**U.S.
        SECURITIES AND EXCHANGE COMMISSION**
 WASHINGTON,
        D.C. 20549
 
 **FORM
        10-KSB/A**
 (Amendment
        No. 1)
 
 (Mark
        one)
 x ANNUAL
        REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF
        THE
 SECURITIES
        EXCHANGE ACT OF 1934
 For
        the
        fiscal year ended September 30, 1999
 
 o TRANSITION REPORT UNDER SECTION 13 OR 15(d)
 OF
        THE
 SECURITIES
        EXCHANGE ACT OF 1934
 For
        the
        transition period from _______________ to ________________
 
 Commission
        File Number: 0-24217
 
 **YP.NET,
        INC.**
 (Name
        of
        Small Business Issuer in its Charter)
 
 
 NEVADA
              85-0206668(State
                  or other jurisdiction of incorporation or organization)
              (IRS
                  Employer Identification No.)
 
 4840
                  EAST JASMINE STREET, SUITE 105, MESA, ARIZONA
              85205(Address
                  of principal executive offices)
              (Zip
                  Code)
 
 (480)
        654-9646
 (Issuer’s
        telephone number)
 
 Securities
        registered under Section 12(b) of the Exchange Act: NONE
 
 Securities
        registered under Section 12(g) of the Exchange Act:
 
 COMMON
        STOCK, $.001 PAR VALUE
 (Title
        of
        Class)
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days. Yes o No x .
 
 Check
        if
        there is no disclosure of delinquent filers in response to Item 405 of
        Regulation S-B contained in this form, and no disclosure will be contained,
        to
        the best of registrant’s knowledge, in definitive proxy or information
        statements incorporated by reference in Part III of this Form 10-KSB or any
        amendment to this Form 10-KSB. o
 
 Registrant’s
        revenues for its most recent fiscal year were $8,572,185.
  
 
  The
        aggregate market value of the common stock held by non-affiliates computed
        based
        on the closing price of such stock on August 14, 2000 was approximately
        $12,189,406.
 
 The
        number of shares outstanding of the registrant’s classes of common stock, as of
        August 14, 2000 was 40,900,798.
 
 Documents
        incorporated by reference: [NONE]
 
 Transitional
        Small Business Disclosure Format (check one): Yes o No x
  
  **EXPLANATORY
        NOTE**
  This
        Amendment on Form 10-KSB/A (this “Amendment”) amends the Annual Report on Form
        10-KSB for the year ended September 30, 1999, as originally filed by YP Corp.
        on
        September 19, 2000 (the “Original Filing”), solely for the purpose of revising
        Part II, Items 6 and 7, to amend and restate the disclosure with
        respect to our accounting for shares issued to, and subsequently recovered
        from,
        certain non-performing consultants during 1999 and 2000. The historical
        financial statements generated by predecessor management reflected an expense
        upon issuance of the shares and a reversal of this expense when it was deemed
        (through a settlement agreement or judgment) that these shares would be
        returned. However, after further analysis and consultation with the Securities
        and Exchange Commission, it was determined to be inappropriate to recognize
        the
        initial expense and its subsequent reversal as no services were rendered
        by
        these consultants. Instead, the issuance of these shares will be reflected
        as
        temporary equity, together with a related receivable, until the shares were
        returned. The net decrease to cumulative after-tax income of approximately
        $510,000 relates to shares issued in 1999 that were expected to be returned
        but,
        for various reasons, cannot be obtained. Such amounts will continue to be
        reflected as expense in the year granted and our revised statements will
        no
        longer reflect the reversal of this expense.
 
 In
        addition, in connection with the filing of this Amendment and pursuant to
        the
        rules of the Securities and Exchange Commission, we are including with this
        Amendment a currently dated consent of our independent public accountants
        and
        certain currently dated certifications.
  Except
        as
        described above, no other changes have been made to the Original Filing.
        This
        Amendment continues to speak as of the date of the Original Filing, and,
        except
        a specifically stated herein, we have not updated the disclosures contained
        in
        this Amendment to reflect any events that occurred at a date subsequent to
        the
        filing of the Original Filing. The filing of this Form 10-KSB/A is not a
        representation that any statements contained in items of the Original Filing
        other than that information being amended are true or complete as of any
        date
        subsequent to the date of the Original Filing. The filing of this Form 10-KSB/A
        shall not be deemed an admission that the Original Filing or the amendments
        made
        thereto, when made, included any untrue statement of a material fact or omitted
        to state a material fact necessary to make a statement not
        misleading.
  
  **TABLE
        OF CONTENTS**
 
 **Item**
              **Page**Part
                  II
              1Item
                  6.         Managements’
                  Discussion and Analysis
              1Item
                  7.         Financial
                  Statements
              5Report
                  of Independent Registered Public Accounting
                  Firm
              6Consolidated
                  Financial
                  Statements:Consolidated
                  Balance Sheet at September 30,
                  1999
              7Consolidated
                  Statements of Operations for the Years
                  Ended September 30, 1999 and September 30, 1998
              8Consolidated
                  Statements of Stockholder’s Equity
                  for the Years Ended September 30, 1999 and September 30,
                  1998
              9Consolidated
                  Statements of Cash Flows for the Years
                  Ended September 30, 1999 and September 30, 1998
              10Notes
                  to Consolidated Financial
                  Statements
              12Part
                  III
              25Item
                  13.        Exhibits
              25Signatures
              25
  *Table
            of Contents*
  PART
        II
 
 ITEM
                  6.
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS
 
 Certain
        statements in this report are forward-looking statements that involve risks
        and
        uncertainties. Several factors could cause actual results to differ materially
        from those described in such forward-looking statements. These include our
        ability to manage growth, involvement in litigation, competition in the
        advertising market, ongoing contractual relationships, dependence upon key
        personnel, changes in customer attrition and the adoption of new, or changes
        in,
        accounting policies or practices and estimates and the application of such
        policies, practices, and estimates, and federal and state governmental
        regulation, specifically in the areas of Internet advertising products and
        services.
 
 FISCAL
        1999 OPERATIONS
 
 *General* .
        Our
        operations changed in July, 1999 due to the acquisition of Telco Billing,
        Inc.
        Our prior operations in the multi-media software and medical billing and
        practice management areas were abandoned and our subsidiaries engaged in
        these
        operations were closed. With the acquisition of Telco, our business operations
        focused on Internet yellow page listing services. In September, 1999, our
        Board
        of Directors and shareholders approved a name change from RIGL Corporation
        to
        YP.Net, Inc. effective October 1, 1999. The name change was chosen to reflect
        our new focus on Internet strategy and yellow page Web sites.
 
 *Management
        Changes* .
        In
        March, 1999, Tennessee Webb resigned as the Chairman of the Board and in
        April,
        1999, Eugene Starr resigned as a director of YP.Net. In September of 1999,
        the
        resignations of Kevin Jones (Chief Executive Officer, Chairman of the Board,
        Chief Financial Officer, Treasurer and President), James Jones (Chief Technology
        Officer, President of RIGL Technologies, Inc.), Peter DeKray (Secretary and
        Chief Operating Officer), and Michael McKay (President of Renaissance Center
        Ltd.) were accepted to be effective October 1999. In February 2000, William
        O’Neal resigned as a director, General Counsel and Interim President effective
        March 1, 2000.
 
 On
        February 3, 2000 a new Board of Directors was appointed by the sole remaining
        director, DeVal Johnson, Pamela Thompson and Greg Cessna having previously
        resigned as the only other remaining Board members after removal of prior
        management. The new board members included Angelo Tullo, Walter Vogel, Daniel
        L.
        Coury, Sr., Wallace Olsen, Jr., Gregory B. Crane and Harold Roberts. This
        change
        of management was initiated in part by changes in core business endeavors
        and
        strategies resulting from the acquisition of Telco and our focus on the Internet
        electronic yellow page advertising business.
 
 *Acquisition
        of Telco Billing, Inc* .
        On June
        16, 1999, we exchanged 17,000,000 shares of common stock for all of the
        outstanding common stock of Telco. We also licensed the right to use the
        URL
        Yellow-Page.Net for a 20-year period for $5,000,000. Our prior operations
        had
        not produced any meaningful results and it was doubtful if any material results
        would materialize from these operations. For financial accounting purposes,
        the
        acquisition was accounted for as a reverse merger and was treated as a
        recapitalization with Telco as the acquirer. The accompanying financial
        statements present the historical cost bases of assets and liabilities and
        results of operations of Telco. Subsequent to the merger, YP.Net ceased the
        previous operations and abandoned the assets related to those operations.
        The
        assets which were not abandoned are recorded at their historical cost. The
        recapitalization of Telco reflects the book value of the net assets of RIGL
        as
        of the date of the acquisition, June 16, 1999, of $1,722,563.
 
