UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
DC.  20549
 
 FORM
10-K
  (Mark
One)
 
 T ANNUAL REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For
the fiscal year ended October 31, 2008
 
 £ TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
  For
the transition period from _________ to _________
 
  COMMISSION
FILE NUMBER 0-22636
 
 RAPID
LINK, INCORPORATED
 (Name of
issuer in its charter)
 
 DELAWARE
                  75-2461665(State
      or other jurisdiction of incorporation or
    organization)
                  (I.R.S.
      Employer Identification
No.)
 
 5408 N. 99thStreet;Omaha,NE68134
 (Address
of principal executive offices) (Zip Code)
 
 Issuer’s
telephone number: (402) 392-7561
 
 SECURITIES
REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: None
 SECURITIES
REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
 COMMON
STOCK, $0.001 PAR VALUE
 
  Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.£
Yes  T
No
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.£
Yes  T
No
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirement for
the past 90 days. T
Yes  £
No
 
 Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. £
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act).
 
 Large
      accelerated filer  £
                              Accelerated
      filer  £Non-accelerated
      filer  £
                              Smaller
      reporting company T
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes £
No T
 
 The
issuer’s revenues for the fiscal year ended October 31, 2008 were
$17,238,948.
 
 The
aggregate market value of the voting and non-voting common stock held by
non-affiliates of the registrant as of January 7, 2009 was approximately
$2,037,196 based on the average bid and ask price of a share of common stock as
quoted on the OTC Bulletin Board of $0.07.
 
 As of
January 7, 2009, there were 69,835,422 shares of registrant’s common stock
outstanding.
 
 DOCUMENTS
INCORPORATED BY REFERENCE: None
  
 
 
 
 TABLE OF CONTENTSPage
      No.PART
      IItem
      1.
                  Business
                  1Item
      1A.
                  Risk Factors
                  11Item
      2.
                  Properties
                  16Item
      3.
                  Legal Proceedings
                  16Item
      4.
                  Submission of Matters to a Vote of Security
      Holders
                  17PART
      IIItem
      5.
                  Market for the Registrant’s Common Equity, Related
      Stockholder Matters and Issuer Purchases of Equity
      Securities
                  17Item
      6.
                  Selected Financial Data
                  19Item
      7.
                  Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                  19Item
      8.
                  Financial Statements and Supplementary
    Data
                  36Item
      9.
                  Changes in and Disagreements With Accountants on Accounting
      and Financial Disclosure
                  36Item
      9A(T).
                  Controls and Procedures
                  36Item
      9B.
                  Other Information
                  37PART
      IIIItem
      10.
                  Directors, Executive Officers and Corporate
      Governance
                  37Item
      11.
                  Executive Compensation
                  40Item
      12.
                  Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
                  42Item
      13.
                  Certain Relationships and Related Transactions, and
      Director Independence
                  43Item
      14.
                  Principal Accounting Fees and Services
                  45PART
      IVItem
      15.
                  Exhibits, Financial Statement Schedules
                  46SIGNATURES
                  54
 Table of Contents
  FORWARD-LOOKING
STATEMENTS
 
 Throughout
this Annual Report on Form 10-K, the terms "we," "Rapid Link," and the "Company"
refer to Rapid Link, Incorporated, a Delaware corporation, and its
subsidiaries.
 
 This
Annual Report on Form 10-K contains “forward-looking statements”, which are
statements other than historical information or statements of current
condition.  Some forward-looking statements may be identified by the
use of such terms as "expects,” "will,” "anticipates,” "estimates,” "believes,”
"plans" and words of similar meaning. These forward-looking statements relate to
business plans, programs, trends, results of future operations, satisfaction of
future cash requirements, funding of future growth, acquisition plans and other
matters. In light of the risks and uncertainties inherent in all such projected
matters, the inclusion of forward-looking statements in this report should not
be regarded as a representation by us or any other person that our objectives or
plans will be achieved or that our operating expectations will be realized.
Revenues and results of operations are difficult to forecast and could differ
materially from those projected in forward-looking statements contained herein,
including without limitation statements regarding our belief of the sufficiency
of capital resources and our ability to compete in the telecommunications
industry.  Actual results could differ from those projected in any
forward-looking statements for, among others, the following reasons: (a)
increased competition from existing and new competitors using fixed wireless
broadband technology to deliver internet and telecommunications services, (b)
the relatively low barriers to entry for start-up companies using fixed wireless
broadband technology to provide internet and telecommunications services, (c)
the price-sensitive nature of consumer demand, (d) the relative lack of customer
loyalty to any particular provider of voice and data services, (e) our
dependence upon favorable pricing from our suppliers to compete in the
diversified communication services industry, (f) increased consolidation in the
telecommunications industry, which may result in larger competitors being able
to compete more effectively, (g) failure to attract or retain key employees, (h)
continuing changes in governmental regulations affecting the telecommunications
industry and the Internet and (i) changing consumer demand, technological
developments and industry standards that characterize the
industry.  You are also urged to carefully review and consider the
various disclosures we have made which describe certain factors that affect our
business throughout this Report.  For a discussion of these factors
and others, please see "Risk Factors" below in this section of this
report.  Readers are cautioned not to place undue reliance on the
forward-looking statements made in this report or in any document or statement
referring to this report.  All forward-looking statements attributable
to the Company are expressly qualified in their entirety by such language, and
we are not obligated, and do not intend, to update any forward-looking
statements at any time unless an update is required by applicable securities
laws.  The following discussion and analysis of financial condition
and results of operations covers the years ended October 31, 2008 and 2007 and
should be read in conjunction with our Financial Statements and the Notes
thereto commencing at page F-1 included hereof.
 
 PART I
 
 Item 1.  Description of Business.
 
 General
 
 Rapid
Link, Incorporated, a Delaware corporation, and its subsidiaries (collectively
referred to as “Rapid Link” or the “Company”), have served as facilities-based,
communication companies providing various forms of voice and data services to
customers around the world.  Rapid Link provides a multitude of
communication services targeted to small and medium sized businesses, as well as
individual consumers.  These services include the transmission of
voice and data traffic over public and private networks.  The Company
also sells foreign and domestic termination of voice traffic into the wholesale
market.
  1
 Table of Contents
  Corporate
History and Information
 
 The
Company was incorporated on July 10, 1986 under the Company Act of the Province
of British Columbia, Canada.  On August 7, 1992, we renounced our
original province of incorporation and elected to continue our domicile under
the laws of the State of Wyoming, and on November 30, 1994, our name was changed
to "Canmax Inc.”  On February 1, 1999, we reincorporated under the
laws of the State of Delaware under the name "ARDIS Telecom & Technologies,
Inc.”  On November 2, 1999, we acquired substantially all of the
business and assets of Dial Thru International Corporation, a California
corporation (the "DTI Acquisition"), and, on January 19, 2000, we changed our
name from ARDIS Telecom & Technologies, Inc. to Dial Thru International
Corporation.  On November 1, 2005, we changed our name to "Rapid Link,
Incorporated" as we believe this name will receive better market recognition and
acceptance than its previous name, especially as the Company continues to roll
out wireless broadband internet related services.
 
 Our
principal executive offices are located at 5408 N. 99th Street,
Omaha, Nebraska, 68134; our telephone number is 402-392-7561; our website
address is www.rapidlink.com; and our
common stock currently trades on the OTC Bulletin Board under the symbol RPID.
 
 Business
Strategy
 
 Communication
Services
 
 The
Company’s product focus is to provide a variety of voice and data services over
its own facilities using alternative access methods.  These services
include local and long distance calling, internet access, and wholesale services
to carriers.  With the addition of the advanced technology and
management expertise acquired in the acquisition of One Ring Networks during the
second quarter of fiscal 2008, the Company continues to build-out an extensive
hybrid fiber wireless broadband network allowing its customers to access
services without relying on the local exchange carrier (LEC).  The
Company’s strategy includes providing service via its own facilities to provide
more reliable delivery of its current and future services.  Fixed
wireless technology allows for swift and cost efficient deployment of high-speed
networks.  The Company will utilize the Worldwide Interoperability for
Microwave Access or “WiMAX” and other carrier-grade equipment operating in
microwave and millimeter-wave spectrum bands.  Through organic growth
and acquisitions in targeted areas, the Company believes it will possess a
strategic advantage over carriers that do not provide their own network
access.  The Company believes that its strategy of “owning” the
customer by providing the service directly, rather than utilizing the networks
of others, is important to its success.  This strategy better ensures
that the Company can provide its bundled products and communication services
with less threat of compromised service quality from underlying carriers, and at
significant cost savings when compared with other technologies.
 
 Development
of Wireless Broadband Internet
 
 The
tremendous growth of internet utilization worldwide has led to dramatic changes
in how individuals and business consumers are able to access the
internet.  Regional incumbents are generally offering broadband
services over their legacy cable or telephone networks in most metropolitan
areas of the United States.  Often, wireless internet service
providers are able to provide services to customers in areas where the incumbent
providers cannot.
  2
 Table of Contents
  Recent
advances in wireless Ethernet equipment now make it possible to build
carrier-grade networks with significantly less capital investment than required
in the past.  As recently as three years ago, a wireless-based service
which provided broadband speeds of 100Mbps or more to an end-user, would have
been prohibitively expensive.  Today, even faster speeds are available
to business customers at commercially reasonable rates.  With the
increased bandwidth now available to our customers, we are able to tailor our
service offerings to suit the end-users’ needs.  Synchronous
connections (those with matching upload and download speeds) are more important
now than ever, and new wireless technologies make this
possible.  Integrated voice services utilizing voice over internet
protocol (VoIP) are a perfect example of the flexibility and performance
synchronous connections allow.
 
 Non-traditional
broadband service offerings
 
 The
legacy services provided by telecommunicationsincumbents
have very specific limitations with regard to broadband speeds, and are
relatively expensive.  Cableincumbents are
generally not offering synchronous broadband speeds at all, thus limiting the
scope of their products and services.  Wireless broadband technology
enables the Company to provide services outside the limits of traditional
telecommunications and cable based offerings.  Additionally, wireless
broadband services can be easily and cost effectively upgraded to match the
consumers changing needs.
 
 Products
and Services
 
 Our goal
is to provide the best possible communication experience to both business and
residential users at affordable prices, allowing them to communicate and
transfer information seamlessly and effortlessly to and from anywhere in the
world.
 
 Rapid
Link Internet and Voice Service
 
 Rapid
Link provides high speed internet and integrated voice services via its hybrid
fiber wireless broadband network.  Currently we offer this service in
following major metropolitan markets: Atlanta GA, Dallas TX, Los
Angeles CA, Omaha NE, St. Louis MO, and
Washington DC.  We have plans to enter additional markets during
our fiscal year 2009.
 
 Rapid
Link also offers fixed wireless broadband internet access via our network in
Amador County, California.  This service has been available since
October 31, 2008, and primarily serves residential and small
businesses.
 
 Legacy
Products
 
 These
services, while still contributing a significant portion of our revenues, will
continue to decrease as a percentage of our total revenues as we continue to
develop and market new services.  We received approximately 91% of our
2008 revenue from these legacy services.
 
 Wholesale
Voice Termination
 
 We offer
call completion on a wholesale basis to domestic and international
telecommunications companies.  This service enables our carrier
customers to benefit from our VoIP and teledivision multiplex (TDM) voice
network expertise without having to establish dozens of new relationships with
smaller providers.  Our extensive experience and existing
relationships with voice service providers, allow us to offer reliable service
to select destinations around the world at very competitive prices.
 
 International
Re-origination Services
 
 Our
re-origination service, allows a caller outside of the United States to place a
long distance telephone call that originates from our US-based switch, calls the
customer's location, and then connects the call utilizing our network to
anywhere in the world.  By completing the calls in this manner, we are
able to provide very competitive rates to the customer.  Generally,
this service is provided to customers that establish deposits or prepayments
with us.
  3
 Table of Contents
  International
Calling Cards
 
 Our
“Global Roaming” service provides customers a single account number to initiate
direct calls from locations throughout the world using specific toll-free access
numbers.  This service enables customers to receive the benefits
associated with our telecommunications network throughout the
world.
 
 1+
Long Distance
 
 We also
offer traditional 1+ long distance service to business and residential users
throughout the U.S.  We currently focus on small to medium-sized
businesses (“SME’s”) through the agent channel, as well as our niche markets,
which generally have a large amount of international calling.  By
leveraging our long-standing international carrier relationships, we can provide
low rates and excellent service when calling to countries that are not
competitively priced by the larger carriers.
 
 Segment
Information
 
 Management
regularly reviews one set of financial information and all of our products share
similar economic characteristics.  Therefore, the Company has
determined that it has one operating segment.
 
 Recent
Acquisitions
 
 On July
11, 2008, the Company purchased certain assets and assumed certain liabilities
of iBroadband Networks, Inc. and iBroadband of Texas, Inc.
(“iBroadband”).  Assets acquired in the iBroadband acquisition are
highly complementary to our existing business, particularly the operations of
our subsidiary One Ring Networks, Inc.  In addition, the iBroadband
acquisition provided that the seller of the assets agreed to purchase two 36
month, 10% notes from the Company for the purpose of restructuring existing debt
and providing needed operating capital.
 
 On March
28, 2008, the Company acquired 100% of the outstanding stock of One Ring
Networks, Inc.  The purpose of the One Ring acquisition was to acquire
an existing carrier class network for the transport of voice and data, and an
experienced management team.  Through this acquisition, we further
evolved our goal of becoming a provider of communication services via fixed
wireless and fiber optic transport of voice and data.
 
 On
October 31, 2007, the Company acquired 100% of the assets of Communications
Advantage, LLC (“Communications Advantage”), and Web-Breeze Networks, LLC (“Web
Breeze”).  The assets include a sizable wireless broadband network in
a rural geographic area of California that fits into the Company’s niche market
business model, a base of customers and revenues that are immediately accretive
to our revenues and earnings, and a staff of tenured professionals with vast
knowledge and experience in the wireless broadband sector.
 
 On May 5,
2006, the Company acquired 100% of the outstanding stock of Telenational
Communications, Inc. (“Telenational”).  Telenational historically
serviced a sizable base of both retail and commercial customers which very
closely mirror those customers Rapid Link has served.  This
acquisition allowed us to expand our market share in the telecommunications
industry while taking advantage of several significant economies of scale, both
with respect to direct cost reductions, as well as operational
efficiencies.  We have subsequently moved substantially all of our
operational and administrative functions to the Rapid Link headquarters in
Omaha, Nebraska.
  4
 Table of Contents
  Competition
 
 The
“Diversified Communication Services” industry is highly competitive, rapidly
evolving, and subject to constant technological change.  Other
providers currently offer one or more of each of the services offered by
us.  Communications service companies compete for consumers based on
price and quality, with the dominant providers conducting extensive advertising
campaigns to capture market share.  As a service provider in this
industry, we compete with dominant players such as Comcast Corp. (CMCSA), and
AT&T (T), both of which are substantially larger than we are and have the
resources, history and customer bases to dominate virtually every segment of the
broadband internet and voice service market.
 
 We also
compete with smaller companies including Towerstream Corp. (TWER), and Cbeyond
Inc. (CBEY).  We believe that existing competitors are likely to
continue to expand their service offerings to appeal to retailers and consumers
particularly in the area of wireless broadband internet service.
 
 The
market for international voice completion services is also highly
competitive.  We compete both in the market for enhanced internet
communications services and in the market for carrier transmission
services.  We believe that the primary competitive factors in the
internet and voice communications business are quality of service, price,
convenience, and bandwidth options.  We believe that the ability to
offer enhanced service capabilities, including new services, will become an
increasingly important competitive factor in the near future.
 
 Suppliers
 
 Our
principal suppliers consist of domestic and international telecommunications
carriers, Internet Service Providers, and Broadband
suppliers.  Relationships currently exist with a number of reliable
carriers.  During the fiscal year ended October 31, 2008, two of the
Company's suppliers accounted for approximately 22% and 19% of the Company's
total costs of revenues, respectively.  Due to the highly competitive
nature of the telecommunications business, we believe that the loss of any
carrier would not have a long-term material impact on our business.
 
 Sales
and Marketing
 
 We sell
and market our services through our in house sales staff, independently
contracted sales agents, and third-party resellers.  Our Company also
receives a good deal of referrals from existing customers.  We focus
our sales efforts on SME’s and other vertical markets.
 
 We offer
businesses and individuals the opportunity to become resellers of our services
through our affiliate and reseller programs.  Resellers are able to
purchase bulk accounts and hardware at reseller specific pricing, which enable
them to resell these accounts to individuals using the Rapid Link
brand.
 
 We have
substantial revenues in foreign markets.  For the fiscal years ended
October 31, 2008 and 2007, $6.6 million or 39% and $6.4 million or 37% of our
total revenue from continuing operations for each year, respectively, originated
from foreign markets.
 
 Customers
 
 We focus
our current sales and marketing efforts on our Wireless Broadband Internet
products and services, primarily targeting small and medium sized businesses in
key geographic areas where we have established network coverage.  We
utilize both in-house sales staff, and independently contracted agent sales
channels to generate revenues.  By doing so, we believe that we establish a
wide base of customers with minimal dependency on any one single customer, group
of customers, or sales mechanism.  Our wholesale customers are primarily
smaller telecommunications companies in the United States and abroad, many of
which exchange telecommunications routes with us at attractive
rates.  Our broadband retail customers typically sign contracts
ranging from one to three years.
  5
 Table of Contents
  During the fiscal years ended October
31, 2008 and 2007, we did not provide wholesale services to any customer that
accounted for more than 10% of our revenue.  We believe the loss of
any individual customer would not materially impact our business.  We
generally do business with approximately 25 wholesale customers, any of which
either collectively, or in most cases individually, could compensate for the
loss of a major customer.Typically, we have pre-determined
capacity limits, as specified in contracts with underlying carriers.  We
generally have sufficient capacity to service the needs of all of our
customers.  Should it become necessary, we are able to quickly impose
capacity limits on any customer, thus reducing our reliance on any one customer,
and allowing for a relatively quick transition between customers.
 
 Employees
 
 As of
December 31, 2008, we have forty full-time employees and three part-time
employees.  Fourteen of which perform technical duties, fifteen of which
perform administrative and financial functions, ten of which perform
customer support duties and three of which perform sales duties. Fifteen
employees are located in Omaha, Nebraska; eleven employees are located in Texas;
eight employees are located in Georgia; five employees are located in
California, one employee is located in Colorado, and three employees are located
in South Africa.  None of our employees is represented by a labor union,
and we consider our employee relations to be excellent.
 
 Debt
Restructurings
 
 On April
30, 2008, the Company entered into a four-year financing agreement with Global
Telecom Solutions (“GTS”) in the principal amount of $460,000.  The
agreement calls for monthly payments of $10,000 and interest accrues at 5% per
annum, and may be converted into the common stock of the Company in accordance
with the terms of the agreement.
 
 Effective
March 31, 2008, the Company modified its debt structure by entering into a
Security Agreement with certain lenders (“Lenders”).  Upon the signing
of the Security Agreement, Valens II provided the Company with $1,800,000 of
gross financing, and the Company issued Valens II a 10% Secured Term A Note
(“Valens II Term A”) in the principal amount of $1,800,000.
 
 On July
14, 2008 the Company completed the terms and conditions set forth in the
Security Agreement dated as of March 31, 2008, and further amended on July 11,
2008, to obtain additional financing by and among L.V. and certain
Lenders.  The completed financing agreement includes Valens U.S. SPV I
(“Valens”) purchasing a secured term note (“Term B Note”), the Lenders agreeing
to lend secured revolving loans under certain conditions including the Company
attaining specific financial covenants, and Laurus Master Fund and Valens
purchasing secured promissory notes related to the asset purchase of iBroadband
Networks, Inc., a Texas corporation, and iBroadband of Texas, Inc., a Delaware
corporation in the amounts of approximately $2.3 million and $293,000,
respectively.
 
 Effective
July 14, 2008, Valens purchased from the Company a 10% secured term note
(“Term B Note”) in the principal amount of $1.5 million and a Warrant to
purchase 4,437,870 shares of common stock at $0.01 per share for a purchase
price of $1.5 million.  Interest accrues at 10% per annum and is
payable monthly commencing August 1, 2008.  Concurrent with the Valens
Term B financing arrangement, the Company purchased the assets of iBroadband and
assumed secured promissory notes in the aggregate amount of approximately $2.58
million (“Deferred Purchase Price Notes”), including approximately a $293,000
loan from Valens and a $2.3 million loan from Laurus Master
Fund.  Interest accrues at 10% per annum and is payable monthly
commencing the month after the Note was assumed.
  6
 Table of Contents
  On March
31, 2008, Global Capital Funding Group, LP (“Global”), which is the holder of
the GC Conote, modified its debt structure with the Company by entering into a
Subordination Agreement with L.V., acting as agent for itself and the
Lenders.  The agreement calls for the GC-Conote to become subordinate
to the Valens II Term A note.  In addition, GCA extended the maturity
date of the two debentures to June 30, 2011.  In consideration, the
Company made a principal payment of $600,000 on the GC-Conote and agreed to pay
Global the principal sum of $420,000 upon closing of the Valens II Term B note;
with the remainder of the outstanding principal amount of $180,000, which shall
not accrue interest after March 31, 2008, to be converted into the common stock
of the Company in accordance with the terms of the Securities Purchase Agreement
dated as of November 8, 2002.
 
 As of
July 11, 2008, and upon closing of the Valens II Term B note, the Company paid
Global the principal sum of $420,000.  In consideration for the
principal payment of $420,000, Global forgave accrued interest in the amount of
$163,750, and is restricted from the selling of any shares of the Company’s
common stock for a period of two years from the effective date of this
amendment, and agreed that there are no additional cash monies owed to Global by
the Company other than the remaining principal balance of $180,000, which is to
be converted into the common stock of the Company.
 
 As of
October 31, 2008, GCA Strategic Investment Fund Limited (“GCA”) held two Company
debentures having principal amounts of $630,333 and 570,944,
respectively.  On March 31, 2008, GCA modified its debt structure with
the Company by entering into a subordination agreement with L.V., which acted as
agent for itself and for the lenders.  The agreement called for the
GCA debentures to become subordinate to the Valens II Term A
note.  The Company may prepay the GTS debentures by paying 100% of the
outstanding principal and accrued interest.  In addition, GCA extended
the maturity date of the two debentures to June 30, 2011, and is restricted from
the selling of any shares of the Company’s common stock for a period of two
years from the effective date of this amendment.
 
 Intellectual
Property
 
 We do not
hold any patents or trademarks.  Our products and services are offered
by other telecommunications companies.
 
 Government
Regulation
 
 Telecommunications
services are subject to extensive government regulation at both the federal and
state levels in the United States.  Any violations of these
regulations may subject us to enforcement penalties.  The Federal
Communications Commission ("FCC") has jurisdiction over all telecommunications
common carriers to the extent they provide interstate or international
communications services, including the use of local networks to originate or
terminate such services. Each state regulatory commission has jurisdiction over
the same carriers with respect to their provision of local and intrastate long
distance communications services. Significant changes to the applicable laws or
regulations imposed by any of these regulators could have a material adverse
effect on our business, operating results and financial condition.
 
 The
following summary of regulatory developments and legislation is intended to
describe what we believe to be the most important, currently effective and
proposed international, federal, state, and local regulations and legislation
that are likely to materially affect us.  Some of these and other
existing federal and state regulations are the subject of judicial proceedings
and legislative and administrative proposals that could change, in varying
degrees, the manner in which this industry operates.  We cannot
predict the outcome of any of these proceedings or their impact on the
telecommunications industry or us at this time.  Some of these future
legislative, regulatory, or judicial changes could have a material adverse
impact on our business.
  7
 Table of Contents
  Regulation
by the Federal Communications Commission - Universal Service Funds
 
 In 1997,
the FCC issued an order, referred to as the Universal Service Order, to
implement the provisions of the Telecommunications Act of 1996 relating to the
preservation and advancement of universal telephone service. The Universal
Service Order requires all telecommunications carriers providing interstate
telecommunications services to periodically contribute to universal service
support programs administered by the FCC (the "Universal Service Funds"). The
periodic contribution requirements to the Universal Service Funds under the
Universal Service Order are currently assessed based on a percentage of each
contributor's interstate and international end user telecommunications revenues
reported to the FCC, which we measure and report in accordance with the
legislative rules adopted by the FCC.  The contribution rate factors
are determined quarterly and carriers, including us, are billed for their
contribution requirements each month based on projected interstate and
international end-user telecommunications revenues, subject to periodic
reconciliation.  We, and most of our competitors, pass through these
Universal Service Fund contributions in the price of our services, either as a
separate surcharge or as part of the base rate.  In addition to the
FCC universal service support mechanisms, state regulatory agencies also operate
parallel universal service support systems.  As a result, we are
subject to state, as well as federal, universal service support contribution
requirements, which vary from state to state.  As with any regulatory
obligation, if a federal or state regulatory body determines that we have
incorrectly calculated and/or remitted any universal service fund contribution,
we could be subject to the assessment and collection of past due remittances as
well as interest and penalties thereon.  Furthermore, if the FCC
determines that we have incorrectly calculated and overstated a separately
invoiced line item identified as a recovery of contributions to the Universal
Service Funds we could be required to repay any such over-collection and be
subject to penalty.
 
 The FCC
is currently considering several proposals that would fundamentally alter the
basis upon which our Universal Service Fund contributions are determined and the
means by which such contributions may be recovered from our customers, changing
from a revenue percentage measurement to a connection (capacity), or telephone
number (access) measurement.  Because we pass through these
contributions to consumers, a change in the contribution methodology would not
directly affect our net revenues; however, a change in how contributions are
assessed might affect our customers differently than the customers of competing
services, and therefore could either increase or decrease the attractiveness of
our services.  The timing and effect of any FCC action on this
proposal is not yet known.
 
 Access
Charges
 
 As a long
distance provider, we remit access fees directly to local exchange carriers or
indirectly to our underlying long distance carriers for the origination and
termination of our long distance telecommunications
traffic.  Generally, intrastate access charges are
higher than interstate access charges.  Therefore, to the degree
access charges increase or a greater percentage of our long distance traffic is
intrastate, our costs of providing long distance services will
increase.
 
 In April
2001, the FCC released a Notice of Proposed Rulemaking in which it proposed a
"fundamental re-examination of all currently regulated forms of intercarrier
compensation.”  Several different industry groups have submitted
access charge reform proposals to the FCC.  The FCC has not yet acted
on these proposals and it is not yet known when it will
act.  Therefore, at this time we cannot predict the effect that the
FCC's ultimate determinations regarding access charge reform may have upon our
business.
  8
 Table of Contents
  Taxes
and Regulatory Fees
 
 We are
subject to numerous local, state, and federal taxes and regulatory fees,
including, but not limited to, the Federal excise tax, FCC universal service
fund contributions and regulatory fees, and numerous public utility commission
regulatory fees.  We have procedures in place to ensure that we
properly collect taxes and fees from our customers and remit such taxes and fees
to the appropriate entity pursuant to applicable law and/or
regulation.  If our collection procedures prove to be insufficient or
if a taxing or regulatory authority determines that our remittances were
inadequate, we could be required to make additional payments, which could have a
material adverse effect on our business.
 
 International
Telecommunications Services - Section 214.  In the United States, to
the extent that we offer services as a carrier, we are required to obtain
authority under Section 214 of the Communications Act of 1934 to provide
telecommunications service that originates within the United States and
terminates outside the United States.  We have obtained the required
Section 214 authorization from the FCC to provide U.S. international
service.  As a condition to our Section 214 authorization, we are
subject to various communications-oriented reporting and filing
requirements.  Failure to comply with the FCC's rules could result in
fines, penalties, forfeitures, or revocation of our FCC authorization, each of
which could have a material adverse effect on our business, financial condition,
and results of operation.
 
 International
Telecommunications Services - International Settlements
 
 The FCC's
International Settlements Policy ("Policy") restricts the terms on which U.S.
based carriers and certain of their foreign correspondents settle the cost of
terminating each other's traffic over their respective
networks.  Under the International Settlements Policy, absent approval
from the FCC, international telecommunications service agreements with dominant
foreign carriers must be non-discriminatory, provide for settlement rates
usually equal to one-half of the accounting rate, and require proportionate
share of return traffic.  This Policy, however, does not apply to
arrangements with any non-dominant foreign carrier or, since March 30, 2005,
with any dominant foreign carrier on routes where a demonstration has been made
that at least one U.S. carrier has a settlement arrangement with the dominant
foreign carrier that is compliant with the FCC's applicable benchmark settlement
rates. This action has greatly lessened the number of instances in which the
Policy applies, effectively granting U.S. and foreign carriers greater freedom
to set rates and terms in their agreements.  As a result, 164
countries currently are exempt from the International Settlements Policy,
representing over 90% of all U.S.-originated international
traffic.  Notwithstanding the foregoing, the FCC could find that we do
not meet certain International Settlements Policy requirements with respect to
certain of our foreign carrier agreements.  Although the FCC generally
has not issued penalties in this area, it has issued a Notice of Apparent
Liability to a U.S. company for violations of the International Settlements
Policy and it could, among other things, issue a cease and desist order, impose
fines or allow the collection of damages if it finds that we are not in
compliance with the International Settlements Policy.  Any of these
events could have a material adverse effect on our business, financial
condition, or results of operation.
 
 State
Regulations
 
 Our
intrastate long distance operations are subject to various state laws and
regulations, including, in most jurisdictions, certification, and tariff filing
requirements.  As a certificated carrier, consumers may file
complaints against us at the public service commissions.  Certificates
of authority can generally be conditioned, modified, canceled, terminated, or
revoked by state regulatory authorities for failure to comply with state law
and/or the rules, regulations and policies of the state regulatory
authorities.  Fines and other penalties also may be imposed for such
violations.  Public service commissions also regulate access charges
and other pricing for telecommunications services within each
state.  The Regional Bell Operating Companies and other local exchange
carriers have been seeking reduction of state regulatory requirements, including
greater pricing flexibility, which, if granted, could subject us to increased
price competition.
  9
 Table of Contents
  Regulation
of Internet Telephony and Other IP-Enabled Services
 
 The use
of the Internet to provide telephone service is a fairly recent market
development.  At present, we are not aware of any domestic, and are
aware of only a few foreign, laws or regulations that prohibit voice
communications over the Internet.
 
 United
States
 
 We
believe that, under U.S. law, the Internet-related services that we provide
constitute information services as opposed to regulated telecommunications
services and, as such, are not currently actively regulated by the FCC or any
state agencies charged with regulating telecommunications
carriers.  We cannot provide assurances that our Internet-related
services will not be actively regulated in the future.  Several
efforts have been made in the U.S. to enact federal legislation that would
either regulate or exempt from regulation services provided over the
Internet.  Increased regulation of the Internet may slow its growth,
particularly if other countries also impose regulations.  Such
regulation may negatively impact the cost of doing business over the Internet
and materially adversely affect our business, operating results, financial
condition and future prospects.
 
 The
advent of VoIP services being provided by pure play VoIP providers, such as
Vonage, cable television and other companies, and the increased number of
traditional telephone companies entering the retail VoIP space has heightened
the need for U.S. regulators to determine whether VoIP is subject to the same
regulatory and financial constraints as wire line telephone service. On November
9, 2004, the FCC issued an order in response to a petition from Vonage declaring
that Vonage-style VoIP services were exempt from state telecommunications
regulations. The FCC order applies to all VoIP offerings provided over broadband
services. However, this order did not clarify whether, or under what terms, VoIP
traffic may be subject to intercarrier compensation requirements; whether VoIP
was subject to state tax or commercial business regulations; or whether VoIP
providers had to comply with obligations related to 911 emergency calls, and the
Universal Service Fund ("USF") of the Communications Assistance for Law
Enforcement Act ("CALEA").  The FCC is addressing many of these issues
through its "IP-Enabled Services Proceeding,” which opened in February
2004.
 
 Due to
perceived urgency, however, the FCC did take some specific actions outside of
the broad IP-Enabled Services Proceeding to address emergency services and law
enforcement issues.  On June 3, 2005, the FCC issued an order
establishing rules requiring interconnected VoIP service providers to
incorporate 911 emergency call capabilities for their customers as a standard
feature of their services, rather than an optional enhancement.  And,
on August 5, 2005, the FCC announced the extension of CALEA to certain types of
VoIP providers.  Any additional regulation of IP-based services
concerns us and we must therefore remain diligent with respect to evaluating the
impact of FCC proposals and decisions.  However, based on the nature
of the IP-enabled services we currently provide, we do not believe either FCC
decision will materially adversely affect our business, operating results,
financial condition, or future prospects.
  10
 Table of Contents
  The FCC
has also considered whether to impose surcharges or other common carrier
regulations upon certain providers of VoIP or Internet
telephony.  While the FCC has presently refrained from such
regulation, the regulatory classification of Internet telephony remains
unresolved.  If the FCC were to determine that certain
Internet-related services including Internet telephony services are subject to
FCC regulations as telecommunications services, the FCC could subject providers
of such services to traditional common carrier regulation, including
requirements to make universal service contributions, and pay access charges to
local telephone companies.  A decision to impose such charges could
also have a retroactive effect, which could materially
adversely affect us.  It is also possible that the FCC will adopt a
regulatory framework other than traditional common carrier regulation that would
apply to Internet telephony providers.  Any such determinations could
materially adversely affect our business, financial condition, operating results
and future prospects to the extent that any such determinations negatively
affect the cost of doing business over the Internet or otherwise slow the growth
of the Internet.  Congressional dissatisfaction with FCC conclusions
could result in requirements that the FCC impose greater or lesser regulation,
which in turn could materially adversely affect our business, financial
condition, operating results and future prospects.
 
