERNMENT REGULATION

Historically, the Company has been subject to minimal government regulation, and
the  recent  trend  in the  U.S.  for  both  federal  and  state  regulation  of
telecommunication  service  providers  has  been in the  direction  of  reducing
overall regulation. In the U.S., the Company is subject to the provisions of the
Communications  Act of 1934,  as amended by the  Telecommunications  Act of 1996
(the  "Telecommunications  Act"), as well as the applicable laws and regulations
of the various  states  administered  by the  relevant  state  authorities.  The
Telecommunications    Act   and   FCC    regulations    apply   to    interstate
telecommunications  and  international   telecommunications  that  originate  or
terminate in the United States.  State regulatory  authorities have jurisdiction
over telecommunications that originate and terminate within a state.

FEDERAL.  The   Telecommunications  Act  opened  the  long  distance  market  to
competition from the Regional Bell Operating  Companies  ("RBOC's") and to local
exchange  carriers to provide  inter-LATA (local access and transport area) long
distance telephone service. The  Telecommunications  Act also grants the FCC the
authority to deregulate other aspects of the telecommunications  industry and to
implement  certain  policy  objectives,   including  access  charge  reform  and
establishment  of the universal  service fund. The new  legislation  will likely
result in increased  competition in the industry,  including from the RBOC's, in
the future.

The  Company is  regulated  at the  federal  level by the FCC and is required to
maintain both domestic and international tariffs for its services containing the
current  effective  rates,  terms and  conditions  of  service.  The Company has
received a Section 214 authorization from the FCC to provide  international long
distance services. As a condition of its Section 214 authorization,  the Company
must comply with a variety of reporting and filing  requirements  related to its
traffic and  revenues,  active  circuits,  interlocking  directors,  its foreign
affiliations and its correspondent  and/or  termination  relationships  with the
foreign  carriers,  if any. No specific  authorization is required by the FCC to
provide domestic interstate service.  Both domestic interstate and international
non-dominant  carriers must maintain  current  tariffs for their service on file
with the FCC, which contain the current effective rates, terms and conditions of
telephone service.  Although the tariffs of non-dominant carriers, and the rates
and charges  they  specify,  are subject to FCC review,  they are presumed to be
lawful.  However,  the FCC  recently  issued a  Notice  of  Proposed  Rulemaking
proposing to detariff  international services and to further streamline contract
filing  requirements.  Failure to comply with the FCC's  rules  could  result in
fines, penalties,  forfeitures or revocation of the Company's FCC authorization,
each of which could have a material  adverse  effect on the Company's  financial
condition and results of operations.

As an  international  non-dominant  carrier,  the  Company  will be  required to
include detailed rate schedules in its  international  tariffs.  The Company has
filed  a  domestic   interstate  tariff  and  has  prepared  and  will  file  an
international  tariff.  On March  21,  1996,  the FCC  initiated  a rule  making
proceeding in which it proposed to eliminate the requirement  that  non-dominant
interstate  carriers such as the Company  maintain  tariffs on file with the FCC
for  domestic  interstate  services.  The FCC's  proposed  rules are pursuant to
authority  granted to the FCC in the  Telecommunications  Act to "forbear"  from
regulating any  telecommunications  service  provider if the FCC determines that
the public interest will be served.  The FCC  subsequently  adopted its proposal
(the  "Detariffing  Order") in October 1996 and eliminated the requirement  that


                                       10



interstate  carriers file domestic tariffs.  The Detariffing Order was upheld on
appeal by the U.S.  Court of Appeals for the D.C.  Circuit.  The  detariffing of
services poses  additional  risk for the Company  because it will no longer have
the benefit of the "filed rate  doctrine"  which enables the Company to bind its
customers to the terms and conditions of the tariff without having each customer
sign a written  contract and enables the Company to change rates and services on
one day's  notice.  The Company may be subject to increased  risk of claims from
customers  involving  terms of service and rates that could impact the Company's
financial operations.

While the Company  expects to receive all such approvals that it submits for and
believes  that it is or shall be otherwise  in  compliance  with the  applicable
federal and state regulations governing telecommunications service, there can be
no assurance  that the FCC or the  regulatory  authorities in one or more states
will not raise  material  issues with regard to the  Company's  compliance  with
applicable  regulations,  or that  other  regulatory  matters  will  not have an
adverse effect on the Company's financial condition or results of operations. In
addition,  changes  in the  federal  and state  regulations  requiring  LEC's to
provide equal access for  origination  and termination of calls by long distance
subscribers  (such as the Company's  customers) or in the regulations  governing
the fees to be charged for such access services,  particularly  changes allowing
variable pricing based upon volume,  could have a material adverse effect on the
Company's results of operations.

The  Telecommunications  Act requires long distance  carriers to compensate  pay
phones  owners  $.284 per call when a pay phone is used to originate a telephone
call  through  a  toll-free  number.   The  FCC's  decision  setting  the  $.284
compensation  rate was  remanded  to the FCC by the U.S.  Court of Appeals for a
more adequate justification. Consequently, the compensation rate may change. The
Company passes these charges directly to the end-users and transfers  collection
to the long distance carriers to be submitted to the pay phone owners.

On May 8,  1997,  the FCC issued an order to  implement  the  provisions  of the
Telecommunications Act relating to the preservation and advancement of universal
telephone service (the "Universal  Service Order").  The Universal Service Order
requires all telecommunications carriers providing interstate telecommunications
services to contribute to Universal  Service  support by  contributing to a fund
(the "Universal Service Fund"). Universal Service contributions will be assessed
based   on   intrastate,   interstate   and   international   "end-user"   gross
telecommunications  revenues effective January 1, 1998. The contribution factors
are based on the ratio of total  projected  quarterly  expenses of the universal
service  support  programs  to total end user  telecommunications  revenues  and
could, therefore, increase or decrease in subsequent periods.

In July 1999,  the U.S.  Court of Appeals  for the Fifth  Circuit  released  its
decision  reviewing the FCC's Universal Service Order. This decision will have a
significant  impact on the carrier's  obligations  to make payments to the FCC's
Universal  Service Funds. The Court held that the FCC cannot include  intrastate
revenues  in the  calculation  of the  universal  service  contributions.  Local
exchange carrier's revenues are largely intrastate and their interstate revenues
are  primarily  from  other  carriers  and  not  subject  to  universal  service
assessment.  Therefore,  the contributions required to be made by those carriers
will be  sharply  reduced,  placing  an even  greater  burden  on  interexchange
carriers to fund the  universal  service  program.  The Court also  reversed the
FCC's decision to include  international  revenues of interstate carriers in the
universal  service  contribution  base.  There can be no assurance as to how the
Universal  Service  Order will be  ultimately  implemented  or  enforced or what
effect the Universal Service Order generally will have on competition within the
telecommunications  industry or specifically on the competitive  position of the
Company.  If it is  determined  that the  Company is  subject  to the  Universal
Service Order, compliance with the Universal Service Order could have a material
adverse effect on the Company's results of operations.

In addition,  the  Taxpayer  Relief Act (which  became  effective on November 1,
1997)  provides for a  three-percent  federal  excise tax on prepaid  phone card
sales, based upon retail value, to be charged by telecommunications  carriers to
any party who is not a carrier.  To date,  the federal excise tax has been built
in as part of the Company's cost  structure  from its providers.  The Company is


                                       11



responsible   for  collecting  the  federal  excise  tax  from  its  independent
distributors for its operations,  filing and remitting  related excise taxes and
penalties.

STATE. Intrastate long distance telecommunications operations of the Company are
subject to various state laws and  regulations,  including prior  certification,
notification or registration requirements. The Company generally must obtain and
maintain  certificates  of public  convenience  and  necessity  from  regulatory
authorities  in most states in which it offers  service.  The majority of states
will   require   that  the   Company   apply  for   certification   to   provide
telecommunications  services, or at least register, before commencing intrastate
service.  In most of the states where certification or registration is required,
the Company is required to file and maintain  detailed tariffs listing rates for
intrastate  service.  Many  states also impose  various  reporting  requirements
and/or require prior approval for transfers of control of certified carriers and
assignments of carrier assets, including customer bases, carrier stock offerings
and the incurrence by carriers of significant debt obligations.  Certificates of
authority  can  generally be  conditioned,  modified,  canceled,  terminated  or
revoked by state regulatory authorities for failure to comply with state law and
the rules,  regulations and policies of the state regulatory authorities.  Fines
and other penalties,  including revocation,  may be imposed for such violations.
In  addition,  the Company  will also be required to update or amend the tariffs
when rates are adjusted or new products are added to the long distance  services
offered by the Company.  The FCC and numerous  state  agencies also impose prior
approval  requirements on "transfers of control,"  including pro forma transfers
of  control  and  corporate  reorganizations,   and  assignments  of  regulatory
authorizations.

The Company has received authorization to do business in approximately 20 states
in the United States. The Company is currently  authorized to provide intrastate
telecommunications  service in California,  the District of Columbia,  Michigan,
New Jersey and New York. The Company will make additional filings and take other
actions it believes are  necessary to become  authorized  to provide  intrastate
telecommunications services throughout the U.S.

OTHER. The telecommunications  industry has increasingly come under the scrutiny
of the Federal  Trade  Commission  ("FTC") and state  regulatory  agencies  with
respect to the promotion,  marketing and advertising of effective  rates,  terms
and  conditions  of  telecommunications  services  and  products.  The New  York
regional office of the FTC and the New York Attorney  General's Office ("NYATG")
are  currently  reviewing  advertisements  of  products  and  services  of other
telecommunications  companies.  While the Company  believes that its advertising
has complied with federal and state regulations regarding advertising, there can
be no assurance that the FTC and the NYATG will not raise inquiries  towards the
Company's advertising practices.

EMPLOYEES

As of June 30, 2001, the Company employed  approximately 49 full-time employees,
1 part-time employee, three officers and three directors.  None of the Company's
employees are members of a labor union or are covered by a collective bargaining
agreement.

TRADEMARKS

The brand names F/X(R), DigiTEC Direct(R),  New York Direct(R) and F/X Mexico(R)
are registered  trademarks of the Company, and trademark  applications have been
filed for all other brands of prepaid cards. As the Company develops new brands,
it intends to file additional trademark applications.  There can be no assurance
that the Company will receive  registration  for any applied for  trademarks  or
that any  registered  trademark  will provide the Company  with any  significant
marketing or industry recognition, protection, advantage or benefit.

RISK FACTORS

The Company and its securities are speculative and subject to the risks inherent
to  relatively  new  undercapitalized  businesses,  which have not yet  achieved
profitable  operations.  The Company has identified the following specific risks
such as those set out in this section:


                                       12



1. WE HAVE A LIMITED  OPERATING  HISTORY  WITH  CONTINUOUS  LOSSES:  The Company
commenced its present operations in the telecommunications  industry in 1995 and
has since  operated at a continuous  loss. Its losses for the fiscal years ended
June  30  were  as  follows:  1998 -  $11,183,581;  1999 -  $13,566,927;  2000 -
$4,499,526;  and 2001 - $3,240,782.  Although we anticipate  improved  operating
results for the fiscal year 2002, there is no assurance the Company will operate
at a profit.  See "Management's  Discussion and Analysis of Financial  Condition
and  Results  of  Operation"   and   "Consolidated   Financial   Statements  and
Supplementary Data".

2. OUR FUTURE  OPERATING  RESULTS MAY FLUCTUATE  WIDELY:  The  Company's  future
operating results may be subject to fluctuation due to numerous material factors
including:

o    Changes in product pricing in response to competitive or other factors.

o    Increased costs of products and services due to the Company's  inability to
     purchase from multiple suppliers.

o    Insufficient market acceptance of new products and services.

o    Regulatory  changes  which  adversely  effect the  Company's  operations by
     increasing costs or limited markets.

o    Increased competition.

o    Adverse changes in the overall economy.

3. WE ARE  UNDERCAPITALIZED  AND  PRESENTLY  TOTALLY  DEPENDENT  UPON TECNET FOR
OPERATING  AND  WORKING  CAPITAL:  The  Company  has  been and  continues  to be
undercapitalized.  Since early 1999,  the Company has been dependent upon TecNet
to finance its operations by:

o    Providing bundled prepaid calling cards to the Company.

o    Acting as the sole carrier for the  telephone  traffic and  processing  the
     minutes used in the cards.

o    Making cash advances of operating capital in exchange for the Company's 10%
     demand promissory notes.

All of the Company's  obligations to TecNet are due on a demand basis.  There is
no agreement or understanding between them as to the repayment of the debt or as
to any continued extension of credit or funds by TecNet. The Company has no bank
or other lines of credit  arrangements  other then TecNet and no agreements  for
the acquisition of capital.

4. WE ARE ALSO  DEPENDENT  UPON TECNET FOR PRODUCTS AND SERVICES:  The Company's
ability to  continue to sell  prepaid  telephone  cards  depends  upon  TecNet's
continuing  to provide the Company  with  bundled  prepaid  cards and the needed
telecommunications  services at competitive  rates.  TecNet  presently  supplies
substantially all of the Company's  telecommunication  services through TecNet's
facilities including:

o    Switches,  network POP's and debit card  platforms in strategic  geographic
     regions in the United States.

o    Leased capacity to connect third parties network POP's.

o    Direct  termination  agreement with  telecommunications  operators in other
     countries  where key suppliers and the Company  terminate a large number of
     minutes.