 *Discontinued
        Operations* .
        From
        September to December 1999, YP.Net closed down and ceased all operations
        conducted by its five subsidiaries engaged in multi-media software and medical
        billing and practice management operations. These included:
  1
 *Table
            of Contents*
  *Renaissance
        Center, Ltd* .
        This
        subsidiary was engaged in the design and implementation of asset management
        software for the multimedia and entertainment industry. The primary technology
        utilized by Renaissance Center, Ltd. was the Asset Management and Information
        Retrieval Environment (AMIRE). Management determined that the capital resources
        of YP.Net would no longer support the viability of the AMIRE
        system.
 
 RIGL
        Technologies, Inc. RIGL Technologies, Inc. was responsible for the design
        and
        implementation of AMIRE. This research and development stage subsidiary was
        divested because management had misgivings regarding the heavy research and
        development expenditures incurred, and consequently, would no longer support
        any
        further capital funding for these concepts.
 
 RIGL
        Medical Systems, Inc. RIGL Medical Systems, Inc. was to be responsible for
        creating the interface between the Medical AMIRE development team and the
        ultimate end users. This development stage subsidiary was divested because
        AMIRE
        and Medical AMIRE systems were deemed to be unprofitable resulting in this
        subsidiary no longer having business purpose and management would no longer
        support any further capital funding from YP.Net.
 
 Medical
        Resource Systems, Inc. Medical Resource Systems, Inc., a subsidiary of RIGL
        Medical Systems, Inc. provided billing and collection services to physician
        groups, primarily in the Phoenix, Arizona metropolitan area. The subsidiary
        was
        acquired as a beta test site for the Medical AMIRE system. This development
        stage subsidiary was divested because Medical AMIRE system was deemed to
        be
        unprofitable.
 
 Mountain
        Office Management Systems, Inc. Mountain Office Management Systems, Inc.,
        a
        subsidiary of RIGL Medical Systems, Inc., was expected to provide administrative
        support to physician practices. This development stage subsidiary was divested
        because the Medical AMIRE systems were deemed to be unprofitable and this
        line
        of business was abandoned.
 
 RESULTS
        OF OPERATIONS
 
 The
        acquisition of Telco was treated as a reverse merger for financial accounting
        purposes. As a result of being treated as a reverse merger, Telco was deemed
        to
        be the acquiring entity. For financial accounting purposes, Telco was considered
        to have engaged in a recapitalization and acquired the assets of RIGL as
        of
        June, 1999. As a result of this treatment, the financial statements for the
        year
        ended September 30, 1999 are the historic statements of Telco with the
        operations of "old" RIGL being included from June, 1999 forward.
 
 The
        financial statements for the year ended September 30, 1998 reflect the historic
        operations of "old" RIGL. Financial statements for the year ended September
        30,
        1998 are not included in this Form 10-KSB, but are included in the Form 10-KSB
        for the fiscal year ended September 30, 1998. All comparisons of fiscal year
        operating results in this section are comparing historic operations of two
        distinct entities and are presented solely to compare predecessor operations
        with our current operations.
 
 During
        the fiscal year ended September 30, 1999, significant shares of stock were
        issued to prior officers and consultants for services. The value of those
        shares
        was determined based on the trading value of the shares at the dates on which
        the agreements were made for the services. The value recorded for that
        consideration is equal to 90% of the trading value of the shares as a discount
        for the regulatory restrictions on trading of those shares. During the year
        ended September 30, 1999, YP.Net issued 769,500 shares to consultants valued
        at
        $1,044,089. These amounts exclude 925,000 shares valued at $1,101,089 that
        were
        issued to non-performing consultants for which such shares are expected to
        be
        retrieved. The Company has reflected the value of these shares as temporary
        equity outside of permanent stockholders’ equity, together with a corresponding
        receivable in the balance sheet included elsewhere in this Annual
        Report.
  2
 *Table
            of Contents*
  The
        cost
        of the Yellow-Page.Net URL was capitalized at its cost of $5,000,000. The
        URL is
        amortized on an accelerated basis over the twenty-year term of the licensing
        agreement. Amortization expense on the URL was $149,166 for the year ended
        September 30, 1999. Annual amortization expense in future years related to
        the
        URL is anticipated to be approximately $250,000.
 
 Fiscal
        Year End September 30, 1999 Compared to Fiscal Year End September 30,
        1998.
 
 Revenues
        for the year ended September 30, 1999 increased 1,019% to $8,572,185 from
        $841,045 during the year ended September 30, 1998. The increase in revenue
        is
        principally the result of the acquisition of Telco’s operations. Prior to the
        acquisition, no material operations had been commenced.
 
 Sales
        and
        marketing expenses for the year ended September 30, 1999 increased to
        $2,613,338. No sales and marketing expenses had been incurred during the
        year
        ended September 30, 1998. The increase was principally the result of expended
        marketing due to the operations of Telco. The marketing expenses are attributed
        to our direct response marketing, which is our primary source of attracting
        new
        customers.
 
 General
        and administrative expenses for the year ended September 30, 1999 decreased
        35%
        to $1,731,209 from $2,659,924 during the year ended September 30, 1998. The
        decrease was principally due to the change in our core business and the
        reduction of officer compensation, rent expenses and development costs and
        associated development stage endeavors.
 
 Interest
        expense for the year ended September 30, 1999 increased 19,623.1% to $410,319
        from $2,091 during the year ended September 30, 1998. The increase in interest
        expense was a result of increased debt due to the acquisition of Telco and
        the
        acquisition of the URL Yellow-Page.Net.
  At
        September 30, 1999, YP.Net had unused available federal net operating losses
        of
        $6,703,346 which expire from 2011 through 2014. YP.Net also has available
        net
        operating loss carry forward of $ 1,643,711 and
        has
        unavailable net operating loss carry forward of $5,059,634. YP.Net may only
        utilize the unavailable net operating loss of $5,059,634 upon generating
        taxable
        income at the parent company level.
 
 At
        September 30, 1999, YP.Net had unused state net operating losses of $4,649,284
        expiring 2003. YP.Net had available net operating loss carry forward of
        $1,643,711 and an unavailable net operating loss carry forward of $3,005,572.
        YP.Net may only utilize the unavailable net operating loss of $3,005,572
        upon
        generating taxable income at the parent company level.
 
 Net
        losses for the year ended September 30, 1999 were $3,262,598, or $.15 per
        share,
        compared to losses of $1,941,202, or $.17 per share the year ended September
        30,
        1998.
 
 LIQUIDITY
        AND CAPITAL RESOURCES
 
 Our
        cash
        balance increased to $255,324 at year ended September 30, 1999 from $30,252
        at
        the year ended September 30, 1998. We funded working capital requirements
        primarily from cash generated from financing activities and utilized cash
        in
        operating activities and investing activities. We have a credit facility
        used
        primarily to finance our receivables.
 
 *Operating
        Activities* .
        Cash
        used by operating activities decreased for the year ended September 30, 1999
        to
        $691,780 compared to $1,770,397 from the year ended September 30, 1998, a
        78%
        decrease. The principal source of our operations revenue is from sales of
        electronic yellow page advertising.
  3
 *Table
            of Contents*
  *Investing
        Activities* .
        Cash
        used by investing activities was $106,512 for the year ended September 30,
        1999
        compared to $478,409 for the year ended September 30, 1998. We purchased
        $230,662 of additional computer equipment to upgrade and replace incompatible
        equipment. We used $3,000,000 for partial payment of the purchase of the
        20-year
        license right to the URL Yellow-Page.Net, the domain name for our Web site.
        We
        obtained cash in the amount of $3,124,150 which was utilized in the business
        combination.
 
 *Financing
        Activities* .
        Cash
        flows provided from financing activities were $1,023,364 in the year ended
        September 30, 1999 compared to $2,604,135 for the year ended September 30,
        1998,
        a 61% decrease. We had cash inflow from the financing arrangements in the
        amount
        of $788,306 and from the sale of common stock of $629,681. We had cash outflow
        for notes paid in the amount of $394,623.
 
 We
        incurred debt in the acquisition of the license right to the Yellow-Page.Net
        URL. A total of $4,000,000 was borrowed, $2,000,000 from Joseph and Helen
        VanSickle and $2,000,000 as a carry-back from Matthew & Markson Ltd.
        Management has dedicated payments in the amount of $100,000 per month for
        the
        payment of the VanSickle note. Management has also dedicated payments to
        the
        Matthew & Markson note in the amount of $100,000 per month, with the
        provision that no payment be made if YP.Net has less than 30 days operating
        capital reserved, or if it is in an uncured default with any of its lenders.
        A
        total of 4,000,000 shares were issued to secure these notes and are held
        in
        escrow.
 
 Collections
        on accounts receivables are received primarily through the billing service
        integrators under contract to administer this billing and collection process.
        The billing service providers generally do not remit funds until they are
        collected. The billing companies maintain holdbacks for refunds and other
        uncertainties. Generally, cash is collected and remitted to YP.Net over a
        90 to
        120 day period subsequent to the billing dates.
 
 At
        September 30, 1999, YP.Net had a working capital deficiency of $3,873,008.
        Subsequent to September 30, 1999, YP.Net restructured certain debt and has
        increased the volume of its operations resulting in elimination of that deficit
        at June 30, 2000. Management believes that it will have sufficient working
        capital to implement its business plan.
 
