Edgar Filing: RAPID LINK INC

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON August 9, 2007

REGISTRATION STATEMENT NO. 333-__________

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

FORM SB-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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RAPID LINK, INCORPORATED
(Name of small business issuer in its charter)

DELAWARE 4813 75-2461665
-------- ---- ----------
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
jurisdiction of incorporation Industrial Identification No.)
or organization) Classification Code Number)

17383 SUNSET BOULEVARD, SUITE 350, LOS ANGELES, CA 90272 (310) 566-1700
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(Address of principal executive offices) (Zip Code) Telephone number

John Jenkins
Chief Executive Officer
17383 Sunset Boulevard, Suite 350
Los Angeles, California 90272
(310) 566-1700
(Name, address and telephone number of agent for service)

COPY TO:

Ryan Hong
RICHARDSON & PATEL LLP
10900 Wilshire Boulevard, Suite 500
Los Angeles, California 90024
(310) 208-1182

Approximate date of proposed sale to the public: From time to time after the
effective date of this registration statement.

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If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE
-----------------------------------------------------------------------------
Proposed Proposed
Title of each maximum maximum
class of Amount to be offering aggregate Amount of
securities to be registered price per offering registration
registered (3) unit price fee
-----------------------------------------------------------------------------
Common Stock,
$.001 par value
per share 31,532,143 (1) $ 0.07 (2) $ 2,207,250 (2) $ 67.76

Common Stock,
$.001 par value
per share,
underlying our
$0.10 Warrants and
Convertible Notes 27,122,857 0.10 (4) 2,712,285.70 83.27

Common Stock,
$.001 par value
per share,
underlying our
$0.14 Warrants and
Convertible Notes 3,857,143 0.14 (4) 540,000.02 16.58

Common Stock,
$.001 par value
per share,
underlying our
$0.15 Warrants 60,000 0.15 (4) 9,000.00 0.28

Common Stock,
$.001 par value
per share,
underlying our
$0.25 Warrants 1,000,000 0.25 (4) 250,000.00 7.68

Common Stock,
$.001 par value
per share,
underlying our
$0.40 Warrants 1,000,000 0.40 (4) 400,000.00 12.28
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Total 64,572,143 n/a $6,118,535.72 (2) $187.85

(1) Represents 31,532,143 common shares issued.

(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) of the Securities Act of 1933,
the price per share and aggregate offering price are based upon the average
of the high ($0.08) and low ($0.06) prices of the common stock of the
Registrant as traded in the Over-The-Counter Market and reported in the
Electronic Bulletin Board of the National Association of Securities Dealers
on August 6, 2007.

(3) Pursuant to Rule 416 under the Securities Act of 1933, as amended (the
"Act"), this Registration Statement also covers such indeterminate number of
additional shares of common stock as may be issuable solely upon conversion
of the Warrant Shares solely to prevent dilution resulting from stock
splits, stock dividends or similar transactions.

(4) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(g) of the Securities Act of 1933, the
maximum price per share at which such warrant or convertible debt may be
exercised or converted.

SUBJECT TO COMPLETION, DATED AUGUST 9, 2007

PROSPECTUS
RAPID LINK, INCORPORATED

64,572,143 shares of Common Stock

This prospectus covers the resale by Selling Stockholders, who are named
later in this prospectus, of up to 64,572,143 shares of our common stock,
$.001 par value.

This offering is not being underwritten. These securities will be offered
for sale by the Selling Stockholders identified in this prospectus in
accordance with the methods and terms described in the section of this
prospectus entitled "Plan of Distribution." We will not receive any of the
proceeds from the sale of these shares but we may receive proceeds from the
exercise of warrants by the Selling Stockholders. We will pay all expenses,
except for the brokerage expenses, fees, discounts and commissions, which
will all be paid by the Selling Stockholders, incurred in connection with
the offering described in this prospectus. Our common stock is more fully
described in the section of this prospectus entitled "Description of
Securities."

The prices at which the Selling Stockholders may sell the shares of common
stock that are part of this offering will be determined by the prevailing
market price for the shares at the time the shares are sold, a price related
to the prevailing market price, at negotiated prices or prices determined,
from time to time by the Selling Stockholders. See "Plan of Distribution."

Our common stock is currently listed on the Over the Counter Bulletin Board
under the symbol "RPID." On August 6, 2007, the closing price of the shares
was $0.07 per share.

AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING AT PAGE 7.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

The date of this prospectus is August 9, 2007.

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This Registration Statement on Form SB-2 (this "Form SB-2") includes
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Forward-looking statements are statements other than historical information
or statements of current condition. Some forward-looking statements may be
identified by the use of such terms as "expects," "will," "anticipates,"
"estimates," "believes," "plans" and words of similar meaning. These
forward-looking statements relate to business plans, programs, trends,
results of future operations, satisfaction of future cash requirements,
funding of future growth, acquisition plans and other matters. In light
of the risks and uncertainties inherent in all such projected matters, the
inclusion of forward-looking statements in this Form SB-2 should not be
regarded as a representation by us or any other person that our objectives
or plans will be achieved or that our operating expectations will be
realized. Revenues and results of operations are difficult to forecast and
could differ materially from those projected in forward-looking statements
contained herein, including without limitation statements regarding our
belief of the sufficiency of capital resources and our ability to compete
in the telecommunications industry. Actual results could differ from those
projected in any forward-looking statements for, among others, the following
reasons: (a) increased competition from existing and new competitors using
Voice over Internet Protocol ("VoIP") to provide telecommunications services
over the Internet, (b) the relatively low barriers to entry for start-up
companies using VoIP to provide telecommunications services over the
Internet, (c) the price-sensitive nature of consumer demand, (d) the
relative lack of customer loyalty to any particular provider of services
over the Internet, (e) our dependence upon favorable pricing from our
suppliers to compete in the telecommunications industry, (f) increased
consolidation in the telecommunications industry, which may result in larger
competitors being able to compete more effectively, (g) failure to attract
or retain key employees, (h) continuing changes in governmental regulations
affecting the telecommunications industry and the Internet and (i) changing
consumer demand, technological developments and industry standards that
characterize the industry. For a discussion of these factors and others,
please see our section entitled "Risk Factors" of this Form SB-2. Readers
are cautioned not to place undue reliance on the forward-looking statements
made in this Report or in any document or statement referring to this Form
SB-2. In addition, we are not obligated, and do not intend, to update any
forward-looking statements at any time unless an update is required by
applicable securities laws.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
It does not contain all of the information that you should consider before
investing in our common stock. You should read the entire prospectus
carefully, including the section entitled "Risk Factors" and our
consolidated financial statements and the related notes. In this prospectus,
the terms "we," "us," "Rapid Link," and the "Company" refer to Rapid Link,
Incorporated, a Delaware corporation, and its subsidiaries.

OUR COMPANY

Rapid Link, Incorporated ("Rapid Link") is a facilities-based,
communications company providing various forms of telephony services to
wholesale and retail customers around the world. We offer a multitude of
international telecommunications services targeted to individual customers,
as well as small and medium sized enterprises. These services include the
transmission of voice and data traffic over public and private networks, and
telecommunications services for both the foreign and domestic termination of
international long distance traffic into the wholesale market. We have begun
to utilize Voice over Internet Protocol ("VoIP") packetized voice
technology.

We continue to seek opportunities to grow our business through strategic
acquisitions that will complement our retail strategy as well as adding key
personnel that have demonstrated a proven track record in sales, marketing
and operations of retail telecommunications organizations, especially in the
area of retail and wholesale VoIP.

The Company was incorporated on July 10, 1986 under the Company Act of the
Province of British Columbia, Canada. On August 7, 1992, we renounced our
original province of incorporation and elected to continue our domicile
under the laws of the State of Wyoming, and on November 30, 1994 our
name was changed to "Canmax Inc." On February 1, 1999, we reincorporated
under the laws of the State of Delaware under the name "ARDIS Telecom &
Technologies, Inc." On November 2, 1999, we acquired substantially all of
the business and assets of Dial Thru International Corporation, a California
corporation (the "DTI Acquisition"), and, on January 19, 2000, we changed
our name from ARDIS Telecom & Technologies, Inc. to Dial Thru International
Corporation. On November 1, 2005, we changed our name to "Rapid Link,
Incorporated" as we determined that this name would receive better market
recognition and acceptance than its previous name, especially as the Company
continues to roll out VoIP related services. In addition, we also believe
that the name, which was the name of the company we acquired in October
2001, is a recognized brand name with members of the United States Military
around the world, a significant source of retail revenue for the Company
since the acquisition.

Our principal executive offices are located at 17383 Sunset Boulevard, Suite
350, Los Angeles, California 90272; our telephone number is (310) 566-1700;
our website address is www.rapidlink.com; and our common stock currently
trades on the OTC Bulletin Board under the symbol RPID.

Our revenues for the first six months of 2007 were $8,173,075 and our net
loss was $1,669,882. In fiscal 2006, our revenues were $13,351,030 and our
net loss was $1,111,158. In fiscal 2005, our revenues were $9,827,049 and
our net loss was $2,565,342.

RECENT FINANCING

June 2007 Stock and Warrant Financing

On June 15, 2007, we entered into a Common Stock Purchase Agreement (the
"Purchase Agreement") with Westside Capital, LLC (the "Investor") whereby
the Company, in a private placement pursuant to Regulation D under the
Securities Act of 1933 (the "Transaction"), sold 357,143 shares of our
common stock to the Investor for a purchase price of $25,000 and issued to
the Investor Common Stock Purchase Warrants (the "Warrants") to purchase up
to an additional 50,000,000 shares of our common stock ("Warrant Shares") at
exercise prices as follows: 20,000,000 Warrant Shares exercisable at $0.10
per share (Warrant "A"); 15,000,000 Warrant Shares exercisable at $0.20 per
share (Warrant "B"); and 15,000,000 Warrant Shares exercisable at $0.30 per
share (Warrant "C"). Investor has agreed, however, that it shall not be
entitled to beneficially own more than 4.9% of the outstanding shares of
common stock of the Company at any time. Such beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act
of 1934, as amended, and Regulation 13d-3 thereunder. There are no material
relationships between the Registrant, its affiliates and any of the parties
to this Purchase Agreement, other than in respect of this Purchase
Agreement.

We are registering the 357,143 shares of our common stock and 15,642,857
shares underlying the "A" Warrants.

On June 15, 2007, (the "Closing Date"), Four Million (4,000,000) Warrant
Shares in Common Stock Purchase Warrant "A" vested immediately. The Warrant
Shares in Common Stock Purchase Warrants "A", "B", and "C" will continue to
vest in Four Million (4,000,000) Warrant Share increments and the next
4,000,000 increment of Warrant Shares will not vest until the prior
4,000,000 increment of Warrant Shares are completely exercised. The lowest
priced Warrant Shares shall vest prior to the vesting of higher-priced
Warrant Shares. However, Investor does have the option of vesting higher
priced Warrants Shares prior to lower priced Warrant Shares in any of the
4,000,000 increments.

The Company agreed to prepare and file within thirty (30) days following
the Closing Date a registration statement (the "Registration Statement")
covering the resale of such number of common shares and Warrant Shares
issued or issuable to Investor ("Registrable Securities") as the Investor
shall elect by written notice to the Company, and absent such election,
covering the resale of 16 million of the shares of the Registrable
Securities. The Company has agreed to use its best efforts to cause the
Registration Statement to be declared effective by the Securities and
Exchange Commission (the "SEC") on the earlier of (i) 120 days following
the closing date with respect to the Registration Statement, (ii) ten days
following the receipt of a "No Review" or similar letter from the SEC or
(iii) the first business day following the day the SEC determines the
Registration Statement eligible to be declared effective.

In the Purchase Agreement, the Company also agreed, for a period of two
years from the Closing Date, not to issue any preferred stock of the
Company. The Company will also have caused the appointment of the majority
of the board of directors to be qualified independent directors, as defined
by the NASD within six months of the Closing Date. The Company will also
cause the appointment of a majority of outside directors to the audit and
compensation committees of the board of directors within six months of the
Closing Date. The Company shall also cause its insiders, including John
Jenkins, as CEO and Chris Canfield, as President and CFO of the Company,
not to sell their shares of stock for two years from the Closing Date.
For two years after the Closing Date the Company must have a current
unanimous opinion from the Compensation Committee of the Board of Directors
that any awards other than salary are usual, appropriate and reasonable for
any officer, director, employee or consultant holding a similar position in
other public fully reporting companies with independent majority boards with
similar market capitalizations in the same industry with securities listed
on the OTC Bulletin Board, American Stock Exchange, New York Stock Exchange
or Nasdaq National Market.

If the Investor does not exercise warrants in the amount of $1,000,000 or
more within six months after the Registration Statement has become
effective, then all the remaining Common Stock Purchase Warrants ("A",
"B" and "C") expire immediately upon six months after such Registration
Statement has become effective. Further, should the Company not receive
cumulative gross proceeds of at least three million dollars ($3,000,000) in
the form of equity, debt, any other injection of capital into the Company,
or any combination thereof from Investor or from sources introduced by
Investor, within six (6) months after the Registration Statement has become
effective, then all remaining outstanding Warrants (including series "A",
"B" and "C") shall expire.

March 2006 Convertible Debt and Warrant Financing

On March 8, 2006 (the "Closing Date"), the Company issued $1,000,000
aggregate principal amount of convertible debentures and warrants to
Trident Growth Fund, LP ("Trident") and Charger Investments LLC,
("Charger") (the "Purchasers"), pursuant to Securities Purchase Agreements
(the "Agreements") entered into on the Closing Date among the Company and
the Purchasers.

Pursuant to the terms of the Agreements, each Purchaser purchased a 10%
convertible debenture due, subject to the terms therein, one year from
the Closing Date (the "Debentures"), and warrants to purchase 1,200,000
shares of common stock of the Company issued to Trident (600,000 warrants
exercisable at $0.14 and 600,000 warrants exercisable at $0.25), and
warrants to purchase 800,000 shares of common stock of the Company issued
to Charger (400,000 warrants exercisable at $0.14 and 400,000 warrants
exercisable at $0.25) (the "Warrants"). In addition, an additional
50,000 warrants (30,000 for Trident and 20,000 for Charger) will vest and
become exercisable on the last day of each month prior to the Company's
satisfaction in full of the Debentures, or the Purchaser's complete
conversion thereof, as the case may be, such Warrant shares to have an
exercise price equal to $0.25 per share. Other than as noted above, all
Warrants are exercisable immediately and have a term of exercise equal
to five years. The Debentures are convertible into common stock at $0.14
per share.

ACQUISITIONS

In October 2005, the Company completed the acquisition of the customer
base of Integrated Telecommunications, Inc., an international long distance
carrier providing VoIP services to retail customers in the United States and
wholesale services to customers worldwide. The Company issued Integrated
1,000,000 shares of Company common stock.

On May 5, 2006, the Company acquired 100% of the outstanding stock
of Telenational Communications, Inc. ("Telenational"). Telenational
historically serviced a sizable base of both retail and commercial customers
which very closely mirror those customers Rapid Link has served. This
acquisition allows us to expand our market share in the telecommunications
industry while taking advantage of several significant economies of scale,
both in respect to direct cost reductions, as well as operational
efficiencies. In exchange for the Telenational equity securities, we issued
19,175,000 to the sole stockholder of Telenational, Apex Acquistions, Inc.
Apex is 70% owned by Chris Canfield, our Chief Financial Officer and 30%
owned by Michael Prachar, our Chief Operating Officer.

THE OFFERING

The shares we are registering for this offering consist of 64,572,143 shares
of common stock which include approximately 360,000 shares and 15.4 million
Warrants Shares issued in conjunction with our private placement offering
completed on June 15, 2007. It also includes:

* 11,000,000 shares of our common stock;

* 20,175,000 shares of our common stock issued in conjunction with
certain acquisitions by the Company;

* 11,857,143 shares of our common stock subject to conversion of
promissory notes; and

* 5,540,000 shares underlying additional warrants.

We are registering shares of our common stock for sale by the Selling
Stockholders identified in the section of this prospectus entitled "Selling
Stockholders."

The shares of common stock offered under this prospectus may be sold by the
selling security holders on the public market, in negotiated transactions
with a broker-dealer or market maker as principal or agent, or in privately
negotiated transactions not involving a broker or dealer. Information
regarding the Selling Stockholder, the common shares they are offering to
sell under this prospectus, and the times and manner in which they may offer
and sell those shares is provided in the sections of this prospectus
captioned "Selling Stockholders" and "Plan of Distribution" respectively.
We will not receive any of the proceeds from those sales by the Selling
Stockholders, but may receive proceeds from the exercise of warrants by the
Selling Stockholders. The registration of common shares pursuant to this
prospectus does not necessarily mean that any of those shares will
ultimately be offered or sold by the Selling Stockholders.

RISK FACTORS

You should carefully consider the risks described below together with
all of the other information included in this prospectus before making an
investment decision with regard to our securities. The statements contained
in or incorporated into this offering that are not historic facts are
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth in or
implied by forward-looking statements. If any of the following risks
actually occurs, our business, financial condition and/or results of
operations could be harmed. In that case, the trading price of our common
stock could decline, and you may lose part or all of your investment.

Our cash flow may not be sufficient to satisfy our cost of operations. If
not, we must obtain equity or debt financing.

For the fiscal years ended October 31, 2006 and 2005, we recorded net losses
from continuing operations of approximately $1.1 million and $2.5 million,
respectively, on revenues from continuing operations of approximately $13.4
million and $9.8 million, respectively. For the six months ended April 30,
2007, we recorded a net loss from continuing operations of approximately
$1.7 million, on revenues from continuing operations of approximately $8.2
million. As a result of these losses and historical losses, we currently
have a substantial working capital deficit. In addition, a significant
amount of our trade accounts payable and accrued liabilities are past due.
To be able to service our debt obligations over the course of the remainder
of our 2007 fiscal year and our 2008 fiscal year, we must generate
significant cash flow and obtain additional financing or extend the maturity
date on current obligations. If we are unable to do so or are otherwise
unable to obtain funds necessary to make required payments on our trade debt
and other indebtedness, it is likely that we will not be able to continue
our operations.

Our independent auditors have included a going concern paragraph in their
audit opinion on our consolidated financial statements for the fiscal year
ended October 31, 2006, which states that "The Company has suffered
recurring losses from continuing operations during each of the last two
fiscal years. Additionally, at October 31, 2006 and April 30, 2007, the
Company's current liabilities (which includes significant amounts of past
due payables) exceeded its current assets by $4.7 million and $10.2 million,
respectively, and the Company had a shareholders' deficit totaling $2.6
million and $4.0 million, respectively. These conditions raise substantial
doubt about the Company's ability to continue as a going concern."

Our operating history makes it difficult to accurately assess our general
prospects in the VoIP portion of the telecommunications industry and the
effectiveness of our business strategy. As of the date of this report, most
of our revenues are not derived from VoIP communication services. Instead,
we generated most of our revenues from wholesale and retail fixed-line
communication services. In addition, we have limited meaningful historical
financial data upon which to forecast our future sales and operating
expenses. Our future performance will also be subject to prevailing economic
conditions and to financial, business and other factors. Accordingly, we
cannot assure you that we will successfully implement our business strategy
or that our actual future cash flows from operations will be sufficient to
satisfy our debt obligations and working capital needs.

To implement our business strategy, we will need additional financing.
There is no assurance that adequate levels of additional financing will
be available at all or on acceptable terms. If we are unable to obtain
additional financing on terms that are acceptable to us, we could be forced
to dispose of assets to make up for any shortfall in the payments due on
our debt under circumstances that might not be favorable to realizing
the highest price for those assets. A portion of our assets consist of
intangible assets, the value of which will depend upon a variety of factors,
including the success of our business. As a result, if we do need to sell
any of our assets, we cannot assure you that our assets could be sold
quickly enough, or for amounts sufficient, to meet our obligations.

Potential for substantial dilution to our existing stockholders exists.

The issuance of shares of common stock upon conversion of secured
convertible notes or upon exercise of outstanding warrants and/or stock
options may cause immediate and substantial dilution to our existing
stockholders. In addition, any additional financing may result in
significant dilution to our existing stockholders.

We face competition from numerous, mostly well-capitalized sources.

The market for our products and services is highly competitive. We face
competition from multiple sources, virtually all of which have greater
financial resources and a substantial presence in our markets and offer
products or services similar to our services. Therefore, we may not be able
to successfully compete in our markets, which could result in a failure to
implement our business strategy, adversely affecting our ability to attract
and retain new customers. In addition, competition within the industries in
which we operate is characterized by, among other factors, price and the
ability to offer enhanced services. Significant price competition would
reduce the margins realized by us in our telecommunications operations. Many
of our competitors have greater financial resources to devote to research,
development and marketing, and may be able to respond more quickly to new or
merging technologies and changes in customer requirements.

We have pledged our assets to existing creditors.

Our secured convertible notes are secured by a lien on substantially all of
our assets. A default by us under the secured convertible notes would enable
the holders of the notes to take control of substantially all of our assets.
The holders of the secured convertible notes have no operating experience in
our industry and if we were to default and the note holders were to take
over control of our Company, they could force us to substantially curtail or
cease our operations. If this happens, you could lose your entire investment
in our common stock.

In addition, the existence of our asset pledges to the holders of the
secured convertible notes will make it more difficult for us to obtain
additional financing required to repay monies borrowed by us, continue
our business operations and pursue our growth strategy.

The regulatory environment in our industry is very uncertain.

The legal and regulatory environment pertaining to the Internet and
telecommunication services is uncertain and changing rapidly as the use of
the Internet increases. For example, in the United States, the FCC had been
considering whether to impose surcharges or additional regulations upon
certain providers of Internet telephony, and indeed the FCC has confirmed
that providers must begin charging Universal Service access charges of
roughly 6.5%.

In addition, the regulatory treatment of Internet telephony outside of the
United States varies from country to country. There can be no assurance that
there will not be legally imposed interruptions in Internet telephony in
these and other foreign countries. Interruptions or restrictions on the
provision of Internet telephony in foreign countries may adversely affect
our ability to continue to offer services in those countries, resulting in
a loss of customers and revenues.

New regulations could increase the cost of doing business over the Internet
or restrict or prohibit the delivery of our products or services using the
Internet. In addition to new regulations being adopted, existing laws may be
applied to the Internet. Newly existing laws may cover issues that include
sales and other taxes, access charges, user privacy, pricing controls,
characteristics and quality of products and services, consumer protection,
contributions to the Universal Service Fund, an FCC-administered fund for
the support of local telephone service in rural and high-cost areas, cross-
border commerce, copyright, trademark and patent infringement, and other
claims based on the nature and content of Internet materials.

Changes in the technology relating to Internet telephony could threaten our
operations.

The industries in which we compete are characterized, in part, by rapid
growth, evolving industry standards, significant technological changes and
frequent product enhancements. These characteristics could render existing
systems and strategies obsolete and require us to continue to develop and
implement new products and services, anticipate changing consumer demands
and respond to emerging industry standards and technological changes. No
assurance can be given that we will be able to keep pace with the rapidly
changing consumer demands, technological trends and evolving industry
standards.

We need to develop and maintain strategic relationships around the world to
be successful.

Our international business, in part, is dependent upon relationships with
distributors, governments or providers of telecommunications services in
foreign markets. The failure to develop or maintain these relationships
could have an adverse impact on our business.

We rely on three key senior executives.

We rely heavily on our senior management team of John Jenkins, Christopher
Canfield and Michael Prachar, and our future success may depend, in large
part, upon our ability to retain our senior executives. In addition to the
industry experience and technical expertise they provide to the Company,
senior management has been the source of significant amounts of funding that
have helped to allow us to meet our financial obligations.

Any natural disaster or other occurrence that renders our operations center
inoperable could significantly hinder the delivery of our services to our
customers because we lack an off-site back-up communications system.

Currently, our disaster recovery systems focus on internal redundancy and
diverse routing within our operations center. We currently do not have an
off-site communications system that would enable us to continue to provide
communications services to our customers in the event of a natural disaster,
terrorist attack or other occurrence that rendered our operations center
inoperable. Accordingly, our business is subject to the risk that such a
disaster or other occurrence could hinder or prevent us from providing
services to some or all of our customers. The delay in the delivery of our
services could cause some of our customers to discontinue business with us
which could have a material adverse effect financial condition and results
of operations.

We may be unable to manage our growth.

We intend to expand our VoIP network and the range of enhanced
telecommunications services that we provide. Our expansion prospects must
be considered in light of the risks, expenses and difficulties frequently
encountered by companies in new and rapidly evolving markets. Our revenues
will suffer if we are unable to manage this expansion properly.

Our OTC Bulletin Board listing negatively affects the liquidity of our
common stock as compared with other trading boards.

Our common stock currently trades on the OTC Bulletin Board. Therefore, no
assurances can be given that a liquid trading market will exist at the time
any stockholder desires to dispose of any shares of our common stock. In
addition, our common stock is subject to the so-called "penny stock" rules
that impose additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and
accredited investors (generally defined as an investor with a net worth
in excess of $1 million or annual income exceeding $200,000, or $300,000
together with a spouse). For transactions covered by the penny stock rules,
a broker-dealer must make a suitability determination for the purchaser and
must have received the purchaser's written consent to the transaction prior
to sale. Consequently, both the ability of a broker-dealer to sell our
common stock and the ability of holders of our common stock to sell their
securities in the secondary market may be adversely affected. The Securities
and Exchange Commission (the "SEC") has adopted regulations that define a
"penny stock" to be an equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules require the delivery,
prior to the transaction, of a disclosure schedule relating to the penny
stock market. The broker-dealer must disclose the commissions payable to
both the broker-dealer and the registered representative, current quotations
for the securities and, if the broker-dealer is to sell the securities as a
market maker, the broker-dealer must disclose this fact and the broker-
dealer's presumed control over the market. Finally, monthly statements must
be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.

USE OF PROCEEDS

We will not receive any proceeds from the sale of the shares by the Selling
Stockholders. All proceeds from the sale of the shares offered hereby will
be for the account of the Selling Stockholders, as described below in the
sections entitled "Selling Stockholders" and "Plan of Distribution." With
the exception of any brokerage fees and commission which are the obligation
of the Selling Stockholders, we are responsible for the fees, costs and
expenses of this offering which are estimated to be $65,187.85, inclusive
of our legal and accounting fees, printing costs and filing and other
miscellaneous fees and expenses.

All of the shares covered by this prospectus are, prior to their sale under
this prospectus, issued pursuant to the Purchase Agreement or issuable upon
conversion of Warrant Shares pursuant to the Purchase Agreement.

SELLING STOCKHOLDERS

We are registering shares of common stock, including shares issued pursuant
to the Purchase Agreement or issuable upon exercise of Warrant Shares or
conversion of convertible notes, including the shares and Warrant Shares
were issued to Westside Capital, LLC, in a private placement offering which
closed on June 15, 2007. We are also registering shares of common stock,
including common stock underlying certain convertible notes ("Conversion
Shares") and warrants to various equity holders (all holders of registrable
securities shall be referred to as "Selling Stockholders"). The shares,
convertible debt and warrants were issued in transactions exempt from the
registration requirements of the 1933 Act under Section 4(2) of the 1933 Act
to persons reasonably believed to be "accredited investors" as defined in
Regulation D under the 1933 Act.

Pursuant to the terms of the Purchase Agreement and related agreements under
which the Warrant Shares were issued, we agreed to file this Registration
Statement in order to permit Investor to sell the shares issued pursuant
to the Purchase Agreement or issuable upon conversion of Warrant Shares
pursuant to the Purchase Agreement. In addition, we provided the other
Selling Stockholders with "piggyback" registration rights in the event the
Company were to file a registration statement.

The table below lists the Selling Stockholders and other information
regarding the beneficial ownership of the shares of common stock by the
Selling Stockholders. The second column lists the number of shares of common
stock beneficially owned by each Selling Security Holder as of August 1,
2007, assuming conversion and/or exercise of all of the convertible debt
and/or warrants held by the Selling Stockholders, as applicable, on that
date. The third column lists the shares of common stock being offered
pursuant to this prospectus by the Selling Stockholders. The fourth and
fifth column list the number of shares and percentage ownership of the
outstanding shares, respectively, that will be beneficially owned by the
Selling Stockholders assuming all of the shares offered pursuant to this
prospectus are sold and that shares beneficially owned by them, as of August
1, 2007, but not offered hereby are not sold, and assuming with respect to
each Selling Stockholder, no other Convertible Debentures are converted nor
Warrants exercised.

Beneficial ownership is determined in accordance with SEC rules and includes
voting or investment power with respect to the securities currently owned or
for which the Selling Stockholders has the right to acquire within 60 days.
The Selling Stockholders identified in the table below with an asterisk (*)
may not exercise its Warrants if such exercise would cause such Selling
Stockholder's beneficial ownership of our common stock (excluding shares
underlying any of their unconverted Convertible Debenture or unexercised
Warrant) to exceed 4.99% of the outstanding shares of our common stock after
such conversion or exercise. (If such Selling Stockholder subsequently
disposes of some or all of its holdings, such Selling Stockholder may
convert its unconverted Convertible Debenture or exercise its unexercised
Warrant, subject to the same limitation). The table below also includes a
number of shares which may be issuable only if there is an accrual of
interest through the stated maturity date of the Convertible Debentures;
portions of such accrual may not occur if the Convertible Debentures are
converted or paid in whole or in part prior to that date. Additionally,
the issuance of shares in payment of accrued interest is solely in our
discretion. Therefore, the number of shares of common stock for the Selling
Stockholders may include shares that are not subject to ownership or
acquisition by the Selling Stockholders during the 60-day period.

