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

                                   FORM 10-KSB


    |X|      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                         For the fiscal year ended December 31, 2005

                                       OR

    |_|      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


                         For the transition period from ________ to ________

                        Commission file number: 000-33327


                            Y-TEL INTERNATIONAL, INC.
                 (Name of Small Business Issuer in Its charter)

                  Delaware                                  13-4151225
      (State or other jurisdiction of                   (I.R.S. Employer
       incorporation or organization)                  Identification No.)

                    806 O'Neal Lane
                    Baton Rouge, LA                           70816
        (Address of principal executive offices)           (Zip Code)

                                 (225) 273-1100
                (Issuer's Telephone Number, Including Area Code)


           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock, Par Value $.0001 Per Share
                    ----------------------------------------
                                (Title of Class)


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.
                                                            Yes [   ]   No [ X ]



                                       1

<PAGE>

Check whether the issuer is not required to file reports  pursuant to Section 13
or 15(d) of the Exchange Act                                    [   ]

Indicate by check mark  whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act .                            Yes [   ]   No [ X ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.                           [   ]

State issuer's revenues for its most recent fiscal year: $976,231.

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates computed based on the average bid and asked prices of such common
equity, as of April 30, 2006 was $7,415,000.

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

The number of shares outstanding of the Issuer's common stock,  $.0001 par value
per share, as of April 30, 2006 was 17,149,791 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None
Transitional Small Business Disclosure Format: Yes [ ] No [X ]
                                                              -




























                                       2

<PAGE>



                            Y-TEL INTERNATIONAL, INC.
                                   FORM 10-KSB
                                Table of Contents
                                                                           Page
Item                                                                      Number
                                     PART I
1.     Description of Business                                              4
2.     Description of Property                                             10
3.     Legal Proceedings                                                   11
4.     Submission of Matters to a Vote of Security Holders                 11

                                     PART II
5.     Market for Common Equity and Related Stockholder Matters            12
6.     Management's Discussion and Analysis or Plan of Operation           14
7.     Financial Statements                                                19
8.     Changes in and Disagreements with Accountants on Accounting
       and Financial Disclosure                                            19
8A.    Controls and Procedures                                             19
8B     Other Information                                                   19

                                    PART III
9.     Directors, Executive Officers, Promoters and Control Person;
       Compliance with Section 16(a) of the Exchange Act                   21
10.    Executive Compensation                                              24
11.    Security Ownership of Certain Beneficial Owners and Management
       and Related Stockholder Matters                                     28
12.    Certain Relationships and Related Transactions                      29
13.    Exhibits                                                            29
14.    Principal Accountant Fees and Services                              31

       Signatures                                                          32

       Audited Consolidated Financial Statements                          F-1



PRELIMINARY  NOTE:  This Annual Report on Form 10-KSB  contains  forward-looking
statements  relating to our goals,  beliefs,  plans or current  expectations and
other statements that are not historical  facts. For example,  when we use words
such  as  "project,"  "believe,"  "anticipate,"  "plan,"  "expect,"  "estimate,"
"intend,"  "should,"  "would,"  "could"  or "may," or other  words  that  convey
uncertainty  of  future  events  or  outcome,  we  are  making   forward-looking
statements.   We  refer  you  to  the  caption  entitled   "Trends,   Risks  and
Uncertainties"  in Item 6 of Part II for  important  factors  that  could  cause
actual results to differ materially from those indicated by our  forward-looking
statements   made  herein  and   presented   elsewhere   by   management.   Such
forward-looking  statements represent  management's current expectations and are
inherently   uncertain.   We  do  not   undertake   any   obligation  to  update
forward-looking statements made by us.





                                       3

<PAGE>


                                     PART I

Item 1.     Description of Business.

Overview
Y-Tel   International,   Inc.  ("we,"  "us",  "Y-Tel",  or  the  "Company")  was
incorporated as Consolidated  Pictures Corp. ("CPC") in January 2001. On October
13, 2004, CPC acquired all of the issued and outstanding  capital stock of Y-Tel
International,  LLC in a reverse  merger  transaction  and on December  26, 2004
changed its name to Y-Tel International, Inc.

Y-Tel is a next generation  telecommunications  carrier featuring  wholesale and
retail  products,  and Wi-Fi  networks,  services and  devices.  Led by a strong
management team with extensive technical and management expertise, Y-Tel is well
positioned to capitalize on three key market areas - Wireless Broadband Internet
Services, Wi-Fi/Hotspot Phones and Devices and CellNet.

The  Company   continues  to  generate   revenue   through  the  termination  of
inbound/outbound  wholesale  voice and data  minutes.  Y-Tel expects to generate
revenues through the deployment of Wireless Broadband  Internet services,  sales
and use of Y-Tel's Wi-Fi phones and deployment of CellNet. All telecommunication
and Wi-Fi Voice services will  terminate  across the Company's VoIP network with
its main hub  located  in  Dallas,  Texas.  The  network  is  powered by Nextone
equipment  and includes a redundant  backup in the  unlikely  event of equipment
failure.  To ensure the finest  customer  service,  Y-Tel monitors the network's
performance  through its Network  Operations  Center (NOC) twenty-four hours per
day, seven days per week.

Growth Strategy
The Company's  growth strategy  focuses on internal  development and roll-out of
its products,  together with  strategic  alliances and  acquisitions  within the
related business segments.

International Wholesale Long Distance Industry Segment
Y-Tel has completed the migration from the older DMS telecommunications platform
to the new VoIP  infrastructure and is now considered a next generation carrier.
However, the company's new business model focuses on servicing the retail sector
compared to the wholesale sector.

Competition in the International Wholesale Long Distance Industry
The  wholesale  telecom  industry is very  competitive  and customer  loyalty is
practically non-existent.  Wholesale customers switch daily to the provider with
the lowest  price and are  frequently  willing to  sacrifice  quality for price.
Y-Tel's  strategy for  competing  in this market  focuses on a change in service
delivery  from  wholesale to retail.  It is clear the Company needs to focus its
resources on niche markets  producing greater  profitability.  The retail sector
fits that objective.


The Company plans to market and sell the following products and services:

     o   Wireless Broadband Internet Services
     o   Wi-Fi/Hotspot Phones and Devices
     o   CellNet

                                       4

<PAGE>

Wireless  Broadband  Internet  Services:  Y-Tel has  partnered  with 5G Wireless
Solutions,  Inc to deploy,  manage and operate wireless Wi-Fi Networks.  The two
companies  bring State of The Art  technology  for wireless  broadband  internet
services and Wi-Fi voice solutions together in one service offering.

5 G Wireless  Solutions,  Inc.  was  selected  as the network  manufacturer  and
supplier  because of the superior  network  performance and G-Force  technology.
G-Force utilizes non line of sight (NLOS) wireless  technology in the unlicensed
spectra  (2.4 GHz  range)  and  includes  the use of base  stations  along  with
proprietary  high gain  antenna  technology  using an  industry  standard  Wi-Fi
platform. The advantages of this Wi-Fi broadband solution include:

     o   Decreased networking complexity
     o   Reduction in cabling and electrical drops
     o   Minimal channel management problems and interference

In contrast to first  generation  wireless  networks of internal  access points,
G-Force  employs a  superior  architecture  that is better  tuned to campus  and
municipality applications.

Competition in the Wireless ISP industry
Competition  within the Wireless ISP industry is just beginning to emerge.  Most
competitors  are  smaller  companies  deploying  a mesh  network  infrastructure
utilizing a line of sight, node to node, platform.  Y-Tel's network utilizes the
Big Stick technology,  which provides a stronger,  non line of sight signal. The
competition utilizing this technology is minimal at this time.

Wi-Fi/Hotspot Phones and Devices: Y-Tel has developed a new Patent Pending Wi-Fi
HotSpot phone for retail customers  around the world.  This new phone offers the
convenience,  mobility and cost savings of making  international  long  distance
calls from home, business,  hotel or any hotspot without having to be plugged in
to a computer.  By plugging the charging  base in to a power source and internet
connection,  the AP router, built into the base, will automatically  connect the
customer's  Wi-Fi phone to Y-Tel's global  telecommunications  network.  Now the
customer  can  make  international  long  distance  phone  calls  at VoIP  rates
resulting in substantial savings.

Competition in the Wi-Fi Phone Industry
There are several  Wi-Fi  phone  manufacturers  and  retailers;  however,  Y-Tel
believes it has a  competitive  advantage  as a result of the  company's  Patent
Pending WiFi Hotspot phone technology solution. Currently, anyone buying a Wi-Fi
phone needs to have certain elements in place to use this specialized  phone for
making long distance phone calls. The customer is required to find a carrier for
placing  international  calls,  and then  program the phone to find that carrier
when in a hotspot.  Y-Tel's solution is to provide each customer with everything
necessary right out of the box,  allowing them to connect to the Internet simply
and  easily,  creating  one  of  the  first  Wi-Fi  turnkey  solutions  in  this
underdeveloped  market.  Secondly,  Y-Tel will be  targeting  a select  group of
customers  for new Wi-Fi  phones.  Specifically,  the company  will be targeting
Y-Tel's  broadband  internet  subscribers,  international  college  students and
international business travelers.

CellNet:  Y-Tel has developed a new Patent Pending retail product called CellNet
that provides cell phone customers, placing international long distance calls, a


                                       5

<PAGE>

savings  up to 70% when  compared  to rates  charged by their  current  cellular
provider.

Competition in the sector of the industry is minimal. It includes Gorilla Mobile
and Pingo.  Y-Tel will  compete in this market by  launching an MLM (Multi Level
Marketing) platform for gathering customers.

Acquisitions
An  integral  part of Y-Tel's  aggressive  growth  strategy  is  acquisition  of
strategic,  specialized,   profitable  and  well-  managed  companies  currently
operating within these industries.  The Company is currently  evaluating several
companies as acquisition candidates for FY 2006. We have no funding in place for
any acquisitions at this time.

Regulatory Matters

General

The  telecommunications  industry is subject to various federal, state and local
laws.   Currently,   the  Company's   primary   business  is  in  the  wholesale
international long distance  telecommunications  sector, which falls outside the
parameters of most regulatory  requirements.  The company believes it is in full
compliance with both domestic and international laws.

However,  when the Company launches its retail product lines, those products and
services will require compliance with additional federal,  state and local laws.
Historically,  voice  communications  services  have been  provided by regulated
telecommunications  common carriers.  We will offer voice  communications to the
public  for  international  and  domestic  calls  using IP  telephony.  Based on
specific regulatory  classifications and recent regulatory decisions, we believe
we  qualify  for  certain  exemptions  from  telecommunications  common  carrier
regulation in many of our markets.  However,  the growth of IP telephony has led
to close examination of its regulatory  treatment in many  jurisdictions  making
the legal status of our services  uncertain and subject to change as a result of
future  regulatory  action,  judicial  decisions  or  legislation  in any of the
jurisdictions  in which we  operate.  Established  regulated  telecommunications
carriers have sought and may continue to seek regulatory actions to restrict the
ability of companies such as ours to provide services or to increase the cost of
providing such services. In addition,  our services may be subject to regulation
if regulators distinguish phone-to-phone telephony service using IP technologies
over  privately-managed  networks such as our services from integrated  PC-to-PC
and PC-originated  voice services over the Internet.  Some regulators may decide
to treat the  former as  regulated  common  carrier  services  and the latter as
unregulated  enhanced or  information  services.  Application  of new regulatory
restrictions  or  requirements  to us could increase our costs of doing business
and prevent us from delivering our services through our current arrangements. In
such  event,  we would  consider  a  variety  of  alternative  arrangements  for
providing   our   services,    including   obtaining   appropriate    regulatory
authorizations for our local network partners or ourselves, changing our service
arrangements for a particular  country or limiting our service  offerings.  Such
regulations could limit our service offerings,  raise our costs and restrict our
pricing  flexibility,  and potentially limit our ability to compete effectively.
Further,  regulations  and laws which  affect the growth of the  Internet  could
hinder our ability to provide our services over the Internet.