 YP.Net
        markets it products primarily through the use of direct mailers to businesses
        throughout the United States. YP.Net generally pays for these marketing costs
        when incurred and amortizes the costs of direct-response advertising on a
        straight-line basis over eight months. The amortization lives are based on
        estimated attrition rates. During the year ended September 30, 1999, YP.Net
        paid
        $2,029,575 for direct-response advertising. Management anticipates the outlays
        for direct-response advertising to remain consistent over the near
        term.
 
 YP.Net
        does not intend to incur significant capital expenditures in the near
        term.
 
 *Financial
        Institution Lending Agreements* .
        We have
        an existing asset-based collateralized line of credit with Finova Financial,
        Inc. Recently, Finova has requested YP.Net to execute a forbearance agreement
        that will extend the line of credit terms to October 3, 2000. Finova has
        requested that YP.Net seek a lender that can accommodate its specialized
        Internet advertising business along with its LEC billing practices. As a
        result,
        management has decided to seek other potential lenders that specialize in
        this
        area of financing.
 
 We
        have
        received a proposal from RFC Capital, a LEC billing financial factoring company,
        and we have presented a loan request to Pacific Century Bank for a
        line-of-credit facility of at least $3,000,000 to replace the facility provided
        by Finova.
  4
 *Table
            of Contents*
  ITEM
                  7.
              FINANCIAL
                  STATEMENTS
 
 INDEX
        TO
        FINANCIAL STATEMENTS
 
 REPORT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              6CONSOLIDATED
                  FINANCIAL STATEMENTS:Consolidated
                  Balance Sheet at September 30, 1999
              7Consolidated
                  Statements of Operations for the years ended September 30, 1999
                  and
                  September 30, 1998
              8Consolidated
                  Statements of Stockholders’ Equity for the years ended September 30, 1999
                  and September 30, 1998
              9Consolidated
                  Statements of Cash Flows for the years ended September 30, 1999
                  and
                  September 30, 1998
              10NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
              12
  5
 *Table
            of Contents*
 **REPORT
            OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
            FIRM**
 
 
 
 To
            the
            Stockholders and Board
 of
            Directors of YP Corp.:
  We
            have
            audited the accompanying consolidated balance sheet of YP Corp. and subsidiaries
            as of September 30, 1999 and the related statements of operations, stockholders’
equity and cash flows for the year then ended. These financial statements
            are
            the responsibility of the Company’s management. Our responsibility is to express
            an opinion on these financial statements based on our audit.
  We
            conducted our audit in accordance with the auditing standards generally
            accepted
            in the United States. Those standards require that we plan and perform
            the
            audits to obtain reasonable assurance about whether the financial statements
            are
            free of material misstatement. An audit includes examining, on a test
            basis,
            evidence supporting the amounts and disclosures in the financial statements.
            An
            audit also includes assessing the accounting principles used and significant
            estimates made by management, as well as evaluating the overall financial
            statement presentation. We believe our audit provides a reasonable basis
            for our
            opinion.
 
 In
            our
            opinion, the financial statements referred to above present fairly, in
            all
            material respects, the consolidated financial position of YP Corp. and
            subsidiaries as of September 30, 1999, and the consolidated results of
            its
            operations and cash flows for the year then ended, in conformity with
            accounting
            principles generally accepted in the United States of America.
 
 As
            described in Note 1, the Company restated its financial statements for
            the year
            ended September 30, 1999.
 
 
 /s/   Epstein,
            Weber & Conover, PLC
 Scottsdale,
            Arizona
 June
            12,
            2000
 (except
            for the restatement of financial statements
 described
            in Note 1, for which the date is November 18, 2005)
  6
 *Table
                of Contents*
 YP.NET,INC.
 
 CONSOLIDATED
        BALANCE SHEET
 SEPTEMBER
        30, 1999
 
 ASSETS:CURRENT
                  ASSETSCash
              
              $
              255,323Accounts
                  receivable, net of allowance of $206,012
              
              
              951,177Customer
                  acquisition costs, net of accumulated amortization of
                  $1,395,675
              
              
              633,900Other
                  receivable
              
              
              77,182Prepaid
                  expenses and other assets
              
              
              14,650Deferred
                  income taxes
              
              
              91,172Total
                  current assets
              
              
              2,023,404PROPERTY
                  AND EQUIPMENT, net
              
              
              435,898DEPOSITS
              
              
              13,287INTELLECTUAL
                  PROPERTY- URL, net of accumulated amortization of $159,166
              
              
              4,850,834DEFERRED
                  FINANCING COSTS
              
              
              123,750RECEIVABLE
                  - COMMON STOCK TO BE RETURNED
              
              
              1,101,089TOTAL
                  ASSETS
              
              $
              8,548,262LIABILITIES
                  AND STOCKHOLDERS’ EQUITY:CURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              55,000Accrued
                  liabilities
              
              
              447,360Line
                  of credit
              
              
              788,306Notes
                  payable - current portion
              
              
              4,020,559Deferred
                  revenue
              
              
              324,760Income
                  taxes payable
              
              
              260,427Total
                  current liabilities
              
              
              5,896,412DEFERRED
                  INCOME TAXES
              
              
              70,865NOTES
                  PAYABLE - long-term portion
              
              
              7,241Total
                  liabilities
              
              
              5,974,518COMMITMENTS
                  AND CONTINGENCIES
              
              
              -TEMPORARY
                  EQUITY - Common stock to be returned, 925,000 shares issued and
                  outstanding
              
              
              1,101,089STOCKHOLDERS’
                  EQUITY:Series
                  B preferred stock, $.001par value, 2,500,000 shares designated,
                  1,700,000
                  issued
              
              
              1,700Common
                  stock, $.001 par value, 50,000,000 shares authorized, 38,231,853
                  issued
                  and outstanding
              
              
              38,232Paid
                  in capital
              
              
              3,792,374Treasury
                  stock at cost
              
              
              (69,822
              )Accumulated
                  deficit
              
              
              (2,289,829
              )Total
                  stockholders’ equity
              
              
              1,472,655TOTAL
                  LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY
              
              $
              8,548,262
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  7
 *Table
            of Contents*
  YP.NET,
        INC.
 
 CONSOLIDATED
        STATEMENT OF OPERATIONS
 FOR
        THE YEAR ENDED SEPTEMBER 30, 1999
 
 NET
                  REVENUES
              
              $
              8,572,185OPERATING
                  EXPENSES:Cost
                  of services
              
              
              4,760,026General
                  and administrative expenses
              
              
              1,731,209Sales
                  and marketing expenses
              
              
              2,613,338Depreciation
                  and amortization
              
              
              192,469Total
                  operating expenses
              
              
              9,297,042OPERATING
                  LOSS
              
              
              (724,857
              )OTHER
                  (INCOME) AND EXPENSESInterest
                  expense
              
              
              410,319Interest
                  income
              
              
              (5,401
              )Total
                  other expense
              
              
              404,918LOSS
                  BEFORE DISCONTINUED OPERATIONS AND INCOME TAXES
              
              
              (1,129,755
              )INCOME
                  TAX PROVISION
              
              
              240,119LOSS
                  FROM CONTINUING OPERATIONS
              
              
              (1,369,894
              )LOSS
                  FROM DISCONTINUED OPERATIONSLoss
                  from operations of medical billing services segment (no effect
                  for income
                  taxes)
              
              
              (221,194
              )Loss
                  from abandonment of medical billing services segment (no effect
                  for income
                  taxes)
              
              
              (1,671,510
              )Total
              
              
              (1,892,704
              )NET
                  LOSS
              
              $
              (3,262,598
              )NET
                  LOSS PER SHARE:Basic:Continuing
                  operations
              
              $
              (0.06
              )Discontinued
                  operations
              
              
              (0.09
              )Total
                  Basic
              
              $
              (0.15
              )Diluted:Continuing
                  operations
              
              $
              (0.06
              )Discontinued
                  operations
              
              
              (0.09
              )Total
                  Diluted
              
              $
              (0.15
              )WEIGHTED
                  AVERAGE COMMON SHARES OUTSTANDING:Basic
              
              
              22,223,757Diluted
              
              
              22,223,757
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements. Per share amounts may not total due to rounding of individual
        components.
  8
 *Table
            of Contents*
  YP.NET,
        INC.
 