 States
 
 State
regulatory authorities may also retain jurisdiction to regulate certain aspects
of the provision of intrastate Internet telephony services.  Several
state regulatory authorities have initiated proceedings to examine the
regulation of such services.  Others could initiate proceedings to do
so.
 
 International
 
 The
regulatory treatment of Internet telephony outside of the U.S. varies widely
from country to country.  A number of countries that currently
prohibit competition in the provision of voice telephony also prohibit Internet
telephony.  Other countries permit but regulate Internet
telephony.  Some countries will evaluate proposed Internet telephony
service on a case-by-case basis and determine whether it should be regulated as
a voice service or as another telecommunications service.  Finally, in
many countries, Internet telephony has not yet been addressed by legislation or
regulation.  Increased regulation of the Internet and/or Internet
telephony providers or the prohibition of Internet telephony in one or more
countries could materially adversely affect our business, financial condition,
operating results and future prospects.
 
 Other
General Regulations
 
 Although
we do not know of any other specific new or proposed regulations that will
affect our business directly, the regulatory scheme for competitive
telecommunications market is still evolving, and there could be unanticipated
changes in the competitive environment for communications in
general.  For example, the FCC is currently considering rules that
govern how Internet providers share telephone lines with local telephone
companies and compensate local telephone companies.  These rules could
affect the role that the Internet ultimately plays in the telecommunications
market.
 
 Item
1A  Risk Factors
 
 
 Our
business is subject to a number of risks.  You should carefully
consider the following risk factors, together with all of the other information
included or incorporated by reference in this report, before you decide whether
to purchase our common stock.  The risks set out below are not the
only risks we face.  If any of the following risks occur, our
business, financial condition and results of operations could be materially
adversely affected.  In such case, the trading price of our common
stock could decline, and a shareholder may lose all or part of its
investment.
 
 Our
cash flow may not be sufficient to satisfy our cost of operations.  If
not, we must raise capital by selling equity or debt instruments.  If
we are unable to generate sufficient cash flow from operations or financings, we
may be forced to sell our assets, terminate our business and cease our
operations.
  11
 Table of Contents
  For the
fiscal years ended October 31, 2008 and 2007, we recorded net losses from
continuing operations of approximately $2.5 and $2 million, respectively, on
revenues from continuing operations of approximately $17.2 and $17.3 million,
respectively.  For fiscal year 2008, our net loss from continuing
operations included approximately $2 million in non-cash expenses, primarily
depreciation expense and non-cash interest expense.  As a result of
historical losses, we currently have a working capital deficit.
 
 Our
independent auditors have included a going concern paragraph in their audit
opinion on our consolidated financial statements for the fiscal year ended
October 31, 2008, which states “The Company has suffered recurring losses from
continuing operations during each of the last two fiscal
years.  Additionally, at October 31, 2008, the Company's current
liabilities exceeded its current assets by $2.1 million and the Company had a
shareholders' deficit totaling $2.9 million.  These conditions raise
substantial doubt about the Company's ability to continue as a going
concern.”  The Company has significantly improved its working capital
position during fiscal 2008.  For the fiscal year ending October 31,
2008, the Company’s current liabilities exceeded its current assets by $2.1
million, which represents a $3.3 million improvement since October 31,
2007.
 
 Our
operating history makes it difficult to accurately assess our general prospects
in the broadband wireless internet sector of the Diversified Communications
Service industry and the effectiveness of our business strategy.  As
of the date of this report, a majority of our revenues are not derived from
broadband internet services.  Instead, we generated most of our
revenues from retail fixed-line and wholesale communication
services.  In addition, we have limited meaningful historical
financial data upon which to forecast our future sales and operating
expenses.  Our future performance will also be subject to prevailing
economic conditions and to financial, business and other
factors.  Accordingly, we cannot assure you that we will successfully
implement our business strategy or that our actual future cash flows from
operations or financings will be sufficient to satisfy our debt obligations and
working capital needs.  If we do not obtain additional financings,
divest of certain operating units or other capital assets, or engage in
significant cost reductions, or any combination of the aforementioned, we expect
that our ability to maintain our operations through fiscal 2009 may be
significantly jeopardized.
  Potential
for substantial dilution to our existing stockholders exists.
 
 The
issuance of shares of common stock upon conversion of secured convertible notes
or upon exercise of outstanding warrants and/or stock options may cause
immediate and substantial dilution to our existing stockholders.  In
addition, any additional financing may result in significant dilution to our
existing stockholders.
 
 We
face competition from numerous, mostly well-capitalized sources.
 
 The
market for our products and services is highly competitive.  We face
competition from multiple sources, many of which have greater financial
resources and a substantial presence in our markets and offer products or
services similar to our services.  Therefore, we may not be able to
successfully compete in our markets, which could result in a failure to
implement our business strategy, adversely affecting our ability to attract and
retain new customers.  In addition, competition within the industries
in which we operate is characterized by, among other factors, price, and the
ability to offer enhanced services.  Significant price competition
would reduce the margins realized by us in our telecommunications
operations.  Many of our competitors have greater financial resources
to devote to research, development, and marketing, and may be able to respond
more quickly to new or merging technologies and changes in customer
requirements.
  12
 Table of Contents
  We
have pledged our assets to existing creditors.
 
 Our notes
are secured by a lien on substantially all of our assets.  A default
by us under the secured notes would enable the holders of the notes to take
control of substantially all of our assets.  The holders of the
secured notes have no operating experience in our industry and if we were to
default and the note holders were to take over control of our Company, they
could force us to substantially curtail or cease our operations.  If
this happens, you could lose your entire investment in our common
stock.
 
 In
addition, the existence of our asset pledges to the holders of the secured notes
will make it more difficult for us to obtain additional financing required to
repay monies borrowed by us, continue our business operations, and pursue our
growth strategy.
 
 The
regulatory environment in our industry is very uncertain.
 
 The legal
and regulatory environment pertaining to the Internet and Diversified
Communication Services industry is uncertain and changing rapidly as the use of
the Internet increases.  For example, in the United States, the FCC
had been considering whether to impose surcharges or additional regulations upon
certain providers of Internet telephony, and indeed the FCC has confirmed that
providers must begin charging Universal Service access charges of roughly
6.5%.
 
 New
regulations could increase the cost of doing business over the Internet or
restrict or prohibit the delivery of our products or services using the
Internet. In addition to new regulations being adopted, existing laws may be
applied to the Internet.  Newly enacted laws may cover issues that
include sales and other taxes, access charges, user privacy, pricing controls,
characteristics and quality of products and services, consumer protection,
contributions to the Universal Service Fund, an FCC-administered fund for the
support of local telephone service in rural and high-cost areas, cross-border
commerce, copyright, trademark and patent infringement, and other claims based
on the nature and content of Internet materials.
 
 Changes
in the technology relating to Broadband Wireless Internet could threaten our
operations.
 
 The
industries in which we compete are characterized, in part, by rapid growth,
evolving industry standards, significant technological changes, and frequent
product enhancements.  These characteristics could render existing
systems and strategies obsolete and require us to continue to develop and
implement new products and services, anticipate changing consumer demands and
respond to emerging industry standards and technological changes.  No
assurance can be given that we will be able to keep pace with the rapidly
changing consumer demands, technological trends, and evolving industry
standards.
 
 We
rely on five key senior executives.
 
 We rely
heavily on our senior management team of John Jenkins, Christopher Canfield,
Michael McGuane, Michael Prachar, and Matt Liotta, and our future success may
depend, in large part, upon our ability to retain our senior
executives.  The loss of the services of our key personnel or the
inability to attract and retain the additional, highly-talented employees
required for the development, marketing and sales of our products and services,
may have a material adverse effect on us. In addition to the industry experience
and technical expertise they provide to the Company, senior management has been
the source of significant amounts of funding that have helped to allow us to
meet our financial obligations.
 
 Any
natural disaster or other occurrence that renders our operations center
inoperable could significantly hinder the delivery of our services to our
customers because we lack an off-site back-up communications
system.
  13
 Table of Contents
  Currently,
our disaster recovery systems focus on internal redundancy and diverse routing
within our operations center.  We currently do not have an off-site
communications system that would enable us to continue to provide communications
services to our customers in the event of a natural disaster, terrorist attack
or other occurrence that rendered our operations center
inoperable.  Accordingly, our business is subject to the risk that
such a disaster or other occurrence could hinder or prevent us from providing
services to some or all of our customers.  As a result of recent
acquisitions, we have mitigated the risk that a natural disaster or other
geographic-specific occurrence could hinder or prevent us from providing
services to some or all of our customers.  Nonetheless, a delay in the
delivery of our services could cause some of our customers to discontinue
business with us, which could have a material adverse effect on our financial
condition, and results of operations.
 
 We
may be unable to manage our growth.
 
 We intend
to expand our fixed wireless and fiber optic carrier services network and the
range of enhanced communication services that we provide.  Our
expansion prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in new and rapidly evolving
markets.  Our revenues will suffer if we are unable to manage this
expansion properly.
 
 We
face risks associated with the marketing, distribution, and sale of our products
and services internationally, and if we are unable to effectively manage these
risks, our ability to expand our business abroad could be impaired.
 
 We sold
many of our services to customers outside of the U.S.  The marketing,
international distribution, and sale of our products and services expose us to a
number of risks, including the following:
  ●
              fluctuations in currency exchange
      rates;
 ●
              difficulty in engaging and
      retaining distributors who are knowledgeable about and, can function
      effectively in, overseas
markets;
 ●
              increased costs associated with
      maintaining marketing efforts in various
  countries;
 ●
              difficulty and costs relating to
      compliance with the various commercial and legal requirements of the
      overseas markets in which we offer our products;
  and
 ●
              inability to obtain, maintain, or
      enforce intellectual property
rights.
 
 Our
OTC Bulletin Board listing negatively affects the liquidity of our common stock
as compared with other trading boards.
 
 Our
common stock currently trades on the OTC Bulletin Board.  Therefore,
no assurances can be given that a liquid trading market will exist at the time
any stockholder desires to dispose of any shares of our common
stock.  In addition, our common stock is subject to the so-called
"penny stock" rules that impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally defined as an investor with a net
worth in excess of $1 million or annual income exceeding $200,000, or $300,000
together with a spouse).  For transactions covered by the penny stock
rules, a broker-dealer must make a suitability determination for the purchaser
and must have received the purchaser's written consent to the transaction prior
to sale.  Consequently, both the ability of a broker-dealer to sell
our common stock and the ability of holders of our common stock to sell their
securities in the secondary market may be adversely affected.  The
Securities and Exchange Commission (the “SEC”) has adopted regulations that
define a "penny stock" to be an equity security that has a market price of less
than $5.00 per share, subject to certain exceptions.  For any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a disclosure schedule relating to the
penny stock market.  The broker-dealer must disclose the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and, if the broker-dealer is to sell the
securities as a market maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market.  Finally, monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny
stocks.
  14
 Table of Contents
  Our
executive officers, directors and major shareholders have significant
shareholdings, which may lead to conflicts with other shareholders over
corporate governance matters.
 
 Our
current directors, officers and more than 5% shareholders, as a group,
beneficially own approximately 75% of our outstanding common
stock.  Acting together, these shareholders would be able to
significantly influence all matters that our shareholders vote upon, including
the election of directors and mergers or other business
combinations.  As a result, they have the ability to control our
affairs and business, including the election of directors and subject to certain
limitations, approval or preclusion of fundamental corporate
transactions.  This concentration of ownership of our common stock may
delay or prevent a change in the control, impede a merger, consolidation,
takeover or other transaction involving us, or discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain control of our
Company.
 
 We
are subject to the ongoing requirements of section 404 of the Sarbanes-Oxley
Act. If we are unable to timely comply with section 404 or if the costs related
to compliance are significant, our profitability, stock price and results of
operations and financial condition could be materially adversely
affected.
 
 We are
required to comply with the provisions of Section 404 of the Sarbanes-Oxley Act
of 2002, which requires that we document and test our internal controls and
certify that we are responsible for maintaining an adequate system of internal
control procedures.  During fiscal 2008, we documented and tested
certain existing controls and evaluated these existing controls against the
standards adopted by the Committee of Sponsoring Organizations of the Treadway
Commission.  During the course of our ongoing evaluation and
integration of the internal controls of our business, we may identify areas
requiring improvement, and we may have to design enhanced processes and controls
to address issues identified through this review.
 
 We
believe that the out-of-pocket costs, the diversion of management’s attention
from running the day-to-day operations and operational changes caused by the
need to comply with the requirements of Section 404 of the Sarbanes-Oxley Act
could be significant.  If the time and costs associated with such
compliance exceed our current expectations, our results of operations could be
adversely affected.  We cannot be certain at this time that we will be
able to successfully complete the procedures, certification and attestation
requirements of Section 404 or that our auditors will not have to report a
material weakness in connection with the presentation of our financial
statements.  If we fail to comply with the requirements of Section 404
or if our auditors report such material weakness, the accuracy and timeliness of
the filing of our annual report may be materially adversely affected and could
cause investors to lose confidence in our reported financial information, which
could have a negative effect on the trading price of our common
stock.  In addition, a material weakness in the effectiveness of our
internal controls over financial reporting could result in an increased chance
of fraud and the loss of customers, reduce our ability to obtain financing and
require additional expenditures to comply with these requirements, each of which
could have a material adverse effect on our business, results of operations and
financial condition.
  15
 Table of Contents
  Item
1B.  Unresolved Staff Comments.
 
 None.
 
 Item 2.  Properties.
 
 We lease
approximately 11,500 square feet in Omaha, Nebraska, located at 5408 N. 99th
Street.  Our operations, information systems, and executive
headquarters are located in the Omaha facility.  We also have
operational offices in Atlanta, Georgia, Athens, Texas, Sutter Creek,
California, and a small sales and administrative office in Johannesburg, South
Africa.  We believe that our facilities are sufficient for the
operation of our business for the foreseeable future.  The expiration
dates of the above-mentioned lease agreements are as follows:
 
 June 30, 2011
                      Omaha
      – Operational and Administrative HeadquartersMonth
      to month
                      South
      Africa - Sales and Administrative OfficeMarch
      31, 2016
                      Atlanta
      – Operational OfficeMonth
      to month
                      Athens
      – Operational OfficeMonth
      to month
                      Sutter
      Creek – Operational Office
 
 Item 3.  Legal Proceedings.
 
 The
Company, from time to time, may be subject to legal proceedings and claims in
the ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property of third parties by the
Company.  Such claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources.
 
 Cygnus
Telecommunications Technology, LLC.  On June 12, 2001, Cygnus
Telecommunications Technology, LLC ("Cygnus"), filed a patent infringement suit
(case no. 01-6052) in the United States District Court, Central District of
California, with respect to the Company's "international re-origination"
technology. On March 29, 2007 the United States District Court in San Jose,
California ruled that all Cygnus “international re-origination” patents are
invalid, and dismissed all cases against Rapid Link (fka Dial Thru International
Corporation) and related parties. Subsequently, Appellate Courts have
upheld prior Court Rulings, and as a result, the Company believes that it is no
longer subject to any further legal action by Cygnus.
 
 State ofTexas.  During
fiscal 2004, the Company determined, based on final written communications with
the State of Texas, that it had a liability for sales taxes (including penalties
and interest) totaling $1.1 million.  On August 5, 2005, the State of
Texas filed a lawsuit in the 53rd
Judicial District Court of Travis County, Austin, Texas
against the Company.  The lawsuit requested payment of approximately
$1.162 million, including penalties and for state and local sales
tax.  The sales tax amount due is attributable to audit findings of
the State of Texas for the years 1995 to 1999 associated with Canmax Retail
Systems, a former operating subsidiary, which provided retail automation
software and related services to the retail petroleum and convenience store
industries.  The Company will continue to aggressively pursue any
amounts that may be due to the Company from former customers of Canmax Retail
Systems, or other entities involved with the transaction that led to the tax
liability.  However, there can be no assurance that the Company will
be successful with respect to such collections.
 
 Effective
April 30, 2008, the Company entered into a settlement agreement and release with
the State of Texas (“State”) whereby the State released the Company and its
subsidiaries, with the exception of Canmax, from any and all claims related to
the sales tax liability with the State.  In consideration for the
release, the Company paid the State $100,000 during the second quarter of fiscal
2008.  Additionally, effective April 30, 2008, the Company sold
Canmax.
  16
 Table of Contents
  Coastline
Capital. The Company filed a lawsuit against Coastline Capital on
May 5, 2008 for Declaratory Relief from interference in the Valens and Laurus
debenture transactions and Coastline Capital subsequently sued the Company on
June 23, 2008 for broker’s fees on the same transaction.  The Company does
not believe any fees are due on the transaction pursuant to the
non-exclusiveness of the contract and other contractual
provisions.  As a result, the Company will pursue this lawsuit and
defense adamantly, and believes that no fees will be due Coastline
Capital.
 
 Item 4.  Submission of Matters to a Vote of Security
Holders.
 
 No
matters were submitted to a vote of security holders during fiscal
2008.
 
 
 PART
II
 
 Item 5.  Market for Common Equity, Related Stockholder
Matters and Issuer Purchasers of Equity Securities.
 
 Market
for the Company’s Common Stock
 
 The
Company’s common stock, $0.001 par value, is quoted on the OTC Bulletin Board
under the trading symbol “RPID”.  Each share ranks equally as to
dividends, voting rights, participation in assets on winding-up and in all other
respects.  No shares have been or will be issued subject to call or
assessment.  There are no preemptive rights, provisions for redemption
or for either cancellation or surrender, or provisions for sinking or purchase
funds.
 
 The
following table sets forth, for the fiscal periods indicated, the high and low
closing sales price per share of our common stock as reported on the OTC
Bulletin Board:
  High
                            
                            
                            LowFiscal Year Ended October 31,
      2008Fourth
      Quarter
                            
                            $
                            0.11
                            
                            
                            $
                            0.06Third
      Quarter
                            
                            $
                            0.10
                            
                            
                            $
                            0.07Second
      Quarter
                            
                            $
                            0.10
                            
                            
                            $
                            0.06First
      Quarter
                            
                            $
                            0.10
                            
                            
                            $
                            0.07Fiscal Year Ended October 31,
      2007Fourth
      Quarter
                            
                            $
                            0.11
                            
                            
                            $
                            0.04Third
      Quarter
                            
                            $
                            0.08
                            
                            
                            $
                            0.03Second
      Quarter
                            
                            $
                            0.09
                            
                            
                            $
                            0.06First
      Quarter
                            
                            $
                            0.10
                            
                            
                            $
                            0.06
 The
market quotations presented reflect inter-dealer prices, without retail mark-up,
mark-down or commissions and may not necessarily reflect actual
transactions.
 
 The
closing price for our common stock on January 7, 2009, as reported on the OTC
Bulletin Board, was $0.07.
 
 Dividends
 
 We have
never declared or paid any cash dividends on our common stock and do not
presently intend to pay cash dividends on our common stock in the foreseeable
future.  We intend to retain future earnings for reinvestment in our
business.
 
 Holders
of Record
 
 There
were 492 stockholders of record as of January 7, 2009.
  17
 Table of Contents
  Equity
Compensation Plans
 
 The
following table sets forth, as of October 31, 2008, certain information related
to the Company’s compensation plans under which shares of our common stock are
authorized for issuance.
 
 Plan
      Category
                  
                  Number
      of securities to be Issued upon Exercise of Outstanding Options Warrants
      and Rights column (a)
                  
                  Weighted-Average
      Exercise Price of Outstanding Options, Warrants and Rights
                  
                  Number
      of Securities Remaining Available For Future Issuance Under Equity
      Compensation Plans(Excluding Securities Reflected in column in column
      (a))Equity
      compensation plans approved by securityholders
                  
                  1,570,000
      (1)
                  
                  $0.10
                  
                  2,430,000
      (2)Equity
      compensation plans not approved by securityholders
                  
                  -
                  
                  n/a
                  
                  -Total
                  
                  1,570,000
                  
                  $0.10
                  
                  2,430,000
 
 (1)
              Includes
      outstanding options granted pursuant to the Company’s 2002 Equity
      Incentive Plan.
 (2)
              Includes
      shares remaining available for future issuance under the Company’s 2002
      Equity Incentive Plan.
 
 The
Company’s 2002 Equity Incentive Plan (the "Equity Incentive Plan"), as amended,
authorizes the Board of Directors to grant options to purchase up to 4,000,000
shares of the Company’s common stock.  On October 31, 2002 at our
stockholder’s annual meeting, our stockholders approved the adoption of the
Equity Incentive Plan.  The maximum number of shares of common stock
that may be issuable under the Equity Incentive Plan to any individual plan
participant is 1,000,000 shares.  All options granted under the Equity
Incentive Plan have vesting periods up to a maximum of five
years.  The exercise price of an option granted under the Equity
Incentive Plan shall not be less than 85% of the fair value of the common stock
on the date such option is granted.
 
 The
Company’s 1990 Stock Option Plan (the "Option Plan"), as amended, authorized the
Board of Directors to grant options to purchase up to 2,300,000 shares of the
Company’s common stock.  No options were to be granted to any
individual director or employee, which when exercised, would exceed 5% of the
issued and outstanding shares of the Company.  The term of any option
granted under the 1990 Stock Option Plan was fixed by the Board of Directors at
the time the options were granted, provided that the exercise period was not to
be longer than 10 years from the date of grant.  All options granted
under the 1990 Stock Option Plan have up to 10-year terms and have vesting
periods that range from 0 to three years from the grant date.  The
exercise price of any options granted under the 1990 Stock Option Plan is the
fair market value at the date of grant.  On October 31, 1990 at our
stockholder’s annual meeting, our stockholders approved the adoption of the
Option Plan.  Subsequent to the adoption of the Equity Incentive Plan,
no further options will be granted under the Option Plan.
  18
 Table of Contents
  Recent
Sales of Unregistered Securities
 
 During
the fiscal year ended October 31, 2008, we did not issue any securities that
were not registered under the Securities Act of 1933, as amended, except as
disclosed in previous SEC filings.
 
 Purchases of Equity Securities by the Issuer and
Affiliated Purchasers
 
 There
were no repurchases of equity securities by the issuer or affiliated purchasers
during the fiscal year ended October 31, 2008.
 
 Item 6.  Selected Financial Data.
 
 Not
applicable.
 
 Item 7.  Management’s Discussion and Analysis or Plan of
Operation.
 
 Forward-Looking
Statements
 
 This
Annual Report on Form 10-K contains “forward-looking statements”, which are
statements other than historical information or statements of current condition.
Some forward-looking statements may be identified by the use of such terms as
"expects,” "will,” "anticipates,” "estimates,” "believes,” "plans" and words of
similar meaning. These forward-looking statements relate to business plans,
programs, trends, results of future operations, satisfaction of future cash
requirements, funding of future growth, acquisition plans and other matters. In
light of the risks and uncertainties inherent in all such projected matters, the
inclusion of forward-looking statements in this report should not be regarded as
a representation by us or any other person that our objectives or plans will be
achieved or that our operating expectations will be realized. Revenues and
results of operations are difficult to forecast and could differ materially from
those projected in forward-looking statements contained herein, including
without limitation statements regarding our belief of the sufficiency of capital
resources and our ability to compete in the telecommunications industry. Actual
results could differ from those projected in any forward-looking statements for,
among others, the following reasons: (a) increased competition from existing and
new competitors using fixed wireless broadband technology to deliver internet
and telecommunications services, (b) the relatively low barriers to entry for
start-up companies using fixed wireless broadband technology to provide internet
and telecommunications services, (c) the price-sensitive nature of consumer
demand, (d) the relative lack of customer loyalty to any particular provider of
voice and data services, (e) our dependence upon favorable pricing from our
suppliers to compete in the diversified communication services industry, (f)
increased consolidation in the telecommunications industry, which may result in
larger competitors being able to compete more effectively, (g) failure to
attract or retain key employees, (h) continuing changes in governmental
regulations affecting the telecommunications industry and the Internet and (i)
changing consumer demand, technological developments and industry standards that
characterize the industry.  You are also urged to carefully review and
consider the various disclosures we have made which describe certain factors
that affect our business throughout this Report.  For a discussion of
these factors and others, please see "Risk Factors" below in this section of
this report.  Readers are cautioned not to place undue reliance on the
forward-looking statements made in this report or in any document or statement
referring to this report.  All forward-looking statements attributable
to the Company are expressly qualified in their entirety by such language, and
we are not obligated, and do not intend, to update any forward-looking
statements at any time unless an update is required by applicable securities
laws.  The following discussion and analysis of financial condition
and results of operations covers the years ended October 31, 2008 and 2007 and
should be read in conjunction with our Financial Statements and the Notes
thereto commencing at page F-1 included hereof.
  19
 Table of Contents
  Overview
 
 We are a
facilities-based, Diversified Communication Services company providing various
forms of voice, internet and data services to wholesale and retail customers
located throughout the world.  We offer a wide array of communication
services targeted to individuals, enterprises and wholesale
customers.  We continue to seek opportunities to grow our business
through strategic acquisitions of fixed wireless, fiber and other diversified
communication operators that complement our business model.  In order
to support this growth, we will add key personnel who have demonstrated a proven
track record of success in sales, marketing, and operations.
 
 The
Diversified Communication Services industry continues to evolve towards an
increased emphasis on Ethernet based products and services.  We have
focused our business towards these types of products and services for the last
couple of years.  Furthermore, we believe the use of our networks,
either as a stand-alone solution or bundled with other internet products,
provides our customers with the best possible communications
experience.  Concurrently, we remain focused on the growth of our
internet offerings to residential and business customers in underserved
areas.
 
 During
the third quarter of fiscal 2008, we acquired certain assets and assumed certain
liabilities of iBroadband Networks, Inc, and iBroadband of Texas
Inc.  Included in the asset base are several significant fixed
wireless broadband customers, strategic deployment sites and equipment in the
Dallas, Texas area, as well as several thousand retail customers in Athens,
Texas who are provided local and long distance telephony
services.  The acquisition of these strategic assets allows us to
quickly and efficiently expand into this significant marketplace without the
typical upfront costs required to build infrastructure and develop a market of
this size.
 
 During
the second quarter of fiscal 2008, we acquired One Ring Networks, Inc., which
operates one of the largest hybrid fiber wireless broadband networks in the
United States, and is one of the few carriers offering end-to-end communications
and networking services, without reliance on third party
providers.  This acquisition allows us to provide services to high
average revenue per user customers via fixed wireless and fiber optic
transport.  Typically, these customers are small to medium size
businesses, enterprises, and carriers.  We recognize that these
customers require a reliable and cost-effective voice solution.  In
addition, we offer an integrated product that includes local and long distance
calling with internet access in order to satisfy this demand.
 
 On
October 31, 2007, we acquired 100% of the assets of Communications Advantage,
LLC (“Communications Advantage”), and Web-Breeze Networks, LLC (“Web
Breeze”).  The assets include a sizable wireless broadband network in
a rural geographic area of California that fits into the Company’s niche market
business model, a base of customers and revenues that are immediately accretive
to our revenues and earnings, and a staff of tenured professionals with vast
knowledge and experience in the wireless broadband sector.
 
 Critical
Accounting Policies
 
 This
disclosure is based upon the Company’s consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States.  The preparation of these financial statements
requires that we make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities.  We base our estimates on
historical experience and other assumptions that we believe to be proper and
reasonable under the circumstances. We continually evaluate the appropriateness
of estimates and assumptions used in the preparation of its consolidated
financial statements.  Actual results could differ from those
estimates.  The following key accounting policies are impacted
significantly by judgments, assumptions and estimates used in the preparation of
the consolidated financial statements.
  20
 Table of Contents
  Revenue
Recognition
 
 Long
distance communication revenue
 
 Revenues
generated by international re-origination, domestic residential and enterprise
long distance service, and international wholesale termination, which represent
the primary sources of the Company’s revenues, are recognized as revenue based
on minutes of customer usage.  Revenue from these services is
recognized monthly as services are provided.  The Company records
payments received in advance as deferred revenue until such services are
provided.
 
 Alternative
access revenues
 
 The
acquisition of One Ring Networks further enhances the Company’s ability to
provide services via fixed wireless and fiber optic
transport.  Revenues generated through the sale of voice and data
services via fixed wireless and fiber optic transport, which are an increasingly
significant component of the Company’s revenues, are based on set capacity
limits, and generally carry recurring monthly charges for up to three year
contracted terms.  The Company records payments received in advance as
deferred revenue until such services are provided.
 
 Allowance for Uncollectable
Accounts Receivable
 
 Our
receivables are due from commercial enterprises and residential users in both
domestic and international markets.  Trade accounts receivable are
stated at the amount the Company expects to collect.  We regularly
monitor credit risk exposures in our accounts receivable and maintain a general
allowance for doubtful accounts based on historical experience.  The
Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required
payments.  Management considers the following factors when determining
the collectability of specific customer accounts: customer creditworthiness,
past transaction history with the customer, current economic industry trends and
changes in customer payment terms.  Should any of these factors
change, the estimates made by management would also change, which in turn would
impact the level of the Company's future provision for doubtful
accounts.  Specifically, if the financial condition of the Company's
customers were to deteriorate, affecting their ability to make payments,
additional customer-specific provisions for doubtful accounts may be
required.  We review our credit policies on a regular basis and
analyze the risk of each prospective customer individually in order to minimize
our risk.  Based on management's assessment, the Company provides for
estimated uncollectible amounts through a charge to earnings and a credit to a
valuation allowance.  Interest is typically not charged on overdue
accounts receivable.  Balances that remain outstanding after the
Company has used reasonable collection efforts are written off through a charge
to the valuation allowance and a credit to accounts receivable.
 
 Purchase Price Allocation
and Impairment Testing
 
 We
account for our acquisitions using the purchase method of
accounting.  This method requires that the acquisition cost be
allocated to the assets and liabilities we acquired based on their fair
values.  We make estimates and judgments in determining the fair value
of the acquired assets and liabilities.  We base our determination on
independent appraisal reports as well as our internal judgments based on the
existing facts and circumstances.  We record goodwill when the
consideration paid for an acquisition exceeds the fair value of net tangible and
identifiable intangible assets acquired.  If we were to use different
judgments or assumptions, the amounts assigned to the individual assets or
liabilities could be materially different.
  21
 Table of Contents
  Long-lived
assets, including the Company’s customer lists, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets might not be recoverable.  We assess our goodwill for
impairment annually or more frequently if impairment indicators
arise.  In order to properly complete these assessments, we rely on a
number of factors, including operating results, business plans, and anticipated
future cash flows.  Actual results that vary from these factors could
have an impact on the amount of impairment, if any, which actually
occurs.
 
 Stock-Based
Compensation
 
 We
adopted SFAS No. 123R “Share-Based Payment” (“SFAS 123R”) as of November 1,
2006.  All of our existing share-based compensation awards have been
determined to be equity awards.  Under the modified prospective
transition method, we are required to recognize noncash compensation costs for
the portion of share-based awards that are outstanding as of November 1, 2006
for which the requisite service has not been rendered (i.e. nonvested awards) as
the requisite service is rendered on or after that date.  The
compensation cost is based on the grant date fair value of those awards, with
grant date fair value currently being estimated using the Black-Scholes
option-pricing model, a pricing model acceptable under SFAS 123R.  We
are recognizing compensation cost relating to the nonvested portion of those
awards in the consolidated financial statements beginning with the date on which
SFAS 123R is adopted, through the end of the requisite service
period.  SFAS 123R requires that forfeitures be estimated at the time
of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates.
 
 Recent
Accounting Pronouncements
 
 In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”).  SFAS 157 defines fair value, established a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements.  SFAS 157 is generally
effective for financial statements issued for fiscal years beginning after
November 15, 2007.  The Company does not expect the adoption of SFAS
157 to significantly affect its consolidated financial condition or consolidated
results of operations.
 
 In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities”, which allows companies the
option to measure financial assets or liabilities at fair value and include
unrealized gains and losses in net income rather than equity.  This
becomes available when the Company adopts SFAS 157, which will be fiscal
year 2009.  The Company is analyzing the expected impact from adopting
this statement on its financial statements, but currently does not believe its
adoption will have a significant impact on the financial position or results of
operations of the Company.
 
 In
December 2007, the FASB issued SFAS No. 141(revised 2007), “Business
Combinations” (“SFAS 141R”).  SFAS 141R will significantly
change the accounting for business combinations in a number of areas including
the treatment of contingent consideration, contingencies, acquisition costs,
IPR&D and restructuring costs.  In addition, under SFAS 141R,
changes in deferred tax asset valuation allowances and acquired income tax
uncertainties in a business combination after the measurement period will impact
income tax expense.  SFAS 141R is effective for fiscal years
beginning after December 15, 2008 and, as such, we will adopt this standard
in fiscal 2010.  The provisions of SFAS 141R will impact the Company
if it is a party to a business combination after the pronouncement is
adopted.
  22
 Table of Contents
  Results
of Operations
 
 The
following table set forth certain financial data and the percentage of total
revenues of the Company for the periods indicated:
 
 Year
      Ended October 31, 2008
                      
                      
                      
                      
                      
                      Year
      Ended October 31, 2007Amount
                      
                      
                      %
      of Rev.
                      
                      
                      %
      Change 2007 to 2008 Increase (Decr.)
                      