                                       6

<PAGE>

Recent  regulatory  enactments  by the FCC will  require us to provide  enhanced
Emergency 911 dialing  capabilities  to our  subscribers as part of our standard
VoIP services and to comply with certain notification  requirements with respect
to such  capabilities,  these  requirements  will result in increased  costs and
risks associated with the delivery of our VOIP services.

On June 3, 2005, the FCC released the "IP-Enabled Services and E911 Requirements
for IP-Enabled Service Providers,  First Report and Order and Notice of Proposed
Rulemaking"  (the "E911 Order").  The E911 Order  requires,  among other things,
that VOIP service providers that  interconnect to the public switched  telephone
network  ("Interconnected VOIP Providers") supply enhanced emergency 911 dialing
capabilities  ("E911")  to their  subscribers  no later  than 120 days  from the
effective  date of the E911 Order.  The effective date of the E911 Order is July
29, 2005. As part of such E911 capabilities,  Interconnected  VOIP Providers are
required  to  reproduce  the  911  emergency  calling  capabilities  offered  by
traditional  landline phone companies.  Specifically,  all  Interconnected  VOIP
Providers  must  deliver  911  calls  to the  appropriate  local  public  safety
answering  point ("PSAP"),  along with call back number and location,  where the
PSAP is  able to  receive  that  information.  Such  E911  capabilities  must be
included in the basic service offering of the Interconnected VOIP Providers;  it
cannot be an option or extra feature. The PSAP delivery  obligation,  along with
call back number and location information must be provided regardless of whether
the  service  is  "fixed"  or  "nomadic."  User   registration  of  location  is
permissible initially, although the FCC is committed to an advanced form of E911
that will determine user location without user  intervention,  one of the topics
of the further Notice of Proposed Rulemaking to be released.

Additionally, the E911 Order required that, by July 29, 2005 (the effective date
of  the  E911  Order),   each   Interconnected  VOIP  Provider  must  have:  (1)
specifically advised every new and existing subscriber, prominently and in plain
language, of the circumstances under which the E911 capabilities service may not
be  available  through  its  VOIP  services  or may in some  way be  limited  by
comparison to traditional landline E911 services; (2) obtained and kept a record
of affirmative  acknowledgement from all subscribers,  both new and existing, of
having received and understood the advisory described in the preceding item (1);
and (3)  distributed  to its  existing  subscribers  warning  stickers  or other
appropriate  labels  warning  subscribers  if E911 service may be limited or not
available and  instructing the subscriber to place them on or near the equipment
used in conjunction with the provider's VOIP services. We have complied with the
requirements  set forth in the  preceding  items (1) and (3).  However,  despite
engaging in  significant  efforts,  as of October 12, 2005,  we had received the
affirmative  acknowledgements  required by the preceding item (2) from less than
15% of our VOIP subscribers.

On July 26, 2005,  noting the efforts made by  Interconnected  VOIP Providers to
comply  with the  E911  Order's  affirmative  acknowledgement  requirement,  the
Enforcement Bureau of the FCC (the "EB") released a Public Notice  communicating
that,  until August 30, 2005, it would not initiate  enforcement  action against
any   Interconnected   VOIP   Provider   with   respect   to  such   affirmative
acknowledgement  requirement  on the condition that the provider file a detailed
report  with the FCC by August  10,  2005.  The  report  must set forth  certain
specific  information  relating  to the  provider's  efforts to comply  with the
requirements of the E911 Order. Furthermore,  the EB stated its expectation that
that if an  Interconnected  VOIP  Provider  has not  received  such  affirmative


                                       7

<PAGE>

acknowledgements  from 100% of its existing subscribers by August 29, 2005, then
the  Interconnected  VOIP Provider  would  disconnect,  no later than August 30,
2005, all subscribers  from whom it has not received such  acknowledgements.  On
August 26, 2005,  the EB released  another Public Notice  communicating  that it
would not, until September 28, 2005,  initiate  enforcement action regarding the
affirmative  acknowledgement  requirement  against  those  providers  that:  (1)
previously  filed reports on or before  August 10, 2005 in  accordance  with the
July 26 Public Notice; and (2) file two separate updated reports with the FCC by
September 1, 2005 and September 22, 2005 containing certain additional  required
information  relating to such provider's  compliance efforts with respect to the
E911 Order's requirements. The EB further stated in the second Public Notice its
expectation  that,  during  the  additional  period  of  time  afforded  by  the
extension,  all Interconnected  VOIP Providers that qualified for such extension
would  continue  to use  all  means  available  to them  to  obtain  affirmative
acknowledgements from all of their subscribers.

Even assuming our full compliance  with the E911 Order,  such compliance and our
efforts to achieve such compliance,  will increase our cost of doing business in
the VOIP  arena  and may  adversely  affect  our  ability  to  deliver  our VOIP
telephony services to new and existing customers in all geographic regions.

Our  products  must comply with  industry  standards,  FCC  regulations,  state,
country-specific  and international  regulations,  and changes may require us to
modify existing products.

In addition to  reliability  and quality  standards,  the market  acceptance  of
telephony  over broadband IP networks is dependent upon the adoption of industry
standards so that products from multiple  manufacturers  are able to communicate
with each other.  There is currently a lack of agreement among industry  leaders
about which standard should be used for a particular application,  and about the
definition of the standards  themselves.  These standards,  as well as audio and
video  compression  standards,  continue  to evolve.  We also must  comply  with
certain rules and  regulations of the Federal  Communications  Commission  (FCC)
regarding   electromagnetic   radiation  and  safety  standards  established  by
Underwriters  Laboratories,   as  well  as  similar  regulations  and  standards
applicable in other  countries.  Standards are  continuously  being modified and
replaced.  As  standards  evolve,  we may be  required  to modify  our  existing
products or develop and support new versions of our products. The failure of our
products to comply, or delays in compliance,  with various existing and evolving
industry  standards  could  delay  or  interrupt  volume  production  of  our IP
telephony products,  which would have a material adverse effect on our business,
financial condition and operating results.

Business Background

Consolidated Pictures Corp was incorporated in Delaware on January 16, 2001, for
the purpose of  developing,  producing,  marketing and  distributing  low-budget
films.  On May  30,  2001,  Consolidated  Pictures  Corp  filed  a  Registration
Statement with the  Securities and Exchange  Commission for their initial public
offering. On September 4, 2001, the Registration  Statement was deemed effective
and September 4, 2003, the public offering of units of securities was officially
closed. The Company's  authorized capital stock consists of 50,000,000 shares of
common  stock,  par value $0.0001 per share,  and 5,000,000  shares of preferred
stock, par value $0.0001 per share.


                                       8

<PAGE>

On October 13, 2004,  CPC entered into an Agreement  and Plan of  Reorganization
(the  "Agreement")  with Y-Tel  International,  LLC, a Florida limited liability
company and  subsequently  changed its name to Y-Tel  International,  Inc.  This
transaction was accounted for as a reorganization.

Progression of Y-Tel International, LLC and its subsidiaries
Y-Tel  International,  LLC was organized as a limited  liability  company in the
state  of  Florida  on  August  8,  2003  for  the  purpose  of   developing  an
International  wholesale long distance  company with  operations in Panama City,
Panama.  On  August  21,  2003  Y-Tel   International,   LLC  established  Y-Tel
International  Panama, SA as a wholly owned subsidiary in the Republic of Panama
for the purpose of operating  an  international  gateway for  telecommunications
traffic around the world.

October 2003 - Y-Tel shipped  equipment to Panama and initiated the installation
process for the purpose of becoming an international  gateway for wholesale long
distance  service.  However,  the plan was never fully  executed and all related
assets were sold.

On October 29, 2003, Y-Tel completed the acquisition of  International  Telekom,
LLC (formerly  Intel  Communications,  LLC) which is located in Miami,  Florida.
International  Telekom,  LLC is accounted  for as a wholly owned  subsidiary  of
Y-Tel.

January 2004,  International Telekom, LLC completed a contract with Digicel USA,
believed to be the fastest  growing GSM provider in the  Caribbean  region.  The
contract provided for revenue resulting from port rental charges and termination
of  traffic  throughout  the  Caribbean  islands.   Subsequently,   the  Company
redirected   100%  of  its  resources  to  servicing   Digicel,   including  the
installation of a 9 meter satellite dish in July 2004.

October 13, 2004,  the Company  completed the reverse  merger with  Consolidated
Pictures Corp.

October  25,  2004 Y-Tel  entered the Wifi  VoWLAN  business  by  completing  an
exclusive distributor agreement with EBI Communications,  Inc. ("EBI"). However,
effective  June 2005, the agreement was terminated due to lack of performance by
EBI.

December 2004, the Company entered into a contract with KBMP for installation of
a VoWLAN network in the Bahamas  islands.  The contract was later terminated for
non-performance.

December  26,  2004  Consolidated  Pictures  Corp  changed  its  name  to  Y-Tel
International,  Inc.  and the trading  symbol was thereby  changed  from CPUR to
YTLI.

April 2005, the Company appointed Alan Tracey to the Board of Directors.

May 2005, the Company  appointed John Conroy,  Chief Financial  Officer,  to the
Board of Directors.

June 2005,  the Company  hired Todd Wallace as the Chief  Technical  Officer and
subsequently  purchased a Nextone  Softswitch and began  constructing a new VoIP


                                       9

<PAGE>

infrastructure.  On June 29, 2005,  the Company  executed a loan  agreement with
Barclay Asset Management Company for $5,000,000,  no funds were received and the
loan agreement was cancelled.

July 2005,  the Company  appointed  Todd Wallace and Dan Robison to the Board of
Directors and accepted the  resignations  of Jon McMurray and Garry McHenry form
the Board.  Additionally,  the Company filed patents for its Wi-Fi/Hotspot phone
design.

August 2005, the Company filed patents for CellNet.

September  2005,  the Company  accepted the  resignation of Dan Robison from the
Board of Directors.

October 2005, the Company  completed  installation  of its first mesh network in
Nacogdoches, Texas. The network will be utilized as a test sight for determining
the best solution for voice in Wi-Fi environment.

November 2005, the Company continued  development of its VoIP infrastructure and
added  thirteen  new  carriers.  On November  28,  2005,  the Board of Directors
terminated  the CEO for cause and appointed John Conroy as the acting CEO, until
such time as a new candidate is hired.

December  2005,  the Company  entered into a settlement  agreement  with AIT, to
effectively  transfer  ownership of the assets in Panama for a total  release of
approx  $310,000 in debt,  and entered into a separate  agreement with Interlink
Global,  to effectively sell the DMS equipment  located in Miami,  Florida for a
total price of $223,000.  Subsequently, the Company completed the migration from
the DMS  platform to the new VoIP  infrastructure  and is now  considered a Next
Generation  Carrier.  On December 13,  2005,  the Company  terminated  the lease
agreements  in  Miami,  Florida  and  Panama  City,  Panama  and  completed  the
reorganization  of operations,  including the relocation of the telecom hub from
Miami,  Florida to Dallas,  Texas, thereby reducing annual operating expenses by
$300,000.

Employees
As of December  31, 2005 the Company  employed two full time  employees  and two
telecom technicians (contract labor).

Item 2.    Description of Property.

As of December 31, 2005,  the Company had leased  facilities for its telecom hub
in Dallas,  Texas. The lease term is one year,  effective July 2005, and consist
of cabinet  space for housing the Nextone  Softswitching  equipment at a rate of
$400 per month.

The Company also pays $300 per month for administrative  offices in Baton Rouge,
Louisiana.








                                       10

<PAGE>

Item 3.    Legal Proceedings.

While the Company is not formally engaged in any litigation,  legal  proceedings
or claims, it is involved in resolving the following issues:

Y-Tel has agreed to the  settlement  offer of  $15,000 from  creditor's  council
related to the Company's  failure to complete the  acquisition of SunGlobe.  The
Company  did  not  follow  through  on  the  purchase  of  SunGlobe  because  of
misrepresentations made by Seller.

Y-Tel  is  currently  in  negotiations  with  the  former  CEO  regarding  final
settlement of unpaid wages and claims.

Item 4.    Submission of Matters to a Vote of Security Holders.

None.








































                                       11

<PAGE>



                                     PART II

Item 5.    Market for Common Equity and Related Stockholder Matters.