The inclusion of any securities in the following table does not constitute
an admission of beneficial ownership by the persons named below. Except as
indicated in the footnotes to the table, no Selling Stockholder has had any
material relationship with us or our predecessors or affiliates during the
last three years.

Number of
Shares Number of Number of Percentage
Owned Shares Shares Owned
Before Being Owned After After
Name of Selling Stockholders Offering Offered Offering(1) Offering(1)
--------------------------- ---------- ---------- ----------- -----------
Westside Capital, LLC (2) 50,357,143 16,000,000 34,357,143 0
John Jenkins (3) 41,390,499 20,000,000 21,390,499 41.3%
Apex Acquisitions, Inc. (4) 19,175,000 19,175,000 0 0
Integrated Communications,
Inc. (5) 1,000,000 1,000,000 0 0
Charger Growth Fund (6) 4,697,143 4,697,143 0 0
Trident Growth Fund, L.P. (7) 6,925,714 2,640,000 4,285,714 *
Standard Advisors LLC (8) 60,000 60,000 0 0
George O. Moorehead (9) 280,000 280,000 0 0
Stoli, Ltd. (10) 280,000 280,000 0 0
Tim Schweizer (11) 210,000 210,000 0 0
Triple S, LLC (12) 30,000 30,000 0 0
JB Manning (13) 30,000 30,000 0 0
Karen Stein (14) 170,000 170,000 0 0

* less than one percent

(1) The number and percentage of share beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and
the information is not necessarily indicative of beneficial ownership
for any other purpose. Under such rule, beneficial ownership includes
any shares as to which each selling stockholder has sole or shared
voting power or investment power and also any shares, which the selling
stockholder has the right to acquire within 60 days.

(2) Includes 50,000,000 shares of common stock to be issued upon exercise
of warrants. These securities were issued in a private placement of our
securities that we completed on June 15, 2007. The natural person with
voting and dispositive powers for this stockholder is Thomas M. Sauve.

(3) Includes (i) 11,000,000 shares held directly, (ii) 100,000 shares of
common stock which may be acquired through the exercise of options,
(iii) 2,728,391 shares of common stock which may be acquired through
the exercise of warrants, and (iv) 27,562,108 shares of common stock
which may be acquired through the conversion of a convertible note
(shares from conversion calculated using the closing bid share price
at August 3, 2007 of $0.07); only the 11,000,000 shares described in
clause (i) and 9,000,000 shares underlying the note in clause (iv) will
be registered. John Jenkins is our Chief Executive Officer.

(4) The natural person with voting and dispositive powers for this
stockholder is Chris Canfield, our Chief Financial Officer.

(5) The natural person with voting and dispositive powers for this
stockholder is Phil Kenner.

(6) Includes (i) 2,857,143 shares subject to conversion of notes in the
principal amount of $400,000 and (ii) 1,840,000 shares which may be
acquired upon exercise of certain warrants. The natural person with
voting and dispositive powers for this stockholder is Jerry Crumpler.

(7) Includes (i) 4,285,714 shares subject to conversion of notes in the
principal amount of $600,000 which will not be registered and (ii)
2,640,000 shares which may be acquired upon exercise of certain
warrants which will be registered. The natural person with voting
and dispositive powers for this stockholder is Scotty Cook.

(8) Includes 60,000 shares which may be acquired upon exercise of certain
warrants. The natural person with voting and dispositive powers for
this stockholder is James Milana.

(9) Includes 280,000 shares which may be acquired upon exercise of certain
warrants.

(10) Includes 280,000 shares which may be acquired upon exercise of certain
warrants. The natural person with voting and dispositive powers for
this stockholder is Tom Hughes.

(11) Includes 210,000 shares which may be acquired upon exercise of certain
warrants.

(12) Includes 30,000 shares which may be acquired upon exercise of certain
warrants. The natural person with voting and dispositive powers for
this stockholder is Stacy Urban.

(13) Includes 30,000 shares which may be acquired upon exercise of certain
warrants.

(14) Includes 170,000 shares which may be acquired upon exercise of certain
warrants.

PLAN OF DISTRIBUTION

We are registering shares of our common stock for resale by the Selling
Stockholders identified in the section above entitled "Selling
Stockholders." We will receive none of the proceeds from the sale of these
shares by the Selling Stockholders. The common stock may be sold from time
to time to purchasers:

* through the OTC Bulletin Board at prevailing market prices; or

* through underwriters, broker-dealers or agents who may receive
compensation in the form of discounts, concessions or commissions
from the Selling Stockholder or the purchasers of the common
stock.

The Selling Stockholder may use any one or more of the following methods
when selling shares:

* ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;

* a block trade in which the broker-dealer so engaged will attempt
to sell such shares as agent, but may position and resell a
portion of the block as principal to facilitate the transaction;

* purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this prospectus;

* an exchange distribution in accordance with the rules of the
applicable exchange;

* privately negotiated transactions;

* settlement of short sales;

* broker-dealers may agree with the Selling Stockholder to sell a
specified number of such shares at a stipulated price per share;

* a combination of any such methods of sale;

* through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise; or

* any other method permitted pursuant to applicable law.

Neither the Selling Stockholders nor Rapid Link can presently estimate the
amount of compensation in the form of discounts, concessions or commissions
that underwriters, broker-dealers or agents may receive from the Selling
Stockholders or the purchasers of the common stock. We know of no existing
arrangements between the Selling Stockholders, broker-dealers, underwriters
or agents relating to the sale or distribution of the shares.

The Selling Stockholders may also enter into hedging transactions, and
persons with whom they effect such transactions, including broker-dealers,
may engage in short sales of our common shares. The Selling Stockholders may
also engage in short sales and short sales against the box, and in options,
swaps, derivatives and other transactions in our securities, and may sell
and deliver the shares covered by this prospectus in connection with such
transactions or in settlement of securities loans. These transactions may
be entered into with broker-dealers or other financial institutions that may
resell those shares pursuant to this prospectus (as supplemented or amended
to reflect such transaction).

The Selling Stockholders and any broker-dealers or agents that are involved
in selling the shares may be deemed to be "underwriters" within the meaning
of section 2(11) of the Securities Act of 1933, as amended, in connection
with the sales and distributions contemplated under this prospectus, and may
have civil liability under Sections 11 and 12 of the Securities Act for any
omissions or misstatements in this prospectus and the registration statement
of which it is a part. Additionally, any profits which the Selling
Stockholders may receive might be deemed to be underwriting compensation
under the Securities Act. Because the Selling Stockholders may be deemed
to be an underwriter under Section 2(11) of the Securities Act, the Selling
Stockholders will be subject to the prospectus delivery requirements of the
Securities Act.

The resale shares will be sold only through registered or licensed broker-
dealers if required under applicable state securities laws. In addition,
in certain states, the resale shares may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption
from the registration or qualification requirement is available and is
complied with.

We will bear all expenses relating to the sale of our common shares
under this prospectus, except that the Selling Stockholders will pay
any applicable underwriting commissions and expenses, brokerage fees and
transfer taxes, as well as the fees and disbursements of counsel to and
experts for the Selling Stockholders. We have agreed to indemnify some of
the Selling Stockholders against certain losses, claims, obligations,
damages and liabilities, including liabilities under the Securities Act.

Any common shares offered under this prospectus that qualify for sale
pursuant to Rule 144 of the Securities Act may also be sold under Rule 144
rather than pursuant to this prospectus.

We have agreed to keep this prospectus effective at least for a period
ending with the first to occur of (i) the date that all of the shares
covered by this prospectus have been sold; (ii) the date that all shares
covered by this prospectus may be sold without restrictions pursuant to Rule
144(k), provided that a legal opinion with respect to the availability of
Rule 144 for the resale of such shares received upon conversion of the
Warrant Shares has been rendered by a law firm acceptable to both Rapid
Link and the holder of such shares as evidence that Rule 144 is available
for such securities; or (iii) the date one year after this registration
statement is declared effective by the Commission, provided, however, that
if at the end of such one year period, any holder of shares covered by this
prospectus is not able to immediately, freely resell all of the shares
covered by this prospectus that it owns, then Rapid Link shall continue to
keep this prospectus effective until terminated pursuant to clause (i) or
(ii).

Under applicable rules and regulations under the Exchange Act of 1934,
any person engaged in the distribution of the resale shares may not
simultaneously engage in market making activities with respect to our common
stock for a period of two business days prior to the commencement of the
distribution. In addition, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases
and sales of shares of our common stock by the Selling Stockholders or any
other person. We will make copies of this prospectus available to the
Selling Stockholders and have informed them of the need to deliver a copy
of this prospectus to each purchaser at or prior to the time of the sale.

LEGAL PROCEEDINGS

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

Cygnus Telecommunications Technology, LLC. On June 12, 2001, Cygnus
Telecommunications Technology, LLC ("Cygnus"), filed a patent infringement
suit (case no. 01-6052) in the United States District Court, Central
District of California, with respect to the Company's "international re-
origination" technology. On March 29, 2007 the United States District Court
in San Jose, California ruled that all Cygnus "international re-origination"
patents are invalid, and dismissed all cases against Rapid Link (fka Dial
Thru International Corporation) and related parties. Cygnus is appealing the
case. The Company feels that Cygnus has a negligible chance of succeeding
in their appeal.

State of Texas. During fiscal 2004, the Company determined, based on final
written communications with the State of Texas (the "State"), that it had a
liability for sales taxes (including penalties and interest). On August 5,
2005, the State filed a lawsuit in the 53rd Judicial District Court of
Travis County, Austin, Texas against the Company. The lawsuit requests
payment of approximately $1.162 million for state and local sales tax,
including penalties and interest, which has been accrued at April 30, 2007
and October 31, 2006. The sales tax amount due is attributable to audit
findings of the State for the years 1995 to 1999 associated with Canmax
Retail Systems, a current subsidiary of ours, and former operating
subsidiary providing retail automation software and related services to
the retail petroleum and convenience store industries. The State determined
that Canmax Retail Systems did not properly remit sales tax on certain
transactions. Management believes that it will be able to negotiate a
reduced settlement amount with the State, although there can be no assurance
that the Company will be successful with respect to such negotiations. These
operations were classified as discontinued after the Company sold its retail
automation software business in December 1998 and changed its business
model.

The Company will continue to aggressively pursue the collection of unpaid
sales taxes from former customers of Canmax Retail Systems, primarily
Southland Corporation, now 7-Eleven Corporation ("7-Eleven"), as a majority
of the amount owed to the State is the result of uncollected taxes from the
sale of software to 7-Eleven during the period under audit. However, there
can be no assurance that the Company will be successful with respect to such
collections.

On January 12, 2004, the Company filed a suit against 7-Eleven in the 162nd
District Court in Dallas, Texas. The Company's suit claims a breach of
contract on the part of 7-Eleven in failing to reimburse it for taxes paid
to the State as well as related taxes for which the Company is currently
being held responsible by the State. The Company's suit seeks reimbursement
for the taxes paid and a determination by the court that 7-Eleven is
responsible for paying the remaining tax liability to the State.

OFFICERS AND DIRECTORS

The following table sets forth certain information regarding our executive
officers and directors.

Name Age Position with the Company
----------------------- --- -----------------------------------
John A. Jenkins 45 Chairman, Chief Executive Officer,
Secretary and Director
Christopher J. Canfield 46 President, Chief Financial Officer,
Treasurer and Director
Michael P. Prachar 37 Chief Operating Officer
David R. Hess 45 Director
Lawrence J. Vierra 61 Director
Robert M. Fidler 68 Director (resigned on June 15, 2007)

JOHN A. JENKINS has served as our Chairman of the Board and Chief Executive
Officer since October 2001, served as our President from December 1999 until
July 2005, and has served as a director since December 1999. Mr. Jenkins has
also served as the President of DTI Com, Inc., one of our subsidiaries,
since November 1999. In May 1997, Mr. Jenkins founded Dial Thru
International Corporation (subsequently dissolved in November 2000), and
served as its President and Chief Executive Officer until joining us in
November 1999. Prior to 1997, Mr. Jenkins served as the President and Chief
Financial Officer for Golden Line Technology, a French telecommunications
company. Prior to entering the telecommunications industry, Mr. Jenkins
owned and operated several software, technology and real estate companies.
Mr. Jenkins holds degrees in physics and business/economics from UCLA.

CHRISTOPHER J. CANFIELD was elected to our Board of Directors in May 2006,
and has served as our Chief Financial Officer since May 2006 and President
since November 2006. Mr. Canfield served as President and CEO of
Telenational Communications, Inc. from April 1998 until its acquisition by
Rapid Link in May 2006. Mr. Canfield has more than 15 years of experience
working in the telecommunications marketplace, and co-founded Resource
Communications, Inc. and Intercontinental Exchange, Inc. in 1995 and
1998 respectively, both of which were subsequently acquired by major
telecommunications companies. Mr. Canfield holds a BS degree in Business
Administration and Marketing from California State University Hayward.

MICHAEL P. PRACHAR has served as Chief Operating Officer since May 2006. Mr.
Prachar served as Vice President and Chief Operating Officer of Telenational
Communications, Inc. from April 1998 until its acquisition by Rapid Link in
May 2006. Mr. Prachar has been involved in the telecommunications industry
since 1992 and has practical experience in most related aspects, including
equipment service, sales, marketing, management and information technology.

DAVID R. HESS was elected to our Board of Directors in May 2002 and
served as our President from July 2005 until October 2006. Mr. Hess was
instrumental in orchestrating the Integrated and Telenational acquisitions.
Prior to joining us, Mr. Hess was the Managing Partner of RKP Steering
Group, a company he co-founded in August 2003. From November 2001 until
December 2002, Mr. Hess served as the Chief Executive Officer and President,
North America of Telia International Carrier, Inc. Prior to joining Telia,
Mr. Hess was part of a turnaround team hired by the board of directors of
Rapid Link, Incorporated. Since October 2006, he has served as the Managing
Director of CSC Management. He served as the Chief Executive Officer and as
a director of Rapid Link, Incorporated from August 2000 until September
2001. Mr. Hess received a BA in Communications with a Minor in Marketing
from Bowling Green State University.

LAWRENCE J. VIERRA has served as one of our directors since January 2000,
and from that time through October 2004, served as our Executive Vice
President. Currently, Mr. Vierra is a professor at the University of Nevada,
Las Vegas. From 1995 through 1999, Mr. Vierra served as the Executive Vice
President of RSL Com USA, Inc., an international telecommunications company,
where he was primarily responsible for international sales. Mr. Vierra has
also served on the board of directors and executive committees of various
telecommunications companies and he has extensive knowledge and experience
in the international sales and marketing of telecommunications products and
services. Mr. Vierra holds degrees in marketing and business administration.

ROBERT M. FIDLER has served as one of our directors since November 1994. Mr.
Fidler joined Atlantic Richfield Company (ARCO) in 1960, was a member of
ARCO's executive management team from 1976 to 1994 and was ARCO's manager
of New Marketing Programs from 1985 until his retirement in 1994. Mr. Fidler
has both a bachelor's and master's degree.

Meetings of the Board of Directors

Our Board of Directors held four meetings during the fiscal year ended
October 31, 2006. The Board of Directors has held three meetings in the
fiscal year 2007 thus far. The Board of Directors has two standing
committees: an Audit Committee and a Compensation Committee. There is no
standing nominating committee. Each of the directors attended the meeting
of the Board of Directors and all meetings of any committee on which such
director served.

Resignation of Board Member

On June 15, 2007, Robert M. Fidler submitted his resignation as a member of
the Board of Directors of the Company effective immediately. Mr. Fidler
served as one of the Company's directors from November 1994 until June 2007.
At the time of his resignation, Mr. Fidler was a member of both the Audit
and Compensation Committees of the Board of Directors. Mr. Fidler indicated
that he was resigning because time constraints did not allow him to continue
serving as an active board member. Mr. Fidler did not resign as a result of
any circumstances representing a disagreement with the Company.

Audit Committee

The Audit Committee is comprised only of non-employee directors. The Audit
Committee makes recommendations to our Board of Directors or management
concerning the engagement of our independent registered public accountants
and matters relating to our financial statements, our accounting principles
and our system of internal accounting controls. The Audit Committee also
reports its recommendations to the Board of Directors as to approval of
financial statements. The Audit Committee held four meetings during the
fiscal year ended October 31, 2006. The Board of Directors has held three
meetings this in fiscal year 2007. During fiscal 2006 and during the first
part of fiscal 2007, the Audit Committee was comprised of two non-employee
directors, Robert M. Fidler and Lawrence J. Vierra. Mr. Fidler submitted his
resignation from the Board on June 15, 2007 and was replaced on the Audit
Committee by David R. Hess.

Audit Committee Financial Expert

Lawrence J. Vierra serves as the audit committee financial expert as defined
by Item 401(e) of Regulation S-B of the Exchange Act.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Exchange Act requires our directors, executive officers
and persons who own more than 10% of our common stock to file with the SEC
initial reports of ownership and reports of changes in ownership of our
common stock and other equity securities of our Company. Officers, directors
and greater than 10% stockholders are required by regulations promulgated by
the SEC to furnish us with copies of all Section 16(a) reports they file.
Based solely on the review of such reports furnished to us and written
representations that no other reports were required, we believe that during
the fiscal year ended October 31, 2006, our executive officers, directors
and all persons who own more than 10% of our common stock complied with all
Section 16(a) requirements.

Code of Business Conduct and Ethics

We have adopted a code of business conduct and ethics for employees,
executive officers and directors that is designed to ensure that all of our
directors, executive officers and employees meet the highest standards of
ethical conduct. The code requires that our directors, executive officers
and employees avoid conflicts of interest, comply with all laws and other
legal requirements, and conduct business in an honest and ethical manner and
otherwise act with integrity and in our best interest. Under the terms of
the code, directors, executive officers and employees are required to report
any conduct that they believe in good faith to be an actual or apparent
violation of the code.

As a mechanism to encourage compliance with the code, we have established
procedures to receive, retain and treat complaints received regarding
accounting, internal accounting controls or auditing matters. These
procedures ensure that individuals may submit concerns regarding
questionable accounting or auditing matters in a confidential and anonymous
manner. The code also prohibits us from retaliating against any director,
executive officer or employee who reports actual or apparent violations of
the code.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of August 3, 2007 by (i) each stockholder
known by us to beneficially own five percent or more of the Company's
outstanding common stock, (ii) each of our current directors, (iii) each
Named Executive Officer and (iv) all of our executive officers and directors
as a group. Except as otherwise indicated below, each of the entities or
persons named in the table has sole voting and investment power with respect
to all shares of our common stock beneficially owned. The percentages in
this table are based on 51,804,401 outstanding shares of the Company's
common stock. Beneficial ownership is determined in accordance with the
rules of the SEC and generally includes voting or investment power with
respect to the securities. In computing the number of shares beneficially
owned by a person and the percentage ownership of that person, shares of our
common stock underlying options or warrants held by that person that will be
exercisable within 60 days of August 3, 2007, are deemed to be outstanding.
Such shares, however, are not deemed to be outstanding for the purpose of
computing the ownership of any other person.

Number of
Beneficial Owner Shares Percent
------------------------------------ ---------- -------
Apex Acquisitions, Inc. (1) 19,175,000 37.01%
P.O. Box 8658
Breckenridge, CO 80424

John A. Jenkins (2) 41,390,499 50.36%
David R. Hess (3) 1,015,000 *
Lawrence J. Vierra (4) 1,442,708 *%
Robert M. Fidler (5) 29,000 *
Christopher J. Canfield (1) 19,175,000 37.01%
Michael P. Prachar (1) 19,175,000 37.01%
All Executive Officers and Directors
as a group (6 persons) (6) 63,052,207 75.26%

--------------
* Reflects less than one percent.

(1) Consists of shares issued by the Company to Apex Communications,
Inc., which is 70% owned by Mr. Canfield and 30% owned by Mr. Prachar,
for all shares of Telenational Communications, Inc. common stock.

(2) Includes (i) 11,000,000 shares held directly, (ii) 100,000 shares
of common stock which may be acquired through the exercise of options,
(iii) 2,728,391 shares of common stock which may be acquired through the
exercise of warrants, and (iv) 27,562,108 shares of common stock which
may be acquired through the conversion of a convertible note (shares from
conversion calculated using the closing bid share price at August 3, 2007
of $0.07); all of which are exercisable or convertible within 60 days of
August 3, 2007.

(3) Includes (i) 15,000 shares of common stock, which may be acquired
through the exercise of options and (ii) 1,000,000 shares of common stock
which may be acquired through the exercise of warrants; all of which are
exercisable within 60 days of August 3, 2007.

(4) Includes (i) 795,000 shares held directly, (ii) 5,000 shares of
common stock, which may be acquired through the exercise of options,
(iii) 130,000 shares of common stock which may be acquired through the
exercise of warrants and (iv) 512,708 shares of common stock which may be
acquired through the conversion of a convertible note (shares from
conversion calculated using the closing bid share price at August 3, 2007
of $0.07); all of which are exercisable or convertible within 60 days of
August 3, 2007.

(5) Includes (i) 4,000 shares held directly and (ii) 25,000 shares of
common stock, which may be acquired through the exercise of options
which are exercisable within 60 days of August 3, 2007.

(6) Includes 19,175,000 shares of common stock owned by Apex Acquisitions,
Inc., which is 100% owned by executive officers of the Company.

DESCRIPTION OF SECURITIES

Rapid Link is presently authorized under its Articles of Incorporation to
issue 175,000,000 shares of common stock, $0.001 par value per share, and
10,000,000 shares of preferred stock, $0.001 par value per share. At June
30, 2007, Rapid Link had 51,804,401 shares of common stock issued and no
shares of preferred stock issued.

The following descriptions of Rapid Link's capital stock are only summaries
and do not purport to be complete and are subject to and qualified by its
Articles of Incorporation, as amended, its Amended and Restated Bylaws, and
by the provisions of applicable corporate laws of the State of Delaware.

COMMON STOCK

The holders of Rapid Link's common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders,
except that upon giving the legally required notice, stockholders may
cumulate their shares in the election of directors. We may pay dividends at
such time and to the extent declared by the Board of Directors in accordance
with Delaware corporate law. All outstanding shares of common stock are
fully paid and non-assessable. To the extent that additional shares of
common stock may be issued in the future, the relative interests of the
then existing stockholders may be diluted.

PREFERRED STOCK

We are currently authorized to issue 10,000,000 Shares of preferred stock.
As of June 30, 2007, no shares of preferred stock had been issued. The Board
of Directors is authorized, subject to any limitation prescribed by the laws
of the State of Delaware, but without further action by our shareholders,
to provide for the issuance of preferred stock in one or more series, to
establish from time to time the number of shares of each such series and
any qualifications, limitations or restrictions thereof, and to increase or
decrease the number of shares of any such series without any further vote or
action by shareholders. The Board of Directors may authorize and issue
preferred stock with voting or conversion rights that could adversely affect
the voting power or other rights of the holders of common stock. In
addition, the issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of our Company.

WARRANTS

In connection with the Purchase Agreement, we issued to the Investor Common
Stock Purchase Warrants (the "Warrants") to purchase up to an additional
50,000,000 shares of our common stock ("Warrant Shares") at exercise prices
as follows: 20,000,000 Warrant Shares exercisable at $0.10 per share
(Warrant "A"); 15,000,000 Warrant Shares exercisable at $0.20 per share
(Warrant "B"); and 15,000,000 Warrant Shares exercisable at $0.30 per share
(Warrant "C"). Investor has agreed, however, that it shall not be entitled
to beneficially own more than 4.9% of the outstanding shares of common stock
of the Company at any time. Such beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended, and Regulation 13d-3 thereunder. There are no material
relationships between the Registrant, its affiliates and any of the
parties to this Purchase Agreement, other than in respect of this Purchase
Agreement.

"Registrable Securities" means and includes the common stock and Warrant
Shares issued pursuant to the Purchase Agreement. The Company agreed to
prepare and file within thirty (30) days following the Closing Date a
registration statement (the "Registration Statement") covering the resale
of such number of shares of the Registrable Securities as the Investor shall
elect by written notice to the Company, and absent such election, covering
the resale of all of the shares of the Registrable Securities. The Company
has agreed to use its best efforts to cause the Registration Statement to be
declared effective by the Securities and Exchange Commission (the "SEC") on
the earlier of (i) 120 days following the closing date with respect to the
Registration Statement, (ii) ten days following the receipt of a "No Review"
or similar letter from the SEC or (iii) the first business day following the
day the SEC determines the Registration Statement eligible to be declared
effective.

In the Purchase Agreement, the Company also agreed, for a period of two
years from the Closing Date, not to issue any preferred stock of the
Company. The Company will also have caused the appointment of the majority
of the board of directors to be qualified independent directors, as defined
by the NASD within six months of the Closing Date. The Company will also
cause the appointment of a majority of outside directors to the audit and
compensation committees of the board of directors within six months of the
Closing Date. The Company shall also cause its insiders, including John
Jenkins, as CEO and Chris Canfield, as President and CFO of the Company, not
to sell their shares of stock for two years from the Closing Date. For two
years after the Closing Date the Company must have a current unanimous
opinion from the Compensation Committee of the Board of Directors that
any awards other than salary are usual, appropriate and reasonable for
any officer, director, employee or consultant holding a similar position in
other public fully reporting companies with independent majority boards with
similar market capitalizations in the same industry with securities listed
on the OTC Bulletin Board, American Stock Exchange, New York Stock Exchange
or Nasdaq National Market.

If the Investor does not exercise warrants in the amount of $1,000,000
or more within six months after the Registration Statement has become
effective, then all the remaining Common Stock Purchase Warrants ("A",
"B" and "C") expire immediately upon six months after such Registration
Statement has become effective. Further, should the Company not receive
cumulative gross proceeds of at least three million dollars ($3,000,000) in
the form of equity, debt, any other injection of capital into the Company,
or any combination thereof from Investor or from sources introduced by
Investor, within six (6) months after the Registration Statement has become
effective, then all remaining outstanding Warrants (including series "A",
"B" and "C") shall expire.

The foregoing summary of the Warrants is qualified in its entirety by the
form of Warrants, a copy of which was attached as an Exhibit to our Current
Report on Form 8-K filed with the Commission on June 21, 2007.

LEGAL MATTERS

The validity of the common stock to be sold by the Selling Stockholders
under this prospectus will be passed upon for us by Richardson & Patel LLP.

EXPERTS

The financial statements included in this prospectus have been audited by
KBA Group LLP, independent registered public accounting firm to the extent
and for the periods set forth in their report appearing elsewhere herein and
are included in reliance upon such report given upon the authority of that
firm as experts in auditing and accounting.

DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES

Our certificate of incorporation, as amended, provides that we shall
indemnify to the fullest extent permitted by law any person made, or
threatened to be made, a party to an action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
he or she was a director or officer of our Company or serves or served any
other enterprise at our request, and such indemnification shall inure to the
benefit of the heirs, executors and administrators of such person. Section
11.1 of our bylaws contains a similar provision.

Our certificate of incorporation, as amended, also provides that a director
will not be personally liable to our Company or our shareholders for
monetary damages for breach of fiduciary duty as a director, except to
the extent that the exemption from liability or limitation thereof is not
permitted by the Delaware General Corporation Law.

Section 145 of the Delaware General Corporation Law permits indemnification
against expenses, fines, judgments and settlements incurred by any director,
officer or employee of a company in the event of pending or threatened
civil, criminal, administrative or investigative proceedings, if such person
was, or was threatened to be made, a party by reason of the fact that he or
she is or was a director, officer or employee of the company. Section 145
also provides that the indemnification provided for therein shall not be
deemed exclusive of any other rights to which those seeking indemnification
may otherwise be entitled.

Under a directors' and officers' liability insurance policy, our directors
and officers are insured against certain liabilities, including certain
liabilities under the Securities Act.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling person of our
Company pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by our Company of expenses incurred or
paid by a director, officer or controlling person of our Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, we will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by our Company is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

DESCRIPTION OF BUSINESS

Business Strategy

The Company was incorporated on July 10, 1986 under the Company Act of the
Province of British Columbia, Canada. On August 7, 1992, we renounced our
original province of incorporation and elected to continue our domicile
under the laws of the State of Wyoming, and on November 30, 1994 our name
was changed to "Canmax Inc." On February 1, 1999, we reincorporated
under the laws of the State of Delaware under the name "ARDIS Telecom &
Technologies, Inc." On November 2, 1999, we acquired substantially all of
the business and assets of Dial Thru International Corporation, a California
corporation (the "DTI Acquisition"), and, on January 19, 2000, we changed
our name from ARDIS Telecom & Technologies, Inc. to Dial Thru International
Corporation. On November 1, 2005, we changed our name to "Rapid Link,
Incorporated" as we determined that this name would receive better market
recognition and acceptance than its previous name, especially as the Company
continues to roll out VoIP related services. In addition, we also believe
that the name, which was the name of the company we acquired in October
2001, is a recognized brand name with members of the United States Military
around the world, a significant source of retail revenue for the Company
since the acquisition.