                      
                      Amount
                      
                      
                      %
      of Rev.Revenues
                      
                      $
                      17,238,948
                      
                      
                      
                      100.0
                      %
                      
                      
                      (1
                      %)
                      
                      $
                      17,326,035
                      
                      
                      
                      100.0
                      %Costs
      and expenses:Costs
      of revenues
                      
                      
                      11,705,294
                      
                      
                      
                      67.9
                      %
                      
                      
                      (7
                      %)
                      
                      
                      12,559,905
                      
                      
                      
                      72.5
                      %Sales
      and marketing
                      
                      
                      826,856
                      
                      
                      
                      4.8
                      %
                      
                      
                      (32
                      %)
                      
                      
                      1,212,355
                      
                      
                      
                      7.0
                      %General
      and administrative
                      
                      
                      4,797,337
                      
                      
                      
                      27.9
                      %
                      
                      
                      41
                      %
                      
                      
                      3,403,674
                      
                      
                      
                      19.6
                      %Depreciation
      and amortization
                      
                      
                      1,384,526
                      
                      
                      
                      8.0
                      %
                      
                      
                      49
                      %
                      
                      
                      928,427
                      
                      
                      
                      5.4
                      %Gain
      on forgiveness of liabilities
                      
                      
                      (163,750
                      )
                      
                      
                      (1.0
                      %)
                      
                      
                      N/A
                      
                      
                      
                      -
                      
                      
                      
                      -(Gain)
      loss on disposal of property and equipment
                      
                      
                      (4,240
                      )
                      
                      
                      -
                      
                      
                      
                      (142
                      %)
                      
                      
                      10,061
                      
                      
                      
                      .1
                      %Gain
      on legal settlements
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      N/A
                      
                      
                      
                      (415,213
                      )
                      
                      
                      (2.4
                      %)Total
      costs and expenses
                      
                      
                      18,546,023
                      
                      
                      
                      107.6
                      %
                      
                      
                      (5
                      %)
                      
                      
                      17,699,209
                      
                      
                      
                      102.2
                      %Operating
      loss
                      
                      
                      (1,307,075
                      )
                      
                      
                      (7.6
                      %)
                      
                      
                      250
                      %
                      
                      
                      (373,174
                      )
                      
                      
                      (2.2
                      %)Other
      income (expense):Noncash
      financing expense
                      
                      
                      (457,388
                      )
                      
                      
                      (2.7
                      %)
                      
                      
                      (56
                      %)
                      
                      
                      (1,043,261
                      )
                      
                      
                      (6.0
                      %)Related
      party non-cash financing expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      N/A
                      
                      
                      
                      (33,089
                      )
                      
                      
                      (.2
                      %)Interest
      expense
                      
                      
                      (544,523
                      )
                      
                      
                      (3.1
                      %)
                      
                      
                      91
                      %
                      
                      
                      (284,414
                      )
                      
                      
                      (1.6
                      %)Related
      party interest expense
                      
                      
                      (259,669
                      )
                      
                      
                      (1.5
                      %)
                      
                      
                      (4
                      %)
                      
                      
                      (269,836
                      )
                      
                      
                      (1.6
                      %)Foreign
      currency exchange gain (loss)
                      
                      
                      (7,493
                      )
                      
                      
                      -
                      
                      
                      
                      (271
                      %)
                      
                      
                      4,390
                      
                      
                      
                      -Total
      other income (expense)
                      
                      
                      (1,269,073
                      )
                      
                      
                      (7.3
                      %)
                      
                      
                      (22
                      %)
                      
                      
                      (1,626,210
                      )
                      
                      
                      (9.4
                      %)Loss
      from continuing operations
                      
                      
                      (2,576,148
                      )
                      
                      
                      (14.9
                      %)
                      
                      
                      29
                      %
                      
                      
                      (1,999,384
                      )
                      
                      
                      (11.6
                      %)Discontinued
      operationsGain
      on disposal of discontinued operations
                      
                      
                      1,062,000
                      
                      
                      
                      6.1
                      %
                      
                      
                      N/A
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      loss
                      
                      
                      (1,514,148
                      )
                      
                      
                      (8.8
                      %)
                      
                      
                      (24
                      %)
                      
                      
                      (1,999,384
                      )
                      
                      
                      (11.6
                      %)
 23
 Table of Contents
  Operating
Revenues
 
 Our
revenues decreased $100 thousand, or 1%, as compared to fiscal
2007.  Our business model has shifted from providing low margin legacy
products to providing high-speed internet and integrated voice services, which
are high margin products.  Revenues generated via our hybrid fiber
wireless broadband network increased approximately $1.5 million due to the
acquisitions of One Ring and iBroadband, which was offset by decreased revenues
from our legacy products that include traditional long distance services,
international calling cards, and wholesale voice termination.  In
addition, revenues decreased due to the variable nature of our retail revenue
component.
 
 Costs
of Revenues
 
 Our costs
of revenues decreased $850 thousand for fiscal year 2008 as compared to fiscal
year 2007.  Costs of revenues as a percentage of revenues were 68% for
fiscal year 2008, and decreased 7% compared to fiscal year 2007, which was
73%.
 
 The
decrease in costs of revenues is primarily attributable to decreased revenues,
newly negotiated contracts with carriers, and lower cost of sales, on a
percentage basis, resulting from revenues generated from our hybrid fiber
wireless broadband network, all of which resulted in a higher gross profit
percentage, and lower cost of revenues.  In addition, a majority of
our costs of revenues are variable, based on per minute transportation costs,
costs of revenues as a percentage of revenues will fluctuate, from quarter to
quarter and year to year, depending on the traffic mix between our wholesale and
retail products and total revenue for each year.
 
 Sales
and Marketing Expenses
 
 We sell
and market our services through our in house sales staff, independently
contracted sales agents, and third-party resellers.  Our sales and
marketing costs decreased from 7% of revenues for fiscal 2007 to 5% of revenues
fiscal 2008.  This decrease is primarily attributable to higher
marketing costs and agent commissions incurred during fiscal 2007 as compared to
fiscal 2008.  In fiscal 2008, the revenue base used to calculate agent
commissions decreased due to our increased focus on high-speed internet
products, which yield lower agent commissions on a percentage
basis.  We will continue to focus our sales and marketing efforts on
web portal and magazine advertising, the establishment of distribution networks
to facilitate the introduction and growth of new products and services, and
agent related expenses to generate additional revenues.
 
 General
and Administrative Expenses
 
 Our
general and administrative expenses increased $1.4 million, or 41%, for fiscal
year 2008 as compared to fiscal 2007.  This increase is primarily
attributable to the acquisitions of Communications Advantage in the fourth
quarter of fiscal year 2007 and the acquisition of One Ring during the second
quarter of fiscal 2008, and the acquisition of iBroadband in the third quarter
of fiscal 2008.  General and administrative expenses with these
entities were not incurred in fiscal year 2007.
 
 We review
our general and administrative expenses regularly and continue to manage the
costs accordingly to support our current and anticipated future business,
particularly eliminating redundancies that have resulted from the above
mentioned acquisitions.  We have been proactive in managing our
general & administrative expenses and controlling costs; however, it may be
difficult to achieve significant reductions in future periods due to the
relatively fixed nature of our general and administrative expenses.
 
 Gain
on Forgiveness of Liabilities
 
 Gain on
Forgiveness of Liabilities increased $163,750 during fiscal 2008 as compared to
the same period of fiscal 2007.  This increase is due to Global
Capital Funding Group (“Global”) forgiving any, and all, accrued interest on the
GC-Conote as partial consideration for the Company paying Global the principal
sum of $420,000 on the GC-Conote.
  24
 Table of Contents
  Gain
on Legal Settlements
  During
fiscal year 2007, the Company reached executed settlement agreements and
recorded a “Gain on legal settlements” of $415,000, net of attorney fees
totaling $322,000.  On September 13, 2007, the Company executed a
settlement agreement with Yahoo! settling a dispute over media credits purchased
in a stock purchase agreement dated July 7, 2001.  Yahoo! paid the
Company $475,000 in one lump sum cash payment to settle all disputes and the
Company agreed to dismiss its claims against Yahoo! in connection with such
dispute.  This amount was received in fiscal 2007 and recorded as a
“Gain on legal settlements”.
  On
September 3, 2007, the Company executed a settlement agreement with Affluent
Media, et al settling a dispute over media credits purchased in a stock purchase
agreement dated July 7, 2001.  Affluent Media, et al paid the Company
$35,000 in cash and transferred 300,000 barter credits, recorded at a fair
market value of $225,000, over the subsequent 3-month period to settle all
disputes and the Company agreed to dismiss its claims against Affluent Media, et
al in connection with such dispute.  These amounts received were
recorded in fiscal 2007 as a “Gain on legal settlements”.
  Noncash
Financing Expense, Related Party Non-Cash Financing Expense, Interest Expense
and Related Party Interest Expense
 
 Noncash
financing expense, related party non-cash financing expense, interest expense,
and related party interest expense decreased $369,000, or 23% during fiscal 2008
as compared to fiscal 2007.  The decrease was primarily attributable
to certain debt discounts becoming fully amortized during fiscal
2008.  Noncash financing expense results from the amortization of
deferred financing fees and debt discounts on our debts to third party lenders
and related parties.  The decrease in noncash interest expense was
partially offset by increased interest expense.
 
 Related
party interest expense for fiscal 2008 decreased $10,000, or 4%, as compared to
fiscal 2007.
 
 Liquidity
and Sources of Capital
 
 Our
operating activities used approximately $1.6 million of cash during fiscal 2008,
which primarily resulted from increased operating expenses related to our
acquisitions of iBroadband and One Ring, as well as expenditures that
strengthened our working capital position, which improved $3.4
million.  However, based on a negative operating cash flow during the
current fiscal year, and generally a history of negative operating cash flows,
our current audit report includes an explanatory paragraph indicating doubt
about our ability to continue as a going concern.
 
 Our major
growth areas are anticipated to include the continued expansion of our broadband
internet and voice services, the establishment of additional wholesale points of
termination to offer our existing wholesale and retail customers.  Our
future operating success is dependent on our ability to generate positive cash
flow from our broadband internet and voice services.  Any failure
of our business plan, including the risk and timing involved in rolling out
retail products to end users, could result in a significant cash flow crisis,
and could force us to seek alternative sources of financing as discussed, or to
greatly reduce or discontinue operations.  Although various
possibilities for obtaining financing or effecting a business combination have
been discussed from time to time, there are no agreements with any party to
raise money or for us to combine with another entity and we cannot assure you
that we will be successful in our search for investors or
lenders.  Any additional financing we may obtain may involve material
and substantial dilution to existing stockholders.  In such event, the
percentage ownership of our current stockholders may be materially reduced, and
any new equity securities sold by us may have rights, preferences, or privileges
senior to our current common stockholders.  If we do not obtain additional
financings, divest of certain operating units or other capital assets, or engage
in significant cost reductions, or any combination of the aforementioned, we
expect that our ability to maintain our operations through fiscal 2009 may be
significantly jeopardized.
 25
 Table of Contents
 
 At
October 31, 2008, we had cash and cash equivalents of $231,000, a decrease in
cash and cash equivalents of $265,000 from the balance at October 31,
2007.  We had working capital deficits at October 31, 2008 and 2007 of
$2.1 million and $5.4 million, respectively.
 
 Net cash
(used in) provided by operating activities was ($1,576,000) and 659,000 during
fiscal 2008 and 2007, respectively.  Net cash used in operating
activities during fiscal 2008 was primarily due to a net loss from continuing
operations of $1,514,000 adjusted for non-cash interest expense of $457,000,
depreciation and amortization of $1,385,000, bad debt expense of $79,000,
share-based compensation expense of $35,000; partially offset by a gain on sale
of assets of $4,000, non-cash gain on forgiveness of liabilities of $164,000,
non-cash gain on disposal of discontinued operations of $1,062,000, and net
changes in operating assets and liabilities of $788,000.  Net cash
provided by operating activities during fiscal 2007 was primarily due to a net
loss from continuing operations of $1,999,000 adjusted for: non-cash interest
expense of $1,076,000; depreciation and amortization of $928,000; bad debt
expense of $88,000; loss on disposal of fixed assets of $10,000; net changes in
operating assets and liabilities of $672,000; and share-based compensation
expense of $18,000; partially offset by net reduction of liabilities of
$135,000.
 
 Net cash
used in investing activities was $97,000 and $7,000 for during fiscal 2008 and
2007, respectively.  Net cash used in investing activities during
fiscal 2008 resulted from net purchases of property and equipment of $122,000,
proceeds from the sale of property and equipment of $4,000 and cash advanced to
One Ring of $30,000, partially offset by cash received in the One Ring
acquisition of $25,000 and cash received in the iBroadband acquisition of
$26,000.  Net cash used in investing activities during fiscal 2007
resulted from the purchase of property and equipment of $7,000.
 
 Net cash
provided by (used in) financing activities was $1,408,000 during fiscal 2008
compared to ($186,000) during fiscal 2007.  Net cash provided by
financing activities in fiscal 2008 resulted from proceeds net of the cash
received from the sale of common stock of $120,000, and proceeds from the
issuance of secured notes of $3,325,000; partially offset by payment of
financing fees of $497,000, payment on convertible notes of $1,086,000, payment
on related party notes of $50,000, and payment on capital leases of
$404,000.  Net cash used in financing activities during fiscal 2007
resulted from reduction of bank overdrafts of $101,000 and payment on related
party convertible notes and shareholder advances of $110,000; partially offset
by the sale of common stock for $25,000.
 
 We have
an accumulated deficit of approximately $53.0 million as of October 31, 2008 as
well as a significant working capital deficit.  Funding of our working
capital deficit, current and future operating losses, and expansion will require
continuing capital investment, which may not be available to
us.  Although to date we have been able to arrange the debt facilities
and equity financing described below, there can be no assurance that sufficient
debt or equity financing will continue to be available in the future or that it
will be available on terms acceptable to us. Our current capital
expenditure requirements are not significant, primarily due to the equipment
acquired from One Ring, iBroadband, and equipment acquired through capital lease
transactions, as well as the subsequent consolidation of operating facilities
into one operational facility.
  26
 Table of Contents
  Debt
Facilities and Equity Financing
 
 The
Company has various debt obligations as of October 31, 2008 and 2007, including
amounts due to independent institutions and related
parties.  Descriptions of these debt obligations are included
below.  The following tables summarize outstanding debt as of October
31, 2008 and October 31, 2007:
 
 Information
as of October 31, 2008
 
 Brief
      Description of Debt
                                      
                                      Balance
                                      
                                      
                                      Int.
      Rate
                                      
                                      Maturity
      Date
                                      
                                      Discount
                                      
                                      
                                      NetNotes
      payable, currentVehicles
                                      
                                      $
                                      13,917
                                      
                                      
                                      
                                      7
                                      %
                                      Varies
                                      
                                      
                                      -
                                      
                                      
                                      $
                                      13,917Valens
      Offshore (Valens II)
                                      
                                      
                                      85,000
                                      
                                      
                                      
                                      10
                                      %
                                      3/31/2011
                                      
                                      
                                      12,398
                                      
                                      
                                      
                                      72,602Valens
      U.S. SPV I
                                      
                                      
                                      65,000
                                      
                                      
                                      
                                      10
                                      %
                                      3/31/2011
                                      
                                      
                                      11,072
                                      
                                      
                                      
                                      53,928Convertible
      notes, currentGlobal
      Telecom Solutions
                                      
                                      
                                      120,000
                                      
                                      
                                      
                                      5
                                      %
                                      4/30/2012
                                      
                                      
                                      
                                      
                                      
                                      
                                      120,000Other
                                      
                                      
                                      42,500
                                      
                                      
                                      
                                      10
                                      %
                                      2/28/2008
                                      
                                      
                                      -
                                      
                                      
                                      
                                      42,500Capital
      lease obligations, current
                                      
                                      
                                      585,002
                                      
                                      
                                      
                                      8
                                      %
                                      Varies
                                      
                                      
                                      -
                                      
                                      
                                      
                                      585,002Notes
      payable, less current portionVehicles
                                      
                                      
                                      38,743
                                      
                                      
                                      
                                      7
                                      %
                                      Varies
                                      
                                      
                                      -
                                      
                                      
                                      
                                      38,743Valens
      Offshore (Valens II)
                                      
                                      
                                      1,715,000
                                      
                                      
                                      
                                      10
                                      %
                                      3/31/2011
                                      
                                      
                                      252,570
                                      
                                      
                                      
                                      1,462,430Valens
      U.S. SPV I
                                      
                                      
                                      1,435,000
                                      
                                      
                                      
                                      10
                                      %
                                      3/31/2011
                                      
                                      
                                      231,303
                                      
                                      
                                      
                                      1,203,697Laurus
      Master Fund (Deferred)
                                      
                                      
                                      2,290,451
                                      
                                      
                                      
                                      10
                                      %
                                      3/31/2011
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,290,451Valens
      U.S. SPV I (Deferred)
                                      
                                      
                                      292,709
                                      
                                      
                                      
                                      10
                                      %
                                      3/31/2011
                                      
                                      
                                      -
                                      
                                      
                                      
                                      292,709Convertible
      notes, less current portionGCA-Debenture
                                      
                                      
                                      630,333
                                      
                                      
                                      
                                      6
                                      %
                                      6/30/2011
                                      
                                      
                                      -
                                      
                                      
                                      
                                      630,333GCA-Debenture
                                      
                                      
                                      570,944
                                      
                                      
                                      
                                      6
                                      %
                                      6/30/2011
                                      
                                      
                                      -
                                      
                                      
                                      
                                      570,944GC-Conote
                                      
                                      
                                      180,000
                                      
                                      
                                      
                                      -
                                      
                                      6/30/2011
                                      
                                      
                                      -
                                      
                                      
                                      
                                      180,000Trident-Debenture
                                      
                                      
                                      600,000
                                      
                                      
                                      
                                      10
                                      %
                                      6/30/2011
                                      
                                      
                                      -
                                      
                                      
                                      
                                      600,000Global
      Telecom Solutions
                                      
                                      
                                      280,000
                                      
                                      
                                      
                                      5
                                      %
                                      4/30/2012
                                      
                                      
                                      -
                                      
                                      
                                      
                                      280,000Convertible
      notes payable to related parties, less current portion
                                      
                                      
                                      3,240,000
                                      
                                      
                                      
                                      8
                                      %
                                      6/30/2011
                                      
                                      
                                      -
                                      
                                      
                                      
                                      3,240,000Capital
      lease obligations, less current portion
                                      
                                      
                                      742,784
                                      
                                      
                                      
                                      8
                                      %
                                      Varies
                                      
                                      
                                      -
                                      
                                      
                                      
                                      742,784
 
 
 Debt and
capital lease obligations as of October 31, 2008 are due as
follows:
 
 Within    1
      year
                  
                  1-3
      years
                  
                  3-5
      years
                  
                  Thereafter
                  
                  Total$911,419
                  
                  $11,723,555
                  
                  $121,038
                  
                  $171,371
                  
                  $12,927,383
 27
 Table of Contents
  Information
as of October 31, 2007
  Brief
      Description of Debt
                                
                                Balance
                                
                                
                                Int.
      Rate
                                
                                Maturity
      Date
                                
                                Discount
                                
                                
                                NetConvertible
      notes, currentGC-Conote
                                
                                $
                                1,200,000
                                
                                
                                
                                10.08
                                %
                                2/28/2008
                                
                                $
                                151,515
                                
                                
                                $
                                1,048,485Debenture
                                
                                
                                600,000
                                
                                
                                
                                10
                                %
                                3/8/2008
                                
                                
                                -
                                
                                
                                
                                600,000Other
                                
                                
                                42,500
                                
                                
                                
                                10
                                %
                                2/28/2008
                                
                                
                                
                                
                                
                                
                                42,500Related
      party notes, current
                                
                                
                                50,000
                                
                                
                                
                                10
                                %
                                4/30/2008
                                
                                
                                -
                                
                                
                                
                                50,000Convertible
      notes payable to related parties, current
                                
                                
                                1,000,000
                                
                                
                                
                                8
                                %
                                On
      Demand
                                
                                
                                -
                                
                                
                                
                                1,000,000Convertible notes,
long-termGCA-Debenture
                                
                                
                                630,333
                                
                                
                                
                                6
                                %
                                10/31/2009
                                
                                
                                -
                                
                                
                                
                                630,333GCA-Debenture
                                
                                
                                570,944
                                
                                
                                
                                6
                                %
                                10/31/2009
                                
                                
                                -
                                
                                
                                
                                570,944Convertible
      notes payable to related parties, long-term
                                
                                
                                2,240,000
                                
                                
                                
                                8
                                %
                                11/01/2009
                                
                                
                                -
                                
                                
                                
                                2,240,000
 
 
 Notes Payable -
Vehicles
 
 On March
28, 2008, the Company acquired 100% of the outstanding stock of One Ring
Networks, Inc., which included the assumption of two notes for
vehicles.  The agreements call for monthly payments of $485 and $368,
respectively, and interest accrues at 0% and 7.02%, respectively.  The
principal balance of these two notes at October 31, 2008 was $13,095 and
$15,732, respectively, and the notes mature on January 31, 2011, and November
30, 2012, respectively.
 
 On August
15, 2008, the Company purchased a vehicle for $34,538, which included a cash
payment of $10,000 a five–year note payable for $24,538, which matures on August
14, 2013.  The agreement calls for monthly payments of $440, which
includes interest at an annual percentage rate of 2.82% on the outstanding
principal balance.  The principal balance of this note at October 31,
2008 was $23,832.
 
 Global Telecom
Solutions-ConvertibleNote
 
 On April
30, 2008, the Company entered into a four-year financing agreement with Global
Telecom Solutions (“GTS”) in the principal amount of $460,000 as repayment of
carrier costs payable to GTS in the same amount.  The unsecured
convertible note called for monthly payments of $10,000 and interest accrues at
5% per annum, and may be converted at any time into common stock of the Company
at market price with a floor conversion price of $.10 per common
share.  The market price will be the closing bid price on Bloomberg
the day prior to the receipt by Company from GTS to convert all or a portion of
note at any time during the term of the note.  The Company may prepay
the note by paying 100% of the outstanding principal and accrued
interest.  The principal balance of this note at October 31, 2008 was
$400,000.
 
 Valens II Term A
Note
 
 Effective
March 31, 2008, the Company modified its debt structure by entering into a
Security Agreement with L.V. Administrative Services, Inc. (“L.V.”) and certain
lenders (“Lenders”) including Valens U.S. SPV I (“Valens”), and Valens Offshore
SPV II Corp. (“Valens II”).  L.V. acts as administrative and
collateral agent for the Lenders.  Upon the signing of the Security
Agreement, Valens II provided the Company with $1,800,000 of gross financing,
and the Company issued Valens II a 10% Secured Term A Note (“Valens II Term A”)
in the principal amount of $1,800,000.  As collateral agent for the
Lenders, L.V. maintains a continuing security interest in and lien upon all
assets of Company.  The Company has also executed a Stock Pledge
Agreement pledging all of the stock of Telenational and One Ring to L.V. on
behalf of the Lenders.
  28
 Table of Contents
  In
connection with the sale of the Term A Note, The Company issued Valens II a
common stock purchase warrant to purchase 5,625,000 common shares at $0.01 per
share.  These warrants were valued at $441,903 using the Black-Scholes
model with the following assumptions:  applicable risk-free interest
rate based on the current treasury-bill interest rate of 4.14%; volatility
factor of the expected market price of the Company's common stock of 165%; and a
life of the warrants of five years.  The relative fair value of the
warrants of $354,799 was recorded as a debt discount.  This debt
discount is being amortized over the term of the Valens Term A note using the
interest method.  The Company recognized $89,831 of non-cash financing
expense associated with these warrants using the interest method during the
fiscal year ended October 31, 2008.  The unamortized debt discount at
October 31, 2008 was $264,968.  In addition, the Company incurred
legal, professional, and administrative costs associated with the Valens II
Security Agreement, which resulted in $375,778 of deferred financing fees, of
which $95,143 was expensed using the interest method as noncash financing fees
during the fiscal year ended October 31, 2008.
 
 Interest
accrues under the Term A Note at 10% per annum and is payable monthly commencing
April 1, 2008.  Amortizing payments of principal shall commence on
October 1, 2009 of $85,000 per month, plus accrued interest and any other fees
then due.  The Term A Note matures on March 31, 2011.  The
Company may prepay the Term A Note by paying 100% of the outstanding principal
and repaying all amounts owed under the Security Agreement and all ancillary
documents.
 
 On
October 31, 2008, the Company issued warrants to purchase 8,750,000 Company
shares of its common stock upon exercise at $0.01 per share to Valens in
consideration for amendments to the Security Agreement dated March 31,
2008.  These warrants were valued at $288,068 using the Black-Scholes
model with the following assumptions:  applicable risk-free interest
rate based on the current treasury-bill interest rate of 3.75%; volatility
factor of the expected market price of the Company's common stock of 125%; and a
life of the warrants of five years.  The relative fair value of the
warrants of $288,068 was recorded as an asset and will be amortized monthly as
non-cash financing fees using the straight-line method beginning fiscal year
2009 and ending March 31, 2011, which is the maturity date of the Term A
Note.
 
 Valens Term B
Note
 
 On July
14, 2008 the Company completed the terms and conditions set forth in the
Security Agreement dated as of March 31, 2008, and further amended on July 11,
2008, to obtain additional financing by and among L.V. and certain other lenders
(“Lenders”).  The completed financing agreement includes Valens U.S.
SPV I (“Valens”) purchasing a secured term note (“Term B Note”), the Lenders
agreeing to lend secured revolving loans under certain conditions including the
Company attaining specific financial covenants, and Laurus Master Fund and
Valens purchasing secured promissory notes related to the asset purchase of
iBroadband Networks, Inc., a Texas corporation, and iBroadband of Texas, Inc., a
Delaware corporation in the amounts of approximately $2.3 million and $293
thousand, respectively.  As collateral agent for the Lenders, L.V.
maintains a continuing security interest in and lien upon all assets of
Company.
 
 Effective
July 14, 2008, Valens purchased from the Company a 10% secured term note
(“Term B Note”) in the principal amount of $1.5 million and a warrant to
purchase 4,437,870 shares of common stock at $0.01 per
share.  Interest accrues at 10% per annum and is payable monthly
commencing August 1, 2008.  Amortizing payments of principal shall
commence on October 1, 2009 of $65,000 per month, plus accrued interest and any
other fees then due.  The Term B Note matures on March 31,
2011.  The Company may prepay the Term B Note by paying 100% of the
outstanding principal and repaying all amounts owed under the Security Agreement
and all ancillary documents.
  29
 Table of Contents
  The sale
of the Term B Note and Warrant was dated as of July 11, 2008.  The
Company received gross proceeds of $1,500,000.  Of the gross proceeds,
approximately $26,500 was directed to pay legal fees for investors’ counsel,
$94,500 was directed to Valens for administrative fees, and $420,000 was used as
principal payment on the GC-Conote to Global.  The remaining $959,000
was retained by the Company.
 
 In
connection with the sale of the Term B Note, the Company issued Valens a common
stock purchase warrant to purchase 4,437,870 common shares at $0.01 per
share.  These warrants were valued at $349,478 using the Black-Scholes
model with the following assumptions:  applicable risk-free interest
rate based on the current treasury-bill interest rate of 4.14%; volatility
factor of the expected market price of the Company's common stock of 171%; and a
life of the warrants of five years.  $283,440 represented cash
received relative to the warrants and the remaining amount of $1,216,560 was
allocated to the Term B Note resulting in a debt discount of
$283,440.  The relative fair value of the warrants of $283,440 was
recorded as a debt discount.  This debt discount is being amortized
over the term of the Valens Term B note using the interest
method.  The Company recognized $41,066 of expense associated with
these warrants for the fiscal year ended October 31, 2008.  The
unamortized debt discount at October 31, 2008 was $242,375.  In
addition, the Company incurred legal, professional, and administrative costs
associated with the Valens Security Agreement, which resulted in $120,967 of
deferred financing fees, of which $17,526 was expensed as noncash financing fees
using the interest method for the fiscal year ended October 31,
2008.  The unamortized deferred financing fees at October 31, 2008
were $103,441.
 
 Deferred Purchase Price
Notes
 
 Concurrent
with the Valens Term B financing arrangement, the Company purchased the assets
of iBroadband and assumed secured promissory notes in the aggregate amount of
approximately $2.58 million (“Deferred Purchase Price Notes”), including
approximately a $293,000 loan from Valens and a $2.3 million loan from
Laurus Master Fund.  As collateral agent for the Lenders, L.V.
maintains a continuing security interest in and lien upon all assets of
Company.  Interest accrues at 10% per annum and is payable monthly
commencing the month after the Notes were assumed.  The
outstanding principal of both notes is due on their maturity date, March 31,
2011.  The Company may prepay these Deferred Purchase Price Notes by
paying 100% of the outstanding principal and repaying all amounts owed under the
Security Agreement and all ancillary documents.
 
 GC-Conote
 
 On March
31, 2008, Global Capital Funding Group, LP (“Global”), which is the holder of
the GC-Conote, modified its debt structure with the Company by entering into a
subordination agreement with L.V., acting as agent for itself and the
Lenders.  The agreement calls for the GC-Conote to become subordinate
to the Valens II Term A note.  In connection with the subordination
agreement, Global subordinated all claims and security interests it may have
against any of the assets of the Company, to the security interests granted by
the Company to L.V., acting as collateral agent for the Lenders.  In
addition, Global extended the maturity date of two debentures to June 30, 2011
(see below “GCA Debentures”).  In consideration, the Company made a
principal payment of $600,000 on the GC-Conote and agreed to pay Global the
principal sum of $420,000 upon closing of the Term B Note; with the remainder of
the outstanding principal amount of $180,000, which shall not accrue interest
after March 31, 2008.  The GC-Conote is convertible at any time into
common shares of the Company at the conversion price equal to 80% of the average
of the three lowest volume weighted average sales prices as reported by
Bloomberg L.P. during the twenty Trading Days immediately preceding the related
Notice of Conversion.  However, the conversion price of the Company’s
stock is not to be lower than $0.10 and not to exceed $0.25.
  30
 Table of Contents
  As of
July 11, 2008, and upon closing of the Valens II Term B note, the Company paid
Global the principal sum of $420,000 on the GC-Conote.  In
consideration for the principal payment of $420,000, Global forgave accrued
interest in the amount of $163,750, and is restricted from the selling of any
shares of the Company’s common stock for a period of two years from the
effective date of the amendment to the GC-Conote.  The Company
recorded $163,750 as “Gain on Forgiveness of Liabilities” in its Consolidated
Statement of Operations for fiscal 2009.  In addition, Global agreed
that there are no additional cash monies owed to Global by the Company other
than the remaining principal balance of $180,000 of the
GC-Conote.  The principal balance of the GC-Conote is $180,000 at
October 31, 2008.
 
 GCA
Debentures
 
 As of
October 31, 2008, GCA Strategic Investment Fund Limited (“GCA”) held two Company
convertible debentures having principal amounts of $630,333 and 570,944,
respectively.  The conversion terms of the debentures allow the
Company to elect to pay in GCA cash in lieu of
conversion.  Additionally, GCA is limited to only converting up to
4.99% ownership at a time and there is a floor of $.10 per share on the
conversion which limits the number of common shares for which the notes are
convertible into.
 
 On March
31, 2008, GCA modified its debt structure with the Company by entering into a
subordination agreement with L.V., which acted as agent for itself and for the
Lenders.  The agreement called for the GCA debentures to become
subordinate to the Valens II Term A note.  In connection with the
subordination agreement, GCA subordinated all claims and security interests it
may have against any of the assets of the Company, including VoIP technology and
certain equipment, to the security interests granted by the Company to L.V.,
acting as collateral agent for the Lenders.  The Company may prepay
the GCA debentures by paying 100% of the outstanding principal and accrued
interest.  In addition, GCA extended the maturity date of the two
debentures to June 30, 2011, and is restricted from the selling of any shares of
the Company’s common stock for a period of two years from the effective date of
this amendment.
 
 Trident
Debenture
 
 As of
October 31, 2008, “Trident Growth Fund, L.P. (“Trident”) held a Company
convertible debenture having a principal balance of $600,000.  The
debenture is convertible into common stock of the Company at $.14 per common
share.
 
 During
the second quarter of fiscal 2007, Trident extended the $600,000 debenture with
an original due date of March 8, 2007 to March 8, 2008.  In connection
with the extension, the Company issued Trident 1,200,000 additional warrants,
resulting in deferred financing fees of $83,708, of which $29,401 and $54,307
was expensed as noncash interest expense during fiscal years 2008 and 2007,
respectively.  The fair value of the warrants was determined on the
date of grant using the Black-Scholes pricing model with the following
assumptions: applicable risk-free interest rate based on the current
treasury-bill interest rate of 4.5%; volatility factor of the expected market
price of the Company's common stock of 287%; and an expected life of the
warrants of four years.  Also in connection with extension, the
Company issued Trident additional warrants to purchase 150,000 shares of the
Company’s stock at $.10 per share during fiscal 2008.  The fair value of
the warrants of $8,966 was determined on the date of grant using the
Black-Scholes pricing model with the following assumptions: applicable risk-free
interest rate based on the current treasury-bill interest rate of 4.5%; dividend
yield of 0%; volatility factor of the expected market price of the Company's
common stock of 295%, and a life of the warrants of four years.  The
Company recognized $8,966 of expense associated with the warrants during fiscal
year 2008.
  31
 Table of Contents
  On March
31, 2008, Trident modified its debt structure with the Company by entering into
a subordination agreement with L.V., which acted as agent for itself and for the
Lenders.  The agreement called for the Trident debenture to become
subordinate to the Valens II Term A note.  In connection with the
subordination agreement, Trident subordinated all claims and security interests
it may have against any of the assets of the Company, to the security interests
granted by the Company to L.V., acting as collateral agent for the
Lenders.  In addition, Trident agreed to extend the maturity date of
the principal amount of the $600,000 debenture to June 30, 2011.  In
consideration for the subordination and maturity date extension, the Company
issued Trident a common stock purchase warrant to purchase 60,000 common shares
of the Company’s stock at $0.07 per share.  The fair value of the
warrants totaled $4,503 and was determined on the date of grant using the
Black-Scholes pricing model with the following assumptions: applicable risk-free
interest rate based on the current treasury-bill interest rate of 4.14%;
volatility factor of the expected market price of the Company's common stock of
165%; and a life of the warrants of five years.  The Company
recognized $4,503 of expense associated with the warrants during the fiscal year
ended October 31, 2008.  The Company may prepay the Trident debenture
by paying 100% of the outstanding principal and accrued interest.
 