Market Prices

The Common Stock of the Company began  trading on the Over the Counter  Bulletin
Board  ("OTCBB") on October 5, 2004 and is listed  under the symbol  "YTLI." The
following table sets forth, for the fiscal quarters indicated,  the range of the
high  and low  sales  prices  for the  Company's  common  stock as  reported  by
Stockwatch.com  or the National  Quotation  Bureau,  Inc, as  applicable.  These
quotations  reflect  inter-dealer  prices,  without retail mark-up,  markdown or
commission, and may not represent actual transactions.

Fiscal Year ended December 31, 2004:                       High   Low
-------------------------------------                      -----  ----
Quarter ended December 31, 2004 (YTLI)                     5.25   2.00

Fiscal Year ended December 31, 2005
-------------------------------------
Quarter ended March 31, 2005                               5.50   1.00
Quarter ended June 30, 2005                                1.60   0.76
Quarter ended September 30, 2005                           1.60   1.10
Quarter ended December 31, 2005                            1.97   0.35


On May 22,  2006,  the  company  was  delisted  due to its  failure  to file all
required SEC reports.  The Company is working with its market  makers to restore
its trading market.

Stockholders

As of December 31, 2005, the Company had approximately 295 record holders of its
Common  Stock,  as reflected on the books of the  Company's  transfer  agent.  A
significant  number of shares were held in street name and, as such, the Company
believes that the actual number of beneficial owners is significantly higher.

Dividends

The Company has not established a policy concerning payment of regular dividends
nor has it paid any  dividends  on its  Common  Stock to date.  Any  payment  of
dividends in the future will be determined by the Board of Directors in light of
conditions  then  existing,  including  restrictions  imposed  by the  Company's
preferred stock then outstanding,  the Company's earnings,  financial condition,
capital requirements and debt covenants,  and the tax treatment  consequences of
paying dividends.

Penny Stock
The  Company's  Common Stock is subject to  provisions of Section 15(g) and Rule
15g-9 of the Securities  Exchange Act of 1934, as amended (the "Exchange  Act"),
commonly  referred  to as the "penny  stock  rule."  Section  15(g) sets for the
certain  requirements  for  transactions  in  penny  stock,  and  Rule  15g-9(d)


                                       12

<PAGE>

incorporates the definition of "penny stock" that is found in Rule 3a51-1 of the
Exchange Act. The SEC generally  defines "penny stock" to be any equity security
that  has a  market  price  less  than  $5.00  per  share,  subject  to  certain
exceptions.  If the Company's Common Stock is deemed to be penny stock,  trading
in the shares  will be subject to  additional  sales  practice  requirements  on
broker-dealers who sell penny stock to persons other than established  customers
and  accredited  investors.  "Accredited  investors"  are person  with assets in
excess of $1,000,000 or annual income  exceeding  $200,000 or $300,000  together
with their spouse. For transactions covered by these rules,  broker-dealers must
make a special  suitability  determination for the purchase of such security and
must  have the  purchaser's  written  consent  to the  transaction  prior to the
purchase.  Additionally,  for any  transaction  involving  penny  stock,  unless
exempt, the rules require the delivery, prior to the purchase. Additionally, for
any  transaction  involving a penny stock,  unless  exempt the rules require the
delivery, prior to the first transaction of a risk disclosure document, prepared
by the SEC,  relating  to the penny  stock  market.  A  broker-dealer  also must
disclose the commissions  payable to both the  broker-dealer  and the registered
representative  and current  quotations  for the  securities.  Finally,  monthly
statements must be sent disclosing recent price information for the penny stocks
held in an  account  and  information  to the  limited  market in penny  stocks.
Consequently,  these rules may  restrict the ability of  broker-dealer  to trade
and/or  maintain  a market in the  Company's  Common  Stock and may  affect  the
ability of the Company's shareholders to sell their shares.

Sale of Unregistered Securities
During the fourth quarter of 2005,  the Company  issued the following  shares of
its common stock  without  registration  under the  Securities  Act of 1933,  as
amended (the "Securities Act"):

     1.  The Company issued  325,375 shares of restricted  common stock for cash
         totaling $160,710.

     2.  The  Company  issued  53,600  shares of  restricted  common  stock to a
         consultant in connection with the  performance of services.  The shares
         were valued at $26,988  (based on the fair value of the common stock at
         the respective  measurement  dates) and expensed during the three month
         period ended December 31, 2005;

     3.  The Company issued 18,200 shares of the Company's common stock upon the
         conversion of a note payable of $70,000 and accrued interest of $2,800.



The above  issuances  were  unregistered,  as the  Company  was  relying  on the
exemptions  from  registration  contained in Section 4(2) of the Securities Act,
and Regulation D promulgated thereunder, on the basis that such transactions did
not involve public offerings of securities.

Transfer Agent
The Company's transfer agent is Atlas Stock Transfer in Salt Lake City, Utah.






                                       13

<PAGE>

Item 6.    Management's Discussion and Analysis or Plan of Operation.

General

Use of Estimates and Critical Accounting Policies

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

Allowance for Doubtful Accounts

Management  believes all customer  receivables are fully collectible at December
31, 2005 and therefore,  an allowance for bad debts has not been recorded in the
financial  statements.   As  the  Company  expands,   management  will  continue
monitoring  financial  indicators and cash flow patterns and will establish such
an allowance should the need arise.

Revenue Recognition

The Company  recognizes  revenue in accordance  with Staff  Accounting  Bulletin
("SAB") No. 101, Revenue Recognition in Financial Statements," as revised by SAB
No. 104. As such, the Company recognizes revenue when persuasive  evidence of an
arrangement exists, services have been performed,  the price is fixed or readily
determinable  and  collectibility  is probable.  Sales are recorded net of sales
discounts. The Company's revenue is generated primarily from the sale of traffic
(minutes) to other telecom companies. Revenue is recognized when invoiced to the
customer, which approximates the time the phone calls are placed.

Stock-Based Compensation

The Company accounts for non-employee  stock-based  compensation under Statement
of  Accounting   Standards   ("SFAS")  No.  123   "Accounting   For  Stock-Based
Compensation."  SFAS No. 123 defines a fair value based method of accounting for
stock-based compensation.  However, SFAS No. 123 allows an entity to continue to
measure compensation cost related to stock and stock options issued to employees
using the  intrinsic  method of accounting  prescribed by Accounting  Principles
Board  Opinion No. 25 ("APB 25"),  "Accounting  for Stock Issued to  Employees."
Under APB 25,  compensation  cost,  if any, is  recognized  over the  respective
vesting period based on the difference,  on the date of grant,  between the fair
value of the Company's  common stock and the grant price.  Entities  electing to
remain with the accounting  method of APB 25 must make pro forma  disclosures of
net income (loss) and earnings  (loss) per share, as if the fair value method of
accounting defined in SFAS No. 123 had been applied.

In December 2004, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 123 (revised 2004),  "Share-Based  Payment" ("SFAS No. 123(R)"),  which is a
revision of SFAS No. 123. SFAS 123(R)  supersedes APB 25 and amends SFAS No. 95,
"Statement of Cash Flows." Generally, the approach in SFAS No. 123(R) is similar
to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all
share-based  payments to employees,  including grants of employee stock options,


                                       14

<PAGE>

to be recognized in the income  statement based on their fair values.  Pro forma
disclosure is no longer an  alternative.  The  provisions of this  statement are
effective  for the Company as of January 1, 2006.  The Company  expects to adopt
SFAS No. 123(R) in the first fiscal quarter of 2006.

SFAS No.  123(R)  requires  companies to recognize in the income  statement  the
grant-date  fair  value of stock  options  and other  equity-based  compensation
issued to employees.  SFAS No. 123(R) also establishes  accounting  requirements
for measuring,  recognizing and reporting  share-based  compensation,  including
income tax considerations. Upon adoption of SFAS No. 123(R), the Company will be
required to determine the transition  method to be used at the date of adoption.
The  Company  plans to adopt  SFAS No.  123(R)  using the  modified  prospective
application.  Under the modified prospective application, the cost of new awards
and awards modified,  repurchased or cancelled after the required effective date
and the portion of awards for which the requisite  service has not been rendered
(unvested awards) that are outstanding as of the required effective date will be
recognized  as the  requisite  service  is  rendered  on or after  the  required
effective date. The compensation  cost for that portion of awards shall be based
on  the  grant-date  fair  value  of  those  awards  as  calculated  for  either
recognition or pro forma disclosures under SFAS No. 123.

As  permitted by SFAS No. 123, the Company  currently  accounts for  share-based
payments  to  employees  using APB 25's  intrinsic  value  method  and, as such,
generally   recognizes  no   compensation   cost  for  employee  stock  options.
Accordingly,  the  adoption of SFAS No.  123(R)'s  fair value method will have a
negative impact on the Company's results of operations, although it will have no
impact on its overall financial position. The impact of adopting SFAS No. 123(R)
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. 123(R)
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 loss
per share.  SFAS No.  123(R) also  requires  the benefits of tax  deductions  in
excess of recognized  compensation cost to be reported as a financing cash flow,
rather than as an  operating  cash flow as  required  under  current  accounting
literature.  The  requirement  will reduce net operating cash flows and increase
net financing cash flows in periods of adoption.

Issuance of Stock for Non-cash Consideration

All issuance of the Company's common stock for non-cash  consideration have been
assigned a dollar amount  equaling  either the market value of the shares issued
or the value of consideration  received whichever is more readily  determinable.
The  majority  of the  non-cash  consideration  received  pertains  to  services
rendered by  consultants  and others and has been valued at the market  value of
the shares  issued.  In certain  issuances,  the Company may  discount the value
assigned to the stock issued for illiquidity and restrictions on resale.

The Company's accounting policy for equity instruments issued to consultants and
vendors in exchange for goods and services  follows the  provisions  of Emerging
Issues Task Force ("EITF) 96-18,  "Accounting  for Equity  Instruments  That are
Issued to Other than  Employees for Acquiring,  or in  Conjunction  with Selling
Goods  or  Services"  and  EITF  00-18,   "Accounting  Recognition  for  Certain
Transactions  Involving Equity Instruments Granted to Other Than Employees." The
measurement  date  for the  fair  value  of the  equity  instruments  issued  is


                                       15

<PAGE>

determined bat the earlier of (i) the date at which a commitment for performance
by the  consultant or vendor is reached or (ii) the date at which the consultant
or vendor's performance is complete. In the case of equity instruments issued to
consultants, the fair value of the equity instrument is recognized over the term
of the consulting  agreement.  In accordance to EITF 00-18, an asset acquired in
exchange for the issuance of fully vested,  non-forfeitable  equity  instruments
should not be presented or  classified  as an offset to equity on the  grantor's
balance  sheet once the equity  instrument is granted for  accounting  purposes.
Accordingly,  the Company  records the fair value of the common stock issued for
consulting services to be performed in future periods as prepaid services in its
consolidated balance sheet.

Results of  Operations - Year Ended  December  31, 2005  Compared  to Year Ended
December 31, 2004

Net Sales

Net sales were  $976,231  for the year  ended  December  31,  2005  compared  to
$1,249,380 for the year ended December 31, 2004.  This  represents a decrease of
$273,149 or 21.8%. The decrease is attributed to the decline in domestic traffic
from  Digicel  in  Jamaica  and  international  traffic  from  Cayman.  It  also
underscores the  vulnerability of the wholesale  business sector and the need to
focus resources on retail products.

Cost of Sales

Cost of sales were  $352,144 for the year ended  December  31, 2005  compared to
$635,418  for the year ended  December  31,  2004.  This  represents  a decrease
$283,274  or 44.6%.  The  decrease is  attributed  to the decline in traffic and
related termination expenses.

Operating Expenses

Operating expenses were $5,865,617 for the year ended December 31, 2005 compared
to $3,996,160 for the year ended December 31, 2004.  This represents an increase
of $1,869,457  or 46.8% when  compared to expenses for 2004.  Of this  increase,
approximately  $927,084 is non-cash  related and is  attributed to the full year
effect of amortizing  prepaid  services,  whereby various  consultants  received
stock for  services in 2004.  $371,851  reflects the full year effect of payroll
related  expenses for 2005 compared to only a few months in 2004. Y-Tel employed
the CEO  effective  October  1, 2004 and the CFO  effective  November  1,  2004.
$531,665  reflects  impairment  losses  attributed  to  the  termination  of the
contracts  with EBI and Van Orten &  Partners,  and the write  down of assets in
Panama.