VoIP Niche Market Strategy

Historically, Rapid Link has served as a facilities-based, communications
company providing various forms of telephony services to wholesale and
retail customers around the world. Rapid Link provides a multitude of
international telecommunications services targeted to individual customers,
as well as small and medium sized enterprises ("SMEs"). These services
include the transmission of voice and data traffic over public and private
networks. The Company also sells telecommunications services for both the
foreign and domestic termination of international long distance traffic into
the wholesale market. The Company utilizes VoIP packetized voice technology
(and other compression techniques) to improve both cost and efficiencies of
telecommunication transmissions. To insure optimal quality and redundancy,
the Company also utilizes the Public Switched Telecommunications Network, as
well as the Internet, to transport communications services.

The Company has now shifted its retail product focus to value-added VoIP
communication services to customers, both domestically and internationally.
Rapid Link focuses on key niche markets. These niche markets include
specific ethnic demographics, targeted geographic locations both
domestically and internationally, and the United States military. The
Company's strategy includes plans to offer broadband access via its own
facilities to insure reliable delivery of its VoIP services. Technology now
allows for cost efficient and rapid build out of broadband facilities.
Wi-MAX and other technologies can bring fast, reliable, high speed internet
access to areas that have traditionally been unreachable or underserved.
Through acquisitions and organic growth in targeted rural areas, the Company
believes it will possess a strategic advantage over carriers that do not
provide their own network access. "Net Neutrality" is still in question and
Rapid Link believes the potential for unfair and or monopolistic behavior
by incumbent providers, necessitates our strategy to "own" the customer by
providing the service directly, rather than utilizing the networks of
others. This will allow the Company to provide its bundled products and
telephony services without the threat of compromised service quality.

The Company offers PC-to-PC, PC-to-phone, and phone-to-phone calling using
a mixture of software and/or hardware depending on the end-users' specific
needs. Rapid Link offers VoIP service plans to conventional residential and
business customers in addition to serving the military and other niches. The
Company sells both flat-rate and cost-per-minute calling plans in order to
directly address the customers' requirements.

Development of VoIP Technology

The growth of the Internet has accelerated the rapid merger of the worlds
of voice-based and data-based communications. By first digitizing voice
signals, then utilizing the same packetizing technology that makes the
Internet possible, VoIP provides for a cost effective manner in which to
perform the signal compression needed to maximize the return from the use of
the public Internet. In this way, not only has efficiency of the dedicated
circuits been improved, but use of the public Internet provides a much more
cost effective means of transmission and rapid deployment compared to
traditional private leased lines and circuits.

During the latter part of fiscal 2004 we began offering value-added VoIP
communications services to customers, both domestically and internationally.
To date, our new VoIP product offerings have generated insignificant
revenues. We strive to provide our customers with a reliable, scalable and
affordable worldwide IP communication service with a quality focus. We focus
our efforts on providing first class customer service, and hire employees
with experience in developing and building technologically advanced IP
enabled platforms and services. Our intention is to provide our customers
with the best possible voice communication services, to both residential
and business users, at affordable prices that allow them to communicate
seamlessly and effortlessly to anywhere and from anywhere in the world.

Niche Focus - U.S. Armed Forces

We have established brand name recognition within the U.S. military market,
offering affordable international calling to members of the U.S. military.
The Company has served this niche market for several years. Historically, we
focused on the soldier located in foreign markets. However, with our new,
more cost effective VoIP service offerings, we are able to market to
soldiers and their families both domestically and internationally. In
addition, we have expanded our marketing efforts to include other niche
markets such as ethnic demographics and rural area customers.

Products and Services

Rapid Link VoIP Services

Rapid Link provides an Internet-based communication service that works
over virtually any high-speed Internet connection in the world. Our service
allows our customers to call to and/or from any phone in the world. We
utilize an Internet Access Device ("IAD") (i.e. a desktop adapter or soft
phone headset), to connect customers to our Rapid Link network software,
which enables VoIP communications. Our desktop adapter allows for the
connection of a standard telephone to the adapter, providing for familiar
dialtone interface, while the soft phone headset plugs directly into the
customer's computer. Our VoIP products use Session Initiation Protocol, or
SIP, signaling, which empowers edge devices, such as multimedia terminal
adapters, to establish and manage voice calls on all types of Internet
systems.

Our system provides an end user with a local phone number for inbound
calling and comes with a full set of features and functionality, including
call waiting, caller ID, three-way conference calling, and "follow me"
features. Additional features include web-based tools allowing subscribers
to manage their telephony features online, manage their accounts, and check
their voice mail. We have designed our system to enable the termination of
our customers' calls to the Public Switched Telephone Network, and to allow
for direct connection directly over the Internet to other Rapid Link
customers anywhere in the world. As part of the Rapid Link service, we
currently resell IADs that we purchase from third parties. These IADs are
configured prior to shipping to work with our VoIP software.

We offer several VoIP rate plans to the business office, the business
professional that may have a home office, the residential consumer and our
niche markets. The residential plans offer customers a cheaper alternative
to traditional local telephone service, as well as long distance and
international calling. Our service plans are designed to provide our
customers the lowest possible rates while maintaining the level of quality
service they expect. Our customers are provided with the opportunity to
access to a variety of services, including voice mail, caller ID, call
waiting, 3-way calling, area code selection, and online account management
and billing. While we are optimistic that our VoIP-based retail products
will provide us with meaningful growth opportunities, we have yet to derive
material revenues from any of these products.

Our included voice mail service can also be used in a unique way that is
very beneficial to our military customers stationed overseas. As a Rapid
Link customer, received voice mails can be sent via email as a sound file
attachment. This enables the overseas customer to hear their voice mail
messages without having to have access to the telephone service. In many
remote areas where military service personnel are stationed, email access is
far more available than phone service. With Rapid Link, our customers need
never be out of touch.

Dial Thru and Re-origination Services

We provide a variety of international "Dial Thru" and "Re-origination"
services. The Dial Thru service allows customers the convenience of making
local and/or international calls in the same manner as traditional long
distance dialing. In those markets in which we cannot currently provide Dial
Thru service, we offer our Re-origination service, which allows a caller
outside of the United States to place a long distance telephone call that
appears to have originated from our switch in Los Angeles to the customer's
location, and then connects the call through our network to anywhere in the
world. By completing the calls in this manner, we are able to provide very
competitive rates to the customer. Wherever possible, we route calls over
our private network. By using VoIP to compress voice and data transmissions
across the public Internet, we are able to offer these services at costs
that are substantially less than traditional communications services. These
services, while still contributing a significant portion of our revenues,
will continue to decrease as a percentage of our total revenues as we
continue to develop and market new services. Generally, the Dial Thru and
Re-origination services are provided to customers that establish deposits
or prepayments with us to be used for long-distance calling.

International Wholesale Termination

We offer international call completion on a wholesale basis to domestic
and international telecommunications companies. This service enables our
corporate customers to offer their own customers phone-to-phone global voice
and fax services, and provides our customers with high quality and low cost
long distance without having to deploy their own VoIP infrastructure. We can
also provide additional termination opportunities to customers that have
developed their own VoIP networks with nearly instant access to our
termination points by connecting to these customers via the Internet.
Therefore, we have the capability to offer our services to carriers
connecting to our network through traditional dedicated switch to switch
connections, and through the public Internet whereby our customers connect
to our network using their own VoIP equipment.

Global Roaming

Our Global Roaming service provides customers a single account number to
initiate phone-to-phone calls from locations throughout the world using
specific toll-free access numbers. This service enables customers to receive
the cost benefits associated with our telecommunications network throughout
the world.

1+ Long Distance

We also offer traditional 1+ long distance service to business and
residential users throughout the U.S. We currently focus on SMEs through
the agent channel, as well as our niche markets which generally have a
large amount of international calling. By leveraging our long standing
international carrier relationships, we can provide low rates and excellent
service to countries that are not aggressively marketed by the larger
carriers.

Segment Information

Management regularly reviews one set of financial information and all of our
products share similar economic characteristics. Therefore, the Company has
determined that it has one operating segment.

Acquisitions

On May 5, 2006, the Company acquired 100% of the outstanding stock of
Telenational Communications, Inc. ("Telenational"). Telenational
historically serviced a sizable base of both retail and commercial customers
which very closely mirror those customers Rapid Link has served. This
acquisition allows us to expand our market share in the telecommunications
industry while taking advantage of several significant economies of scale,
both in respect to direct cost reductions, as well as operational
efficiencies. Even though our executive offices are in southern California,
we have subsequently moved substantially all of our operational and
administrative functions to the Telenational headquarters in Omaha,
Nebraska.

Competition

The telecommunications services industry is highly competitive, rapidly
evolving and subject to constant technological change. Other providers
currently offer one or more of each of the services offered by us.
Telecommunications service companies compete for consumers based on price
and quality, with the dominant providers conducting extensive advertising
campaigns to capture market share. As a service provider in the long
distance telecommunications industry, we compete with such dominant such
as AT&T Corp. (T:NYSE), Sprint Nextel Corporation (S:NYSE) and Qwest
Communications International (Q:NYSE), all of which are substantially larger
than us and have the resources, history and customer bases to dominate
virtually every segment of the telecommunications market. As a service
provider in the VoIP telecommunications industry, we compete with such
dominant providers as Skype and Vonage (VG:NYSE), which are substantially
larger than us and have greater resources, history and customer bases, and
who may market services in areas and regions which may closely mirror ours.
A substantial majority of the telecommunications traffic around the world is
carried by dominant carriers in each market. These carriers, such as British
Telecom and Deutsche Telekom (DT:NYSE), have started to deploy packet-switch
networks for voice and fax traffic. In addition, other industry leaders,
such as AT&T, Sprint and Qwest Communications International, as well as
large cable companies, have begun to offer Internet telephony services both
in the United States and internationally. These and other competitors will
be able to bundle services and products that are not offered by us, together
with Internet telephony services, to gain a competitive advantage over us in
the marketing and distribution of products and services

We also compete with other smaller carriers including IDT Corp. (IDT:NYSE),
deltathree.com, Primus Telecommunications Group, Inc. (PRTL:OTC-BB),
Net2Phone Inc. and 8x8 Inc. Additionally, a number of non-traditional
competitors have been attracted to the market, including internet-based
service providers. We also believe that existing competitors are likely to
continue to expand their service offerings to appeal to retailers and
consumers especially in the area of VoIP.

The market for international voice and fax call completion services is also
highly competitive. We compete both in the market for enhanced Internet
communications services and the market for carrier transmission services.
We believe that the primary competitive factors in the Internet and VoIP
communications business are quality of service, price, convenience
and bandwidth. We believe that the ability to offer enhanced service
capabilities, including new services, will become an increasingly important
competitive factor in the near future.

Future competition could come from a variety of enterprises both in the
Internet and telecommunications industries. In addition, some Internet
service providers have begun enhancing their real-time interactive
communications and, although these companies have initially focused on
instant messaging, we expect them to provide PC-to-phone services in the
future.

Wholesale Internet Telephone Service Providers

During the past several years, a number of companies have introduced
services that make Internet telephony or voice services over the Internet
available to businesses and consumers. iBasis, Teleglobe International
Holdings and the wholesale divisions of Net2Phone Inc. and deltathree.com
route traffic to destinations worldwide and compete directly with us. Other
Internet telephony service providers focus on a retail customer base and
may in the future compete with us. These companies offer the kinds of voice
services we are currently offering. In addition, companies currently in
related markets are providing VoIP services or adapt their products to
enable voice over the Internet services. Many of these companies have
migrated into the Internet telephony market as direct competitors.

Suppliers

Our principal suppliers consist of domestic and international
telecommunications carriers, and Internet Service Providers. Relationships
currently exist with a number of reliable carriers. During the fiscal year
ended October 31, 2006, and for the six months ended April 30, 2007, one of
the Company's suppliers accounted for approximately 26% and 37% respectively
of the Company's total costs of revenues. Due to the highly competitive
nature of the telecommunications business, we believe that the loss of any
carrier would not have a long-term material impact on our business.

Sales and Marketing

We sell and market our services through vertical web portals, magazines,
local military base events and third-party resellers. Our Company also
receives a good deal of referrals from existing customers. Our revenues are
primarily derived from direct sales to business and residential accounts,
sales through commissioned agents and wholesale sales to other
telecommunications providers. We plan to focus our sales efforts on
expanding niche markets, as well as add products and services targeting
residential customers in these niche areas.

We offer individuals and businesses the opportunity to become resellers of
our services through our affiliate and reseller programs. Resellers are able
to purchase bulk accounts and hardware at reseller specific pricing and they
are then able to resell these accounts to private individuals under the
Rapid Link brand.

We have substantial revenues in foreign markets. For the fiscal years ended
October 31, 2006 and 2005, $4.4 million or 33% and $3.4 million or 35% of
our total revenue from continuing operations for each year, respectively,
originated from foreign markets.

Customers

We focus our current retail sales and marketing efforts on our VoIP products
and services, targeting SMEs, members of the U.S. military, particularly
those located in foreign markets where telecommunications deregulation has
not taken place or is currently underway, residential customers in those
same markets and to a lesser extent the United States, and VoIP wholesale
customers located both domestically and internationally. We rely heavily on
the use of commissioned agents to generate retail sales in foreign markets,
as well as web portals, magazines and local military base events, and third
party resellers. By doing so, we believe that we establish a wide base of
customers with little vulnerability based on lack of customer loyalty. Our
wholesale customers are primarily large telecommunications customers
in the United States, and medium to large foreign Postal, Telephone and
Telegraph companies, which are those entities responsible for providing
telecommunications services in foreign markets and are usually government
owned or controlled.

During the period ended April 30, 2007, we provided wholesale services to
a customer who accounted for 23% of our revenues. During the fiscal year
ended October 31, 2006 we provided wholesale services to a customer who
accounted for 12% of our revenues and to another customer who accounted
for 10% of our revenues. During the fiscal year ended October 31, 2005,
we provided wholesale services to a customer who accounted for 13% of our
revenues, and to another customer who accounted for 11% of revenues. We
believe the loss of any individual customer would not materially impact
our business. We generally do business with approximately 20 wholesale
customers, any of which either collectively, or in most cases individually,
could compensate for the loss of a major customer. Typically, we have
limited capacity, imposed by our suppliers, in which to transmit our
telecommunications traffic. We frequently offer this capacity to our larger
customers, however it is possible to offer these opportunities to all or a
few of our wholesale customers at any time, thus reducing our reliance on
any one customer and providing a relatively quick transition between
customers if we should lose a customer.

Employees

As of July 31, 2007, we have 27 full-time employees, seven of which perform
administrative and financial functions, ten of which perform customer
support duties, and ten of which have experience in telecommunications
operations and/or sales. Nineteen employees are located in Omaha, Nebraska,
three employees are located in Los Angeles, California and the remaining
five employees are located elsewhere. None of our employees are represented
by a labor union, and we consider our employee relations to be good.

Debt Restructurings

On September 14, 2006, the Company entered into a series of agreements which
materially modified its debt structure with Global Capital Funding Group
Ltd. ("Global"), and with GCA Strategic Investment Fund Limited ("GCA"). The
agreements call for two outstanding notes due in November of 2006 payable to
Global and GCA to be extended to November 1, 2007. In addition, a conversion
floor of $0.10 and a conversion ceiling of $0.25 were put into place for all
convertible debentures outstanding with both Global and GCA.

We are currently seeking a debt facility or equity financing that will allow
us to either convert our outstanding debt obligations with GCA and Global
into the new financing, and/or pay down a portion or all of the amounts now
due. There can be no assurance that sufficient debt or equity financing will
be available or available on terms acceptable to us. During the second
quarter of fiscal 2007, GCA elected to convert $30,000 of the GC-Conote2
into approximately 622,000 shares of common stock. The remaining $30,000
owed on the GC-Conote2 became due on March 31, 2007 and is currently due on
demand.

Also on September 14, 2006, the Company entered into an agreement with its
Chief Executive Officer and significant shareholder, John Jenkins, amending
the current note payable to add the outstanding interest due to the existing
note, and extending the maturity date. The revised note is due February 28,
2008.

Intellectual Property

We do not hold any patents or trademarks. Our products and services are
available to other telecommunications companies.

Government Regulation

Telecommunications services are subject to extensive government regulation
at both the federal and state levels in the United States. Any violations
of these regulations may subject us to enforcement penalties. The
Federal Communications Commission ("FCC") has jurisdiction over all
telecommunications common carriers to the extent they provide interstate or
international communications services, including the use of local networks
to originate or terminate such services. Each state regulatory commission
has jurisdiction over the same carriers with respect to their provision of
local and intrastate long distance communications services. Significant
changes to the applicable laws or regulations imposed by any of these
regulators could have a material adverse effect on our business, operating
results and financial condition.

The following summary of regulatory developments and legislation is intended
to describe what we believe to be the most important, currently effective
and proposed international, federal, state and local regulations and
legislation that are likely to materially affect us. Some of these and
other existing federal and state regulations are the subject of judicial
proceedings and legislative and administrative proposals that could change,
in varying degrees, the manner in which this industry operates. We cannot
predict the outcome of any of these proceedings or their impact on us or the
telecommunications industry at this time. Some of these future legislative,
regulatory or judicial changes could have a material adverse impact on our
business.

Regulation by the Federal Communications Commission

Universal Service Funds. In 1997, the FCC issued an order, referred
to as the Universal Service Order, to implement the provisions of the
Telecommunications Act of 1996 relating to the preservation and advancement
of universal telephone service. The Universal Service Order requires all
telecommunications carriers providing interstate telecommunications
services to periodically contribute to universal service support programs
administered by the FCC (the "Universal Service Funds"). The periodic
contribution requirements to the Universal Service Funds under the Universal
Service Order are currently assessed based on a percentage of each
contributor's interstate and international end user telecommunications
revenues reported to the FCC, which we measure and report in accordance with
the legislative rules adopted by the FCC. The contribution rate factors are
determined quarterly and carriers, including us, are billed for their
contribution requirements each month based on projected interstate and
international end-user telecommunications revenues, subject to periodic
reconciliation. We, and most of our competitors, pass through these
Universal Service Fund contributions in the price of our services, either
as a separate surcharge or as part of the base rate. In addition to the FCC
universal service support mechanisms, state regulatory agencies also operate
parallel universal service support systems. As a result, we are subject
to state, as well as federal, universal service support contribution
requirements, which vary from state to state. As with any regulatory
obligation, if a federal or state regulatory body determines that we
have incorrectly calculated and/or remitted any universal service fund
contribution, we could be subject to the assessment and collection of past
due remittances as well as interest and penalties thereon. Furthermore, if
the FCC determines that we have incorrectly calculated and overstated a
separately invoiced line item identified as a recovery of contributions to
the Universal Service Funds we could be required to repay any such over-
collection and be subject to penalty.

The FCC is currently considering several proposals that would fundamentally
alter the basis upon which our Universal Service Fund contributions are
determined and the means by which such contributions may be recovered
from our customers, changing from a revenue percentage measurement to a
connection (capacity) or telephone number (access) measurement. Because we
pass through these contributions to consumers, a change in the contribution
methodology would not directly affect our net revenues; however, a change in
how contributions are assessed might affect our customers differently than
the customers of competing services, and therefore could either increase or
decrease the attractiveness of our services. The timing and effect of any
FCC action on this proposal is not yet known.

Access Charges. As a long distance provider, we remit access fees directly
to local exchange carriers or indirectly to our underlying long distance
carriers for the origination and termination of our long distance
telecommunications traffic. Generally, intrastate access charges are higher
than interstate access charges. Therefore, to the degree access charges
increase or a greater percentage of our long distance traffic is intrastate,
our costs of providing long distance services will increase.

In April 2001, the FCC released a Notice of Proposed Rulemaking in which it
proposed a "fundamental re-examination of all currently regulated forms of
intercarrier compensation." Several different industry groups have submitted
access charge reform proposals to the FCC. The FCC has not yet acted on
these proposals and it is not yet known when it will act. Therefore, at this
time we cannot predict the effect that the FCC's ultimate determinations
regarding access charge reform may have upon our business.

Taxes and Regulatory Fees. We are subject to numerous local, state and
federal taxes and regulatory fees, including, but not limited to, the
Federal excise tax, FCC universal service fund contributions and regulatory
fees, and numerous public utility commission regulatory fees. We have
procedures in place to ensure that we properly collect taxes and fees
from our customers and remit such taxes and fees to the appropriate entity
pursuant to applicable law and/or regulation. If our collection procedures
prove to be insufficient or if a taxing or regulatory authority determines
that our remittances were inadequate, we could be required to make
additional payments, which could have a material adverse effect on our
business.

International Telecommunications Services - Section 214. In the United
States, to the extent that we offer services as a carrier, we are required
to obtain authority under Section 214 of the Communications Act of 1934 to
provide telecommunications service that originates within the United States
and terminates outside the United States. We have obtained the required
Section 214 authorization from the FCC to provide U.S. international
service. As a condition to our Section 214 authorization, we are subject to
various communications-oriented reporting and filing requirements. Failure
to comply with the FCC's rules could result in fines, penalties, forfeitures
or revocation of our FCC authorization, each of which could have a material
adverse effect on our business, financial condition, and results of
operation.

International Telecommunications Services - International Settlements. The
FCC's International Settlements Policy ("Policy") restricts the terms on
which U.S.-based carriers and certain of their foreign correspondents settle
the cost of terminating each other's traffic over their respective networks.
Under the International Settlements Policy, absent approval from the FCC,
international telecommunications service agreements with dominant foreign
carriers must be non-discriminatory, provide for settlement rates usually
equal to one-half of the accounting rate, and require proportionate share
of return traffic. This Policy, however, does not apply to arrangements with
any non-dominant foreign carrier or, since March 30, 2005, with any dominant
foreign carrier on routes where a demonstration has been made that at least
one U.S. carrier has a settlement arrangement with the dominant foreign
carrier that is compliant with the FCC's applicable benchmark settlement
rates. This action has greatly lessened the number of instances in which
the Policy applies, effectively granting U.S. and foreign carriers greater
freedom to set rates and terms in their agreements. As a result, 164
countries currently are exempt from the International Settlements Policy,
representing over 90% of all U.S.-originated international traffic.
Notwithstanding the foregoing, the FCC could find that we do not meet
certain International Settlements Policy requirements with respect to
certain of our foreign carrier agreements. Although the FCC generally
has not issued penalties in this area, it has issued a Notice of Apparent
Liability to a U.S. company for violations of the International Settlements
Policy and it could, among other things, issue a cease and desist order,
impose fines or allow the collection of damages if it finds that we are not
in compliance with the International Settlements Policy. Any of these events
could have a material adverse effect on our business, financial condition or
results of operation.

State Regulations. Our intrastate long distance operations are subject
to various state laws and regulations, including, in most jurisdictions,
certification and tariff filing requirements. As a certificated carrier,
consumers may file complaints against us at the public service commissions.
Certificates of authority can generally be conditioned, modified, canceled,
terminated, or revoked by state regulatory authorities for failure to comply
with state law and/or the rules, regulations and policies of the state
regulatory authorities. Fines and other penalties also may be imposed for
such violations. Public service commissions also regulate access charges
and other pricing for telecommunications services within each state. The
Regional Bell Operating Companies and other local exchange carriers have
been seeking reduction of state regulatory requirements, including greater
pricing flexibility, which, if granted, could subject us to increased price
competition.

Regulation of Internet Telephony and Other IP-Enabled Services

The use of the Internet to provide telephone service is a fairly recent
market development. At present, we are not aware of any domestic, and are
aware of only a few foreign, laws or regulations that prohibit voice
communications over the Internet.

We believe that, under U.S. law, the Internet-related services that we
provide constitute information services as opposed to regulated
telecommunications services and, as such, are not currently actively
regulated by the FCC or any state agencies charged with regulating
telecommunications carriers. We cannot provide assurances that our Internet-
related services will not be actively regulated in the future. Several
efforts have been made in the U.S. to enact federal legislation that would
either regulate or exempt from regulation services provided over the
Internet. Increased regulation of the Internet may slow its growth,
particularly if other countries also impose regulations. Such regulation
may negatively impact the cost of doing business over the Internet and
materially adversely affect our business, operating results, financial
condition and future prospects.

The advent of VoIP services being provided by pure play VoIP providers, such
as Vonage, cable television and other companies, and the increased number
of traditional telephone companies entering the retail VoIP space has
heightened the need for U.S. regulators to determine whether VoIP is subject
to the same regulatory and financial constraints as wire line telephone
service. On November 9, 2004, the FCC issued an order in response to a
petition from Vonage declaring that Vonage-style VoIP services were exempt
from state telecommunications regulations. The FCC order applies to all VoIP
offerings provided over broadband services. However, this order did not
clarify whether, or under what terms, VoIP traffic may be subject to
intercarrier compensation requirements; whether VoIP was subject to state
tax or commercial business regulations; or whether VoIP providers had to
comply with obligations related to 911 emergency calls, and the Universal
Service Fund ("USF") of the Communications Assistance for Law Enforcement
Act ("CALEA"). The FCC is addressing many of these issues through its "IP-
Enabled Services Proceeding," which opened in February 2004.

Due to perceived urgency, however, the FCC did take some specific actions
outside of the broad IP-Enabled Services Proceeding to address emergency
services and law enforcement issues. On June 3, 2005, the FCC issued an
order establishing rules requiring interconnected VoIP service providers
to incorporate 911 emergency call capabilities for their customers as a
standard feature of their services, rather than an optional enhancement.
And, on August 5, 2005, the FCC announced the extension of CALEA to certain
types of VoIP providers. Any additional regulation of IP-based services
concerns us and we must therefore remain diligent with respect to evaluating
the impact of FCC proposals and decisions. However, based on the nature of
the IP-enabled services we currently provide, we do not believe either FCC
decision will materially adversely affect our business, operating results,
financial condition or future prospects.

The FCC has also considered whether to impose surcharges or other common
carrier regulations upon certain providers of VoIP or Internet telephony.
While the FCC has presently refrained from such regulation, the regulatory
classification of Internet telephony remains unresolved. If the FCC were
to determine that certain Internet-related services including Internet
telephony services are subject to FCC regulations as telecommunications
services, the FCC could subject providers of such services to traditional
common carrier regulation, including requirements to make universal service
contributions, and pay access charges to local telephone companies. A
decision to impose such charges could also have a retroactive effect, which
could materially adversely affect us. It is also possible that the FCC may
adopt a regulatory framework other than traditional common carrier
regulation that would apply to Internet telephony providers. Any such
determinations could materially adversely affect our business, financial
condition, operating results and future prospects to the extent that any
such determinations negatively affect the cost of doing business over the
Internet or otherwise slow the growth of the Internet. Congressional
dissatisfaction with FCC conclusions could result in requirements that the
FCC impose greater or lesser regulation, which in turn could materially
adversely affect our business, financial condition, operating results and
future prospects.

State regulatory authorities may also retain jurisdiction to regulate
certain aspects of the provision of intrastate Internet telephony services.
Several state regulatory authorities have initiated proceedings to examine
the regulation of such services. Others could initiate proceedings to do so.

The regulatory treatment of Internet telephony outside of the U.S. varies
widely from country to country. A number of countries that currently
prohibit competition in the provision of voice telephony also prohibit
Internet telephony. Other countries permit but regulate Internet telephony.
Some countries will evaluate proposed Internet telephony service on a case-
by-case basis and determine whether it should be regulated as a voice
service or as another telecommunications service. Finally, in many
countries, Internet telephony has not yet been addressed by legislation or
regulation. Increased regulation of the Internet and/or Internet telephony
providers or the prohibition of Internet telephony in one or more countries
could materially adversely affect our business, financial condition,
operating results and future prospects.

Other General Regulations

Although we do not know of any other specific new or proposed regulations
that will affect our business directly, the regulatory scheme for
competitive telecommunications market is still evolving and there could be
unanticipated changes in the competitive environment for communications in
general. For example, the FCC is currently considering rules that govern how
Internet providers share telephone lines with local telephone companies and
compensate local telephone companies. These rules could affect the role that
the Internet ultimately plays in the telecommunications market.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act with respect to the common stock being offered in this
offering. This prospectus does not contain all of the information set forth
in the registration statement and the exhibits and schedules filed as part
of the registration statement. For further information with respect to us
and our common stock, we refer you to the registration statement and the
exhibits and schedules filed as a part of the registration statement.
Statements contained in this prospectus concerning the contents of any
contract or any other document are not necessarily complete. If a contract
or document has been filed as an exhibit to the registration statement, we
refer you to the copy of the contract or document that has been filed. Each
statement in this prospectus relating to a contract or document filed as an
exhibit is qualified in all respects by the filed exhibit. The reports and
other information we file with the SEC can be read and copied at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington D.C. 20549.
Copies of these materials can be obtained at prescribed rates from the
Public Reference Section of the SEC at the principal offices of the SEC,
450 Fifth Street, N.W., Washington D.C. 20549. You may obtain information
regarding the operation of the public reference room by calling 1(800) SEC-
0330. The SEC also maintains a website (http://www.sec.gov) that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

This prospectus contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements relate to expectations concerning
matters that are not historical facts. Words such as "projects," "believes,"
"anticipates," "estimates," "plans," "expects," "intends," and similar words
and expressions are intended to identify forward-looking statements.
Although we believe that such forward-looking statements are reasonable, we
cannot assure you that such expectations will prove to be correct. Factors
that could cause actual results to differ materially from such expectations
are disclosed herein including, without limitation, in the section
entitled "Risk Factors" in PART I, Item 1. All forward-looking statements
attributable to the Company are expressly qualified in their entirety by
such language and we do not undertake any obligation to update any forward-
looking statements. You are also urged to carefully review and consider the
various disclosures we have made which describe certain factors that affect
our business throughout this Report. The following discussion and analysis
of financial condition and results of operations covers the years ended
October 31, 2006 and 2005 and should be read in conjunction with our
Financial Statements and the Notes thereto commencing at page F-1 included
hereof.