The Company is dependent on Tec Net for the efficient and uninterrupted  service
to the  Company's  customers.  We  are of the  opinion  that  TecNet  has  taken
reasonable and  appropriate  actions to protect its  facilities and  operations.
There is no assurance that a fire, power loss,  technical failure,  unauthorized


                                       13



intrusion,  natural disaster,  sabotage or other unforeseen event will not cause
an interruption in its  telecommunications  services which would have an adverse
effect on the Company.

5. WE AND TECNET ARE ALSO DEPENDENT UPON THE SERVICES OF OTHERS:  The operations
of the Company and TecNet  require the  cooperation  and efficiency of others to
originate and terminate service for their customers including:

o    Incumbent local exchange carriers ("LEC's").

o    Competitive local exchange carriers ("CLEC's").

o    Foreign carriers.

Since the beginning of its service  arrangement with TecNet, the Company has not
experienced  significant  interruptions  of services  by these  other  carriers.
However, there can be no assurance that such interruptions will not occur in the
future which could have a material adverse effect in the Company.

6. WE ARE DEPENDENT UPON INDEPENDENT  DISTRIBUTORS FOR SALES:  Approximately 95%
of the Company's card sales are made through independent distributors.  There is
no assurance that the Company will be able to continue to  effectively  recruit,
maintain  and motivate its network of  independent  distributors  or prevent its
distributors from marketing competitive products.

7. WE FACE INTENSE  COMPETITION  FROM OTHER CARD SELLERS AND  PROVIDERS OF OTHER
TELECOMMUNICATIONS   SERVICES:   The   prepaid   phone  card  market  is  highly
competitive,  and is  impacted  by the  constant  introduction  of new cards and
services and by the entrance of new participants in the market. In addition, the
overall  increase  in  the  sale  and  use of  prepaid  cellular  telephones  by
telecommunications customers and the decline in the use of pay telephones may be
expected to adversely  affect the Company's  existing and future markets for its
prepaid calling cards.

Competitiveness is based upon pricing, quality of transmission, customer service
and perceived  reliability of the  underlying  prepaid  products.  The Company's
competitors include some of the largest telecommunications  providers as well as
emerging  carriers in the prepaid  phone card  market,  which are  substantially
larger than the Company and which have great financial, technical, personnel and
marketing  resources than the Company and may have greater name  recognition and
larger customer bases. The Company believes that additional  competitors will be
attracted to the prepaid  phone card market,  including  Internet-based  service
providers and other telecommunications  companies. The barriers to entry are not
insurmountable in the markets in which the Company currently  competes,  and the
Company expects such competition to intensify in future periods.

There are basically three segments of today's  prepaid  market:  prepaid calling
cards,  prepaid wireless  (includes  cellular and paging),  and prepaid wireline
(includes  prepaid  dialtone and prepaid long  distance).  According to industry
sources,  the total estimated  revenues for the prepaid market is expected to be
approximately  $6.5 billion for 2000.  In addition,  the market is forecasted to
increase to over $19 billion by 2004,  representing  an estimated  annual growth
rate of 277%. Prepaid calling cards accounted for approximately 54% of the total
prepaid market for 2000.  However,  it is expected that such  relationships will
change dramatically by 2004, whereby prepaid calling cards will only account for
approximately 27% of the total.

8. RECENT REGULATORY CHANGES MAY INCREASE  COMPETITION:  The  Telecommunications
Act effectively  opens the long distance market to competition from RBOC's.  The
entry of these  well-capitalized  and well-known entities into the long distance
market will likely increase  competition for long distance customers,  including
those who use prepaid phone cards.  The  Telecommunications  Act also grants the
FCC the authority to deregulate other aspects of the telecommunication industry,
which in the future may facilitate the offering of  telecommunications  services
by  regulated  entities  in  competition  with  the  Company.   See  "Government
Regulation".


                                       14




9. INDUSTRY  TECHNOLOGICAL  CHANGES MAY  ADVERSELY  IMPACT OUR  OPERATIONS:  The
telecommunications  industry  is subject to a high level of rapid  technological
change.  The Company  expects new  products  and  services to be  developed  and
introduced  into the market.  This expected new technology,  including  personal
communication and voice  communication over the Internet,  may reduce the demand
for long distance  services and prepaid phone cards. If the Company is unable to
satisfactorily  respond to the expected  technological  changes and new products
and services, it will have a material adverse impact on its operations.

10.  DEPENDENCE  ON KEY  PERSONNEL:  The Company is  dependent on its ability to
retain and motivate high quality  personnel,  especially  its management and any
sales personnel that are needed in connection with the Company's plans to become
a sales,  marketing and distribution company. The loss of services of any of its
executive  officers or key employees could have a material adverse effect on the
business, operating results or financial condition of the Company. The Company's
employment  agreements with two of its executive officers have expired but their
employment  has  continued  under the terms of the  respective  agreements.  The
Company's  future  success also depends on its  continuing  ability to identify,
attract and hire qualified personnel as it expands its business. There can be no
assurance that the Company will be able to attract and hire qualified  technical
and managerial  personnel in the future. The inability to attract and retain the
necessary  personnel  could have a material  adverse  effect upon the  Company's
business, operating results or financial condition.

11. WE MAY BE AFFECTED  ADVERSELY BY FRAUD,  THEFT AND  UNCOLLECTIBLE  ACCOUNTS:
From time to time,  callers may obtain services without rendering payment to the
Company by  unlawfully  utilizing the Company's  access  numbers and PIN's.  The
Company attempts to manage theft and fraud risks through its internal  controls,
monitoring and blocking  systems.  The Company believes that its risk management
practices are  adequate,  and to date the Company has not  experienced  material
losses due to such unauthorized use of access numbers and PIN's. There can be no
assurance  that the Company's  risk  management  practices will be sufficient to
protect the Company in the future from  unauthorized  transactions  or thefts of
services which could have an adverse effect on the Company's financial condition
and results of operations.

In addition,  the Company sells its products to certain of its  distributors and
retail accounts on credit terms,  and the Company may introduce new services for
which customers may be billed after such services are rendered.  There can be no
assurance that the Company's actual collection experience will not be worse than
anticipated.

12. WE MAY BE AFFECTED  ADVERSELY BY FUTURE REGULATORY  CHANGES:  The Company is
subject  to  various  federal  and  state   regulations  which  are  subject  to
interpretation and change.  There can be no assurance that such regulations will
not adversely affect the Company. See "Government Regulations".

13. OUR INVESTMENT IN POS TEC REDUCED TO AN ILLIQUID  MINORITY  INTEREST:  After
determining  that it was unable to continue to finance the operations of POS TEC
in July of 2001, the Company  reorganized  POS TEC by merging it into Everything
Prepaid,  Inc. ("EP"),  a newly formed Nevada  corporation and subsidiary of the
Company.  As of October 16,  2001,  the Company  owns  1,088,573  shares of EP's
common  stock which it acquired  as follows:  (i) 1,000  shares upon the initial
capitalization  of EP for $1,000;  (ii) 99,000 shares  obtained as the result of
the merger of POS TEC; and (iii) 988,573 shares received in consideration of the
cancellation of certain intercompany debt between the Company and POS TEC. As of
October 16,  2001,  private  investors  (including a principal  shareholder  and
several  affiliates  of the Company) own  8,911,427  shares of EP's common stock
(89.1%) for which they paid a total of $2,000,000. The Company's stock in EP was
acquired as restricted  securities and EP is a privately held  corporation  with
only 16 shareholders. Accordingly, the Company's investment in EP is an illiquid
investment  over which the Company has little or no control.  In  addition,  the
operations of EP are still considered to be in the development  stage, and there
is no assurance  that the Company  will  realize any  economic  benefit from its
investment.


                                       15



ITEM 2. DESCRIPTION OF PROPERTY

The  Company's  lease  agreement  with Vanity Fair for office space located at 8
West 38th Street,  New York, New York expired on March 31, 2001. During February
2001, the Company entered into a sublease  agreement with Mayflower  Agency Co.,
Inc. for the lease of approximately 7,000 square feet of office space located at
99 Madison  Avenue,  New York, New York,  which expires on December 31, 2002. In
connection  with the  sublease  agreement  noted  above,  the  Company  incurred
approximately  $175,000 of lease  acquisition  costs,  primarily  related to the
buyout of the original lessor's interest under bankruptcy proceedings, which the
Company has elected to amortize  over the  remaining  lease term.  The Company's
present use of the premises involves: 1,000 square feet for reception and common
areas; 1,000 square feet for executive  offices;  500 square feet for conference
rooms;  1,000  square feet for  shipping  and  receiving;  1,500 square feet for
customer service; and the remainder is for general office working areas.

During the fiscal year ended June 30, 2000, POS TEC occupied  leased premises of
approximately 2,600 square feet at 4570 Westgrove Air Plaza in Dallas, Texas, at
a base rent of $18 per square  foot per year,  under a  thirty-month  lease term
commencing  December 1, 1999. In January 2001,  POS TEC relocated its operations
to 17250 North Dallas Parkway in Dallas,  Texas,  under a  month-to-month  lease
term  agreement  for  approximately  2,000  square  feet  at a  base  rental  of
approximately  $3,000 per month.  In July 2001, POS TEC settled its  outstanding
obligations in connection  with the Westgrove Air Plaza lease for  approximately
$19,000.


ITEM 3. LEGAL PROCEEDINGS

In June, 1998, the Company was served in an action entitled  Michael Bodian,  as
Chapter 11 Trustee of Communications  Network Corp. a/k/a Conetco ("Conetco") v.
DigiTEC 2000,Inc.  f/k/a Promo Tel. Inc.,  Bankruptcy Case No. 96-B-53504 (PCB),
Adv.  Proc.  No.  98-8621-A,  pending in the  United  States  Bankruptcy  Court,
Southern District of New York, wherein the plaintiff alleges that a preferential
payment or fraudulent transfer in the amount of $150,800 was made to the Company
by Magic  Communications,  Inc. ("Magic"),  an affiliate of Conetco.  Conetco, a
reseller of long distance  telecommunications  services  which it purchased from
WorldCom  Network  Services  ("WorldCom"),  sold prepaid  telephone  debit cards
through Magic which acted as its master sales agent.  After WorldCom  terminated
Conetco's  access to its long distance  network because of Conetco's  failure to
pay its outstanding balance, the debit cards became inoperable.  Conetco alleges
that a "refund"  of  $150,800  in the form of a credit was given by Magic to the
Company as a result of cash refunds that the Company had given to its  customers
on account of returned  debit  cards.  An answer  asserting  numerous  defenses,
including  that the Company  never  received the "refund" in question,  has been
filed on behalf of the Company.  Management  believes such  litigation  will not
have a material  adverse  effect on the  financial  condition  or the results of
operations of the Company.

On March 18, 1999,  in the Supreme Court of the State of New York for the County
of Kings, the Weeks-Lerman Group, LLC ("Weeks-Lerman")  brought suit against the
Company  alleging  that it provided  the Company  with work,  labor and services
and/or sold and  delivered  goods to the Company in the amount of  approximately
$76,000.  The Company  negotiated and satisfied a settlement  with  Weeks-Lerman
during the third quarter of fiscal 2001 for approximately $41,000.

On October 20, 1999,  Union Telecard  Alliance LLC ("Union") filed suit entitled
Union Telecard  Alliance LLC v DigiTEC 2000, Inc.,  TecNet Inc. in Supreme Court
of the State of New  York,  New York  County  against  the  Company  to  recover
approximately  $600,000 for cards sold to the Company.  In February of 2000, the
Company  filed  its  answer  along  with a  third-party  complaint  against  IDT
Corporation,  the majority  owner of Union,  for $2.5  million.  Presently,  the
Company is  exploring  settlement  possibilities  with both  Union and IDT.  The
Company is not in a position to express an opinion as to the probable outcome of
this matter.


                                       16



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

None.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Since October 15, 1996, the Company's Common Stock has been quoted and traded on
the OTC Bulletin Board,  under the trading symbol "DGTT." Prior to such time, it
so traded  under the symbol  "PROE." On January 18,  2002,  its Common Stock was
delisted from the OTC Bulletin  Board because the Company was late in filing its
Annual  Report on Form  10-KSB for the fiscal  year ended June 30,  2001 and its
Quarterly  Report on Form 10-QSB for the quarter ended September 30, 2001. These
reports have been filed and the Company is taking action to reinstate the Common
Stock on the OTC Bulletin Board.

The following  table sets forth the high asked and low bid prices as reported on
the OTC Bulletin Board for the periods indicated.

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

               Period                    High               Low
- -------------------------------------------------------------------

Year Ending June 30, 2001(1):
First Quarter                           $1.813            $1.000
Second Quarter                           2.000             1.438
Third Quarter                            1.875             1.313
Fourth Quarter                           1.720             1.050

Year Ending June 30, 2000(1):
First Quarter                           $1.562            $1.375
Second Quarter                           2.000             1.937
Third Quarter                            1.500             1.250
Fourth Quarter                           1.375             1.375

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

(1) For the years ended June 30, 2001 and 2000,  the Company's  Common Stock was
traded lightly. Further,  over-the-counter market quotations may not necessarily
represent actual transactions.