Operating  expenses also includes  Other G&A expenses of $1,568,190  compared to
$1,000,344  for the years ended December 31, 2005 and 2004,  respectively.  This
represents  an increase of $567,846  or 57% when  compared to G&A  expenses  for
2004. Of this increase,  approximately  $367,878 reflects the recorded loss from
the sale of assets in Miami and  Panama.  $100,740  is  directly  attributed  to
increased  cost of legal fees  resulting  from the  addition  of new counsel and
expenses  related to the  change in  direction  of the  Company,  and  insurance
expenses  increased  by  $38,733  as a result of adding  Property  and  Casualty
insurance for the assets in Miami and Directors and Officers insurance.


                                       16

<PAGE>
Liquidity and Capital Resources

The Company has net working capital deficit of $889,393 as of December 31, 2005.
Management  recognizes the Company must generate additional  resources to enable
it to continue  operations.  The Company will  continue to seek working  capital
through  the equity  markets.  The  successful  outcome of future  fund  raising
activities cannot be determined at this time, and there is no assurance that, if
achieved,  the  Company  will have  sufficient  funds to  execute  its  intended
business plan or generate positive operating results.

On December 1, 2005,  the Company  executed two stock purchase  agreements  with
Mercatus & Partners,  reflecting the potential  sale of 2,625,000  shares of its
common stock for  $1,200,000.  The stock  certificates  have been issued and are
currently  held in escrow until  receipt of funds.  As the shares are in escrow,
the Company has not  recorded the shares as issued and  outstanding  at December
31, 2005. As of May 15, 2006, the Company has not received any funds.

Subsequent  to December 31, 2005,  the Company  issued  92,600  shares of common
stock for proceeds of $20,655.

The Company has curtailed its operations during the first five months of 2006 in
order to conserve its limited cash. The Company requires  additional  funding to
implement its current  business plan of developing its VOIP  infrastructure  and
products and services.

Going Concern

The Company's independent  registered public accounting firm has stated in their
report included in this Form 10-KSB, that the Company incurred an operating loss
and had  negative  cash flows from  operations  for the year ended  December 31,
2005, and has an accumulated  deficit of $9,167,784 at December 31, 2005.  These
factors,  among others,  raise  substantial doubt about the Company's ability to
continue as a going concern.

Trends, Risks and Uncertainties

We have sought to identify what we believe to be the most  significant  risks to
our business,  but we cannot predict whether or to what extent any of such risks
may be realized, nor can there be any assurances that the Company has identified
all possible  risks that might arise.  Current and  potential  investors  should
carefully consider all of the following risk factors before making an investment
decision with respect to our stock.

We Have a Limited History

The  Company  was  founded  in August  2003 and thus,  has a limited  history of
operations.  The Company may  encounter  unanticipated,  unusual,  or unexpected
risks and problems,  which could adversely affect our operations,  revenue,  and
ability to obtain a profit.

We Require Additional Capital for Production of Wifi Phones

The Company will require  additional capital for deployment of wireless internet
services and  production of Wifi phones.  If we are unable to raise capital when
our needs arise, we will be unable to pursue our current  business  strategy and
may not be able to fund our operations.

                                       17

<PAGE>

We Require Additional Capital for Acquiring Other Companies

The Company will require  additional  capital for acquisition of other companies
that will complement the Company's  growth  strategy.  If we are unable to raise
capital when our needs arise,  we will be unable to pursue our current  business
strategy and may not be able to fund our operations.

If We Obtain Additional Financing,  or Acquire Companies using Our Common Stock,
It Could Dilute Present Stockholder Holdings.

We will likely need to raise money through the sale of additional  equity within
the  next  twelve  months,  in one or  more  private  placements  and/or  public
offerings.  If we do so, all of the then current existing stockholders and their
stock  holdings will be  proportionately  diluted.  In addition,  we will likely
acquire companies using our common stock as  consideration.  If we do so, all of
our  existing  stockholders  at such  time  and  their  stock  holdings  will be
proportionately diluted.

  Our Business Depends on:

     A.  The Company's  ability to secure adequate funding to ensure the Company
         meets its financial objectives.
     B.  The Company's  ability to acquire  strategic  companies that complement
         the company's business model..
     C.  The Company's ability to offer competitive rates to our customers.

Our Aggressive Business Plans Will Place a Significant Strain on Our Assets.

Implementation of our aggressive  acquisition  strategy will impose  significant
strains on our  management,  operating  systems  and  financial  resources.  The
acquisitions  that we are  currently  contemplating  would  involve  substantial
expenditures of our time and resources to close. If we fail to manage our growth
or encounter unexpected  difficulties during expansion, it could have a material
adverse effect on our financial condition and results of operations. The pursuit
and  integration of  acquisitions  will require  substantial  attention from our
senior  management,  which will limit the amount of time they are able to devote
to our existing operations.

We Are Heavily Dependent on Our Senior Management.

If we  lose  members  of our  senior  management,  we may  not be  able  to find
appropriate  replacements on a timely basis, and our business could be adversely
affected.  Our existing  operations and continued future development depend to a
significant extent upon the performance and active  participation of certain key
individuals. We cannot guarantee we will be successful in retaining the services
of these or other key personnel. If we were to lose any of these individuals, we
may not be able to find  appropriate  replacements  on a  timely  basis  and our
financial  condition  and results of operations  could be  materially  adversely
affected.

We Have a History of Losses.

We incurred  consolidated  net losses of $5,241,130  and  $3,382,198  during the
years ended December 31, 2005, and 2004,  respectively.  Our management believes


                                       18

<PAGE>

the new business plan will be successful and we will become profitable; however,
there  can be no  assurance  that we  will be  successful  in  implementing  our
business plan or that we will be profitable now or in the future.

Because Our Competition Has Greater  Experience and Resources Than We Do, We May
Be at a Competitive Disadvantage.

Many of our  competitors  have  significantly  greater  experience and financial
resources than us, which could place us at a competitive disadvantage.

Item 7.    Financial Statements.

The audited  consolidated  financial  statements  and the related  notes are set
forth at pages F-1 through F-17 attached hereto.

Item 8.    Changes in and  Disagreements  With  Accountants  on  Accounting  and
           Financial Disclosure.

None.

Item 8A.   Controls and Procedures.

As of December 31, 2005, an evaluation was carried out under the supervision and
with the participation of the Company's  management,  including the acting Chief
Executive  Officer and Chief  Financial  Officer,  of the  effectiveness  of the
design and operation of our  disclosure  controls and  procedures (as defined in
Rule 13a-15(e) and 15d-15(e) under Securities  Exchange Act of 1934.) Based upon
that  evaluation,  the Chief Executive  Officer and the Chief Financial  Officer
concluded  that the  design  and  operation  of these  disclosure  controls  and
procedures  were  effective.  No  significant  changes were made in our internal
controls or in other  factors that could  significantly  affect  these  controls
subsequent to December 31, 2005.

(a) Evaluation of Disclosure Controls and Procedures. The Company carried out an
evaluation  under the  supervision and with the  participation  of the Company's
management,  including the Company's acting Chief Executive  Officer ("CEO") and
Chief  Financial  Officer  ("CFO"),   of  the  effectiveness  of  the  Company's
disclosure controls and procedures.  Based upon that evaluation,  the acting CEO
and CFO  concluded  that as of December  31, 2005 our  disclosure  controls  and
procedures  were effective in timely  alerting them to the material  information
relating to the Company (or the Company's consolidated subsidiaries) required to
be included  in the  Company's  periodic  filings  with the SEC,  subject to the
various  limitations  on  effectiveness  set  forth  below  under  the  heading,
"LIMITATIONS  ON  THE   EFFECTIVENESS  OF  INTERNAL   CONTROL,"  such  that  the
information relating to the Company, required to be disclosed in SEC reports (i)
is  recorded,  processed,  summarized  and  reported  within  the  time  periods
specified in SEC rules and forms,  and (ii) is accumulated  and  communicated to
the Company's  management,  including our acting CEO and CFO, as  appropriate to
allow timely decisions regarding required disclosure.







                                       19

<PAGE>

(b) Changes in internal  control  over  financial  reporting.  There has been no
change in the Company's internal control over financial  reporting that occurred
during the fiscal quarter ended December 31, 2005 that has materially  affected,
or is reasonably  likely to materially  affect,  the Company's  internal control
over financial reporting.

LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROLS

The Company's management, including the acting CEO and CFO, does not expect that
our disclosure  controls and  procedures or our internal  control over financial
reporting will  necessarily  prevent all fraud and material  error.  An internal
control  system,  no matter how well  conceived and  operated,  can provide only
reasonable,  not absolute,  assurance  that the objectives of the control system
are met.  Further,  the design of the control  system must reflect that the fact
that there are  resource  constraints,  and the  benefits  of  controls  must be
considered  relative to their costs.  Because of the inherent  limitation in all
control systems,  no evaluation of controls can provide absolute  assurance that
all control issues and instances of fraud,  if any, within the Company have been
detected.  These  inherent  limitations  include the realities that judgments in
decision-making  can be faulty,  and that breakdowns can occur because of simple
error or mistake.  Additionally,  controls can be circumvented by the individual
acts of some  persons,  by  collusion of two or more  people,  or by  management
override of the internal  control.  The design of any system of controls also is
based in part upon certain assumption about the likelihood of future events, and
there can be no assurance  that any design will succeed in achieving  its stated
goals  under all  potential  future  conditions.  Over time,  control may become
inadequate  because of changes in  conditions,  and/or the degree of  compliance
with the policies or procedures may deteriorate.

Item 8B.  Other Information

None.
























                                       20

<PAGE>



                                    PART III

Item 9.    Directors, Executive Officers, Promoters and Control Persons;
           Compliance with Section 16(a) of the Exchange Act.

 All  directors of our company hold office until the next annual  meeting of the
security holders or until their successors have been elected and qualified.  The
officers of our company are  appointed by our board of directors and hold office
until their  death,  resignation  or removal  from  office.  Our  directors  and
executive officers, their ages, positions held, and the duration of their office
are as follows:

                                                              Date First Elected
Name               Position Held with the Company        Age  or Appointed
---------------    ------------------------------------  ---  ------------------
Steve Lipman       Director                               53  October 13, 2004
John T. Conroy     Acting Chief Executive Officer/Chief
                   Financial Officer and Director         49  October 13, 2004
Todd Wallace       Director                               38  July 6, 2005
Allan Tracey       Director                               45  April 27, 2005



Business Experience

The following is a brief  account of the  education  and business  experience of
each  director  and  executive  officer  during at least  the past  five  years,
indicating each person's  principal  occupation during the period,  and the name
and principal business of the organization by which he was employed.

Steve B. Lipman,  serves as a Director. He was removed as the Company's Chairman
of the Board,  President,  and Chief  Executive  Officer in November  2005.  Mr.
Lipman has served the Company  since the effective  date of the reverse  merger.
Mr.  Lipman is a senior  executive  experienced  in  mergers  and  acquisitions,
strategic  planning,  operations,  sales and  marketing.  He has  structured six
companies  and taken  three  companies  public,  raised  millions of dollars and
secured major buying contracts. He is the former President of Carrosell, Inc., a
$20 million airport  advertising  company,  and former President and Chairman of
Satellite  Control  Tech,  Inc.  An  $80  million  wireless  technology  company
specializing in  GPS/Cellular  and paging for vehicle  monitoring,  tracking and
recovery. Previously, Mr. Lipman was the President of Allied Voice Tech, Inc., a
$20  million   re-recordable   microchip  company  responsible  for  developing,
manufacturing re-recordable products.