 Debenture
 
 During
the second quarter of fiscal 2007, a $400,000 debenture with an original due
date of March 8, 2007 was extended to March 8, 2008.  In connection
with the extension, the Company issued 800,000 warrants, resulting in deferred
financing fees of $55,805, of which $19,534 and $36,271 was expensed as noncash
interest expense during fiscal years 2008 and 2007, respectively.  The
fair value of the warrants was determined on the date of grant using the
Black-Scholes pricing model with the following assumptions: applicable risk-free
interest rate based on the current treasury-bill interest rate of 4.5%;
volatility factor of the expected market price of the Company's common stock of
287%; and a life of the warrants of four years.  On October 31, 2007,
debentures totaling $350,000 were converted into 2,500,000 shares of common
stock, and $50,000 of debentures were transferred by the debenture holders to
John Jenkins, the Company’s Chairman.  As of October 31, 2008 and
2007, the principal balance of the debenture was $0 and $0,
respectively.
 
 Related Party
Notes
 
 On May 5,
2006, the Company acquired 100% of the outstanding stock of Telenational
Communications, Inc. (“Telenational”) for $4,809,750, including acquisition
costs of $50,000.  The purchase consideration included a contingent
cash payment in the amount of $500,000 and 19,175,000 shares of the Company’s
common stock valued at $3,259,750.  On October 31, 2007, the
contingent purchase price consideration was converted to a convertible demand
note payable to Apex Acquisitions, Inc. ("Apex”) in the amount of
$500,000.  The Company Chief Executive Officer is the majority
stockholder of Apex.
 
 On
October 31, 2007, the Company entered into an agreement, which modified its debt
structure with Apex.  The agreement called for the outstanding note
originally due in November of 2007 payable to Apex to be extended to November 1,
2009.  The note was also modified to allow for the balance to be
convertible to common stock at market pricing.  The outstanding
balance of the Apex Note, including $120,000 of accrued interest that was rolled
into the note, was $1,120,000 at October 31, 2008 and 2007.
 
 On
October 31, 2007, $50,000 of debentures including $65,889 of accrued interest
was transferred by the debenture holders to John Jenkins, the Company’s
Chairman.  These amounts, along with a $300,000 related party demand
note including accrued interest of $84,111, were rolled into a $500,000
convertible demand note payable to Mr. Jenkins.
 
 On
October 31, 2007, the Company entered into an agreement, which modified its debt
structure with the Company’s Chairman, John Jenkins.  The agreement
called for the outstanding note due in February of 2008 payable to John Jenkins
to be extended to November 1, 2009.  The outstanding balance of these
notes payable to Mr. Jenkins, including $241,000 of accrued interest that was
rolled into the note, was $1,120,000 at October 31, 2008 and
2007.
  32
 Table of Contents
  On March
31, 2008, Apex entered into a subordination agreement with L.V., which acted as
agent for itself and for the Lenders.  The agreement called for the
Apex demand note to become subordinate to the Valens II Term A
note.  In addition, Apex agreed to amend the note by stipulating a
maturity date of June 30, 2011.  The outstanding balance of the Apex
note was $500,000 at October 31, 2008 and 2007.
 
 On March
31, 2008, Apex entered into a subordination agreement with L.V., which acted as
agent for itself and for the Lenders.  The agreement called for the
Apex demand note to become subordinate to the Valens II Term A
note.  In addition, Apex agreed to amend the note by stipulating a
maturity date of June 30, 2011.  The outstanding balance of the Apex
notes was $1,120,000 at October 31, 2008 and 2007.
 
 On March
31, 2008, Mr. Jenkins entered into a subordination agreement with L.V., which
acted as agent for itself and for the Lenders.  The agreement called
for Mr. Jenkins’ demand note to become subordinate to the Valens II Term A
note.  In addition, Mr. Jenkins agreed to amend the note by
stipulating a maturity date of June 30, 2011.  The outstanding balance
of this note was $500,000 at October 31, 2008 and 2007.
 
 On March
31, 2008, Mr. Jenkins entered into a subordination agreement with L.V., which
acted as agent for itself and for the Lenders.  The agreement called
for Mr. Jenkins’ note to become subordinate to the Valens II Term A
note.  In addition, Mr. Jenkins agreed to amend the note by
stipulating a maturity date of June 30, 2011.  The outstanding balance
of this note was $1,120,000 at October 31, 2008 and 2007.
 
 Mr.
Jenkins and APEX may at any time elect to convert their related party
convertible notes into common stock of the Company using a conversion price
equal to the bid price at the day of conversion as shown on
Bloomberg.  In connection with the subordination agreements, Mr.
Jenkins and APEX subordinated all claims and security interests it may have
against any of the assets of the Company, to the security interests granted by
the Company to L.V., acting as collateral agent for the Lenders.  The
Company may prepay the related party notes to Mr. Jenkins and to APEX by paying
100% of the outstanding principal and accrued interest.
 
 Capital Lease
Obligations
 
 On
November 1, 2007, the Company entered into a five-year lease agreement with
Graybar Financial Services (“Graybar”) and acquired equipment valued at
approximately $52,968.  The agreement calls for monthly payments of
approximately $1,058.  The lease contains a provision that entitles
the Company to purchase the equipment for $1 at the end of the lease
term.
 
 On March
31, 2008, the Company acquired 100% of the outstanding stock of One Ring
Networks, Inc. ("One Ring"), which included all of One Ring’s capital lease
agreements with Farnam Street Financial, Inc. (“Farnam”) and NorCal Capital,
Inc. (“NorCal”).
 
 On April
23, 2008, the Company entered into a four-year lease agreement with Graybar
Financial Services (“Graybar 2”) and acquired equipment valued at approximately
$53,514.  The agreement calls for monthly payments of approximately
$1,289.  The lease contains a provision that entitles the Company to
purchase the equipment for $1 at the end of the lease term.
 
 On May 1,
2008, the Company entered into a two-year lease agreement with Farnam and
acquired equipment valued at approximately $107,439.  The agreement
calls for monthly payments of approximately $4,827.  The lease
contains a provision that entitles the Company to purchase the equipment for $1
at the end of the lease term.
  33
 Table of Contents
  On May 7,
2008, the Company entered into a three-year lease agreement with The Huntington
National Bank (“Huntington”) and acquired equipment valued at approximately
$22,888.  The agreement calls for monthly payments of approximately
$708.  The lease contains a provision that entitles the Company to
purchase the equipment for $1 at the end of the lease term.
 
 On June
1, 2008, the Company entered into a two-year lease agreement with Farnam and
acquired equipment valued at approximately $121,488.  The agreement
calls for monthly payments of approximately $5,840.  The lease
contains a provision that entitles the Company to purchase the equipment for $1
at the end of the lease term.
 
 On June
1, 2008, the Company entered into a two-year lease agreement with Farnam and
acquired equipment valued at approximately $169,528.  The agreement
calls for monthly payments of approximately $7,089.  The lease
contains a provision that entitles the Company to purchase the equipment for $1
at the end of the lease term.
 
 On July
16, 2008, the Company entered into a three-year lease agreement with Leaf
Financial Corporation (“Leaf”) and acquired equipment valued at approximately
$71,082.  The agreement calls for monthly payments of approximately
$2,198.  The lease contains a provision that entitles the Company to
purchase the equipment for $1 at the end of the lease term.
 
 On July
27, 2008, the Company entered into a ten-year lease agreement with AGL Networks,
Inc. (“AGL”) and acquired equipment valued at approximately
$302,844.  The agreement calls for monthly payments of approximately
$3,650.  The lease contains a provision that entitles the Company to
purchase the equipment for $1 at the end of the lease term.
 
 On
September 1, 2008, the Company entered into a three-year lease agreement with
AEL Financial Services, LLC (“AEL 1”) and acquired equipment valued at
approximately $32,805.  The agreement calls for monthly payments of
approximately $1,017.  The lease contains a provision that entitles
the Company to purchase the equipment for $1 at the end of the lease
term.
 
 On
September 1, 2008, the Company entered into a three-year lease agreement with
AEL Financial Services, LLC (“AEL 2”) and acquired equipment valued at
approximately $59,958.  The agreement calls for monthly payments of
approximately $1,831.  The lease contains a provision that entitles
the Company to purchase the equipment for $1 at the end of the lease
term.
 
 On
September 17, 2008, the Company entered into a three-year lease agreement with
General Electric Capital Corporation (“GE”) and acquired equipment valued at
approximately $71,715.  The agreement calls for monthly payments of
approximately $2,247.  The lease contains a provision that entitles
the Company to purchase the equipment for $1 at the end of the lease
term.
 
 On
October 1, 2008, the Company entered into a two-year lease agreement with Farnam
and acquired equipment valued at approximately $269,699.  The
agreement calls for monthly payments of approximately $11,404.  The
lease contains a provision that entitles the Company to purchase the equipment
for $1 at the end of the lease term.
  34
 Table of Contents
  The
Company accounts for these leases in accordance with SFAS No. 13 “Accounting for
Leases”.  The following table summarizes the Company’s outstanding
capital lease obligations as of October 31, 2008:
 
 Information
      as of October 31, 2008Capital
      Lease ObligationsBrief
      Description of Capital Lease
                                                          
                                                          Equipment
      Value
                                                          
                                                          Lease
      Term Ends
                                                          
                                                          Monthly
      Payment
                                                          
                                                          
                                                          Short-term
                                                          
                                                          
                                                          Long-termGraybar-1
                                                          
                                                          $
                                                          52,868
                                                          
                                                          11/01/2012
                                                          
                                                          $
                                                          1,058
                                                          
                                                          
                                                          $
                                                          9,638
                                                          
                                                          
                                                          $
                                                          33,986Graybar-2
                                                          
                                                          
                                                          53,514
                                                          
                                                          04/23/2012
                                                          
                                                          
                                                          1,289
                                                          
                                                          
                                                          
                                                          12,388
                                                          
                                                          
                                                          
                                                          33,063Farnam-3
                                                          
                                                          
                                                          56,216
                                                          
                                                          08/01/2009
                                                          
                                                          
                                                          3,691
                                                          
                                                          
                                                          
                                                          32,355
                                                          
                                                          
                                                          
                                                          -Farnam-4
                                                          
                                                          
                                                          83,391
                                                          
                                                          10/01/2009
                                                          
                                                          
                                                          4,899
                                                          
                                                          
                                                          
                                                          52,141
                                                          
                                                          
                                                          
                                                          -Farnam-5
                                                          
                                                          
                                                          90,367
                                                          
                                                          12/01/2009
                                                          
                                                          
                                                          4,809
                                                          
                                                          
                                                          
                                                          55,286
                                                          
                                                          
                                                          
                                                          4,809Farnam-6
                                                          
                                                          
                                                          107,439
                                                          
                                                          04/30/2010
                                                          
                                                          
                                                          4,827
                                                          
                                                          
                                                          
                                                          53,677
                                                          
                                                          
                                                          
                                                          28,487Farnam-7
                                                          
                                                          
                                                          121,488
                                                          
                                                          05/31/2010
                                                          
                                                          
                                                          5,840
                                                          
                                                          
                                                          
                                                          64,514
                                                          
                                                          
                                                          
                                                          40,079Farnam-8
                                                          
                                                          
                                                          169,528
                                                          
                                                          05/31/2010
                                                          
                                                          
                                                          7,089
                                                          
                                                          
                                                          
                                                          78,309
                                                          
                                                          
                                                          
                                                          48,648Farnam-9
                                                          
                                                          
                                                          269,700
                                                          
                                                          10/01/2010
                                                          
                                                          
                                                          11,404
                                                          
                                                          
                                                          
                                                          122,670
                                                          
                                                          
                                                          
                                                          121,372Huntington
                                                          
                                                          
                                                          22,888
                                                          
                                                          05/07/2011
                                                          
                                                          
                                                          708
                                                          
                                                          
                                                          
                                                          7,317
                                                          
                                                          
                                                          
                                                          11,417Leaf
                                                          
                                                          
                                                          71,082
                                                          
                                                          07/16/2011
                                                          
                                                          
                                                          2,198
                                                          
                                                          
                                                          
                                                          22,422
                                                          
                                                          
                                                          
                                                          39,368AGL
                                                          
                                                          
                                                          302,844
                                                          
                                                          07/27/2018
                                                          
                                                          
                                                          3,650
                                                          
                                                          
                                                          
                                                          21,158
                                                          
                                                          
                                                          
                                                          275,072AEL-1
                                                          
                                                          
                                                          32,805
                                                          
                                                          09/01/2011
                                                          
                                                          
                                                          1,017
                                                          
                                                          
                                                          
                                                          10,164
                                                          
                                                          
                                                          
                                                          20,875AEL-2
                                                          
                                                          
                                                          58,958
                                                          
                                                          09/01/2011
                                                          
                                                          
                                                          1,831
                                                          
                                                          
                                                          
                                                          18,304
                                                          
                                                          
                                                          
                                                          37,593GE
                                                          
                                                          
                                                          71,715
                                                          
                                                          09/17/2011
                                                          
                                                          
                                                          2,247
                                                          
                                                          
                                                          
                                                          24,659
                                                          
                                                          
                                                          
                                                          48,015$
                                                          585,002
                                                          
                                                          
                                                          $
                                                          742,784
 
 Contractual
Obligations
 
 Operating
Leases, including Related Party Lease
 
 The
Company leases its corporate office and branch office facilities under various
noncancelable operating leases with terms expiring at various dates through
2016.  The operational and administrative headquarters facility is
leased through June 2011 from Apex Communications, Inc., an entity owned by
executive officers of the Company.  In addition, office space is
leased to support operating divisions located in California, Georgia, Texas, and
in South Africa.  The California, Texas and South Africa leases are
month-to-month.  Rent expense for office operating leases was $229,766
and $196,940 during fiscal year 2008 and 2007, respectively. Rent expense to
Apex was $134,860 for each fiscal year 2008 and 2007, respectively.
 
 Future
minimum lease payments under noncancelable operating leases as of October 31,
2008 are as follows:
 
 Year
      Ending October 31,2009
                      
                      $
                      157,7072010
                      
                      
                      169,7492011
                      
                      
                      125,7712012
                      
                      
                      36,8402013
                      
                      
                      37,8522014
                      
                      
                      38,9152015
                      
                      
                      39,9892016
                      
                      
                      41,088Total
      minimum lease payments
                      
                      $
                      647,911
 
 Future
minimum lease payments for office rent relate to the Apex and Georgia operating
leases.
  35
 Table of Contents
  Facilities
Leases
 
 The
Company has obligations under various Facilities License Agreements (“Facilities
Leases”) to commercial property owners related to communications and information
technology equipment which is used in the Company’s wireless network services
and owned by the Company housed within or atop the commercial
property.  The Facilities Leases generally have terms of one to three
years, require monthly payments between $150 and $5,000 and are renewed
regularly.  A portion of the Company’s Facilities Leases contain
escalation clause which provide for cost of living adjustments each
year.  Total expense under these Facilities Leases was approximately
$195,000 for the fiscal year ended October 31, 2008 and is included within cost
of services in the accompanying statements of operations.
 
 
 Item 8.  Financial Statements.
 
 The
information required by Item 8 of this Report is presented following Item 15,
beginning on page F-1.
 
 Item 9.  Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
 
 None.
 
 Item 9A. (T) Controls and Procedures.
 
 (a)
              Evaluation
      of Disclosure Controls and
Procedures
 
 As of the
end of the period covered by this report, management, with the participation of
Christopher Canfield, our chief executive officer, and Michael McGuane, our
chief financial officer, carried out an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934).  In
designing and evaluating its disclosure controls and procedures, management
recognized that disclosure controls and procedures, no matter how well conceived
and operated can provide only reasonable, but not absolute, assurance that the
objectives of the disclosure controls and procedures are
met.  Additionally, in designing disclosure controls and procedures,
management was necessarily required to apply its judgment in evaluating the
cost-benefit relationship of possible disclosure controls and
procedures.  The design of any disclosure controls and procedures also
is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions.  Based upon that
evaluation, management concluded that these disclosure controls and procedures
were effective as of the end of the period covered in this report.
 
 (b)
              Management’s
      Report on Internal Control Over Financial
  Reporting
 
 The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company.  In order
to evaluate the effectiveness of internal control over financial reporting, as
required by Section 404 of the Sarbanes-Oxley Act, management has conducted an
assessment, including testing using criteria designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles.  Because of the inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements.  Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.  Based on its assessment,
management concluded that the Company’s internal control over financial
reporting was effective as of October 31, 2008.  Management’s report
was not subject to attestation by the Company’s registered public accounting
firm pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management’s report in this annual
report.
  36
 Table of Contents
 
 Item 9B.  Other Information.
 
 None.
 
 PART
III
 
 Item 10.  Directors, Executive Officers and
Corporate Governance.
  The
following table sets forth the names, ages, years elected and principal offices
and positions of our current directors and executive officers as of January 02,
2009.
 
 Name
                  
                  Age
                  
                  Position
      with the Company
                  
                  Year
      First Elected as Officer or DirectorJohn
      A. Jenkins
                  
                  47
                  
                  Chairman,
      Secretary and Director
                  
                  2001Christopher
      J. Canfield
                  
                  48
                  
                  Chief
      Executive Officer, Treasurer and Director
                  
                  2006Michael
      T. McGuane
                  
                  46
                  
                  Chief
      Financial Officer
                  
                  2008Michael
      P. Prachar
                  
                  39
                  
                  Chief
      Operating Officer
                  
                  2006Matthew
      P. Liotta
                  
                  30
                  
                  Chief
      Technology Officer
                  
                  2008David
      R. Hess
                  
                  47
                  
                  Director
                  
                  2002Lawrence
      J. Vierra
                  
                  63
                  
                  Director
                  
                  2000
 
 JOHN A. JENKINS has served as our Chairman of the Board
since October 2001, our Chief Executive Officer from October 2001 until October
2008, served as our President from December 1999 until July 2005, and has served
as a director since December 1999.  Mr. Jenkins has also served as the
President of DTI Com, Inc., one of our subsidiaries, since November
1999.  In May 1997, Mr. Jenkins founded Dial Thru International
Corporation (subsequently dissolved in November 2000), and served as its
President and Chief Executive Officer until joining us in November
1999.  Prior to 1997, Mr. Jenkins served as the President and Chief
Financial Officer for Golden Line Technology, a French telecommunications
company.  Prior to entering the telecommunications industry, Mr.
Jenkins owned and operated several software, technology and real estate
companies. Mr. Jenkins holds degrees in physics and business/economics from
UCLA.
 
 CHRISTOPHER
J. CANFIELD was elected to our Board of Directors in May 2006, and has served as
our Chief Financial Officer from May 2006 until October 2008, our President
since November 2006, and our Chief Executive Officer since October
2008.  Mr. Canfield served as President and CEO of Telenational
Communications, Inc. from April 1998 until its acquisition by Rapid Link in May
2006.  Mr. Canfield has more than 15 years of experience working in
the telecommunications marketplace, and co-founded Resource Communications, Inc.
and Intercontinental Exchange, Inc. in 1995 and 1998 respectively, both of which
were subsequently acquired by major telecommunications companies.  Mr.
Canfield holds a BS degree in Business Administration and Marketing from
California State University Hayward.
 
 MICHAEL
T. MCGUANE was named our Chief Financial Officer in October 2008.  Mr.
McGuane is a Certified Public Accountant and has over 20 years of finance and
accounting experience while working for some of the world's top accounting firms
and publicly traded companies including KPMG Peat Marwick, Deloitte Touche, and
Dole Foods Company.  Mr. McGuane holds an Executive MBA and BSBA from
the University of Nebraska.
 
 MICHAEL
P. PRACHAR has served as Chief Operating Officer since May 2006.  Mr.
Prachar served as Vice President and Chief Operating Officer of Telenational
Communications, Inc. from April 1998 until its acquisition by Rapid Link in May
2006.  Mr. Prachar has been involved in the telecommunications
industry since 1992 and has practical experience in most related aspects,
including equipment service, sales, marketing, management, and information
technology.
  37
 Table of Contents
  MATTHEW
D. LIOTTA was elected to our Board of Directors in October 2008 and is the lead
technologist behind the company's next-generation network.  Mr. Liotta
joined Rapid Link in 2008 with the acquisition of One Ring Networks, a company
he founded in 2004.  Mr. Liotta guided the hybrid fiber and fixed
wireless carrier to become one of the leading alternative access providers in
the country.
 
 DAVID R.
HESS was elected to our Board of Directors in May 2002 and served as our
President from July 2005 until October 2006.  Mr. Hess was
instrumental in orchestrating the Integrated and Telenational
acquisitions.  Prior to joining us, Mr. Hess was the Managing Partner
of RKP Steering Group, a company he co-founded in August 2003.  From
November 2001 until December 2002, Mr. Hess served as the Chief Executive
Officer and President, North America of Telia International Carrier, Inc. Prior
to joining Telia, Mr. Hess was part of a turnaround team hired by the board of
directors of Rapid Link, Incorporated.  He served as the Chief
Executive Officer and as a director of Rapid Link, Incorporated from August 2000
until September 2001. Mr. Hess received a BA in Communications with a Minor in
Marketing from Bowling Green State University.
 
 LAWRENCE
J. VIERRA has served as one of our directors since January 2000, and from that
time through October 2004, served as our Executive Vice President. Currently,
Mr. Vierra is a professor at the University of Las Vegas. From 1995 through
1999, Mr. Vierra served as the Executive Vice President of RSL Com USA, Inc., an
international telecommunications company, where he was primarily responsible for
international sales. Mr. Vierra has also served on the board of directors and
executive committees of various telecommunications companies and he has
extensive knowledge and experience in the international sales and marketing of
telecommunications products and services. Mr. Vierra holds degrees in marketing
and business administration.
 
 Family
Relationships
 
 There are
no family relationships among our directors or executive officers.
 
 Involvement
in Certain Legal Proceedings
 
 None of
our executive officers or directors, other than David Hess, a director, has had
any bankruptcy petition filed by or against any business of which such officer
or director was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time.  None of our
executive officers or directors have been convicted in a criminal proceeding or
are subject to a pending criminal proceeding, excluding traffic violations or
similar misdemeanors, nor have they been a party to any judicial or
administrative proceeding during the past five years that resulted in a
judgment, decree or final order prohibiting activities subject to federal or
state securities laws, or a finding of any violation of federal or state
securities laws.
 
 Meetings
of the Board of Directors
 
 Our Board
of Directors held nine meetings during the fiscal year ended October 31,
2008.  The Board of Directors has two standing committees: an Audit
Committee and a Compensation Committee.  There is no standing
nominating committee.  Each of the directors attended the meeting of
the Board of Directors and all meetings of any committee on which such director
served.
 
 Audit
Committee Financial Expert
 
 We
currently have an audit committee financial expert as defined by Item 401(e) of
Regulation S-B of the Exchange Act.
  38
 Table of Contents
  Audit
Committee
 
 The Audit
Committee is comprised of two non-employee directors, Lawrence J. Vierra and
David Hess.  The Audit Committee makes recommendations to our Board of
Directors or management concerning the engagement of our independent public
accountants and matters relating to our financial statements, our accounting
principles and our system of internal accounting controls.  The Audit
Committee also reports its recommendations to the Board of Directors as to
approval of financial statements.  The Audit Committee held four
meetings during the fiscal year ended October 31, 2008.
 
 Compliance
with Section 16(a) of the Securities Exchange Act of 1934
 
 Section
16(a) of the Exchange Act requires our directors, executive officers, and
persons who own more than 10% of our common stock to file with the SEC initial
reports of ownership and reports of changes in ownership of our common stock and
other equity securities of our Company.  Officers, directors and
greater than 10% stockholders are required by regulations promulgated by the SEC
to furnish us with copies of all Section 16(a) reports they
file.  Based solely on the review of such reports furnished to us and
written representations that no other reports were required, we believe that
during the fiscal year ended October 31, 2008, our executive officers, directors
and all persons who own more than 10% of our common stock complied with all
Section 16(a) requirements.
 
 Code
of Business Conduct and Ethics
 
 We have
adopted a code of business conduct and ethics for employees, executive officers
and directors that is designed to ensure that all of our directors, executive
officers and employees meet the highest standards of ethical
conduct.  The code requires that our directors, executive officers,
and employees avoid conflicts of interest, comply with all laws and other legal
requirements, and conduct business in an honest and ethical manner and otherwise
act with integrity and in our best interest.  Under the terms of the
code, directors, executive officers, and employees are required to report any
conduct that they believe in good faith to be an actual or apparent violation of
the code.
 
 As a
mechanism to encourage compliance with the code, we have established procedures
to receive, retain and treat complaints received regarding accounting, internal
accounting controls or auditing matters.  These procedures ensure that
individuals may submit concerns regarding questionable accounting or auditing
matters in a confidential and anonymous manner.  The code also
prohibits us from retaliating against any director, executive officer, or
employee who reports actual or apparent violations of the code.
  39
 Table of Contents
  Item 11.  Executive Compensation.
 
 Summary
Compensation
 
 The
following table summarizes compensation we paid for services rendered to our
Company during the fiscal years ended October 31, 2008 and 2007 to (i) our Chief
Executive Officer (principal executive officer), (ii) our Chief Financial
Officer (principal financial officer), (iii) the three most highly compensated
executive officers other than our CEO and CFO who were serving as executive
officers at the end of our last completed fiscal year, whose total compensation
exceeded $100,000 during such fiscal year ends, including our Chairman, and (iv)
up to two additional individuals for whom disclosure would have been provided
but for the fact that the individual was not serving as an executive officer at
the end of our last completed fiscal year, whose total compensation exceeded
$100,000 during such fiscal year ends (the "Named Executive
Officers").
 
 
 Summary
      Compensation TableName
      and principal position
                        
                        (a)
                      Year
                        
                        
                        (b)
                      Salary(1)
                        ($)
                        
                        (c)
                      Bonus
                        ($)
                        
                        (d)
                      Stock
      Awards
                        ($)
                        
                        (e)
                      Option
      Awards
                        ($)
                        
                        (f)
                      Non-Equity
      Incentive Plan
                        ($)
                        
                        (g)
                      Non-qualified
      Deferred Compen-sation Earnings
                        ($)
                        
                        (h)
                      All
      other compen-sation
                        ($)
                        
                        (i)
                      Total
                        ($)
                        
                        (j)John
      A. Jenkins
                        Chairman
      (1)
                      2008
                        2007
                      150,000
                        150,000
                      -0-
                        -0-
                      -0-
                        -0-
                      -0-
                        -0-
                      -0-
                        -0-
                      -0-
                        -0-
                      -0-
                        -0-
                      150,000
                        150,000Christopher
      J. Canfield
                        President
      and Chief Executive Officer (2)
                      2008
                        2007
                      150,000
                        150,000
                      -0-
                        -0-
                      -0-
                        -0-
                      -0-
                        -0-
                      -0-
                        -0-
                      -0-
                        -0-
                      -0-
                        -0-
                      150,000
                        150,000Michael
      T. McGuane
                        Chief
      Financial Officer (3)
                      2008
                      116,000
                      -0-
                      -0-
                      -0-
                      -0-
                      -0-
                      -0-
                      116,000Michael
      P. Prachar
                        Chief
      Operating Officer
                      2008
                        2007
                      150,000
                        150,000
                      -0-
                        -0-
                      -0-
                        -0-
                      -0-
                        -0-
                      -0-
                        -0-
                      -0-
                        -0-
                      -0-
                        -0-
                      150,000
                        150,000Matthew
      D. Liotta
                        Chief
      Technology Officer (4)
                      2008
                      112,500
                      -0-
                      -0-
                      -0-
                      -0-
                      -0-
                      -0-
                      112,500
 
 (1)  Mr.
Jenkins was the Company’s Chairman of the Board and Chief Executive Officer in
fiscal 2007.  In October 2008, Mr. Canfield was named the Company’s
Chief Executive Officer while Mr. Jenkins remains the Company’s Chairman of the
Board.
 
 (2)  Mr.
Canfield was the Company’s President and Chief Financial Officer in fiscal 2007
thru September fiscal 2008.  In October of fiscal 2008, Mr. Canfield
was named the Company’s Chief Executive Officer.
 
 (3)  Mr.
McGuane was named the Company’s Chief Financial in October of fiscal
2008.
 
 (4)  Mr.
Liotta currently earns an annual salary of $150,000 and joined the Company on
March 28, 2008 with the acquisition of One Ring Networks.
  40
 Table of Contents
  Outstanding Equity Awards at
Fiscal Year End
 
 The
following table sets forth certain information regarding stock options at
October 31, 2008 by the named executive officers.
 
 OUTSTANDING
EQUITY AWARDS TABLE (1)
 
 Option AwardsEquity
      Incentive Plan Awards:Name
      and Principal  Position
                          Number
      of Securities
                            Underlying
      Unexercised Options
                          Number
      of securities underlying unexercised unearned options
                          Exercise
      Price
                          Expiration
      DateExercisable
                          UnexercisableJohn
      A. Jenkins
                            Chairman
                          100,000
                          -
                          -
                          -
                          -Christopher
      J. Canfield
                            Chief
      Executive Officer
                          -
                          -
                          -
                          -
                          -Michael
      T. McGuane
                            Chief
      Financial Officer
                          200,000
                          200,000
                          -
                          -
                          -Michael
      P. Prachar
                            Chief
      Operating Officer
                          -
                          -
                          -
                          -
                          -Matthew
      D. Liotta
                            Chief
      Technology Officer
                          -
                          -
                          -
                          -
                          -
 
 (1) No named executive officer
has any stock awards outstanding at October 31, 2008.
 
 Employment Agreements
 
 The
Company has not entered into any employment agreements or arrangements, whether
written or oral, with any of its named executive officers.
 
 Compensation
of Directors
 
 The
members of our Board of Directors did not receive any type of compensation from
us during the fiscal year ended October 31, 2008 or the first fiscal quarter
ended January 31, 2009.  Directors are not compensated for attending
Board and committee meetings, though our directors are allowed to participate in
our Equity Incentive Plan for services rendered to the Company as a
director.
 
 Compensation
Committee Interlocks and Insider Participation
 
 During
the fiscal year ended October 31, 2008, our Compensation Committee was comprised
of Larry Vierra and David Hess.  Mr. Vierra serves as the Chairman of
the Compensation Committee.
 
 During
the fiscal year ended October 31, 2008:
 
 (i) none
of our executive officers served as a member of the compensation committee (or
other board committee performing equivalent functions or, in the absence of any
such committee, the entire board of directors) of another entity, one of whose
executive officers served on our Compensation Committee;
 
 (ii) none
of our executive officers served as a director of another entity, one of whose
executive officers served on our Compensation Committee; and
 
 (iii)
none of our executive officers served as a member of the compensation committee
(or other board committee performing equivalent functions or, in the absence of
any such committee, the entire board of directors) of another entity, one of
whose executive officers served as a member of our Board of
Directors.
  41
 Table of Contents
  Item 12.  Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.
 
 The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of December 31, 2008 by (i) each stockholder
known by us to beneficially own five percent (5%) or more of the Company’s
outstanding common stock, (ii) each of our current directors, (iii) each of our
named executive officers and directors and (iv) all of our executive officers
and directors as a group.  Except as otherwise indicated below, each
of the entities or persons named in the table has sole voting and investment
power with respect to all shares of our common stock beneficially
owned.  The percentages in this table are based on 136,545,422 shares
outstanding, assuming exercise and conversion of all options, warrants and other
convertible securities beneficially owned by officers and directors as a
group.  Beneficial ownership is determined in accordance with the
rules of the SEC and generally includes voting or investment power with respect
to the securities.  In computing the number of shares beneficially
owned by a person and the percentage ownership of that person, shares of our
common stock underlying options or warrants or other convertible
securities  held by that person that will be exercisable within 60
days of December 31, 2008, are deemed to be outstanding.  Such shares,
however, are not deemed to be outstanding for the purpose of computing the
percentage ownership of that person but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
 
 Beneficial
      Owner
                      
                      Number
      of Shares
                      
                      PercentApex
      Acquisitions, Inc. (1)
                        P.O.
      Box 8658
                        Breckenridge,
      CO  80424
                      
                      50,366,420
                      
                      36.89%John
      A. Jenkins (2)
                      
                      52,380,000
                      
                      38.36%Christopher
      J. Canfield (3)
                      
                      900,000
                      
                      .66%Michael
      T. McGuane (4)
                      
                      200,000
                      
                      .15%Michael
      P. Prachar
                      
                      -
                      
                      -Matthew
      D. Liotta
                      
                      1,462,626
                      
                      1.07%David
      R. Hess (5)
                      
                      1,000,000
                      
                      .73%Lawrence
      J. Vierra (6)
                      
                      825,000
                      
                      .60%All
      Executive Officers and Directors as a group (7 persons)
(7)
                      
                      107,134,046
                      
                      78.46%
 
 (1) Includes (i) 17,966,420 shares held directly, and
(ii) 32,400,000 shares of common stock which may be acquired through the
conversion of convertible notes (shares from conversion calculated using the
closing bid share price at December 31, 2008 of $0.05), all of which are
exercisable or convertible within 60 days of December 31, 2008.  Apex
is 70% owned by Mr. Canfield and 30% owned by Mr. Prachar, for all shares of
common stock.
 (2)
Includes (i) 19,200,000 shares held directly, (ii) 100,000 shares of common
stock which may be acquired through the exercise of options, (iii) 580,000
shares of common stock which may be acquired through the exercise of warrants,
(iv) 100,000 shares of common stock held by dependent child, and (v) 32,400,000
shares of common stock which may be acquired through the conversion of a
convertible note (shares from conversion calculated using the closing bid share
price at December 31, 2008 of $0.05); all of which are exercisable or
convertible within 60 days of December 31, 2008.
 (3)
Includes 900,000 shares of common stock held by dependents living in the same
household.
 (4)
Includes 200,000 shares of common stock which may be acquired through the
exercise of options, which are exercisable within 60 days of December 31,
2008.
 (5)
Includes (i) 1,000,000 shares of common stock, which may be acquired through the
exercise of warrants, which are exercisable within 60 days of December 31,
2008.
 (6)
Includes (i) 795,000 shares held directly, (ii) 30,000 shares of common stock
which may be acquired through the exercise of warrants, which are exercisable
within 60 days of December 31, 2008.
 (7)
Calculations based on 136,545,422 shares outstanding, assuming exercise and
conversion of all options, warrants and other convertible securities
beneficially owned by officers and directors as a group.
  42
 Table of Contents
  Changes
in Control
 
 There are
no arrangements known to us which may result of a change in control of the
Company.
 