Overview

We are a facilities-based, communications company providing various forms of
telephony services to wholesale and retail customers around the world. We
offer a multitude of international telecommunications services targeted to
individual customers, as well as small and medium sized enterprises. These
services include the transmission of voice and data traffic over public and
private networks, and telecommunications services for both the foreign and
domestic termination of international long distance traffic into the
wholesale market. We have begun to utilize Voice over Internet Protocol
("VoIP") packetized voice technology.

On May 5, 2006, we completed the acquisition of all of the issued and
outstanding shares of capital stock of Telenational Communications, Inc.,
who historically has serviced a sizable base of both retail and commercial
customers which very closely mirror those customers Rapid Link has served
prior to the acquisition. This acquisition allows us to take advantage of
several significant economies of scale, both in respect to direct cost
reductions, as well as operational efficiencies.

On October 31, 2005, we completed the acquisition of the customer base of
Integrated Telecommunications, Inc., an international long distance carrier
providing VoIP services to retail customers in the United States, and
wholesale services to customers worldwide.

The telecommunications industry continues to evolve towards an increased
emphasis on IP related products and services. We have focused our business
towards these types of products and services for the last couple of years.
Furthermore, we believe the use of the Internet to provide bundled IP
related services to the end user customer, either as a stand alone solution
or bundled with other IP products, will continue to impact the industry as
large companies like Time Warner, Comcast and AT&T look to capitalize on
their existing cable infrastructures, and smaller companies look to provide
innovative solutions to attract commercial and residential users to their
product offerings.

We are focused on the growth of our VoIP business by adding new products and
services that can be offered to end user customers. We are attempting to
transition our current customers, and attract new customers through the sale
of specialized VoIP Internet Access Devices, or IADs, that allow customers
to connect their phones to their existing high-speed Internet connections.
These IADs allow the user to originate phone calls over the Internet,
thereby bypassing the normal costs associated with originating phone calls
over existing land lines. By reducing these costs, we are able to offer
lower priced services to these customers, which we believe will allow us to
attract additional users. We also believe there will be considerable demand
for this type of product in certain foreign markets where end users pay a
significant premium to their local phone companies to make long distance
or international phone calls. We are targeting business and residential
customers, as well as niche markets, such as the United States military.
While we expect the growth in our customers and suppliers, and the
introduction of innovative product offerings to retail users, specifically
IADs, to have a positive impact on our revenues and earnings, we cannot
predict our ability to significantly grow this line of business. The revenue
and costs associated with the IAD product offerings will depend on the
number of customers and contracts we obtain.

Critical Accounting Policies

This disclosure is based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires that we make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. We base our
estimates on historical experience and other assumptions that it believes
to be proper and reasonable under the circumstances. We continually evaluate
the appropriateness of estimates and assumptions used in the preparation of
its consolidated financial statements. Actual results could differ from
those estimates. The following key accounting policies are impacted
significantly by judgments, assumptions and estimates used in the
preparation of the consolidated financial statements.

Revenue Recognition

For a majority of our products, our revenues are generated at the time a
customer uses our network to initiate a phone call. We sell our services to
SMEs and end-users that utilize our network for international re-origination
and dial thru services, and to other providers of long distance usage who
utilize our network to deliver domestic and international termination of
minutes to their own customers. At times we receive payment from our
customers in advance of their usage, which we record as deferred revenue,
recognizing revenue as calls are made.

For our newer VoIP product offerings, specifically our Rapid Link service,
we recognize revenue in accordance with Emerging Issues Task Force ("EITF")
consensus No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables" which requires that revenue arrangements with multiple
deliverables be divided into separate units of accounting if the
deliverables in the arrangement meet specific criteria. In addition,
arrangement consideration must be allocated among the separate units of
accounting based on their relative fair values, with certain limitations.
The provisioning of the Rapid Link service with the accompanying desktop
terminal adapter or other customer premise equipment constitutes a revenue
arrangement with multiple deliverables. In accordance with the guidance of
EITF No. 00-21, we allocate Rapid Link revenues, including activation fees,
among the customer premise equipment and subscriber services. Revenues
allocated to the customer premise equipment are recognized as product
revenues at the end of 30 days after order placement, provided the customer
does not cancel their Rapid Link service. All other revenues are recognized
as license and service revenues when the related services are provided. We
defer the cost of goods sold of products sold for which the end customer
or distributor has a right of return. The cost of the products sold is
recognized, contemporaneously with the recognition of revenue, when the
subscriber has accepted the service. To date, our new VoIP product offerings
have generated insignificant revenues.

The Securities and Exchange Commission's Staff Accounting Bulletin No. 104,
"Revenue Recognition," provides guidance on the application of generally
accepted accounting principles to selected revenue recognition issues. We
have concluded that our revenue recognition policy is appropriate and in
accordance with generally accepted accounting principles and Staff
Accounting Bulletin No. 104.

Allowance for Uncollectible Accounts Receivable

We regularly monitor credit risk exposures in our accounts receivable and
maintain a general allowance for doubtful accounts based on historical
experience. Our receivables are due from commercial enterprises and
residential users in both domestic and international markets. In estimating
the necessary level of our allowance for doubtful accounts, we consider the
aging of our customers' accounts receivable and our estimation of each
customer's willingness and ability to pay amounts due, among other factors.
Should any of these factors change, the estimates made by management would
also change, which in turn would impact the level of the Company's future
provision for doubtful accounts. Specifically, if the financial condition of
the Company's customers were to deteriorate, affecting their ability to make
payments, additional customer-specific provisions for doubtful accounts may
be required. We review our credit policies on a regular basis and analyze
the risk of each prospective customer individually in order to minimize our
risk.

Purchase Price Allocations and Impairment Testing

We account for our acquisitions using the purchase method of accounting.
This method requires that the acquisition cost be allocated to the assets
and liabilities we acquired based on their fair values. We make estimates
and judgments in determining the fair value of the acquired assets and
liabilities. We base our determination on independent appraisal reports
as well as our internal judgments based on the existing facts and
circumstances. We record goodwill when the consideration paid for an
acquisition exceeds the fair value of net tangible and identifiable
intangible assets acquired. If we were to use different judgments or
assumptions, the amounts assigned to the individual assets or liabilities
could be materially different.

Long-lived assets, including the Company's customer lists, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets might not be recoverable. We assess our
goodwill for impairment annually or more frequently if impairment indicators
arise. In order to properly complete these assessments, we rely on a number
of factors, including operating results, business plans and anticipated
future cash flows. Actual results that vary from these factors could have
an impact on the amount of impairment, if any, that actually occurs.

Carrier Disputes

We review our vendor bills on a monthly basis and periodically dispute
amounts invoiced by our carriers. We review our outstanding disputes on a
quarterly basis as part of the overall review of our accrued carrier costs,
and adjust our liability based on management's estimate of amounts owed.

Stock Based Compensation

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised 2004),
"Share-Based Payment" ("Statement 123R"), which revised SFAS No. 123 and
supercedes APB Opinion No. 25. This revised accounting standard addresses
the accounting for share-based payment transactions with employees and
other third parties, eliminates the ability to account for share-based
compensation transactions with employees using APB Opinion No. 25 and
requires that the fair value of such share based payments be recognized in
the consolidated statement of operations. The revised statement is effective
as of the first interim or annual financial reporting period beginning after
December 15, 2005. The Company adopted the statement as of November 1, 2006,
applying the modified prospective method. The impact of adoption of SFAS No.
123R cannot be predicted at this time because it will depend on levels of
share-based payments granted in the future. However, had the Company adopted
SFAS No. 123R in prior periods, the impact of that standard would have
approximated the impact of SFAS No. 123 as described in the disclosure of
pro forma net loss and net loss per share in the company's stock-based
compensation policy note in the accompanying financial statements for the
period ended October 31, 2006.

Recent Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments," an amendment of SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," and SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." With respect to SFAS No. 133, SFAS No. 155
simplifies accounting for certain hybrid financial instruments by permitting
fair value remeasurement for any hybrid financial instrument that contains
an embedded derivative that otherwise would require bifurcation and
eliminates the interim guidance in Statement 133 Implementation Issue No.
D1, "Application of Statement 133 to Beneficial Interests in Securitized
Financial Assets," which provided that beneficial interests in securitized
financial assets are not subject to the provision of SFAS No. 133. With
respect to SFAS No. 140, SFAS No. 155 eliminates a restriction on the
passive derivative instruments that a qualifying special-purpose entity may
hold. SFAS No. 155 is effective for all financial instruments acquired or
issued after the beginning of an entity's first fiscal year that begins
after September 15, 2006. The Company does not expect adoption of SFAS No.
155 to significantly affect our financial condition or results of
operations.

In July 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"),
"Accounting for Uncertainty in Income Taxes," which prescribes a recognition
threshold and measurement process for recording in the financial statements
uncertain tax positions taken or expected to be taken in a tax return.
Additionally, FIN 48 provides guidance on derecognition, classification,
accounting in interim periods and disclosure requirements for uncertain tax
positions. The accounting provisions of FIN 48 will be effective for us
beginning November 1, 2007. The Company is in the process of determining
the effect, if any, the adoption of FIN 48 will have on our financial
statements.

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

The following table sets forth certain financial data and the percentage of
total revenues of the Company for the periods indicated (amounts in
thousands):

Year Ended October 31, Six Months Ended April 30,
--------------------------------------- --------------------------------------
2006 2005 2007 2006
----------------- ----------------- ----------------- -----------------
% of % of % of % of
Amount Revenue Amount Revenue Amount Revenue Amount Revenue
------- ------- ------- ------- ------- ------- ------- -------

Revenues ........................ $ 13,351 100.0 $ 9,827 100.0 $ 8,173 100.0 $ 4,107 100.0

Costs and expenses:
Costs of revenues .............. 9,644 72.2 7,713 78.5 5,951 72.8 3,141 76.5
Sales and marketing ............ 856 6.4 206 2.1 620 7.6 242 5.9
General and administrative ..... 3,596 27.0 3,228 32.8 1,847 22.6 1,391 33.8
Depreciation and amortization .. 748 5.6 557 5.7 478 5.9 204 5.0
Loss on disposal of property
and equipment ................ 57 0.4 (9) (0.1) 10 0.1 34 0.8
Net reductions of liabilities .. (2,301) (17.2) - - - - (810) (19.7)
Gain on legal settlement ....... - - (225) (2.3) - - - -
------- ------- ------- ------- ------- ------- ------- -------
Total costs and expenses ....... 12,600 94.4 11,470 116.7 8,906 109.0 4,202 102.3
------- ------- ------- ------- ------- ------- ------- -------
Operating loss .................. 751 5.6 (1,643) (16.7) (733) (9.0) (95) (2.3)
------- ------- ------- ------- ------- ------- ------- -------

Other income (expense):
Noncash interest expense ....... (1,443) (10.8) (651) (6.6) (660) (8.1) (510) (12.4)
Interest expense ............... (221) (1.6) - - (142) (1.7) (94) (2.3)
Related party interest expense.. (216) (1.6) (219) (2.3) (141) (1.7) (66) (1.6)
Foreign currency exchange gains. 18 0.1 10 0.1 4 0.1 23 0.6
Other .......................... - - - - 2 - - -
------- ------- ------- ------- ------- ------- ------- -------
Total other inc. (exp.), net ... (1,862) (13.9) (860) (8.8) (937) (11.4) (647) (15.7)
------- ------- ------- ------- ------- ------- ------- -------
Loss from continuing operations.. (1,111) (8.3) (2,503) (25.5) (1,670) (20.4) (742) (18.0)

Loss from discontinued operations - - (62) (0.6) - - - -
------- ------- ------- ------- ------- ------- ------- -------
Net loss ........................ $ (1,111) (8.3)% $ (2,565) (26.1)% $ (1,670) (20.4)% $ (742) (18.0)%
======= ======= ======= ======= ======= ======= ======= =======

Operating Revenues

Revenues increased from $9.8 million for fiscal 2005 to $13.4 million
for fiscal 2006, a 36% increase, which is primarily attributable to the
acquisition and inclusion of Telenational revenues since May 2006.

Revenues for the first six months of fiscal 2007 increased $4.1 million,
or 99.0%, as compared to the same period of fiscal 2006, which is primarily
attributable to the inclusion of Telenational revenues since the May 2006
acquisition of Telenational.

Costs of Revenues

Costs of revenues as a percentage of revenues decreased from 78% for fiscal
2005 to 72% for fiscal 2006. This decrease as a percentage of revenues was
primarily due to cost savings derived from the addition of alternative
carrier sources brought to the Company through the Telenational acquisition.

Costs of revenues for the first six months of fiscal 2007 increased $2.8
million, or 89.4%, as compared to the same period of fiscal 2006, which is
primarily attributable to the inclusion of Telenational costs of revenues
since the May 2006 acquisition of Telenational.

Costs of revenues as a percentage of revenues decreased approximately 3.7%
during the first six months of fiscal 2007 as compared to the same period
of fiscal 2006 due to cost savings derived from the addition of alternative
carrier sources brought to the Company through the Telenational acquisition.
As a majority of our costs of revenues are variable, based on per minute
transportation costs, costs of revenues as a percentage of revenues will
fluctuate, from quarter to quarter and year to year, depending on the
traffic mix between our wholesale and retail products and total revenue
for each year.

Sales and Marketing Expenses

A significant component of our revenue is generated by outside agents, a
small in-house sales force, and marketing through web portals and magazine
advertising, which is managed by a small in-house sales and marketing
organization.

Our sales and marketing costs increased from 2% of revenues for fiscal
2005 to 6% of revenues fiscal 2006. This increase is attributable to higher
marketing costs and agent commissions attributed to Telenational during the
current fiscal period. During fiscal 2006, we focused our attention on
increasing revenues through the efforts of our agents, and the marketing
initiatives previously noted. We will continue to focus our sales and
marketing efforts on web portal and magazine advertising, the establishment
of distribution networks to facilitate the introduction and growth of new
products and services, and agent related expenses to generate additional
revenues.

Sales and marketing expenses for the first six months of fiscal 2007
increased $378,000, or 155.9%, as compared to the same period of fiscal
2006. This increase resulted from higher marketing costs and agent
commissions attributed to Telenational during the current fiscal periods,
offset by less spending on web portal and magazine ads in the first six
months of fiscal 2007 and unusually high sales and marketing costs incurred
by Rapid Link during the first quarter of fiscal 2006 due to additional
personnel and other costs resulting from the November 2005 acquisition of
the Integrated Telecommunications, Inc. customer base.

General and Administrative Expenses

Our general and administrative expenses decreased from 33% of revenues for
fiscal 2005 to 27% for fiscal 2006. General and administrative expenses only
increased $368,000, or 11% during fiscal 2006 as compared to fiscal 2005,
even with the addition of personnel and other costs related to the
Telenational acquisition, because (i) the Company was able to quickly
eliminate duplicate costs between the combined entities, (ii) bad debt
expenses decreased significantly, and (iii) expenses were incurred in fiscal
2005 without corresponding amounts in fiscal 2006 related to warrants issued
for services.

General and administrative expenses for the first six months of fiscal 2007
increased $456,000, or 32.9%, as compared to the same period of fiscal 2006.
However, year-to-date general and administrative expenses decreased from
33.8% of revenues for fiscal 2006 to 22.6% for the same period of fiscal
2007. General and administrative expenses only increased by 32.9% during the
first six months of fiscal 2007, as compared to the same period of fiscal
2006, even with the addition of personnel and other costs related to the
Telenational acquisition, because the Company was able to quickly eliminate
duplicate costs between the combined entities, primarily related to salaries
and corresponding benefits, as well as rent, telephone and utility cost
reductions resulting from the closure of a couple of office locations.

We review our general and administrative expenses regularly and continue to
manage the costs accordingly to support our current and anticipated future
business; however it may be difficult to achieve significant reductions in
future periods due to the relatively fixed nature of many general and
administrative expenses.

Depreciation and Amortization

Although a large portion of our assets still in use have become fully
depreciated, depreciation and amortization costs increased (1) due to
the assets acquired when we purchased Telenational in fiscal 2006 and (2)
because we recorded $422,000 in amortization of customer lists during fiscal
2006 with no corresponding expense during fiscal 2005.

Depreciation and amortization expenses for the first six months of fiscal
2007 increased $274,000, or 134.2%, as compared to the same period of fiscal
2006. Fixed assets have steadily been reaching the end of their useful
lives. Although a large portion of our fixed assets still in use are fully
depreciated, depreciation and amortization costs increased due to (1)
amortization of Telenational customer lists during the first six months of
fiscal 2007 ($175,000 per quarter) with no corresponding expense during the
same period of fiscal 2006 and (2) depreciation of fixed assets acquired as
part of the May 2006 purchase of Telenational.

A majority of our depreciation expense relates to the equipment utilized in
our VoIP network.

Net Reductions of Liabilities

During fiscal 2006, the Company determined, based on a review of applicable
statute of limitations regulations and/or current correspondence with
vendors, that approximately $2,301,000 of liabilities, including $1,435,000
in carrier costs that were previously accrued, are no longer due and
payable. Accordingly, this amount has been recorded as "Net reductions
of liabilities" during fiscal 2006.

Gain on Legal Settlement

On July 20, 2004, we filed a suit against Q Comm International, Inc. ("Q
Comm"), claiming damages resulting from the breach of a purchase agreement
on the part of Q Comm relating to the sale of the Company's internally
developed equipment for the prepaid telecommunications industry. During
fiscal 2005, the Company entered into a Settlement and Release Agreement
with Q Comm. The Agreement releases Q Comm from any and all claims in
connection with the Company's lawsuit against Q Comm. In connection with the
Settlement and Release Agreement, the Company agreed to a cash settlement of
$225,000, which was received in fiscal 2005 and recorded this amount as a
"Gain on legal settlement."

Noncash Interest Expense, Interest Expense and Related Party Interest

Noncash interest expense results from the amortization of deferred financing
fees and debt discounts on our debts to third party lenders and related
parties. The increase in interest expense for fiscal 2006 as compared to
fiscal 2005 primarily resulted from the extension of the maturity dates of
our convertible debt instruments with our third party and related party
lenders, debt issued in connection with the acquisition of Telenational,
and additional borrowings during fiscal 2006. Interest expense includes
amortization of deferred financing fees and debt discount on our debts to
third-party lenders and related parties. Interest expense for fiscal 2006
and 2005 included interest expense of approximately $216,000 and $219,000,
respectively, on our debt obligations to related parties.

Noncash interest expense and interest expense for the first six months of
fiscal 2007 increased $198,000, or 32.9%, as compared to the same period
of fiscal 2006. Related party interest expense for the first six months of
fiscal 2007 increased $75,000, or 111.1%, as compared to the same period of
fiscal 2006. The increases in noncash interest expense, interest expense and
related party interest expense resulted primarily from the additional
financing fees and/or debt discount recorded related to the extension of the
maturity dates of our convertible debt instruments with our third party and
related party lenders during fiscal 2006 and the second quarter of fiscal
2007, debt issued in connection with the acquisition of Telenational, and
additional borrowings during fiscal 2006.

Income (loss) from discontinued operations

Prior to fiscal 2005, we determined that we had a liability, incurred
by a former operating subsidiary, to the State of Texas for sales taxes
(including penalties and interest) totaling $1.1 million, which we accrued.
In August 2005, the State of Texas filed a lawsuit in the 53rd Judicial
District Court of Travis County, Austin, Texas against the Company. The
lawsuit requests payment of approximately $1,162,000 including penalties and
interest for state and local sales taxes. During fiscal 2005, we accrued an
additional amount of $62,000. The State of Texas determined that we did not
properly remit sales tax on certain transactions. Management believes that
the amount due has been improperly assessed and will continue to pursue a
lesser settlement amount, though we cannot assure you that this matter will
be resolved in our favor.

Liquidity and Sources of Capital

Our major growth areas are anticipated to include the establishment of
additional wholesale points of termination to offer our existing wholesale
and retail customers, and the introduction of new retail VoIP products,
primarily our new Rapid Link products both domestically and internationally.
Our future operating success is dependent on our ability to generate
positive cash flow from our VoIP and other lines of products and services.
We do not have any capital equipment commitments during the next twelve
months. We are actively pursuing debt or equity financing opportunities to
continue our business. Any failure of our business plan, including the risk
and timing involved in rolling out retail products to end users, could
result in a significant cash flow crisis and could force us to seek
alternative sources of financing as discussed, or to greatly reduce or
discontinue operations. Although various possibilities for obtaining
financing or effecting a business combination have been discussed from time
to time, there are no agreements with any party to raise money or for us
to combine with another entity and we cannot assure you that we will be
successful in our search for investors or lenders. Any additional financing
we may obtain may involve material and substantial dilution to existing
stockholders. In such event, the percentage ownership of our current
stockholders will be materially reduced, and any new equity securities sold
by us may have rights, preferences or privileges senior to our current
common stockholders.

To date we have been generally unable to achieve positive cash flow on a
quarterly basis primarily due to the fact that our present lines of business
do not generate a volume of business sufficient to cover our overhead costs.
Our audit report includes an explanatory paragraph indicating substantial
doubt about our ability to continue as a going concern. At April 30, 2007,
we had cash and cash equivalents of $319,000, a significant increase as
compared to cash and cash equivalents of $30,000 at October 31, 2006.
However, we had working capital deficits at April 30, 2007 and October 31,
2006 of $10.1 million and $4.7 million, respectively.

Net cash provided by operating activities during the first six months of
fiscal 2007 was $428,000 as compared to cash used in operating activities of
$886,000 during the same period of fiscal 2006. During the first six months
of fiscal 2007, to compute operating cash flows, our net loss of $1,670,000
was positively adjusted for noncash interest expense of $661,000,
depreciation and amortization of $478,000, bad debt expense of $60,000,
share-based compensation expense of $12,000, loss on disposal of fixed
assets of $10,000, and net changes in operating assets and liabilities of
$878,000. During the first six months of fiscal 2006, to compute operating
cash flows, our net loss of $742,000 was positively adjusted for noncash
interest expense of $510,000, depreciation and amortization of $204,000, and
loss on disposal of fixed assets of $34,000, offset by the gain on reduction
of liabilities of $810,000, reduction of bad debt expense of $25,000, and
net changes in operating assets and liabilities of $57,000.

Net cash used in operating activities was $1,035,000 and $310,000 during
fiscal 2006 and 2005, respectively. Net cash used in operating activities
during fiscal 2006 was primarily due to a net loss from continuing
operations of $1,111,000 adjusted for: non-cash interest expense of
$1,447,000; depreciation and amortization of $748,000; bad debt expense
of $136,000; loss on disposal of fixed assets of $57,000; offset by net
reduction of liabilities of $2,301,000 and net changes in operating assets
and liabilities of $11,000. During fiscal 2005, net cash used in operating
activities was primarily due to a net loss from continuing operations of
$2,503,000; non-cash interest expense of $526,000; depreciation and
amortization of $557,000; bad debt expense of $365,000; common stock and
warrants issued for services of $206,000; net changes in operating assets
and liabilities of $548,000; offset by gain on settlement of liabilities of
$9,000.

Net cash used in investing activities was $300,000 and $32,000 during fiscal
2006 and 2005, respectively. Net cash used in investing activities during
fiscal 2006 resulted from property and equipment purchases of $208,000 and
payment of Telenational contingent purchase consideration of $250,000,
offset by cash acquired in the Telenational acquisition of $158,000. Net
cash used in investing activities during fiscal 2005 resulted from $27,000
of property and equipment purchases, and $15,000 in Integrated acquisition
costs, offset by $10,000 in proceeds from the sale of fixed assets.

Net cash used in financing activities during the first six months of fiscal
2007 was $137,000, resulting from the reduction of bank overdrafts that
existed at October 31, 2006, and payment of $36,000 on a related party note,
as compared to cash provided by financing activities of $956,000 during the
same period of fiscal 2006, which represented proceeds received from
convertible debentures, net of financing fees. Also during the first six
months of fiscal 2006, the Company received $500,000 in proceeds from a
temporary loan from our chief executive officer, which was repaid during
that same time period using proceeds from the convertible debentures.

Net cash provided by financing activities was $1,193,000 during fiscal 2006
compared to net cash used in financing activities of $72,000 during fiscal
2005. Net cash provided by financing activities during fiscal 2006 resulted
from additional convertible debentures of $1,000,000, bank overdrafts of
$101,000 and a net cash infusion of $300,000 from related parties, offset
by debt and financing fee payments totaling $208,000. Net cash used in
financing activities during fiscal 2005 resulted from payments on
convertible debt.

We have an accumulated deficit of approximately $51.5 million as of April
30, 2007 as well as a significant working capital deficit. Funding of our
working capital deficit, current and future operating losses, and expansion
will require continuing capital investment, which may not be available to
us. Although to date we have been able to arrange the debt facilities and
equity financing described below, there can be no assurance that sufficient
debt or equity financing will continue to be available in the future or that
it will be available on terms acceptable to us. As of April 30, 2007, we
have approximately $2.9 million of convertible debentures (net of debt
discount of $384,000), convertible notes to related parties of $1.9 million
(net of debt discount of $27,000) and notes payable to related parties of
approximately $1.3 million, all of which are scheduled to mature within the
next year, as well as a significant amount of trade payables and accrued
liabilities that are past due. We were current on all but $30,000 of our
debt obligations at April 30, 2007. However, the remaining contingent
purchase consideration of $500,000 owed to Apex Acquisitions, Inc. was
past due at April 30, 2007. We continue to explore external financing
opportunities that will allow us to either convert our outstanding debt
obligations into the new financing and/or pay down a portion or all of the
amounts now due. Our management is committed to the success of our Company
as is evidenced by the level of financing it has made available to our
Company. However, if we are unable to obtain additional financing or extend
the due date on current financing, our operations and financial condition in
the short term may be materially affected, and we likely would not be able
to remain in business during the next twelve months. As a result of the
aforementioned factors and related uncertainties, there is significant doubt
about our Company's ability to continue as a going concern.

Our current capital expenditure requirements are not significant, primarily
due to the equipment acquired from Telenational and the subsequent
consolidation of operating facilities into one operational facility. We
currently do not plan significant capital expenditures during the rest of
fiscal 2007 or in fiscal 2008.

Debt Facilities and Equity Financing

Debt at October 31, 2006

The Company has various debt obligations as of October 31, 2006 and 2005,
including amounts due to independent institutions and related parties.
Descriptions of these debt obligations are included below. The following
table summarizes outstanding debt as of October 31, 2006:

Information as of October 31, 2006
---------------------------------------------------------------------------
Brief Description of Int.
Debt Balance Rate Due Date Discount Net
---------------------------------------------------------------------------

Convertible notes, current
--------------------------
GC-Conote2 $ 60,000 0% 3/30/2007 10,000 $ 50,000
Debentures 1,000,000 10% 3/8/2007 333,333 666,667

Related party notes, current
----------------------------
Demand Note 300,000 8% on demand - 300,000
APEX Note 2 322,633 8% 7/15/2007 - 322,633

Convertible notes, long-term
----------------------------
GCA-Debenture 430,000 6% 11/1/2007 - 430,000
GCA-Debenture 552,457 6% 11/1/2007 4,247 548,210
GC-Conote 1,250,000 10.08% 2/28/2008 606,061 643,939

Related party conv. notes, long-term
------------------------------------
Notes (Executives) 1,905,078 10% 2/28/2008 44,120 1,860,958

Related party note, long-term
-----------------------------
APEX Note 1 1,000,000 8% 11/5/2007 - 1,000,000

GCA-Debentures

The Company has two 6% convertible debentures (the "GCA-Debentures") with
GCA Strategic Investment Fund Limited ("GCA"). The GCA-Debentures are
secured by the Company's VoIP technology and certain equipment. The Company
issued to the holder of the GCA-Debentures warrants to acquire an aggregate
of 50,000 shares of common stock at an exercise price of $0.41 per share,
which expire on January 28, 2007. In connection with an agreement to extend
the maturity date of the GCA-Debenture, the Company issued to GCA warrants
to purchase an additional 100,000 shares of common stock also at an exercise
price of $0.21 per share, which expire on February 8, 2008.

On June 1, 2005, the Company and GCA agreed to extend the maturity date of
the two GCA-Debentures. The maturity dates were extended to November 26,
2005. In connection with the extension, the Company issued GCA warrants to
acquire 110,000 shares of common stock at an exercise price of $0.11 and
300,000 warrants to acquire the Company's common stock at an exercise price
of $0.38. These warrants expire in June 2010. The Company recorded $163,151
as debt discount, representing the fair value of the warrants on June 1,
2005. This amount was calculated using the Black-Scholes pricing model with
the following assumptions: applicable risk-free interest rate based on the
current treasury-bill interest rate at the grant date of 4%; dividend yields
of 0%; volatility factors of the expected market price of the Company's
common stock of 1.64; and an expected life of the warrants of three years.
The debt discount is being amortized over the extension period of the
convertible debenture. In addition, the Company issued to GCA 140,000 shares
of common stock valued at $0.45 per share, the Company's closing stock price
on June 1, 2005, the date of issuance. In connection with the stock
issuance, the Company recorded debt discount which is being amortized over
the extension period of the convertible debenture.