On January  18,  2002,  the  closing  sale price of the Common  Stock on the OTC
Bulletin Board was $.25 per share. As of January 18, 2002,  there were 7,058,998
shares of DigiTEC  2000,  Inc.  Common  Stock  issued and  outstanding,  held by
approximately 654 shareholders of record.

The Company did not pay any cash  dividends  on its Common  Stock for the fiscal
years ended June 30, 2001 and 2000, respectively. The current dividend policy of
the  Company's  Board of  Directors  is to retain  any  available  discretionary
earnings to fund current  operations and to finance the overall expansion of the
Company's  business  and  product  offerings.  Therefore,  it is likely that the
Company will forego the payment of any cash dividends on the outstanding  shares
of Common Stock in the foreseeable  future. Any future revisions of the existing
dividend  policy will be at the discretion of the Board of Directors and will be
contingent upon the Company's  earnings,  capital  requirements,  cash flows and
financial  condition,  as well as any other factors deemed relevant by the Board
of Directors.

PREFERRED STOCK

The outstanding  Series A Preferred Stock is convertible  into 731,462 shares of
the Company's  common stock at the conversion  rate of 11.9814 common shares for
each  preferred   share.  The  Certificate  of  Designation  for  the  Series  A
Convertible  Preferred  Stock  provides  for  certain  voting,  liquidation  and
registration  rights for the holder. The Company may call the redemption of each
share of  Series A  Convertible  Preferred  Stock at any time for $100 per share
plus applicable accrued dividends, if any.



                                       17



ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

GENERAL

The following  discussion  should be read in conjunction  with the  Consolidated
Financial   Statements,   including  the  notes  thereto,   and  other  detailed
information  regarding  the  Company  included  elsewhere  in this Form  10-KSB.
Certain  statements  set forth below  regarding  matters that are not historical
facts,  such as statements  concerning  the expansion and growth of the Company,
future growth in the demand for prepaid  phone cards and the Company's  plans to
become  a  sales,   marketing  and  distribution  company,  are  forward-looking
statements  within the meaning of Section 27A of the  Securities Act and Section
21E of the Exchange Act. Because such  forward-looking  statements include risks
and uncertainties,  actual results may differ materially from those expressed or
implied by such forward-looking statements.

The Company commenced  operations under present management in 1995 to capitalize
upon  opportunities  in the  prepaid  phone  card  sector  of the long  distance
telecommunications   market.   The  Company's   target  markets  include  ethnic
communities with substantial  international long distance calling  requirements.
The  Company's   prepaid  phone  cards  provide  consumers  with  a  competitive
alternative  to  traditional  calling  cards  and  presubscribed  long  distance
telecommunications  services.  Retail rates in the  international  long distance
market have declined in recent years and, as  competition in this segment of the
telecommunications  industry  continues to intensify,  the Company believes that
this  downward  trend in rates is likely to continue.  Although  there can be no
assurance,  the Company  believes  that any reduction in rates will be offset in
whole or in part by efficiencies  attributable  to the planned  expansion of the
Company's  services as well as by lower  transmission costs per minute resulting
from the Company's increased volume of minutes. In addition, the Company expects
to produce favorable  operating results in the future by increasing its existing
retail distribution market, to introduce new products to its target market which
are cost  competitive on a per minute basis and to capitalize  upon economies of
scale within existing markets.

The notes to the Company's  Consolidated Financial Statements include disclosure
of the Company's ability to continue as a going-concern based on the significant
losses from  operations,  significant  deficits in working capital and net worth
and the Company's economic  dependence on TecNet to provide  significant amounts
of  telecommunications  products and services and to provide material amounts of
operating  cash flows.  The Company's  ability to continue as a going concern is
highly  dependent in the near term on both the willingness and ability of TecNet
to finance the  Company's  telecommunications  products and services and working
capital  shortfalls,  and the  ability  of the  Company  and  TecNet to  provide
reliable and competitive prepaid telephone cards. There can be no assurance that
the Company will continue to receive the support of TecNet or be able to achieve
favorable  operating  results in future  periods.  Additionally,  the  Company's
stability is dependent upon its ability to raise capital,  develop market share,
and achieve  profitable  operations  and to generate  sufficient  cash flow from
operations and financing sources to meet obligations.

RESULTS OF OPERATIONS

YEAR ENDED JUNE 30, 2001 COMPARED TO YEAR ENDED JUNE 30, 2000

NET SALES:

Sales, net of discount and returns, increased approximately $36.6 million (267%)
to  approximately  $50.3 million for the twelve month period ended June 30, 2001
as compared to  approximately  $13.7  million for the twelve  month period ended
June 30, 2000. The overall  increase is attributed to the Company's  strategy of
focusing on the sales,  marketing and distribution of prepaid  telephone calling
cards  within  its  target  market  and  the  termination  of  its  unprofitable
proprietary branded facilities-based cards. By abandoning its prior strategy and
through the infusion of operating  capital by TecNet,  the Company has been able
to increase overall sales by focusing on the specific needs of its target market
and utilizing  its cash flows for the  development  of existing and  prospective
markets  instead of  purchasing  costly  network  infrastructure.  The Company's
revenues  are now based on both the dollar  value and the total  number of cards
sold, less  discounts,  and the Company was able to  significantly  increase the


                                       18




total number of prepaid cards sold during the twelve month period ended June 30,
2001 through its master distributor network and other distribution channels. The
Company  has been able to realize  market  growth by offering  cost  competitive
prepaid  calling cards utilizing the favorable  pricing  obtained from TecNet on
bundled products.

COST OF SALES:

The Company's  cost of sales  increased  approximately  $32.3 million  (267%) to
approximately  $44.4  million for the twelve month period ended June 30, 2001 as
compared to  approximately  $12.1 million for the twelve month period ended June
30,  2000.  The  overall  cost of sales  increase  is  directly  related  to the
increased volume of prepaid cards sales discussed above.

GROSS PROFIT:

The Company realized a gross profit of approximately $5.9 million for the twelve
month period  ended June 30, 2001 (269%  increase) as compared to a gross profit
of  approximately  $1.6 million for the twelve month period ended June 30, 2000.
The gross profit  realized is directly  related to the  Company's use of bundled
prepaid  cards  purchased  from TecNet and to the  increased  volume of sales of
prepaid  cards noted  above.  In  addition,  the Company was able to obtain more
favorable  credit  terms from  TecNet in  connection  with the  purchase  of the
bundled  prepaid  cards,  which helped to facilitate the increase in overall net
sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:

The  Company's   selling,   general  and   administrative   expenses   increased
approximately  $2.7 million (45%) to  approximately  $8.7 million for the twelve
month period ended June 30, 2001 as compared to  approximately  $6.0 million for
the twelve month period ended June 30, 2000. The overall  increase is related to
the combined effect of several factors.  The Company  experienced an increase in
payroll and employee benefit costs of approximately  $345,000 and an increase in
contract  labor cost of  approximately  $205,000 due primarily to an increase in
the total  number of employees of the Company  attributable  to increased  sales
volume during the current fiscal year. Other factors include an overall increase
in federal excise taxes of approximately  $1.6 million,  increased rent expenses
of  approximately  $43,000,  an overall  decrease  in office and office  related
expenses of approximately $38,000, increased shipping and fulfillment charges of
approximately  $195,000 and an increase of approximately $224,000 in advertising
and promotional expenses related to the significant increase in overall sales of
the  Company's  prepaid  cards during the twelve  months ended June 30, 2001.

LOSS BEFORE OTHER INCOME (EXPENSES):

The Company's loss before  otherexpenses) of approximately  $2.8 million for the
twelve  month period ended June 30, 2001  decreased  approximately  $1.6 million
(36%) as compared to the loss before  other income  (expense)  of  approximately
$4.4  million  for the twelve  month  period  ended June 30,  2000.  The overall
increase is directly  related to the  combination of factors noted above for net
sales, cost of sales and selling, general and administrative expenses.

OTHER INCOME (EXPENSES):

The Company's other expense,  net,  increased  approximately  $392,000 (552%) to
approximately  $463,000  (expense,  net), for the twelve month period ended June
30, 2001 as  compared to  approximately  $71,000  (expense,  net) for the twelve
month period ended June 30, 2000. The overall  increase is primarily  related to
the recognition of two separate non-recurring credits to income of approximately
$583,000 and $408,000  related to the settlement of  outstanding  trade payables
with vendors  during the twelve  months ended June 30,  2001.  Other  offsetting
factors include an increase in current period interest  expense of approximately
$547,000  related  to the 10% demand  promissory  notes  payable  to TecNet,  an
increase in penalties  and interest  attributed  to accrued  federal  excise tax
obligations  of  approximately  $255,000,  and a decrease in interest  and other
miscellaneous expenses of approximately $16,000.


                                       19



NET LOSS:

The Company's net loss of approximately $3.2 million for the twelve month period
ended June 30, 2001 decreased by approximately $1.3 million (29%) as compared to
the net loss of  approximately  $4.5  million for the twelve  month period ended
June 30, 2000.  The overall  increase is directly  related to the factors  noted
above for gross profit and other income (expenses).


LIQUIDITY AND CAPITAL RESOURCES

FINANCING REQUIREMENTS

To date, the Company has funded its operations through: (i) two offerings, which
aggregated  $1,000,000  of  proceeds  to  the  Company;  (ii)  the  exercise  of
approximately  2,280,000  warrants to purchase shares of the Common Stock of the
Company  at  $1.50  per  share  (the   "$1.50   Warrants"),   which   aggregated
approximately $3,400,000 of proceeds to the Company; (iii) sale of 61,050 shares
of the Company's Series A Preferred Stock,  which resulted in the elimination of
an accounts payable balance to Premiere totaling approximately $6,105,000;  (iv)
sale of  $1,200,000  principal  amount of the  Company's  Notes  with the $2.375
Warrants  (as  subsequently  exchanged,  the "10%  Notes");  (v)  issuance  of a
$100,000 10% promissory note to an officer/director  family member; and (vi) the
infusion  of  approximately  $18.6  million of  operating  capital  through  the
issuance of 10% demand  promissory  notes and the  extension  of trade credit by
TecNet.  All of the above  offerings  were  exempt from  registration  under the
applicable  Securities Act and have been utilized to fund the Company's  current
operations.

The  Company has no existing  bank lines of credit and has not  established  any
sources for such financing.

The Company's major components of cash flow are as follows:

                                                     YEAR ENDED JUNE 30,
                                             -----------------------------------
                                                   2001              2000
                                             -----------------------------------


Net cash used in operating activities          $(2,846,593)       $(2,632,388)

Net cash used in investing activities             (260,133)           (50,637)

Net cash provided by financing activities        2,947,487          3,692,123
                                               -----------        -----------
Net increase (decrease) in cash                $  (159,239)       $ 1,009,098
                                               ===========        ===========

The  Company's  net cash used in operating  activities  increased  approximately
$215,000  (8%) to  $(2,846,593)  for the  fiscal  year  ended  June 30,  2001 as
compared to  $(2,632,388)  for the fiscal year ended June 30, 2000.  The overall
increase in net cash used in operating activities for the fiscal year ended June
30, 2001 is related to the combined effect of several key factors.  They include
an increase in the allowance for sales returns of approximately $1.4 million, an
increase  in the cash  flow  effect  of  accounts  receivable  of  approximately
$346,000,  a decrease in the net loss of approximately $1.3 million, an decrease
in the cash flow  effect of  accounts  payable  and other  accrued  expenses  of
approximately  $1.6  million,  an  increase  in the cash flow  effect of prepaid
expenses and other assets of approximately  $515,000, and a decrease in the cash
flow effect of inventory of approximately $347,000.

Cash used in investing activities for both the twelve months ended June 30, 2001
and 2000 related solely to capital  expenditures of  approximately  $260,000 for
the twelve months ended June 30, 2001 and  approximately  $51,000 for the twelve
months ended June 30, 2000.

During  the fiscal  year  ended June 30,  2001,  cash  provided  from  financing
activities  related  primarily to the issuance of approximately  $3.9 million in
promissory  notes to TecNet,  the  repayment  of  $900,000 in  principal  to the
holders of the $1.2 million  promissory  notes,  and the repayment of $17,000 in


                                       20



principal on an outstanding loan with a family member of an  officer/director of
the Company.  During the fiscal year ended June 30,  2000,  cash  provided  from
financing  activities  related  primarily to the issuance of approximately  $4.2
million in promissory notes to TecNet,  the repayment of approximately  $300,000
in principal to the holders of the $1.2 million promissory notes, the payment of
approximately  $121,000 to settle the  outstanding  obligations  and claims with
Prime  Communications,  Inc.,  and the  repayment  of  approximately  $83,000 in
principal on an outstanding loan with a family member of an  officer/director of
the Company.

The Company expects capital  requirements of  approximately  $1.0 million during
fiscal 2002. The foregoing amount includes the necessary  capital to further the
expansion of the Company's prepaid products into additional cities and expanding
the Company's existing master distribution network. As the Company increases the
sales of its bundled prepaid products,  its capital requirements are expected to
progressively decline. If cash needs prove to be greater than contemplated,  the
Company  will need to slow the  expansion  of its prepaid  product  offerings to
additional cities during fiscal year 2002.