 Item 13.  Certain
Relationships and Related Transactions, and Director
Independence.
 
 In
October 2001, we issued 10% convertible notes (the "Notes") to two of our
executive officers and one director (the "Related Parties"), each of whom was
also a director, who provided financing to our Company in the aggregate
principal amount of $1,945,958.  The Notes were issued as follows: (i)
a note in the principal amount of $1,745,958 to John Jenkins, our Chairman and
former Chief Executive Officer; (ii) a note in the principal amount of $100,000
to our former Executive Vice President and Chief Financial Officer; and (iii) a
note in the principal amount of $100,000 to Lawrence Vierra, a
director.  With an original maturity date of October 24, 2003, these
Notes were amended to mature on February 24, 2004.  Each Note was
originally convertible at six-month intervals only, but was subsequently amended
in November 2002 to provide for conversion into shares of our common stock at
the option of the holder at any time.  The conversion price is equal
to the closing bid price of our common stock on the last trading day immediately
preceding the conversion.  We also issued to the holders of the Notes
warrants to acquire an aggregate of 1,945,958 shares of common stock at an
exercise price of $0.75 per share, which warrants expired on October 24,
2007.
 
 In
January and July 2002, the Notes issued to Mr. Jenkins were amended to include
additional advances in the aggregate principal amount of $402,443.  We
also issued to Mr. Jenkins two warrants to acquire an additional 102,443 and
300,000 shares of common stock, respectively, at an exercise price of $0.75,
which warrants expired on January 28, 2007 and July 8, 2007,
respectively.
 
 On July
21, 2005, our Company and the Related Parties agreed to extend the maturity date
of the Notes to February 29, 2008.  In connection with the extension,
we issued to the Related Parties warrants to acquire 640,000 shares of common
stock at an exercise price of $0.16.  The warrants expire in July
2010.  In September 2005 and 2004, respectively, the holders of the
Notes converted a total aggregate of $467,500 and $877,500, respectively, of the
outstanding principal into an aggregate of 3,740,000 and 6,750,000,
respectively, of shares of common stock.  On September 14, 2006, Mr.
Jenkins agreed to convert all unpaid interest on his Note in the amount of
$901,688 to the principal balance of his Note.
 
 On May 5,
2006, the Company acquired 100% of the outstanding stock of Telenational
Communications, Inc. (“Telenational”) for $4,809,750, including acquisition
costs of $50,000.  The purchase consideration included a contingent
cash payment in the amount of $500,000 and 19,175,000 shares of the Company’s
common stock valued at $3,259,750.  On October 31, 2007, the
contingent purchase price consideration was converted to a convertible demand
note payable to Apex Acquisitions, Inc. ("Apex”) Apex in the amount of
$500,000.  The Company’s Chief Executive Officer and former
President and Chief Financial Officer, Christopher Canfield is the majority
stockholder of Apex.  Michael Prachar, our Chief Operating Officer, is
a minority stockholder of Apex.
 
 On
October 31, 2007, the Company entered into an agreement, which modified its debt
structure with Apex.  The agreement calls for the outstanding note due
in November of 2007 payable to Apex to be extended to November 1,
2009.  The note was also modified to allow for the balance to be
convertible to common stock at market pricing.  The outstanding
balance of the Apex Notes, including $120,000 of accrued interest that was
rolled into the note, was $1,120,000 at October 31, 2008.
  43
 Table of Contents
  On
October 31, 2007, $50,000 of debentures including $65,889 of accrued interest
was transferred by the debenture holders to John Jenkins, the Company’s Chairman
and former Chief Executive Officer.  These amounts, along with a
$300,000 related party demand note including accrued interest of $84,111, were
rolled into a $500,000 convertible demand note payable to Mr.
Jenkins.
 
 On
October 31, 2007, the Company entered into an agreement, which materially
modified its debt structure with the Company’s Chairman and former Chief
Executive Officer, John Jenkins.  The agreement calls for the
outstanding note due in February of 2008 payable to John Jenkins to be extended
to November 1, 2009.  The note was also modified to allow for the
balance to be convertible to common stock at market pricing.  The
outstanding balance of these notes payable to Mr. Jenkins, including $241,000 of
accrued interest that was rolled into the note, was $1,120,000 at October 31,
2008.
 
 On March
31, 2008, Apex entered into a subordination agreement with LV, which acted as
agent for itself and for the lenders.  The agreement called for the
Apex demand note to become subordinate to the Valens II Term A
note.  In addition, Apex agreed to amend the note by stipulating a
maturity date of June 30, 2011.  The outstanding balance of the Apex
Note was $500,000 at October 31, 2008.
 
 On March
31, 2008, Apex entered into a subordination agreement with LV, which acted as
agent for itself and for the lenders.  The agreement called for the
Apex demand note to become subordinate to the Valens II Term A
note.  In addition, Apex agreed to amend the note by stipulating a
maturity date of June 30, 2011.  The outstanding balance of the Apex
Notes was $1,120,000 at October 31, 2008.
 
 On March
31, 2008, Mr. Jenkins entered into a subordination agreement with LV, which
acted as agent for itself and for the lenders.  The agreement called
for Mr. Jenkins’ demand note to become subordinate to the Valens II Term A
note.  In addition, Mr. Jenkins agreed to amend the note by
stipulating a maturity date of June 30, 2011.  The outstanding balance
of Mr. Jenkins debenture was $500,000 at October 31, 2008.
 
 On March
31, 2008, Mr. Jenkins entered into a subordination agreement with LV, which
acted as agent for itself and for the Lenders.  The agreement called
for Mr. Jenkins’ note to become subordinate to the Valens II Term A
note.  In addition, Mr. Jenkins agreed to amend the note by
stipulating a maturity date of June 30, 2011.  The outstanding balance
of Mr. Jenkins’ Notes was $1,120,000 at October 31, 2008.
 
 Director
Independence
 
 Our board
of directors has determined that it currently has two members who qualify as
"independent" as the term is used in Item 407 of Regulation S-K as promulgated
by the SEC and Nasdaq’s Marketplace Rule 4200.  The independent
directors are Larry Vierra and David Hess.  All of the members of our
Audit Committee qualify as independent.  All of the members of each of
our Compensation Committees qualify as independent.
  44
 Table of Contents
  Item 14.  Principal Accountant Fees and
Services.
 
 Audit
Fees
 
 The
aggregate fees billed by KBA Group LLP for professional services rendered for
the audit of the Company's annual financial statements and review of the interim
financial statements included in the Company's Forms 10-QSBs, including services
related thereto, were $110,289 and $108,425 for fiscal 2008 and 2007,
respectively.
 
 Tax
Fees
 
 None
paid to KBA Group, LLP for fiscal 2008 and 2007.
  All
Other Fees
 
 There
were no other fees billed by KBA Group LLP during fiscal 2008 and
2007.
 
 Policy Related to Board of Directors
Pre-Approval of Audit and Permissible Non-Audit Services of Independent
Registered Public Accounting Firm.
 
 The Board
of Directors will engage the Auditor for the audit of the Company’s consolidated
financial statements, and other audit-related work as deemed
necessary.  The Auditor may only be engaged for non-audit related work
if those services enhance and support the attest function of the audit, or are
an extension to the audit or audit related services.  Annually the
Chief Financial Officer (“CFO”) will review with the Board of Directors the
services the Auditor expects to provide in the coming year and the related
fees.  The Auditor shall determine the scope of work necessary to
render an opinion on the consolidated financial statements of the
Company.  This determination should include the locations to visit,
the scope of work to be performed at each location, and the timing of that
work.  The scope of work will be presented to the Board of Directors
for approval.
 
 The
Auditor shall be considered the preferred service provider of Audit Related
Services if services are consistent with the attest role of the Auditor and
either:
 1.
                    services
      can only be provided by the Auditor,
or
 2.
                    services
      are an extension of the work performed as part of the Audit, or rely on
      work performed as part of the Audit such that the quality and timeliness
      of the services can most effectively be provided by the Auditor,
      or
 3.
                    services
      enhance the effectiveness of the Auditor’s examination of the Company’s
      consolidated financial statements.
 The Board
of Directors is responsible for approving all Audit, Audit Related, and Other
Non-Audit Services.  Each year as part of the Annual Audit Plan, the CFO
will provide the Board of Directors with a report of anticipated Audit, Audit
Related, Other Non-Audit Services, together with an estimate of
fees.  The size of the fee and the scope of these services will be
carefully considered so as to avoid any real or perceived question as to the
Auditor’s independence.
 
 In the
fiscal year ended October 31, 2008, 100% and 0% of our Audit-Related
Fees and Tax Fees, respectively, were pre-approved by the Board of
Directors.
 
 The
Company shall not hire an audit engagement team member in a financial reporting
oversight role where that person has prepared financial statements or exercised
influence over the financial statements during the two-year period prior to the
date of employment.  The CFO is responsible for the implementation of
this policy.
  45
 Table of Contents
  PART
IV
 
 Item 15.  Exhibits and Financial
Schedules.
 
 Financial
Statements; Schedules
 
 Our
consolidated financial statements for the fiscal years ending October 31, 2008
and 2007 begin on page F-1 of this annual report on Form 10-K.  We are
not required to file any financial statement schedules.
 
 Exhibits
 
 The
following is a list of all exhibits filed with this Report, including those
incorporated by reference.
 
 2.1
Agreement and Plan of Merger dated as of January 30, 1998, among Canmax Inc.,
CNMX MergerSub, Inc. and US Communications Services, Inc. (filed as Exhibit 2.1
to the Company’s Current Report on Form 8-K filed February 9, 1998 , and
incorporated herein by reference)
 
 2.2
Rescission Agreement dated June 15, 1998 among Canmax Inc., USC and former
principals of USC (filed as Exhibit 10.1 to the Company’s Current Report on Form
8-K dated January 30, 1998, and incorporated herein by reference)
 
 2.3 Asset
Purchase Agreement by and among Affiliated Computed Services, Inc., Canmax and
Canmax Retail Systems, Inc. dated September 3, 1998 (filed as Exhibit 10.1 to
the Company's Current Report on Form 8-K filed December 22, 1998 and
incorporated herein by reference)
 
 2.4 Asset
Purchase Agreement dated November 2, 1999 among ARDIS Telecom &
Technologies, Inc., Dial Thru International Corporation, a Delaware corporation,
Dial Thru International Corporation, a California corporation, and John Jenkins
(filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed November
17, 1999 and incorporated herein by reference)
 
 2.5 Stock
and Asset Purchase Agreement, dated as of September 18, 2001, by and among Rapid
Link USA, Inc., Rapid Link Inc., and Dial Thru International Corporation (filed
as Exhibit 2.1 to the Company's Current Report on Form 8-K filed October 29,
2001 and incorporated herein by reference)
 
 2.6 First
Amendment to Stock and Asset Purchase Agreement, dated as of September 21, 2001,
by and among Rapid Link USA, Inc., Rapid Link Inc., and Dial Thru International
Corporation (filed as Exhibit 2.2 to the Company's Current Form 8-K filed
October 29, 2001 and incorporated herein by reference)
 
 2.7
Second Amendment to Stock and Asset Purchase Agreement, dated as of October 12,
2001, by and among Rapid Link USA, Inc., Rapid Link Inc., and Dial Thru
International Corporation (filed as Exhibit 2.3 to the Company's Current Report
on Form 8-K filed October 29, 2001 and incorporated herein by
reference)
 
 2.8 Third
Amendment to Stock and Asset Purchase Agreement, dated as of October 30, 2001,
by and among Rapid Link USA, Inc., Rapid Link Inc., and Dial Thru International
Corporation (filed as Exhibit 2.4 to the Company's Current Report on Form 8-K
filed December 28, 2001 and incorporated herein by reference)
 
 2.9
Fourth Amendment to Stock and Asset Purchase Agreement, dated as of November 30,
2001, by and among Rapid Link USA, Inc., Rapid Link Inc., and Dial Thru
International Corporation (filed as Exhibit 2.5 to the Company's Current Report
on Form 8-K filed December 28, 2001 and incorporated herein by
reference)
 
 2.10
Asset Purchase Agreement, dated as of October 25, 2005, by and between
Integrated Communications, Inc. and Dial Thru International Corporation (filed
as Exhibit 2.5 to the Company's Current Report on Form 8-K filed October 31,
2005 and incorporated herein by reference)
  46
 Table of Contents
  3.1
Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31,
1999  and incorporated herein by reference)
 
 3.2
Amended and Restated Bylaws of Dial Thru International Corporation (filed as
Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year
ended October 31, 1999 and incorporated herein by reference)
 
 3.3
Amendment to Certificate of Incorporation dated January 11, 2005 and filed with
the State of Delaware on January 13, 2005 (filed as Exhibit 3.3 to the Company’s
Annual Report on Form 10-K for the fiscal year ended October 31, 2004 and
incorporated herein by reference)
 
 3.4
Amendment to Certificate of Incorporation dated October 28, 2005 and filed with
the State of Delaware on November 1, 2005 (filed as Exhibit 3.4 to the Company’s
Annual Report on Form 10-K for the fiscal year ended October 31, 2005 and
incorporated herein by reference)
 
 4.1
Securities Purchase Agreement issued January 28, 2002 between Dial Thru
International Corporation and GCA Strategic Investment Fund Limited (filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-3, File 333-82622,
filed on February 12, 2002 and incorporated herein by reference)
 
 4.2
Registration Rights Agreement dated January 28, 2002 between Dial Thru
International Corporation and GCA Strategic Investment Fund Limited (filed as
Exhibit 4.2 to the Company's Registration Statement on Form S-3, File 333-82622,
filed on February 12, 2002 and incorporated herein by reference)
 
 4.3 6%
Convertible Debenture of Dial Thru International Corporation and GCA Strategic
Investment Fund Limited (filed as Exhibit 4.3 to the Company's Registration
Statement on Form S-3, File 333-82622, filed on February 12, 2002 and
incorporated herein by reference)
 
 4.4
Common Stock Purchase Warrant dated January 28, 2002 between GCA Strategic
Investment Fund Limited and Dial Thru International Corporation (filed as
Exhibit 4.4 to the Company's Registration Statement on Form S-3, File 333-82622,
filed on February 12, 2002 and incorporated herein by reference)
 
 4.5
Securities Purchase Agreement issued November 8, 2002 between Dial Thru
International Corporation and Global Capital Funding Group, L.P. (filed as
Exhibit 4.1 to the Company's Current Report on Form 8-K filed on September 23,
2003, and incorporated herein by reference)
 
 4.6
Secured Promissory Note issued November 8, 2002 between Dial Thru International
Corporation and Global Capital Funding Group, L.P. (filed as Exhibit 4.2 to the
Company's Current Report on Form 8-K filed on September 23, 2003, and
incorporated herein by reference)
 
 4.7
Common Stock Purchase Warrant issued November 8, 2002 between Dial Thru
International Corporation and Global Capital Funding Group, L.P. (filed as
Exhibit 4.3 to the Company's Current Report on Form 8-K filed on September 23,
2003, and incorporated herein by reference)
 
 4.8
Registration Rights Agreement issued November 8, 2002 between Dial Thru
International Corporation and Global Capital Funding Group, L.P. (filed as
Exhibit 4.4 to the Company's Current Report on Form 8-K filed on September 23,
2003, and incorporated herein by reference)
 
 4.9
Securities Purchase Agreement issued July 24, 2003 between Dial Thru
International Corporation and GCA Strategic Investment Fund Limited (filed as
Exhibit 4.5 to the Company's Current Report on Form 8-K filed on September 23,
2003, and incorporated herein by reference)
 
 4.10
Promissory Note issued July 24, 2003 between Dial Thru International Corporation
and GCA Strategic Investment Fund Limited (filed as Exhibit 4.6 to the Company's
Current Report on Form 8-K filed on September 23, 2003, and incorporated herein
by reference)
  47
 Table of Contents
  4.11
Common Stock Purchase Warrant issued July 24, 2003 between Dial Thru
International Corporation and GCA Strategic Investment Fund Limited (filed as
Exhibit 4.6 to the Company's Current Report on Form 8-K filed on September 23,
2003, and incorporated herein by reference)
 
 4.12
Secured Promissory Note dated June 1, 2005 between Global Capital Funding Group,
L.P. and Dial Thru International Corporation (filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K filed on June 7, 2005, and incorporated
herein by reference)
 
 4.13
Common Stock Purchase Warrant dated June 1, 2005 between Global Capital Funding
Group, L.P. and Dial Thru International Corporation (filed as Exhibit 4.2 to the
Company's Current Report on Form 8-K filed on June 7, 2005, and incorporated
herein by reference)
 
 4.14
Common Stock Purchase Warrant dated June 1, 2005 between Global Capital Funding
Group, L.P. and Dial Thru International Corporation (filed as Exhibit 4.3 to the
Company's Form 8-K filed on June 7, 2005, and incorporated herein by
reference)
 
 4.15
Common Stock Purchase Warrant dated June 1, 2005 between GCA Strategic
Investment Fund Limited and Dial Thru International Corporation (filed as
Exhibit 4.5 to the Company's Current Report on Form 8-K filed on June 7, 2005,
and incorporated herein by reference)
 
 4.16
Common Stock Purchase Warrant dated June 1, 2005 between GCA Strategic
Investment Fund Limited and Dial Thru International Corporation (filed as
Exhibit 4.6 to the Company's Form 8-K filed on June 7, 2005, and incorporated
herein by reference)
 
 4.17
Common Stock Purchase Warrant dated June 1, 2005 between GCA Strategic
Investment Fund Limited and Dial Thru International Corporation (filed as
Exhibit 4.7 to the Company's Form 8-K filed on June 7, 2005, and incorporated
herein by reference)
 
 4.18
Securities Purchase Agreement dated March 8, 2007 between Rapid Link,
Incorporated and Trident Growth Fund, L.P. (filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K filed on March 14, 2007, and incorporated
herein by reference)
 
 4.19 10%
Secured Convertible Debenture dated March 8, 2007 between Rapid Link,
Incorporated and Trident Growth Fund, L.P. (filed as Exhibit 4.2 to the
Company's Form 8-K filed on March 14, 2007, and incorporated herein by
reference)
 
 4.20
Common Stock Purchase Warrant dated March 8, 2007 between Rapid Link,
Incorporated and Trident Growth Fund, L.P. (filed as Exhibit 4.3 to the
Company's Current Report on Form 8-K filed on March 14, 2007, and incorporated
herein by reference)
 
 4.21
Security Agreement dated March 8, 2007 between Rapid Link, Incorporated and
Trident Growth Fund, L.P. (filed as Exhibit 4.4 to the Company's Current Report
on Form 8-K filed on March 14, 2007, and incorporated herein by
reference)
 
 4.22
Subordination Agreement dated March 8, 2007 between Rapid Link, Incorporated
Charger Investments, LLC and Trident Growth Fund, L.P. (filed as Exhibit 4.5 to
the Company's Form 8-K filed on March 14, 2007, and incorporated herein by
reference)
 
 4.23
Securities Purchase Agreement dated March 8, 2007 between Rapid Link,
Incorporated and Charger Investments, LLC (filed as Exhibit 4.6 to the Company's
Current Report on Form 8-K filed on March 14, 2007, and incorporated herein by
reference)
  48
 Table of Contents
  4.24 10%
Secured Convertible Debenture dated March 8, 2007 between Rapid Link,
Incorporated and Charger Investments, LLC (filed as Exhibit 4.7 to the Company's
Current Report on Form 8-K filed on March 14, 2007, and incorporated herein by
reference)
 
 4.25
Common Stock Purchase Warrant dated March 8, 2007 between Rapid Link,
Incorporated and Charger Investments, LLC (filed as Exhibit 4.8 to the Company's
Current Report on Form 8-K filed on March 14, 2007, and incorporated herein by
reference)
 
 4.26
Security Agreement dated March 8, 2007 between Rapid Link Incorporated and
Charger Investments, LLC (filed as Exhibit 4.9 to the Company's Current Report
on Form 8-K filed on March 14, 2007, and incorporated herein by
reference)
 
 4.27
Secured Term A Note dated as of March 31, 2008 by Rapid Link, Incorporated and
its subsidiaries and issued to Valens Offshore SPV II, Corp (filed as Exhibit
4.2 to the Company's Current Report on Form 8-K filed on April 10, 2008, and
incorporated herein by reference)
 
 4.28
Common Stock Purchase Warrant dated as of March 31, 2008 between VALENS OFFSHORE
SPV II, CORP., and Rapid Link, Incorporated (filed as Exhibit 4.3 to the
Company's Form 8-K filed on April 10, 2008, and incorporated herein by
reference)
 
 4.29
Secured Promissory Note dated July 11, 2008 between Rapid Link, Inc. and Valens
U.S. SPV I, LLC (filed as Exhibit 4.2 to the Company's Form 8-K filed on July
18, 2008, and incorporated herein by reference)
 
 4.30
Secured Revolving Note dated July 11, 2008 between Rapid Link, Inc. and Valens
U.S. SPV I, LLC (filed as Exhibit 4.3 to the Company's Form 8-K filed on July
18, 2008, and incorporated herein by reference
 
 4.31
Amended and Restated Deferred Purchase Price Note dated July 11, 2008 between
Rapid Link, Incorporated and Laurus Master Fund, Ltd. (filed as Exhibit 4.4 to
the Company's Form 8-K filed on July 18, 2008, and incorporated herein by
reference)
 
 4.32
Common Stock Purchase Warrant dated July 11, 2008 between VALENS U.S. SPV I,
LLC, and Rapid Link, Incorporated (filed as Exhibit 4.5 to the Company's Form
8-K filed on July 18, 2008, and incorporated herein by reference)
 
 4.33
Amended and Restated Deferred Purchase Price Note dated July 11, 2008 between
Rapid Link, Incorporated and Valens U.S. SPV I, LLC (filed as Exhibit 4.6 to the
Company's Form 8-K filed on July 18, 2008, and incorporated herein by
reference)
 
 4.34
Common Stock Purchase Warrant dated October 31, 2008 between Rapid Link,
Incorporated and VALENS U.S. SPV I, LLC (filed as Exhibit 4.2 to the Company's
Form 8-K filed on November 6, 2008, and incorporated herein by
reference)
 
 10.1
Employment Agreement, dated June 30, 1997 between Canmax Retail Systems, Inc.
and Roger Bryant (filed as Exhibit 10.3 to the Company's Registration Statement
on Form S-3, File No. 333-33523, and incorporated herein by
reference)
 
 10.2
Commercial Lease Agreement between Jackson--Shaw/Jetstar Drive Tri-star Limited
Partnership and the Company (filed as Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1998, and incorporated
herein by reference)
 
 10.3
Employment Agreement, dated November 2, 1999 between ARDIS Telecom &
Technologies, Inc. and John Jenkins (filed as Exhibit 4.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 2000and
incorporated herein by reference)
 
 10.4
Amendment Number 1 to Securities Purchase Agreement dated June 1, 2005 between
Global Capital Funding Group, L.P. and Dial Thru International Corporation
(filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June
7, 2005, and incorporated herein by reference)
  49
 Table of Contents
  10.5
Amendment Number 1 to Securities Purchase Agreement dated June 1, 2005 between
GCA Strategic Investment Fund Limited and Dial Thru International Corporation
(filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on June
7, 2005, and incorporated herein by reference)
 
 10.6
Amendment Number 1 to Securities Purchase Agreement dated June 1, 2005 between
GCA Strategic Investment Fund Limited and Dial Thru International Corporation
(filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed on June
7, 2005, and incorporated herein by reference)
 
 10.7
Amendment Number 2 to Securities Purchase Agreement between Rapid Link,
Incorporated and GCA Strategic Investment Fund Limited dated November 2, 2005
(filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on
March 14, 2007, and incorporated herein by reference)
 
 10.8
Stock Purchase Agreement by and between Rapid Link, Incorporated and Apex
Acquisitions, Inc. dated as of May 3, 2007 (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on May 9, 2007, and incorporated
herein by reference)
 
 10.9
Amendment No. 1 to Stock Purchase Agreement by and between Rapid Link,
Incorporated and Apex Acquisitions, Inc. dated as of May 5, 2007 (filed as
Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 9, 2007,
and incorporated herein by reference)
 
 10.10
Stock Pledge Agreement by and between Rapid Link, Incorporated and Apex
Acquisitions, Inc. dated as of May 5, 2007 (filed as Exhibit 10.3 to the
Company's Current Report on Form 8-K filed on May 9, 2007, and incorporated
herein by reference)
 
 10.11
Secured Recourse Promissory Note dated as of May 5, 2007 made by Rapid Link,
Incorporated in favor of Apex Acquisitions, Inc. (filed as Exhibit 10.4 to the
Company's Current Report on Form 8-K filed on May 9, 2007, and incorporated
herein by reference)
 
 10.12
Fifth Allonge to 10% Convertible Note of Dial Thru International Corporation in
favor of John Jenkins, dated September 14, 2007 (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on June 7, 2005, and incorporated
herein by reference)
 
 10.13
Amendment Number 2 to Securities Purchase Agreement between Rapid Link, Inc.,
formerly known as Dial Thru International Corporation, and GCA Strategic
Investment Fund Limited dated September 14, 2007 (filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K filed on September 20, 2007, and
incorporated herein by reference)
 
 10.14
Amendment Number 2 to Securities Purchase Agreement between Rapid Link, Inc.,
formerly known as Dial Thru International Corporation, and Global Capital
Funding Group, L.P. dated September 14, 2007 (filed as Exhibit 10.3 to the
Company's Current Report on Form 8-K filed on September 20, 2007, and
incorporated herein by reference)
 
 10.15
Amendment Number 2 to Securities Purchase Agreement between Rapid Link, Inc.,
formerly known as Dial Thru International Corporation, and GCA Strategic
Investment Fund Limited dated August 15, 2007 (filed as Exhibit 10.4 to the
Company's Current Report on Form 8-K filed on September 20, 2007, and
incorporated herein by reference)
 
 10.16
Amendment Number 3 to 6% Convertible Debenture between GCA Strategic Investment
Fund Limited and Rapid Link, Incorporated, formerly known as Dial Thru
International Corporation dated September 14, 2007 (filed as Exhibit 10.5 to the
Company's Form Current Report on 8-K filed on September 20, 2007, and
incorporated herein by reference)
  50
 Table of Contents
  10.17
Amendment Number 4 to 6% Convertible Debenture between GCA Strategic Investment
Fund Limited and Rapid Link, Incorporated, formerly known as Dial Thru
International Corporation dated September 14, 2007 (filed as Exhibit 10.6 to the
Company's Current Report on Form 8-K filed on September 20, 2007, and
incorporated herein by reference)
 
 10.18
Amendment Number 1 to Secured Promissory Note due February 28, 2008 between
Global Capital Funding Group, L.P. and Rapid Link, Inc., formerly known as Dial
Thru International Corporation dated September 14, 2007 (filed as Exhibit 10.7
to the Company's Current Report on Form 8-K filed on September 20, 2007, and
incorporated herein by reference)
 
 10.19
Amendment Number 1 to Secured Promissory Note due March 30, 2007 between Global
Capital Funding Group, L.P. and Rapid Link, Inc., formerly known as Dial Thru
International Corporation dated September 14, 2007 (filed as Exhibit 10.8 to the
Company's Current Report on Form 8-K filed on September 20, 2007, and
incorporated herein by reference)
 
 10.20
Security Agreement dated March 31, 2008 by and among LV Administrative Services,
Inc. and Rapid Link, Incorporated, One Ring Networks, Inc., Telenational
Communications, Inc. and the lenders set forth therein (filed as Exhibit 10.1 to
the Company's Current Report on Form 8-K filed on April 10, 2008, and
incorporated herein by reference)
 
 10.21
Registration Rights Agreement issued March 31, 2008 between Rapid Link,
Incorporated and Valens Offshore SPV II, Corp. (filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K filed on April 10, 2008, and incorporated
herein by reference)
 
 10.22
Stock Pledge Agreement dated as of March 31, 2008, between LV ADMINISTRATIVE
SERVICES INC., and Rapid Link, Incorporated, (filed as Exhibit 10.3 to the
Company's Current Report on Form 8-K filed on April 10, 2008, and incorporated
herein by reference)
 
 10.23
Management Services dated as of March 31, 2008 by and among Rapid Link,
Incorporated and iBroadband, Inc., and iBroadband Networks,
Inc.  (filed as Exhibit 10.4 to the Company's Current Report on Form
8-K filed on April 10, 2008, and incorporated herein by reference)
 
 10.24
Extension Agreement dated as of March 8, 2008 by and between Trident Growth
Fund, L.P., and Rapid Link Incorporated, (filed as Exhibit 10.5 to the Company's
Current Report on Form 8-K filed on April 10, 2008, and incorporated herein by
reference)
 
 10.25
Subordination Agreement dated March 31, 2008 by and among LV Administrative
Services, Inc. and Rapid Link, Incorporated, and the lenders set forth therein
and Trident Growth Fund, L.P. (filed as Exhibit 10.6 to the Company's Form 8-K
filed on April 10, 2008, and incorporated herein by reference)
 
 10.26
Subordination Agreement dated March 31, 2008 by and among LV Administrative
Services, Inc. and Rapid Link, Incorporated, and the lenders set forth therein
and Global Capital Funding Group, L.P. (filed as Exhibit 10.7 to the Company's
Form 8-K filed on April 10, 2008, and incorporated herein by
reference)
 
 10.27
Subordination Agreement dated March 31, 2008 by and among LV Administrative
Services, Inc. and Rapid Link, Incorporated, and the lenders set forth therein
and GCA Strategic Investment Fund Limited (filed as Exhibit 10.8 to the
Company's Form 8-K filed on April 10, 2008, and incorporated herein by
reference)
 
 10.28
Subordination Agreement dated March 31, 2008 by and among LV Administrative
Services, Inc. and Rapid Link, Incorporated, and the lenders set forth therein
and John Jenkins (filed as Exhibit 10.9 to the Company's Form 8-K filed on April
10, 2008, and incorporated herein by reference)
  51
 Table of Contents
  10.29
Subordination Agreement dated March 31, 2008 by and among LV Administrative
Services, Inc. and Rapid Link, Incorporated, and the lenders set forth therein
and Apex Acquisitions, Inc. (filed as Exhibit 10.10 to the Company's Form 8-K
filed on April 10, 2008, and incorporated herein by reference)
 
 10.30
Amendment No.1 to the Security Agreement, Secured Term A Note, Secured Term B
Note and Deferred Purchase Price Notes dated as of July 11, 2008 by and among
Rapid Link, Incorporated and LV Administrative Services, Inc. (filed as Exhibit
10.1 to the Company's Form 8-K filed on July 18, 2008, and incorporated herein
by reference)
 
 10.31
Registration Rights Agreement dated as of July 31, 2008 between Rapid Link,
Incorporated and Valens.  (filed as Exhibit 10.2 to the Company's Form
8-K filed on July 18, 2008, and incorporated herein by reference)
 
 10.32
Funds Escrow Agreement dated as of July 11, 2008 between Rapid Link, Inc.,
Telenational Communications, Inc., Laurus Master Fund, Ltd., Valens U.S. SPV I,
LLC, Valens Offshore SPV II Corp. and together with Valens US and Laurus, and
Loeb & Loeb LLP.  (filed as Exhibit 10.3 to the Company's Form 8-K
filed on July 18, 2008, and incorporated herein by reference)
 
 10.33
Intellectual Property Security Agreement dated as of July 11, 2008 by
Telenational Communications, Inc. and LV Administrative Services Corp., as
administrative agent for the lender set forth therein.  (filed as
Exhibit 10.4 to the Company's Form 8-K filed on July 18, 2008, and incorporated
herein by reference)
 
 10.34
Secured Party General Conveyance and Bill of Sale dated July 11, 2008 between
Laurus Master Fund, Ltd., iBroadband, Inc., and Rapid Link, Incorporated
including its subsidiaries.  (filed as Exhibit 10.5 to the Company's
Form 8-K filed on July 18, 2008, and incorporated herein by
reference)
 
