At June 30, 2009, current liabilities exceed current assets by $2,141,832. The Company does not have a line of credit or credit facility to serve as an additional source of liquidity. Historically the Company has relied on shareholder loans as an additional source of funds. The Company is in default on various loans (see Note 9. Notes Payable). These factors raise substantial doubts about the Company's ability to continue as a going concern.

During September 2005, the Company received an invoice from AT&T (formerly SBC) of approximately $230,000 for services alleged to have been rendered to it between June 1, 2004 and June 30, 2005. Since then, the Company has received a number of additional invoices from AT&T which cover services through February 2007 and total approximately $7,970,000. AT&T then stopped invoicing the Company for these monthly services and simply sent monthly Inter Company Billing Statements reflecting the balance of approximately $7,970,000 with no further additions. The last Inter Company Billing Statement received by the Company was dated December 15, 2007 and reflected a balance of approximately $7,970,000. The alleged services were eventually identified by AT&T as Switched Access services. The Company formally notified AT&T in writing that it disputes these invoices and requested that AT&T withdraw and/or credit all of these invoices in full. AT&T has not responded to the Company's written dispute. The Company believes AT&T has no basis for these charges. Therefore, the Company has not recorded any expense or liability related to these billings. An adverse outcome regarding this claim could have a materially adverse effect on the Company's ability to continue as a going concern.

The ability of the Company to continue as a going concern is dependent upon continued operations of the Company that in turn is dependent upon the Company's ability to meet its financing requirements on a continuing basis, to maintain present financing, to achieve the objectives of its business plan and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

The Company's business plan includes, among other things, expansion of its Internet access services through mergers and acquisitions and the development of its web hosting, co-location, and traditional telephone services. Execution of the Company's business plan will require significant capital to fund capital expenditures, working capital needs and debt service. Current cash balances will not be sufficient to fund the Company's current business plan beyond the next few months. As a consequence, the Company is currently focusing on revenue enhancement and cost cutting opportunities as well as working to sell non-core assets and to extend vendor payment terms. The Company continues to seek additional convertible debt or equity financing as well as the placement of a credit facility to fund the Company's liquidity. There can be no assurance that the Company will be able to raise additional capital on satisfactory terms or at all.

3. USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures; accordingly, actual results could differ from those estimates.

4. LOSS PER SHARE

Loss per share - basic is calculated by dividing net loss by the weighted average number of shares of stock outstanding during the period, including shares issuable without additional consideration. Loss per share - assuming dilution is calculated by dividing net loss by the weighted average number of shares outstanding during the period adjusted for the effect of dilutive potential shares calculated using the treasury stock method.

                                                Three Months Ended                         Six Months Ended
                                        June 30, 2009        June 30, 2008        June 30, 2009        June 30, 2008
Numerator:
Net loss                               $       (84,436 )    $       (88,525 )    $      (183,355 )    $      (197,476 )
Denominator:
Weighted average shares outstanding
- basic                                      7,425,565            7,425,565            7,425,565            7,147,991
Effect of dilutive stock options                     -                    -                    -                    -
Effect of dilutive warrants                          -                    -                    -                    -

Weighted average shares outstanding
- assuming dilution                          7,425,565            7,425,565            7,425,565            7,147,991


Net loss per share - basic             $          (.01 )    $          (.01 )    $          (.02 )    $          (.03 )

Net loss per share - assuming
dilution                               $          (.01 )    $          (.01 )    $          (.02 )    $          (.03 )

Basic and diluted loss per share was the same for the three and six months ended June 30, 2009 and 2008 because there was a net loss for each period.