Since June 30, 1999, the Company has raised cash primarily  through the issuance
of 10% demand  promissory  notes payable to TecNet.  Since February of 1999, the
Company has been dependent on TecNet  financing its shortfalls in cash flows and
current operations and the provisioning of telecommunication services by TecNet.
The Company  expects to consider other financing  opportunities  during the 2002
fiscal year.  The Company  believes that with the  continued  support of TecNet,
internally  generated cash from  operations in fiscal 2002 will be sufficient to
fund its operations  throughout  the 2002 fiscal year.  Although the Company has
achieved  significant  improvements in cash flows from  operations,  it does not
expect to achieve positive cash flows from operations in the foreseeable future.
Additionally,  there can be no assurance that the foregoing  external sources of
financing  will be available to the Company,  or that the Company's  projections
for internal cash generation from current operations will be realized.

The  Company's  ability  to expand  its  operations  as a sales,  marketing  and
distribution  company and to generate  sufficient  cash flow to begin to address
its  obligations to TecNet and other  suppliers will be dependent upon continued
financing   by  TecNet  of  cash  flow   needs  and   continued   financing   of
telecommunications  services by TecNet.  In  addition,  the Company will need to
raise  long-term  capital.  There can be no assurance  that such  financing will
continue to be available to the Company from TecNet or that long-term  financing
will be obtained,  or if available,  will be available in either a timely manner
or upon terms and conditions acceptable to the Company.

For the  year  ended  June 30,  2001,  the  Company  experienced  a  substantial
operating loss of approximately $3.2 million and used approximately $2.8 million
of cash in operating  activities.  The Company's  cash position at June 30, 2001
approximated  $1.0 million and its working  capital deficit  approximated  $20.3
million.  The Company remains  undercapitalized and to date has not been able to
finance its expansion as quickly as opportunities have arisen.

MARKET RISK

The Company does not hold any  derivatives  or  investments  that are subject to
market risk.  The carrying value of financial  instruments,  which includes cash
and  cash  equivalents,   accounts  receivable,  accounts  payable  and  accrued
liabilities,  and notes payable,  at June 30, 2001 approximates fair value as of
such date, due to the relatively  short-term  maturity of such instruments which
minimizes potential market risk associated with such instruments.

SEASONALITY

The business of the Company does not experience significant seasonality.


                                       21



INFLATION

Management  does not believe that inflation has had, or is expected to have, any
significant  adverse impact on the Company's  financial  condition or results of
operations.

RECENT ACCOUNTING PRONOUNCEMENTS

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities," as amended by SFAS Nos. 137 and 138, which
requires  companies to recognize all  derivatives  contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. SFAS No. 133
requires that changes in the derivatives  fair value be recognized  currently in
earnings unless specific hedge accounting  criteria are met. Special  accounting
for qualifying  hedges allow a  derivative's  gains and losses to offset related
results of  operations  in the income  statement,  and  requires  the Company to
formally  document,   designate,   and  assess  the  overall   effectiveness  of
transactions  that receive hedge accounting.  Historically,  the Company has not
entered  into  derivative  contracts  either  to  hedge  existing  risks  or for
speculative  purposes.  The adoption of the statement by the Company,  effective
July 1,  2000,  did not have a  material  effect on the  Company's  consolidated
results of operations or financial position.

In June 2001, the FASB issued SFAS No. 141 "Business  Combinations" and SFAS No.
142,  "Goodwill and Other Intangible  Assets." SFAS No. 141 is effective for all
business  combinations  initiated after June 30, 2001. SFAS No. 141 will require
companies to recognize acquired  identifiable  intangible assets separately from
goodwill if control over the future economic  benefits of the asset results from
contractual  or other legal rights or the  intangible  asset is capable of being
separated or divided and sold, transferred,  licensed,  rented or exchanged. The
Standards will require the value of a separately  identifiable  intangible asset
meeting any of the above  criteria  to be  measured at fair value.  SFAS No. 142
requires  companies  to cease  amortizing  goodwill  acquired  through  business
combinations.  However,  SFAS No. 142 requires that  companies  assess  acquired
goodwill for impairment  upon adoption of the statement,  and at least annually,
at the  lowest  individual  reporting  unit  level  that  can be  distinguished,
physically and operationally,  for internal reporting  purposes,  from the other
activities, operations, and assets of the entity, utilizing a two-step approach.
The  Company  expects to  implement  SFAS No. 142  effective  July 1, 2002,  and
believes  that such  adoption  will not have a material  effect on the Company's
results of operations or financial position.

In August 2001, the FASB issued SFAS No. 143  "Accounting  for Asset  Retirement
Obligations".  SFAS No. 143  addresses  financial  accounting  and reporting for
obligations  and costs  associated  with the  retirement of tangible  long-lived
assets.  The Company is required to implement  SFAS No.143 on July 1, 2002,  and
has not yet  determined  the impact that this statement will have on its results
of operations or financial position.

In October 2001, the FASB issued SFAS No. 144  "Accounting for the Impairment or
Disposal of Long-Lived  Assets".  SFAS No. 144 replaces SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" and establishes  accounting and reporting standards for long-lived assets to
be  disposed  of by  sale.  This  standard  applies  to all  long-lived  assets,
including  discontinued  operations.  SFAS No. 144 requires that those assets be
measured at the lower of carrying  amount or fair value less cost to sell.  SFAS
No. 144 also  broadens the reporting of  discontinued  operations to include all
components of an entity with operations that can be distinguished  from the rest
of the entity that will be eliminated from the ongoing  operations of the entity
in a disposal transaction.  The Company is required to implement SFAS No. 144 on
July 1, 2002,  and has not yet  determined  the impact that this  statement will
have on its results of operations or financial position.

In September 2000, the Emerging Issues Task Force ("EITF") of the FASB reached a
final  consensus on Issue No. 00-10,  "Accounting for Shipping and Handling Fees


                                       22



and  Costs".  EITF 00-10 is  effective  for fiscal year 2001 and  addresses  the
income statement classification of amounts charged to customers for shipping and
handling,  as well as costs  incurred  related to  shipping  and  handling.  The
Company  classifies  shipping and handling costs billed to customers as revenues
and costs incurred relating to shipping and handling as costs of sales, which is
in accordance with the consensus in EITF 00-10.

In  December  1999,  Staff  Accounting   Bulletin  ("SAB")  No.  101,   "Revenue
Recognition  in Financial  Statements",  was issued.  SAB No. 101 summarizes the
Securities  and  Exchange   Commission's  staff  views  on  applying  accounting
principles  generally  accepted  in the  United  States of  America  to  revenue
recognition.  The  implementation  of SAB No. 101,  during the fourth quarter of
fiscal year 2001, by the Company did not have a material effect on the Company's
results of operations or financial position.

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  Consolidated  Financial  Statements  of the Company  and the related  Notes
thereto and the financial information required to be filed herewith are included
on pages F1 to F21 and Schedule S-1 of this Report on Form 10-KSB.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

                                    PART III

The information  called for by Item 10, Directors and Executive  Officers of the
Registrant;  Item 11,  Executive  Compensation;  Item 12, Security  Ownership of
Certain Beneficial Owners and Management; and Item 13, Certain Relationships and
Related  Transactions,  is hereby incorporated by reference to the corresponding
sections of the Registrant's  definitive proxy statement (the "Definitive  Proxy
Statement") for its Annual Meeting of Stockholders to be held on March 15, 2002.


ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-KSB

(a)   Consolidated Financial Statements and Financial Schedules

      (1)   Consolidated Financial Statements

                                                                         Page(s)
                                                                         -------

            Independent Auditors' Report                                   F-2

            Consolidated Balance Sheets as of June 30, 2001                F-3

            Consolidated Statements of Loss for the years ended
            June 30, 2001 and 2000                                         F-4

            Consolidated Statements of Stockholders' Deficit
            for the years ended June 30, 2001 and 2000                     F-5

            Consolidated Statements of Cash Flows for the years ended
            June 30, 2001 and 2000                                         F-6

            Notes to Consolidated Financial Statements                     F-7

      (2)   Financial Statement Schedule

            Schedule II -- Valuation and Qualifying Accounts               S-1

(b)  Reports on Form 8-K

     None.


                                       23



(c)   Exhibits

   Exhibit No.                         DESCRIPTION
   -----------                         -----------

      2.1      Articles of Merger and Agreement and Plan of Merger (Incorporated
               by  reference  herein to Exhibit  99.1 of the  Company's  Form 10
               filed  with the  Commission  on  October  30,  1997  Registration
               Statement File No. 000-23291)

      2.2      Agreement and Plan of Reorganization and Amendments (Incorporated
               by  reference  herein to Exhibit  99.5 of the  Company's  Form 10
               filed  with the  Commission  on  October  30,  1997  Registration
               Statement File No. 000-23291)

      3.1      Restated  Articles of  Incorporation  (Incorporated  by reference
               herein to Exhibit  3(i) of the  Company's  Form 10 filed with the
               Commission on October 30, 1997  Registration  Statement  File No.
               000-23291)

      3.2      Amended and Restated ByLaws  (Incorporated by reference herein to
               Exhibit   (3)(ii)  of  the  Company's  Form  10  filed  with  the
               Commission on October 30, 1997  Registration  Statement  File No.
               000-23291)

      4.1      Certificate  of   Designations   of  Series  A  Preferred   Stock
               (Incorporated by reference herein to Exhibit 4.1 of the Company's
               Quarterly Report on Form 10-Q filed on May 15, 1998)

      4.2      Forms of Option  Agreement  (Incorporated  by reference herein to
               Exhibit 4.2 of the Company's Form S-1/A filed with the Commission
               on June 30, 1998 Registration Statement File No. 333-50563)

      4.3      Forms of Warrant  Agreement  (Incorporated by reference herein to
               Exhibit 4.3 of the Company's Form S-1/A filed with the Commission
               on June 30, 1998 Registration Statement File No. 333-50563)

      4.4      Form of Note and  Warrant  Purchase  Agreement  (Incorporated  by
               reference herein to Exhibit 4.4 of the Company's Annual Report on
               Form 10-K/A filed January 13, 1999)

      4.5      Note and  Warrant  Exchange  Letter  (Incorporated  by  reference
               herein to Exhibit 10.2 of the Company's  Quarterly Report on Form
               10-Q filed May 21, 1999)

      10.1     Services Agreement by and between Innovative Telecom  Corporation
               and DigiTEC  2000,  Inc.  (Incorporated  by  reference  herein to
               Exhibit  10.1  of  the  Company's   Form  S-1/A  filed  with  the
               Commission  on June  30,  1998  Registration  Statement  File No.
               333-50563)

      10.2     Promissory Note (Incorporated by reference herein to Exhibit 10.2
               of the Company's Form S-1/A filed with the Commission on June 30,
               1998 Registration Statement File No. 333-50563)

      10.3     Sublease agreement between Vanity Fair Intimates,  Inc. and Promo
               Tel, Inc.  (Incorporated  by reference  herein to Exhibit 99.2 of
               the  Company's  Form 10 filed with the  Commission on October 30,
               1997 Registration Statement File No. 000-23291)

      10.4     TECLink Promissory Note and Agreement  (Incorporated by reference
               herein to Exhibit  99.3 of the  Company's  Form 10 filed with the
               Commission on October 30, 1997  Registration  Statement  File No.
               000-23291)


                                       24




      10.5     Asset Purchase  Agreement by and between World Access  Solutions,
               Inc. and Meta3, Inc. (Incorporated by reference herein to Exhibit
               99.4 of the  Company's  Form 10  filed  with  the  Commission  on
               October 30, 1997 Registration Statement File No. 000-23291)

      10.6     Telephone   Electronics   Corporation  Agreement  and  Amendments
               (Incorporated   by  reference  herein  to  Exhibit  99.6  of  the
               Company's  Form 10 filed with the  Commission on October 30, 1997
               Registration Statement File No. 000-23291)

      10.7     TECLink Note  Satisfaction  Agreement  (Incorporated by reference
               herein to Exhibit  99.7 of the  Company's  Form 10 filed with the
               Commission on October 30, 1997  Registration  Statement  File No.
               000-23291)

      10.8     Premiere  Communications  Agreement  (Incorporated  by  reference
               herein to Exhibit  99.8 of the  Company's  Form 10 filed with the
               Commission on October 30, 1997  Registration  Statement  File No.
               000-23291)

      10.9     CG   Com,   Inc.   Independent   Master   Distributor   Agreement
               (Incorporated   by  reference  herein  to  Exhibit  99.9  of  the
               Company's  Form 10 filed with the  Commission on October 30, 1997
               Registration Statement File No. 000-23291)

      10.10    Frank C. Magliato Employment Agreement (Incorporated by reference
               herein to Exhibit 99.10 of the  Company's  Form 10 filed with the
               Commission on October 30, 1997  Registration  Statement  File No.
               000-23291)

      10.11    Diego E. Roca  Employment  Agreement  (Incorporated  by reference
               herein to Exhibit 99.11 of the  Company's  Form 10 filed with the
               Commission on October 30, 1997  Registration  Statement  File No.
               000-23291)