 10.35
Collateral Assignment dated July 11, 2008 by Rapid Link, Incorporated to LV
Administrative Services, Inc., as administrative and collateral agent to the
Lenders.  (filed as Exhibit 10.6 to the Company's Form 8-K filed on
July 18, 2008, and incorporated herein by reference)
 
 10.36
Amendment Number 5 to Securities Purchase Agreement dated July 11, 2008 between
Rapid Link, Inc. and Global Capital Funding Group.  (filed as Exhibit
10.7 to the Company's Form 8-K filed on July 18, 2008, and incorporated herein
by reference)
 
 10.37
Amendment Number 6 dated as of July 11, 2008 to 6% Convertible Debenture between
Rapid Link, Inc. and GCA Strategic Investment Fund Limited.  (filed as
Exhibit 10.8 to the Company's Form 8-K filed on July 18, 2008, and incorporated
herein by reference)
 
 10.38
Amendment Number 7 dated July 11, 2008 to Securities Purchase Agreement between
Rapid Link, Inc. and GCA Strategic Investment Fund Limited.  (filed as
Exhibit 10.9 to the Company's Form 8-K filed on July 18, 2008, and incorporated
herein by reference)
 
 10.39
Amendment No.2 to the Security Agreement and Amendment No.1 to the Secured
Revolving Note dated as of October 31, 2008 by and among Rapid Link,
Incorporated, and LV Administrative Services, Inc. and (b) Amendment No.1 to the
Secured Revolving Note dated July 11, 2008 issued by Rapid Link, Incorporated in
favor of Valens U.S. SPV I, LLC.  (filed as Exhibit 10.1 to the
Company's Form 8-K filed on November 6, 2008, and incorporated herein by
reference)
  52
 Table of Contents
  14.1 Code
of Business Conduct and Ethics for Employees, Executive Officers and Directors
(filed as Exhibit 14.1 to the Company’s report on Form 10-K for the fiscal year
ended October 31, 2003 and incorporated herein by reference)
 
 21.1
Subsidiaries of the Registrant (filed herewith)
 
 23.1
Consent of Independent Registered Public Accounting Firm (filed
herewith)
 
 31.1
Certificate of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act of 1934 (filed herewith)
 
 31.2
Certificate of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act of 1934 (filed herewith)
 
 32.1
Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
(furnished herewith)
 
 32.2
Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
(furnished herewith)
  53
 Table of Contents
  SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
 
 RAPID
      LINK, INCORPORATED
                  (Registrant)/s/
      Christopher J. CanfieldChristopher
      J. Canfield
                  Chief
      Executive Officer, Treasurer and DirectorDate:
      January 27, 2009
 
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
 
 
 NAME
                
                TITLE
                
                DATE/s/ JOHN A. JENKINS
                
                Chairman
      of the Board, and Secretary
                
                January
      27, 2009John
      A. Jenkins/s/ CHRISTOPHER J. CANFIELD
                
                Chief
      Executive Officer, Treasurer and Director (Principal Executive
      Officer)
                
                January
      27, 2009Christopher
      J. Canfield/s/ MICHAEL T. MCGUANE
                
                Chief
      Financial Officer (Principal Accounting Officer)
                
                January
      27, 2009Michael
      T. McGuane/s/ MATTHEW D. LIOTTA
                
                Director
                
                January
      27, 2009Matthew
      D. Liotta/s/ LAWRENCE J. VIERRA
                
                Director
                
                January
      27, 2009Lawrence
      J. Vierra/s/ DAVID R. HESS
                
                Director
                
                January
      27, 2009David
      R. Hess
 54
 Table of Contents




RAPID
LINK, INCORPORATED AND SUBSIDIARIES


INDEX
TO FINANCIAL STATEMENTS




Consolidated Financial
      Statements:
                  PageReport of Independent Registered Public Accounting
      Firm
                  F-2Consolidated Balance Sheets at October 31, 2008 and
      2007
                  F-3Consolidated Statements of Operations for the fiscal years
      ended October 31, 2008 and 2007
                  F-4Consolidated Statements of Shareholders' Deficit for the fiscal
      years ended October 31, 2008 and 2007
                  F-5Consolidated Statements of Cash Flows for the fiscal years
      ended October 31, 2008 and 2007
                  F-6Notes to Consolidated Financial Statements
                  F-7




F-1
 Table of Contents


REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM











To the
Board of Directors and Shareholders of


Rapid
Link, Incorporated








We have
audited the accompanying consolidated balance sheets of Rapid


Link,
Incorporated and subsidiaries (the “Company”) as of October 31, 2008 and 2007,
and the related consolidated statements of operations, shareholders' deficit,
and cash flows for the years then ended.  These consolidated financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Rapid Link, Incorporated and
subsidiaries as of October 31, 2008 and 2007, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  As discussed in Note 1
to the consolidated financial statements, the Company has suffered recurring
losses from continuing operations during each of the last two fiscal
years.  Additionally, at October 31, 2008, the Company's current
liabilities exceeded its current assets by $2.1 million and the Company has a
shareholders' deficit totaling $2.9 million.  These conditions raise
substantial doubt about the Company's ability to continue as a going
concern.  Management's plans as they relate to these issues are also
explained in Note 1.  The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.





As
discussed in Note 2 to the consolidated financial statements, on November 1,
2006, the Company adopted Statement of Financial Accounting Standards No.
123(R), “Share-Based Payment”.








/s/ KBA
GROUP LLP


Dallas,
Texas


January
27, 2009


F-2
 Table of Contents


RAPID LINK, INCORPORATED AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS








October
      31,2008
                      
                      
                      2007ASSETSCurrent
      assets:Cash
      and cash equivalents
                      
                      $
                      230,841
                      
                      
                      $
                      496,306Accounts
      receivable, net of allowance of $178,618 and
      $53,584,   respectively
                      
                      
                      950,089
                      
                      
                      
                      1,090,954Prepaid
      expenses
                      
                      
                      44,790
                      
                      
                      
                      36,537Other
      current assets
                      
                      
                      327,665
                      
                      
                      
                      200,809Total
      current assets
                      
                      
                      1,553,385
                      
                      
                      
                      1,824,606Property
      and equipment, net
                      
                      
                      2,394,188
                      
                      
                      
                      273,390Customer
      lists, net
                      
                      
                      1,954,414
                      
                      
                      
                      2,536,400Goodwill
                      
                      
                      5,174,012
                      
                      
                      
                      3,107,062Deposits
      and other assets
                      
                      
                      484,675
                      
                      
                      
                      98,032Deferred
      financing fees, net
                      
                      
                      672,144
                      
                      
                      
                      -Total
      assets
                      
                      $
                      12,232,818
                      
                      
                      $
                      7,839,490LIABILITIES
      AND SHAREHOLDERS' DEFICITCurrent
      liabilities:Accounts
      payable
                      
                      $
                      1,595,714
                      
                      
                      $
                      2,319,099Accrued
      interest (including $21,600 and $0, respectively, to related
      parties)
                      
                      
                      231,329
                      
                      
                      
                      227,037Other
      accrued liabilities
                      
                      
                      507,501
                      
                      
                      
                      617,455Deferred
      revenue
                      
                      
                      313,979
                      
                      
                      
                      66,113Deposits
      and other payables
                      
                      
                      75,486
                      
                      
                      
                      77,106Capital
      lease obligations, current portion
                      
                      
                      585,002
                      
                      
                      
                      -Convertible
      notes, current portion, net of debt discount of  $0 and
      $151,515, respectively
                      
                      
                      162,500
                      
                      
                      
                      1,690,985Convertible
      notes payable to related parties, current
                      
                      
                      -
                      
                      
                      
                      1,000,000Related
      party notes, current
                      
                      
                      -
                      
                      
                      
                      50,000Notes
      payable, current portion, net of debt discount of $23,470
      and   $0, respectively
                      
                      
                      140,447
                      
                      
                      
                      -Net
      current liabilities from discontinued operations
                      
                      
                      -
                      
                      
                      
                      1,162,000Total
      current liabilities
                      
                      
                      3,611,958
                      
                      
                      
                      7,209,795Capital
      lease obligations, less current portion
                      
                      
                      742,784
                      
                      
                      
                      -Convertible
      notes, less current portion
                      
                      
                      2,261,277
                      
                      
                      
                      1,201,277Convertible
      notes payable to related parties, less current portion
                      
                      
                      3,240,000
                      
                      
                      
                      2,240,000Notes
      payable, less current portion, net of debt discount of $483,873 and $0,
      respectively
                      
                      
                      5,288,030
                      
                      
                      
                      -Total
      liabilities
                      
                      
                      15,144,049
                      
                      
                      
                      10,651,072Commitments
      and contingenciesShareholders'
      deficit:Preferred
      stock, $.001 par value; 10,000,000 shares authorized;  none
      issued and outstanding
                      
                      
                      -
                      
                      
                      
                      -Common
      stock, $.001 par value; 175,000,000 shares
      authorized;  69,847,444 and 65,161,544 shares issued and
      69,835,422 and 65,149,522 shares outstanding at October 31, 2008 and
      October 31, 2007, respectively
                      
                      
                      69,848
                      
                      
                      
                      65,162Additional
      paid-in capital
                      
                      
                      50,386,214
                      
                      
                      
                      48,976,402Accumulated
      deficit
                      
                      
                      (53,312,423
                      )
                      
                      
                      (51,798,275
                      )Treasury
      stock, at cost; 12,022 shares
                      
                      
                      (54,870
                      )
                      
                      
                      (54,870
                      )Total
      shareholders' deficit
                      
                      
                      (2,911,231
                      )
                      
                      
                      (2,811,581
                      )Total
      liabilities and shareholders' deficit
                      
                      $
                      12,232,818
                      
                      
                      $
                      7,839,490








The
accompanying notes are an integral part of these consolidated financial
statements.





F-3
 Table of Contents


RAPID LINK, INCORPORATED AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS











Year
      Ended October 31,2008
                
                
                2007Revenues
                
                $
                17,238,948
                
                
                $
                17,326,035Costs
      and expenses:Costs
      of revenues
                
                
                11,705,294
                
                
                
                12,559,905Sales
      and marketing
                
                
                826,856
                
                
                
                1,212,355General
      and administrative
                
                
                4,797,336
                
                
                
                3,403,674Depreciation
      and amortization
                
                
                1,384,526
                
                
                
                928,427Gain
      on forgiveness of liabilities
                
                
                (163,750
                )
                
                
                -(Gain)
      loss on disposal of property and equipment
                
                
                (4,240
                )
                
                
                10,061Gain
      on legal settlements
                
                
                -
                
                
                
                (415,213
                )18,546,023
                
                
                
                17,699,209Operating
      loss
                
                
                (1,307,075
                )
                
                
                (373,174
                )Other
      income (expense):Noncash
      financing expense
                
                
                (457,388
                )
                
                
                (1,043,261
                )Related
      party noncash financing expense
                
                
                -
                
                
                
                (33,089
                )Interest
      expense
                
                
                (544,523
                )
                
                
                (284,414
                )Related
      party interest expense
                
                
                (259,669
                )
                
                
                (269,836
                )Foreign
      currency exchange gain (loss)
                
                
                (7,493
                )
                
                
                4,839(1,269,073
                )
                
                
                (1,626,211
                )Net
      loss from continuing operations
                
                
                (2,576,148
                )
                
                
                (1,999,384
                )Discontinued
      operationsGain
      on disposal of discontinued operations
                
                
                1,062,000
                
                
                
                -Net
      loss
                
                $
                (1,514,148
                )
                
                $
                (1,999,384
                )Loss
      per share:Basic
      and diluted weighted average shares outstanding
                
                
                67,944,322
                
                
                
                53,618,865Basic
      and diluted loss per share from continuing operations
                
                $
                (.04
                )
                
                $
                (.04
                )Basic
      and diluted income per share from discontinued operations
                
                
                .02
                
                
                
                -Basic
      and diluted loss per share
                
                $
                (.02
                )
                
                $
                (.04
                )








The
accompanying notes are an integral part of these consolidated financial
statements.


F-4
 Table of Contents


RAPID LINK, INCORPORATED AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ DEFICIT








Common
      StockShares
                          
                          
                          AmountTreasury
      Stock
                          
                          
                          Additional
                            Paid-in
                            Capital
                          
                          
                          Accumulated
                            Deficit
                          
                          
                          TotalBalance,
      October 31, 2006
                          
                          
                          51,181,994
                          
                          
                          $
                          51,182
                          
                          
                          $
                          (54,870
                          )
                          
                          $
                          47,248,729
                          
                          
                          $
                          (49,798,891
                          )
                          
                          $
                          (2,553,850
                          )Issuance
      of common stock in connection with conversion of convertible notes and
      accrued interest
                          
                          
                          12,622,407
                          
                          
                          
                          12,622
                          
                          
                          
                          -
                          
                          
                          
                          1,317,378
                          
                          
                          
                          -
                          
                          
                          
                          1,330,000Issuance
      of common stock for cash
                          
                          
                          357,143
                          
                          
                          
                          358
                          
                          
                          
                          -
                          
                          
                          
                          24,642
                          
                          
                          
                          -
                          
                          
                          
                          25,000Issuance
      of warrants in connection with
                            extension
      of convertible debt
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          278,950
                          
                          
                          
                          -
                          
                          
                          
                          278,950Share-based
      compensation expense
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          17,703
                          
                          
                          
                          
                          
                          
                          
                          17,703Issuance
      of common stock for acquisition
                            of
      Communications Advantage and Web Breeze
                          
                          
                          1,000,000
                          
                          
                          
                          1,000
                          
                          
                          
                          -
                          
                          
                          
                          89,000
                          
                          
                          
                          -
                          
                          
                          
                          90,000Net
      loss
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,999,384
                          )
                          
                          
                          (1,999,384
                          )Balance,
      October 31, 2007
                          
                          
                          65,161,544
                          
                          
                          
                          65,162
                          
                          
                          
                          (54,870
                          )
                          
                          
                          48,976,402
                          
                          
                          
                          (51,798,275
                          )
                          
                          
                          (2,811,581
                          )Issuance
      of common stock for cash
                          
                          
                          800,000
                          
                          
                          
                          800
                          
                          
                          
                          -
                          
                          
                          
                          119,200
                          
                          
                          
                          -
                          
                          
                          
                          120,000Issuance
      of common stock for acquisition
                            of
      One Ring Networks
                          
                          
                          3,885,900
                          
                          
                          
                          3,886
                          
                          
                          
                          -
                          
                          
                          
                          315,507
                          
                          
                          
                          -
                          
                          
                          
                          319,393Share-based
      compensation expense
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          35,330
                          
                          
                          
                          -
                          
                          
                          
                          35,330Issuance
      of warrants in connection with amendments, issuance or extension of
      debentures
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          939,775
                          
                          
                          
                          -
                          
                          
                          
                          939,775Net
      loss
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,514,148
                          )
                          
                          
                          (1,514,148
                          )Balance,
      October 31, 2008
                          
                          
                          69,847,444
                          
                          
                          $
                          69,848
                          
                          
                          $
                          (54,870
                          )
                          
                          $
                          50,386,214
                          
                          
                          $
                          (53,312,423
                          )
                          
                          $
                          (2,911,231
                          )








The
accompanying notes are an integral part of these consolidated financial
statements.


F-5
 Table of Contents


RAPID LINK, INCORPORATED AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS





Year
      Ended October 31,2008
                
                
                2007Cash
      flows from operating activities:Net
      loss
                
                $
                (1,514,148
                )
                
                $
                (1,999,384
                )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Noncash
      interest expense
                
                
                457,388
                
                
                
                1,076,350Depreciation
      and amortization
                
                
                1,384,526
                
                
                
                928,427Bad
      debt expense
                
                
                79,043
                
                
                
                88,812(Gain)
      loss on disposal of property and equipment
                
                
                (4,240
                )
                
                
                10,061Share-based
      compensation expense
                
                
                35,330
                
                
                
                17,703Non-cash
      gain on forgiveness of liabilities
                
                
                (163,750
                )
                
                
                -Non-cash
      gain on legal settlements
                
                
                -
                
                
                
                (135,000
                )Non-cash
      gain on disposal of discontinued operations
                
                
                (1,062,000
                )
                
                
                -Changes
      in operating assets and liabilities (net of effect of
      acquisitions):Accounts
      receivable
                
                
                198,354
                
                
                
                125,801Prepaid
      expenses and other current assets
                
                
                (235,300
                )
                
                
                167,209Deposits
      and other assets
                
                
                (67,434
                )
                
                
                19,925Accounts
      payable
                
                
                (1,256,915
                )
                
                
                116,027Accrued
      liabilities
                
                
                364,076
                
                
                
                351,018Deferred
      revenue
                
                
                213,282
                
                
                
                (117,397
                )Deposits
      and other payables
                
                
                (4,650
                )
                
                
                10,216Net
      cash provided by (used in) operating activities
                
                
                (1,576,438
                )
                
                
                659,136Cash
      flows from investing activities:Purchases
      of property and equipment
                
                
                (122,145
                )
                
                
                (7,048
                )Proceeds
      from sale of property and equipment
                
                
                4,240
                
                
                
                300Cash
      acquired in One Ring acquisition
                
                
                25,396
                
                
                
                -Advances
      to One Ring
                
                
                (30,000
                )
                
                
                -Cash
      acquired in iBroadband acquisition
                
                
                25,560
                
                
                
                -Net
      cash used in investing activities
                
                
                (96,949
                )
                
                
                (6,748
                )Cash
      flows from financing activities:Reduction
      of bank overdrafts
                
                
                -
                
                
                
                (101,097
                )Proceeds
      from sale of common stock
                
                
                120,000
                
                
                
                25,000Proceeds
      from notes payable
                
                
                3,324,538
                
                
                
                -Payment
      on convertible debentures
                
                
                (1,085,910
                )
                
                
                -Payment
      of financing fees
                
                
                (496,745
                )
                
                
                -Payments
      on capital leases
                
                
                (403,961
                )
                
                
                -Payments
      on related party notes and shareholder advances
                
                
                (50,000
                )
                
                
                (110,121
                )Net
      cash provided by (used in) financing activities
                
                
                1,407,922
                
                
                
                (186,218
                )Net
      increase (decrease) in cash and cash equivalents
                
                
                (265,465
                )
                
                
                466,170Cash
      and cash equivalents, beginning of year
                
                
                496,306
                
                
                
                30,136Cash
      and cash equivalents, end of year
                
                $
                230,841
                
                
                $
                496,306Supplemental
      disclosure of cash flow information:Interest
      paid
                
                $
                531,151
                
                
                $
                165,500Supplemental
      schedule of non cash investing and financing activities:Issuance
      of common stock in connection with conversion of convertible notes and
      accrued interest
                
                $
                -
                
                
                $
                430,000Fair
      value of common stock issued in connection with One Ring
      acquisition
                
                
                319,393
                
                
                
                -Capital
      leases assumed in connection with One Ring Networks
      acquisition
                
                
                379,766
                
                
                
                -Debt
      assumed in connection with iBroadband acquisition
                
                
                2,583,160
                
                
                
                -Accrued
      interest to related party converted to note payable to related
      party
                
                
                -
                
                
                
                426,953Accrued
      interest converted to note payable
                
                
                -
                
                
                
                218,453Fair
      value of common stock issued in connection with Communications Advantage
      and Web Breeze acquisition
                
                
                -
                
                
                
                90,000Issuance
      of common stock to related party in connection with conversion of
      convertible notes and accrued interest
                
                
                -
                
                
                
                900,000Note
      issued in connection with Communications Advantage and Web Breeze
      acquisition
                
                
                -
                
                
                
                50,000Fair
      value of warrants issued in connection with amendments, issuance or
      extension of debt
                
                
                939,775
                
                
                
                278,950Property
      and equipment acquired with capital leases
                
                
                1,343,332
                
                
                
                -Vehicle
      purchased with note payable
                
                
                24,598
                
                
                
                -








The
accompanying notes are an integral part of these consolidated financial
statements.


F-6
 Table of Contents


RAPID LINK, INCORPORATED AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS





NOTE
1 - ORGANIZATION AND NATURE OF BUSINESS





Nature
of Business





Rapid
Link, Incorporated, a Delaware corporation, and its subsidiaries (collectively
referred to as “Rapid Link” or the “Company”), have served as facilities-based,
communication companies providing various forms of voice and data services to
customers around the world.  Rapid Link provides a multitude of
communication services targeted to small and medium sized businesses, as well as
individual consumers.  These services include the transmission of
voice and data traffic over public and private networks.  The Company
also sells foreign and domestic termination of voice traffic into the wholesale
market.





The
Company’s product focus is to provide a variety of voice and data services over
its own facilities using alternative access methods.  These services
include local and long distance calling, internet access, and wholesale services
to carriers.  With the addition of the advanced technology and
management expertise acquired in the acquisition of One Ring Networks during the
second quarter of fiscal 2008, the Company continues to build-out an extensive
hybrid fiber wireless network allowing its customers to access services without
relying on the local exchange carrier (LEC).  The Company’s strategy
includes providing service via its own facilities to insure reliable delivery of
its current and future services.  Fixed wireless technology allows for
swift and cost efficient deployment of high-speed networks.  The
Company will utilize WiMAX and other carrier-grade equipment operating in
microwave and millimeter-wave spectrum bands.  Through organic growth
and acquisitions in targeted areas, the Company believes it will possess a
strategic advantage over carriers that do not provide their own network
access.  The Company believes that its strategy of “owning” the
customer by providing the service directly, rather than utilizing the networks
of others, is important to its success.  This strategy insures that
the Company can provide its bundled products and communication services without
the threat of compromised service quality from underlying carriers, and at
significant cost savings when compared with other technologies.





Financial
Condition





The
Company is subject to various risks in connection with the operation of its
business including, among other things, (i) changes in external competitive
market factors, (ii) inability to satisfy anticipated working capital or other
cash requirements, (iii) changes in the availability of transmission facilities,
(iv) changes in the Company's business strategy or an inability to execute its
strategy due to unanticipated changes in the market, (v) various competitive
factors that may prevent the Company from competing successfully in the
marketplace, and (vi) the Company's lack of liquidity and its ability to raise
additional capital.  The Company has an accumulated deficit of
approximately $53 million as of October 31, 2008, as well as a working capital
deficit of approximately $2.1 million.  For the fiscal year ended
October 31, 2008, the Company improved its working capital deficit approximately
$3.3 million from October 31, 2007.  For the fiscal year ended October
31, 2008, the Company’s net loss was approximately $1.5 million, on revenues of
$17.2 million.  Included in net loss for the fiscal year ended October
31, 2008 was a gain on disposal of discontinued operations of approximately $1
million.





Funding
of the Company's working capital deficit, its current and future anticipated
operating losses, and expansion of the Company will require continuing capital
investment.  The Company's strategy is to fund these cash requirements
through debt facilities and additional equity financing.


F-7
 Table of Contents




Although
the Company has been able to arrange debt facilities and equity financing to
date, there can be no assurance that sufficient debt or equity financing will
continue to be available in the future or that it will be available on terms
acceptable to the Company.  Failure to obtain sufficient capital could
materially affect the Company's operations in the short term and hinder
expansion strategies.  The Company continues to explore external
financing opportunities.  Historically, some of the Company’s funding
has been provided by a major shareholder.  At October 31, 2008,
approximately 25% of the Company’s debt is due to the senior management and a
Director of the Company, as well as an entity owned by senior
management.





The
Company’s operating history makes it difficult to accurately assess its general
prospects in the hybrid fiber wireless broadband internet sector of the
Diversified Communication Services industry and the effectiveness of its
business strategy.  As of the date of this report, a majority of the
Company’s revenues are not derived from broadband internet
services.  Instead, the Company generated most of its revenues from
retail fixed-line and wholesale communication services.  In addition,
the Company has limited meaningful historical financial data upon which to
forecast its future sales and operating expenses.  The Company’s
future performance will also be subject to prevailing economic conditions and to
financial, business and other factors.  Accordingly, the Company
cannot assure that it will successfully implement its business strategy or that
its actual future cash flows from operations will be sufficient to satisfy debt
obligations and working capital needs.





Our
independent auditors have included a going concern paragraph in their audit
opinion on our consolidated financial statements for the fiscal year ended
October 31, 2008.  The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Principles of
Consolidation





The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries.  All significant
intercompany balances and transactions have been eliminated.





Use of
Estimates





The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States 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 reporting period.  Actual results could differ
from those estimates.





Revenue
Recognition





Long
distance revenue





Revenues
generated by international re-origination, domestic residential and enterprise
long distance service, and international wholesale termination, which represent
the primary sources of the Company’s revenues, are recognized as revenue based
on minutes of customer usage.  Revenue from these services is
recognized monthly as services are provided.  The Company records
payments received in advance as deferred revenue until such services are
provided.





Alternative
access revenues





The
acquisition of One Ring Networks further enhances the Company’s ability to
provide services via fixed wireless and fiber optic
transport.  Revenues generated through the sale of voice and data
services via fixed wireless and fiber optic transport, which are an increasingly
significant component of the Company’s revenues, are based on set capacity
limits, and generally carry recurring monthly charges for up to three year
contracted terms.  Revenue from these services is recognized monthly
as services are provided.  The Company records payments received in
advance as deferred revenue until such services are provided.




F-8
 Table of Contents




Cash and Cash
Equivalents





The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.  Cash and
cash equivalent are at risk to the extent that they exceed Federal Deposit
Insurance Corporation insured amounts.  To minimize this risk, the
Company places its cash and cash equivalents with high credit quality financial
institutions.





Accounts
Receivable





Trade
accounts receivable are due from commercial enterprises and residential users in
both domestic and international markets.  Trade accounts receivable
are stated at the amount the Company expects to collect.  The Company
regularly monitors credit risk exposures in accounts receivable and maintains a
general allowance for doubtful accounts based on historical experience for
estimated losses resulting from the inability of its customers to make required
payments.  Management considers the following factors when determining
the collectability of specific customer accounts: customer creditworthiness,
past transaction history with the customer, current economic industry trends and
changes in customer payment terms.  Should any of these factors
change, the estimates made by management would also change, which in turn would
impact the level of the Company's future provision for doubtful
accounts.  Specifically, if the financial condition of the Company's
customers were to deteriorate, affecting their ability to make payments,
additional customer-specific provisions for doubtful accounts may be
required.  The Company reviews its credit policies on a regular basis
and analyzes the risk of each prospective customer individually in order to
minimize risk.  Based on management's assessment, the Company provides
for estimated uncollectible amounts through a charge to earnings and a credit to
a valuation allowance.  Interest is typically not charged on overdue
accounts receivable.  Balances that remain outstanding after the
Company has used reasonable collection efforts are written off through a charge
to the valuation allowance and a credit to accounts receivable.





Property and
Equipment





Property
and equipment are stated at cost less accumulated depreciation and
amortization.  Depreciation of property and equipment is calculated
using the straight-line method over the estimated useful lives of the assets
ranging from three to seven years.  Equipment held under capital
leases and leasehold improvements are amortized on a straight-line basis over
the shorter of the remaining lease term or the estimated useful life of the
related asset ranging from two to five years.  Expenditures for
repairs and maintenance are charged to expense as incurred.  Major
renewals and betterments are capitalized.





Goodwill





The
Company reviews goodwill for impairment annually or more frequently if
impairment indicators arise.  Impairment indicators include (i) a
significant decrease in the market value of an asset, (ii) a significant change
in the extent or manner in which an asset is used or a significant physical
change in an asset, (iii) a significant adverse change in legal factors or in
the business climate that could affect the value of an asset or an adverse
action by a regulator, and (iv) a current period operating or cash flow loss
combined with a history of operating or cash flow losses or a projection or
forecast that demonstrates continuing losses associated with an asset used for
the purpose of producing revenue.




F-9
 Table of Contents




The
Company has one operating and reporting segment and one reporting
unit.  For the purpose of identifying the reporting units, the Company
followed the guidance in paragraph 30 of SFAS 142, (i) an operating segment is a
reporting unit if discrete financial information is available (ii) management
regularly reviews individual operating results, and (iii) similar economic
characteristics of components within an operating segment result in a single
reporting unit.  The Company's management regularly reviews one set of
financial information, and all of the Company's products share similar economic
characteristics.  Therefore, the Company has determined that it has
one single reporting unit.





The
Company performs its annual impairment test of goodwill as of October 31 of each
year.  The valuation process appraised the Company's enterprise value
using a combination of market capitalization and multiples of earnings valuation
techniques.  The valuation process indicated that the enterprise fair
value exceeded the carrying value of the Company's net assets and
liabilities.  Accordingly, the Company concluded that no impairment of
goodwill existed at October 31, 2008 and 2007.





Long-Lived
Assets





Long-lived
assets, including the Company’s customer lists, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets might not be recoverable.  The Company does not perform a
periodic assessment of assets for impairment in the absence of such information
or indicators.  Conditions that would necessitate an impairment
include a significant decline in the observable market value of an asset, a
significant change in the extent or manner in which an asset is used, or a
significant adverse change that would indicate that the carrying amount of an
asset or group of assets is not recoverable.  For long-lived assets to
be held and used, the Company recognizes an impairment loss only if an
impairment is indicated by its carrying value not being recoverable through
undiscounted cash flows.  The impairment loss is the difference
between the carrying amount and the fair value of the asset estimated using
discounted cash flows.  Long-lived assets held for sale are reported
at the lower of cost or fair value less costs to sell.





Fair Market Value of
Financial Instruments





The
carrying amount for current assets and liabilities, and long-term debt is not
materially different from fair market value because of the short maturity of the
instruments and/or their respective interest rate amounts and other terms have
been negotiated recently.





Convertible Debt
Obligations





When
applicable, the Company calculates the value of the beneficial conversion
feature embedded in its debt borrowings in accordance with EITF 98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios," and EITF 00-27, "Application of
Issue No. 98-5 to Certain Convertible Instruments," and records the calculated
amount as debt discount.  Debt discount is amortized over the term of
the corresponding debt obligation using the interest method.





Net Loss Per
Share





Basic net
loss per share is computed using the weighted average number of shares of common
stock outstanding during the year.  Diluted net loss per share is
computed using the weighted average number of shares of common stock outstanding
during the year and common equivalent shares consisting of stock options,
warrants, and convertible debentures (using the treasury stock method) to the
extent they are dilutive.




F-10
 Table of Contents
  Shares
issuable upon the exercise of stock options, warrants, and convertible
debentures are excluded from the calculation of net loss per share for the years
ended October 31, 2008 and 2007, as their effect would be
antidilutive.  Potentially issuable shares from outstanding stock
options, warrants and convertible debentures amounted to 121,365,906 and
70,128,410 shares, respectively, as of October 31, 2008 and
2007.





Income
Taxes





The
Company utilizes the asset and liability approach to financial accounting and
reporting for income taxes.  Deferred income taxes and liabilities are
computed for differences between the financial statement carrying amounts and
tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable
income.  Valuation allowances are recorded when necessary to reduce
deferred tax assets to the amount expected to be realized.  Income tax
expense or benefit is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and
liabilities.





Stock-Based
Compensation





The
Company adopted SFAS No. 123R “Share-Based Payment” (“SFAS 123R”) as of November
1, 2006.  All of the Company's existing share-based compensation
awards have been determined to be equity awards.  Under the modified
prospective transition method, the Company is required to recognize noncash
compensation costs for the portion of share-based awards that are outstanding as
of November 1, 2006 for which the requisite service has not been rendered (i.e.
nonvested awards) as the requisite service is rendered on or after that
date.  The compensation cost is based on the grant date fair value of
those awards, with grant date fair value currently being estimated using the
Black-Scholes option-pricing model, a pricing model acceptable under SFAS
123R.  The Company is recognizing compensation cost relating to the
nonvested portion of those awards in the consolidated financial statements
beginning with the date on which SFAS 123R is adopted, through the end of the
requisite service period.  SFAS 123R requires that forfeitures be
estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates.





Effective
November 1, 2006, the Company accounts for equity instruments issued to
non-employees in accordance with the provisions of SFAS 123R and Emerging Issues
Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services.”  All transactions in which goods or services are
the consideration received for the issuance of equity instruments are accounted
for based on the fair value of the consideration received or the fair value of
the equity instrument issued, whichever is more reliably
measurable.  The measurement date of the fair value of the equity
instrument issued is the earlier of the date on which the counterparty's
performance is complete or the date on which it is probable that performance
will occur.





Noncash
share-based compensation costs recorded in general and administrative expenses
for the fiscal year ended October 31, 2008 and 2007 were $35,330 and $17,703,
respectively.  During the fiscal year ended October 31, 2008, there
were 400,000 stock options granted to employees.  The Company issues
new shares of common stock upon exercise of stock options.  As of
October 31, 2008, the total unrecognized compensation cost related to non-vested
options was $46,247, and the weighted average period over which it will be
recognized is 2.38 years.




F-11
 Table of Contents




Recent Accounting
Pronouncements





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”).  SFAS 157 defines fair value, established a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements.  SFAS 157 is generally
effective for financial statements issued for fiscal years beginning after
November 15, 2007.  The Company does not expect the adoption of SFAS
157 to significantly affect its consolidated financial condition or consolidated
results of operations.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities”, which allows companies the
option to measure financial assets or liabilities at fair value and include
unrealized gains and losses in net income rather than equity.  This
becomes available when the Company adopts SFAS 157, which will be fiscal
year 2009.  The Company is analyzing the expected impact from adopting
this statement on its financial statements, but currently does not believe its
adoption will have a significant impact on the financial position or results of
operations of the Company.