5.   ACCOUNTS RECEIVABLE


    Accounts receivable consist of the following:



                                            June 30, 2009       December 31, 2008

    Accounts receivable                    $       199,891     $           198,958
    Less allowance for doubtful accounts          (187,344 )              (187,640 )


                                           $        12,547     $            11,318

6.   PROPERTY AND EQUIPMENT

     Property and equipment consist of the following:



                                        June 30, 2009       December 31, 2008

       Computers and equipment         $     1,473,056     $         1,470,952

       Leasehold improvements                  966,915                 966,915

       Software                                 57,337                  57,337

       Furniture and fixtures                   28,521                  28,521


                                             2,525,829               2,523,725

       Less accumulated depreciation        (2,309,384 )            (2,199,498 )


                                       $       216,445     $           324,227

Depreciation expense for the three months ended June 30, 2009 and 2008 was $54,884 and $57,188, respectively. Depreciation expense for the six months ended June 30, 2009 and 2008 was $109,886 and $120,902, respectively.

7. INTANGIBLE ASSETS

Intangible assets consist primarily of acquired customer bases and covenants not to compete and are carried net of accumulated amortization. Upon initial application of Statement of Financial Accounting Standard ("SFAS") No. 142, Goodwill and Intangible Assets, as of January 1, 2002, the Company reassessed useful lives and began amortizing these intangible assets over their estimated useful lives and in direct relation to any decreases in the acquired customer bases to which they relate. Management believes that such amortization reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used.

Amortization expense for the three months ended June 30, 2009 and 2008 relating to intangible assets was $2,788 and $4,124, respectively. Amortization expense for the six months ended June 30, 2009 and 2008 relating to intangible assets was $5,993 and $8,904, respectively.

8.   ACCRUED AND OTHER CURRENT LIABILITIES

     Accrued and other current liabilities consist of the following:



                                        June 30, 2009       December 31, 2008

       Accrued interest                $       498,214     $           456,737
       Accrued deferred compensation           626,270                 567,305
       Accrued other liabilities               188,205                 192,645


                                       $     1,312,689     $         1,216,687

9.   NOTES PAYABLE

     Notes payable consist of the following:



                                                              June 30, 2009        December 31, 2008
Interim loan from a shareholder, interest at 10%,
requires payments equal to 50% of the net proceeds
received by the Company from its private placement of
convertible promissory notes, matured December 2001;
unsecured (1)                                                $       293,400      $           293,900

Convertible promissory notes; interest at 12.5% of face
amount, payable quarterly; these notes are unsecured and
matured at December 31, 2006 (convertible into
approximately 1,003,659 shares at June 30, 2009 and
December 31, 2008) (2)                                               510,636                  510,636


                                                                     804,036                  804,536


Less current portion                                                 573,936                  557,036


                                                             $       230,100      $           247,500

(1) In
September 2007,
the lender
agreed to
accept monthly
payments of
$5,800
beginning
December 1,
2007 to be
allocated 50%
to principal
and 50% to
interest. The
Company has
been unable to
make all of the
required
payments
pursuant to the
terms of the
September 2007
agreement.
Beginning in
June 2009, the
lender agreed
to accept
temporary
reduced monthly
payments of
$1,000 until
such time as
the Company's
financial
position
significantly
improves. At
June 30, 2009,
the outstanding
principal and
interest of the
interim loan
was $528,109.
The lender has
not made any
formal demands
for payment or
instituted
collection
action; however
we are in
discussions
with the lender
to restructure
this liability.

(2) During 2000 and 2001, the Company issued 11% convertible promissory notes or converted other notes payable or accounts payable to convertible promissory notes in an amount totaling $2,257,624. The terms of the Notes are 36 months with limited prepayment provisions. Each of the
Notes may be
converted by
the holder at
any time at
$1.00 per
common stock
share and by
the Company
upon
registration
and when the
closing price
of the
Company's
common stock
has been at or
above $3.00 per
share for three
consecutive
trading days.
Additionally,
the Notes are
accompanied by
warrants
exercisable for
the purchase of
the number of
shares of
Company common
stock equal to
the number
obtained by
dividing 25% of
the face amount
of the Notes
purchased by
$1.00. These
warrants are
exercisable at
any time during
the five years
following
issuance at an
exercise price
of $.01 per
share. Under
the terms of
the Notes, the
Company was
required to
register the
common stock
underlying both
the Notes and
the detached
warrants by
filing a
registration
statement with
the Securities
and Exchange
Commission
within 45 days
following the
Final
Expiration Date
of the Offering
(March 31,
2001). On
May 31, 2001,
the Company
exchanged
2,064,528
shares of its
common stock
and warrants
(exercisable
for the
purchase of
436,748 shares
of common stock
at $2.00 per
share) for
convertible
promissory
notes in the
principal
amount of
$1,746,988
(recorded at
$1,283,893)
plus accrued
interest of
$123,414. The
warrants
expired on
May 31, 2006.
This exchange
was accounted
for as an
induced debt
conversion and
a debt
conversion
expense of
$370,308 was
recorded.