      10.12    DigiTEC  2000,  Inc.  Stock  Incentive  Plan   (Incorporated   by
               reference  herein to Exhibit 99.13 of the Company's Form 10 filed
               with the  Commission on October 30, 1997  Registration  Statement
               File No. 000-23291)

      10.13    Ameridial,  Inc. Acquisition Agreement (Incorporated by reference
               herein to  Exhibit 2 of the  Company's  Quarterly  Report on Form
               10-Q filed February 13, 1998)

      10.14    Investment Agreement by and between Premiere  Communications Inc.
               and DigiTEC  2000,  Inc.  dated March 31, 1998  (Incorporated  by
               reference  herein  to  Exhibit  10.1 of the  Company's  Quarterly
               Report on Form 10-Q filed on May 15, 1998)

      10.15    Investor  Agreement  by and  between  Frank  Magliato  and  Prime
               Communications, Inc. (Incorporated by reference herein to Exhibit
               10.19 of the  Company's  Form S-1/A filed with the  Commission on
               June 30, 1998 Registration Statement File No. 333-50563)

      10.16    Warranty Bill of Sale and Assignment and Related Agreement by and
               between  DigiTEC  2000,  Inc.  and  Prime  Communications,   Inc.
               (Incorporated  by  reference  herein  to  Exhibit  10.21  of  the
               Company's  Form S-1/A filed with the  Commission on June 30, 1998
               Registration Statement File No. 333-50563)


                                       25



      10.17    Letter   Agreement   between   DigiTEC  2000,  Inc.  and  certain
               stockholders of Ameridial, Inc. (Incorporated by reference herein
               to  Exhibit  10.22 of the  Company's  Form  S-1/A  filed with the
               Commission  on June  30,  1998  Registration  Statement  File No.
               333-50563)

      10.18    Asset  Purchase  Agreement  among  DigiTEC  2000,  Inc.,  Pos Tec
               Systems,  LLC and  Total  Pos  Solutions,  LLC  (Incorporated  by
               reference herein to Exhibit 2.1 of the Company's Quarterly Report
               on Form 10-Q filed May 21, 1999)

      10.19    10% Promissory  Note (Tec Net, Inc.)  (Incorporated  by reference
               herein to Exhibit 10.1 of the Company's  Quarterly Report on Form
               10-Q filed May 21, 1999)

      10.20    10% Promissory Note  (Incorporated by reference herein to Exhibit
               2 of the Company's  Quarterly  Report on Form 10-Q filed February
               23, 1999)

      10.21    Settlement   Agreement   with   Frontier   Communications,   Inc.
               (Incorporated  by  reference  herein  to  Exhibit  10.24  of  the
               Company's Annual Report on Form 10-K/A filed January 13, 1999)

      16.1     Letter Regarding Changes in Certifying Accountants
               (Incorporated by reference herein to Exhibit 16.1 of Amendment #1
               to the Company's Current Report on Form 8-K filed July 25, 2000)


                                       26


                               DigiTEC 2000, Inc.
                          INDEX TO FINANCIAL STATEMENTS

                                                                           Page
                                                                           ----

(1)   Consolidated Financial Statements

      Independent Auditors' Report                                         F-2

      Consolidated Balance Sheets as of June 30, 2001                      F-3

      Consolidated Statements of Loss for the years ended
      June 30, 2001 and 2000                                               F-4

      Consolidated Statements of Stockholders' Deficit
      for the years ended June 30, 2001 and 2000                           F-5

      Consolidated Statements of Cash Flows for the years ended
      June 30, 2001 and 2000                                               F-6

      Notes to Consolidated Financial Statements                           F-7

(2)   Financial Statement Schedule

      Schedule II -- Valuation and Qualifying Accounts                     S-1


                                      F-1




Independent Auditors' Report

To the Board of Directors and Stockholders of
   DigiTEC 2000, Inc.
   New York, N.Y.


We have audited the  accompanying  consolidated  balance  sheet of DigiTEC 2000,
Inc.  and  subsidiary  (the  "Company")  as of June  30,  2001  and the  related
consolidated statements of loss,  stockholders' deficit, and cash flows for each
of the two years in the period ended June 30, 2001.  Our audit also included the
financial  statement  schedule for the years ended June 30, 2001 and 2000 listed
in the index at Item  14(a)(2).  These  consolidated  financial  statements  and
financial statement schedule are the responsibility of the Company's management.
Our  responsibility  is to express an  opinion on these  consolidated  financial
statements and financial statement schedule 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 consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  consolidated  financial  statements.  An audit also includes  assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall  consolidated  financial  statement  presentation.  We
believe that our audits provide a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects, the financial position of the Company as of June 30, 2001 and
the  results of its  operations  and its cash flows for each of the two years in
the  period  ended  June  30,  2001 in  conformity  with  accounting  principles
generally accepted in the United States of America.  Also, in our opinion,  such
financial  statement  schedule,   when  considered  in  relation  to  the  basic
consolidated  financial  statements  taken as a whole,  presents  fairly  in all
material respects the information set forth therein.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern.  As discussed in Note 1(c) to
the  consolidated  financial  statements,  the Company's  recurring  losses from
operations,   negative   working   capital,   significant   trade  payables  and
stockholders' deficit raise substantial doubt about its ability to continue as a
going concern. In addition, the Company has become economically dependent upon a
21 percent  stockholder to fund operating cash flows and to provide  significant
telecommunications  products and services.  Management's  plans concerning these
matters are also described in Note 1(c). The consolidated  financial  statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.


/s/ DELOITTE & TOUCHE LLP
New York, New York

September 28, 2001
(January 11, 2002 as to Note 10(c))


                                      F-2





                                                                                    DigiTEC 2000, Inc.
                                                                                        and Subsidiary

                                                                            Consolidated Balance Sheet
======================================================================================================



                                                                                      June 30, 2001

- ------------------------------------------------------------------------------------------------------
                                                                                      
Assets

Current:
   Cash and cash equivalents                                                             $  1,006,615
   Accounts receivable, net of allowance for bad
      debts of $1,902,496                                                                   3,216,365
   Inventory, net of allowance for obsolescence of $51,359                                  1,083,592
   Prepaid expenses and other                                                                  40,547
- ------------------------------------------------------------------------------------------------------

Total Current Assets                                                                        5,347,119

Property and equipment, net of accumulated
   depreciation of $256,544                                                                   292,699
Other assets                                                                                  185,032
- ------------------------------------------------------------------------------------------------------

Total Assets                                                                             $  5,824,850
======================================================================================================

Liabilities and Stockholders' Deficit
Current:
   Notes and accounts payable to TecNet, Inc.                                            $ 18,602,793
   Accounts payable - trade                                                                 1,194,283
   Accrued taxes and penalties                                                              2,837,968
   Accounts payable and accrued expenses                                                      816,927
   Accrued legal expenses                                                                     788,624
   Allowance for sales returns                                                              1,407,100
- ------------------------------------------------------------------------------------------------------

Total Liabilities                                                                          25,647,695
- ------------------------------------------------------------------------------------------------------

Commitments and Contingencies (Note 4)                                                             --
- ------------------------------------------------------------------------------------------------------

Stockholders' Deficit
   Series A Convertible Preferred Stock, $.001 par value, 1,000,000
      shares authorized; 61,050 shares issued and outstanding;
      $100 per share liquidation preference                                                        61
   Common Stock, $.001 par value, 100,000,000 shares
      authorized; 7,058,998 shares issued and outstanding                                       7,059
   Additional paid-in capital                                                              17,152,818
   Accumulated deficit                                                                    (36,982,783)
- ------------------------------------------------------------------------------------------------------

Total Stockholders' Deficit                                                               (19,822,845)
- ------------------------------------------------------------------------------------------------------

Total Liabilities and Stockholders' Deficit                                              $  5,824,850
======================================================================================================




                    See accompanying notes to Consolidated Financial Statements.


                                                 F-3





                                                                                    DigiTEC 2000, Inc.
                                                                                        and Subsidiary

                                                                       Consolidated Statements of Loss
======================================================================================================


                                                                    For the Years ended June 30,
                                                              ----------------------------------------
                                                                    2001                    2000
- ------------------------------------------------------------------------------------------------------
                                                                                  
Net sales                                                      $ 50,309,223             $ 13,733,119
Cost of sales                                                    44,377,471               12,142,746
- ------------------------------------------------------------------------------------------------------

      Gross profit                                                5,931,752                1,590,373

Selling, general and administrative
   expenses                                                       8,709,263                6,019,015
- ------------------------------------------------------------------------------------------------------

        Loss before other income (expenses)                     ( 2,777,511)             ( 4,428,642)

- ------------------------------------------------------------------------------------------------------
Other income (expenses):
   Interest expense                                                (980,239)                (519,291)
   Other income                                                     516,968                  448,407
- ------------------------------------------------------------------------------------------------------

        Other expenses                                             (463,271)                 (70,884)
- ------------------------------------------------------------------------------------------------------

Net loss                                                        $(3,240,782)             $(4,499,526)
======================================================================================================

Net loss per common share-basic and diluted:                    $      (.46)             $      (.64)
======================================================================================================

Weighted average number of common and common
   equivalent shares outstanding used in basic and
   diluted computations                                           7,058,998                7,058,998
======================================================================================================



                    See accompanying notes to Consolidated Financial Statements.


                                                F-4




                                                                                                                DigiTEC 2000, Inc.
                                                                                                                    and Subsidiary

                                                                                   Consolidated Statements of Stockholder's Deficit
                                                                                         For the Years ended June 30, 2001 and 2000
===================================================================================================================================



                                             Preferred stock       Common stock        Additional                       Total
                                             ---------------     ------------------      paid-in      Accumulated    stockholders'
                                             Shares   Amount     Shares      Amount      capital        deficit         deficit
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                 
Balance, June 30, 1999                       61,050   $   61    7,058,998   $  7,059   $ 16,899,123   $(29,242,475)   $(12,336,232)
   Contributed capital                           --       --           --         --        132,195             --         132,195
   Net loss                                                                                      --     (4,499,526)     (4,499,526)
- -----------------------------------------------------------------------------------------------------------------------------------

Balance, June 30, 2000                       61,050   $   61    7,058,998   $  7,059   $ 17,031,318   $(33,742,001)   $(16,703,563)
   Contributed capital                           --       --           --         --        121,500                        121,500
   Net loss                                                                                      --     (3,240,782)     (3,240,782)
- -----------------------------------------------------------------------------------------------------------------------------------

Balance, June 30, 2001                       61,050   $   61    7,058,998   $  7,059   $ 17,152,818    (36,982,783)   $(19,822,845)
- -----------------------------------------------------------------------------------------------------------------------------------

                                   See accompanying notes to Consolidated Financial Statements.








                                                              F-5






                                                                                                DigiTEC 2000, Inc.
                                                                                                    and Subsidiary

                                                                             Consolidated Statements of Cash Flows
==================================================================================================================



                                                                                    For the Years ended June 30,
                                                                                ----------------------------------
                                                                                       2001             2000
- ------------------------------------------------------------------------------------------------------------------
                                                                                             
Cash flows from operating activities:
   Net loss                                                                       $ (3,240,782)    $ (4,499,526)
   Adjustments to reconcile net loss to net cash used in
     operating activities:
        Provision for bad debts - net                                                   84,839         970,657
        Provision for sales returns                                                  1,407,100              --
        Provision for inventory obsolescence                                            51,359              --
        Depreciation                                                                    90,804          61,610
        Amortization of customer lists                                                 166,145          95,414
        Deferred rent                                                                   (6,006)        (60,344)
        Services provided by shareholder                                               121,500         132,195
        (Increase) decrease in:
           Accounts receivable                                                      (1,703,040)      (1,964,235)
           Inventory                                                                  (711,664)        (364,470)
           Prepaid expenses and other                                                 (129,940)         385,038
        Increase (decrease) in:
           Accrued taxes and penalties                                                1,530,827         845,141
           Accounts payable and accrued expenses                                       (507,736)      1,766,132
- -----------------------------------------------------------------------------------------------------------------
              Net cash used in operating activities                                  (2,846,593)     (2,632,388)
- -----------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
   Capital expenditures                                                                (260,133)        (50,637)
- -----------------------------------------------------------------------------------------------------------------
              Net cash used in investing activities                                    (260,133)        (50,637)
- -----------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
   Proceeds from issuance of TecNet notes                                             3,864,487       4,196,548
   Repayment of notes payable and convertible debt                                     (917,000)       (504,425)
- ------------------------------------------------------------------------------------------------------------------
              Net cash provided by financing activities                               2,947,487       3,692,123
- ------------------------------------------------------------------------------------------------------------------
              Net (decrease) increase in cash
                and cash equivalents                                                   (159,239)      1,009,098

Cash and cash equivalents beginning of year                                           1,165,854         156,756
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents end of year                                              $  1,006,615    $  1,165,854
==================================================================================================================



                    See accompanying notes to Consolidated Financial Statements.