On September 14, 2006, the Company and GCA amended the GCA-Debentures to
extend the maturity date of the GCA-Debentures to November 1, 2007, and
stipulate that the conversion price of the Company's common stock is not
to be lower than $0.10 and not to exceed $0.25. In connection with the
amendment, the Company re-priced all warrants held by GCA to an exercise
price of $0.05 and extended the maturity of the warrants to June 1, 2010.
Incremental debt discount amounts associated with the fiscal 2006 amendments
were not material. During fiscal 2006 and 2005, GCA converted GCA-Debenture
debt and accrued interest of approximately $31,000 and $43,000,
respectively, into approximately 407,000 and 352,000 shares, respectively,
of common stock.

GC-Note, GC-Conote and GC-Conote2

In November 2002, the Company executed a 12% note payable secured by certain
compression equipment (the "GC-Note") with Global Capital Funding Group,
L.P., ("Global") The Company issued to the holder of the GC-Note warrants to
acquire an aggregate of 500,000 shares of common stock at an exercise price
of $0.14 per share, which expire on November 8, 2007.

On June 1, 2005, the Company and Global agreed to extend the maturity date
of the GC-Note to February 29, 2008. In connection with the extension, the
GC-Note was converted to a 10.08% Convertible Note ("GC-Conote"). The
conversion price is equal to 80% of the average of the three lowest volume
weighted average sales prices as reported by Bloomberg L.P. during the
twenty Trading Days immediately preceding the related Notice of Conversion
(the "Formula Conversion Price"). The Company calculated the beneficial
conversion feature embedded in the GC-Conote in accordance with EITF 98-5
and EITF 00-27 and recorded $1,013,032 as debt discount. This debt discount
is being amortized over the life of the GC-Conote. The Company also issued
to the holder of the GC-Conote warrants to acquire an aggregate of 500,000
shares of common stock at an exercise price of $0.38, and 125,000 warrants
to purchase common stock at $0.11 per share, both warrants expiring in June
2010. The Company recorded $200,498 as debt discount, the relative fair
value of the warrants on June 1, 2005. This amount was calculated using the
Black-Scholes pricing model with the following assumptions: applicable risk-
free interest rate based on the current treasury-bill interest rate at the
grant date of 4%; dividend yields of 0%; volatility factors of the expected
market price of the Company's common stock of 1.64; and an expected life of
the warrants of three years. The debt discount is being amortized over the
life of the GC-Conote. In addition, the Company issued to Global 100,000
shares of common stock valued at $0.45 per share, the Company's closing
stock price on June 1, 2005, the date of issuance. The Company recorded
$36,469 as debt discount, the relative fair value of the stock issued,
which it is amortizing over the life of the GC-Conote.

On September 14, 2006, the Company and Global amended the GC-Conote to
extend the maturity date of the GC-Conote to November 1, 2007, and stipulate
that the conversion price of the Company's common stock is not to be lower
than $0.10 and not to exceed $0.25. In connection with the amendment, the
Company re-priced all warrants held by GCA to an exercise price of $0.05
and extended the maturity of the warrants to June 1, 2010. Incremental
debt discount amounts associated with the fiscal 2006 amendments were not
material.

In connection with the extension of the maturity date of the GC-Note, the
interest due on the GC-Note of approximately $350,000 as of May 31, 2005,
was converted to a $400,000 non-interest bearing convertible note payable
(the "GC-Conote2) to Global. The GC-Conote2 requires quarterly payments of
$50,000 on the last day of March, June, September and December of each year
until the March 31, 2007 maturity date, commencing on June 30, 2005. In
addition, the GC-Conote2 provides for conversion based on a conversion price
equal to 80% of the average of the three lowest volume weighted average
sales prices as reported by Bloomberg L.P. during the twenty trading days
immediately preceding the related Notice of Conversion (the "Formula
Conversion Price"). The Company calculated the beneficial conversion feature
embedded in the GC-Conote2 in accordance with EITF 98-5 and EITF 00-27 and
recorded approximately $350,000 as debt discount. This debt discount is
being amortized over the life of the GC-Conote2. The approximate $50,000
difference between the accrued interest at May 31, 2005 and the value of the
GC-Conote2 represents a financing fee and was recorded as debt discount and
is being amortized over the life of the GC-Conote2. During fiscal 2006 and
2005, GCA elected to convert $165,000 of the GC-Conote2 into approximately
2,303,000 shares of common stock and $75,000 of the GC-Conote into
approximately 656,000 shares of common stock, respectively.

Debentures

On March 8, 2006, the Company completed a private placement of two one-year
10% convertible debentures ("Debentures"), for gross proceeds of $1,000,000
maturing March 8, 2007. The Debentures are secured by assets of the Company
not already secured by the GCA or Global notes. In connection with the
Debentures, the Company agreed to issue the investors a total of 2,000,000
immediately exercisable five-year warrants to purchase the Company's common
stock at an exercise price of $0.14 for 1,000,000 warrants, and $0.25 for an
additional 1,000,000 warrants. The Company paid $44,150 in financing fees in
connection with the debentures which were recorded as a discount on the
debentures. Additionally, in connection with these Debentures, the Company
recorded debt discount of $955,850 related to the fair value of warrants
issued and the related beneficial conversion feature that it is amortizing
over the life of the Debentures. The fair value of the warrants was
calculated using the Black-Scholes pricing model with the following
assumptions: applicable risk-free interest rate based on the current
treasury-bill interest rate at the grant date of 4%; dividend yield of 0%;
volatility factor of the expected market price of the Company's common stock
of 1.65; and an expected life of the warrants of three years.

Related Party Notes

The Company executed 10% convertible notes (the "Notes") with three
executives (the "Executives") of the Company. Two of the Executives
subsequently resigned from the Company and one remains on the Company's
Board of Directors. The Note held by the director was paid in full during
fiscal 2005. The Notes are secured, on a subordinated basis to the holders
of the Debentures, by assets of the Company not already secured by the GCA
or Global notes. Each Note is convertible into the Company's common stock at
the option of the holder at any time. The Company issued to the holders of
the Notes warrants to acquire an aggregate of 1,945,958 shares of common
stock at an exercise price of $0.78 per share, which expired on October 24,
2006, warrants to acquire an additional 102,432 shares of common stock at
an exercise price of $0.75, which expire on January 28, 2007, warrants to
acquire an additional 300,000 shares of common stock at an exercise price
of $0.75, which expire on July 8, 2007.

On July 21, 2005, the Company and the Executives agreed to extend the
maturity date of the Notes to February 29, 2008. In connection with the
extension, the Company issued to the three executives warrants to acquire
640,000 shares of common stock at an exercise price of $0.16. The warrants
expire in July 2010. The Company recorded $88,238 as debt discount, the fair
value of the warrants on July 21, 2005. This amount was calculated using the
Black-Scholes pricing model with the following assumptions: applicable risk-
free interest rate based on the current treasury-bill interest rate at the
grant date of 4%; dividend yields of 0%; volatility factors of the expected
market price of the Company's common stock of 1.65; and an expected life of
the warrants of three years. The debt discount is being amortized over the
extension period of the Notes. During fiscal 2005, holders of the Notes
elected to convert $467,500 of the Notes into 3,740,000 shares of common
stock. The Company recorded debt discount amortization, which is recorded as
related party interest expense, of $33,000 and interest expense of $100,000
on these Notes during fiscal 2006.

During fiscal 2006, the Company's Chief Executive Officer, John Jenkins,
advanced funds to the Company in the aggregate amount of $550,000 which was
repaid in full using proceeds from the Debentures financing. On September
18, 2006, Mr. Jenkins advanced an additional $300,000 to the Company, which
is classified as a current demand note (the "Demand Note"). On September 14,
2006, Mr. Jenkins agreed to covert all unpaid interest on his Note in the
amount of $901,688 to the principal balance of his Note under the same terms
as the existing Note. The Company recorded interest expense during fiscal
2006 of $25,000 on Mr. Jenkins' additional fiscal 2006 debt, which includes
interest on the amount converted to principal and the Demand Note.

On May 5, 2006 the Company acquired the stock of Telenational. As a
component of the total purchase price, an 18-month note payable in the
amount of $1,000,000 bearing 8% interest annually ("APEX Note 1") was
issued to the seller of Telenational, Apex Acquisitions, Inc. ("APEX").
The Company's Chief Financial Officer, Chris Canfield, is the majority
shareholder of APEX. This Note is secured by 100% of the Telenational common
stock. The Company recorded $40,000 in interest expense on APEX Note 1
during fiscal 2006.

Debt at April 30, 2007

The Company has various debt obligations as of April 30, 2007, including
amounts due to independent institutions and related parties. No new debt
obligations were incurred during the first six months of fiscal 2007. The
following tables summarize outstanding debt as of April 20, 2007:

INFORMATION AS OF APRIL 30, 2007
---------------------------------------------------------------------------
Description Balance Int. Rate Due Date Discount Net
---------------------------------------------------------------------------

Convertible notes, current
--------------------------
GC-Conote2 $ 30,000 0% on demand $ - $ 30,000
GCA-Debenture 430,000 6% 11/1/2007 - 430,000
GCA-Debenture 552,457 6% 11/1/2007 - 552,457
GC-Conote 1,250,000 10.08% 2/28/2008 378,788 871,212
Debentures 1,000,000 10% 3/8/2008 - 1,000,000

Related party conv. notes, current
----------------------------------
Notes (Executives) 1,905,078 10% 2/28/2008 27,574 1,877,504

Related party notes, current
----------------------------
Exec. Demand Note 300,000 8% on demand - 300,000
APEX Note 1 1,000,000 8% 11/5/2007 - 1,000,000
APEX Note 2 45,101 8% 7/15/2007 - 45,101

Debentures totaling $1,000,000 with an original March 8, 2007 maturity date
were extended during the second quarter of fiscal 2007 to March 8, 2008. The
term of the original 2,000,000 warrants to purchase common stock at exercise
prices of $.14 and $.25 per share issued related to these Debentures was
extended by one year, which had an insignificant financial impact. In
connection with the extension, however, 2,000,000 additional warrants were
issued, resulting in deferred financing fees of $139,000, of which $20,000
was expensed as noncash interest expense in the second quarter of fiscal
2007. The fair value of the warrants was determined on the date of grant
using the Black-Scholes pricing model with the following assumptions:
applicable risk-free interest rate based on the current treasury-bill
interest rate of 4.5%; volatility factor of the expected market price of
the Company's common stock of 2.87; and an expected life of the warrants of
four years. Remaining deferred financing fees, classified as other current
assets, will be amortized through March 8, 2008. In connection with these
Debentures, the lenders are entitled to an additional 50,000 warrants
monthly to purchase common stock at an exercise price of $.10 per share,
which vest and are exercisable each fiscal quarter until the Debentures are
paid in full. The fair value of these additional warrants is calculated on
the date earned using the Black-Scholes pricing model using applicable
risk-free interest rates based on current treasury-bill interest rates;
volatility factors of the expected market price of the Company's common
stock over the expected term; and an expected life of the warrants of four
years. The Company records noncash interest expense and a corresponding
accrued liability for the fair value of the shares earned. At the time the
warrants are issued, the accrued liability will be reversed against
additional paid-in capital.

The Company has two 6% convertible debentures totaling $982,457 with
maturity dates of November 1, 2007 (the "GCA-Debentures") with GCA Strategic
Investment Fund Limited ("GCA") that became current liabilities during the
first six months of fiscal 2007. During the second quarter of fiscal 2007,
GCA elected to convert $30,000 of the GC-Conote2 into approximately 622,000
shares of common stock. The remaining $30,000 owed on the GC-Conote2 became
due on March 31, 2007 and is currently due on demand.

An 8% related party note payable to APEX that is due on November 5, 2007 in
the amount of $1,000,000 ("Apex Note 1") became a current liability during
the first six months of fiscal 2007. The Company's Chief Financial Officer,
Chris Canfield, is the majority shareholder of APEX. Additionally, two 10%
related party notes that are payable (1) to the Company's CEO and (2) to a
former officer of the Company that are due on February 28, 2008 in the
combined amount of $1,905,078 ("the Executive Notes") became current
liabilities during the first six months of fiscal 2007.

During fiscal 2006, in conjunction with, but unrelated to the total purchase
consideration paid for Telenational, the Company issued an 8% note payable
to APEX in the original amount of $436,560 ("APEX Note 2"). APEX Note 2 was
payable in 12 equal monthly payments of principal and interest until fully
satisfied in July 2007. However, the Company reclassified certain amounts on
its October 31, 2006 consolidated balance sheet to apply a $250,000 payment
made to APEX in October 2006 against APEX Note 2 (at the request of
APEX management) rather than as a reduction of accrued purchase price
consideration owed related to the acquisition of Telenational. The Company
has $45,101 remaining on APEX Note 2 at April 30, 2007.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In October 2001, we issued 10% convertible notes (the "Notes") to two of our
executive officers and one director (the "Related Parties"), each of whom
was also a director, who provided financing to our Company in the aggregate
principal amount of $1,945,958. The Notes were issued as follows: (i) a note
in the principal amount of $1,745,958 to John Jenkins, our Chief Executive
Officer; (ii) a note in the principal amount of $100,000 to our former
Executive Vice President and Chief Financial Officer; and (iii) a note in
the principal amount of $100,000 to Lawrence Vierra, a director. With an
original maturity date of October 24, 2003, these Notes were amended to
mature on February 24, 2004. Each Note was originally convertible at six-
month intervals only, but was subsequently amended in November 2002 to
provide for conversion into shares of our common stock at the option of the
holder at any time. The conversion price is equal to the closing bid price
of our common stock on the last trading day immediately preceding the
conversion. We also issued to the holders of the Notes warrants to acquire
an aggregate of 1,945,958 shares of common stock at an exercise price of
$0.75 per share, which warrants expire on October 24, 2006.

In January and July 2002, the Notes issued to Mr. Jenkins were amended to
include additional advances in the aggregate principal amount of $402,443.
We also issued to Mr. Jenkins two warrants to acquire an additional 102,443
and 300,000 shares of common stock, respectively, at an exercise price of
$0.75, which warrants expire on January 28, 2007 and July 8, 2007,
respectively.

On July 21, 2005, our Company and the Related Parties agreed to extend the
maturity date of the Notes to February 29, 2008. In connection with the
extension, we issued to the Related Parties warrants to acquire 640,000
shares of common stock at an exercise price of $0.16. The warrants expire
in July 2010. In September 2005 and 2004, respectively, the holders of the
Notes converted a total aggregate of $467,500 and $877,500, respectively,
of the outstanding principal into an aggregate of 3,740,000 and 6,750,000,
respectively, of shares of common stock. On September 14, 2006, Mr. Jenkins
agreed to convert all unpaid interest on his Note in the amount of $901,688
to the principal balance of his Note. The outstanding balance of these
Notes, including the converted interest amount, was $1,905,078 at October
31, 2006 and April 30, 2007.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market for the Company's Common Stock

The Company's common stock, $0.001 par value, is quoted on the OTC Bulletin
Board under the trading symbol "RPID." Each share ranks equally as to
dividends, voting rights, participation in assets on winding-up and in all
other respects. No shares have been or will be issued subject to call or
assessment. There are no preemptive rights, provisions for redemption or
for either cancellation or surrender or provisions for sinking or purchase
funds.

The following table sets forth, for the fiscal periods indicated, the high
and low closing sales price per share of our common stock as reported on the
OTC Bulletin Board:

High Low
------ -----
Fiscal Year Ended October 31, 2007
----------------------------------
Second Quarter. . . . . . . . . . . $ 0.09 $ 0.06
First Quarter . . . . . . . . . . . $ 0.10 $ 0.06

Fiscal Year Ended October 31, 2006
----------------------------------
Fourth Quarter. . . . . . . . . . . $ 0.12 $ 0.07
Third Quarter . . . . . . . . . . . $ 0.20 $ 0.09
Second Quarter. . . . . . . . . . . $ 0.38 $ 0.12
First Quarter . . . . . . . . . . . $ 0.19 $ 0.08

Fiscal Year Ended October 31, 2005
----------------------------------
Fourth Quarter. . . . . . . . . . . $ 0.20 $ 0.11
Third Quarter . . . . . . . . . . . $ 0.51 $ 0.14
Second Quarter. . . . . . . . . . . $ 0.40 $ 0.18
First Quarter . . . . . . . . . . . $ 0.68 $ 0.10

The market quotations presented reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not necessarily reflect actual
transactions.

The closing price for our common stock on July 31, 2007, as reported on the
OTC Bulletin Board, was $0.08.

Dividends

We have never declared or paid any cash dividends on our common stock and do
not presently intend to pay cash dividends on our common stock in the
foreseeable future. We intend to retain future earnings for reinvestment in
our business.

Holders of Record

There were 476 stockholders of record as of July 31, 2007.

Recent Sales of Unregistered Securities

On June 15, 2007, Rapid Link entered into a Common Stock Purchase Agreement
with Westside Capital, LLC whereby the Company sold 357,143 shares of its
common stock to the Investor for a purchase price of $25,000 and issued to
the Investor Warrants to purchase up to an additional 50,000,000 shares of
the Registrant's common stock at exercise prices as follows: 20,000,000
Warrant Shares exercisable at $0.10 per share; 15,000,000 Warrant Shares
exercisable at $0.20 per share; and 15,000,000 Warrant Shares exercisable at
$0.30 per share. Investor represented that it was an "accredited" investor
as defined under Rule 144 of the Securities Act of 1933, as amended. We
relied upon the exemption from registration as set forth in Section 4(2) of
the Securities Act and/or Rule 506 of Regulation D for the issuance of these
securities. The recipient represented that it took such securities for
investment purposes without a view to distribution and had access to
information concerning us and our business prospects, as required by
the Securities Act. In addition, there was no general solicitation or
advertising for the sale of these securities.

During the second quarter of fiscal 2007, GCA Strategic Investment Fund
Limited elected to convert $30,000 of the GC-Conote2 into approximately
622,000 shares of common stock. We relied upon the exemption from
registration as set forth in Section 4(2) of the Securities Act and/or
Rule 506 of Regulation D for the issuance of these securities. The recipient
represented that it took such securities for investment purposes without
a view to distribution and had access to information concerning us and our
business prospects, as required by the Securities Act. In addition, there
was no general solicitation or advertising for the sale of these securities.

EXECUTIVE COMPENSATION

Summary of Compensation

The following table summarizes compensation we paid for services rendered to
our Company during the fiscal years ended October 31, 2006, 2005 and 2004 to
our chief executive officer, any executive officer with a total salary and
bonus exceeding $100,000 during fiscal 2006, and all other executive
officers as of October 31, 2006 (the "Named Executive Officers").

Non- Nonquali-
Equity fied
Incentive Deferred
Plan Compen-
Stock Option Compen- sation All Other
Name and Salary Bonus Awards Awards sation Earnings Compen- Total
Principal position Year ($)(1) ($) ($) ($) ($) ($) sation ($) ($)
-------------------- ---- -------- ----- ------ ------ ------- -------- ---------- -----

John A. Jenkins,
Chairman and Chief
Executive Officer 2006 $ 150,000 _ _ $ 0 _ _ $11,758(2) $ 161,758
2005 $ 150,000 150,000

David R. Hess,
President 2006 135,000 61,885 (3) 15,000(4) 211,885
2005 40,000 10,000(4) 50,000

Christopher J.
Canfield,
President and Chief
Financial Officer(7) 2006 100,000 36,603(5) 136,603

Michael P. Prachar 2006 100,000 10,197(6) 110,197
Chief Operating
Officer(7)

(1) Messers. Canfield and Prachar earn an annual salary of $150,000, but
did not receive this amount from Rapid Link during fiscal 2006 as they
were executive officers of Telenational, which was acquired in May
2006. No other person that served as an executive officer during
fiscal 2006 earned a total salary and bonus exceeding $100,000 during
fiscal 2006.

(2) Includes contributions of $5,192.00 to Mr. Jenkins' 401(k) Retirement
Plan and $6,566 for health insurance payments.

(3) Amounts in this column represent the dollar amount recognized for
financial statement reporting purposes in accordance with FAS123R
(but disregarding any estimate of forfeitures relating to service-based
vesting conditions) relating to an issuance of warrants to purchase
1,000,000 shares at $0.13 per share.

(4) This amount consists of a car allowance for Mr. Hess.

(5) Includes contributions of $26,406 to Mr. Canfield's 401(k) Retirement
Plan and $10,197 for health insurance payments.

(6) Includes $10,197 for health insurance payments.

(7) Mr Canfield and Mr. Prachar earned $100,000 for 2006 because each
commenced employment with our Company after our 2006 fiscal year had
began.

The following table sets forth certain information concerning stock option
awards granted to our executive officers and our directors. No options were
exercised by our executive officers or directors during the last fiscal
year.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

OPTION AWARDS STOCK AWARDS
---------------------------------------------------------------------------- --------------------------------------------
Equity
incentive
Equity plan
incentive awards:
plan Market or
Equity awards: payout
Incentive number of value of
Plan Awards: Market unearned unearned
Number of Number of Number of value of shares, shares,
Number of securities Securities shares or shares or units or units or
securities underlying underlying units of units of other other
underlying unexercised unexercised Option stock that stock that rights rights that
unexercised options (#) unearned exercise Option have not have not that have have not
options (#) Unexercis- options price expiration vested vested not vested vested
Name Exercisable able (#) ($) date (#) ($) (#) (#)
---------------- ----------- ------------ ----------- -------- --------- ------------ -------- --------- ----------

John Jenkins (1) 100,000 0.14 6/14/2014
David Hess
Chris Canfield
Michael Prachar

Compensation of Directors

The following director compensation disclosure reflects all compensation
awarded to, earned by or paid to the directors below for the fiscal year
ended October 31, 2006.

DIRECTOR COMPENSATION

Change in
Non- Pension
Equity Value and
Incentive Nonqualified
Fees Earned Plan Deferred
or Paid in Stock Option Compen- Compensation All Other
Cash Awards Awards sation Earnings Compensation
Name ($) ($) ($) ($) ($) ($) Total ($)
--------------- ----------- -------- ------ -------- ------------ ------------ ---------

John Jenkins 0

Chris Canfield 0

Lawrence
Vierra (1) $750.00 $750.00

David Hess (1) $750.00 $750.00

(1) We granted 15,000 shares to Mr. Vierra and Mr. Hess on October 31,
2006. The value of the stock award was calculated based on the
aggregate grant date fair value computed in accordance with FAS 123R.

Compensation Committee Interlocks and Insider Participation

None of our executive officers or directors serves as members of the board
of directors or compensation committee of any other entity, which has one
or more executive officers serving as a member of our board of directors.
During fiscal 2006 and during the first part of fiscal 2007, the
Compensation Committee was comprised of two non-employee directors, Robert
M. Fidler and Lawrence J. Vierra. Mr. Fidler submitted his resignation from
the Board on June 15, 2007 and was replaced on the Compensation Committee by
David R. Hess.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

FINANCIAL STATEMENTS

The consolidated financial statements as of October 31, 2006 and 2005 and
the unaudited consolidated financial statements as of April 30, 2007 and for
the three and six months ended April 30, 2007 and 2006 commence on the
following page.

RAPID LINK, INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS

Consolidated Financial Statements: Page
---------------------------------- ----

Report of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets at October 31, 2006 and 2005 F-3

Consolidated Statements of Operations for the fiscal
years ended October 31, 2006 and 2005 F-4

Consolidated Statement of Shareholders' Deficit for
the fiscal years ended October 31, 2006 and 2005 F-5

Consolidated Statements of Cash Flows for the fiscal
years ended October 31, 2006 and 2005 F-6

Notes to Consolidated Financial Statements F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------

To the Board of Directors and Shareholders of
Rapid Link, Incorporated

We have audited the accompanying consolidated balance sheets of Rapid
Link, Incorporated and subsidiaries as of October 31, 2006 and 2005, and the
related consolidated statements of operations, shareholders' deficit and
cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rapid
Link, Incorporated and subsidiaries as of October 31, 2006 and 2005, and the
results of their operations and their cash flows for the years then ended,
in conformity with accounting principles generally accepted in the United
States of America.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company has suffered
recurring losses from continuing operations during each of the last two
fiscal years. Additionally, at October 31, 2006, the Company's current
liabilities (which includes significant amounts of past due payables)
exceeded its current assets by $4.7 million and the Company has a
shareholders' deficit totaling $2.6 million. These conditions raise
substantial doubt about the Company's ability to continue as a going
concern. Management's plans as they relate to these issues are also
explained in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

/s/ KBA GROUP LLP
Dallas, Texas
January 29, 2007

F-2

RAPID LINK, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

October 31,
-----------------------
2006 2005
---------- ----------
(restated)
ASSETS

Current assets:
Cash and cash equivalents $ 30,136 $ 172,164
Trade accounts receivable, net of allowances
of $99,666 and $427,099, respectively 1,400,568 564,039
Prepaid expenses 204,335 35,140
Other current assets 16,382 129,838
---------- ----------
Total current assets 1,651,421 901,181
---------- ----------

Property and equipment, net 379,027 353,726
Customer lists, net 3,222,142 144,285
Goodwill 2,868,461 1,796,917
Other assets 121,286 74,758
---------- ----------
Total Assets $ 8,242,337 $ 3,270,867
========== ==========

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
Bank overdrafts $ 101,097 $ -
Trade accounts payable 2,203,072 3,451,801
Accrued interest (including $183,304 and
$910,849, respectively, to related parties) 499,631 1,007,322
Other accrued liabilities 507,581 463,594
Deferred revenue 183,510 401,640
Deposits and other payables 66,889 418,109
Capital lease obligation - 126,196
Contingent purchase price consideration 250,000 -
Convertible notes, current portion, net of debt
discount of $343,333 and $223,167, respectively 716,667 481,833
Related party notes, current portion 622,633 -
Net current liabilities from discontinued operations 1,162,000 1,162,000
---------- ----------
Total current liabilities 6,313,080 7,512,495
---------- ----------
Convertible notes, long-term, net of debt discount
of $610,308 and $1,140,824, respectively 1,622,149 686,633
Convertible notes payable to related parties,
long-term, net of debt discount of $44,120
and $77,208, respectively 1,860,958 926,182
Related party notes, long-term 1,000,000 -
---------- ----------
Total liabilities 10,796,187 9,125,310
---------- ----------
Commitments and contingencies

Shareholders' deficit:
Preferred stock, $.001 par value; 10,000,000
shares authorized; none issued and outstanding - -
Common stock, $.001 par value; 175,000,000 shares
authorized; 51,181,994 issued at October 31, 2006
and 29,297,183 shares issued at October 31, 2005 51,182 29,298
Additional paid-in capital 47,248,729 42,858,862
Accumulated deficit (49,798,891) (48,687,733)
Treasury stock, at cost; 12,022 shares at
October 31, 2006 and 2005 (54,870) (54,870)
---------- ----------
Total shareholders' deficit (2,553,850) (5,854,443)
---------- ----------
Total liabilities and shareholders' deficit $ 8,242,337 $ 3,270,867
========== ==========

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

F-3

RAPID LINK, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended October 31,
----------------------------
2006 2005
------------ ------------
Revenues $ 13,351,030 $ 9,827,049

Costs and expenses:
Costs of revenues 9,644,235 7,713,349
Sales and marketing 856,037 205,973
General and administrative 3,596,171 3,227,609
Depreciation and amortization 747,562 557,131
Loss (gain) on disposal of property
and equipment 56,771 (8,800)
Net reductions of liabilities (2,300,929) -
Gain on legal settlement - (225,000)
------------ ------------
Total costs and expenses 12,599,847 11,470,262
------------ ------------

Operating income (loss) 751,183 (1,643,213)

Other income (expense):
Interest expense (1,664,242) (651,253)
Related party interest expense (216,233) (219,362)
Foreign currency exchange gains 18,134 10,486
------------ ------------
Total other income (expense) (1,862,341) (860,129)

------------ ------------
Loss from continuing operations (1,111,158) (2,503,342)

Loss from discountinued operations, net
of income taxes of $0 - (62,000)
------------ ------------
Net loss $ (1,111,158) $ (2,565,342)
============ ============

Loss per share information:
Weighted average shares outstanding:
Basic and diluted 39,000,486 23,790,407
============ ============
Basic and diluted net loss per share
information:
Continuing operations $ (0.03) $ (0.11)
Discontinued operations 0.00 (0.00)
------------ ------------
$ (0.03) $ (0.11)
============ ============

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

F-4

RAPID LINK, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT

Common Common Treasury Additional Accumulated
Shares Stock Stock Paid-in Capital Deficit Total
---------- -------- ------- --------------- ------------ ----------
(restated)

Balance, October 31, 2004 23,034,151 $ 23,034 $(54,870) $40,055,719 $(46,122,391) $(6,098,508)