In
December 2007, the FASB issued SFAS No. 141(revised 2007), “Business
Combinations” (“SFAS 141R”).  SFAS 141R will significantly
change the accounting for business combinations in a number of areas including
the treatment of contingent consideration, contingencies, acquisition costs,
IPR&D and restructuring costs.  In addition, under SFAS 141R,
changes in deferred tax asset valuation allowances and acquired income tax
uncertainties in a business combination after the measurement period will impact
income tax expense.  SFAS 141R is effective for fiscal years
beginning after December 15, 2008 and, as such, we will adopt this standard
in fiscal 2010.  The provisions of SFAS 141R will impact the Company
if it is a party to a business combination after the pronouncement is
adopted.





NOTE
3 - ACQUISITIONS





iBroadband Networks, Inc.
and iBroadband of Texas, Inc.





On July
11, 2008, the Company purchased certain assets and assumed certain liabilities
of iBroadband Networks, Inc. and iBroadband of Texas, Inc.
(“iBroadband”).  Consideration given in the asset purchase totaled
approximately $2.82 million, which consisted of the Company assuming certain
liabilities and secured promissory notes of approximately $240 thousand and
$2.58 million, respectively.  Interest accrues at 10% per annum on the
assumed secured promissory notes and is payable monthly commencing the month
after the notes were assumed.  The outstanding principal matures and
shall be due on March 31, 2011.





The
Company acquired the following net assets from iBroadband:





Tangible
      assets acquired:Property
      and equipment
                    
                    $
                    658,567Accounts
      receivable and other
                    
                    
                    259,688Cash
                    
                    
                    25,560943,815Customer
      list
                    
                    
                    177,449Goodwill
                    
                    
                    1,700,384Total
      assets acquired
                    
                    
                    2,821,648Liabilities
      assumed:Accounts
      payable
                    
                    
                    (238,488
                    )Notes
      payable
                    
                    
                    (2,583,160
                    )Total
      liabilities assumed
                    
                    
                    (2,821,648
                    )Net
      assets acquired
                    
                    $
                    -





The
purpose of the iBroadband acquisition was two-fold.  Significantly,
the assets of iBroadband Networks, Inc., and iBroadband of Texas, Inc. are
highly complementary to our existing business, particularly the operations of
our subsidiary One Ring Networks, Inc.  Secondly, the seller of the
assets agreed to purchase (2) 36 month, 10% notes from the Company for the
purpose of restructuring existing debt and providing needed operating
capital.  The acquisition was accounted for using the purchase method
of accounting.  The customer list will be amortized over its useful
life of two years.  The purchase price allocated to customer list was
determined by management's estimate of the value associated with each acquired
customer.  Goodwill represents the excess of consideration given over
the fair value of assets acquired and liabilities assumed.  The
goodwill acquired is expected to be deductible for federal income tax
purposes.  The results of operations of iBroadband are included in the
Company’s results of operations from July 11, 2008, the effective date of the
acquisition.




F-12
 Table of Contents




One Ring Networks,
Inc.





On March
28, 2008, the Company acquired 100% of the outstanding stock of One Ring
Networks, Inc. ("One Ring") for consideration of 3,885,900 common shares and
114,100 warrants valued at $319,393.  Additional contingent
consideration can be attained with certain performance objectives being achieved
as well as the price of the Company’s common stock.  The value of the
issued stock was determined to be $310,872 and was calculated using the average
quoted price of $0.08 per share, which approximates the average trading value as
quoted on the OTC Bulletin Board for the three days before and three days after
the date the terms of the acquisition were agreed to and
announced.  In addition, the Company issued 114,100 warrants to
purchase common stock at $.12 per share valued at $8,521.  The fair
value of the warrants was determined on the date of grant using the
Black-Scholes pricing model with the following assumptions: applicable risk-free
interest rate based on the current treasury-bill interest rate of 4.14%;
volatility factor of the expected market price of the Company's common stock of
1.65; and a life of the warrants of five years.





Additional
contingent consideration includes Secondary Shares, True Up Shares, and True Up
Cash, and is based on performance objectives for One Ring being achieved within
certain time periods.  Payment of the additional contingent
consideration will occur in fiscal 2009 and include the issuance of shares of
the Company’s common stock as payment of the Secondary Shares and True-Up
Shares, and promissory notes issued by the Company to One Ring shareholders as
payment of True-Up Cash.  The Company is currently in the process of
determining the amount of additional contingent consideration and estimates that
approximately 4 million shares of the Company’s common stock will be issued as
payment of Secondary Shares and True Up Shares, and estimates that approximately
$600,000 of promissory notes will be issued as payment of the True Up
Cash.  These amounts will be recorded in fiscal 2009 when the
contingencies are resolved and the additional consideration is
distributable.  The contingent consideration based on earnings, will
result in an additional cost of the acquisition when resolved and
distributable.  The contingent consideration based on security prices,
will result in a reduction in the value of previously issued securities in the
acquisition.




F-13
 Table of Contents





The
Company acquired the following net assets from One Ring:





Tangible
      assets acquired:Property
      and equipment
                  
                  $
                  213,868Capital
      lease equipment
                  
                  
                  379,765Accounts
      receivable and other
                  
                  
                  202,372Cash
                  
                  
                  25,396821,401Customer
      list
                  
                  
                  15,601Goodwill
                  
                  
                  366,566Total
      assets acquired
                  
                  
                  1,203,568Liabilities
      assumed:Accounts
      payable
                  
                  
                  (195,041
                  )Accrued
      liabilities and other
                  
                  
                  (275,341
                  )Notes
      payable
                  
                  
                  (34,028
                  )Capital
      lease obligations
                  
                  
                  (379,765
                  )Total
      liabilities assumed
                  
                  
                  (884,175
                  )Net
      assets acquired
                  
                  $
                  319,393





The
purpose of the One Ring acquisition was to acquire an existing carrier class
network for the transport of voice and data, and an experienced management
team.  Through this effort, we further evolve our goal of becoming a
provider of communication services via fixed wireless and fiber optic transport
of voice and data.  The acquisition was accounted for using the
purchase method of accounting.  The customer list will be amortized
over its useful life of two years.  The purchase price allocated to
customer list was determined by management's estimates of the value associated
with each acquired customer.  The goodwill acquired is not expected to
be deductible for federal income tax purposes.  The results of
operations of One Ring are included in the Company’s results of operations from
March 31, 2008, the effective date of the acquisition.  Goodwill
represents the excess of consideration given over the fair value of assets
acquired and liabilities assumed.





Communications Advantage,
LLC and Web-Breeze Networks, LLC.





On
October 31, 2007, the Company acquired 100% of the assets of Communications
Advantage, LLC (“Communications Advantage”), and Web-Breeze Networks, LLC (“Web
Breeze”) for $375,000.  The purchase consideration consisted of a cash
payment of $75,000, a promissory note of $50,000, issuance of common stock
valued at $90,000, forgiveness of amounts due totaling $95,000 and an additional
$65,000 to be paid during fiscal year 2008.  The common stock issued
was valued at $0.09 per share, which approximates the average trading value as
quoted on the OTC Bulletin Board for the three days before and after the
acquisition date.  The assets include a sizable wireless broadband
network in a rural geographic area of California that fits into the Company’s
niche market business model, a base of customers and revenues that are
immediately accretive to our revenues and earnings, and a staff of tenured
professionals with vast knowledge and experience in the wireless broadband
sector.





The
following table summarizes the assets acquired as of the closing
date:





Tangible
      assets acquired
                    
                    $
                    50,000Customer
      list
                    
                    
                    86,400Goodwill
                    
                    
                    238,600Total
      assets acquired
                    
                    $
                    375,000





The
acquisition was accounted for using the purchase method of
accounting.  The purchase price allocated to customer list was
determined by management’s estimates of the value associated with each acquired
customer.  The customer list is being amortized over its estimated
useful life of two years.  Goodwill represents the excess of
consideration given over the fair value of assets acquired.  The
goodwill is expected to be deductible for federal income tax
purposes.




F-14
 Table of Contents




Unaudited Pro Forma Summary
Information





The
following unaudited pro forma summary approximates the consolidated results of
operations as if the Communications Advantage, Web Breeze, One Ring, and
iBroadband acquisitions had occurred as of November 1, 2006, after giving effect
to certain adjustments, including amortization of specifically identifiable
intangibles and interest expense.  The pro forma financial information
does not purport to be indicative of the results of operations that would have
occurred had the transactions taken place at the beginning of the period
presented or of future results of operations.





Year
      Ended October 31,2008
                          
                          
                          2007Unaudited
      pro forma information:Revenues
                          
                          $
                          19,868,928
                          
                          
                          $
                          22,709,157Net
      loss
                          
                          $
                          (2,518,506
                          )
                          
                          $
                          (3,566,398
                          )Basic
      and diluted net loss per share
                          
                          $
                          (0.03
                          )
                          
                          $
                          (0.06
                          )Weighted
      average shares outstanding
                          
                          
                          69,835,422
                          
                          
                          
                          59,302,025








NOTE
4 - PROPERTY AND EQUIPMENT





Property
and equipment consists of the following at October 31, 2008 and
2007:





2008
                          
                          
                          2007
                          
                          Est.
      LifeTelephone
      switch equipment
                          
                          $
                          1,416,556
                          
                          
                          $
                          675,151
                          
                          3-5
      yrs.Computer
      software
                          
                          
                          1,097,672
                          
                          
                          
                          1,093,045
                          
                          3-5
      yrs.Computer
      equipment
                          
                          
                          222,085
                          
                          
                          
                          186,706
                          
                          3-5
      yrs.Furniture
      and fixtures
                          
                          
                          158,279
                          
                          
                          
                          154,561
                          
                          5-7
      yrs.Leasehold
      improvements
                          
                          
                          41,982
                          
                          
                          
                          41,494
                          
                          5-7
      yrs.Installation
      equipment
                          
                          
                          139,888
                          
                          
                          
                          -
                          
                          3
      yrs.Vehicles
                          
                          
                          56,803
                          
                          
                          
                          -
                          
                          3
      yrs.Equipment
      held under capital leases
                          
                          
                          1,613,349
                          
                          
                          
                          -
                          
                          2-5
      yrs.4,746,614
                          
                          
                          
                          2,150,957Less:
      accumulated depreciation and amortization
                          
                          
                          (2,352,426
                          )
                          
                          
                          (1,877,567
                          )Property
      and equipment, net
                          
                          $
                          2,394,188
                          
                          
                          $
                          273,390








Amortization
of assets held under capital leases is included with depreciation expense and
totaled $395,978 and $0 for fiscal 2008 and 2007,
respectively.  Property and equipment depreciation and amortization
expense totaled $609,490 and $152,325 in fiscal 2008 and 2007,
respectively.





NOTE
5 – CUSTOMER LISTS





Customer
lists acquired from Telenational, Integrated, Communications Advantage, One Ring
and iBroadband and corresponding accumulated amortization at October 31, 2008
and 2007 were as follows:





2008
                    
                    
                    2007
                    
                    
                    Est.
      LifeCustomer
      lists
                    
                    $
                    3,923,735
                    
                    
                    $
                    3,730,685
                    
                    
                    2-5
      yrs.Less:
      accumulated amortization
                    
                    
                    (1,969,321
                    )
                    
                    
                    (1,194,285
                    )
                    
                    
                    -Customer
      lists, net
                    
                    $
                    1,954,414
                    
                    
                    $
                    2,536,400




F-15
 Table of Contents





Amortization
expense totaled $775,036 in fiscal 2008 and $772,142 in fiscal
2007.  Based on capitalized customer lists at October 31, 2008, and
assuming no impairment of these customer lists, estimated amortization expense
amounts in future fiscal years are as follows:





Year
      Ending
                      October
      31,2009
                    
                    $
                    839,7252010
                    
                    
                    764,6892011
                    
                    
                    350,000Total
                    
                    $
                    1,954,414





At
October 31, 2008, the weighted average remaining life of the customer lists is
2.53 years.





NOTE
6 – CAPITAL LEASES, CONVERTIBLE DEBENTURES AND NOTES PAYABLE, INCLUDING RELATED
PARTY NOTES





The
Company has various debt and capital lease obligations as of October 31, 2008
including amounts due to independent institutions and related
parties.  Descriptions of these obligations are included
below.  The following tables summarize outstanding debt and capital
leases as of October 31, 2008 and 2007:





Information
as of October 31, 2008





Brief
      Description of Debt
                
                Balance
                
                
                Int.
      Rate
                
                Maturity
      Date
                
                Discount
                
                
                NetNotes payable, currentVehicles
                
                $
                13,917
                
                
                
                7
                %
                Varies
                
                
                -
                
                
                $
                13,917Valens
      Offshore (Valens II)
                
                
                85,000
                
                
                
                10
                %
                3/31/2011
                
                
                12,398
                
                
                
                72,602Valens
      U.S. SPV I
                
                
                65,000
                
                
                
                10
                %
                3/31/2011
                
                
                11,072
                
                
                
                53,928Convertible notes, currentGlobal
      Telecom Solutions
                
                
                120,000
                
                
                
                5
                %
                4/30/2012
                
                
                
                
                
                
                120,000Other
                
                
                42,500
                
                
                
                10
                %
                2/28/2008
                
                
                -
                
                
                
                42,500Capital lease obligations,
      current
                
                
                585,002
                
                
                
                8
                %
                Varies
                
                
                -
                
                
                
                585,002Notes payable, less current
      portionVehicles
                
                
                38,743
                
                
                
                7
                %
                Varies
                
                
                -
                
                
                
                38,743Valens
      Offshore (Valens II)
                
                
                1,715,000
                
                
                
                10
                %
                3/31/2011
                
                
                252,570
                
                
                
                1,462,430Valens
      U.S. SPV I
                
                
                1,435,000
                
                
                
                10
                %
                3/31/2011
                
                
                231,303
                
                
                
                1,203,697Laurus
      Master Fund (Deferred)
                
                
                2,290,451
                
                
                
                10
                %
                3/31/2011
                
                
                -
                
                
                
                2,290,451Valens
      U.S. SPV I (Deferred)
                
                
                292,709
                
                
                
                10
                %
                3/31/2011
                
                
                -
                
                
                
                292,709Convertible notes, less current
      portionGCA-Debenture
                
                
                630,333
                
                
                
                6
                %
                6/30/2011
                
                
                -
                
                
                
                630,333GCA-Debenture
                
                
                570,944
                
                
                
                6
                %
                6/30/2011
                
                
                -
                
                
                
                570,944GC-Conote
                
                
                180,000
                
                
                
                -
                
                6/30/2011
                
                
                -
                
                
                
                180,000Trident-Debenture
                
                
                600,000
                
                
                
                10
                %
                6/30/2011
                
                
                -
                
                
                
                600,000Global
      Telecom Solutions
                
                
                280,000
                
                
                
                5
                %
                4/30/2012
                
                
                -
                
                
                
                280,000Convertible notes payable to related parties, less
      current portion
                
                
                3,240,000
                
                
                
                8
                %
                6/30/2011
                
                
                -
                
                
                
                3,240,000Capital lease obligations,
                  less current portion
                
                
                742,784
                
                
                
                8
                %
                Varies
                
                
                -
                
                
                
                742,784


F-16
 Table of Contents




The
following is a summary, by year, of the future minimum payments required under
debt and capital lease obligations as of October 31, 2008:





Years
      ending October 31,2009
                  
                  $
                  911,4192010
                  
                  
                  2,312,8982011
                  
                  
                  9,410,6572012
                  
                  
                  91,9312013
                  
                  
                  29,107Thereafter
                  
                  
                  171,371Total
                  
                  $
                  12,927,383








Information
as of October 31, 2007




Brief
      Description of Debt
                
                Balance
                
                
                Int.
      Rate
                
                Maturity
      Date
                
                Discount
                
                
                NetConvertible notes, currentGC-Conote
                
                $
                1,200,000
                
                
                
                10.08
                %
                2/28/2008
                
                $
                151,515
                
                
                $
                1,048,485Debenture
                
                
                600,000
                
                
                
                10
                %
                3/8/2008
                
                
                -
                
                
                
                600,000Other
                
                
                42,500
                
                
                
                10
                %
                2/28/2008
                
                
                
                
                
                
                42,500Related party notes,
current
                
                
                50,000
                
                
                
                10
                %
                4/30/2008
                
                
                -
                
                
                
                50,000Convertible notes payable to related parties,
      current
                
                
                1,000,000
                
                
                
                8
                %
                On
      Demand
                
                
                -
                
                
                
                1,000,000Convertible notes,
long-termGCA-Debenture
                
                
                630,333
                
                
                
                6
                %
                10/31/2009
                
                
                -
                
                
                
                630,333GCA-Debenture
                
                
                570,944
                
                
                
                6
                %
                10/31/2009
                
                
                -
                
                
                
                570,944Convertible notes payable to related parties,
      long-term
                
                
                2,240,000
                
                
                
                8
                %
                11/01/2009
                
                
                -
                
                
                
                2,240,000








Notes Payable -
Vehicles





On March
28, 2008, the Company acquired 100% of the outstanding stock of One Ring
Networks, Inc., which included the assumption of two notes for
vehicles.  The agreements call for monthly payments of $485 and $368,
respectively, and interest accrues at 0% and 7.02%, respectively.  The
principal balance of these two notes at October 31, 2008 was $13,095 and
$15,732, respectively, and the notes mature on January 31, 2011, and November
30, 2012, respectively.





On August
15, 2008, the Company purchased a vehicle for $34,538, which included a cash
payment of $10,000 a five–year note payable for $24,538, which matures on August
14, 2013.  The agreement calls for monthly payments of $440, which
includes interest at an annual percentage rate of 2.82% on the outstanding
principal balance.  The principal balance of this note at October 31,
2008 was $23,832.





Global Telecom Solutions -
Convertible Note





On April
30, 2008, the Company entered into a four-year financing agreement with Global
Telecom Solutions (“GTS”) in the principal amount of $460,000 as repayment of
carrier costs payable to GTS in the same amount.  The unsecured
convertible note called for monthly payments of $10,000 and interest accrues at
5% per annum, and may be converted at any time into common stock of the Company
at market price with a floor conversion price of $.10 per common
share.  The market price will be the closing bid price on Bloomberg
the day prior to the receipt by Company from GTS to convert all or a portion of
note at any time during the term of the note.  The Company may prepay
the note by paying 100% of the outstanding principal and accrued
interest.  The principal balance of this note at October 31, 2008 was
$400,000.




F-17
 Table of Contents




Valens II Term A
Note





Effective
March 31, 2008, the Company modified its debt structure by entering into a
Security Agreement with L.V. Administrative Services, Inc. (“L.V.”) and certain
lenders (“Lenders”) including Valens U.S. SPV I (“Valens”), and Valens Offshore
SPV II Corp. (“Valens II”).  L.V. acts as administrative and
collateral agent for the Lenders.  Upon the signing of the Security
Agreement, Valens II provided the Company with $1,800,000 of gross financing,
and the Company issued Valens II a 10% Secured Term A Note (“Valens II Term A”)
in the principal amount of $1,800,000.  As collateral agent for the
Lenders, L.V. maintains a continuing security interest in and lien upon all
assets of Company.  The Company has also executed a Stock Pledge
Agreement pledging all of the stock of Telenational and One Ring to L.V. on
behalf of the Lenders.





In
connection with the sale of the Term A Note, The Company issued Valens II a
common stock purchase warrant to purchase 5,625,000 common shares at $0.01 per
share.  These warrants were valued at $441,903 using the Black-Scholes
model with the following assumptions:  applicable risk-free interest
rate based on the current treasury-bill interest rate of 4.14%; volatility
factor of the expected market price of the Company's common stock of 165%; and a
life of the warrants of five years.  The relative fair value of the
warrants of $354,799 was recorded as a debt discount.  This debt
discount is being amortized over the term of the Valens Term A note using the
interest method.  The Company recognized $89,831 of non-cash financing
expense associated with these warrants using the interest method during the
fiscal year ended October 31, 2008.  The unamortized debt discount at
October 31, 2008 was $264,968.  In addition, the Company incurred
legal, professional, and administrative costs associated with the Valens II
Security Agreement, which resulted in $375,778 of deferred financing fees, of
which $95,143 was expensed using the interest method as noncash financing fees
during the fiscal year ended October 31, 2008.





Interest
accrues under the Term A Note at 10% per annum and is payable monthly commencing
April 1, 2008.  Amortizing payments of principal shall commence on
October 1, 2009 of $85,000 per month, plus accrued interest and any other fees
then due.  The Term A Note matures on March 31, 2011.  The
Company may prepay the Term A Note by paying 100% of the outstanding principal
and repaying all amounts owed under the Security Agreement and all ancillary
documents.





On
October 31, 2008, the Company issued warrants to purchase 8,750,000 Company
shares of its common stock upon exercise at $0.01 per share to Valens in
consideration for amendments to the Security Agreement dated March 31,
2008.  These warrants were valued at $288,066 using the Black-Scholes
model with the following assumptions:  applicable risk-free interest
rate based on the current treasury-bill interest rate of 3.75%; volatility
factor of the expected market price of the Company's common stock of 125%; and a
life of the warrants of five years.  The relative fair value of the
warrants of $288,066 was recorded as an asset and will be amortized monthly as
non-cash financing fees using the straight-line method beginning fiscal year
2009 and ending March 31, 2011, which is the maturity date of the Term A
Note.





Valens Term B
Note





On July
14, 2008 the Company completed the terms and conditions set forth in the
Security Agreement dated as of March 31, 2008, and further amended on July 11,
2008, to obtain additional financing by and among L.V. and certain other lenders
(“Lenders”).  The completed financing agreement includes Valens U.S.
SPV I (“Valens”) purchasing a secured term note (“Term B Note”), the Lenders
agreeing to lend secured revolving loans under certain conditions including the
Company attaining specific financial covenants, and Laurus Master Fund and
Valens purchasing secured promissory notes related to the asset purchase of
iBroadband Networks, Inc., a Texas corporation, and iBroadband of Texas, Inc., a
Delaware corporation in the amounts of approximately $2.3 million and $293
thousand, respectively.  As collateral agent for the Lenders, L.V.
maintains a continuing security interest in and lien upon all assets of
Company.




F-18
 Table of Contents




Effective
July 14, 2008, Valens purchased from the Company a 10% secured term note
(“Term B Note”) in the principal amount of $1.5 million and a warrant to
purchase 4,437,870 shares of common stock at $0.01 per
share.  Interest accrues at 10% per annum and is payable monthly
commencing August 1, 2008.  Amortizing payments of principal shall
commence on October 1, 2009 of $65,000 per month, plus accrued interest and any
other fees then due.  The Term B Note matures on March 31,
2011.  The Company may prepay the Term B Note by paying 100% of the
outstanding principal and repaying all amounts owed under the Security Agreement
and all ancillary documents.





The sale
of the Term B Note and Warrant was dated as of July 11, 2008.  The
Company received gross proceeds of $1,500,000.  Of the gross proceeds,
approximately $26,500 was directed to pay legal fees for investors’ counsel,
$94,500 was directed to Valens for administrative fees, and $420,000 was used as
principal payment on the GC-Conote to Global.  The remaining $959,000
was retained by the Company.





In
connection with the sale of the Term B Note, the Company issued Valens a common
stock purchase warrant to purchase 4,437,870 common shares at $0.01 per
share.  These warrants were valued at $349,478 using the Black-Scholes
model with the following assumptions:  applicable risk-free interest
rate based on the current treasury-bill interest rate of 4.14%; volatility
factor of the expected market price of the Company's common stock of 171%; and a
life of the warrants of five years.  $283,440 represented cash
received relative to the warrants and the remaining amount of $1,216,560 was
allocated to the Term B Note resulting in a debt discount of
$283,440.  The relative fair value of the warrants of $283,440 was
recorded as a debt discount.  This debt discount is being amortized
over the term of the Valens Term B note using the interest
method.  The Company recognized $41,066 of expense associated with
these warrants for the fiscal year ended October 31, 2008.  The
unamortized debt discount at October 31, 2008 was $242,375.  In
addition, the Company incurred legal, professional, and administrative costs
associated with the Valens Security Agreement, which resulted in $120,967 of
deferred financing fees, of which $17,526 was expensed as noncash financing fees
using the interest method for the fiscal year ended October 31,
2008.  The unamortized deferred financing fees at October 31, 2008
were $103,441.




Deferred Purchase Price
Notes





Concurrent
with the Valens Term B financing arrangement, the Company purchased the assets
of iBroadband and assumed secured promissory notes in the aggregate amount of
approximately $2.58 million (“Deferred Purchase Price Notes”), including
approximately a $293,000 loan from Valens and a $2.3 million loan from
Laurus Master Fund.  As collateral agent for the Lenders, L.V.
maintains a continuing security interest in and lien upon all assets of
Company.  Interest accrues at 10% per annum and is payable monthly
commencing the month after the Notes were assumed.  The outstanding
principal of both notes is due on their maturity date, March 31,
2011.  The Company may prepay these Deferred Purchase Price Notes by
paying 100% of the outstanding principal and repaying all amounts owed under the
Security Agreement and all ancillary documents.





GC-Conote





On March
31, 2008, Global Capital Funding Group, LP (“Global”), which is the holder of
the GC-Conote, modified its debt structure with the Company by entering into a
subordination agreement with L.V., acting as agent for itself and the
Lenders.  The agreement calls for the GC-Conote to become subordinate
to the Valens II Term A note.  In connection with the subordination
agreement, Global subordinated all claims and security interests it may have
against any of the assets of the Company, to the security interests granted by
the Company to L.V., acting as collateral agent for the Lenders.  In
addition, Global extended the maturity date of two debentures to June 30, 2011
(see below “GCA Debentures”).  In consideration, the Company made a
principal payment of $600,000 on the GC-Conote and agreed to pay Global the
principal sum of $420,000 upon closing of the Term B Note; with the remainder of
the outstanding principal amount of $180,000, which shall not accrue interest
after March 31, 2008.  The GC-Conote is convertible at any time into
common shares of the Company at the conversion price equal to 80% of the average
of the three lowest volume weighted average sales prices as reported by
Bloomberg L.P. during the twenty Trading Days immediately preceding the related
Notice of Conversion.  However, the conversion price of the Company’s
stock is not to be lower than $0.10 and not to exceed $0.25.




F-19
 Table of Contents




As of
July 11, 2008, and upon closing of the Valens II Term B note, the Company paid
Global the principal sum of $420,000 on the GC-Conote.  In
consideration for the principal payment of $420,000, Global forgave accrued
interest in the amount of $163,750, and is restricted from the selling of any
shares of the Company’s common stock for a period of two years from the
effective date of the amendment to the GC-Conote.  The Company
recorded $163,750 as “Gain on Forgiveness of Liabilities” in its Consolidated
Statement of Operations for fiscal 2009.  In addition, Global agreed
that there are no additional cash monies owed to Global by the Company other
than the remaining principal balance of $180,000 of the
GC-Conote.  The principal balance of the GC-Conote is $180,000 at
October 31, 2008.





GCA
Debentures





As of
October 31, 2008, GCA Strategic Investment Fund Limited (“GCA”) held two Company
convertible debentures having principal amounts of $630,333 and 570,944,
respectively.  The conversion terms of the debentures allow the
Company to elect to pay in GCA cash in lieu of
conversion.  Additionally, GCA is limited to only converting up to
4.99% ownership at a time and there is a floor of $.10 per share on the
conversion which limits the number of common shares for which the notes are
convertible into.





On March
31, 2008, GCA modified its debt structure with the Company by entering into a
subordination agreement with L.V., which acted as agent for itself and for the
Lenders.  The agreement called for the GCA debentures to become
subordinate to the Valens II Term A note.  In connection with the
subordination agreement, GCA subordinated all claims and security interests it
may have against any of the assets of the Company, including VoIP technology and
certain equipment, to the security interests granted by the Company to L.V.,
acting as collateral agent for the Lenders.  The Company may prepay
the GCA debentures by paying 100% of the outstanding principal and accrued
interest.  In addition, GCA extended the maturity date of the two
debentures to June 30, 2011, and is restricted from the selling of any shares of
the Company’s common stock for a period of two years from the effective date of
this amendment.





Trident
Debenture





As of
October 31, 2008, “Trident Growth Fund, L.P. (“Trident”) held a Company
convertible debenture having a principal balance of $600,000.  The
debenture is convertible into common stock of the Company at $.14 per common
share.





During
the second quarter of fiscal 2007, Trident extended the $600,000 debenture with
an original due date of March 8, 2007 to March 8, 2008.  In connection
with the extension, the Company issued Trident 1,200,000 additional warrants,
resulting in deferred financing fees of $83,708, of which $29,401 and $54,307
was expensed as noncash interest expense during fiscal years 2008 and 2007,
respectively.  The fair value of the warrants was determined on the
date of grant using the Black-Scholes pricing model with the following
assumptions: applicable risk-free interest rate based on the current
treasury-bill interest rate of 4.5%; volatility factor of the expected market
price of the Company's common stock of 287%; and an expected life of the
warrants of four years.  Also in connection with extension, the
Company issued Trident additional warrants to purchase 150,000 shares of the
Company’s stock at $.10 per share during fiscal 2008.  The fair value of
the warrants of $8,966 was determined on the date of grant using the
Black-Scholes pricing model with the following assumptions: applicable risk-free
interest rate based on the current treasury-bill interest rate of 4.5%; dividend
yield of 0%; volatility factor of the expected market price of the Company's
common stock of 295%, and a life of the warrants of four years.  The
Company recognized $8,966 of expense associated with the warrants during fiscal
year 2008.




F-20
 Table of Contents




On March
31, 2008, Trident modified its debt structure with the Company by entering into
a subordination agreement with L.V., which acted as agent for itself and for the
Lenders.  The agreement called for the Trident debenture to become
subordinate to the Valens II Term A note.  In connection with the
subordination agreement, Trident subordinated all claims and security interests
it may have against any of the assets of the Company, to the security interests
granted by the Company to L.V., acting as collateral agent for the
Lenders.  In addition, Trident agreed to extend the maturity date of
the principal amount of the $600,000 debenture to June 30, 2011.  In
consideration for the subordination and maturity date extension, the Company
issued Trident a common stock purchase warrant to purchase 60,000 common shares
of the Company’s stock at $0.07 per share.  The fair value of the
warrants totaled $4,503 and was determined on the date of grant using the
Black-Scholes pricing model with the following assumptions: applicable risk-free
interest rate based on the current treasury-bill interest rate of 4.14%;
volatility factor of the expected market price of the Company's common stock of
165%; and a life of the warrants of five years.  The Company
recognized $4,503 of expense associated with the warrants during the fiscal year
ended October 31, 2008.  The Company may prepay the Trident debenture
by paying 100% of the outstanding principal and accrued interest.





Debenture





During
the second quarter of fiscal 2007, a $400,000 debenture with an original due
date of March 8, 2007 was extended to March 8, 2008.  In connection
with the extension, the Company issued 800,000 warrants, resulting in deferred
financing fees of $55,805, of which $19,534 and $36,271 was expensed as noncash
interest expense during fiscal years 2008 and 2007, respectively.  The
fair value of the warrants was determined on the date of grant using the
Black-Scholes pricing model with the following assumptions: applicable risk-free
interest rate based on the current treasury-bill interest rate of 4.5%;
volatility factor of the expected market price of the Company's common stock of
287%; and a life of the warrants of four years.  On October 31, 2007,
debentures totaling $350,000 were converted into 2,500,000 shares of common
stock, and $50,000 of debentures were transferred by the debenture holders to
John Jenkins, the Company’s Chairman.  As of October 31, 2008 and
2007, the principal balance of the debenture was $0 and $0,
respectively.





Related Party
Notes





On May 5,
2006, the Company acquired 100% of the outstanding stock of Telenational
Communications, Inc. (“Telenational”) for $4,809,750, including acquisition
costs of $50,000.  The purchase consideration included a contingent
cash payment in the amount of $500,000 and 19,175,000 shares of the Company’s
common stock valued at $3,259,750.  On October 31, 2007, the
contingent purchase price consideration was converted to a convertible demand
note payable to Apex Acquisitions, Inc. ("Apex”) in the amount of
$500,000.  The Company Chief Executive Officer is the majority
stockholder of Apex.





On
October 31, 2007, the Company entered into an agreement, which modified its debt
structure with Apex.  The agreement called for the outstanding note
originally due in November of 2007 payable to Apex to be extended to November 1,
2009.  The note was also modified to allow for the balance to be
convertible to common stock at market pricing.  The outstanding
balance of the Apex Note, including $120,000 of accrued interest that was rolled
into the note, was $1,120,000 at October 31, 2008 and 2007.




F-21
 Table of Contents




On
October 31, 2007, $50,000 of debentures including $65,889 of accrued interest
was transferred by the debenture holders to John Jenkins, the Company’s
Chairman.  These amounts, along with a $300,000 related party demand
note including accrued interest of $84,111, were rolled into a $500,000
convertible demand note payable to Mr. Jenkins.





On
October 31, 2007, the Company entered into an agreement, which modified its debt
structure with the Company’s Chairman, John Jenkins.  The agreement
called for the outstanding note due in February of 2008 payable to John Jenkins
to be extended to November 1, 2009.  The outstanding balance of these
notes payable to Mr. Jenkins, including $241,000 of accrued interest that was
rolled into the note, was $1,120,000 at October 31, 2008 and 2007.





On March
31, 2008, Apex entered into a subordination agreement with L.V., which acted as
agent for itself and for the Lenders.  The agreement called for the
Apex demand note to become subordinate to the Valens II Term A
note.  In addition, Apex agreed to amend the note by stipulating a
maturity date of June 30, 2011.  The outstanding balance of the Apex
note was $500,000 at October 31, 2008 and 2007.