Pursuant to the
provisions of
the convertible
promissory
notes, the
conversion
price was
reduced from
$1.00 per share
on January 15,
2001 to $.49
per share on
December 31,
2003 for
failure to
register under
the Securities
Act of 1933, as
amended, the
common stock
underlying the
convertible
promissory
notes and
underlying
warrants on
February 15,
2001.
Reductions in
conversion
price are
recognized at
the date of
reduction by an
increase to
additional
paid-in capital
and an increase
in the discount
on the
convertible
promissory
notes.
Furthermore,
the interest
rate was
increased to
12.5% per annum
from 11% per
annum because
the
registration
statement was
not filed
before March 1,
2001. At
June 30, 2009,
the outstanding
principal and
interest of the
convertible
promissory
notes was
$945,550.

On January 1,
2002, the
Company
recorded 11,815
shares of
common stock
issuable in
payment of
$11,815 accrued
interest on a
portion of the
Company's
convertible
promissory
notes.

In November and
December 2003
and March 2004,
$455,000,
$50,000 and
$5,636,
respectively,
of these
convertible
promissory
notes matured.
The Company has
not made
payment or
negotiated an
extension of
these notes,
and the lenders
have not made
any demands.
The Company is
currently
developing a
plan to satisfy
these notes
subject to the
approval of
each individual
note holder.

10.   COMMON STOCK OPTIONS AND WARRANTS


     The following table summarizes the Company's employee stock option activity
     for the three and six months ended June 30, 2009:



                                        Three Months           Weighted            Six Months             Weighted
                                           Ended               Average                Ended               Average
                                       June 30, 2009        Exercise Price        June 30, 2009        Exercise Price
Options outstanding, beginning of
the period                                  2,447,704      $            .53            2,447,704      $            .53

Options granted during the period               3,000                   .01                3,000                   .01


Options outstanding, end of the
period                                      2,450,704      $            .53            2,450,704      $            .53

On January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment. SFAS 123(R) replaced SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,using the modified prospective method as described in the standard. Under this modified prospective method, the Company is required to record compensation cost for new and modified awards over the related vesting period of such awards prospectively and record compensation cost prospectively for the unvested portion at time of adoption, of previously issued and outstanding awards over the remaining vesting period of such awards. Adoption of SFAS123(R) had no impact on the Company's consolidated financial statements or consolidated results of operations.

The following table summarizes the Company's common stock purchase warrant and non-employee stock option activity for the three and six months ended June 30, 2009:

In January 2009, the Company agreed to extend the expiration date on 425,000 of common stock purchase warrants for the lessor in return for a credit of $3,445 on the operating lease.

                                        Three Months           Weighted            Six Months             Weighted
                                           Ended               Average                Ended               Average
                                       June 30, 2009        Exercise Price        June 30, 2009        Exercise Price
Warrants and non-employee stock
options outstanding, beginning and
end of the period                             591,000      $            .49              591,000      $            .49

11. RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2009, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 165, Subsequent Events ("FAS 165"), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. FAS 165 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. FAS 165 is effective for interim and annual periods ending after June 15, 2009, and accordingly, the Company adopted this Standard during the second quarter of 2009. . The adoption of FAS 165 only affected disclosures, and thus had no impact on the Company's financial position, results of operations and cash flows. FAS 165 requires that public entities evaluate subsequent events through the date that the financial statements are issued. The Company has evaluated subsequent events through the time of filing these financial statements with the Securities and Exchange Commission on August 14, 2009.