Issuance of common stock for
convertible notes, including interest 1,008,032 1,009 - 116,698 - 117,707
Issuance of common stock for
convertible notes to related parties 3,740,000 3,740 - 463,760 - 467,500
Beneficial conversion feature related
to issuance of convertible debt - - - 1,362,649 - 1,362,649
Issuance of warrants in connection
with amendments to convertible notes - - - 363,648 - 363,648
Issuance of warrants in connection with
with amendments to convertible notes
to related parties - - - 88,239 - 88,239
Issuance of common stock in connection
with amendments to notes payable 240,000 240 - 99,229 - 99,469
Issuance of common stock for services 325,000 325 - 45,675 - 46,000
Issuance of common stock for acquisition
of customer base 950,000 950 - 103,550 - 104,500
Issuance of warrants for services - - - 159,695 - 159,695

Net loss - - - - (2,565,342) (2,565,342)
-------------------------------------------------------------------------------
Balance, October 31, 2005 29,297,183 29,298 $(54,870) $42,858,862 $(48,687,733) $(5,854,443)

Issuance of common stock for
convertible notes, including interest 2,709,811 2,709 - 193,442 - 196,151
Beneficial conversion feature related
to issuance of convertible debt - - - 628,674 - 628,674
Issuance of warrants in connection
with issuance of convertible notes - - - 327,176 - 327,176
Issuance of common stock for acquisition
of Telenational Communications, Inc. 19,175,000 19,175 - 3,240,575 - 3,259,750

Net loss - - - - (1,111,158) (1,111,158)
-------------------------------------------------------------------------------
Balance, October 31, 2006 51,181,994 $ 51,182 $(54,870) $47,248,729 $(49,798,891) $(2,553,850)
===============================================================================

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

F-5

RAPID LINK, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended October 31,
----------------------------
2006 2005
------------ ------------
Cash flows from operating activities of
continuing operations:
Net loss from continuing operations $ (1,111,158) $ (2,503,342)
Adjustments to reconcile net loss from
continuing operations to net cash
provided by (used in) operating activities:
Non-cash interest expense 1,447,400 526,158
Depreciation and amortization 747,562 557,131
Bad debt expense 136,391 365,289
Warrants issued for services - 205,695
Loss (gain) on disposal of property
and equipment 56,771 (8,800)
Gain on reduction/settlement of liabilities (2,300,929) -
Changes (net of effect of acquisition)
in operating assets and liabilities:
Trade accounts receivable (39,042) (88,201)
Prepaid expenses and other current assets 11,198 32,990
Other assets (46,120) (8,678)
Trade accounts payable (269,074) 660,256
Accrued liabilities 444,134 (59,895)
Deferred revenue 18,870 21,196
Deposits and other payables (131,326) (10,000)
------------ ------------
Net cash used in operating activities
of continuing operations (1,035,323) (310,201)
------------ ------------
Cash flows from investing activities
of continuing operations:
Purchases of property and equipment (207,860) (26,884)
Proceeds from sale of property and equipment - 10,000
Acquisition costs - (15,000)
Payment of contingent purchase consideration (250,000) -
Cash acquired in acquisition 158,135 -
------------ ------------
Net cash used in investing activities
of continuing operations (299,725) (31,884)
------------ ------------
Cash flows from financing activities
of continuing operations:
Bank overdrafts 101,097 -
Proceeds from convertible debentures 1,000,000 -
Payments on convertible debentures (163,927) (72,140)
Payment of financing fees (44,150) -
Proceeds from related party notes and
shareholder advances 850,000 -
Payment of shareholder advances (550,000) -
------------ ------------
Net cash provided by (used in) financing
activities of continuing operations 1,193,020 (72,140)
------------ ------------
Net (decrease) in cash and cash equivalents (142,028) (414,225)

Cash and cash equivalents, beginning of period 172,164 586,389
------------ ------------
Cash and cash equivalents, end of period $ 30,136 $ 172,164
============ ============

Supplemental disclosure of cash
flow information:
Interest paid $ 15,000 $ 79,803

Supplemental schedule of non cash investing
and financing activities
Issuance of common stock for convertible
notes and accrued interest $ 196,151 $ 117,707
Issuance of common stock for convertible
notes payable - related party - 467,500
Fair value of common stock issued in
connection with Telenational
Communications acquisition 3,259,750 -
Note issued in connection with Telenational
Communications acquisition 1,000,000 -
Contingent liability issued in connection
with Telenational Communications
acquisition 500,000 -
Issuance of common stock for acquisition
of customer base - 104,500
Accrued interest to related party converted
to note payable to related party 901,688 -
Beneficial conversion feature of convertible
debentures recorded as debt discount 628,674 1,362,649
Fair value of warrants issued with debt 327,176 -
Fair value of warrants issued in connection
with amendments to debt agreements - 451,887
Note payable exchanged for convertible debenture - 1,250,000
Convertible debenture issued for accrued interest - 349,617
Fair value of common stock issued in connection
with amendments to note agreement - 99,469
Convertible debenture issued for financing fees - 50,383

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

F-6

RAPID LINK, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS

Nature of Business

On November 1, 2005, the Company changed its name to "Rapid Link,
Incorporated" from Dial Thru International Corporation. Rapid Link,
Incorporated, a Delaware corporation, and its subsidiaries (collectively
referred to as "Rapid Link" or the "Company"), has served as a facilities-
based, communications company providing various forms of telephony services
to wholesale and retail customers around the world. Rapid Link provides
a multitude of international telecommunications services targeted to
individual customers, as well as small and medium sized enterprises
("SMEs".) These services include the transmission of voice and data traffic
over public and private networks. The Company also sells telecommunications
services for both the foreign and domestic termination of international
long distance traffic into the wholesale market. Rapid Link utilizes
Voice over Internet Protocol ("VoIP") packetized voice technology (and
other compression techniques) to improve both cost and efficiencies of
telecommunication transmissions. Rapid Link utilizes the Public Switched
Telecommunications Network as well as the Internet to transport the
Company's communications services.

The Company has recently shifted its retail product focus to value-added
VoIP communication services to customers, both domestically and
internationally. However, as of the date of this report, the majority of the
Company's revenues have not been derived from VoIP communication services.
Rapid Link focuses on the U.S. military and other key niche markets. The
Company offers PC-to-PC, PC-to-phone, and phone-to-phone calling using a
mixture of software and/or hardware depending on the end-users' specific
needs. Rapid Link offers VoIP service plans to conventional residential and
business customers in addition to serving the military and other niches. The
Company's sells both flat-rate and cost-per-minute calling plans in order to
directly address the customers' requirements. These plans include free
features such as voice mail, call forwarding, three way calling and others.
Rapid Link's VoIP Internet Access Devices ("IADs") for residential and
business customers include single and multi-line adaptors. These adaptors
enable customers to convert their traditional phone into a VoIP phone and
access the Rapid Link network. Rapid Link also offers a headset that plugs
directly into the customer's computer, eliminating the need for any
additional hardware. All of these VoIP services connect through the
Internet. The customer can then make and receive calls through their
new or existing phone number using VoIP.

Financial Condition

Although the Company has been able to arrange debt facilities and equity
financing to date, there can be no assurance that sufficient debt or equity
financing will continue to be available in the future or that it will be
available on terms acceptable to the Company. Failure to obtain sufficient
capital could materially affect the Company's operations in the short term
and hinder expansion strategies. The Company continues to explore external
financing opportunities. At October 31, 2006, approximately 52% of the
Company's debt is due to the senior management and a Director of the
Company, as well as an entity owned by senior management.

As a result of the aforementioned factors and related uncertainties,
there is substantial doubt about the Company's ability to continue as
a going concern. The consolidated financial statements do not include
any adjustments to reflect the possible effects of recoverability and
classification of assets or classification of liabilities, which may
result from the inability of the Company to continue as a going concern.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Restatements
------------

Through communication with the Universal Service Administration Company
("USAC") and review of statements received during fiscal 2006, the Company
determined that accrued USAC fees totaling $424,381 should have been
reversed based on credits that were issued by USAC during periods prior to
fiscal 2005. Accordingly, the Company has reduced its estimated liability
for USAC fees by $424,381 and restated the Balance Sheet at October 31, 2005
to reflect the reduction of this liability and the related decrease in the
accumulated deficit.

Additionally, the Company has restated its consolidated financial statements
as of and for the fiscal quarters ended January 31, 2006 and July 31, 2006
to reflect in the proper quarterly period certain amounts that were recorded
in the consolidated financial statements during the fourth quarter of fiscal
2006. The restatements of these fiscal 2006 fourth quarter amounts to the
first or third quarters of fiscal 2006 does not impact overall fiscal 2006
operating results. (See Note 16 - Restated Quarterly Information for further
details).

Principles of Consolidation
---------------------------

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated. Certain amounts previously
reported have been reclassified to conform to the current year presentation.

Use of Estimates in the Preparation of Consolidated Financial Statements
------------------------------------------------------------------------

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

Revenue Recognition
-------------------

Long distance revenue

Revenues generated by international re-origination, dial thru services and
international wholesale termination, which are the primary source of the
Company's revenues, are based on minutes of customer usage. The Company
records payments received in advance as deferred revenue until such services
are provided.

VoIP service revenue

The Company defers revenue recognition of new subscriber revenue from its
service offerings until the acceptance period has expired. New customers may
terminate their service within thirty days of order placement and receive a
full refund of fees previously paid. The Company has been providing its VoIP
services for a limited period of time, has an insignificant amount of
revenue to date, and therefore, has not developed sufficient history to
apply a cancellation rate to reserve against new order revenue. Accordingly,
the Company defers new subscriber revenue for thirty days to ensure that the
thirty day trial period has expired.

Emerging Issues Task Force Consensus No. 00-21 ("EITF No. 00-21"),
"Accounting for Revenue Arrangements with Multiple Deliverables" requires
that revenue arrangements with multiple deliverables be divided into
separate units of accounting if the deliverables in the arrangement meet
specific criteria. In addition, arrangement consideration must be allocated
among the separate units of accounting based on their relative fair values,
with certain limitations. The VoIP service with the accompanying hardware
that customers use to access the Internet constitutes a revenue arrangement
with multiple deliverables. In accordance with the guidance of EITF No. 00-
21, the Company allocates VoIP revenues, including activation fees, among
the hardware and subscriber services. Revenues allocated to the hardware are
recognized as product revenues at the end of thirty days after order
placement, provided the customer does not cancel their service. All other
revenues are recognized as service revenues when the related services are
provided.

Cash and Cash Equivalents
-------------------------

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

Accounts Receivable
-------------------

Trade accounts receivable are stated at the amount the Company expects
to collect. The Company maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers to make
required payments. Management considers the following factors when
determining the collectibility of specific customer accounts: customer
creditworthiness, past transaction history with the customer, current
economic industry trends and changes in customer payment terms. If the
financial condition of the Company's customers were to deteriorate,
adversely affecting their ability to make payments, additional allowances
would be required. Based on management's assessment, the Company provides
for estimated uncollectible amounts through a charge to earnings and a
credit to a valuation allowance. Interest is typically not charged on
overdue accounts receivable. Balances that remain outstanding after the
Company has used reasonable collection efforts are written off through a
charge to the valuation allowance and a credit to accounts receivable.

Property and Equipment
----------------------

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

Goodwill
--------

Goodwill is reviewed for impairment annually or more frequently if
impairment indicators arise. Impairment indicators include (i) a significant
decrease in the market value of an asset, (ii) a significant change in the
extent or manner in which an asset is used or a significant physical change
in an asset, (iii) a significant adverse change in legal factors or in the
business climate that could affect the value of an asset or an adverse
action by a regulator, and (iv) a current period operating or cash flow loss
combined with a history of operating or cash flow losses or a projection or
forecast that demonstrates continuing losses associated with an asset used
for the purpose of producing revenue. The Company follows SFAS No. 141,
"Business Combinations" ("SFAS 141") and SFAS No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase method
of accounting be used for business combinations, and also specifies the
criteria for the recognition of intangible assets separately from goodwill.
Under SFAS 142, goodwill is no longer amortized but is subject to an
impairment test at least annually or more frequently if impairment
indicators arise.

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

In accordance with SFAS 142, an annual impairment test of goodwill was
performed by an independent valuation firm at each fiscal year-end. The
valuation process appraised the Company's enterprise value using a
combination of market capitalization and multiples of earnings valuation
techniques. The valuation process indicated that the enterprise fair value
exceeds the carrying value of the Company's net assets and liabilities.
Accordingly, the Company concluded that no impairment of goodwill existed.

Long-Lived Assets
-----------------

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

Fair Market Value of Financial Instruments
------------------------------------------

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

Debt Obligations
----------------

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

Net Loss Per Share
------------------

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

Shares issuable upon the exercise of stock options, warrants and convertible
debentures are excluded from the calculation of net loss per share for the
years ended October 31, 2006 and 2005 as their effect would be antidilutive.
Potentially issuable shares from outstanding stock options, warrants and
convertible debentures amounted to 70,128,410 and 54,388,861 shares,
respectively, as of October 31, 2006 and 2005.

Income Taxes
------------

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

Stock-Based Compensation
------------------------

The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," as amended by SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure." Under APB Opinion No. 25,
compensation expense for employees is based on the excess, if any, on the
date of grant, of fair value of the Company's stock over the exercise price.
Accordingly, no compensation cost has been recognized for its employee stock
options in the financial statements during the years ended October 31, 2006
and 2005 as the fair market value on the grant date approximates the
exercise price. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS No.123, as
amended by SFAS No. 148, the Company's pro forma net loss from continuing
operations for the years ended October 31, 2006 and 2005 would have been as
follows:
2006 2005
----------- -----------
Net loss from continuing operations,
as reported $(1,111,158) $(2,503,342)

Add: stock-based employee compensation
expense included in reported net loss
from continuing operations - -

Deduct: stock-based employee compensation
expense determined under the fair value
method (89,370) (13,293)
----------- -----------
Pro forma net loss from continuing operations $(1,200,528) $(2,516,635)
=========== ===========

Net loss per share from continuing operations
- basic and dilutive, as reported $ (0.03) $ (0.11)
=========== ===========

Net loss per share from continuing operations
- basic and dilutive, pro forma $ (0.03) $ (0.11)
=========== ===========

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. Because
options vest over a period of several years and additional awards are
generally made each year, the pro forma information presented above is not
necessarily indicative of the effects on reported or pro forma net earnings
or losses for future years.

The fair value of options and warrants for shares of the Company's common
stock issued to employees has been determined using the Black-Scholes option
pricing model, a pricing model acceptable under SFAS No. 123, with the
following weighted-average assumptions:

Year ended October 31, 2006
---------------------------
Risk-free interest rate 3.7%
Expected dividend yield 0%
Expected lives 3 years
Expected volatility 154%

There were 2,317,500 options issued to employees during the year ended
October 31, 2006. There were no options issued to employees during the year
ended October 31, 2005.

The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 as amended by SFAS No. 148
and Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services." All transactions in which
goods or services are the consideration received for the issuance of equity
instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is
more reliably measurable. The measurement date of the fair value of the
equity instrument issued is the earlier of the date on which the
counterparty's performance is complete or the date on which it is
probable that performance will occur.

Foreign Currency Translation and Foreign Currency Transactions
--------------------------------------------------------------

The Company's functional currency is the U.S. dollar. The Company's foreign
operations are subject to exchange rate fluctuations and foreign currency
transaction costs. Monetary assets and liabilities of subsidiaries domiciled
outside the United States are translated at rates of exchange existing at
the balance sheet date and non-monetary assets, liabilities and equity are
translated at historical rates. Revenues and expenses are translated at
average rates of exchange prevailing during the period. The resulting
translation adjustments, and foreign currency transactions resulting in
gains and losses, are recorded in the consolidated statements of operations.

Recent Accounting Pronouncements
--------------------------------

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised 2004),
"Share-Based Payment" ("Statement 123R"), which revised SFAS No. 123 and
supercedes APB Opinion No. 25. This revised accounting standard addresses
the accounting for share-based payment transactions with employees and
other third parties, eliminates the ability to account for share-based
compensation transactions with employees using APB Opinion No. 25 and
requires that the fair value of such share based payments be recognized in
the consolidated statement of operations. The revised statement is effective
as of the first interim or annual financial reporting period beginning after
December 15, 2005. The Company adopted the statement as of November 1, 2006,
applying the modified prospective method. The impact of adoption of SFAS No.
123R cannot be predicted at this time because it will depend on levels of
share-based payments granted in the future. However, had the Company adopted
SFAS No. 123R in prior periods, the impact of that standard would have
approximated the impact of SFAS No. 123 as described in the disclosure of
pro forma net loss and net loss per share in the stock-based compensation
policy note discussed previously.

NOTE 3 - ACQUISITIONS

Telenational Communications, Inc.

On May 5, 2006, the Company acquired 100% of the outstanding stock of
Telenational Communications, Inc. ("Telenational") for $4,809,750, including
acquisition costs of $50,000. The purchase consideration consisted of a
promissory note in the principal amount of $1,000,000, a contingent cash
payment in the amount of $500,000 and 19,175,000 shares of the Company's
common stock valued at $3,259,750. The stock was issued on May 5, 2006 and
June 5, 2006 (50% on each date) in conjunction with the acquisition. Under
the terms of the original purchase agreement, the second stock issuance was
a contingent obligation. This was subsequently amended, resulting in the
June 5, 2006 stock issuance. The value of the issued stock was determined by
the average of $0.18 per share and $0.16 per share, which approximates the
average trading value as quoted on the OTC Bulletin Board for the three days
before and three days after May 5, 2006, and the stock price on June 5,
2006, respectively. The contingent purchase price consideration, which was
recorded on the date of acquisition, was based on the attainment of a
predetermined level of short-term gross profit, which did occur. The primary
purpose of the acquisition was to enable the Company to expand its market
share in the telecommunications industry and eliminate certain costs by
gaining operational efficiencies. The following table summarizes the assets
acquired and liabilities assumed as of the closing date:

Tangible assets acquired $ 1,362,950
Customer list 3,500,000
Goodwill 1,071,544
-----------
Total assets acquired 5,934,494
Liabilities assumed (1,124,744)
-----------
Net assets acquired $ 4,809,750
===========

The acquisition was accounted for using the purchase method of accounting.
The purchase price allocated to customer list was determined by management's
estimates of the value associated with each acquired customer. The customer
list is being amortized over its estimated useful life of five years.
Goodwill represents the excess of consideration given over the fair value
of assets acquired. The goodwill acquired may not be amortized for federal
income tax purposes.

The following represents unaudited pro forma combined results of operations
of the Company and Telenational as if the Telenational acquisition had
occurred as November 1, 2004:

Year Ended October 31,
-------------------------
2006 2005
----------- -----------
Unaudited pro forma information:
Revenues $18,748,214 $20,539,023
Net loss $ (833,645) $(3,100,838)
Basic and diluted net loss per share $ (0.02) $ (0.07)
Weighted average shares outstanding 49,586,137 42,965,407

The pro forma information includes historical Telenational revenues and
expenses after giving effect to certain adjustments, including amortization
of the acquired customer list and interest expense on the promissory note.
The pro forma financial information is shown for illustrative purposes and
does not purport to be indicative of the Company's future results of
operations or the Company's results of operations that would have actually
occurred had the transaction been in effect for the periods presented.

Integrated Telecommunications, Inc.

On October 25, 2005, the Company entered into an Asset Purchase Agreement to
acquire certain assets, including but not limited to the customer base and
an item of equipment of Integrated Telecommunications, Inc. ("Integrated"),
an international long distance carrier providing VoIP services to retail
customers in the United States and wholesale services to customers
worldwide. The closing date of the asset acquisition ("Closing Date") was
October 31, 2005. The aggregate purchase price was $159,500, including
950,000 of common stock, valued at $104,500, and an additional $55,000 in
acquisition-related costs. The value of the common stock was determined
based on the closing market price of the Company's common shares on October
31, 2005. In accordance with SFAS 141, the Company has allocated the
purchase price to the assets acquired based on their estimated fair values
at the date of acquisition. The following table summarizes the estimated
fair value of the assets acquired:

Fixed assets $ 15,215
Customer base 144,285
---------
Net assets acquired $ 159,500
=========

The customer base is being amortized over its estimated useful life of two
years.

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following at October 31, 2006 and
2005:

2006 2005 Est. Life
---------- ---------- ---------
Telephone switch equipment $ 625,151 $3,762,473 3-5 yrs.
Computer software 1,092,488 1,096,879 3-5 yrs.
Computer equipment 181,496 859,296 3-5 yrs.
Furniture and fixtures 154,561 232,917 5-7 yrs.
Leasehold improvements 53,941 58,379 5-7 yrs.
---------- ----------
2,107,637 6,009,944
Less: accumulated depreciation
and amortization (1,728,610) (5,656,218)
---------- ----------
Property and equipment, net $ 379,027 $ 353,726
========== ==========

Amortization of assets held under capital leases is included with
depreciation expense. Property and equipment depreciation and amortization
expense totaled $325,419 and $557,131 in fiscal 2006 and 2005, respectively.

NOTE 5 - CUSTOMER LISTS

Customer lists acquired from Telenational and Integrated, and corresponding
accumulated amortization at October 31, 2006 and 2005 were as follows:

2006 2005 Est. Life
---------- ---------- ---------
Customer lists $3,644,285 $ 144,285 2-5 yrs.
Less: accumulated amortization ( 422,143) -
---------- ----------
Customer lists, net $3,222,142 $ 144,285
========== ==========

Amortization expense totaled $422,143 in fiscal 2006, with no amortization
expense in fiscal 2005. Based on capitalized customer lists at October 31,
2006, and assuming no impairment of these customer lists, estimated
amortization expense amounts in future fiscal years are as follows:

Year Ending October 31,
-----------------------
2007 $ 772,142
2008 700,000
2009 700,000
2010 700,000
2011 350,000
----------
Total $3,222,142
==========

NOTE 6 - CONVERTIBLE DEBENTURES AND NOTES PAYABLE, INCLUDING RELATED PARTY
NOTES

Convertible notes, current
--------------------------
GC-Conote2 $ 60,000 0% 3/30/2007 $ 10,000 $ 50,000
Debentures 1,000,000 10% 3/8/2007 333,333 666,667

Related party notes, current
----------------------------
Demand Note 300,000 8% on demand - 300,000
APEX Note 2 322,633 8% 7/15/2007 - 322,633

Related party conv. notes, long-term
------------------------------------
Notes (Executives) 1,905,078 10% 2/28/2008 44,120 1,860,958

Related party note, long-term
-----------------------------
APEX Note 1 1,000,000 8% 11/5/2007 - 1,000,000

Debt obligations as of October 31, 2006 are due as follows:

Within
1 year 1-2 years Total
---------- ---------- ----------
Debt Obligations $1,682,633 $5,137,535 $6,820,168

GCA Debentures

The Company has two 6% convertible debentures (the "GCA-Debentures") with
GCA Strategic Investment Fund Limited ("GCA"). The GCA-Debentures are
secured by the Company's VoIP technology and certain corresponding
equipment. The Company issued to the holder of the GCA-Debentures warrants
to acquire an aggregate of 50,000 shares of common stock at an exercise
price of $0.41 per share, which expire on January 28, 2007. In connection
with an agreement to extend the maturity date of the GCA-Debenture, the
Company issued to GCA warrants to purchase an additional 100,000 shares of
common stock also at an exercise price of $0.21 per share, which expire on
February 8, 2008.

On June 1, 2005, the Company and GCA agreed to extend the maturity date of
the two GCA-Debentures. The maturity dates were extended to November 26,
2005. In connection with the extension, the Company issued GCA warrants to
acquire 110,000 shares of common stock at an exercise price of $0.11 and
300,000 warrants to acquire the Company's common stock at an exercise price
of $0.38. These warrants expire in June 2010. The Company recorded $163,151
as debt discount, representing the fair value of the warrants on June 1,
2005. This amount was calculated using the Black-Scholes pricing model with
the following assumptions: applicable risk-free interest rate based on the
current treasury-bill interest rate at the grant date of 4%; dividend yields
of 0%; volatility factors of the expected market price of the Company's
common stock of 1.64; and an expected life of the warrants of three years.
The debt discount is being amortized over the extension period of the
convertible debenture. In addition, the Company issued to GCA 140,000 shares
of common stock valued at $0.45 per share, the Company's closing stock price
on June 1, 2005, the date of issuance. In connection with the stock
issuance, the Company recorded debt discount which is being amortized
over the extension period of the convertible debenture.

GC-Note, GC-Conote and GC-Conote2

On June 1, 2005, the Company and Global agreed to extend the maturity date
of the GC-Note to February 29, 2008. In connection with the extension, the
GC-Note was converted to a 10.08% Convertible Note ("GC-Conote"). The
conversion price is equal to 80% of the average of the three lowest volume
weighted average sales prices as reported by Bloomberg L.P. during the
twenty Trading Days immediately preceding the related Notice of Conversion
(the "Formula Conversion Price"). The Company calculated the beneficial
conversion feature embedded in the GC-Conote in accordance with EITF 98-5
and EITF 00-27 and recorded $1,013,032 as debt discount. This debt discount
is being amortized over the life of the GC-Conote. The Company also issued
to the holder of the GC-Conote warrants to acquire an aggregate of 500,000
shares of common stock at an exercise price of $0.38, and 125,000 warrants
to purchase common stock at $0.11 per share, both warrants expiring in June
2010. The Company recorded $200,498 as debt discount, the relative fair
value of the warrants on June 1, 2005. This amount was calculated using the
Black-Scholes pricing model with the following assumptions: applicable risk-
free interest rate based on the current treasury-bill interest rate at the
grant date of 4%; dividend yields of 0%; volatility factors of the expected
market price of the Company's common stock of 1.64; and an expected life of
the warrants of three years. The debt discount is being amortized over the
life of the GC-Conote. In addition, the Company issued to Global 100,000
shares of common stock valued at $0.45 per share, the Company's closing
stock price on June 1, 2005, the date of issuance. The Company recorded
$36,469 as debt discount, the relative fair value of the stock issued, which
it is amortizing over the life of the GC-Conote.

Debentures

Related Party Notes

The Company executed 10% convertible notes (the "Notes") with three
executives (the "Executives") of the Company. Two of the Executives
subsequently resigned from the Company and one remains on the Company's
Board of Directors. The Note held by the director was paid in full during
fiscal 2005. The Notes are secured, on a subordinated basis to the holders
of the Debentures, by assets of the Company not already secured by the GCA
or Global notes. Each Note is convertible into the Company's common stock at
the option of the holder at any time. The Company issued to the holders of
the Notes warrants to acquire an aggregate of 1,945,958 shares of common
stock at an exercise price of $0.78 per share, which expired on October 24,
2006, warrants to acquire an additional 102,432 shares of common stock at an
exercise price of $0.75, which expire on January 28, 2007, and warrants to
acquire an additional 300,000 shares of common stock at an exercise price of
$0.75, which expire on July 8, 2007.

On July 21, 2005, the Company and the Executives agreed to extend the
maturity date of the Notes to February 28, 2008. In connection with the
extension, the Company issued to the three executives warrants to acquire
640,000 shares of common stock at an exercise price of $0.16. The warrants
expire in July 2010. The Company recorded $88,238 as debt discount, the fair
value of the warrants on July 21, 2005. This amount was calculated using the
Black-Scholes pricing model with the following assumptions: applicable risk-
free interest rate based on the current treasury-bill interest rate at the
grant date of 4%; dividend yields of 0%; volatility factors of the expected
market price of the Company's common stock of 1.65; and an expected life of
the warrants of three years. The debt discount is being amortized over the
extension period of the Notes. Debt discount amortization of $11,000 was
recorded on the Notes in fiscal 2005. During fiscal 2005, holders of the
Notes elected to convert $467,500 of the Notes into 3,740,000 shares of
common stock. The Company recorded debt discount amortization, which is
recorded as related party interest expense, of $33,000 and interest expense
of $100,000 on these Notes during fiscal 2006.

On May 5, 2006 the Company acquired the stock of Telenational. As a
component of the total purchase price, an 18-month note payable in the
amount of $1,000,000 bearing 8% interest annually ("APEX Note 1") was
issued to the seller, Apex Acquisitions, Inc. ("APEX"). The Company's Chief
Financial Officer, Chris Canfield, is the majority shareholder of APEX. This
Note is secured by 100% of the Telenational common stock. The Company
recorded $40,000 in interest expense on APEX Note 1 during fiscal 2006.

On July 15, 2006, in conjunction with, but unrelated to the total purchase
consideration paid for Telenational, the Company issued a note payable to
APEX in the amount of $436,560 ("APEX Note 2"). This note bears interest
at 8% annually. This Note is repayable in 12 equal monthly payments of
principal and interest, until fully satisfied in July 2007. The Company
recorded interest expense of $18,000 on APEX Note 2 during fiscal 2006.
Although the Company was current in its payments at October 31, 2006, the
Company has suspended its monthly payments to APEX since that date.

NOTE 7 - CAPITAL STOCK

During fiscal 2006, the Company issued 19,175,000 shares of its common
stock in connection with the acquisition of 100% of the outstanding stock
of Telenational Communications, Inc., valued at $3,259,750 at the date of
issuance.

During fiscal 2006 and 2005, GCA converted GCA-Debenture debt and accrued
interest of approximately $31,000 and $43,000, respectively, into
approximately 407,000 and 352,000 shares, respectively, of common stock.

During fiscal 2006, Global converted GC-Conote2 debt of $165,000 into
approximately 2,303,000 shares of common stock, and during fiscal 2005,
converted GC-Conote debt of $75,000 into approximately 656,000 shares of
common stock.