John T. Conroy, serves as the Company's acting Chief Executive Officer and Chief
Financial  Officer,  Secretary and  Treasurer.  Mr. Conroy was the co-founder of
Y-Tel and has served as the  Company's  Chief  Financial  Officer  since October
2004.  Mr. Conroy was appointed the acting Chief  Executive  Officer in November
2005,  subsequent  to the removal of Mr.  Lipman.  Mr.  Conroy has over 16 years
experience  with  financial and  executive  management  responsibilities  in the
healthcare  field.  He has been  Chief  Financial  Officer  and Chief  Executive
Officer for four  hospitals in Florida and  Louisiana.  He is the former founder


                                       21

<PAGE>

and CEO of  Specialty  Hospital  Resources,  Inc., a rehab  development  company
specializing  in  designing,   building  and  managing  physical  rehabilitation
facilities for hospitals.

Todd Wallace, serves as a Director and as the company's Chief Technical Officer.
Mr. Wallace was the CTO of Touchstone Systems, Inc. and was the architect of the
fully redundant  Nextone session  controller for Touchstone  Systems targeted at
the wholesale VoIP market  generating  1.2 million  minutes per day. Mr. Wallace
was also responsible for negotiating and implementing over 100  interconnections
with carriers such as AT&T,  Qwest,  MCI, Telecom Italia,  Teleglobe,  Broadvox,
iBasis,  IDT, T-Systems,  KDDI including foreign PTT's and concessions,  such as
Tricom, China Telecom, China Netcom, Protel, Dialme, Bestel, and Avantel. He has
developed foreign markets such as Mexico,  Guatemala,  Honduras, China, Vietnam,
Philippines, India and Pakistan.

Mr.  Wallace was also the lead Network  Architect  for CCC  GlobalCom,  FlashNet
Communications  and Excel  Telecommunication,  Inc.  which ran over 500  million
minutes  monthly.  Once at Excel, he segmented all vendor traffic from the Excel
internal  network to an external  billing/provisioning  network  allowing easier
management and greater security. Mr. Wallace also setup Worldcom,  MCI, IXC, and
Frontier dedicated  connections on the external network for the movement of data
between  companies as well as Installed an RS/6000 for the  consolidation of all
Connect Direct:/NDM MSDOS processes into a single AIX solution.

Alan Tracey, serves the Company as a Director. Mr. Tracey was a senior executive
and  Technical   Director  for  Digicel   Telecom  and  was  in  charge  of  the
implementation  of the GSM SS, BSS, PDH and VANS  network on Ericsson,  Nera and
Redknee equipment.  Mr. Tracey has worked in telecommunications for more than 10
years in  countries  as diverse as Congo,  the Dutch  Caribbean,  China and many
more. During his career,  which spans the evolution from PSTN, to ISDN, to GSM /
GPRS,  Mr.  Tracey  has  experience  at all  levels  of the  industry  including
Technical Engineering, Project Management, and General Management of Networks.

Mr. Tracey was the lead  technician for Ericsson US on the Cingular  project and
was  responsible  for the  GSM-overlay  system.  His  knowledge  and  experience
encompasses  the entire  technology of GSM,  (BSC's,  MSC/HLR/VLR/AUC,  Ericsson
IN-Prepaid  systems  (PPL  and  PPS) on  SSF/SCF,  on SDP and  IVR,  and on MoIP
Voicemail).  Additionally,  Mr.  Tracey  has  implemented  over 50 SS7 and  VoIP
interconnects  around  the  world and  offers  experience  with many  regulatory
issues.

         Executive  Committee.  The Board of  Directors  appointed  an Executive
Committee consisting of John Conroy, Alan Tracey and Todd Wallace and authorized
such committee to take all corporate actions on behalf of the Company allowed by
law.

         Audit Committee . The Board has not yet implemented an audit committee.
This is expected to be completed  during fiscal 2006.  The Audit  Committee will
oversee Y-Tel's corporate  accounting and financial reporting process.  For this
purpose, the Audit Committee will perform several functions. The Audit Committee
will  evaluate  the  performance  of  and  assesses  the  qualifications  of the
independent  auditors;  determine the  engagement of the  independent  auditors;
determine whether to retain or terminate the existing independent auditors or to
appoint and engage new independent auditors; review and approve the retention of


                                       22

<PAGE>

the independent auditors to perform any proposed permissible non-audit services;
monitor  the  rotation  of  partners  of the  independent  auditors  on  Y-Tel's
engagement  team as  required  by law;  review the  financial  statements  to be
included in Y-Tel's annual report on Form 10-KSB;  and discusses with management
and the independent  auditors the results of the annual audit and the results of
Y-Tel's quarterly financial statements.

         Compensation  of  Directors  .  The  Company  does  not  currently  pay
directors' fees to its Board members, but does provide  transportation,  lodging
and reimbursement of all reasonable  expenses for attending Board meetings.  Mr.
Tracey was issued  50,000  shares of common stock as a signing bonus for serving
on the Board as a Director.

Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires Y-Tel's directors and executive officers, and persons who own more than
10% of a registered  class of Y-Tel's  equity  securities,  to file with the SEC
reports of  ownership  and changes in ownership of Common Stock and other equity
securities of Y-Tel.  Such reporting persons are required to furnish the Company
with copies of all Section 16(a) forms they file.

         All of the initial  filings on Form 3 for the  officers,  directors and
10%  shareholders  were not timely filed.  This was primarily due to a change in
management in connection  with the  reorganization  in October 2004.  Management
believes that proper controls have now been implemented to assure timely filings
in the future of all Section  16(a) forms that are  required.  During the fiscal
year ended December 31, 2005 there were no transactions  by officers,  directors
or 10% shareholders that required the filing of any Form 4.

Code of Ethics
--------------
         Effective  March 26, 2004, our Company's  board of directors  adopted a
Code of Business  Conduct and Ethics that applies to, among other  persons,  our
company's  president (being our principal  executive  officer) and our company's
chief financial  officer (being our principal  financial and accounting  officer
and controller),  as well as persons performing  similar functions.  As adopted,
our Code of Business  Conduct and Ethics sets forth written  standards  that are
designed to deter wrongdoing and to promote:

(1) honest and ethical  conduct,  including  the  ethical  handling of actual or
apparent conflicts of interest between personal and professional relationships;

(2) full, fair, accurate,  timely, and understandable  disclosure in reports and
documents  that  we file  with,  or  submit  to,  the  Securities  and  Exchange
Commission and in other public communications made by us;

(3) compliance with applicable governmental laws, rules and regulations;

(4) the prompt internal  reporting of violations of the Code of Business Conduct
and  Ethics  to an  appropriate  person  or  persons  identified  in the Code of
Business Conduct and Ethics; and



                                       23

<PAGE>

(5) accountability for adherence to the Code of Business Conduct and Ethics.

Our Code of Business Conduct and Ethics requires,  among other things,  that all
of our  company's  personnel  shall be accorded full access to our president and
chief  financial  officer with respect to any matter which may arise relating to
the Code of Business Conduct and Ethics. Further, all of our company's personnel
are to be accorded full access to our  company's  board of directors if any such
matter involves an alleged breach of the Code of Business  Conduct and Ethics by
our president or chief financial officer.

In  addition,  our Code of  Business  Conduct  and  Ethics  emphasizes  that all
employees,  and particularly managers and/or supervisors,  have a responsibility
for  maintaining  financial  integrity  within  our  company,   consistent  with
generally accepted accounting principles, and federal and state securities laws.
Any  employee  who  becomes  aware  of  any  incidents  involving  financial  or
accounting  manipulation  or other  irregularities,  whether by  witnessing  the
incident or being told of it, must report it to his or her immediate  supervisor
or to our  company's  president  or chief  financial  officer.  If the  incident
involves  an alleged  breach of the Code of  Business  Conduct and Ethics by the
president  or chief  financial  officer,  the  incident  must be reported to any
member of our board of directors.  Any failure to report such  inappropriate  or
irregular conduct of others is to be treated as a severe disciplinary matter. It
is against our company policy to retaliate against any individual who reports in
good  faith the  violation  or  potential  violation  of our  company's  Code of
Business Conduct and Ethics by another.

We will provide a copy of the Code of Business  Conduct and Ethics to any person
without charge, upon request. Requests can be sent to: Y-Tel International.


Item 10.  Executive Compensation.

Summary Compensation Table

               The following table sets forth the cash and non-cash compensation
paid by or incurred on behalf of the Company to its Chief Executive  Officer and
certain other executive officers for the years ended December 31, 2005 and 2004.
No Chief Executive  Officer or other executive  officer of our Company  received
any cash or other compensation for the years ended December 31, 2002 and 2003.

<TABLE>
<CAPTION>
                                                           Number of Stock     All Other
Name and Principal Position   Year   Salary ($) Bonus ($)     Options (#)   Compensation
---------------------------   ----   ---------  ---------  ---------------  ------------
<S>                           <C>    <C>        <C>        <C>              <C>
Steve Lipman                  2005    $132,000       --               0       $9,900 (2)
(former Chairman/CEO)         2004     $36,000       --         500,000       $2,700 (2)

John Conroy                   2005    $144,000       --               0      $10,800 (2)
(acting CEO/Secretary/
 Treasurer/ CFO)              2004     $24,000       --         500,000     $101,800 (1)
</TABLE>




                                       24

<PAGE>

-------------
   (1)   Of this amount,  $1,800 consists of an automobile allowance paid to Mr.
         Conroy.  The remaining $100,000  represents  consulting fees during the
         period of time in 2004 (January  through October) that Mr. Conroy was a
         non-employee  consultant  to the Company.  Included in the $100,000 are
         non cash consulting fees valued at $60,000,  which were  contributed by
         Mr. Conroy to the Company.
   (2)   Such amounts represent automobile allowances.

Employment Contracts and Termination of Employment and Change in Control
Arrangements

On November 28, 2005, the Company terminated the employment agreement with Steve
Lipman, pursuant to his services as the President and Chief Executive Officer of
the Company. The current contract provided for a two year term with an automatic
renewal  for a  successive  one-year  term  period  unless  either  party to the
agreement  gives to the other party at least 90 days advance notice that they do
not wish to renew or the contract is terminated for cause.  Mr. Lipman  received
$12,000 per month plus $900 per month  automotive  allowance.  In  addition  Mr.
Lipman was granted  500,000  stock  options with an exercise  price of $0.55 per
share and an expiration date of September 30, 2007.

On September 27, 2004, we entered into an employment  agreement with John Conroy
pursuant  to which Mr.  Conroy will serve as Chief  Financial  Officer for a two
year term with an automatic renewal for a successive one-year term period unless
either party to the agreement  gives to the other party at least 90 days advance
notice that they do not wish to renew.  Mr.  Conroy  receives  $12,000 per month
plus $900 per month  automotive  allowance.  Mr.  Conroy  shall also  receive an
automatic  salary  increase  to between  $15,000  and $20,000 per month upon the
Company attaining a net profit of $100,000 per month. In addition Mr. Conroy was
granted  500,000 stock options with an exercise  price of $0.55 per share and an
expiration date of September 30, 2007.

Other than as set forth in this filing,  we have not entered into any employment
or  consulting  agreements  with  any  of our  current  officers,  directors  or
employees.

We have no plans or arrangements in respect of remuneration received or that may
be received by our executive  officers to compensate  such officers in the event
of termination of employment (as a result of resignation,  retirement, change of
control) or a change of  responsibilities  following a change of control,  where
the value of such compensation exceeds $60,000 per executive officer.

We do not provide  pension,  retirement or similar benefits for our directors or
executive  officers.  We have no material bonus or profit sharing plans pursuant
to which cash or non-cash  compensation  is or may be paid to our  directors  or
executive  officers,  except that stock options may be granted at the discretion
of the board of directors or a committee thereof.

Stock Option Plan

On January 31, 2005,  our directors  ratified an amendment to the Company's 2001
Stock Option Plan (the "Plan") authorizing the plan to grant options to purchase
up to  3,500,000  shares of our  common  stock.  The  amendment  is  subject  to


                                       25

<PAGE>

shareholder approval.  The board's  responsibility will include the selection of
option  recipients,  as well as,  the type of option  granted  and the number of
shares covered by the option and the exercise price.  In 2004 2,500,000  options
were granted under the Plan.

Plan options may either  qualify as  non-qualified  options or  incentive  stock
options under  Section 422 of the Internal  Revenue  Code.  Any incentive  stock
option  granted  under the plan must  provide for an exercise  price of at least
100% of the fair  market  value on the date of such grant and a maximum  term of
ten years.  If the employee owns more than 10% of our stock,  the exercise price
of any incentive  option  granted must be at least 110% of fair market value and
must be exercised within five years after the grant.