On March
31, 2008, Apex entered into a subordination agreement with L.V., which acted as
agent for itself and for the Lenders.  The agreement called for the
Apex demand note to become subordinate to the Valens II Term A
note.  In addition, Apex agreed to amend the note by stipulating a
maturity date of June 30, 2011.  The outstanding balance of the Apex
notes was $1,120,000 at October 31, 2008 and 2007.





On March
31, 2008, Mr. Jenkins entered into a subordination agreement with L.V., which
acted as agent for itself and for the Lenders.  The agreement called
for Mr. Jenkins’ demand note to become subordinate to the Valens II Term A
note.  In addition, Mr. Jenkins agreed to amend the note by
stipulating a maturity date of June 30, 2011.  The outstanding balance
of this note was $500,000 at October 31, 2008 and 2007.





On March
31, 2008, Mr. Jenkins entered into a subordination agreement with L.V., which
acted as agent for itself and for the Lenders.  The agreement called
for Mr. Jenkins’ note to become subordinate to the Valens II Term A
note.  In addition, Mr. Jenkins agreed to amend the note by
stipulating a maturity date of June 30, 2011.  The outstanding balance
of this note was $1,120,000 at October 31, 2008 and 2007.





Mr.
Jenkins and APEX may at any time elect to convert their related party
convertible notes into common stock of the Company using a conversion price
equal to the bid price at the day of conversion as shown on
Bloomberg.  In connection with the subordination agreements, Mr.
Jenkins and APEX subordinated all claims and security interests it may have
against any of the assets of the Company, to the security interests granted by
the Company to L.V., acting as collateral agent for the Lenders.  The
Company may prepay the related party notes to Mr. Jenkins and to APEX by paying
100% of the outstanding principal and accrued interest.





Capital Lease
Obligations





On
November 1, 2007, the Company entered into a five-year lease agreement with
Graybar Financial Services (“Graybar”) and acquired equipment valued at
approximately $52,968.  The agreement calls for monthly payments of
approximately $1,058.  The lease contains a provision that entitles
the Company to purchase the equipment for $1 at the end of the lease
term.




F-22
 Table of Contents




On March
31, 2008, the Company acquired 100% of the outstanding stock of One Ring
Networks, Inc. ("One Ring"), which included all of One Ring’s capital lease
agreements with Farnam Street Financial, Inc. (“Farnam”) and NorCal Capital,
Inc. (“NorCal”).





On April
23, 2008, the Company entered into a four-year lease agreement with Graybar
Financial Services (“Graybar 2”) and acquired equipment valued at approximately
$53,514.  The agreement calls for monthly payments of approximately
$1,289.  The lease contains a provision that entitles the Company to
purchase the equipment for $1 at the end of the lease term.





On May 1,
2008, the Company entered into a two-year lease agreement with Farnam and
acquired equipment valued at approximately $107,439.  The agreement
calls for monthly payments of approximately $4,827.  The lease
contains a provision that entitles the Company to purchase the equipment for $1
at the end of the lease term.





On May 7,
2008, the Company entered into a three-year lease agreement with The Huntington
National Bank (“Huntington”) and acquired equipment valued at approximately
$22,888.  The agreement calls for monthly payments of approximately
$708.  The lease contains a provision that entitles the Company to
purchase the equipment for $1 at the end of the lease term.





On June
1, 2008, the Company entered into a two-year lease agreement with Farnam and
acquired equipment valued at approximately $121,488.  The agreement
calls for monthly payments of approximately $5,840.  The lease
contains a provision that entitles the Company to purchase the equipment for $1
at the end of the lease term.





On June
1, 2008, the Company entered into a two-year lease agreement with Farnam and
acquired equipment valued at approximately $169,528.  The agreement
calls for monthly payments of approximately $7,089.  The lease
contains a provision that entitles the Company to purchase the equipment for $1
at the end of the lease term.





On July
16, 2008, the Company entered into a three-year lease agreement with Leaf
Financial Corporation (“Leaf”) and acquired equipment valued at approximately
$71,082.  The agreement calls for monthly payments of approximately
$2,198.  The lease contains a provision that entitles the Company to
purchase the equipment for $1 at the end of the lease term.





On July
27, 2008, the Company entered into a ten-year lease agreement with AGL Networks,
Inc. (“AGL”) and acquired equipment valued at approximately
$302,844.  The agreement calls for monthly payments of approximately
$3,650.  The lease contains a provision that entitles the Company to
purchase the equipment for $1 at the end of the lease term.





On
September 1, 2008, the Company entered into a three-year lease agreement with
AEL Financial Services, LLC (“AEL 1”) and acquired equipment valued at
approximately $32,805.  The agreement calls for monthly payments of
approximately $1,017.  The lease contains a provision that entitles
the Company to purchase the equipment for $1 at the end of the lease
term.





On
September 1, 2008, the Company entered into a three-year lease agreement with
AEL Financial Services, LLC (“AEL 2”) and acquired equipment valued at
approximately $59,958.  The agreement calls for monthly payments of
approximately $1,831.  The lease contains a provision that entitles
the Company to purchase the equipment for $1 at the end of the lease
term.





On
September 17, 2008, the Company entered into a three-year lease agreement with
General Electric Capital Corporation (“GE”) and acquired equipment valued at
approximately $71,715.  The agreement calls for monthly payments of
approximately $2,247.  The lease contains a provision that entitles
the Company to purchase the equipment for $1 at the end of the lease
term.




F-23
 Table of Contents




On
October 1, 2008, the Company entered into a two-year lease agreement with Farnam
and acquired equipment valued at approximately $269,699.  The
agreement calls for monthly payments of approximately $11,404.  The
lease contains a provision that entitles the Company to purchase the equipment
for $1 at the end of the lease term.





The
Company accounts for these leases in accordance with SFAS No. 13 “Accounting for
Leases”.  The following table summarizes the Company’s outstanding
capital lease obligations as of October 31, 2008:





Information
      as of October 31, 2008Brief
      Description of Capital Lease
                      
                      Equipment
      Value
                      
                      Lease
      Term Ends
                      
                      Monthly
      Payment
                      
                      
                      Capital
      Lease ObligationsShort-term
                      
                      
                      Long-termGraybar-1
                      
                      $
                      52,868
                      
                      11/01/2012
                      
                      $
                      1,058
                      
                      
                      $
                      9,638
                      
                      
                      $
                      33,986Graybar-2
                      
                      
                      53,514
                      
                      04/23/2012
                      
                      
                      1,289
                      
                      
                      
                      12,388
                      
                      
                      
                      33,063Farnam-3
                      
                      
                      56,216
                      
                      08/01/2009
                      
                      
                      3,691
                      
                      
                      
                      32,355
                      
                      
                      
                      -Farnam-4
                      
                      
                      83,391
                      
                      10/01/2009
                      
                      
                      4,899
                      
                      
                      
                      52,141
                      
                      
                      
                      -Farnam-5
                      
                      
                      90,367
                      
                      12/01/2009
                      
                      
                      4,809
                      
                      
                      
                      55,286
                      
                      
                      
                      4,809Farnam-6
                      
                      
                      107,439
                      
                      04/30/2010
                      
                      
                      4,827
                      
                      
                      
                      53,677
                      
                      
                      
                      28,487Farnam-7
                      
                      
                      121,488
                      
                      05/31/2010
                      
                      
                      5,840
                      
                      
                      
                      64,514
                      
                      
                      
                      40,079Farnam-8
                      
                      
                      169,528
                      
                      05/31/2010
                      
                      
                      7,089
                      
                      
                      
                      78,309
                      
                      
                      
                      48,648Farnam-9
                      
                      
                      269,700
                      
                      10/01/2010
                      
                      
                      11,404
                      
                      
                      
                      122,670
                      
                      
                      
                      121,372Huntington
                      
                      
                      22,888
                      
                      05/07/2011
                      
                      
                      708
                      
                      
                      
                      7,317
                      
                      
                      
                      11,417Leaf
                      
                      
                      71,082
                      
                      07/16/2011
                      
                      
                      2,198
                      
                      
                      
                      22,422
                      
                      
                      
                      39,368AGL
                      
                      
                      302,844
                      
                      07/27/2018
                      
                      
                      3,650
                      
                      
                      
                      21,158
                      
                      
                      
                      275,072AEL-1
                      
                      
                      32,805
                      
                      09/01/2011
                      
                      
                      1,017
                      
                      
                      
                      10,164
                      
                      
                      
                      20,875AEL-2
                      
                      
                      58,958
                      
                      09/01/2011
                      
                      
                      1,831
                      
                      
                      
                      18,304
                      
                      
                      
                      37,593GE
                      
                      
                      71,715
                      
                      09/17/2011
                      
                      
                      2,247
                      
                      
                      
                      24,659
                      
                      
                      
                      48,015$
                      585,002
                      
                      
                      $
                      742,784





Total payments due under capital
      leases
                      
                      $
                      1,536,848Less
      amount representing interest
                      
                      
                      (209,062
                      )Present
      value of minimum payments
                      
                      
                      1,327,786Less
      current portion of capital lease obligations
                      
                      
                      585,002Capital
      lease obligations, less current portion
                      
                      $
                      742,784





NOTE
7 - CAPITAL STOCK





During
fiscal 2007, the Company issued 1,000,000 shares of its common stock in
connection with the acquisition of Communications Advantage and Web-Breeze,
valued at $90,000.





During
fiscal 2007, the Company issued 2,500,000 shares of its common stock in
connection with the conversion of $350,000 of convertible
debentures.





During
fiscal 2007, GCA converted GCA-Conote debt of $50,000 into 500,000 shares of
common stock.





During
fiscal 2007, the Company’s Chief Executive Officer elected to convert $900,000
of the 10% “related party convertible notes” due February 28, 2008 into
9,000,000 shares of common stock, reflecting a conversion price of $0.10 per
share.





During
fiscal 2007, GCA elected to convert $30,000 of convertible debt into
approximately 622,000 shares of common stock.





During
fiscal 2007, the Company sold 357,143 shares of its common stock for $25,000 to
Westside Capital.





During
fiscal 2008, the Company issued 3,885,900 shares of its common stock in
connection with the acquisition of 100% of the outstanding stock of One Ring
Networks, Inc., valued at $310,872 at the date of issuance.




F-24
 Table of Contents




During
fiscal 2008, the Company sold 300,000 shares of its common stock for $45,000 to
Matthew Liotta, the Company’s Chief Technology Officer.





During
fiscal 2008, the Company sold 500,000 shares of its common stock for $75,000 to
an unrelated party.





The
following table describes stock reserved for future issuances at October 31,
2008:


Number
      of SharesOptions
      (1)
                  
                  
                  4,000,000Warrants
                  
                  
                  26,911,970Convertible
      debt (2)
                  
                  
                  94,523,484125,435,454





(1) The
Company’s 2002 Equity Incentive Plan, as amended, authorizes the Board of
Directors to grant options to purchase up to 4,000,000 shares of the Company’s
common stock.


(2)
Assumes conversion on October 31, 2008 under the terms of the related
agreements.  In addition, specific Company convertible notes allow the
Company to elect to pay in cash in lieu of conversion.  Additionally,
the debt holders are limited to only converting up to 4.99% ownership at a time
and there is a floor of $.10 per share on the conversion which does therefore
limit the number of common shares for which the debt is convertible
into.





NOTE 8 - BUSINESS AND CREDIT
CONCENTRATIONS





In the
normal course of business, the Company extends unsecured credit to virtually all
of its customers.  Management has provided an allowance for doubtful
accounts, which reflects its estimate of amounts, which may become
uncollectible.  In the event of complete non-performance by the
Company's customers, the maximum exposure to the Company is the outstanding
accounts receivable balance at the date of non-performance.





During
fiscal 2008, the Company did not provide wholesale services to any single
customer who accounted for more than 10% of revenues. During the same
period, two of the Company's suppliers accounted for approximately 22% and 19%
of the Company's total costs of revenues, respectively. At October 31,
2008, one customer accounted for 23% of the Company's trade accounts
receivable. During fiscal 2007, the Company did not provide wholesale
services to any single customer who accounted for more than 10% of
revenues. During the same period, three of the Company's suppliers
accounted for approximately 31%, 22%, and 12% of the Company's total costs of
revenues, respectively.At October 31, 2007, one
customer accounted for 10% of the Company's trade accounts
receivable.





Due to
the highly competitive nature of the telecommunications business, the Company
believes that the loss of any carrier would not have a long-term material impact
on its business.





Information
regarding the Company's domestic and foreign revenues is as
follows:





South
      Africa
                  
                  
                  All
      other foreign revenues
                  
                  
                  Domestic
                  
                  
                  TotalFiscal
      2008
                  
                  $
                  1,159,119
                  
                  
                  $
                  5,478,000
                  
                  
                  $
                  10,601,829
                  
                  
                  $
                  17,238,948Fiscal
      2007
                  
                  $
                  1,334,620
                  
                  
                  $
                  5,028,530
                  
                  
                  $
                  10,962,885
                  
                  
                  $
                  17,326,035





During fiscal 2008, 7% of the Company's revenue
was generated from customers in South Africa.  During fiscal 2007, 8%
of the Company's revenue was generated from customers in South
Africa.  No individual foreign country held more than 10 percent of
the Company’s long-lived assets as of October 31, 2008 and
2007.




F-25
 Table of Contents





NOTE
9 – EMPLOYEE BENEFIT PLAN





The
Company’s 401(k) Plan (the “Plan”) is a defined contribution plan covering all
domestic employees of the Company.  The Plan provides for voluntary
contributions by employees into the Plan subject to the limitations imposed by
the Internal Revenue Code Section 401(k).  For fiscal 2008 and 2007,
the Company matched participant contributions 50% on every dollar deferred to a
maximum of 6% of compensation.  The Company's matching funds are
subject to a six-year vesting schedule from the date of original
employment.  Company contributions charged to expense during fiscal
2008 and 2007 were $35,330 and $17,703, respectively.  For fiscal year
2009, the Company does not intend to match participant contributions into the
Plan.





NOTE
10 - GAIN ON LEGAL SETTLEMENTS




During
fiscal year 2007, the Company executed settlement agreements and recorded a
“Gain on legal settlements” of $415,000, net of attorney fees totaling
$322,000.  On September 13, 2007, the Company executed a settlement
agreement with Yahoo! settling a dispute over media credits purchased in a stock
purchase agreement dated July 7, 2001.  Yahoo! paid the Company
$475,000 in one lump sum cash payment to settle all disputes and the Company
agreed to dismiss its claims against Yahoo! in connection with such
disputes.  This amount was received in fiscal 2007 and recorded as a
“Gain on legal settlements”.




On
September 3, 2007, the Company executed a settlement agreement with Affluent
Media, et al settling a dispute over media credits purchased in a stock purchase
agreement dated July 7, 2001.  Affluent Media, et al paid the Company
$35,000 in cash and transferred 300,000 barter credits, valued at $225,000 over
the subsequent 3-month period to settle all disputes and the Company agreed to
dismiss its claims against Affluent Media, et al in connection with such
disputes.  These cash and barter credits were received in fiscal 2007
and recorded as “Gain on legal settlements”.  Fair market value of
these barter credits was based on a detailed analysis of relative prices for
general and operating goods and services used in the normal course of the
Company’s operations.




NOTE
11 - GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS





During
fiscal 2004, the Company determined, based on final written communications with
the State of Texas, that it had a liability for sales taxes (including penalties
and interest) totaling $1.1 million.  On August 5, 2005, the State of
Texas filed a lawsuit in the 53rd Judicial District Court of Travis County,
Austin, Texas against the Company.  The lawsuit requested payment of
approximately $1.162 million, including penalties and for state and local sales
tax.  The sales tax amount due was attributable to audit findings of
the State of Texas for the years 1995 to 1999 associated with Canmax Retail
Systems (“Canmax”), a former operating subsidiary, which provided retail
automation software and related services to the retail petroleum and convenience
store industries.





Effective
April 30, 2008, the Company entered into a settlement agreement and release with
the State of Texas (“State”) whereby the State released the Company, with the
exception of Canmax, from any and all claims related to the sales tax liability
with the State.  In consideration for the release, the Company paid
the State $100,000 during the second quarter of fiscal 2008.





Effective
April 30, 2008, the Company entered into a purchase agreement to sell Canmax to
a third party for a nominal fee.  The sale of Canmax resulted in a
gain of $1,062,000, which was classified as a gain on disposal of discontinued
operations in the accompanying statement of operations.




F-26
 Table of Contents




NOTE
12 - STOCK OPTIONS AND WARRANTS





Stock
Options





2002
Equity Incentive Plan





The
Company’s 2002 Equity Incentive Plan (the "Equity Incentive Plan"), as amended,
authorizes the Board of Directors to grant options to purchase up to 4,000,000
shares of the Company’s common stock.  The maximum number of shares of
common stock that may be issuable under the Equity Incentive Plan to any
individual plan participant is 1,000,000 shares.  All options granted
under the Equity Incentive Plan have vesting periods up to a maximum of five
years.  The exercise price of an option granted under the Equity
Incentive Plan shall not be less than 85% of the fair value of the common stock
on the date such option is granted.





1990
Stock Option Plan





The
Company’s 1990 Stock Option Plan (the "Option Plan"), as amended, authorized the
Board of Directors to grant options to purchase up to 2,300,000 shares of the
Company’s common stock.  No options were to be granted to any
individual director or employee, which when exercised, would exceed 5% of the
issued and outstanding shares of the Company.  The Board of Directors
fixed the term of any option granted under the 1990 Stock Option Plan at the
time the options were granted, provided that the exercise period was not to be
longer than 10 years from the date of grant.  All options granted
under the 1990 Stock Option Plan have up to 10-year terms and have vesting
periods that range from 0 to three years from the grant date.  The
exercise price of any options granted under the 1990 Stock Option Plan is the
fair market value at the date of grant.  Subsequent to the adoption of
the Equity Incentive Plan, no further options will be granted under the Option
Plan.





The
Company's stock option activity for the two years ended October 31, 2008 was as
follows:


Number
      of Shares
                  
                  
                  Option
      Price Per Share
                  
                  
                  Weighted
      Average Exercise PriceOptions
      outstanding at October 31, 2006
                  
                  
                  1,242,500
                  
                  
                  $
                  0.10
      – 0.14
                  
                  
                  $
                  0.12Options
      granted
                  
                  
                  400,000
                  
                  
                  
                  0.05
                  
                  
                  
                  0.05Options
      exercised
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Options
      cancelled
                  
                  
                  (452,500
                  )
                  
                  
                  0.10
      – 0.13
                  
                  
                  
                  0.11Options
      outstanding at October 31, 2007
                  
                  
                  1,190,000
                  
                  
                  
                  0.05
      – 0.14
                  
                  
                  
                  0.10Options
      granted
                  
                  
                  400,000
                  
                  
                  
                  0.08
                  
                  
                  
                  0.08Options
      exercised
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Options
      cancelled
                  
                  
                  (40,000
                  )
                  
                  
                  0.13
                  
                  
                  
                  0.13Options
      outstanding at October 31, 2008
                  
                  
                  1,570,000
                  
                  
                  $
                  0.05
      – 0.14
                  
                  
                  $
                  0.10





The
weighted average grant date fair value of options granted during fiscal 2008 was
$0.07 per share.  All options granted during fiscal 2008 were to
employees.  The aggregate intrinsic value of exercisable options
outstanding at October 31, 2008 was $4,000 based on the closing price of the
Company’s common stock of $.07 per share on October 31, 2008.  The
weighted average remaining contractual term of exercisable options outstanding
at October 31, 2008 was 4.2 years, and the weighted average remaining
contractual term of exercisable and non-exercisable options outstanding at
October 31, 2008 was 3.1 years.  The total unrecognized cost related
to non-vested options at October 31, 2008 was $46,247, and the weighted average
period over which it will be recognized is 2.4 years.




F-27
 Table of Contents




The
following table summarizes information about employee compensatory stock options
outstanding at October 31, 2008:





Options
      Outstanding
                  
                  
                  Options
      ExercisableRange
      of Average Exercise Prices
                  
                  
                  Number
      Outstanding
                  
                  
                  Weighted
      Average Remaining Life (in Years)
                  
                  
                  Weighted
      Average Exercise Price
                  
                  
                  Number
      Exercisable
                  
                  
                  Weighted
      Average Exercise Price$
                  0.05
                  
                  
                  
                  400,000
                  
                  
                  
                  3.93
                  
                  
                  $
                  0.05
                  
                  
                  
                  200,000
                  
                  
                  $
                  0.05$
                  0.08
                  
                  
                  
                  400,000
                  
                  
                  
                  1.86
                  
                  
                  
                  0.08
                  
                  
                  
                  -
                  
                  
                  
                  -$
                  0.12
      - $0.14
                  
                  
                  
                  770,000
                  
                  
                  
                  4.23
                  
                  
                  
                  0.13
                  
                  
                  
                  265,000
                  
                  
                  
                  0.131,570,000
                  
                  
                  
                  3.09
                  
                  
                  $
                  0.10
                  
                  
                  
                  465,000
                  
                  
                  $
                  0.10





Warrants





Warrant
Issuances to Employees





Employee
warrant activity for the two years ended October 31, 2008 was as
follows:





Number
      of Shares
                  
                  
                  Warrants
      Price Per Share
                  
                  
                  Weighted
      Average Exercise PriceWarrants
      outstanding at   October 31, 2006
                  
                  
                  2,042,433
                  
                  
                  $
                  .13
      - .78
                  
                  
                  $
                  .62Warrants
      granted
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Warrants
      exercised
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Warrants
      cancelled
                  
                  
                  (402,433
                  )
                  
                  
                  .75
                  
                  
                  
                  .75Warrants
      outstanding at October 31, 2007
                  
                  
                  1,640,000
                  
                  
                  $
                  .13
      - .16
                  
                  
                  $
                  .14Warrants
      granted
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Warrants
      exercised
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Warrants
      cancelled
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Warrants
      outstanding at October 31, 2008
                  
                  
                  1,640,000
                  
                  
                  $
                  .13
      - .16
                  
                  
                  $
                  .14





Warrants
issued to employees that were exercisable at October 31, 2008 and 2007 totaled
1,640,000.  The weighted average remaining contractual term of
employee warrants outstanding at October 31, 2008 was 2.5 years.





Warrant Issuances to
Non-Employees





Non-employee
warrant activity for the two years ended October 31, 2008 was as
follows:


Number
      of Shares
                  
                  
                  Warrants
      Price Per Share
                  
                  
                  Weighted
      Average Exercise PriceWarrants
      outstanding at   October 31, 2006
                  
                  
                  4,835,000
                  
                  
                  $
                  0.11
      - 2.00
                  
                  
                  $
                  0.36Warrants
      granted
                  
                  
                  7,100,000
                  
                  
                  
                  .09
      - .10
                  
                  
                  
                  0.10Warrants
      exercised
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Warrants
      cancelled
                  
                  
                  (100,000
                  )
                  
                  
                  0.40
      – 2.00
                  
                  
                  
                  1.20Warrants
      outstanding at October 31, 2007
                  
                  
                  11,835,000
                  
                  
                  
                  0.10
      - 0.78
                  
                  
                  
                  0.20Warrants
      granted
                  
                  
                  19,136,970
                  
                  
                  
                  .01
      - .12
                  
                  
                  
                  0.01Warrants
      exercised
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Warrants
      cancelled
                  
                  
                  (5,700,000
                  )
                  
                  
                  0.10
      – 0.78
                  
                  
                  
                  0.10Warrants
      outstanding at October 31, 2008
                  
                  
                  25,271,970
                  
                  
                  $
                  0.01
      - 0.38
                  
                  
                  $
                  0.05





See
discussion of warrants in (“NOTE 6 – CAPITAL LEASES, CONVERTIBLE DEBENTURES AND
NOTES PAYABLE, INCLUDING RELATED PARTY NOTES”).




F-28
 Table of Contents




NOTE
13 - INCOME TAXES





Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts reported for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities at October 31, 2008 and 2007 are
as follows:





2008
                      
                      
                      2007Deferred
      tax assetsNet
      operating loss carryovers
                      
                      $
                      15,242,872
                      
                      
                      $
                      16,292,411Accounts
      receivable
                      
                      
                      47,130
                      
                      
                      
                      18,219Property
      and equipment
                      
                      
                      -
                      
                      
                      
                      30,586Goodwill
      and customer lists
                      
                      
                      73,453
                      
                      
                      
                      -Warrants
                      
                      
                      54,296
                      
                      
                      
                      54,296Accrued
      liabilities
                      
                      
                      31,181
                      
                      
                      
                      25,552Total
      gross deferred tax assets
                      
                      
                      15,448,932
                      
                      
                      
                      16,421,064Deferred
      tax liabilitiesProperty
      and equipment
                      
                      
                      (16,464
                      )
                      
                      
                      -Goodwill
      and customer lists
                      
                      
                      -
                      
                      
                      
                      (14,632
                      )Total
      gross deferred tax liabilities
                      
                      
                      (16,464
                      )
                      
                      
                      (14,632
                      )Net
      deferred tax assets
                      
                      
                      15,432,468
                      
                      
                      
                      16,406,432Valuation
      allowance
                      
                      
                      (15,432,468
                      )
                      
                      
                      (16,406,432
                      )Net
      deferred assets
                      
                      $
                      -
                      
                      
                      $
                      -





The
following is a reconciliation of the Company’s income tax expense (benefit) at
the statutory rate to the income tax expense (benefit) at the effective tax
rate:





2008
                      
                      
                      2007Income
      tax benefit at statutory rate
                      
                      $
                      (501,210
                      )
                      
                      $
                      (679,791
                      )Permanent
      differences
                      
                      
                      160,733
                      
                      
                      
                      370,891Net
      Operating Loss Expiration
                      
                      
                      1,439,818
                      
                      
                      
                      751,994Change
      in valuation allowance
                      
                      
                      (973,964
                      )
                      
                      
                      (500,179
                      )Other
                      
                      
                      (125,377
                      )
                      
                      
                      57,085$
                      -
                      
                      
                      $
                      -





At
October 31, 2008, the Company has U.S. net operating loss carryforwards for
federal income tax purposes of approximately $45 million, which expire in 2009
through 2028.  Utilization of U.S. net operating losses is subject to
annual limitations provided for by the Internal Revenue Code.  The
annual limitation may also result in the expiration of net operating losses
before utilization.





Realization
of tax benefits depends on having sufficient taxable income within the carryback
and carryforward periods.  The Company continually reviews the
adequacy of the valuation allowance and recognizes these benefits as
reassessment indicates that it is more likely than not that the benefits will be
realized.  Based on pretax losses incurred in prior years, management
has established a valuation allowance against the entire net deferred asset
balance.


F-29
 Table of Contents
  NOTE
14 - COMMITMENTS AND CONTINGENCIES





Operating
Leases, including Related Party Lease





The
Company leases its corporate office and branch office facilities under various
noncancelable operating leases with terms expiring at various dates through
2016.  The operational and administrative headquarters facility is
leased through June 2011 from Apex Communications, Inc., an entity owned by
executive officers of the Company.  In addition, office space is
leased to support operating divisions located in California, Georgia, Texas, and
in South Africa.  The California, Texas and South Africa leases are
month-to-month.  Rent expense for office operating leases was $229,766
and $196,940 during fiscal year 2008 and 2007, respectively. Rent expense to
Apex was $134,860 and $134,860 for fiscal year 2008 and 2007,
respectively.





Future
minimum lease payments under noncancelable operating leases as of October 31,
2008 are as follows:





Year
      Ending October 31,
                  
                  Related
      Party
                  
                  
                  Other
                  
                  
                  Total2009
                  
                  $
                  134,860
                  
                  
                  $
                  22,847
                  
                  
                  $
                  157,7072010
                  
                  
                  134,860
                  
                  
                  
                  34,889
                  
                  
                  
                  169,7492011
                  
                  
                  89,907
                  
                  
                  
                  35,864
                  
                  
                  
                  125,7712012
                  
                  
                  -
                  
                  
                  
                  36,840
                  
                  
                  
                  36,8402013
                  
                  
                  -
                  
                  
                  
                  37,852
                  
                  
                  
                  37,8522014
                  
                  
                  -
                  
                  
                  
                  38,915
                  
                  
                  
                  38,9152015
                  
                  
                  -
                  
                  
                  
                  39,989
                  
                  
                  
                  39,9892016
                  
                  
                  -
                  
                  
                  
                  41,088
                  
                  
                  
                  41,088Total
      minimum lease payments
                  
                  $
                  359,627
                  
                  
                  $
                  288,284
                  
                  
                  $
                  647,911





Future minimum lease payments for office rent
relate to the Apex and Georgia operating leases.





Facilities
Leases





The
Company has obligations under various Facilities License Agreements (“Facilities
Leases”) to commercial property owners related to communications and information
technology equipment which is used in the Company’s wireless network services
and owned by the Company housed within or atop the commercial
property.  The Facilities Leases generally have terms of one to three
years, require monthly payments between $150 and $5,000 and are renewed
regularly.  A portion of the Company’s Facilities Leases contain
escalation clause which provide for cost of living adjustments each
year.  Total expense under these Facilities Leases was approximately
$195,000 for the fiscal year ended October 31, 2008 and is included within cost
of services in the accompanying statements of operations.





Legal
Proceedings





The
Company, from time to time, may be subject to legal proceedings and claims in
the ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property of third parties by the
Company.  Such claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources.





Cygnus
Telecommunications Technology, LLC.  On June 12, 2001, Cygnus
Telecommunications Technology, LLC ("Cygnus"), filed a patent infringement suit
(case no. 01-6052) in the United States District Court, Central District of
California, with respect to the Company's "international re-origination"
technology. On March 29, 2007 the United States District Court in San Jose,
California ruled that all Cygnus “international re-origination” patents are
invalid, and dismissed all cases against Rapid Link (fka Dial Thru International
Corporation) and related parties.  Subsequently, Appellate Courts have
upheld prior Court Rulings, and as a result, the Company believes that it is no
longer subject to any further legal action by Cygnus.




F-30
 Table of Contents




State of
Texas.  During fiscal 2004, the Company determined, based on
final written communications with the State of Texas, that it had a liability
for sales taxes (including penalties and interest) totaling $1.1
million.  On August 5, 2005, the State of Texas filed a lawsuit in the
53rd Judicial District Court of Travis County, Austin, Texas against the
Company.  The lawsuit requested payment of approximately $1.162
million, including penalties and for state and local sales tax.  The
sales tax amount due is attributable to audit findings of the State of Texas for
the years 1995 to 1999 associated with Canmax Retail Systems, a former operating
subsidiary, which provided retail automation software and related services to
the retail petroleum and convenience store industries.  The Company
will continue to aggressively pursue any amounts that may be due to the Company
from former customers of Canmax Retail Systems, or other entities involved with
the transaction that led to the tax liability.  However, there can be
no assurance that the Company will be successful with respect to such
collections.





Effective
April 30, 2008, the Company entered into a settlement agreement and release with
the State of Texas (“State”) whereby the State released the Company and its
subsidiaries, with the exception of Canmax, from any and all claims related to
the sales tax liability with the State.  In consideration for the
release, the Company paid the State $100,000 during the second quarter of fiscal
2008.  Additionally, effective April 30, 2008, the Company sold
Canmax.





Coastline
Capital. The Company filed a lawsuit against Coastline Capital on
May 5, 2008 for Declaratory Relief from interference in the Valens and Laurus
debenture transactions and Coastline Capital subsequently sued the Company on
June 23, 2008 for broker’s fees on the same transaction.  The Company does
not believe any fees are due on the transaction pursuant to the
non-exclusiveness of the contract and other contractual
provisions.  As a result, the Company will pursue this lawsuit and
defense adamantly, and believes that no fees will be due Coastline
Capital.





NOTE
15 – SUBSEQUENT EVENTS





Additional
contingent consideration includes Secondary Shares, True Up Shares, and True Up
Cash, and is based on performance objectives for One Ring being achieved within
certain time periods.  Payment of the additional contingent
consideration will occur in fiscal 2009 and include the issuance of shares of
the Company’s common stock as payment of the Secondary Shares and True-Up
Shares, and promissory notes issued by the Company to One Ring shareholders as
payment of True-Up Cash.  The Company is currently in the process of
determining the amount of additional contingent consideration and estimates that
approximately 4 million shares of the Company’s common stock will be issued as
payment of Secondary Shares and True Up Shares, and estimates that approximately
$600,000 of promissory notes will be issued as payment of the True Up
Cash.  These amounts will be recorded in fiscal 2009 when the
contingencies are resolved and the additional consideration is
distributable.  The contingent consideration based on earnings, will
result in an additional cost of the acquisition when resolved and
distributable.  The contingent consideration based on security prices,
will result in a reduction in the value of previously issued securities in the
acquisition.





As of
January 22, 2009, the Company has a balance due of approximately $386,000 on its
revolving line of credit.  See (“NOTE 6 – CAPITAL LEASES, CONVERTIBLE
DEBENTURES AND NOTES PAYABLE, INCLUDING RELATED PARTY NOTES”).


F-31
 
 Table of Contents




EXHIBIT
INDEX
 
 NO.
              DESCRIPTION OF
      EXHIBIT
 
 21.1
              Subsidiaries
      of the Registrant (filed herewith)
 
 23.1
              Consent
      of Independent Registered Public Accounting Firm (filed
      herewith)
 
 31.1
              Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule
      15d-14(a) of the Securities Exchange Act of 1934 (filed
      herewith)
 
 31.2
              Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule
      15d-14(a) of the Securities Exchange Act of 1934 (filed
      herewith)
 
 32.1
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 furnished
      herewith)
 
 32.2
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (furnished
      herewith)




55