 CONSOLIDATED
        STATEMENT OF STOCKHOLDERS’ EQUITY FOR THE
 FOR
        THE YEAR ENDED SEPTEMBER 30, 1999
 
 COMMON
                  STOCK
              
              PREFERRED
                  A
              
              TREASURY
              
              PAID-IN
              
              ACCUMULATEDSHARES
              
              AMOUNT
              
              SHARES
              
              AMOUNT
              
              STOCK
              
              CAPITAL
              
              DEFICIT
              
              TOTALBALANCE
                  OCTOBER 1, 1998
              
              
              17,000,000
              
              $
              17,000
              
              
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              972,769
              
              $
              989,769Reverse
                  merger
              
              
              14,714,603
              
              
              14,715
              
              
              
              
              
              
              
              
              (69,822
              )
              
              1,777,670
              
              
              
              
              
              1,722,563Common
                  stock issued for service rendered  (1)
              
              
              769,500
              
              
              770
              
              
              
              
              
              
              
              
              
              
              
              1,043,319
              
              
              
              
              
              1,044,089Common
                  stock issued for cash
              
              
              847,750
              
              
              848
              
              
              
              
              
              
              
              
              
              
              
              627,985
              
              
              
              
              
              628,833Common
                  stock issued as collateral for on note payable
              
              
              2,000,000
              
              
              2,000
              
              
              
              
              
              
              
              
              
              
              
              (2,000
              )
              
              
              
              
              0Common
                  stock placed in escrow as collateral on debt
              
              
              2,500,000
              
              
              2,500
              
              
              
              
              
              
              
              
              
              
              
              (2,500
              )
              
              
              
              
              0Employee
                  preferred stock grants
              
              
              
              
              
              
              
              
              1,700
              
              
              1,700
              
              
              
              
              
              (1,700
              )
              
              
              
              
              0Conversion
                  of debt
              
              
              400,000
              
              
              400
              
              
              
              
              
              
              
              
              
              
              
              349,600
              
              
              
              
              
              350,000Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,262,598
              )
              
              (3,262,598
              )BALANCE
                  SEPTEMBER 30, 1999
              
              
              38,231,853
              
              $
              38,232
              
              
              1,700
              
              $
              1,700
              
              $
              (69,822
              )
              $
              3,792,374
              
              $
              (2,289,829
              )
              $
              1,472,655
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements
  1 Excludes
          925,000 shares issued to nonperforming consultants for which shares are
          expected
          to be returned.
  9
 *Table
                of Contents*
 YP.NET,
        INC.
 
 CONSOLIDATED
        STATEMENT OF CASH FLOWS FOR THE
 YEAR
        ENDED SEPTEMBER 30, 1999
 
 CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  (loss)
              
              $
              (3,262,598
              )Adjustments
                  to reconcile net income to net cash provided by (used in) operating
                  activities:Loss
                  from discontinued operations
              
              
              221,194Loss
                  on abandonment of net assets of discontinued operations
              
              
              1,671,510Depreciation
                  and amortization
              
              
              30,338Issuance
                  of common stock as compensation for services
              
              
              1,045,783Loss
                  on disposal of equipment
              
              
              89,319Deferred
                  income taxes
              
              
              (20,478
              )Conversion
                  of accrued interest to common stock
              
              
              100,000Amortization
                  of intellectual property
              
              
              149,166Changes
                  in assets and liabilities (net of business acquisitions and
                  divestures):Trade
                  and other accounts receivable
              
              
              (124,826
              )Customer
                  acquisition costs
              
              
              (264,981
              )Other
                  receivables
              
              
              (32,671
              )Prepaid
                  and other current assets
              
              
              (9,616
              )Other
                  assets
              
              
              49,525Accounts
                  payable
              
              
              (71,348
              )Accrued
                  liabilities
              
              
              202,289Income
                  taxes payable
              
              
              260,427Deferred
                  revenue
              
              
              324,760Cash
                  provided by continuing operations
              
              
              357,793Cash
                  used by discontinued operations
              
              
              (1,049,574
              )Net
                  cash (used in) operating activities
              
              
              (691,781
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchases
                  of equipment
              
              
              (230,662
              )Purchase
                  of intellectual property
              
              
              (3,000,000
              )Cash
                  acquired in business acquisition
              
              
              3,124,150Net
                  cash (used in) investing activities
              
              
              (106,512
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Proceeds
                  from borrowings on line of credit
              
              
              788,306Principal
                  repayments on notes payable
              
              
              (394,623
              )Proceeds
                  from sale of common stock
              
              
              629,681Net
                  cash provided by financing activities
              
              
              1,023,364INCREASE
                  IN CASH
              
              
              225,071CASH,
                  BEGINNING OF YEAR
              
              
              30,252CASH,
                  END OF YEAR
              
              $
              255,323
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  10
 *Table
              of Contents*
 YP.NET,
        INC.
 
 CONSOLIDATED
        STATEMENT OF CASH FLOWS, (CONTINUED)
 FOR
        THE YEAR ENDED SEPTEMBER 30, 1999
 
 SUPPLEMENTAL
                  CASH FLOW INFORMATION:Interest
                  paid
              
              $
              64,677Income
                  taxes paid
              
              $
              -0-SUPPLEMENTAL
                  SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:Conversion
                  of debt to common stock
              
              $
              250,000Note
                  payable issued for purchase of intellectual property
              
              $
              2,000,000Common
                  stock issued for business acquisition
              
              $
              1,722,563
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  11
 *Table
            of Contents*
  YP.NET,
        INC.
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE YEAR ENDED SEPTEMBER 30, 1999
 
 1.
              ORGANIZATION
                  AND BASIS OF PRESENTATION
 
 YP.Net,
        Inc. (the "Company"), formally RIGL Corporation, had previously attempted
        to
        develop software solutions for medical practice billing and administration.
        The
        Company had made acquisitions of companies performing medical practice billing
        services as test sites for its software and as business opportunities. The
        Company was not successful in implementing its medical practice billing and
        administration software products and looked to other business opportunities.
        The
        Company acquired Telco Billing Inc. ("Telco") in June 1999, through the issuance
        of 17,000,000 shares of the Company’s common stock. Prior to its acquisition of
        Telco, RIGL had not generated significant or sufficient revenue from planned
        operations. Telco was formed in April 1998, to provide advertising and directory
        listings for businesses on its Internet Web site in a " Yellow
        Page "
        format.
        Telco provides those services to its subscribers for a monthly fee. These
        services are provided primarily to all business throughout the United States.
        Telco became a wholly owned subsidiary of YP.Net, Inc. after the June 16,
        1999
        acquisition.
  The
        accompanying financial statements represent the consolidated financial position
        and results of operations of the Company and includes the accounts and results
        of operations of the Company and Telco, its wholly owned subsidiary, for
        the
        year ended September 30, 1999. The consolidated results of operations and
        cash
        flows for the year ended September 30, 1999 include that of Telco for the
        year
        ended September 30, 1999, and the Company from the June 16, 1999 acquisition
        date through September 30, 1999. At the time that the transaction was agreed
        to,
        the Company had 12,567,770 common shares issued and outstanding. As a result
        of
        the merger transaction with Telco, there was 29,567,770 common shares
        outstanding, and the former Telco stockholders held approximately 57% of
        the
        Company’s voting stock. For financial accounting purposes, the acquisition was a
        reverse acquisition of the Company by Telco, under the purchase method of
        accounting, and was treated as a recapitalization with Telco as the acquirer.
        Accordingly, the historical financial statements have been restated after
        giving
        effect to the June 16, 1999, acquisition of the Company. The financial
        statements have been prepared to give retroactive effect to October 1, 1998,
        of
        the reverse acquisition completed on June 16, 1999, and represent the operations
        of Telco. Consistent with reverse acquisition accounting: (i) all of Telco’s
        assets, liabilities, and accumulated deficit, are reflected at their combined
        historical cost (as the accounting acquirer) and (ii) the preexisting
        outstanding shares of the Company (the accounting acquiree) are reflected
        at
        their net asset value as if issued on June 16, 1999.
  Restatement
        of Financial Statements
  Subsequent
          to the issuance of the Company’s financial statements as of September 30, 1999,
          and the year then ended, the Company determined that the accounting for
          its
          common stock issued to, and subsequently recovered from, certain non-performing
          consultants during 1999 should not have been expensed when originally issued
          as
          had been previously reported. The subsequent recovery of these shares was
          recorded as an item in other income at the same value at which they were
          originally issued. It has been determined to be inappropriate to recognize
          the
          initial expense and its subsequent reversal as no services were rendered
          by
          these consultants. Instead, the issuance of these shares will be reflected
          as
          temporary equity, together with a related receivable, until the shares
          were
          returned. The change in accounting has the effect in the year ended September
          30, 1999 of a net decrease to the net loss of approximately $1,101,000
          from
          $4,364,000 to $3,263,000 and a decrease in the net loss per share from
          $0.20 to
          $0.15. The change in accounting had no effect on cash flows or on the net
          equity
          at September 30, 1999.
  2.
              SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES
 
 Cash :
        Cash
        includes all short-term highly liquid investments that are readily convertible
        to known amounts of cash and have original maturities of three months or
        less.
        At times cash deposits may exceed government insured limits. At September
        30,
        1999, cash deposits exceeded those insured limits by $89,000.
 