All of our officers,  directors,  key employees and consultants will be eligible
to receive  non-qualified  options under the plan. Only officers,  directors and
employees  who are  formally  employed by the  Company  are  eligible to receive
incentive options.

All incentive options are non-assignable and non-transferable, except by will or
by the  laws  of  descent  and  distribution.  If an  optionee's  employment  is
terminated for any reason other than death, disability or termination for cause,
the stock  option  will  lapse on the  earlier of the  expiration  date or three
months  following the date of termination.  If the optionee dies during the term
of employment, the stock option will lapse on the earlier of the expiration date
of the option or the date one-year  following the date of death. If the optionee
is permanently and totally disabled within the meaning of Section22(e)(3) of the
Internal  Revenue  Code,  the  plan  option  will  lapse on the  earlier  of the
expiration date of the option or one year following the date of such disability.

There were no options  granted to any executive  officers  during the year ended
December 31, 2005.

The following  table details the December 31, 2005 year-end  estimated  value of
unexercised stock options of each of the Named Executive Officers:





<TABLE>
<CAPTION>
                                           Number of Securities Underlying  Value of Unexercised In-the-Money
             Number of Shares              Unexercised Options at Year-End:     Options at Year-End (1):
               Acquired on       Value     --------------------------------     ------------------------
    Name       Exercise (#)    Realized($)   Exercisable   Unexercisable      Exercisable    Unexercisable
    ----     ----------------  -----------
<S>                <C>            <C>        <C>              <C>               <C>              <C>
Steve Lipman         0              0          500,000            --               $--              --
John Conroy          0              0          500,000            --               $--              --
</TABLE>

---------------

(1) There were no in-the-money  stock options held at the end of 2005 based on a
per-share  fair market value of $0.51 (the closing  trading  price of the Common
Stock on December 31,  2005),  and  per-share  exercise  prices of $0.55 for all
options held noted above.


                                       26

<PAGE>

Securities Authorized for Issuance Under Equity Compensation Plans

The  following  provides  information,  as  of  December  31,  2005,  concerning
compensation plans (including individual compensation  arrangements) under which
equity securities of the Company are authorized for issuance.


<TABLE>
<CAPTION>
                                         (a)                     (b)                       (c)

                                Number  of   securities   Weighted-average    Number of securities remaining
                                to be issued upon         exercise price of   available for future issuances
                                exercise of               outstanding         under equity compensation  plans
                                outstanding  options,     options, warrants   (excluding securities reflected
          Plan Category         warrants and rights       and rights          in column (a))
------------------------------  -----------------------   -----------------   --------------------------------
<S>                                 <C>                    <C>                          <C>
Equity compensation plans
  approved by security holders                    -         $          -                       -
Equity compensation plans not
  approved by security holders            2,604,000 (1)     $       0.63               1,000,000

                                -----------------------     ------------           -------------
     Total                                2,604,000         $       0.63               1,000,000
</TABLE>

(1) Includes  2,500,000  options  issued  under the 2001 Stock  Option Plan,  as
amended  in  2005,  (the  "Plan")  as the  Plan  has not  been  approved  by the
shareholders of the Company.


For a complete  description of the Company's equity  compensation  plans, please
refer to Note 7 of our audited  financial  statements  as of December  31, 2005,
which are filed herein.

























                                       27

<PAGE>


Item 11.  Security Ownership of Certain Beneficial Owners and Management and
          Related Stockholder Matters.

Principal Stockholders

The following table sets forth, as of April 5, 2005,  certain  information  with
respect to the beneficial  ownership of our common stock by each security holder
known by us to be the  beneficial  owner of more than 5% of our common stock and
by each of our current directors and certain executive officers. Each person has
sole  voting and  investment  power with  respect to the shares of common  stock
except  as  otherwise  indicated.  Beneficial  ownership  consists  of a  direct
interest in the shares of common stock, except as otherwise indicated.

                                                                   Percentage of
                                                Number of Shares   Class Benefi-
                                               Beneficially Owned  cially Owned

Steve Lipman, former Chairman, CEO & President      1,666,392 (1)          9.72%
John T. Conroy, CFO and acting CEO/Chairman         1,725,371 (2)         10.06%
Garry McHenry                                       1,054,983 (3)          6.15%
Jon McMurray                                        1,582,404 (3)          9.23%
Avitra, S.A.                                        1,477,572 (5)          8.62%
Terry Lipham                                          989,832              5.77%
Health Care Services, LLC (6)                       1,450,400              8.46%

All directors and executive officers as a group
 (four persons)                                     3,516,763 (1)(2)      20.51%
--------------

(1)  Includes  500,000 stock  options  awarded to Mr.  Lipman.  As of this date,
     these shares are fully vested and are exercisable at $0.55 per share.

(2)  Includes  500,000 stock  options  awarded to Mr.  Conroy.  As of this date,
     these shares are fully vested and are exercisable at $0.55 per share.

(3)  Includes  500,000  stock  options  awarded  to each  Mr.  McMurray  and Mr.
     McHenry. As of this date, these shares are fully vested and are exercisable
     at $0.55 per share.

(4)  Includes 582,716 shares in the name of CGA Holdings,  LLC, of which 194,238
     shares  are  beneficially  owned by Mr.  McMurray  and  194,238  shares are
     beneficially owned by Mr. Conroy.

(5)  Avitra SA is a corporation principally owned by Gil Epstein a consultant to
     the Company. Also includes 500,000 stock options awarded to Mr. Epstein. As
     of this date,  these shares are fully vested and  exercisable  at $0.55 per
     share.

(6)  Health Care Services, LLC is owned by Nick Elliot.



                                       28

<PAGE>

Item 12. Certain Relationships and Related Transactions.

On February  18, 2004,  the Company  repurchased  2,474,581  member units from a
majority  member for  $242,000  for the purpose of  reissuing  such units to new
members. At December 31, 2004, the remaining balance to be paid was $227,000. In
January 2005, as part of a settlement agreement (see below), all amounts payable
to the related  party were  forgiven and the $227,000 was recorded as additional
paid in capital.

As of December  31,  2004,  the Company  purchased  several  pieces of equipment
totaling  $135,472  and  received  contract  labor and other  services  totaling
$197,949 in 2004 from AIT  Wireless,  a company  owned by a  stockholder  of the
Company.  In January  2005,  the Company and the related  party  entered  into a
settlement  agreement  (the  "Settlement")  for all amounts owed and amounts due
between the parties. In accordance with the Settlement, the Company was required
to make  payments of $20,000 per month  beginning  in February  2005 and a final
payment  of  $12,402  in  June  2006.  Due  to  the  Company's  working  capital
restrictions,   the  Company  was  in  default  under  its  obligations  of  the
Settlement. There are no default provisions per the Settlement.

On December 12, 2005, the Company  entered into a Sales Agreement with AIT and a
Tri-Party  agreement  with  AIT  Wireless  and  an  unrelated  third  party.  In
connection  with the Sales  Agreement,  the Company sold fixed assets with a net
book value of $300,000 for  forgiveness of debt of $182,598.  In connection with
the Tri-Party Agreement,  the Company sold fixed assets with a net book value of
$473,476 to an unrelated  third party in  consideration  for the  forgiveness of
debt owed to AIT of $127,500, a non-interest note receivable of $48,000 and cash
of $47,500. As a result of the transactions, the Company recognized an aggregate
loss on sale of property and  equipment of $367,878.  The Company has obtained a
full release of the amounts owed to AIT as a result of these  agreements.  Under
the terms of the note  receivable,  the  Company is to receive  $8,000 per month
beginning in January 2006. The agreements are summarized as follows:

Forgiveness of debt                    $            310,098
Note receivable                                      48,000
Cash                                                 47,500
                                       --------------------
                                       $            405,598
                                       ====================



According to the terms of the note  receivable  noted  above,  the Company is to
receive $8,000 per month each month beginning January 2006.

The Company  entered into  consulting  agreements  with three  stockholders  for
services provided through June 2005 (see Note 9)


Item 13. Exhibits.

(a) Exhibits




                                       29

<PAGE>

    Exhibit        Description of Document

      2.1       Agreement  and Plan of  Reorganization  dated as of October  12,
                2004 between CPC and Y-Tel. (2)
      3.1       Certificate of Incorporation of Consolidated Pictures Corp. (1)
      3.2       By-laws of Consolidated Pictures Corp. (1)
      3.6       Class A Redeemable Warrant Agreement. (1)
      3.7       Class B Redeemable Warrant Agreement. (1)
     10.1       Employment Agreement between Y-Tel and Steve Lipman dated
                September 27, 2004. (2)
     10.2       Employment Agreement between Y-Tel and John Conroy dated
                September 27, 2004. (2)
     10.3       Consulting Agreement between Y-Tel and Gil Epstein dated
                September 27, 2004. (2)
     10.4       Consulting Agreement between Y-Tel and Jon McMurray dated
                September 27, 2004. (2)
     10.5       Consulting Agreement between Y-Tel and Garry McHenry dated
                September 27, 2004. (2)
     10.6       2001 Stock Option Plan. (1)
     10.7       Distribution agreement between Y-Tel and EBI Communications,
                Inc. dated October 25, 2004. (3)
     10.8       2001 Stock Option Plan. (1)
     10.9       Addendum to Employment Agreement between Y-Tel and Steve Lipman
                dated October 8, 2004. *
     10.10      Addendum to Employment Agreement between Y-Tel and John Conroy
                dated October 8, 2004. *
     10.11      Addendum to Consulting Agreement between Y-Tel and Gil Epstein
                dated October 8, 2004. *
     10.12      Addendum to Consulting Agreement between Y-Tel and John McMurray
                dated October 8, 2004. *
     10.13      Addendum to Consulting Agreement between Y-Tel and Garry McHenry
                dated October 8, 2004. *
     21.1       Subsidiaries
     31.1       Certification by Chief Executive Officer. *
     31.2       Certification by Chief Financial Officer. *
     32.1       Section 906 Certification by Chief Executive Officer and Chief
                Financial Officer. *

---------------
(1) Incorporated by reference from our Registration Statement on Form SB-2 filed
    with the SEC on May 30, 2001.
(2) Incorporated by reference from our current report on Form 8-K filed with
    the SEC on October 18, 2004.
(3) Incorporated by reference from our current report on Form 8-K filed with the
    SEC on November 12, 2004.
 *  Filed herewith.










                                       30

<PAGE>

Item 14. Principal Accountant Fees and Services.

Audit Fees

The aggregate  fees billed by Corbin & Company,  LLP for  professional  services
rendered for the audit of our annual financial statements included in our annual
report on Form 10-KSB for the fiscal years ended December 31, 2005 and 2004 were
$70,000 and $44,000, respectively.

Audit Related Fees

None.

Tax Fees

For the fiscal years ended December 31, 2005 and 2004, the aggregate fees billed
by Corbin & Company,  LLP for tax  services,  other than those  services  listed
above, totaled $6,000 and $14,800, respectively.

We do  not  use  our  auditors  for  financial  information  system  design  and
implementation. These services, which include designing or implementing a system
that  aggregates  source data  underlying the financial  statements or generates
information  that is  significant  to our  financial  statements,  are  provided
internally  or by other  service  providers.  We do not engage our  auditors  to
provide compliance outsourcing services.































                                       31

<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934 the registrant has duly cause this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                    Y-TEL INTERNATIONAL, INC.

Dated: May 25, 2006                 By:     /s/  JOHN T. CONROY
                                            John Conroy
                                            Acting Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been  signed by the  following  persons in the  capacities  and on the dates
indicated.

      Signatures                       Title                            Date
/s/ John T. Conroy       Acting CEO/Chairman/Secretary and CFO,     May 25, 2006
                         Principal Executive and Accounting Officer
John T. Conroy

/s/ Todd Wallace         Director                                   May 25, 2006
Todd R. Wallace

/s/ Allan Tracey         Director                                   May 25, 2006
Allan Tracey





























                                       32

<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Y-TEL INTERNATIONAL, INC.