During fiscal 2005, in connection with the extension of the maturity date of
the GCA-Debenture, the Company issued GCA 100,000 shares of common stock.

During fiscal 2005, in connection with the extension of the maturity date of
the GCA-Note, the Company issued GCA 40,000 shares of common stock.

During fiscal 2005, in connection with the extension of the maturity date of
the GC-Note, the Company issued Global 100,000 shares of common stock.

During fiscal 2005, the three holders of the Company's related party Notes
converted $467,500 of debt into 3,740,000 shares of the Company's common
stock.

During fiscal 2005, the Company issued 200,000 shares of common stock for
investor relations' services, which were recorded at the stock's fair market
value at the date of issuance.

During fiscal 2005, the Company issued 125,000 shares of common stock for
legal services, which were recorded at the stock's fair market value at the
date of issuance.

During fiscal 2005, the Company issued 950,000 shares of common stock in
connection with the purchase of certain assets, including but not limited to
the customer base, certain specified contracts and an item of equipment, of
Integrated Communications, Inc., valued at $104,500 at the date of issuance.

The following table describes stock reserved for future issuances at October
31, 2006:

Number of
Shares
----------
Options 4,000,000
Warrants 6,877,433
Convertible debt (1) 62,008,477
----------
72,885,910
==========

(1) Assumes conversion on October 31, 2006 under the
terms of the related agreements.

NOTE 8 - BUSINESS AND CREDIT CONCENTRATIONS

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

During fiscal 2006, the Company provided wholesale services to a customer
who accounted for 12% of our revenues and another customer who accounted for
10% of our revenues. During the same period, one of the Company's suppliers
accounted for approximately 26% of the Company's total costs of revenues.
At October 31, 2006, one customer accounted for 13% of the Company's trade
accounts receivable. During fiscal 2005, the Company provided wholesale
services to a customer who accounted for 13% of revenues and another
customer who accounted for 11% of revenues. During the same period, one of
the Company's suppliers accounted for approximately 20% of the Company's
total costs of revenues and another supplier accounted for 11% of total
costs of revenues. At October 31, 2005, one customer accounted for 35% of
the Company's trade accounts receivable.

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

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

All other
South foreign
Africa revenues Domestic Total
---------- ---------- ----------- -----------
Fiscal 2006 $ 1,805,807 $ 2,552,222 $ 8,993,001 $13,351,030
Fiscal 2005 $ 2,201,290 $ 1,215,614 $ 6,410,145 $ 9,827,049

During fiscal 2006, 14% of the Company's revenue was generated from
customers in South Africa. During fiscal 2005, 22% of the Company's revenue
was generated from customers in South Africa. No individual foreign country
held more than 10 percent of the Company's long-lived assets as of October
31, 2006 and 2005.

NOTE 9 - EMPLOYEE BENEFIT PLAN

The Company's 401(k) Plan (the "Plan") is a defined contribution plan
covering all domestic employees of the Company. The Plan provides for
voluntary contributions by employees into the Plan subject to the
limitations imposed by the Internal Revenue Code Section 401(k). The Company
matches participant contributions 50% on every dollar deferred to a maximum
of 6% of compensation. The Company's matching funds are subject to a six-
year vesting schedule from the date of original employment. Company
contributions charged to expense during fiscal 2006 and 2005 were $19,704
and $11,245, respectively.

NOTE 10 - NET REDUCTIONS OF LIABILITIES

NOTE 11 - GAIN ON LEGAL SETTLEMENT

On July 20, 2004, the Company filed a suit against Q Comm International,
Inc. ("Q Comm") claiming damages resulting from the breach of a purchase
agreement on the part of Q Comm relating to the sale of the Company's
internally developed equipment for the prepaid telecommunications industry.
Following execution of the agreement, the Company tendered certain
proprietary software source code to Q Comm. However, Q Comm failed to pay
the Company the initial amount due under the agreement and made copies of
the source code without the Company's permission. During fiscal 2005, the
Company entered into a Settlement and Release Agreement with Q Comm. The
Agreement releases Q Comm from any and all claims in connection with the
Company's lawsuit against Q Comm. In connection with the Settlement and
Release Agreement, the Company agreed to a cash settlement of $225,000,
which was received in fiscal 2005 and recorded this amount as a "Gain on
legal settlement."

NOTE 12 - DISCONTINUED OPERATIONS

The Company has accrued $1,162,000 related to an assessment by the State of
Texas for sales taxes (including penalties and interest). This amount is
included in the October 31, 2006 and 2005 consolidated balance sheets as
a liability from discontinued operations. (See Note 15 - Commitments and
Contingencies for further discussion).

NOTE 13 - STOCK OPTIONS AND WARRANTS

Stock Options

2002 Equity Incentive Plan

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

1990 Stock Option Plan

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

The Company's stock option activity for the two years ended October 31, 2006
was as follows:

Weighted
Number Option Average
of Price Exercise
Shares Per Share Price
--------- ------------ --------
Options outstanding at
October 31, 2004 1,674,000 $0.11 - 1.50 $0.35

Options granted - - -
Options exercised - - -
Options cancelled (101,000) 0.12 - 0.70 0.22
---------
Options outstanding at
October 31, 2005 1,573,000 0.11 - 1.50 0.36

Options granted 2,317,500 0.10 - 0.13 0.13
Options exercised - - -
Options cancelled (2,648,000) 0.11 - 1.50 0.27
---------
Options outstanding at
October 31, 2006 1,242,500 0.10 - 0.14 0.12
=========

The weighted average grant date fair value of options granted during fiscal
2006 was $0.09 per share. All options granted during fiscal 2006 were to
employees. There were no options granted during fiscal 2005.

The following table summarizes information about employee compensatory stock
options outstanding at October 31, 2006:

Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------------- ----------- --------- -------- ----------- --------
$0.10 - $0.12 405,000 5.64 $0.11 105,000 $0.12
$0.13 - $0.14 837,500 5.02 0.13 185,000 0.14
--------- -------
1,242,500 5.23 $0.12 290,000 $0.13
========= =======

Warrants

Warrant Issuances to Employees for Financing Transactions

Employee warrant activity for the two years ended October 31, 2006 was as
follows:

Weighted
Number Warrant Average
of Price Exercise
Shares Per Share Price
--------- ----------- --------
Warrants outstanding at
October 31, 2004 2,648,391 $0.75 - 1.44 $ 0.83

Warrants granted 640,000 0.16 0.16
Warrants exercised - - -
Warrants cancelled (300,000) 1.44 1.44
---------
Warrants outstanding at
October 31, 2005 2,988,391 $0.16 - 1.44 $ 0.62

Warrants granted 1,000,000 0.13 0.13
Warrants exercised - - -
Warrants cancelled (1,945,958) 0.78 0.78
---------
Warrants outstanding at
October 31, 2006 2,042,433 $0.13 - 0.78 $ 0.62
=========

Warrants issued to employees that were exercisable at October 31, 2006 and
2005 totaled 2,042,433 and 2,988,391, respectively.

Warrant Issuances to Non-Employees

Non-employee warrant activity for the two years ended October 31, 2006 was
as follows:

Weighted
Number Warrant Average
of Price Exercise
Shares Per Share Price
--------- ----------- --------
Warrants outstanding at
October 31, 2004 1,437,500 $0.01 - 3.50 $ 0.97

Warrants granted 2,035,000 0.11 - 0.78 0.55
Warrants exercised - - -
Warrants cancelled (212,500) 0.01 0.01
---------
Warrants outstanding at
October 31, 2005 3,260,000 $0.11 - 3.50 $ 0.77

Warrants granted 2,000,000 0.14 - 0.25 0.20
Warrants exercised - - -
Warrants cancelled (425,000) 0.89 - 3.50 2.73
---------
Warrants outstanding at
October 31, 2006 4,835,000 $0.11 - 2.00 $ 0.36
=========

The majority of the warrants issued to non-employees during fiscal 2006 and
2005 were issued in connection with debt financing. In addition, the Company
issued 1,000,000 warrants to a provider of legal and consulting services
during fiscal 2005. Non-employee warrants that were exercisable at October
31, 2006 and 2005 totaled 4,835,000 and 3,260,000, respectively.

NOTE 14 - INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts reported for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
at October 31, 2006 and 2005 are as follows:

2006 2005
----------- -----------
Deferred tax assets
Net operating loss carryovers $15,856,634 $15,769,757
Accounts receivable 20,286 145,214
Advertising credits 977,185 977,185
Property and equipment 194,903 227,065
Warrants 54,296 54,296
Accrued liabilities 27,185 27,525
----------- -----------
Total gross deferred tax assets 17,130,489 17,201,042

Deferred tax liabilities
Goodwill (223,878) (164,753)
----------- -----------
Total gross deferred tax liabilities (223,878) (164,753)

Net deferred tax assets 16,906,611 17,036,289

Valuation allowance (16,906,611) (17,036,289)
----------- -----------
Net deferred assets $ - $ -
=========== ===========

2006 2005
----------- -----------
Income tax benefit at statutory rate $ (377,794) $ (872,216)
Permanent differences 495,457 180,396
Change in valuation allowance (129,677) 710,696
Other 12,014 (18,876)
----------- -----------
$ - $ -
=========== ===========

At October 31, 2006, the Company has U.S. net operating loss carryforwards
for federal income tax purposes of approximately $46.6 million, which expire
in 2007 through 2026. Utilization of U.S. net operating losses is subject to
annual limitations provided for by the Internal Revenue Code. The annual
limitation may also result in the expiration of net operating losses before
utilization.

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

NOTE 15 - COMMITMENTS AND CONTINGENCIES

Operating Leases, Including Related Party Lease

The Company leases its corporate office and branch office facilities under
various noncancelable operating leases with terms expiring at various dates
through 2011. The operational and administrative headquarters facility is
leased through June 2011 from Apex Communications, Inc., an entity owned by
executive officers of the Company. Rent expense for operating leases was
$343,000 and $249,000 during fiscal 2006 and 2005, respectively. Rent
expense to APEX during fiscal 2006 totaled $45,000. There were no related
party leases during fiscal 2005. The Company has no capital lease
obligations as of October 31, 2006.

Future minimum lease payments under noncancelable operating leases as of
October 31, 2006 are as follows:

Year Ending October 31,
-----------------------
2007 $ 196,940
2008 134,860
2009 134,860
2010 134,860
2011 89,907
---------
Total minimum lease payments $ 691,427
=========

Future minimum lease payments (included in the above table) relating to the
APEX operating lease total $629,347.

Legal Proceedings

State of Texas. During fiscal 2004, the Company determined, based on final
written communications with the State of Texas (the "State"), that it had a
liability for sales taxes (including penalties and interest). On August 5,
2005, the State filed a lawsuit in the 53rd Judicial District Court of
Travis County, Austin, Texas against the Company. The lawsuit requests
payment of approximately $1.162 million for state and local sales tax,
including penalties and interest, which has been accrued at April 30, 2007
and October 31, 2006. The sales tax amount due is attributable to audit
findings of the State for the years 1995 to 1999 associated with Canmax
Retail Systems, a current subsidiary of ours, and former operating
subsidiary providing retail automation software and related services to the
retail petroleum and convenience store industries. The State determined that
Canmax Retail Systems did not properly remit sales tax on certain
transactions. Management believes that it will be able to negotiate a
reduced settlement amount with the State, although there can be no assurance
that the Company will be successful with respect to such negotiations. These
operations were classified as discontinued after the Company sold its retail
automation software business in December 1998 and changed its business
model.

Management believes that it will be able to negotiate a reduced settlement
amount with the State, although there can be no assurance that the Company
will be successful with respect to such negotiations. The Company will
continue to aggressively pursue the collection of unpaid sales taxes from
former customers of Canmax Retail Systems, primarily Southland Corporation,
now 7-Eleven Corporation ("7-Eleven"), as a majority of the amount owed to
the State of Texas is the result of uncollected taxes from the sale of
software to 7-Eleven during the period under audit. However, there can
be no assurance that the Company will be successful with respect to such
collections.

NOTE 16 - RESTATED QUARTERLY INFORMATION

The Company has restated its consolidated financial statements as of and for
the fiscal quarters ended January 31, 2006 and July 31, 2006, as shown in
the table below, to properly reflect certain amounts that should have been
recorded in those quarters of fiscal 2006. (See Note 10 - Net Reductions of
Liabilities for further discussion).

Three Months Ended Three Months Ended
January 31, 2006 July 31, 2006
---------------------------- ----------------------------
As Previously As Previously
Reported Restated Reported Restated
------------- ------------ ------------- ------------
Net reductions
of liabilities.. $ - $ (809,781) $ (308,879) $(1,491,148)

Total costs and
expenses........ $ 2,432,133 $ 1,622,352 $ 4,784,659 $ 3,602,390

Net income (loss). $ (705,176) $ 104,605 $ (510,494) $ 671,775

Basic and diluted
earnings (loss)
per share....... $ (0.02) $ 0.00 $ (0.01) $ 0.01

As a result of these restatements, when compared to amounts previously
reported, current liabilities decreased by $810,000 as of January 31, 2006
and by $1,992,000 as of July 31, 2006. The restatements of these fiscal 2006
fourth quarter amounts to the first or third quarters of fiscal 2006 does
not impact overall fiscal 2006 operating results.

RAPID LINK, INCORPORATED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements: Page

Consolidated Balance Sheets at April 30, 2007 and
October 31, 2006 F-2

Consolidated Statements of Operations for the Three
and Six Months ended April 30, 2007 and 2006 F-3

Consolidated Statements of Cash Flows for the Six
Months ended April 30, 2007 and 2006 F-4

Notes to Consolidated Financial Statements F-5

F-1

RAPID LINK, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

April 30, October 31,
2007 2006
---------- ----------
(unaudited)
ASSETS

Current assets:
Cash and cash equivalents $ 318,871 $ 30,136
Accounts receivable, net of allowances
of $95,493 and $99,666, respectively 1,118,968 1,400,568
Prepaid expenses 89,035 204,335
Other current assets 125,080 16,382
---------- ----------
Total current assets 1,651,954 1,651,421
---------- ----------

Property and equipment, net 281,669 379,027
Customer lists, net 2,836,071 3,222,142
Goodwill 2,868,461 2,868,461
Other assets 89,123 121,286
---------- ----------
Total assets $ 7,727,278 $ 8,242,337
========== ==========

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
Bank overdrafts $ - $ 101,097
Accounts payable 2,429,007 2,203,072
Accrued interest (including $313,709 and
$183,304, respectively, to related parties) 722,023 491,299
Other accrued liabilities 562,065 507,581
Deferred revenue 215,235 183,510
Deposits and other payables 73,180 66,889
Accrued purchase price consideration 500,000 500,000
Convertible notes, current portion, net of debt
discount of $378,788 and $343,333, respectively 2,883,669 716,667
Convertible notes payable to related parties,
current, net of debt discount of $27,574 1,877,504 -
Related party notes, current portion 1,345,101 380,965
Net current liabilities from discontinued operations 1,162,000 1,162,000
---------- ----------
Total current liabilities 11,769,784 6,313,080
---------- ----------
Convertible notes, long-term, net of debt discount
of $610,308 - 1,622,149
Convertible notes payable to related parties,
long-term, net of debt discount of $44,120 - 1,860,958
Related party note, long-term - 1,000,000
---------- ----------
Total liabilities 11,769,784 10,796,187
---------- ----------
Commitments and contingencies

Shareholders' deficit:
Preferred stock, $.001 par value; 10,000,000
shares authorized; none issued and outstanding - -
Common stock, $.001 par value; 175,000,000 shares
authorized; 51,804,401 and 51,181,994 shares
issued at April 30, 2007 and October 31, 2006,
respectively 51,804 51,182
Additional paid-in capital 47,429,333 47,248,729
Accumulated deficit (51,468,773) (49,798,891)
Treasury stock, at cost; 12,022 shares (54,870) (54,870)
---------- ----------
Total shareholders' deficit (4,042,506) (2,553,850)
---------- ----------
Total liabilities and shareholders' deficit $ 7,727,278 $ 8,242,337
========== ==========

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

F-2

RAPID LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

Three Months Ended Six Months Ended
April 30, April 30,
------------------------ ------------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------

Revenues $ 3,720,098 $ 2,121,018 $ 8,173,075 $ 4,107,130

Costs and expenses:
Costs of revenues 2,561,496 1,612,960 5,950,264 3,141,075
Sales and marketing 307,391 99,827 619,916 242,209
General and administrative 841,677 732,995 1,847,255 1,390,419
Depreciation and amortization 235,619 99,967 478,143 204,179
Loss on disposal of property and
equipment 21 34,229 10,061 34,229
Net reductions of liabilities - - - (809,781)
---------- ---------- ---------- ----------
Total costs and expenses 3,946,204 2,579,978 8,905,639 4,202,330
---------- ---------- ---------- ----------

Operating loss (226,106) (458,960) (732,564) (95,200)
---------- ---------- ---------- ----------
Other income (expense):
Noncash interest expense (284,473) (301,318) (660,630) (510,126)
Interest expense (70,669) (54,052) (141,893) (93,625)
Related party interest expense (58,491) (33,357) (140,848) (66,414)
Foreign currency exchange gains 2,442 1,358 3,950 23,641
Other - - 2,103 -
---------- ---------- ---------- ----------
Total other income (expense), net (411,191) (387,369) (937,318) (646,524)
---------- ---------- ---------- ----------
Net loss $ (637,297) $ (846,329) $(1,669,882) $ (741,724)
========== ========== ========== ==========

Earnings per share information:
Basic and diluted weighted average
shares outstanding 51,750,419 30,237,903 51,455,385 29,759,747
========== ========== ========== ==========

Basic and diluted loss per share $ (0.01) $ (0.03) $ (0.03) $ (0.02)
========== ========== ========== ==========

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

F-3

RAPID LINK, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

Six Months Ended
April 30,
----------------------------
2007 2006
------------ ------------
Cash flows from operating activities:
Net loss $ (1,669,882) $ (741,724)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Noncash interest expense 660,630 510,126
Depreciation and amortization 478,143 204,179
Bad debt expense 60,000 (25,010)
Share-based compensation expense 11,850 -
Loss on disposal of property and equipment 10,061 34,229
Gain on reduction/settlement of liabilities - (809,781)
Changes in operating assets and liabilities:
Accounts receivable 221,600 (114,771)
Prepaid expenses and other current assets 125,746 (35,201)
Other assets 30,183 (1,784)
Accounts payable 225,935 10,933
Accrued liabilities 236,208 56,384
Deferred revenue 31,725 25,996
Deposits and other payables 6,291 -
------------ ------------
Net cash provided by (used in)
operating activities 428,490 (886,424)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (3,094) (73,749)
Proceeds from sale of property and equipment 300 -
------------ ------------
Net cash used in investing activities (2,794) (73,749)

Cash flows from financing activities:
Reduction of bank overdrafts (101,097) -
Proceeds from convertible debentures - 1,000,000
Payment of financing fees - (44,150)
Proceeds from related party notes and
shareholder advances - 500,000
Payments on related party notes and
shareholder advances (35,864) (500,000)
------------ ------------
Net cash provided by (used in)
financing activities (136,961) 955,850
------------ ------------
Net increase (decrease) in cash and
cash equivalents 288,735 (4,323)

Cash and cash equivalents, beginning of period 30,136 172,164
------------ ------------
Cash and cash equivalents, end of period $ 318,871 $ 167,841
============ ============

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

F-4

RAPID LINK, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 1 - NATURE OF BUSINESS AND CONSOLIDATED FINANCIAL STATEMENTS

Nature of Business

Rapid Link, Incorporated, a Delaware corporation, and its subsidiaries
(collectively referred to as "Rapid Link" or the "Company"), has served
as a facilities-based, communications company providing various forms of
telephony services to wholesale and retail customers around the world.
Rapid Link provides a multitude of international telecommunications
services targeted to individual customers, as well as small and medium
sized enterprises. These services include the transmission of voice and
data traffic over public and private networks. The Company also sells
telecommunications services for both the foreign and domestic termination of
international long distance traffic into the wholesale market. The Company
has added value-added Voice over Internet Protocol ("VoIP") communication
services to customers, both domestically and internationally, to its retail
product focus. VoIP packetized voice technology and other compression
techniques allow the Company to improve both cost and efficiencies of
telecommunication transmissions. Rapid Link utilizes the Public Switched
Telecommunications Network as well as the Internet to transport the
Company's communications services.

Rapid Link focuses on the U.S. military and other key niche markets. The
Company offers PC-to-PC, PC-to-phone, and phone-to-phone calling using a
mixture of software and/or hardware depending on the end-users' specific
needs. Rapid Link offers VoIP service plans to conventional residential and
business customers in addition to serving the military and other niches. The
Company's sells both flat-rate and cost-per-minute calling plans in order to
directly address the customers' requirements. These plans include free
features such as voice mail, call forwarding, three way calling and others.
Rapid Link's VoIP Internet Access Devices for residential and business
customers include single and multi-line adaptors. These adaptors enable
customers to convert their traditional phone into a VoIP phone and access
the Rapid Link network. Rapid Link also offers a headset that plugs directly
into the customer's computer, eliminating the need for any additional
hardware. All of these VoIP services connect through the Internet. The
customer can then make and receive calls through their new or existing phone
number using VoIP. Revenues derived from VoIP communication services do not
represent a majority of the Company's revenues at the present time.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated. The consolidated financial statements at
April 30, 2007, and for the three and six months ended April 30, 2007 and
2006, are unaudited and reflect all adjustments of a normal recurring
nature, except as otherwise disclosed herein, which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. Certain amounts previously
reported have been reclassified to conform to the current period
presentation.

The consolidated financial statements contained herein should be read in
conjunction with the consolidated financial statements and notes thereto,
together with management's discussion and analysis of financial condition
and results of operations, contained in the Company's annual report on
Form 10-KSB for the fiscal year ended October 31, 2006. The results of
operations for the three and six months ended April 30, 2007 are not
necessarily indicative of the results that may be achieved for the entire
fiscal year ending October 31, 2007.

Estimates and Assumptions

Restatements and Reclassifications

The Company has restated its consolidated financial statements as of and
for the six months ended April 30, 2006 to reflect in the proper quarterly
period certain amounts that were recorded in the consolidated financial
statements during fiscal 2006. The restated quarterly information was
presented in the Company's annual report on Form 10-KSB for the fiscal
year ended October 31, 2006. (See Note 2 - Net Reduction of Liabilities for
further details). Certain balance sheet amounts as of October 31, 2006 have
been reclassified to be properly presented (see Acquisition below for
further details).

Acquisition

On May 5, 2006, the Company acquired 100% of the outstanding stock of
Telenational Communications, Inc. ("Telenational") from Apex Acquisitions,
Inc. ("APEX"). The primary purpose of the acquisition was to enable the
Company to expand its market share in the telecommunications industry and
eliminate certain costs by gaining operational efficiencies. The
consolidated financial statements at October 31, 2006 and April 30, 2007,
and for the three and six months ended April 30, 2007, include amounts
acquired from, as well as results of operations of, the acquired business.
The Company reclassified certain amounts on its October 31, 2006
consolidated balance sheet to apply a $250,000 payment made to APEX in
October 2006 against a note owed to APEX (at the request of APEX management)
rather than as a reduction of purchase price consideration owed related to
the acquisition of Telenational. Accrued purchase price consideration of
$500,000, which represents the remaining unpaid cash portion of the purchase
consideration, was past due at April 30, 2007 and October 31, 2006.

Financial Condition and Going Concern

The Company is subject to various risks in connection with the operation
of its business including, among other things, (i) changes in external
competitive market factors, (ii) inability to satisfy anticipated working
capital or other cash requirements, (iii) changes in the availability of
transmission facilities, (iv) changes in the Company's business strategy or
an inability to execute its strategy due to unanticipated changes in the
market, (v) various competitive factors that may prevent the Company from
competing successfully in the marketplace, and (vi) the Company's lack of
liquidity and limited ability or inability to raise additional capital. The
Company has an accumulated deficit of approximately $51.5 million as of
April 30, 2007, as well as a working capital deficit of approximately $10.1
million. In addition, a significant amount of the Company's trade accounts
payable and accrued liabilities are past due. Funding of the Company's
working capital deficit, its current and future anticipated operating
losses, and expansion of the Company will require continuing capital
investment. Historically, some of the Company's funding has been provided
by a major shareholder. The Company's strategy is to fund these cash
requirements through debt facilities and additional equity financing.
Although the Company has been able to arrange debt facilities and equity
financing to date, there can be no assurance that sufficient debt or equity
financing will continue to be available in the future or that it will be
available on terms acceptable to the Company. Failure to obtain sufficient
capital could materially affect the Company's operations in the short term
and hinder expansion strategies. At April 30, 2007, approximately 50% of the
Company's debt is due to a Director of the Company, senior management or an
entity owned by senior management.

As a result of the aforementioned factors and related uncertainties,
there is substantial doubt about the Company's ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments to reflect the possible effects of recoverability and
classification of assets or classification of liabilities, which may
result from the inability of the Company to continue as a going concern.

NOTE 2 - NET REDUCTIONS OF LIABILITIES

The Company determined during the fourth quarter of fiscal 2006, based
on a review of applicable statute of limitations regulations and/or current
correspondence with vendors, that approximately $809,781 of liabilities were
no longer due and payable as of April 30, 2006. Accordingly, this amount was
recorded as "net reductions of liabilities" during the first six months of
fiscal 2006. (See Note 1 - Nature of Business and Consolidated Financial
Statements for discussion of restatement of quarterly information).

NOTE 3 - SHARE-BASED COMPENSATION

Accounting for Share-Based Payments Pursuant to Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 123 (Revised 2004), "Share-Based Payment" ("SFAS No. 123R")

The Company adopted SFAS No. 123R as of November 1, 2006 applying the
modified prospective transition method. This revised accounting standard
addresses the accounting for share-based payment transactions with employees
and other third parties, eliminates the ability to account for share-based
compensation transactions with employees using Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
requires that the fair value of such share-based payments be recognized in
the consolidated statement of operations using a fair-value-based method.
SFAS No. 123R requires publicly-traded entities to record noncash
compensation expense related to payment for employee services by an equity
award in their financial statements over the requisite service period. In
March 2005, the SEC issued Staff Accounting Bulletin ("SAB") 107, "Share-
Based Payment," which does not modify any of SFAS No. 123R's conclusions or
requirements, but rather includes recognition, measurement and disclosure
guidance for companies as they implement SFAS No. 123R.

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

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

The adoption of SFAS No. 123R had no effect on cash flows or basic and
diluted loss per share. No share-based compensation costs were capitalized
during the first six months of fiscal 2007. Noncash share-based compensation
costs recorded in general and administrative expenses during the second
quarter and first six months of fiscal 2007 were approximately $6,000 and
$12,000, respectively.

A summary of stock options as of April 30, 2007 and changes during the
six months then ended was as follows:

Weighted-
Average
Weighted Remaining
-Average Contractual Aggregate
Exercise Term Intrinsic
Stock Options Shares Price (in years) Value
------------------------------- --------- -------- ---------- ---------
Outstanding at October 31, 2006 1,242,500 $ 0.36

Granted - -
Exercised - -
Cancellations (10,000) 0.13
---------

Outstanding at April 30, 2007 1,232,500 $ 0.12 4.7 $ -
---------------------------------------------------------------------------

Exercisable at April 30, 2007 290,000 $ 0.13 6.3 $ -
---------------------------------------------------------------------------

There were no options issued to employees during the first six months of
fiscal 2007. No options were exercised during the first six months of fiscal
2007. The Company issues new shares of common stock upon option exercise.

As of April 30, 2007, there were unrecognized compensation costs of
$56,000 related to nonvested stock options which the Company expects to
recognize over a weighted-average period of 2.3 years.

Accounting for Share-Based Payments Prior to Adoption of SFAS No. 123R

Prior to November 1, 2006, the Company accounted for its stock-based
employee compensation arrangements under the intrinsic value method in
accordance with APB Opinion No. 25 and followed the disclosure provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by
SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and
Disclosure." Under APB Opinion No. 25, compensation expense for employees
is based on the excess, if any, on the date of grant, of fair value of the
Company's stock over the exercise price. Accordingly, compensation cost was
not recognized related to stock options in the financial statements as the
fair market value on the grant date approximated the exercise price. Prior
to the adoption of SFAS No. 123R, the Company calculated stock-based
compensation pursuant to the disclosure provisions of SFAS No. 123 using the
straight-line method over the vesting period of the option. Had the Company
determined compensation cost based on the fair value at the grant date for
its stock options under SFAS No. 123, as amended by SFAS No. 148, the
Company's pro forma net loss for second quarter and first six months of
fiscal 2006 would not have been materially different.

The fair value of options for shares of the Company's common stock issued
to employees has been determined using the Black-Scholes option-pricing
model, a pricing model acceptable under SFAS No. 123. There were no options
issued to employees during the first six months of fiscal 2006.