 Principles
        of Consolidation :
        The
        consolidated financial statements include the accounts of the Company and
        its
        wholly owned subsidiary, Telco Billing Company. All significant intercompany
        accounts and transactions are eliminated.
  12
 *Table
            of Contents*
  Customer
        acquisition costs :
        These
        costs represent the direct response marketing costs that are incurred as
        the
        primary method by which customers subscribe to the Company’s services. The
        Company purchases mailing lists and sends advertising materials to prospective
        subscribers from those lists. Customers subscribe to the services by positively
        responding to those advertising materials which serve as the contract for
        the
        subscription. The Company capitalizes and amortizes the costs of direct-response
        advertising on a straight-line basis over eight months. The amortization
        lives
        are based on estimated attrition rates. The Company also incurs advertising
        costs that are not considered direct-response advertising. These other
        advertising costs are expensed when incurred. These advertising expenses
        were
        $168,744 for the year ended September 30, 1999.
 
 Property
        and equipment :
        These
        assets are stated at cost less accumulated depreciation. Depreciation is
        recorded on a straight-line basis over the estimated useful lives of the
        assets
        ranging from 3 to 5 years. Depreciation expense for the year ended September
        30,
        1999 was $30,338.
  Revenue
        recognition :
        The
        Company’s revenue is generated by customer subscription of directory and
        advertising services. Revenue is billed and recognized monthly for services
        subscribed in that specific month. The Company utilizes outside billing
        companies to transmit billing data, much of which is forwarded to Local Exchange
        Carriers ("LECs") that provide local telephone service. Monthly subscription
        fees are generally included on the telephone bills of the customers. The
        Company
        recognizes revenue based on net billings accepted by the LEC’s.
 
 Some
        customers subscribe for a full year of service and pay in advance for the
        service. The revenue associated with these subscriptions is deferred and
        recognized ratably over twelve months.
 
 Income
        taxes :
        The
        Company provides for income taxes based on the provisions of Statement of
        Financial Accounting Standards No. 109, Accounting for Income Taxes, which,
        among other things, requires that recognition of deferred income taxes be
        measured by the provisions of enacted tax laws in effect at the date of
        financial statements.
 
 Financial
        Instruments :
        Financial instruments consist primarily of cash, accounts receivable, and
        obligations under accounts payable, accrued expenses and notes payable. The
        carrying amounts of cash, accounts receivable, accounts payable, accrued
        expenses and notes payable approximate fair value because of the short maturity
        of those instruments. The Company has applied certain assumptions in estimating
        these fair values. The use of different assumptions or methodologies may
        have a
        material effect on the estimates of fair values.
 
 Net
        loss per share :
        Net
        loss per share is calculated using the weighted average number of shares
        of
        common stock outstanding during the year. The Company has adopted the provisions
        of SFAS No. 128 Earnings Per Share.
  Use
        of
        Estimates :
        The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting period.
        Actual results could differ from those estimates.
  13
 *Table
            of Contents*
  Stock-Based
        Compensation :
        Statements of Financial Accounting Standards No. 123, Accounting for Stock-Based
        Compensation, ("SFAS 123") established accounting and disclosure requirements
        using a fair-value based method of accounting for stock-based employee
        compensation. In accordance with SFAS 123, the Company has elected to continue
        accounting for stock based compensation using the intrinsic value method
        prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
        Stock
        Issued to Employees." The proforma effect of the fair value method is discussed
        in Note 15.
 
 Temporary
        Equity :
        During
        fiscal 1999, the Company issued 925,000 shares to
        consultants whereupon it was subsequently determined that the consultants
        did
        not perform under the terms of the related agreements. The Company has pursued
        legal action against the consultants and expect the shares to be retrieved.
        The
        value of such shares, totaling $1,101,089, was not recorded as expense but
        rather is reflected as temporary equity, together with a related receivable,
        in
        the accompanying consolidated balance sheet until such times that the shares
        are
        retrieved.
 
 Impairment
        Loss :
        Impairment of long-lived assets is assessed by the Company for impairment
        whenever there is an indication that the carrying amount of the asset may
        not be
        recoverable. Recoverability of these assets is determined by comparing the
        forecasted undiscounted cash flows generated by those assets to the assets’ net
        carrying value. The amount of impairment loss, if any, is measured as the
        difference between the net book value of the assets and the estimated fair
        value
        of the related assets.
 
 3.
              ACCOUNTS
                  RECEIVABLE
 
 The
        Company provides billing information to third party billing companies for
        the
        majority of its monthly billings. Billings submitted are "filtered" by these
        billing companies and the LEC’s. Net accepted billings are recognized as revenue
        and accounts receivable. The billing companies remit payments to the Company
        on
        the basis of cash ultimately received from the LEC’s by those billing companies.
        The billing companies and LEC’s charge fees for their services which are netted
        against the gross accounts receivable balance. The billing companies also
        apply
        holdbacks for the remittances for potentially uncollectible accounts. The
        Company estimates uncollectible account balances and provides an allowance
        for
        such estimates.
 
 The
        Company has entered into a customer billing service agreement with Integretel,
        Inc. on January 6, 1998, which was amended on April 2, 1998 and again on
        September 1, 1999. Integretel provides billing and collection and related
        services. Determining the net realizable value requires an estimation of
        both
        uncollectible receivables or any returns and allowances. The trade receivable
        due from Integretel at September 30, 1999 was $304,423. These receivables
        have
        been reduced by an allowance for doubtful accounts of $43,825.
 
 The
        Company has also entered into a customer billing service agreement with Olympic
        Telecommunications, Inc. on June 2, 1998. Olympic provides billing and
        collection and related services. Determining the net realizable value requires
        an estimation of both uncollectible receivables or any returns and allowances.
        The trade receivable due from Olympic at September 30, 1999 was
        $180,102.
  14
 *Table
            of Contents*
  The
        Company has also entered into a customer billing service agreement with Enhanced
        Services Billing, Inc. (ESBI). ESBI provides billing and collection and related
        services. Determining the net realizable value requires an estimation of
        both
        uncollectible receivables or any returns and allowances. The trade receivable
        due from ESBI at September 30, 1999 was $592,235 less aggregated amounts
        for
        Telco fees, and reserve holdbacks based on dilution. This trade receivable
        has
        been reduced by an allowance for doubtful accounts of $162,187.
 
 Trade
        subscription receivables, which are directly administered and carried by
        the
        Company, are valued and reported at net realizable value, the net amount
        expected to be received. This amount may or may not be necessarily the amount
        received. Determining the net realizable value requires an estimation of
        both
        uncollectible accounts or any returns and allowances. The net trade
        subscriptions receivable at September 30, 1999 was $75,929.
 
 4.
              INTELLECTUAL
                  PROPERTY
 
 In
        connection with the Company’s acquisition of Telco, the Company was required to
        provide accelerated payment of license fees for the use of the Internet domain
        name or Universal Resource Locator (URL) Yellow-Page.Net. Telco
        had previously entered into a 20-year license agreement for the use of the
        URL
        with one of its two 50% stockholders. The original license agreement required
        annual payments of $400,000. However, the agreement stated that upon a change
        in
        control of Telco, a $5,000,000 accelerated payment is required to maintain
        the
        rights under the licensing agreement. The URL holder agreed to discount the
        accelerated payments from $8,000,000 to $5,000,000 at the time of the
        acquisition. The Company agreed to make that payment upon effecting the
        acquisition of Telco.
 
 The
        Company made a $3,000,000 cash payment and issued a note payable for $2,000,000
        to acquire the licensing rights of the URL. The Company also issued 2,000,000
        shares of its common stock to be held as collateral on the note. The note
        payable was originally due on July 15, 1999. The Company failed to make the
        $2,000,000 payment when due. The repayment terms were renegotiated to extend
        the
        due date to January 15, 2000. An extension fee of $200,000 was paid by the
        Company at that time. The Company again renegotiated the repayment terms
        on
        April 26, 2000, to a demand note, with monthly installments of $100,000 subject
        to all operating requirements, which have been met by the Company. The URL
        is
        recorded at its cost net of accumulated amortization. Management believes
        that
        the Company’s business is dependent on its ability to utilize this URL given the
        recognition of the yellow
        page term.
        Management believes that the current revenue and cash flow generated through
        use
        of Yellow-Page.Net substantiates the net book value of the asset. The Company will periodically
        analyze the net book value of this asset and determine if an impairment has
        been
        incurred. The URL is amortized on an accelerated basis over the twenty-year
        term
        of the licensing agreement. Amortization expense on the URL was $149,166
        for the
        year ended September 30, 1999.
 