We  have  audited  the   accompanying   consolidated   balance  sheet  of  Y-Tel
International,  Inc. and  subsidiaries  (the "Company") as of December 31, 2005,
and the related  consolidated  statements of  operations,  stockholders'  equity
(deficit)  and cash  flows for each of the  years in the  two-year  period  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.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  The Company is not  required  to have,  nor were we
engaged to perform,  an audit of its internal control over financial  reporting.
Our audit included consideration of internal control over financial reporting as
a  basis  for  designing   audit   procedures   that  are   appropriate  in  the
circumstances,  but  not  for  the  purpose  of  expressing  an  opinion  on the
effectiveness  of the  Company's  internal  control  over  financial  reporting.
Accordingly,  we express no such opinion.  An audit also includes  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 Y-Tel International,
Inc. and  subsidiaries at December 31, 2005, and the results of their operations
and their cash flows for each of the years in the two-year  period 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 incurred  recurring losses
from   operations  and  has  a  working   capital  deficit  of  $889,393  and  a
stockholders'  deficit of $732,036 at December 31, 2005.  These  factors,  among
others,  raise  substantial  doubt about the Company's  ability to continue as a
going concern.  Management's plans in regard to these matters are also described
in Note 1. The consolidated  financial statements do not include any adjustments
relating to the  recoverability  and classification of asset carrying amounts or
the amount and  classification  of  liabilities  that  might  result  should the
Company be unable to continue as a going concern.

/s/Corbin & Company, LLP
Irvine, California
May 15, 2006





                                      F-1

<PAGE>

                                      Y-TEL INTERNATIONAL, INC. AND SUBSIDIARIES

                                                      CONSOLIDATED BALANCE SHEET

                                                               December 31, 2005

--------------------------------------------------------------------------------

ASSETS

Current assets:
       Cash                                                         $     6,471
       Accounts receivable, net                                           9,837
       Prepaid expenses                                                  26,607
       Prepaid services                                                  17,186
       Notes receivable                                                  48,000
                                                                    -----------
            Total current assets                                        108,101

Property and equipment, net                                             157,357
                                                                    -----------

                                                                    $   265,458
                                                                    ===========


LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
       Accounts payable                                             $   826,778
       Accrued expenses                                                 170,716
                                                                    -----------
            Total current liabilities                                   997,494
                                                                    -----------

Commitments and contingencies

Stockholders' deficit:
       Preferred stock, $0.0001 par value,
          5,000,000 shares authorized;
          no shares issued and outstanding                                 --
       Common stock, $0.0001 par value,
          50,000,000 shares authorized;
          17,055,991 shares issued and outstanding                        1,706
       Additional paid in capital                                     8,434,042
       Accumulated deficit                                           (9,167,784)
                                                                    -----------

          Total stockholders' deficit                                  (732,036)
                                                                    -----------

                                                                    $   265,458
                                                                    ===========


--------------------------------------------------------------------------------
  F-2                See accompanying notes to consolidated financial statements

<PAGE>


                                      Y-TEL INTERNATIONAL, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

                                                      Years Ended December 31,
                                                   ----------------------------
                                                         2005            2004
                                                   ------------    ------------

Net sales                                          $    976,231    $  1,249,380


Cost of sales                                           352,144         635,418
                                                   ------------    ------------


Gross profit                                            624,087         613,962
                                                   ------------    ------------

Operating expenses:

   Satellite, bandwidth and other
      telecommunications expenses                       135,556         292,931
   Contract labor                                       154,229         199,052

   Contract labor paid to related party                    --           147,382
   Salaries and related expenses                        478,576         106,725
   Noncash compensation                               2,997,401       2,249,726
   Impairments                                          531,665            --
   Loss on disposal of property and equipment           367,878            --
   Other general and administrative expenses          1,200,312       1,000,344
                                                   ------------    ------------


     Total operating expenses                         5,865,617       3,996,160
                                                   ------------    ------------

Net loss                                           $ (5,241,530)   $ (3,382,198)
                                                   ============    ============


Basic and diluted loss per common share            $      (0.32)   $      (0.34)
                                                   ============    ============


Weighted average number of common

      shares outstanding - basic and diluted         16,441,043       9,931,115
                                                   ============    ============




--------------------------------------------------------------------------------
  F-3                See accompanying notes to consolidated financial statements

<PAGE>
                                      Y-TEL INTERNATIONAL, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                                  For The Years Ended December 31, 2005 and 2004

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                                        Total Stock-
                                     Member     Members'       Common Stock                    Deferred    Accumulated    holders'
                                     Units      Capital     Shares      Amount       APIC    Compensation     Deficit  Eqty (Defcit)
                                   ---------  ----------- ----------  ----------- ----------  -----------  -----------  -----------
<S>                              <C>           <C>         <C>           <C>       <C>        <C>          <C>          <C>
Balance at December 31, 2003       9,700,359  $ 1,339,302        --      $   --         --    $   (60,000) $  (544,056) $   735,246

Member units issued for cash         435,520      152,000        --          --         --           --           --        152,000

Member units issued for conversion
   of notes payable                  752,273      190,000        --          --         --           --           --        190,000

Member units received in treasury,
   net                              (197,967)        --          --          --         --           --           --           --

Member units repurchased for cash (2,474,581)    (242,000)       --          --         --           --           --       (242,000)

Estimated fair value of services
   rendered by members                  --        400,000        --          --         --         60,000         --        460,000

Estimated fair value of member
   interests issued for services   1,784,396      622,768        --          --         --           --           --        622,768

Issuance of common stock in
   connection with the merger
   of Y-Tel International, LLC   (10,000,000)  (2,462,070) 14,579,900       1,458  2,460,612         --           --           --

Common stock issued upon conversion
   of note payable                      --           --        37,750           4    150,996         --           --        151,000

Estimated fair value of common stock
   issued for prepaid services          --           --       510,000          51  1,469,949         --           --      1,470,000

Estimated fair value of common stock
   issued for distribution rights       --           --       300,000          30    674,970         --           --        675,000

Estimated fair value of options
   granted for consulting services      --           --          --          --      408,750         --           --        408,750

Intrinsic value of options granted
   to employees                         --           --          --          --      550,000         --           --        550,000

Net loss                                --           --          --          --         --           --     (3,382,198)  (3,382,198)
                                 -----------  ----------- -----------  ----------  ---------  -----------  -----------  -----------

Balance, December 31, 2004              --           --    15,427,650       1,543  5,715,277         --     (3,926,254)   1,790,566

Common stock issued for cash            --           --     1,547,641         155    964,274         --           --        964,429

Estimated fair value of common
   stock issued for prepaid
   services                             --           --        62,500           6    126,244         --           --        126,250

Issuance of common stock upon
   conversion of debt
   and accrued interest                 --           --        18,200           2     72,798         --           --         72,800

Estimated fair value of common
   stock issued for services            --           --       298,200          30    343,890         --           --        343,920

Estimated fair value of options
   issued for services                  --           --          --          --    1,387,125         --           --      1,387,125

Common stock issued on exercise
   of warrants                          --           --         1,800        --        2,100         --           --          2,100


Cancellation of EBI agreement           --           --      (300,000)        (30)  (404,666)                              (404,696)

Settlement related to shares
   issued for note payable              --           --          --          --      227,000         --           --        227,000

Net loss                                --           --          --          --         --                  (5,241,530)  (5,241,530)
                                  -----------  ----------- -----------  --------- -----------  -----------  -----------  -----------

Balance, December 31, 2005              --    $      --    17,055,991  $    1,706 $8,434,042  $      --    $(9,167,784) $  (732,036)
                                  ===========  =========== ===========  ========= ===========  ===========  ===========  ===========
</TABLE>
 F-4                 See accompanying notes to consolidated financial statements

<PAGE>

                                       YTEL INTERNATIONAL, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  For The Years Ended December 31, 2005 and 2004

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                               2005           2004
                                                                                          -----------    -----------
Cash flows from operating activities:
<S>                                                                                       <C>            <C>
       Net loss                                                                           $(5,241,530)   $(3,382,198)
       Adjustments to reconcile net loss to net cash used in
         operating activities:

           Depreciation                                                                        68,791         56,717
           Bad debt expense                                                                    55,000           --
           Estimated fair value of common stock issued for services                           343,920        622,768
           Impairment of intangible asset                                                     222,000           --
           Amortization of prepaid services and intangible assets                           1,269,160        208,208
           Impairment loss on prepaid services                                                150,000           --
           Impairment loss on property and equipment                                          159,665           --
           Estimated fair value of services rendered by members                                  --          460,000
           Estimated fair value of options and warrants granted for consulting services     1,387,125        408,750
           Estimated fair value of options granted to employees                                  --          550,000
           Estimated fair value of services rendered for note payable to related party           --          201,421
           Write off of amounts due from related parties                                         --           64,800
           Loss on sale of property and equipment                                             367,878           --
           Changes in operating assets and liabilities:
              Accounts receivable                                                              54,403         (7,641)
              Prepaid expenses                                                                 (5,632)        (4,975)
              Due from stockholders                                                             1,963         (1,963)
              Other assets                                                                     34,600        (31,000)
              Accounts payable and accrued expenses                                           240,293        720,349
                                                                                          -----------    -----------
       Net cash used in operating activities                                                 (892,364)      (134,764)
                                                                                          -----------    -----------
Cash flows from investing activities:

       Purchase of intangible assets                                                          (25,000)          --
       Proceeds from the sale of property and equipment                                        47,500           --
       Purchases of property and equipment                                                   (162,527)      (178,083)
                                                                                          -----------    -----------
       Net cash used in investing activities                                                 (140,027)      (178,083)
                                                                                          -----------    -----------
Cash flows from financing activities:

       Issuance of common stock for cash                                                      964,429           --
       Payments on note payable to related party                                              (17,500)          --
       Proceeds from the exercise of warrants                                                   2,100           --
       Proceeds from the issuance of convertible debt                                          70,000
       Proceeds from issuance of member units                                                    --          152,000
       Purchase of member units                                                                  --          (15,000)
       Proceeds from issuance of a note payable                                                  --          150,000
                                                                                          -----------    -----------
       Net cash provided by financing activities                                            1,019,029        287,000
                                                                                          -----------    -----------

Increase (decrease) in cash                                                                   (13,362)       (25,847)

Cash at beginning of year                                                                      19,833         45,680
                                                                                          -----------    -----------
Cash at end of year                                                                       $     6,471    $    19,833
                                                                                          ===========    ===========
</TABLE>

  F-5                See accompanying notes to consolidated financial statements
<PAGE>

                                       YTEL INTERNATIONAL, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  For The Years Ended December 31, 2005 and 2004

                                                                     (Continued)

--------------------------------------------------------------------------------
<TABLE>
<S>                                                                                       <C>            <C>
Supplemental disclosure of cash flow information - Cash paid during the year for:
           Interest                                                                       $      --      $      --
                                                                                          ===========    ===========
           Income taxes                                                                   $      --      $      --
                                                                                          ===========    ===========
Supplement schedule of noncash investing and financing activities:
       Forgiveness of amounts due to related party                                        $   227,000    $      --
                                                                                          ===========    ===========
       Value of shares cancelled related to termination of EBI agreement                  $   404,696    $      --
                                                                                          ===========    ===========
       Receivable in connection with the termination of intangible asset agreement        $    55,000    $      --
                                                                                          ===========    ===========
       Issuance of common stock upon conversion of notes payable and accrued interest     $    72,800    $   341,000
                                                                                          ===========    ===========
       Issuance of common stock for prepaid services and distribution rights              $   126,250    $ 2,145,000
                                                                                          ===========    ===========
       Repurchase of member units for note payable                                        $      --      $   227,000
                                                                                          ===========    ===========
       Accounts payable to related party converted to note payable to related party       $      --      $   126,177
                                                                                          ===========    ===========
       Conversion of member interests into common stock upon reverse acquisition          $      --      $ 2,462,070
                                                                                          ===========    ===========
       Cancellation of debt in connection with sale of property and equipment             $   310,098    $      --
                                                                                          ===========    ===========
       Offset of amounts due from related parties with amounts due to related parties     $    44,800    $      --
                                                                                          ===========    ===========
       Note receivable in connection with sale of property and equipment                  $    48,000    $      --
                                                                                          ===========    ===========
</TABLE>














  F-6                See accompanying notes to consolidated financial statements

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------------------------

Nature of Business

The accompanying  consolidated  financial  statements  include the activities of
Y-Tel  International,  Inc. ("Y-Tel") and its wholly owned  subsidiaries,  Y-Tel
International,  L.L.C. ("Y-Tel LLC"), Y-Tel International - Panama, S.A. ("Y-Tel
Panama")   and   International   Telekom   ("International"),   formerly   Intel
Communications, L.L.C., collectively referred to as the "Company".