                                                F-6



                        DigiTEC 2000, Inc. and Subsidiary
                   Notes to Consolidated Financial Statements
                                  June 30, 2001

1. The Company and Significant Accounting Policies:

(a) Organization of Business

The Company was  organized  as a Nevada  corporation  in May 1987 under the name
Yacht Havens  International Corp, which was subsequently changed in July of 1995
to Promo Tel, Inc.  ("Promo  Tel-Nevada").  In August of 1995,  Promo Tel-Nevada
merged with Promo Tel,  Inc.  ("Promo  Tel-Delaware"),  a Delaware  corporation,
exchanging   1,333,334   shares  of  the  Company's   previously   unissued  and
unregistered  common stock for all of the outstanding  shares of common stock of
Promo  Tel-Delaware.  In October  of 1996,  the  Company  formally  amended  its
Articles  of  Incorporation  to change the legal name of the  Company to DigiTEC
2000, Inc.

(b) Principles of Consolidation

The accompanying  consolidated financial statements,  which include the accounts
of DigiTEC 2000, Inc. (the "Company") and those of its wholly owned  subsidiary,
POS TEC  Systems,  LLC  ("POS  TEC")  have  been  prepared  in  accordance  with
accounting  principles  generally  accepted in the United  States of America and
with the  instructions  to Form  10-K  and  Article  4 of  Regulation  S-X.  All
significant  intercompany  transactions  and balances  have been  eliminated  in
consolidation.

(c) Basis of Presentation

The  accompanying  consolidated  financial  statements have been prepared on the
basis that the Company will continue as a going concern,  which contemplates the
realization of assets and the  satisfaction  of liabilities in the normal course
of business. However, because of the Company's recurring losses from operations,
accumulated  deficit,  negative  working capital and  significant  arrearages on
trade payables,  such  realization of assets and the satisfaction of the related
liabilities are subject to significant  uncertainty.  The consolidated financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

The Company's  ability to continue as a going concern is highly dependent in the
near term on both the  willingness  and ability of TecNet,  Inc.  ("TecNet")  to
finance the  Company's  telecommunications  products  and  services  and working
capital  shortfalls,  and the  ability  of the  Company  and  TecNet to  provide
reliable and  competitive  prepaid  telephone  cards.  However,  there can be no
assurance that TecNet can or will continue to provide such services,  to finance
the current  operations or to provide the Company with bundled  prepaid  calling
cards at comparable rates in future periods. TecNet is a wholly owned subsidiary
of Telephone  Electronics  Corporation  ("TEC") and is a holder of approximately
21% of the  Company's  outstanding  common  stock.  Additionally,  the Company's
overall stability is highly dependent upon its ability to raise working capital,
to increase market share while developing existing markets and improving overall
customer retention,  to achieve profitable operations and to generate sufficient
cash flows from  operating and financing  activities to meet its  obligations as
they become due.  As of June 30, 2001 and through the date of this  reprot,  the
Company is in the process of negotiating  for additional  funding from TecNet to
meet working capital shortfalls.  TecNet ceased funding the Company's operations
during the fourth quarter of the fiscal year ended June 30, 2001.

(d) Nature of Operations

DigiTEC 2000,  Inc. and its wholly owned  subsidiary POS TEC (the "Company") are
primarily  engaged in the  creation,  distribution  and  marketing  of  consumer
prepaid  telephone  calling cards. The Company's prepaid cards provide consumers
with a competitive alternative to the traditional  pre-subscribed  long-distance
telecommunications  services,  credit/calling  cards and  conventional  coin and
other operator assisted  long-distance  services.  The Company currently markets
its  prepaid   products   predominantly   throughout  the  New  York/New  Jersey
metropolitan  area (the "Metro Area").  The Company's  prepaid telephone calling
cards are sold in approximately 100 cities in twenty-nine U.S. states.

                                      F-7



                        DigiTEC 2000, Inc. and Subsidiary
               Notes to Consolidated Financial Statements (Cont.)
                                  June 30, 2001

(e) Revenue Recognition

Sales of bundled prepaid calling cards from third-party  providers for which the
Company acts solely as a distributor are recorded at the sales price of the card
and are  recognized  as revenue upon delivery to the  Company's  customers.  The
related costs are simultaneously charged to the cost of sales accounts upon such
delivery.    These   costs   primarily    include   the   charge   for   related
telecommunications  services from TecNet which amounted to approximately  85% of
the sales price of the cards,  net of discounts  and the  printing  costs of the
underlying calling cards.

Revenue from Point of Sale ("POS")  sales by the Company's  subsidiary  POS TEC,
are recognized upon the initial  activation by the retailer upon the sale of the
underlying  prepaid  calling  card  to the  end  user.  The  related  costs  are
simultaneously  charged  to the  respective  cost of  sales  accounts  upon  the
activation of the card.

The Company provides appropriate provisions for prepaid phone card sales returns
in the same period as the related revenues.

(f) Allowance for Bad Debt

The Company  maintains  an  allowance  for bad debts to  adequately  provide for
estimated future losses due to the overall lack of  collectibility of customers'
accounts.  The recorded  allowances are based on the Company's detailed analysis
of   delinquencies,   assessments  of  overall  risk  related  to  the  entity's
operations, evaluations of probable future losses and historical performance and
the credit  worthiness of certain key customers.  Specific customer accounts are
written off when the probability of a future loss has been established  based on
careful consideration of the customer's financial condition, and after all other
attempts at collection have failed.

(g) Use of Estimates

The  preparation  of  consolidated   financial  statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of contingent  assets and liabilities at the date of the consolidated
financial  statements and the reported  amounts of revenues and expenses  during
the reported periods. Actual results could differ from those estimates.

(h) Cash and Cash Equivalents

For purposes of the consolidated  statement of cash flows, the Company considers
all demand deposits, time deposits and certificates of deposit purchased with an
original maturity of three months or less to be cash equivalents.

(i) Intangible Assets

Intangible  assets  acquired  in  business  combinations  prior to June 30, 2001
accounted for by the purchase method of accounting are capitalized and amortized
over their expected  useful life as a non-cash  charge against future results of
operations.  In connection  with the  acquisition of POS TEC, the Company valued
the underlying customer lists obtained at approximately $285,000 to be amortized
over  the  estimated   useful  lives  of  the  customer  base  acquired,   which
approximates  thirty-six  months.  Amortization  expense related to the customer
lists was approximately $166,000 and $95,000 for the fiscal years ended June 30,
2001 and 2000, respectively.



                                      F-8



                        DigiTEC 2000, Inc. and Subsidiary
               Notes to Consolidated Financial Statements (Cont.)
                                  June 30, 2001

(j) Deferred Rent

The  Company  accounts  for rent on a  straight-line  basis over the term of the
leases.  The  difference  between cash rental  payments and  straight-line  rent
expense for the years ended June 30, 2001, and 2000 was approximately $6,000 and
$60,000, respectively.

(k) Advertising Costs

Costs  incurred for  producing  and  communicating  advertising  are expensed as
incurred.  Advertising  costs charged to current  operations for the years ended
June 30, 2001 and 2000 amounted to $364,000 and $140,000, respectively.

(l) Earnings (Loss) Per Share

The Company presents earnings per share ("EPS") in accordance with SFAS No. 128,
"Earnings per Share." SFAS No. 128 requires the dual  presentation  of basic EPS
and diluted EPS on the face of the statements of operations.  Basic earnings per
share is computed by dividing net loss by the weighted  average number of common
shares outstanding,  and diluted earnings per share is based on net loss divided
by the weighted  average number of common shares  outstanding  together with all
dilutive potential common shares outstanding.  Since the Company incurred losses
for all of the periods  presented,  the dilutive net loss per share has not been
presented due to the fact that the conversion of options, warrants and preferred
stock to Weighted Average Common Shares would be anti-dilutive.  Therefore there
is no difference between basic and diluted earnings per share.

(m) Fair Value of Financial Instruments

The  carrying  value of  financial  instruments,  which  includes  cash and cash
equivalents,  accounts receivable, accounts payable and accrued liabilities, and
notes payable,  at June 30, 2001 approximates fair value as of such date, due to
the relatively  short-term  maturity of such  instruments  and the fact that the
underlying interest rates approximate current market rates of interest.

(n) Reclassifications

Certain  consolidated  financial  statement amounts as previously  reported have
been reclassified for consistent presentation.

(o) Recent Accounting Pronouncements

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities," as amended by SFAS Nos. 137 and 138, which
requires  companies to recognize all  derivatives  contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. SFAS No. 133
requires that changes in the derivatives  fair value be recognized  currently in
earnings unless specific hedge accounting  criteria are met. Special  accounting
for qualifying  hedges allow a  derivative's  gains and losses to offset related
results of  operations  in the income  statement,  and  requires  the Company to
formally  document,   designate,   and  assess  the  overall   effectiveness  of
transactions  that receive hedge accounting.  Historically,  the Company has not
entered  into  derivative  contracts  either  to  hedge  existing  risks  or for
speculative  purposes.  The adoption of the statement by the Company,  effective
July 1,  2000,  did not have a  material  effect on the  Company's  consolidated
results of operations or financial position.

In June 2001, the FASB issued SFAS No. 141 "Business  Combinations" and SFAS No.
142,  "Goodwill and Other Intangible  Assets." SFAS No. 141 is effective for all
business  combinations  initiated after June 30, 2001. SFAS No. 141 will require
companies to recognize acquired  identifiable  intangible assets separately from
goodwill if control over the future economic  benefits of the asset results from
contractual  or other legal rights or the  intangible  asset is capable of being
separated or divided and sold, transferred,  licensed,  rented or exchanged. The
Standards will require the value of a separately  identifiable  intangible asset


                                      F-9



                        DigiTEC 2000, Inc. and Subsidiary
               Notes to Consolidated Financial Statements (Cont.)
                                  June 30, 2001


meeting any of the above  criteria  to be  measured at fair value.  SFAS No. 142
requires  companies  to cease  amortizing  goodwill  acquired  through  business
combinations.  However,  SFAS No. 142 requires that  companies  assess  acquired
goodwill for impairment  upon adoption of the statement,  and at least annually,
at the  lowest  individual  reporting  unit  level  that  can be  distinguished,
physically and operationally,  for internal reporting  purposes,  from the other
activities, operations, and assets of the entity, utilizing a two-step approach.
The  Company  expects to  implement  SFAS No. 142  effective  July 1, 2002,  and
believes  that such  adoption  will not have a material  effect on the Company's
results of operations or financial position.

In August 2001, the FASB issued SFAS No. 143  "Accounting  for Asset  Retirement
Obligations".  SFAS No. 143  addresses  financial  accounting  and reporting for
obligations  and costs  associated  with the  retirement of tangible  long-lived
assets.  The Company is required to implement  SFAS No.143 on July 1, 2002,  and
has not yet  determined  the impact that this statement will have on its results
of operations or financial position.

In October 2001, the FASB issued SFAS No. 144  "Accounting for the Impairment or
Disposal of Long-Lived  Assets".  SFAS No. 144 replaces SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" and establishes  accounting and reporting standards for long-lived assets to
be  disposed  of by  sale.  This  standard  applies  to all  long-lived  assets,
including  discontinued  operations.  SFAS No. 144 requires that those assets be
measured at the lower of carrying  amount or fair value less cost to sell.  SFAS
No. 144 also  broadens the reporting of  discontinued  operations to include all
components of an entity with operations that can be distinguished  from the rest
of the entity that will be eliminated from the ongoing  operations of the entity
in a disposal transaction.  The Company is required to implement SFAS No. 144 on
July 1, 2002,  and has not yet  determined  the impact that this  statement will
have on its results of operations or financial position.

In September 2000, the Emerging Issues Task Force ("EITF") of the FASB reached a
final  consensus on Issue No. 00-10,  "Accounting for Shipping and Handling Fees
and  Costs".  EITF 00-10 is  effective  for fiscal year 2001 and  addresses  the
income statement classification of amounts charged to customers for shipping and
handling,  as well as costs  incurred  related to  shipping  and  handling.  The
Company  classifies  shipping and handling costs billed to customers as revenues
and costs incurred relating to shipping and handling as costs of sales, which is
in accordance with the consensus in EITF 00-10.

In  December  1999,  Staff  Accounting   Bulletin  ("SAB")  No.  101,   "Revenue
Recognition  in Financial  Statements",  was issued.  SAB No. 101 summarizes the
Securities  and  Exchange   Commission's  staff  views  on  applying  accounting
principles  generally  accepted  in the  United  States of  America  to  revenue
recognition.  The  implementation  of SAB No. 101,  during the fourth quarter of
fiscal year 2001, by the Company did not have a material effect on the Company's
results of operations or financial position.

(p) Disclosures Regarding Concentrations

Financial  instruments,  which  potentially  subject the Company to credit risk,
consist primarily of balances in excess of FDIC coverage and trade  receivables.
Cash  balances  on  deposit  are  placed  with  high  credit-quality   financial
institutions. Although cash balances on deposit may from time to time exceed the
FDIC limits of coverage, the Company believes that no significant  concentration
of credit risk exists  with  respect to its cash  deposits as of the date of the
consolidated balance sheet.

Trade  receivables  subject  the  Company to the  potential  for credit risk and
business  concentration  risk. The Company extends credit to customers generally
on an unsecured  basis in the normal  course of business,  and performs  ongoing
evaluations of its customers'  financial condition to help reduce overall credit
risk.  Allowances  are  maintained  for  potential  credit  losses.  The Company
believes  that the  credit  risks  are  moderated  because  of the  geographical


                                      F-10



                        DigiTEC 2000, Inc. and Subsidiary
               Notes to Consolidated Financial Statements (Cont.)
                                  June 30, 2001


dispersion of its target market, its utilization of a master retail distribution
and the realized (and forecasted) growth in new markets within the United States
and Mexico.