In April 2009, the FASB issued Staff Position (FSP) SFAS 107-1 and Accounting Principles Board (APB) Opinion No. 28-1, Interim Disclosures about Fair Value of Financial Instruments(FSP 107-1 and APB 28-1). FSP 107-1 amends FASB Statement No. 107, Disclosures about Fair Values of Financial Instruments, to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. APB 28-1 amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in all interim financial statements. FSP 107-1 and APB 28-1 are effective for interim periods ending after June 15, 2009 and the Company adopted them in second quarter 2009. The adoption of FSP 107-1 and APB 28-1 did affect disclosures, but otherwise the adoption of these FSPs had no impact on the Company's financial position, results of operations and cash flows.

In April 2008, the FASB issued FASB Staff Position ("FSP") No. 142-3, Determination of the Useful Life of Intangible Assets ("FSP 142-3"). FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, Goodwill and Other Intangible Assets. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 became effective for the Company on January 1, 2009. The Company has determined that FASB Statement No. 142-3 has no material effect on the consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations("SFAS 141R") and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51 ("SFAS 160"). SFAS 141R changes the accounting for business combinations, including the measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction costs, and the recognition of changes in the acquirer's income tax valuation allowance. SFAS 160 changed the accounting and reporting for minority interests, reporting them as equity separate from the parent entity's equity, as well as requiring expanded disclosures. The provisions of SFAS 141R and SFAS 160 became effective for the Company on January 1, 2009. The Company has determined that FASB Statement No. 141 has no material effect on the consolidated financial statements.

Effective December 30, 2007, the Company adopted the provisions of SFAS No. 157, Fair Value Measurements ("SFAS 157"), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements required under other accounting pronouncements. Issued in February 2008, FSP 157-1 Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, removed leasing transactions accounted for under Statement 13 and related guidance from the scope of SFAS 157. FSP 157-2 Partial Deferral of the Effective Date of Statement 157 ('FSP 157-2"), deferred the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008.

SFAS 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. SFAS 157 also requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based on the best information available. Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model. The adoption of SFAS 157 did not have a significant impact on the Company's financial statements.

SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS No. 157 are described below:

• Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

• Level 2 - Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly; and

• Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

In October 2008, the FASB issued FSP 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active ("FSP 157-3"). The FSP clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP is effective October 10, 2008, and for prior periods for which financial statements have not been issued. The Company adopted the provisions of FSP 157-3 in its financial statements for the year ended December 31, 2008. The adoption did not have a material impact on the Company's consolidated results of operations or financial position.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS 159"). This statement permits companies to choose to measure many financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company adopted the provisions of SFAS 159 on January 1, 2008.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires that an entity disclose the fair value of financial instruments for which it is practicable to estimate the value. The Company considers the carrying value of certain financial instruments on the balance sheets, including cash, accounts receivable, inventories, and other assets to be reasonable estimates of fair value. At June 30, 2009, the carrying amount of the Company's liabilities for corporate borrowings and other obligations was $2,855,290 and the fair value was estimated to be approximately $300,000. This amount is based on the present value of estimated future cash outflows which is discounted based on the risk of nonperformance due to the uncertainty of the Company's ability to continue as a going concern.

13. CERTAIN RELATIONSHIPS

The Company has an operating lease for certain equipment that is leased from one of its shareholders who also holds a $293,400 interim loan (see Note 9 - Notes Payable). The original lease was dated November 21, 2001 and the terms were $6,088 per month for 12 months with a fair market purchase option at the end of the lease. Upon default on the lease, the Company was allowed to continue leasing the equipment on a month-to-month basis at the same monthly rate as the original lease. The Company has been unable to make the month-to-month payments. In January and November 2006, the Company agreed to extend the expiration date on 425,000 and 140,000, respectively, of common stock purchase warrants for the lessor in return for a credit of $17,960 and $3,940, respectively, on the operating lease. In September 2007, the lessor agreed to cease the monthly lease payments effective January 1, 2007 which generated a total of $54,795 of forgiveness of debt income. The lessor also agreed to accept payments of $499 per month on the balance owed. In January 2009, the Company agreed to extend the expiration date on 425,000 of . . .