 5.
              PROPERTY
                  AND EQUIPMENT
 
 Property
                  and equipment consisted of the following at September 30,
                  1999:Leasehold
                  improvements
              
              $
              287,507Furnishings
                  and fixtures
              
              
              105,333Office
                  and computer equipment
              
              
              159,891Total
              
              
              552,731Less
                  accumulated depreciation
              
              
              (116,833
              )Property
                  and equipment, net
              
              $
              435,898
 15
 *Table
              of Contents*
  6.
              NOTES
                  PAYABLE AND LINE OF CREDIT
 
 Notes
                  payable at September 30, 1999 are comprised of the following: 3,000,000
                  Revolving line of credit, interest at the prime rate plus 3% (11.25%
                  at
                  September 30, 1999). The facility is limited to 80% of eligible
                  accounts
                  receivable. Assets of the Company collateralize the credit facility.
                  The
                  credit facility expires on August 31, 2003. The institution may
                  withdraw
                  the line with a notification within 90 days
              
              $
              788,306Term
                  loan from bank. Original balance of $40,525. Repayment terms require
                  monthly installments of principal and interest of $1,844. Interest
                  at 8.5%
                  per annum. Due January 1, 2001. Collateralized by
                  equipment
              
              
              27,800Note
                  payable to stockholders, original balance of 2,000,000, interest
                  at 8% per
                  annum. Interest payments due monthly through due date of November
                  11, 1999
                  Collateralized by 2,000,000 shares of the Company’s common stock.
                  Subsequent to September 30, 1999, the repayment terms were subsequently
                  renegotiated extending the due date to January 11, 2001 with monthly
                  payments of $100,000 plus interest
              
              
              2,000,000Note
                  payable to former Telco shareholder for balance of URL purchase
                  price
                  (Note 4). Repayment terms have been extended requiring monthly
                  installments of principal and interest at 20% per annum of $100,000
                  and
                  due upon demand. Collateralized by 2,000,000 shares of the Company’s
                  common stock
              
              
              2,000,000Totals
              
              
              4,816,106Less
                  current portion
              
              
              (4,808,865
              )Long-term
                  portion
              
              $
              7,241Principal
                  payments due as follows:Years
                  ended September
                  30:                2000
              
              $
              4,808,8652001
              
              
              7,241Total
              
              $
              4,816,106
 
 7.
              BUSINESS
                  COMBINATION
 
 On
        June
        16, 1999, the Company exchanged 17,000,000 shares of common stock for all
        of the
        common stock of Telco Billing Company ("Telco"). Prior to the merger, the
        Company had not yet commenced material operations. For financial accounting
        purposes, the acquisition was accounted for as a reverse merger and was treated
        as a recapitalization with Telco as the acquirer. The accompanying financial
        statements present the historical cost bases of assets and liabilities and
        results of operations of Telco. Subsequent to the merger, the Company ceased
        its
        previous operations and abandoned assets related to those operations. The
        remaining Company assets are recorded at their historical cost. The
        recapitalization of Telco reflects the book value of the net assets of RIGL
        as
        of the date of the merger as of June 16, 1999 of $1,722,563.
 
 8.
              DISCONTINUED
                  OPERATIONS
 
 Effective
        with the acquisition of Telco on June 16 1999, the Company determined that
        it
        would abandon its efforts to develop and market the medical practice billing
        and
        administration business. The operations for this segment are reflected as
        discontinued operations in the accompanying statement of operations. Revenues
        of
        this segment were $160,154 for the year ended September 30, 1999. The Company
        divested asset balances totaling $1,646,000 related to this segment. The
        disposed components are as follows:
  16
 *Table
            of Contents*
  Capitalized
                  software costs
              
              $
              673,000Goodwill
              
              
              152,000Security
                  deposits
              
              
              62,000Receivables
              
              
              436,000Other
              
              
              323,000Total
              
              $
              1,646,000
 
 9.
              PROVISION
                  FOR 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 used for income tax purposes. The deferred tax consequences of
        temporary differences in reporting items for financial statement and income
        tax
        purposes are recognized, if appropriate. Realization of the future tax benefits
        related to the deferred tax assets is dependent on many factors, including
        the
        Company’s ability to generate taxable income within the net operating loss
        period. The Company has considered these factors in reaching its conclusion
        as
        to the valuation allowance for financial reporting purposes.
 
 At
        September 30, 1999 the Company has unused federal net operating losses of
        $6,703,346 available under Internal Revenue Code 382 - change in control
        rules
        expiring from 2011 through 2014. The Company has available net operating
        loss
        carry forward under the separate return limitation year of $1,643,711 and
        has
        unavailable net operating loss carry forward of $5,059,634. The Company may
        utilize the unavailable net operating loss of $5,059,634 upon generating
        taxable
        income in that operating entity.
 
 At
        September 30, 1999 the Company has unused state net operating losses of
        $4,649,284 available under the change in control rules expiring 2003. The
        Company has available net operating loss carry forward under the separate
        return
        limitation year of $1,643,711 and has unavailable net operating loss carry
        forward of $3,005,572. The Company may utilize the unavailable net operating
        loss of $3,005,572 upon generating taxable income in that operating
        entity.
 
 Prior
        to
        the acquisition date of June 16, 1999 RIGL agreed to assume the tax liability
        of
        Telco for the taxable income generated prior to June 16, 1999. The provision
        for
        income taxes is computed based on the pretax income generated prior to the
        acquisition of Telco. The current income tax provision of $260,427, less
        a net
        deferred benefit $20,478, related to Telco for the year ended September 30,
        1999, has been included in the statement of income.
 
 Income
                  taxes for year ended September 30, 1999 is summarized as follows:Current
                  (Benefit)
              
              $
              (1,246,486
              )Deferred
                  Benefit (Provision)
              
              
              1,486,177Net
                  income tax provision
              
              $
              240,119
 
 The
        net
        income tax provision of $240,119 incurred for the year ended September 30,
        1999,
        was allocated to continuing operations. This provision amount relates primarily
        to taxable income of Telco prior to the acquisition. The loss from discontinued
        operations generated additional net operating loss carryforwards which were
        fully offset by a valuation allowance resulting in no tax
        effect.
  17
 *Table
            of Contents*
  A
        reconciliation for the differences between the effective and statutory income
        tax rates is as follows:
 
 Federal
                  statutory rates
              
              $
              (1,027,643
              )
              
              (34
              )%State
                  income taxes
              
              
              (241,798
              )
              
              (
                  8
              )%Provision
                  due to income generated prior to merger
              
              
              260,597
              
              
              6
              %Valuation
                  allowance for operating loss carryforwards
              
              
              1,232,077
              
              
              42
              %Other
              
              
              16,886
              
              
              -Effective
                  rate
              
              $
              240,119
              
              
              6
              %
  Deferred
          tax assets totaling approximately $2,099,000 are substantially offset by
          a
          valuation allowance of approximately $2,079,000 resulting in a net deferred
          income tax asset of $20,307. The valuation allowance was provided due to
          the
          uncertainty of future realization of federal and state net operating loss
          carryforwards that give rise to approximately $2,079,000 of the deferred
          tax
          asset. The balance of the deferred tax asset relates to differences in
          book and
          tax accounting relative to the previous allowances on accounts receivable
          and
          compensation. The valuation allowance increased $1,232,077 in the year
          ended
          September 30, 1999, due to uncertainties as to the Company’s ability to generate
          sufficient taxable income to utilize the net operating loss carryforwards
          because of the change in control matters discussed above.
 
 10.
              LEASES
 
 The
        Company leases its office space under long-term operating leases expiring
        through 2003. Rent expense under these leases was $87,250 for the year ended
        September 30, 1999. The Company consolidated office space from a variety
        of
        locations to a single facility. The Company has subleased the former Telco
        office space.
 
 Future
        minimum annual lease payments and sublease rentals under operating lease
        agreements for years ended September 30, 1999: Sublease
 
 Rents
              
              Rentals2000
              
              $
              351,095
              
              $
              202,5712001
              
              
              407,676
              
              
              280,2122002
              
              
              392,862
              
              
              265,3982003
              
              
              95,598
              
              
              -$
              1,247,231
              
              $
              748,181
 
 11.
              STOCKHOLDERS’
                  EQUITY
 
 Telco
        Acquisition
 
 The
        Company issued 17,000,000 shares of its Common Stock in connection with the
        Telco acquisition. The transaction was valued at the book value of the net
        assets of RIGL as of the date of the transaction.
 
 Actions
        of the Board
 
 Significant
        blocks of stock have been issued to prior officers and consultants for services
        rendered. It is not possible to determine the effect, if any, of bringing
        current the required Exchange Act of 1934 (the "1934 Act") filings and the
        financial statements and disclosures contained therein, may have on the actions
        of current or former shareholders of the Company affected by these transactions.
        The value of those shares was determined based on the trading value of the
        stock
        at the dates on which the agreements were made for the services. The expense
        for
        that consideration is 90% of the trading value of the shares to factor in
        a
        discount for the regulatory restrictions on trading of those shares. During
        the
        year ended September 30, 1999, the Company issued 769,500 shares to officers
        and
        consultants valued at $1,044,089. These amounts exclude 925,000 shares valued
        at
        $1,101,089 that were issued to non-performing consultants for which such
        shares
        are expected to be retrieved. The Company has reflected the value of these
        shares as temporary equity outside of permanent stockholders’ equity, together
        with a corresponding receivable in the accompanying consolidated balance
        sheet.
  18
 *Table
            of Contents*
  Other
 
 During
        the year ended September 30, 1999, the Company issued 4,500,000 shares of
        its
        common stock as collateral on two notes payable. The shares are held in escrow
        pending repayments of the obligations. Both notes have been restructured,
        extending the due dates. The shares are non-voting as long as they are held
        in
        escrow. These shares are not included in the weighted average shares outstanding
        for purposes of calculating the Company’s basic net loss per common share for
        the year ended September 30, 1999.
 