NOTE 4 - CONVERTIBLE DEBENTURES AND NOTES PAYABLE, INCLUDING RELATED PARTY
NOTES

The Company has various debt obligations as of April 30, 2007 and October
31, 2006, including amounts due to independent institutions and related
parties. No new debt obligations were incurred during the first six
months of fiscal 2007. The following tables summarize outstanding debt as
of each balance sheet date:

Related party conv. notes, current
----------------------------------
Notes (Executives) 1,905,078 10% 2/28/2008 27,574 1,877,504

Related party notes, current
----------------------------
Exec. Demand Note 300,000 8% on demand - 300,000
APEX Note 1 1,000,000 8% 11/5/2007 - 1,000,000
APEX Note 2 45,101 8% 7/15/2007 - 45,101

INFORMATION AS OF OCTOBER 31, 2006
---------------------------------------------------------------------------
Description Balance Int. Rate Due Date Discount Net
---------------------------------------------------------------------------

Convertible notes, current
--------------------------
GC-Conote2 $ 60,000 0% 3/31/2007 $ 10,000 $ 50,000
Debentures 1,000,000 10% 3/8/2007 333,333 666,667

Related party notes, current
----------------------------
Exec. Demand Note 300,000 8% on demand - 300,000
APEX Note 2 80,965 8% 7/15/2007 - 80,965

Related party conv. notes, long-term
------------------------------------
Notes (Executives) 1,905,078 10% 2/28/2008 44,120 1,860,958

Related party note, long-term
-----------------------------
APEX Note 1 1,000,000 8% 11/5/2007 - 1,000,000

Debentures totaling $1,000,000 with an original March 8, 2007 maturity
date were extended during the second quarter of fiscal 2007 to March 8,
2008. The term of the original 2,000,000 warrants issued related to these
Debentures was extended by one year, which had an insignificant financial
impact. In connection with the extension, however, 2,000,000 additional
warrants were issued, resulting in deferred financing fees of $139,000, of
which $20,000 was expensed as noncash interest expense in the second quarter
of fiscal 2007. The fair value of the warrants was determined on the date of
grant using the Black-Scholes pricing model with the following assumptions:
applicable risk-free interest rate based on the current treasury-bill
interest rate of 4.5%; volatility factor of the expected market price of the
Company's common stock of 2.87; and an expected life of the warrants of four
years. Remaining deferred financing fees, classified as other current
assets, will be amortized through March 8, 2008. In connection with these
Debentures, the lenders are entitled to an additional 50,000 warrants
monthly which vest and are exercisable each fiscal quarter until the
Debentures are paid in full. The fair value of these additional warrants is
calculated on the date earned using the Black-Scholes pricing model using
applicable risk-free interest rates based on current treasury-bill interest
rates; volatility factors of the expected market price of the Company's
common stock over the expected term; and an expected life of the warrants of
four years. The Company records noncash interest expense and a corresponding
accrued liability for the fair value of the shares earned. At the time the
warrants are issued, the accrued liability will be reversed against
additional paid-in capital.

An 8% related party note payable to APEX that is due on November 5, 2007
in the amount of $1,000,000 ("Apex Note 1") became a current liability
during the first six months of fiscal 2007. The Company's Chief Financial
Officer, Chris Canfield, is the majority shareholder of APEX. Additionally,
two 10% related party notes that are payable (1) to the Company's CEO and
(2) to a former officer of the Company that are due on February 28, 2008 in
the combined amount of $1,905,078 ("the Executive Notes") became current
liabilities during the first six months of fiscal 2007.

During fiscal 2006, in conjunction with, but unrelated to the total
purchase consideration paid for Telenational, the Company issued an 8% note
payable to APEX in the original amount of $436,560 ("APEX Note 2"). APEX
Note 2 was payable in 12 equal monthly payments of principal and interest
until fully satisfied in July 2007. However, the Company reclassified
certain amounts on its October 31, 2006 consolidated balance sheet to apply
a $250,000 payment made to APEX in October 2006 against APEX Note 2 (at the
request of APEX management) rather than as a reduction of accrued purchase
price consideration owed related to the acquisition of Telenational. The
Company has $45,101 remaining on APEX Note 2 at April 30, 2007.

NOTE 5 - BUSINESS AND CREDIT CONCENTRATIONS

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

The Company provided services to one customer that accounted for 18% and
24%, respectively, of overall revenues during the second quarter and first
six months of fiscal 2007. During the second quarter and first six months
of fiscal 2007, 18% and 24%, respectively, of the Company's revenues were
generated from customers in the Netherlands. During the second quarter of
fiscal 2007, two of the Company's suppliers accounted for approximately 25%
and 14%, respectively, of the Company's total costs of revenues. During the
first six months of fiscal 2007, two of the Company's suppliers accounted
for approximately 22% and 14%, respectively, of the Company's total costs
of revenues. At April 30, 2007, two customers accounted for 13% and 10%,
respectively, of the Company's trade accounts receivable. At October 31,
2006, one customer accounted for 13% of the Company's trade accounts
receivable.

The Company provided services to one customer who accounted for 13% and
16%, respectively, of overall revenues during the second quarter and first
six months of fiscal 2006. During the second quarter of fiscal 2006, 23% of
the Company's revenues were generated from customers in South Africa. During
the second quarter of fiscal 2006, two of the Company's suppliers accounted
for approximately 14% and 10%, respectively, of the Company's total costs of
revenues. During the first six months of fiscal 2006, one of the Company's
suppliers accounted for approximately 12% of the Company's total costs of
revenues.

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

NOTE 6 - COMMITMENTS AND CONTINGENCIES

Legal Proceedings

State of Texas. During fiscal 2004, the Company determined, based on final
written communications with the State of Texas (the "State"), that it had a
liability for sales taxes (including penalties and interest). On August 5,
2005, the State filed a lawsuit in the 53rd Judicial District Court of
Travis County, Austin, Texas against the Company. The lawsuit requests
payment of approximately $1.162 million, including penalties and for state
and local sales tax, which has been accrued at April 30, 2007 and October
31, 2006. The sales tax amount due is attributable to audit findings of the
State for the years 1995 to 1999 associated with Canmax Retail Systems, a
current subsidiary of ours, and former operating subsidiary providing retail
automation software and related services to the retail petroleum and
convenience store industries. The State determined that Canmax Retail
Systems did not properly remit sales tax on certain transactions. Management
believes that it will be able to negotiate a reduced settlement amount with
the State, although there can be no assurance that the Company will be
successful with respect to such negotiations. These operations were
classified as discontinued after the Company sold its retail automation
software business in December 1998 and changed its business model.

RAPID LINK, INCORPORATED

COMMON STOCK

PROSPECTUS

__________, 2007

You should rely only on the information contained in this prospectus to make
your investment decision. We have not authorized anyone to provide you with
different information. This prospectus may be used only where it is legal to
sell these securities. You should not assume that the information in this
prospectus is accurate as of any date other than the date of this
prospectus.

PART II - INFORMATION NOT REQUIRED IN PROSPECTUS

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our certificate of incorporation, as amended, also provides that a director
will not be personally liable to our Company or our shareholders for
monetary damages for breach of fiduciary duty as a director, except to the
extent that the exemption from liability or limitation thereof is not
permitted by the Delaware General Corporation Law.

Under a directors' and officers' liability insurance policy, our directors
and officers are insured against certain liabilities, including certain
liabilities under the Securities Act.

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth an estimate of the costs and expenses payable
by Rapid Link in connection with the offering described in this registration
statement. All of the amounts shown are estimates except the Securities and
Exchange Commission registration fee:

SEC registration fee $ 187.85

Printing fees $ 5,000.00

Accounting fees and expenses $ 25,000.00

Legal fees and expenses $ 25,000.00

Miscellaneous $ 10,000.00
-----------
Total $ 65,187.85
===========

RECENT SALES OF UNREGISTERED SECURITIES

On June 15, 2007, Rapid Link entered into a Common Stock Purchase Agreement
with Westside Capital, LLC whereby the Company sold 357,143 shares of its
common stock to the Investor for a purchase price of $25,000 and issued to
the Investor Warrants to purchase up to an additional 50,000,000 shares of
the Registrant's common stock at exercise prices as follows: 20,000,000
Warrant Shares exercisable at $0.10 per share; 15,000,000 Warrant Shares
exercisable at $0.20 per share; and 15,000,000 Warrant Shares exercisable at
$0.30 per share. Investor represented that it was an "accredited" investor
as defined under Rule 144 of the Securities Act of 1933, as amended. We
relied upon the exemption from registration as set forth in Section 4(2)
of the Securities Act and/or Rule 506 of Regulation D for the issuance of
these securities. The recipient represented that it took such securities
for investment purposes without a view to distribution and had access to
information concerning us and our business prospects, as required by the
Securities Act. In addition, there was no general solicitation or
advertising for the sale of these securities.

During the second quarter of fiscal 2007, GCA Strategic Investment Fund
Limited elected to convert $30,000 of the GC-Conote2 into approximately
622,000 shares of common stock. We relied upon the exemption from
registration as set forth in Section 4(2) of the Securities Act and/or
Rule 506 of Regulation D for the issuance of these securities. The recipient
represented that it took such securities for investment purposes without a
view to distribution and had access to information concerning us and our
business prospects, as required by the Securities Act. In addition, there
was no general solicitation or advertising for the sale of these securities.

EXHIBITS

The following is a list of all exhibits filed with this registration
statement, including those incorporated by reference.

2.1 Agreement and Plan of Merger dated as of January 30, 1998, among Canmax
Inc., CNMX MergerSub, Inc. and US Communications Services, Inc. (filed as
Exhibit 2.1 to Form 8-K dated January 30, 1998 (the "USC 8-K"), and
incorporated herein by reference)

2.2 Rescission Agreement dated June 15, 1998 among Canmax Inc., USC and
former principals of USC (filed as Exhibit 10.1 to Form 8-K dated January
15, 1998 (the "USC Rescission 8-K"), and incorporated herein by reference)

2.3 Asset Purchase Agreement by and among Affiliated Computed Services,
Inc., Canmax and Canmax Retail Systems, Inc. dated September 3, 1998 (filed
as Exhibit 10.1 to the Company's Form 8-K dated December 7, 1998 and
incorporated herein by reference)

2.4 Asset Purchase Agreement dated November 2, 1999 among ARDIS Telecom &
Technologies, Inc., Dial Thru International Corporation, a Delaware
corporation, Dial Thru International Corporation, a California corporation,
and John Jenkins (filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K dated November 2, 1999 and incorporated herein by reference)

2.5 Stock and Asset Purchase Agreement, dated as of September 18, 2001, by
and among Rapid Link USA, Inc., Rapid Link Inc., and Dial Thru International
Corporation (filed as Exhibit 2.1 to the Company's Form 8-K dated October
29, 2001 and incorporated herein by reference)

2.6 First Amendment to Stock and Asset Purchase Agreement, dated as of
September 21, 2001, by and among Rapid Link USA, Inc., Rapid Link Inc., and
Dial Thru International Corporation (filed as Exhibit 2.2 to the Company's
Form 8-K dated October 29, 2001 and incorporated herein by reference)

2.7 Second Amendment to Stock and Asset Purchase Agreement, dated as of
October 12, 2001, by and among Rapid Link USA, Inc., Rapid Link Inc., and
Dial Thru International Corporation (filed as Exhibit 2.3 to the Company's
Form 8-K dated October 29, 2001 and incorporated herein by reference)

2.8 Third Amendment to Stock and Asset Purchase Agreement, dated as of
October 30, 2001, by and among Rapid Link USA, Inc., Rapid Link Inc., and
Dial Thru International Corporation (filed as Exhibit 2.4 to the Company's
Form 8-K dated December 28, 2001 and incorporated herein by reference)

2.9 Fourth Amendment to Stock and Asset Purchase Agreement, dated as of
November 30, 2001, by and among Rapid Link USA, Inc., Rapid Link Inc., and
Dial Thru International Corporation (filed as Exhibit 2.5 to the Company's
Form 8-K dated December 28, 2001 and incorporated herein by reference)

2.10 Asset Purchase Agreement, dated as of October 25, 2005, by and between
Integrated Communications, Inc. and Dial Thru International Corporation
(filed as Exhibit 2.5 to the Company's Form 8-K dated October 31, 2005 and
incorporated herein by reference)

3.1 Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended October 31,
1999 (the "1999 Form 10-K") and incorporated herein by reference)

3.2 Amended and Restated Bylaws of Dial Thru International Corporation
(filed as Exhibit 3.2 to the 1999 Form 10-K and incorporated herein by
reference)

3.3 Amendment to Certificate of Incorporation dated January 11, 2005 and
filed with the State of Delaware on January 13, 2005 (filed as Exhibit 3.3
to the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 2004 and incorporated herein by reference)

3.4 Amendment to Certificate of Incorporation dated October 28, 2005 and
filed with the State of Delaware on November 1, 2005 (filed as Exhibit 3.4
to the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 2005 and incorporated herein by reference)

4.1 Securities Purchase Agreement issued January 28, 2002 between Dial Thru
International Corporation and GCA Strategic Investment Fund Limited (filed
as Exhibit 4.1 to the Company's Form S-3, File 333-82622, filed on February
12, 2002 and incorporated herein by reference)

4.2 Registration Rights Agreement dated January 28, 2002 between Dial Thru
International Corporation and GCA Strategic Investment Fund Limited (filed
as Exhibit 4.2 to the Company's Form S-3, File 333-82622, filed on February
12, 2002 and incorporated herein by reference)

4.3 6% Convertible Debenture of Dial Thru International Corporation and GCA
Strategic Investment Fund Limited (filed as Exhibit 4.3 to the Company's
Form S-3, File 333-82622, filed on February 12, 2002 and incorporated herein
by reference)

4.4 Common Stock Purchase Warrant dated January 28, 2002 between GCA
Strategic Investment Fund Limited and Dial Thru International Corporation
(filed as Exhibit 4.4 to the Company's Form S-3, File 333-82622, filed on
February 12, 2002 and incorporated herein by reference)

4.5 Securities Purchase Agreement issued November 8, 2002 between Dial Thru
International Corporation and Global Capital Funding Group, L.P. (filed as
Exhibit 4.1 to the Company's Form 8-K filed on September 23, 2003, and
incorporated herein by reference)

4.6 Secured Promissory Note issued November 8, 2002 between Dial Thru
International Corporation and Global Capital Funding Group, L.P. (filed
as Exhibit 4.2 to the Company's Form 8-K filed on September 23, 2003, and
incorporated herein by reference)

4.7 Common Stock Purchase Warrant issued November 8, 2002 between Dial Thru
International Corporation and Global Capital Funding Group, L.P. (filed as
Exhibit 4.3 to the Company's Form 8-K filed on September 23, 2003, and
incorporated herein by reference)

4.8 Registration Rights Agreement issued November 8, 2002 between Dial Thru
International Corporation and Global Capital Funding Group, L.P. (filed as
Exhibit 4.4 to the Company's Form 8-K filed on September 23, 2003, and
incorporated herein by reference)

4.9 Securities Purchase Agreement issued July 24, 2003 between Dial Thru
International Corporation and GCA Strategic Investment Fund Limited (filed
as Exhibit 4.5 to the Company's Form 8-K filed on September 23, 2003, and
incorporated herein by reference)

4.10 Promissory Note issued July 24, 2003 between Dial Thru International
Corporation and GCA Strategic Investment Fund Limited (filed as Exhibit 4.6
to the Company's Form 8-K filed on September 23, 2003, and incorporated
herein by reference)

4.11 Common Stock Purchase Warrant issued July 24, 2003 between Dial Thru
International Corporation and GCA Strategic Investment Fund Limited (filed
as Exhibit 4.6 to the Company's Form 8-K filed on September 23, 2003, and
incorporated herein by reference)

4.12 Secured Promissory Note dated June 1, 2005 between Global Capital
Funding Group, L.P. and Dial Thru International Corporation (filed as
Exhibit 4.1 to the Company's Form 8-K filed on June 7, 2005, and
incorporated herein by reference)

4.13 Common Stock Purchase Warrant dated June 1, 2005 between Global Capital
Funding Group, L.P. and Dial Thru International Corporation (filed as
Exhibit 4.2 to the Company's Form 8-K filed on June 7, 2005, and
incorporated herein by reference)

4.14 Common Stock Purchase Warrant dated June 1, 2005 between Global Capital
Funding Group, L.P. and Dial Thru International Corporation (filed as
Exhibit 4.3 to the Company's Form 8-K filed on June 7, 2005, and
incorporated herein by reference)

4.15 Common Stock Purchase Warrant dated June 1, 2005 between GCA Strategic
Investment Fund Limited and Dial Thru International Corporation (filed as
Exhibit 4.5 to the Company's Form 8-K filed on June 7, 2005, and
incorporated herein by reference)

4.16 Common Stock Purchase Warrant dated June 1, 2005 between GCA Strategic
Investment Fund Limited and Dial Thru International Corporation (filed as
Exhibit 4.6 to the Company's Form 8-K filed on June 7, 2005, and
incorporated herein by reference)

4.17 Common Stock Purchase Warrant dated June 1, 2005 between GCA Strategic
Investment Fund Limited and Dial Thru International Corporation (filed as
Exhibit 4.7 to the Company's Form 8-K filed on June 7, 2005, and
incorporated herein by reference)

4.18 Securities Purchase Agreement dated March 8, 2006 between Rapid Link,
Incorporated and Trident Growth Fund, L.P. (filed as Exhibit 4.1 to the
Company's Form 8-K filed on March 14, 2006, and incorporated herein by
reference)

4.19 10% Secured Convertible Debenture dated March 8, 2006 between Rapid
Link, Incorporated and Trident Growth Fund, L.P. (filed as Exhibit 4.2 to
the Company's Form 8-K filed on March 14, 2006, and incorporated herein by
reference)

4.20 Common Stock Purchase Warrant dated March 8, 2006 between Rapid Link,
Incorporated and Trident Growth Fund, L.P. (filed as Exhibit 4.3 to the
Company's Form 8-K filed on March 14, 2006, and incorporated herein by
reference)

4.21 Security Agreement dated March 8, 2006 between Rapid Link, Incorporated
and Trident Growth Fund, L.P. (filed as Exhibit 4.4 to the Company's Form 8-
K filed on March 14, 2006, and incorporated herein by reference)

4.22 Subordination Agreement dated March 8, 2006 between Rapid Link,
Incorporated Charger Investments, LLC and Trident Growth Fund, L.P. (filed
as Exhibit 4.5 to the Company's Form 8-K filed on March 14, 2006, and
incorporated herein by reference)

4.23 Securities Purchase Agreement dated March 8, 2006 between Rapid Link,
Incorporated and Charger Investments, LLC (filed as Exhibit 4.6 to the
Company's Form 8-K filed on March 14, 2006, and incorporated herein by
reference)

4.24 10% Secured Convertible Debenture dated March 8, 2006 between Rapid
Link, Incorporated and Charger Investments, LLC (filed as Exhibit 4.7 to the
Company's Form 8-K filed on March 14, 2006, and incorporated herein by
reference)

4.25 Common Stock Purchase Warrant dated March 8, 2006 between Rapid Link,
Incorporated and Charger Investments, LLC (filed as Exhibit 4.8 to the
Company's Form 8-K filed on March 14, 2006, and incorporated herein by
reference)

4.26 Security Agreement dated March 8, 2006 between Rapid Link Incorporated
and Charger Investments, LLC (filed as Exhibit 4.9 to the Company's Form 8-K
filed on March 14, 2006, and incorporated herein by reference)

5.1 Opinion of Richardson & Patel LLP (filed herewith)

10.1 Employment Agreement, dated June 30, 1997 between Canmax Retail
Systems, Inc. and Roger Bryant (filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-3, File No. 333-33523 (the "Form S-3"), and
incorporated herein by reference)

10.2 Commercial Lease Agreement between Jackson--Shaw/Jetstar Drive Tri-star
Limited Partnership and the Company (filed as Exhibit 10.20 to the Company's
Annual Report on Form 10-K dated October 31, 1998, and incorporated herein
by reference)

10.3 Employment Agreement, dated November 2, 1999 between ARDIS Telecom &
Technologies, Inc. and John Jenkins (filed as Exhibit 4.3 to the 2000 Form
10-K and incorporated herein by reference)

10.4 Amendment Number 1 to Securities Purchase Agreement dated June 1, 2005
between Global Capital Funding Group, L.P. and Dial Thru International
Corporation (filed as Exhibit 10.1 to the Company's Form 8-K filed on June
7, 2005, and incorporated herein by reference)

10.5 Amendment Number 1 to Securities Purchase Agreement dated June 1, 2005
between GCA Strategic Investment Fund Limited and Dial Thru International
Corporation (filed as Exhibit 10.2 to the Company's Form 8-K filed on June
7, 2005, and incorporated herein by reference)

10.6 Amendment Number 1 to Securities Purchase Agreement dated June 1, 2005
between GCA Strategic Investment Fund Limited and Dial Thru International
Corporation (filed as Exhibit 10.3 to the Company's Form 8-K filed on June
7, 2005, and incorporated herein by reference)

10.7 Amendment Number 2 to Securities Purchase Agreement between Rapid Link,
Incorporated and GCA Strategic Investment Fund Limited dated November 2,
2005 (filed as Exhibit 10.1 to the Company's Form 8-K filed on March 14,
2006, and incorporated herein by reference)

10.8 Stock Purchase Agreement by and between Rapid Link, Incorporated and
Apex Acquisitions, Inc. dated as of May 3, 2006 (filed as Exhibit 10.1 to
the Company's Form 8-K filed on May 9, 2006, and incorporated herein by
reference)

10.9 Amendment No. 1 to Stock Purchase Agreement by and between Rapid Link,
Incorporated and Apex Acquisitions, Inc. dated as of May 5, 2006 (filed as
Exhibit 10.2 to the Company's Form 8-K filed on May 9, 2006, and
incorporated herein by reference)

10.10 Stock Pledge Agreement by and between Rapid Link, Incorporated and
Apex Acquisitions, Inc. dated as of May 5, 2006 (filed as Exhibit 10.3 to
the Company's Form 8-K filed on May 9, 2006, and incorporated herein by
reference)

10.11 Secured Recourse Promissory Note dated as of May 5, 2006 made by Rapid
Link, Incorporated in favor of Apex Acquisitions, Inc. (filed as Exhibit
10.4 to the Company's Form 8-K filed on May 9, 2006, and incorporated herein
by reference)

10.12 Fifth Allonge to 10% Convertible Note of Dial Thru International
Corporation in favor of John Jenkins, dated September 14, 2006 (filed as
Exhibit 10.1 to the Company's Form 8-K filed on June 7, 2005, and
incorporated herein by reference)

10.13 Amendment Number 2 to Securities Purchase Agreement between Rapid
Link, Inc., formerly known as Dial Thru International Corporation, and GCA
Strategic Investment Fund Limited dated September 14, 2006 (filed as Exhibit
10.2 to the Company's Form 8-K filed on September 20, 2006, and incorporated
herein by reference)

10.14 Amendment Number 2 to Securities Purchase Agreement between Rapid
Link, Inc., formerly known as Dial Thru International Corporation, and
Global Capital Funding Group, L.P. dated September 14, 2006 (filed as
Exhibit 10.3 to the Company's Form 8-K filed on September 20, 2006, and
incorporated herein by reference)

10.15 Amendment Number 2 to Securities Purchase Agreement between Rapid
Link, Inc., formerly known as Dial Thru International Corporation, and GCA
Strategic Investment Fund Limited dated August 15, 2006 (filed as Exhibit
10.4 to the Company's Form 8-K filed on September 20, 2006, and incorporated
herein by reference)

10.16 Amendment Number 3 to 6% Convertible Debenture between GCA Strategic
Investment Fund Limited and Rapid Link, Incorporated, formerly known as Dial
Thru International Corporation dated September 14, 2006 (filed as Exhibit
10.5 to the Company's Form 8-K filed on September 20, 2006, and incorporated
herein by reference)

10.17 Amendment Number 4 to 6% Convertible Debenture between GCA Strategic
Investment Fund Limited and Rapid Link, Incorporated, formerly known as Dial
Thru International Corporation dated September 14, 2006 (filed as Exhibit
10.6 to the Company's Form 8-K filed on September 20, 2006, and incorporated
herein by reference)

10.18 Amendment Number 1 to Secured Promissory Note due February 28, 2008
between Global Capital Funding Group, L.P. and Rapid Link, Inc., formerly
known as Dial Thru International Corporation dated September 14, 2006 (filed
as Exhibit 10.7 to the Company's Form 8-K filed on September 20, 2006, and
incorporated herein by reference)

10.19 Amendment Number 1 to Secured Promissory Note due March 30, 2007
between Global Capital Funding Group, L.P. and Rapid Link, Inc., formerly
known as Dial Thru International Corporation dated September 14, 2006 (filed
as Exhibit 10.8 to the Company's Form 8-K filed on September 20, 2006, and
incorporated herein by reference)

10.20 Extension Agreement dated March 8, 2007 between Rapid Link,
Incorporated and Trident Growth Fun, LP, including Common Stock Purchase
Warrant No. 2 filed as Exhibit "A"(filed as Exhibit 4.1 to the Company's
Form 10-QSB for the quarterly period ended April 30, 2007, and incorporated
herein by reference)

10.21 Extension Agreement dated March 8, 2007 between Rapid Link,
Incorporated and Charger Investments, LLC, including Common Stock Purchase
Warrant No. 2 filed as Exhibit "A"(filed as Exhibit 4.2 to the Company's
Form 10-QSB for the quarterly period ended April 30, 2007, and incorporated
herein by reference)

10.22 Common Stock Purchase Agreement dated June 15, 2007 between Rapid
Link, Inc. and Westside Capital LLC (filed as Exhibit 4.1 to the Company's
Form 8-K filed on June 21, 2007, and incorporated herein by reference)

10.23 Registration Rights Agreement dated June 15, 2007 between Rapid Link,
Inc. and Westside Capital LLC (filed as Exhibit 4.2 to the Company's Form 8-
K filed on June 21, 2007, and incorporated herein by reference)

10.24 Common Stock Purchase Warrant "A" dated June 15, 2007 between Rapid
Link, Incorporated and Westside Capital LLC (filed as Exhibit 4.3 to the
Company's Form 8-K filed on June 21, 2007, and incorporated herein by
reference)

10.25 Common Stock Purchase Warrant "B" dated June 15, 2007 between Rapid
Link, Incorporated and Westside Capital LLC (filed as Exhibit 4.4 to the
Company's Form 8-K filed on June 21, 2007, and incorporated herein by
reference)

10.26 Common Stock Purchase Warrant "C" dated June 15, 2007 between Rapid
Link, Incorporated and Westside Capital LLC (filed as Exhibit 4.5 to the
Company's Form 8-K filed on June 21, 2007, and incorporated herein by
reference)

23.1 Consent of Independent Registered Public Accounting Firm (filed
herewith)

23.2 Consent of Richardson & Patel LLP (filed as Exhibit 5.1 herewith)

UNDERTAKINGS

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");

(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in this registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus file with the Securities and Exchange
Commission ("SEC") pursuant to Rule 424(b), if in the
aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement; and

(iii) Include any additional or changed material information on
the plan of distribution.

(2) For purposes of determining liability under the Securities Act,
to treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.

(4) For determining liability of the undersigned small business
issuer under the Securities Act to any purchaser in the initial
distribution of the securities, the undersigned small business
issuer undertakes that in a primary offering of securities
of the undersigned small business issuer pursuant to this
registration statement, regardless of the underwriting method
used to sell the securities to purchaser, if the securities
are offered or sold to such purchaser by means of any of the
following communications, the undersigned small business issuer
will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser:

(i) any preliminary prospectus or prospectus of the undersigned
small business issuer relating to the offering required to be
filed pursuant to Rule 424;

(ii) any free writing prospectus relating to the offering prepared
by or on behalf of the undersigned small business issuer or
used or referred to by the undersigned small business issuer;

(iii) the portion of any other free writing prospectus relating
to the offering containing material information about the
undersigned small business issuer or its securities provided
by or on behalf of the undersigned small business issuer;
and

(iv) any other communication that is an offer in the offering made
by the undersigned small business issuer to the purchaser.

(5) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the small
business issuer under Rule 424(b)(1), or (4) or 497(h) under the
Securities Act as part of this registration statement as of the
time the SEC declared it effective.

(6) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in
the registration statement, and that offering of the securities
at that time as the initial bona fide offering of those
securities.

(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form SB-2 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Los Angeles, California on August 9, 2007.

RAPID LINK, INCORPORATED
(Registrant)

/s/ JOHN A. JENKINS
---------------------------
John A. Jenkins
Chairman of the Board
and Chief Executive Officer

Date: August 9, 2007

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Mr. John
A. Jenkins and Mr. Christopher J. Canfield as his true and lawful attorneys-
in-fact and agents, each acting alone, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective
amendments) to the Registration Statement, and to sign any registration
statement for the same offering covered by this Registration Statement that
is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act of 1933, as amended, and all post-effective amendments thereto, and to
file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, each acting alone, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

IN ACCORDANCE THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF
THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:

NAME TITLE DATE
--------------------------- ---------------------------- --------------

/s/ JOHN A. JENKINS Chairman of the Board, August 9, 2007
--------------------------- Chief Executive Officer,
John A. Jenkins Secretary and Director
(principal executive officer)

/s/ CHRISTOPHER J. CANFIELD President, Chief Financial August 9, 2007
--------------------------- Officer, Treasurer and Director
Christopher J. Canfield (principal financial and
principal accounting officer)

/s/ LAWRENCE J. VIERRA Director August 9, 2007
---------------------------
Lawrence J. Vierra

/s/ DAVID R. HESS Director August 9, 2007
---------------------------
David R. Hess