During fiscal years ended June 30, 2001 and 2000, respectively,  the Company had
the  following   significant   customers   which  accounted  for  the  following
percentages of overall operating revenues and trade receivables:



                                             Operating Revenues        Trade Receivables
                                           $ Amount    Percentage   $ Amount    Percentage
                                                                        
2001
Touch Tell Communications                 $18,003,482      36%     $ 1,061,823      33%
Telecard Marketing Group, Inc.             14,091,366      28%       1,527,891      49%
Velocity Communications                     3,740,689       7%         390,803       2%

2000
Telecard Marketing Group, Inc.            $5,736,112       42%     $  618,015       39%
Central Jersey Telecard Company, Inc.        428,838        3%        378,838       24%
Touch Tell Communications                    648,648        5%        161,221       10%



No other customer  accounted for more than 10% of sales or outstanding  accounts
receivable.

The Company is wholly dependent on both the willingness and ability of TecNet to
finance the Company's  prepaid  telecommunications  products and services and to
provide reliable and competitive prepaid telephone cards. Since the commencement
of operations in March 1999,  TecNet has been the sole service  provider for the
bundled  prepaid  calling  cards sold by the  Company  and the sole  carrier for
carrying the traffic and processing the minutes  relating to the prepaid calling
cards.  However,  there can be no assurance  that TecNet can or will continue to
provide such  services or to provide the Company with  bundled  prepaid  calling
cards at comparable rates in future periods.

(q) Property and Equipment

Property and equipment are recorded at cost. Maintenance and repairs are charged
against income, while major replacements are capitalized.  As assets are retired
or otherwise  disposed  of, the costs of the assets and the related  accumulated
depreciation   are  removed  from  the  respective   general   ledger   accounts
accordingly,  and any resulting  gains or losses are reflected in the results of
operations.

Depreciation  is calculated  on the  underlying  assets using the  straight-line
method over their estimated useful lives as follows:

        Furniture and fixtures      -       5 Years
        Computer equipment          -       3 Years
        Computer software           -       2 Years
        Vehicles                    -       5 Years

The major classes of property and equipment at June 30, 2001 is as follows:

         ==========================================
         Computer equipment                $303,818
         Furniture and fixtures             187,871
         Computer software                   16,541
         Vehicles                            21,413
         Construction in progress            19,600
         ------------------------------------------
         Property and equipment             549,243
         Less: Accumulated depreciation     256,544
         ------------------------------------------
         Property and equipment, net       $292,699
         ==========================================


                                      F-11



                        DigiTEC 2000, Inc. and Subsidiary
               Notes to Consolidated Financial Statements (Cont.)
                                  June 30, 2001


Depreciation   expense   for  the  years  ended  June  30,  2001  and  2000  was
approximately $91,000 and $62,000, respectively.

(r) Inventory

Inventory consists  primarily of unactivated  prepaid cards and is stated at the
lower of cost or market,  cost being  determined  substantially on the first-in,
first-out (FIFO) basis and market determined on the basis of replacement cost or
net realizable value.

(s) Segment Disclosures

The Company adopted SFAS No. 131,  "Disclosures  about Segments of an Enterprise
and  Related  Information"  in the  prior  fiscal  year.  SFAS  131  established
standards  for  the  way  that  public  business  enterprises  report  financial
information  on  operating  business  segments.  As the  Company  has  only  one
reportable business segment, prepaid  telecommunications  services, the adoption
and  implementation  of  the  disclosure  and  reporting  requirements  did  not
significantly  affect the  presentation of the results of operation or financial
position of the Company.

(t) Stock Based Compensation

The Company  accounts for stock options issued to employees  using the intrinsic
value methodology  prescribed in Accounting Principles Board ("APB") Opinion No.
25,  "Accounting for Stock Issued to Employees," and related  Interpretations in
accounting for their stock option plans.  Compensation expense for stock options
issued to employees is measured as the excess of the quoted  market price of the
Company's  stock at the date of grant  over the amount an  employee  must pay to
acquire the underlying shares of stock.

SFAS No. 123, "Accounting for Stock Based Compensation," requires the Company to
provide pro-forma  information regarding net income and earnings per share as if
compensation  cost for the Company's  stock option plans had been  determined in
accordance  with  the fair  value  methodology  prescribed  by SFAS  123.  These
disclosures are presented within Note 5.

(u) Lease Acquisition Costs

Lease  acquisition  costs  are  recorded  at cost and  amortized  utilizing  the
straight-line  methodology.  The  Company  has  elected  to  amortize  the lease
acquisition  costs  discussed  in Note  4(a)  over  the  respective  term of the
sublease agreement in accordance with SFAS No. 98, "Accounting for Leases."

(v) Long-Lived Assets

The  Company  periodically  evaluates  the  carrying  amounts of its  long-loved
assets,  as  well  as the  related  amortization  periods,  in  accordance  with
Financial  Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 121,  "Accounting for the Impairment of Long-Lived Assets
and Long-Lived  Assets to be Disposed Of". The purpose of such  evaluation is to
determine  whether  adjustments  to these  amounts or useful  lives are required
based on current events and circumstances that indicate that the carrying values
of  such  assets  may  be  impaired.  The  impairment  evaluation  is  based  on
management's  intention  with respect to the acquired  assets and the  Company's
projection  of the  undiscounted  future  operating  cash flows  expected  to be
generated by such  assets.  Impairment,  if any,  exists to the extent that such
projections  indicate that future  undiscounted cash flows are not sufficient to
recover the  carrying  amounts of the related  customer  lists.  The  underlying
assets are written  down by charges to  operating  expense so that the  carrying
amount is equal to fair value,  primarily  determined based on future discounted
cash flows.

2. Related Party Transactions:

During September 1998, the Company issued $1,200,000 of 10% six-month promissory
notes to  officers/directors of the Company and immediate family members of such
parties,  which  were  subsequently  exchanged  in May  1999  for  10%  two-year
convertible  promissory  notes.  During the fiscal years ended June 30, 2001 and
2000,  the Company  paid  $900,000  and  $300,000,  respectively,  in  scheduled
principal payments on the convertible promissory notes.


                                      F-12



                        DigiTEC 2000, Inc. and Subsidiary
               Notes to Consolidated Financial Statements (Cont.)
                                  June 30, 2001


In October of 1998,  the Company  borrowed  $100,000  from an  immediate  family
member of an officer/director of the Company. During the fiscal years ended June
30, 2001 and 2000,  the Company paid $17,000 and $83,000 in scheduled  principal
payments.

Effective  January  1999,  the  Company's  two  executive  officers  agreed to a
deferral  of 50% of  their  base  salaries  under  their  respective  employment
agreements (which expired June 30, 2000) until such time as the Company was able
to generate  positive cash flows from operations.  Approximately  $47,000 of the
deferred  compensation  was paid during the fiscal year ended June 30, 2001, and
the  outstanding  balance of $313,000 is included within  "Accounts  payable and
accrued expenses" at year-end.

In November 1998 the Company reached a verbal agreement with TecNet to carry the
remaining unprocessed minutes on the Company's  facilities-based debit cards. In
February of 1999, the Company began funding its operating shortfalls through the
issuance of demand promissory notes to TecNet bearing an annual interest rate of
10%.  Subsequently,  in the fourth quarter of 1999, the Company reached a verbal
agreement  with TecNet  whereby TecNet would become the sole provider of bundled
prepaid  calling card  services to the Company and the sole carrier for carrying
the traffic and  processing  the minutes  related to the prepaid  calling cards.
TecNet provided  approximately $43.8 million in telecommunications  services for
the fiscal year ended June 30, 2001. In addition,  TecNet provided approximately
$122,000 and $133,000 of consulting and  administrative  services to the Company
during the fiscal years ended June 30, 2001 and 2000,  respectively,  which have
been accounted for as capital contributions.

The following presents the detail of the payable to TecNet at June 30, 2001:

       Demand notes payable                          $ 9,683,450
       Payable for bundled phone cards                 3,327,270
       Payable for telecommunication services          4,391,190
       Accrued interest                                1,200,883
                                                     ===========
                                                     $18,602,793
                                                     ===========

3. Preferred Stock:

On March 31,  1998,  the  Company  entered  into an  Investment  Agreement  with
Premiere  Communications,  Inc.  ("Premiere")in  which Premiere  received 61,050
shares of $.001 par value voting Series A Preferred  Stock in full  satisfaction
of the  outstanding  accounts  payable balance at March 31, 1998. The $6,105,000
consisted of  approximately  $3,236,000  attributed to various charges and costs
incurred  in the normal  course of  business  with  Premiere  and  approximately
$2,869,000 of charges relating to excess minutes  processed by Premiere on cards
previously sold.

4. Commitments and Contingencies:

(a) Leases

During  February  2001,  the  Company  entered  into a sublease  agreement  with
Mayflower  Agency Co.,  Inc. for the lease of office space located at 99 Madison
Avenue,  New York,  New York,  which expires on December 31, 2002. In connection
with the sublease  agreement  noted above,  the Company  incurred  approximately
$175,000  of lease  acquisition  costs,  primarily  related to the buyout of the
original lessor's interest under bankruptcy  proceedings,  which the Company has
elected to amortize  over the remaining  lease term.  Rent expense for the years
ended  June  30,  2001  and  2000  was  approximately   $378,000  and  $348,000,
respectively.   Future   minimum   rentals  as  of  June  30,   2001  under  all
noncancellable operating leases are:

        Fiscal year ending June 30, 2002            $112,500
        Fiscal year ending June 30, 2003              56,250
                                                    --------

                                                    $168,750
                                                    ========

                                      F-13



                        DigiTEC 2000, Inc. and Subsidiary
               Notes to Consolidated Financial Statements (Cont.)
                                  June 30, 2001


(b) Contingencies

In June, 1998, the Company was served in an action entitled  Michael Bodian,  as
Chapter 11 Trustee of Communications  Network Corp. a/k/a Conetco ("Conetco") v.
DigiTEC 2000,Inc.  f/k/a Promo Tel. Inc.,  Bankruptcy Case No. 96-B-53504 (PCB),
Adv.  Proc.  No.  98-8621-A,  pending in the  United  States  Bankruptcy  Court,
Southern District of New York, wherein the plaintiff alleges that a preferential
payment or fraudulent transfer in the amount of $150,800 was made to the Company
by Magic  Communications,  Inc. ("Magic"),  an affiliate of Conetco.  Conetco, a
reseller of long distance  telecommunications  services  which it purchased from
WorldCom  Network  Services  ("WorldCom"),  sold prepaid  telephone  debit cards
through Magic which acted as its master sales agent.  After WorldCom  terminated
Conetco's  access to its long distance  network because of Conetco's  failure to
pay its outstanding balance, the debit cards became inoperable.  Conetco alleges
that a "refund"  of  $150,800  in the form of a credit was given by Magic to the
Company as a result of cash refunds that the Company had given to its  customers
on account of returned  debit  cards.  An answer  asserting  numerous  defenses,
including  that the Company  never  received the "refund" in question,  has been
filed on behalf of the Company.  Management  believes such  litigation  will not
have a material  adverse  effect on the  financial  condition  or the results of
operations of the Company.

On March 18, 1999,  in the Supreme Court of the State of New York for the County
of Kings, the Weeks-Lerman Group, LLC ("Weeks-Lerman")  brought suit against the
Company  alleging  that it provided  the Company  with work,  labor and services
and/or sold and  delivered  goods to the Company in the amount of  approximately
$76,000.  The Company  negotiated and satisfied a settlement  with  Weeks-Lerman
during the third quarter of fiscal 2001 for approximately $41,000.

On October 20, 1999,  Union Telecard  Alliance LLC ("Union") filed suit entitled
Union Telecard  Alliance LLC v DigiTEC 2000, Inc.,  TecNet Inc. in Supreme Court
of the State of New  York,  New York  County  against  the  Company  to  recover
approximately  $600,000 for cards sold to the Company.  In February of 2000, the
Company  filed  its  answer  along  with a  third-party  complaint  against  IDT
Corporation,  the majority  owner of Union,  for $2.5  million.  Presently,  the
Company is  exploring  settlement  possibilities  with both  Union and IDT.  The
Company is not in a position to express an opinion as to the probable outcome of
this matter.

(c) Regulatory Requirements

The Company is currently evaluating various tax and other regulatory assessments
to determine  their  overall  applicability  to its current  operations.  As the
Company's  operations  continue to expand,  the  Company  may become  subject to
additional tariffs and both state and federal regulatory  charges. In connection
with a verbal  agreement  with TecNet  entered into during fiscal year 2001, the
Company is  responsible  for filing and remitting  excise taxes on prepaid phone
card sales.  During the fiscal  year ended June 30,  2001,  the Company  accrued
approximately $2,260,000 for current year federal excise taxes and approximately
$453,000 in related  penalties/interest  on outstanding  balances owed under the
applicable quarterly federal excise tax returns.  Additionally, the Company made
approximately $995,000 in payments for federal excise taxes during fiscal 2001.