 During
        the year ended September 30, 1999, the Company issued 400,000 shares of its
        common stock as conversion of the remaining balance of a note payable. The
        unpaid principal balance of the note converted was $250,000 and accrued interest
        of $100,000 was also converted.
 
 The
        Company granted 1,700,000 shares of Series B preferred stock to certain
        employees during the year ended September 30, 1999. The Series B preferred
        stock
        has no stated dividend. The preferred shares are convertible to common stock
        at
        the option of the holder. The shares are convertible at varying rates depending
        upon the trading price of the common stock at the time of conversion. The
        initial conversion rate is one share of common for each share of preferred.
        Conversion may not occur until certain "trigger events" occur and all rights
        with respect to the preferred shares terminate on November 30, 2004. "Trigger
        events" are defined as trading prices of the Company’s common stock reaching or
        exceeding $5 through $10 per share and net income reaching or exceeding
        $5,000,000. No value was assigned to the preferred shares in the accompanying
        balance sheet nor was any compensation expense recognized for the year ended
        September 30, 1999, because the preferred shares were not exercisable at
        the
        time of issuances because of the failure of the Company to meet the "trigger
        events". Subsequently, new management has cancelled the Series B preferred
        stock
        and rescinded those issuances
 
 Effects
        of Delinquent Filings on Market Activity
 
 The
        Company is delinquent in its filings under the 1934 Act. The last filing
        was the
        June 30, 1998 Form 10-QSB. Significant trading of the Company stock has occurred
        by both related and unrelated parties during the period subsequent to its
        filing. It is not possible to determine the effect, if any, of bringing current
        the required 1934 Act filings and the financial statements and disclosures
        contained therein, may have on the actions of current or former shareholders
        of
        the Company affected by these revisions.
  19
 *Table
            of Contents*
  Effects
        of Delinquent Filings on Rule 144 and Reg S Stock Issuances
  The
        Company has been delinquent in its public filings but has attempted to keep
        the
        public informed through press releases and 8-K filings while it makes a
        concerted effort to become current in its filings. The Company is determining
        the factual issues of this matter and is currently unable to determine the
        materiality of violations, if any, or their impact on the financial statements
        of the Company.
 
 12.
              COMMITMENTS
                  AND CONTINGENCIES
 
 Telco
        Billing
 
 The
        acquisition of Telco by the Company called for the issuance of 17,000,000
        new
        shares of stock in exchange of the existing shares of Telco. As part of that
        agreement, the Company gave the former shareholders the right to "Put" back
        to
        the Company certain shares of stock at a minimum stock price of 80% of the
        current trading price with a minimum strike price of $1.00. The net effect
        of
        which was that the former Telco shareholders could require the Company to
        repurchase shares of stock of the Company at a minimum cost of $10,000,000.
        The
        agreement required the Company to attain certain market share
        levels.
 
 New
        management has renegotiated the "Puts," by which the "Puts" were retired
        and the
        Company provided a credit facility of up to $5,000,000 to the former Telco
        shareholders, collateralized by the stock held by the shareholders, with
        interest at least 0.25 points higher than the Company’s average cost of
        borrowing. Additional covenants warrant that no more that $1,000,000 can
        be
        advanced at any point in time and no advances can be made in excess with
        out
        allowing at least 30 days operating capital plus reserve or if the company
        is in
        an uncured default with any of its lenders.
 
 Billing
        Service Agreements
 
 The
        Company has entered into a customer billing service agreement with Integretel,
        Inc. (IGT) on January 6, 1998, which was amended on April 2, 1998 and again
        on
        September 1, 1999. IGT provides billing and collection and related services
        associated to the telecommunications industry. The agreement term is for
        two
        years, automatically renewable in two-year increments unless appropriate
        notice
        to terminate is given by either party. Under the agreement, IGT bills, collects
        and remits the proceeds to Telco net of reserves for bad debts, billing
        adjustments, telephone company fees and
        IGT
        fees. If either the Company’s transaction volume decreases by 25% from preceding
        month, less than 75% of the traffic is billable to major telephone companies,
        IGT may at its own discretion increase the reserves and holdbacks under this
        agreement.
 
 The
        Company has also entered into a customer billing service agreement with Enhanced
        Services Billing, Inc. (ESBI) on February 1, 1999, which was renewed on December
        3, 1999. ESBI provides billing and collection and related services associated
        to
        the telecommunications industry. The agreement term is for two years,
        automatically renewable in one-year increments unless appropriate notice
        to
        terminate is given by either party. Under the agreement, ESBI bills, collects
        and remits the proceeds to Telco net of reserves for bad debts, billing
        adjustments, telephone company fees and ESBI fees. If either the Company’s
        transaction volume decreases by 25% from the preceding month, less than 75%
        of
        the traffic is billable to major telephone companies, ESBI may at its own
        discretion increase the reserves and holdbacks under this
        agreement.
  20
 *Table
            of Contents*
  The
        Company has also entered into a customer billing service agreement with Olympic
        Telecommunications, Inc. (OLY) on June 2, 1998, and as a customer Olympic
        provides billing and collection and related services associated to the
        telecommunications industry. The agreement term is for one year, automatically
        renewable in one-year increments unless appropriate notice to terminate is
        given
        by either party. Under the agreement, OLY bills, collects and remits the
        proceeds to Telco net of reserves for bad debts, billing adjustments, telephone
        company fees and OLY fees. If either the Company’s transaction volume decreases
        by 25% from the preceding month, less than 75% of the traffic is billable
        to
        major telephone companies, OLY may at its own discretion increase the reserves
        and holdbacks under this agreement. Both parties mutually terminated the
        agreement before September 30, 1999.
 
 Pending
        Litigation:
 
 A
        Women’s Place
 
 The
        Company in the course of pursing the promotion of medical practices entered
        into
        an agreement to provide practice management services to the Flagstaff Arizona
        and Cottonwood Arizona offices of A Women’s Place. The Company advanced
        operating expenses of A Women’s’ Place during the negotiations. No agreement was
        reached and A Women’s’ Place refused to return the interim funding. The Company
        is presently pursuing litigation for return of the advances in the amount
        of
        $236,000. A Woman’s Place has counter-claimed for unspecified damages for
        alleged breach of contract.
 
 Hudson
        Consulting Group et al
 
 The
        Company under prior management and directors, in the course of pursing equity
        financing, engaged the services of The Hudson Consulting Group. The Company
        later became aware of certain legal issues of The Hudson Consulting Group
        and
        some of its principals. The Company believes the shares were improperly issued
        for no valid consideration. Current management ordered a "stop transfer"
        on the
        shares. Upon the transfer agent refusing the transfer, The Hudson Consulting
        Group and its transferees threatened litigation. The transfer agent filed
        an
        interpleader action and tendered the shares to the court to determine ownership.
        The Company is seeking return of the outstanding 2,000,000 shares of the
        common
        stock. The other parties are seeking a determination to transfer the shares
        and
        for recovery
 of
        consequential damages.
 
 13.
              NET
                  LOSS PER SHARE
  Net
          loss
          per share is calculated using the weighted average number of shares of
          common
          stock outstanding during the year. Preferred stock dividends are subtracted
          from
          the net income to determine the amount available to common shareholders.
          Preferred stock convertible to 1,700,000 common shares were not considered
          in
          the calculation for diluted earnings per share for the year ended September
          30,
          1999 because the effect of their inclusion would be antidilutive. There
          were no
          preferred stock dividends in the year ended September 30, 1999. The following
          presents the computation of basic and diluted loss per share (per share
          amounts
          may not total due to rounding of individual components):
 (Loss)
              
              Shares
              
              Per
                  shareBASIC
                  & DILUTED LOSS PER SHARE:Net
                  (Loss)
              
              $
              (3,262,598
              )
              
              22,223,757
              
              
              ($0.15
              )Discontinued
                  operations
              
              
              1,892,704
              
              
              22,223,757
              
              
              (0.09
              )Loss
                  from continuing operations
              
              
              (1,369,894
              )
              
              22,223,757
              
              $
              (0.06
              )
 21
 *Table
              of Contents*
  14.
              RELATED
                  PARTY TRANSACTIONS
 
 During
        the year ended September 30, 1999, the Company borrowed $500,000 from one
        of its
        shareholders, who later became a member of the board of directors effective
        February 3, 2000. The Company repaid $250,000 of the balance in cash and
        the
        board member converted the remaining $250,000 plus $100,000 in accrued interest
        to 400,000 shares of the Company’s common stock. (Also see Note 4).
 
 15.
              CONCENTRATION
                  OF CREDIT RISK
 
 The
        Company maintains cash balances at banks in Arizona. Accounts are insured
        by the
        Federal Deposit Insurance Corporation up to $100,000. At September 30, 1999,
        the
        Company had bank balances exceeding those insured limits of
        $89,000.
 
 Financial
        instruments that potentially subject the Company to concentrations of credit
        risk are primarily trade accounts receivable. The trade accounts receivable
        are
        due primarily from business customers over widespread geographical locations
        within the LEC billing areas across the United States. The Company historically
        has experienced significant dilution and customer credits due to billing
        difficulties and uncollectible trade accounts receivable. The Company estimates
        and provides an allowance for uncollectible accounts receivable.
 
