SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) March 14, 2000
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YP.Net.Inc
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(Exact Name of Registrant as Specified in Charter)
Nevada 0-24217 85-026668
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
4840 East Jasmine Street, Suite 110, Mesa, Arizona 85205
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (480) 654-9646
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N/A
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
On March 14, 2000 Registrant filed Form 8-K with the Securities and Exchange
Commission, indicating a Change In Registrant's Certifying Accountant.
Registrant received a copy of McGladrey & Pullen's response, dated March
22, 2000 on March 24, 2000 by Certified Mail. The reply of Registrant is as
follows:
a) There have not been and there are not now any disagreements with McGladrey
& Pullen, LLP, the certifying accountant, regarding accounting policies and
practices and audit scope. Each of the items described as the "following
disagreement" in McGladrey & Pullen's letter dated March 22, 2000, (a true
copy of which is hereto attached) are bulleted items that were disclosed by
the Registrant to the certifying accountant prior to the time that an
engagement letter was executed and as part of the acceptance due diligence
required by McGladrey & Pullen, LLP.
Each of these bulleted items appear on page 1 of the certifying
accountant's letter dated March 22, 2000, to the SEC. None of the foregoing
described so-called "disagreements" are contested by the Registrant, and
are therefore not disagreements, but were issues to be resolved between
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McGladrey & Pullen, LLP and Registrant, and remain issues to be resolved by
Registrant and its new independent certifying accountant.
b) These same items appear to be misstatements in the third quarter Form
10-QSB filed by Registrant for the period June 30, 1999, and were prepared
by the then President and CEO of the Company, Kevin Jones. Mr. Jones was
neither a certified public accountant nor did he have any professional
background in financial statement presentation.
On February 21, 2000, Registrant filed its Form 8-K ("Item 5: Other
Events") in which Registrant identified the two accounting misstatements
that McGladrey & Pullen, LLP required Registrant to disclose at that time.
Prior to filing the February 21, 2000 Form 8-K with the Securities and
Exchange Commission, the proposed Form 8-K was reviewed and approved by
McGladrey & Pullen, LLP. Only two of the bulleted items identified in the
Form 8-K were required by McGladrey & Pullen, LLP to be disclosed at that
time; and at that time McGladrey & Pullen, LLP had not yet been terminated
as Registrant's certifying accountant.
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c) Registrant agrees with McGladrey & Pullen, LLP that the June 30, 1999 Form
10-QSB needs to be amended as and when the audit is completed, and these
items have been fully accounted for. Registrant previously requested
McGladrey & Pullen, LLP to review the bulleted items (in the same form as
it appears at this time) and to provide Registrant with approved accounting
procedures to rectify the filing of Form 10-QSB for the period ending June
30, 1999, but to date no recommendations have been received by Registrant.
d) This same bulleted list has been provided to King, Weber and Associates,
PC, CPA, Tempe, Arizona, which firm has tentatively agreed to become
Registrant's independent certifying accountant pending finalization of its
due diligence review to be completed by Monday, March 26, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
YP.NET.INC.
Date: March 24, 2000 By: /s/ Angelo Tullo
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Angelo Tullo, Chairman
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MCGLADREY & PULLEN, LLP RSM
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Byrne Certified Public Accountants international
March 23, 2000
Mr. Angelo Tullo
YP.Net, Inc.
4840 East Jasmine Street
Suite 105
Mesa, AZ 85205
Dear Mr. Tullo:
Enclosed is our response to the Form 8-K recently filed by YP.Net, Inc. related
to the termination of our relationship as auditors. You are required to include
this response in an amendment to the Form 8-K within 2 business days.
Sincerely,
McGLADREY & PULLEN, LLP
/S/ Mark Schreiner
Mark Schreiner
Partner
2231 East Camelback Rd, Ste 315 3200 North Central Avenue, Suite 700 Worldwide
Phoenix, Arizona 85016.3447 Phoenix, Arizona 85012-2464 Services
(602)912-0662-Fax(602)912-8966 (602)264.1284-Fax(602)266-3538 Through
www.mcgladrey.com www.mcgladrey.com RSM International
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Securities and Exchange Commission
Washington, DC 20549
We were previously engaged to be the independent accountants for YP.Net, Inc. as
of and for the year ended September 30, 1999. On March 8, 2000 we notified the
Registrant that our client/auditor relationship had ceased as independent
accountants of YP.Net, Inc. The termination of our relationship with YP.Net,
Inc. occurred prior to the completion of the audit engagement.