5. Stockholders' Equity:

(a) Series A Convertible Preferred Stock

The outstanding  Series A Preferred Stock is convertible  into 731,462 shares of
the Company's  common stock at the conversion  rate of 11.9814 common shares for
each  preferred   share.  The  Certificate  of  Designation  for  the  Series  A
Convertible  Preferred  Stock  provides  for  certain  voting,  liquidation  and
registration  rights for the holder. The Company may call the redemption of each
share of  Series A  Convertible  Preferred  Stock at any time for $100 per share
plus applicable accrued dividends, if any.


                                      F-14



                        DigiTEC 2000, Inc. and Subsidiary
               Notes to Consolidated Financial Statements (Cont.)
                                  June 30, 2001


(b) Stock Options and Warrants

In 1998, the Company's  stockholders approved the Company's stock incentive plan
which provides for the granting of up to 1,600,000  shares of Common Stock.  The
plan has reserved authorized,  but unissued, shares of Common Stock for issuance
of both Qualified Stock Options and Non-Qualified Stock Options to employees and
directors of the Company.  The Company  calculated  the fair value of each stock
option  and  stock  warrant  at  the  grant  date  utilizing  the  Black-Scholes
option-pricing model.

A summary of stock option  activity under the Company's  stock option plan is as
follows:

                                                                Weighted Average
                                                  Shares         Exercise Price
                                                 ---------      ----------------

Outstanding at June 30, 1999:                      876,944              11.54
        Granted                                         --                 --
        Exercised                                       --                 --
        Canceled                                        --                 --
        Forfeited                                       --                 --
                                                 ---------        -----------
Outstanding at June 30, 2000:                      876,944        $     11.54
          Granted                                       --                 --
        Exercised                                       --                 --
        Canceled                                        --                 --
        Forfeited                                       --                 --
                                                 ---------        -----------
Outstanding at June 30, 2001:                      876,944        $     11.54
================================================================================


The  following  table  summarizes  the status of stock options  outstanding  and
exerciseable at June 30, 2001:

                                          Stock Options Outstanding
                                          -------------------------

                                Total Number   Weighted-Average     Total Number
                                 Of Options        Remaining          of Options
                                Outstanding    Contractual Life     Exerciseable
                                ------------------------------------------------
Exercise Price
- --------------

  $ 8.19                          200,000             6.68             200,000
  $ 8.25                          100,000             6.91             100,000
  $12.25                          200,000             6.26             200,000
  $13.00                           44,444              .10              44,444
  $13.20                          145,000             6.01             145,000
  $14.50                          187,500             5.77             187,500
                                  -------                              -------

                                  876,944                              876,944
                                  =======                              =======


                                      F-15



                        DigiTEC 2000, Inc. and Subsidiary
               Notes to Consolidated Financial Statements (Cont.)
                                  June 30, 2001


Under the  accounting  provisions of SFAS No. 123,  there were no adjustments to
the  Company's  net loss and net loss per share  from  operations  for the years
ended June 30, 2001 and 2000, respectively.

The following  table contains  information  on warrants for the two-year  period
ended June 30, 2001:
                                                                      Weighted
                                                                       average
                                    Warrant        Exercise price     exercise
                                    shares         range per share      price
- ------------------------------------------------------------------------------
Outstanding and exercisable,       3,133,334       $ 1.10 - 13.200   $   6.250
  June 30, 1999
Exercised                                 --       $            --   $      --
Expired                                   --       $            --   $      --
Granted                                   --       $            --   $      --
Exchanged                                 --       $            --   $      --
- ------------------------------------------------------------------------------
Outstanding and exercisable,       3,133,334       $ 1.10 - 13.200   $   6.250
  June 30, 2000
Exercised                                 --       $            --   $      --
Expired                           (1,333,334)      $         13.20   $   13.20
Granted                                   --       $            --   $      --
Exchanged                                 --       $            --   $      --
- ------------------------------------------------------------------------------
Outstanding and exercisable,
  June 30, 2001                    1,800,000       $         1.100   $   1.100
==============================================================================

The  weighted  average  remaining   contractual  life  of  the  outstanding  and
exercisable warrants as of June 30, 2001 is 2.84 years.

6. Net Loss Per Share:

The following  table set forth the computation of basic and diluted net loss per
common share from continuing operations:

Year ended June 30,                      2001          2000
- -----------------------------------------------------------------
Numerator:
   Net loss from continuing
      operations available to
      common shareholders           $ (3,240,782)  $(4,449,526)
- -----------------------------------------------------------------

Denominator:
   Denominator for basic and
      diluted earnings (loss) per
      share - weighted average
      common shares outstanding        7,058,998      7,058,998

=================================================================
Basic and diluted loss per common
   share - continuing operations    $      (0.46)  $      (0.64)
=================================================================

7. Income Taxes:

The Company had no federal or state  income tax expense for the years ended June
30, 2001 and 2000 as a result of net losses.

Income taxes are accounted for under the asset and  liability  method.  Deferred
tax assets  and  liabilities  are  recognized  for the  future tax  consequences
attributable to differences  between the financial statement carrying amounts of


                                      F-16



                        DigiTEC 2000, Inc. and Subsidiary
               Notes to Consolidated Financial Statements (Cont.)
                                  June 30, 2001


existing  assets and  liabilities  and their  respective tax bases and operating
loss and tax credit  carryforwards.  Deferred  tax assets  and  liabilities  are
measured  using  enacted tax rates  expected  to apply to taxable  income in the
years in which those  temporary  differences  are  expected to be  recovered  or
settled. The ultimate realization of the deferred tax assets is dependent on the
generation  of future  taxable  income  during the period in which the temporary
differences  become  deductible.  Based on the Company's  historical  results of
operations,  management has established a valuation allowance for the portion of
the  deferred  tax assets for which it is more  likely than not that the benefit
will not be realized.

The  components of the Company's  recorded  deferred tax assets at June 30, 2001
are as follows:


Net operating loss carryforwards                                  $  13,151,000
Allowance for doubtful accounts                                         894,000
Intangible assets                                                       315,000
Accrued taxes                                                         1,022,000
Allowance for sales returns                                             183,000
Officer/Director's compensation                                         147,000
Other                                                                    27,000
                                                                  --------------
                                                                  $  15,739,000
Valuation allowance for deferred tax assets                         (15,739,000)
                                                                  --------------

Net deferred tax asset                                            $           -
                                                                  ==============

The net operating loss  carryforwards of  approximately  $29,000,000 at June 30,
2001 are available to offset future Federal taxable income,  if any, and expires
in various years through 2020.  There may be some  limitations on the use of the
net  operating  loss  carryforwards  under  Internal  Revenue  Code  Section 382
ownership change rules.

8. Unaudited Quarterly Financial Data:



                                                       Quarter Ended

                                       September 30,                   December 31,
                                   2000            1999            2000            1999
                               ==============================================================
                                                                   
Net sales                      $ 8,874,653     $ 2,887,504     $14,496,022     $ 3,331,102

Gross profit                     1,076,157         715,524       2,015,224         445,530

Net loss                        (1,001,790)      (666,119)        (308,143)     (1,464,305)

Net loss per share                   (0.14)         (0.09)           (0.04)          (0.21)

                                                       Quarter Ended

                                        March 31,                      June 30,
                                  2001          2000            2001            2000
                               ===========================================================

Net sales                      $14,980,322     $ 3,314,592     $11,958,226    $ 4,199,921

Gross profit                     1,936,835         152,215         903,536        277,104

Net loss                          (158,149)     (1,359,608)     (1,772,700)    (1,009,494)

Net loss per share                   (0.02)          (0.19)          (0.26)         (0.15)




                                      F-17



                        DigiTEC 2000, Inc. and Subsidiary
               Notes to Consolidated Financial Statements (Cont.)
                                  June 30, 2001


9.  Supplemental Cash Flow Information

Cash  paid for  interest  during  the  years  ended  June 30,  2001 and 2000 was
approximately $61,000 and $209,000, respectively.


10.  Subsequent Events:

a.  On July 3, 2001, the Board of Directors of DigiTEC decided to reorganize the
POS TEC from an LLC to a Chapter C  corporation  to enable  the POS TEC to raise
additional   capital  from  other   investors.   DigiTEC  formed  a  new  Nevada
corporation, Everything Prepaid, Inc. ("EP").

EP was  organized  with  authorized  capital of  10,000,000  of common stock and
1,000,000  of  preferred  stock  with all shares  having a $.01 par  value.  The
preferred  stock  may be  issued  with  such  relative  rights,  privileges  and
qualifications  as determined by EP's Board of Directors.  Upon its organization
EP issued 1,000  shares of its common  stock to DigiTEC for $1,000.  POS TEC was
then merged into EP with DigiTEC  receiving  99,000 shares of EP's common stock.
At the time of the  merger,  DigiTEC  and  TecNet,  Inc.  each agreed to convert
certain  intercompany  debt and trade  payables  of POS TEC assumed by EP in the
Merger  into  shares of EP's common  stock at $1.00 per share  resulting  in the
issuance of 911,427 shares to TecNet, Inc. and 988,573 shares to DigiTEC.

On  September  27,  2001 and after  unsuccessful  attempts  to raise  additional
capital for EP, DigiTEC concluded that it was unable to assist or participate in
the further  necessary  financing of EP and approved a  transaction  in which an
aggregate of  8,000,000  shares of EP's common stock were sold at $.25 per share
for total  proceeds of $2,000,000.  The  purchasers of this stock  include:  (i)
Telephone  Electronics  Corporation  (TEC), a principal  shareholder of DigiTEC;
(ii) TecNet,  Inc.,  a wholly owned  subsidiary  of TEC;  (iii)  persons who are
principals or associates of TEC or TecNet,  Inc.; (iv) affiliates of EP; and (v)
the President of DigiTEC.

b.   TecNet   continues   to  provide   consulting   services,   financing   and
telecommunications  support.  The Company has  continued to be financed  through
advances  from its joint  customer  deposit  account with TecNet,  Inc. with the
acquiescence  of TecNet,  Inc. As there is no formalized  agreement  between the
parties,  there can be no  assurance  that TecNet will  continue to provide such
services,  to finance the  current  operations  or to provide  the Company  with
bundled prepaid calling cards at comparable rates in future periods.

c. On January 11, 2002,  the Company's  Board of Directors  accepted an informal
verbal  offer  from  TecNet  and/or  a  group  of its  associates  to loan up to
$1,200,000  to the Company.  The terms of the proposed loan call for the payment
of interest only for 12 months with  amortization of the loan over the following
36 months to be  secured by the  Company's  accounts  receivable  and such other
terms as are negotiated between the parties. Pending completion of the loan, the
Company  will  have to rely upon  additional  advances  from the joint  customer
deposit account.


                                      F-18




                                                                                          DigiTEC 2000, Inc.
                                                                                              and Subsidiary

                                                             Schedule II - Valuation and Qualifying Accounts
============================================================================================================
                                  Balance at     Charged to                                      Balance at
                                  beginning      costs and         Other                           end of
                                  of period       expenses        charges        Deductions(1)     period
============================================================================================================
Year ended June 30, 2001
- ------------------------------------------------------------------------------------------------------------
                                                                                  
Reserves and allowances deducted from asset accounts:
    Allowance for bad debts      $1,817,657      $  306,976       $       --      $  222,137     $1,902,496
    Allowance for prepaid card
      inventory obsolescence     $       --      $   51,359       $       --      $       --     $   51,359

Reserves and allowances not deducted from asset accounts:
    Allowance for sales returns  $       --      $1,407,100       $       --      $       --     $1,407,100
============================================================================================================
Year ended June 30, 2000
- ------------------------------------------------------------------------------------------------------------
Reserves and allowances deducted from asset accounts:
    Allowance for bad debts      $  847,000      $1,025,000       $       --      $   54,343      $1,817,657
============================================================================================================


(1) Amount  represents  write-offs of customer accounts  receivable  against the
allowance for bad debt reserve account.






                                                    S-1



Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this  Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, in New York,
New York on January 21, 2002.

                                    DIGITEC 2000, INC.


                                    /s/ Frank C. Magliato
                                    --------------------------------------------
                                        Frank C. Magliato
                                        President, Chief Executive Officer,
                                        Chairman of the Board of Directors and
                                        Chief Financial Officer

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 on behalf of the
Registrant in the capacities and on the dates indicated.

       Signature                       Title                        Date
       ---------                       -----                        ----

/s/ Frank C. Magliato         President and Chief             January 21, 2002
- ------------------------      Executive Officer,
Frank C. Magliato             Chairman of the
                              Board of Directors and
                              Chief Financial Officer


/s/ Diego E. Roca             Senior Vice President,          January 21, 2002
- ------------------------      Chief Accounting Officer,
Diego E. Roca                 Secretary Treasurer and
                              Director


/s/ Francis J. Calcagno       Director                        January 21, 2002
- ------------------------
Francis J. Calcagno


/s/ Lori Ann Perri            Director                        January 21, 2002
- ------------------------
Lori Ann Perri


/s/ Cloyce C. Clark, Jr.      Director                        January 21, 2002
- ------------------------
Cloyce C. Clark, Jr.




                                       27