 16.
              STOCK
                  BASED COMPENSATION
 
 The
        Company issues stock options to executives, key employees and members of
        the
        Board of Directors. The Company has adopted the disclosure-only provisions
        of
        Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
        Compensation," and continues to account for stock based compensation using
        the
        intrinsic value method prescribed by Accounting Principles Board Opinion
        No. 25,
        "Accounting for Stock Issued to Employees". Accordingly, no compensation
        cost
        has been recognized for the stock options granted to employees. Had compensation
        cost for the Company’s stock options been determined based on the fair value at
        the grant date for awards in 1999, consistent with the provisions of SFAS
        No.
        123, the Company’s net loss and loss per share would have been increased to the
        pro forma amounts indicated below:
 
 1999Net
                  Loss - as reported
              
              $
              (
                  3,262,598
              )Net
                  Loss - pro forma
              
              $
              (
                  4,291,586
              )Loss
                  per share - as reported
              
              $
              (0.15
              )Loss
                  per share - pro forma
              
              $
              (0.19
              )
 
 Under
        the
        provisions of SFAS No. 123, there were 1,212,000 fully vested options and
        no
        proportionately vested options for the year ended September 30, 1999 used
        to
        determine net earnings and earnings per share under a pro forma
        basis.
 
 The
        fair
        value of each option grant is estimated on the date of grant using the
        Black-Scholes option-pricing model with the following assumptions for years
        ended September 30, 1999:
 
 Dividend
                  yield
              NoneVolatility
              1.771Risk
                  free interest rate
              6.00%Expected
                  asset life
              2.5
                  years
 22
 *Table
              of Contents*
  Under
        the
        Employee Incentive Stock Option Plan approved by the stockholders in 1998,
        the
        total number of shares of common stock that may be granted is 1,500,000.
        The
        plan provides that shares granted come from the Corporation’s authorized but
        unissued common stock. The price of the options granted pursuant to this
        plan
        shall not be less than 100 percent of the fair market value of the shares
        on the
        date of grant. The options expire from five to ten years from date of grant.
        At
        September 30, 1999, the Company had granted an aggregate of 1,212,000 options
        under this plan.
 
 In
        addition to the Employee Incentive Stock Option Plan, the Company will
        occasionally grant options to consultants and members of the board of directors
        under specific stock option agreements. There were no such options granted
        in
        the year ended September 30, 1999.
 
 During
        the year ended September 30, 1999, the Company granted 1,212,000 options
        to
        certain key employees. These options all were immediately vested. These options
        were granted at exercise prices of $1.00 to $2.50 the fair market value of
        the
        underlying shares on the date of grant. The options expire five years from
        date
        of grant. The summary of activity for the Company’s stock options is presented
        below:
  1999
              
              Weighted
                Average
                  Exercise
                PriceOptions
                  outstanding at beginning of year
              
              
              1,374,474
              
              $
              2.27Granted
              
              
              1,212,000
              
              $
              1.31Exercised
              
              
              (
                  105,000
              )
              $
              1.00Terminated/Expired
              
              
              (
                  1,374,474
              )
              $
              2.27Options
                  outstanding at end of year
              
              
              1,107,000
              
              $
              1.34Options
                  exercisable at end of year
              
              
              1,107,000Options
                  available for grant at end of year
              
              
              288,000Price
                  per share of options outstanding
              
              $
              1.00-$2.50Weighted
                  average remaining contractual lives
              
              
              4.3
                  yearsWeighted
                  Average fair value of options granted during the year
              
              $
              0.85
 
 The
        Company has issued warrants in connection with certain debt and equity
        transactions. Warrants outstanding are summarized as follows:
 
 Weighted
                Average
                Exercise
                  PriceWarrants
                  outstanding at beginning of year
              
              
              3,416,920
              
              $
              2.07Granted
              
              
              1,555,250
              
              $
              2.00Expired
              
              
              (3,417,170
              )
              $
              2.05Exercised
              
              
              (200,000
              )Outstanding
                  at September 30, 1999
              
              
              1,355,000
              
              $
              2.00
  The
                  1,355,000 warrants outstanding at September
                  30, 1999, expire as follows:June
                  3, 2000
              
              
              20,000June
                  7, 2000
              
              
              200,000July
                  23,2000
              
              
              635,000September
                  9, 2000
              
              
              150,000October
                  22, 2000
              
              
              250,000March
                  23, 2001
              
              
              100,000
 
 17.
              EMPLOYEE
                  BENEFIT PLAN
  23
 *Table
            of Contents*
  The
        Company maintains a 401(k) profit sharing plan for its employees. Employees
        are
        eligible to participate in the plan upon reaching age 21 and completion of
        three
        months of service. The Company made no contributions to the plan for the
        year
        ended September 30, 1999.
 
 18.
              
              QUARTERLY
                  FINANCIAL DATA (UNAUDITED)
  Subsequent
          to filing the interim financial statements included on Form 10-QSB for
          the
          periods ending December 31, 1998, March 31, 1999 and June 30, 1999, the
          Company
          has changed its accounting treatment of shares issued to non-performing
          consultants. The previously filed interim statements reflected an expense
          upon
          issuance of the shares and a reversal of this expense when it was deemed
          (through a settlement agreement or judgment) that these shares would be
          returned. However, after further analysis and consultation with the Securities
          and Exchange Commission, it was determined to be inappropriate to recognize
          the
          initial expense and its subsequent reversal as no services were rendered
          by
          these consultants. Instead, the issuance of these shares will be reflected
          as
          temporary equity, together with a related receivable, until the shares
          were
          returned. Such treatment is described in Notes 2 and 11.
 The
        following table sets forth the impact of this change on the following three
        month periods:
  **Quarter
                    Ended****December
                    31,**
                  **1998**
                
                **March
                    30,**
                  **1999**
                
                **June
                    30,**
                  **1999**
                
                **September
                    30,**
                  **1999****Quarterly
                    Data Per 10-Q Filings:**Net
                    revenues
                
                $
                290,087
                
                $
                344,515
                
                $
                1,439,760
                
                
                naGross
                    profit
                
                
                290,087
                
                
                341,709
                
                
                950,660
                
                
                naIncome
                    (loss) before discontinued operations
                
                
                (616,641
                )
                
                (653,697
                )
                
                (238,953
                )
                
                naNet
                    income
                
                
                (616,641
                )
                
                (653,697
                )
                
                (738,953
                )
                
                naEarnings
                    per share information:Basic:Income
                    (loss) per share before discontinued operations
                
                $
                (0.05
                )
                $
                (0.05
                )
                $
                (0.04
                )
                
                naNet
                    loss per share
                
                $
                (0.05
                )
                $
                (0.05
                )
                $
                (0.04
                )
                
                naDiluted:Income
                    (loss) per share before discontinued operations
                
                $
                (0.05
                )
                $
                (0.05
                )
                $
                (0.03
                )
                
                naNet
                    loss per share
                
                $
                (0.05
                )
                $
                (0.05
                )
                $
                (0.03
                )
                
                na**Revised
                    Quarterly Data:**Net
                    revenues
                
                $
                290,087
                
                $
                344,515
                
                $
                1,439,760
                
                $
                6,497,823Gross
                    profit
                
                
                290,087
                
                
                341,709
                
                
                950,660
                
                
                3,177,570Income
                    (loss) before discontinued operations
                
                
                (506,641
                )
                
                (653,697
                )
                
                (238,953
                )
                
                29,397Net
                    loss
                
                
                (506,641
                )
                
                (653,697
                )
                
                (738,953
                )
                
                (1,363,307
                )Earnings
                    per share information:Basic:Income
                    (loss) per share before discontinued operations
                
                $
                (0.04
                )
                $
                (0.05
                )
                $
                (0.04
                )
                $
                0.00Net
                    loss per share
                
                $
                (0.04
                )
                $
                (0.05
                )
                $
                (0.04
                )
                $
                (0.04
                )Diluted:Income
                    (loss) per share before discontinued operations
                
                $
                (0.04
                )
                $
                (0.05
                )
                $
                (0.03
                )
                $
                0.00Net
                    loss per share
                
                $
                (0.04
                )
                $
                (0.05
                )
                $
                (0.03
                )
                $
                (0.04
                )
  24
 *Table
            of Contents*
  PART
        III
 ITEM
                    13.
                EXHIBITS
 
 The
        following exhibits are attached hereto.
 
 Exhibit
                Number
              Description23
              Consent
                  of Epstein, Weber and Conover P.L.C31
              Certification
                  pursuant to SEC Release No. 33-8238, as adopted pursuant to Section
                  302 of
                  the Sarbanes-Oxley Act of 200232
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002
 
 
 SIGNATURES
 
 In
        accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
        this report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
 
 Dated:
                  November 30, 2005
              */s/
                  Peter J. Bergmann*Peter
                  J. Bergmann, Chief Executive Officer




25