On March 15, 2000 we were provided a copy of the Form 8-K of YP.Net, Inc. dated
March 13, 2000. We have read such statements included under Item 4 and we agree
with such statements, insofar as they relate to McGladrey & Pullen, LLP except
as follows:
Disagreements:
We do not agree with the Registrant's comments that there were no disagreements
as noted in the 1st. 4th, 5th, 6th paragraphs of the Form 8-K. The following
disagreements on the Company's accounting policies and practices and audit scope
were unresolved at the date of our dismissal, which if not ultimately resolved
to our satisfaction would have caused us to make reference in our report as to
the subject of such disagreements:
- There was a $5,000,000 payment to a related party in June 1999
pursuant to an agreement related to the "yellow-page.net" LTRL. This
payment was .11 recorded as an asset.
- There was a "contingent asset" of $3,250,000 recorded for company
shares issued as collateral.
- There has been no amount recorded nor a calculation performed for
deferred revenue on amounts billed in advance.
- The accounting for the RIGL acquisition of Telco does not appear
correct in that reverse acquisition accounting applies and Telco
should be considered the accounting acquirer.
- There is an amount ($820,251) capitalized for proprietary technology
that we have been unable to determine the support for.
- There is an amount ($824,625) capitalized for prepaid marketing costs
that we have been unable to determine the support for nor the
proprietary of the accounting treatment.
- We have been unable to determine the propriety of the Company's
revenue recognition policy
- Goodwill - proper recording as a result of the RIGL/Telco combination,
amortization period and valuation for impairment.
- There are significant equity transactions, including options, warrants
and stock for services, that had not been given appropriate accounting
recognition.
- The accounting is not proper and there is not an adequate allowance
for doubtful accounts receivable - ESBI.
- Use of pooling method of accounting for certain business combinations.
- The need to expand the scope of our audit with respect to the
situations noted above, the conditions of accounting records and
missing information.
We discussed the above matters with the Company's President and members of the
Board of Directors in December 1999 and January 2000.
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On February 1, 2000 we were informed that the Company's President bad resigned.
On February 2nd and 3rd, 2000 we met with certain existing and newly appointed
members of the Board of Directors, who were represented to us as comprising a
majority of such Board. In our meetings with the Board, and in a subsequent
letter dated February 4, 2000, and in a meeting with the Audit Committee on
February 8, 2000 we informed the Board and Audit Committee that:
- Our Firm policy requires us to perform additional client reevaluation
procedures as a result of the change in Board of Directors and
management. These procedures include the performance of background
checks.
- We were having significant difficulties performing the audit and
needed to perform substantial additional procedures after management
or others produced missing information. We also indicated that there
were indications that past financial statements were likely misstated
for number of issues.
The text of the February 4, 2000 letter is incorporated by reference and
attached to this response.
We were informed that the Audit Committee was directed to manage the audit. On
February 23, 2000 a Form 8-K was filed which reported the specific situation
with respect to two of the eleven items noted in our February 4, 2000 letter and
also reported that "anticipated adjustments are expected to impact reported
earnings and stockholders' equity previously reported".
We repeated our requests for information on the backgrounds of the new Directors
and management orally to the Chairman of the Board on February 8, 25, and 29,
2000 and requested in a letter dated February 28, 2000 that we have such
information by March 2, 2000. The relevant portions of the February 28 letter is
as follows:
"This letter is a follow up to our meetings with the Board of Directors on
February 3, 2000 and the Audit Committee on February 8, 2000 and recent
calls regarding our re- evaluation of client acceptance. As we previously
explained to you, a vital part of our re-evaluation procedures is obtaining
information about the background of the new management and directors since
we originally accepted the engagement. This process must be completed and
accepted before we will perform any further substantive procedures on the
1999 audit.
As a starting point for this process we provided forms to be completed by
each new Director and member of management at the February 3, 2000 Board
meeting (the "Public Record Search Request" form). We also need a
description from each Director and member of management of their
involvement with any SEC investigations or actions, bankruptcies, criminal
convictions, securities law violations charges or Convictions, civil fraud
actions, etc. or any other matters that may be reportable under Item 401f
of Regulation 5K. To date we have only received two forms back. We need the
forms completed and other information as soon as possible.
If we do not have the forms and information by Thursday, March 2, 2000 at 5
p.m., we will assume that you do not desire for us to perform any more
services for YP.Net, Inc."
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In a meeting with the Chairman of the Board on March 2, 2000, we were informed
that the Company was considering engaging other auditors to complete the 1999
audit
Fees and trial balance:
We do not agree with the Registrant's comments about the fee arrangements and
trial balance in the 2nd, 4th and 6th paragraphs.
McGLADREY & PULLEN, LLP
/S/ McGLADREY & PULLEN, LLP
March 22, 2000
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