Y-Tel was formerly  known as  Consolidated  Pictures Corp.  ("CPC"),  a Delaware
corporation.  Y-Tel LLC was  organized in the state of Florida on August 8, 2003
("Inception").  Y-Tel  Panama  was  incorporated  in the  Republic  of Panama on
September 1, 2003.  International  was organized in the state of Florida on June
16, 2003, and acquired by Y-Tel on October 26, 2003.

The Company is a wholesale and retail provider of telecommunication,  Voice over
Internet Protocol (VoIP), and Wi-Fi services and devices.

Going Concern

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will  continue as a going  concern  which  contemplates,  among
other things,  the realization of assets and  satisfaction of liabilities in the
ordinary  course of  business.  The  Company  has a working  capital  deficit of
$889,393 at December 31, 2005 and has incurred operating losses and had negative
cash flows from  operations  during the years ended  December 31, 2005 and 2004,
and  has a lack  of  operational  history,  which  among  other  factors,  raise
substantial doubt about its ability to continue as a going concern.

Management  recognizes the Company must generate additional  resources to enable
it to continue  operations.  The Company will  continue to seek working  capital
through  the public  markets.  The  successful  outcome of future  fund  raising
activities cannot be determined at this time, and there is no assurance that, if
achieved,  the  Company  will have  sufficient  funds to  execute  its  intended
business plan or generate positive operating results.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Y-Tel
International,   Inc.  and  its  wholly  owned  subsidiaries.   All  significant
intercompany transactions and balances have been eliminated in consolidation.

Fair Value of Financial Instruments

The Company's financial instruments,  including cash, accounts receivable,  note
receivable,   accounts  payable  and  accrued  expenses,  the  carrying  amounts
approximates their fair values due to their short maturities.


                                      F-7

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (Continued)
-----------------------------------------------------------------------------

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities and disclosure of the contingent  assets and liabilities at the date
of the financial  statements  and the reported  amounts of revenues and expenses
during the reporting periods.  Significant estimates made by management include,
among others, the realizability of accounts receivable,  property and equipment,
prepaid services and the valuation of deferred tax assets.  Actual results could
differ from these estimates.

Concentration of Credit Risk and Foreign Operations

Financial  instruments,  which potentially subject the Company to concentrations
of credit risk,  consist of cash and  receivables.  The Company  places its cash
with high  quality  financial  institutions  and at times may exceed the Federal
Deposit Insurance Corporation ("FDIC") $100,000 insurance limit. At December 31,
2005,  the Company did not have any accounts with balances in excess of the FDIC
insurance limits.

The Company offers its services predominantly to international customers located
outside  the United  States  and  extends  credit  based on an  evaluation  of a
customer's financial condition, generally without collateral. Exposure to losses
on accounts  receivable is principally  dependent on each  customer's  financial
condition.  The Company  monitors its exposure for credit  losses and  maintains
allowances for anticipated losses, if required.  Although the Company expects to
collect amounts due, actual collections may differ from the estimated amounts.

One  customer  accounted  for 73% and 85% of the  total  net sales for the years
ended December 31, 2005 and 2004, respectively. All funds due from this customer
have been collected as of December 31, 2005.

Property and Equipment

Property and equipment are stated at cost, and are being  depreciated  using the
straight-line  method over the  estimated  useful  lives of the related  assets,
ranging from five to fifteen years.  Maintenance and routine repairs are charged
to expense as incurred. Significant renewals and betterments are capitalized. At
the time of retirement or other disposition of property and equipment,  the cost
and  accumulated  depreciation  are removed from the accounts and any  resulting
gain or loss is reflected in the statement of operations.  On December 12, 2005,
the  Company  sold the  assets in Miami,  Florida  and Panama  City,  Panama and
recorded a loss on sale of property and equipment of $367,878 (see Note 5).



                                      F-8

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (Continued)
-----------------------------------------------------------------------------

Long-Lived Assets

The Company's management assesses the recoverability of its long-lived assets by
determining  whether the depreciation and amortization of long-lived assets over
their remaining lives can be recovered  through  projected  undiscounted  future
cash flows. The amount of long-lived asset impairment, if any, is measured based
on fair  value and is charged to  operations  in the period in which  long-lived
asset  impairment is determined by  management.  For the year ended December 31,
2005, the Company recorded  impairment charges totaling $531,665 relating to the
decline in market  value of the  Company's  common  stock  previously  issued in
connection with the cancellation of its agreement with EBI  Communications  (see
Note 4),  valuation  of property  and  equipment in Panama (see Note 3), and the
assessment  of the  valuation of prepaid  services (see Note 7). There can be no
assurance,  however,  that market  conditions  will not change or demand for the
Company's products and services will continue,  which could result in additional
impairment of long-lived assets in the future.

Revenue and Expense Recognition

The Company  recognizes  revenue in accordance  with Staff  Accounting  Bulletin
("SAB") No. 101,  "Revenue  Recognition in Financial  Statements," as revised by
SAB No. 104. As such, the Company recognizes revenue when persuasive evidence of
an  arrangement  exists,  services  have been  performed,  the price is fixed or
readily  determinable and collectibility is probable.  Sales are recorded net of
sales discounts.  The Company's revenue is currently generated from two sources:
1) the sale of traffic (minutes) to other telecom companies, whereby the revenue
is recognized  when invoiced to the customer,  which  approximates  the time the
phone calls are placed;  and 2) port rental  charges  resulting  from  leasing a
portion of the DMS switch to Digicel,  whereby the revenue is recognized  during
the month in which the revenue applies. Effective November 15, 2005, the Company
completed its  contractual  obligations  to Digicel and terminated the contract.
The DMS switch was subsequently  sold on December 12, 2005 (see Note 5), thereby
completing   the  migration  from  the  old  DMS  technology  to  the  new  VoIP
infrastructure.

Stock-Based Compensation

The Company accounts for non-employee  stock-based  compensation under Statement
of Financial  Accounting  Standards ("SFAS") No. 123 "Accounting For Stock-Based
Compensation."  SFAS No. 123 defines a fair value based method of accounting for
stock-based compensation.  However, SFAS No. 123 allows an entity to continue to
measure compensation cost related to stock and stock options issued to employees
using the  intrinsic  method of accounting  prescribed by Accounting  Principles
Board  Opinion No. 25 ("APB 25"),  "Accounting  for Stock Issued to  Employees."
Under APB 25,  compensation  cost,  if any, is  recognized  over the  respective


                                      F-9

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (Continued)
-----------------------------------------------------------------------------

Stock-Based Compensation (Continued)

vesting period based on the difference,  on the date of grant,  between the fair
value of the Company's  common stock and the grant price.  Entities  electing to
remain with the accounting  method of APB 25 must make pro forma  disclosures of
net income (loss) and earnings  (loss) per share, as if the fair value method of
accounting defined in SFAS No. 123 had been applied.

In December 2004, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 123 (revised 2004 ), "Share-Based  Payment" ("SFAS No. 123(R)"),  which is a
revision of SFAS No. 123. SFAS 123(R)  supersedes APB 25 and amends SFAS No. 95,
"Statement of Cash Flows." Generally, the approach in SFAS No. 123(R) is similar
to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all
share-based  payments to employees,  including grants of employee stock options,
to be recognized in the income  statement based on their fair values.  Pro forma
disclosure is no longer an  alternative.  The  provisions of this  statement are
effective  for the Company as of January 1, 2006.  The Company  expects to adopt
SFAS No. 123(R) in the first fiscal quarter of 2006.

SFAS No.  123(R)  requires  companies to recognize in the income  statement  the
grant-date  fair  value of stock  options  and other  equity-based  compensation
issued to employees.  SFAS No. 123(R) also establishes  accounting  requirements
for measuring,  recognizing and reporting  share-based  compensation,  including
income tax considerations. Upon adoption of SFAS No. 123(R), the Company will be
required to determine the transition  method to be used at the date of adoption.
The  Company  plans to adopt  SFAS No.  123(R)  using the  modified  prospective
application.  Under the modified prospective application, the cost of new awards
and awards modified,  repurchased or cancelled after the required effective date
and the portion of awards for which the requisite  service has not been rendered
(unvested awards) that are outstanding as of the required effective date will be
recognized  as the  requisite  service  is  rendered  on or after  the  required
effective date. The compensation  cost for that portion of awards shall be based
on  the  grant-date  fair  value  of  those  awards  as  calculated  for  either
recognition or pro forma disclosures under SFAS No. 123.

As  permitted by SFAS No. 123, the Company  currently  accounts for  share-based
payments  to  employees  using APB 25's  intrinsic  value  method  and, as such,
generally   recognizes  no   compensation   cost  for  employee  stock  options.
Accordingly,  the  adoption of SFAS No.  123(R)'s  fair value method will have a
negative impact on the Company's results of operations, although it will have no
impact on its overall financial position. The impact of adopting SFAS No. 123(R)
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. 123(R)
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 loss


                                      F-10

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (Continued)
-----------------------------------------------------------------------------

Stock-Based Compensation (Continued)

per share.  SFAS No.  123(R) also  requires  the benefits of tax  deductions  in
excess of recognized  compensation cost to be reported as a financing cash flow,
rather than as an  operating  cash flow as  required  under  current  accounting
literature.  The  requirement  will reduce net operating cash flows and increase
net financing cash flows in periods of adoption.

At December  31, 2005,  the Company has one  stock-based  employee  compensation
plan. The Company  accounts for the plan under the  recognition  and measurement
principles of APB 25, and related interpretations (see Note 7). During the years
ended December 31, 2005 and 2004, $0 and $550,000,  respectively, of stock-based
employee  compensation  cost  is  reflected  in  the  accompanying  consolidated
statements of operations,  as certain of the options  granted under the plan had
exercise prices less than the market value of the underlying common stock on the
date of grant.  The following table  illustrates the effect on net loss and loss
per share if the Company had applied the fair value  recognition  provisions  of
SFAS No. 123 to stock-based employee compensation:

                                         Year Ended             Year Ended
                                     December 31, 2005      December 31, 2004
                                      --------------         ---------------

Net loss, as reported                 $   (5,241,530)        $   (3,382,198)

Deduct:
  Total stock-based employee
    compensation under APB
    No. 25, net of related
    tax expense                                    -                550,000

Add:
  Total stock-based employee
    compensation expense
    under fair value based
    method for all awards,
    net of related tax effect                      -             (1,090,000)
                                      --------------         ---------------
Pro forma net loss                    $   (5,241,530)        $   (3,922,198)
                                      ==============         ===============
Basic and diluted loss per
  share - as reported                 $        (0.32)        $        (0.34)
                                      ==============         ==============
Basic and diluted loss per
  share - pro forma                   $        (0.32)        $        (0.39)
                                      ==============         ==============

                                      F-11

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (Continued)
-----------------------------------------------------------------------------

Issuance of Stock for Non-Cash Considerations

All issuances of the Company's common stock for non-cash consideration have been
assigned a dollar amount  equaling  either the market value of the shares issued
or the value of consideration  received whichever is more readily  determinable.
The  majority  of the  non-cash  consideration  received  pertains  to  services
rendered by  consultants  and others and has been valued at the market  value of
the shares  issued.  In certain  issuances,  the Company may  discount the value
assigned to the stock issued for illiquidity and restrictions on resale.

The Company's accounting policy for equity instruments issued to consultants and
vendors in exchange for goods and services  follows the  provisions  of Emerging
Issues Task Force ("EITF") 96-18,  "Accounting for Equity  Instruments  That are
Issued to Other Than  Employees for Acquiring,  or in Conjunction  with Selling,
Goods  or  Services"  and  EITF  00-18,   "Accounting  Recognition  for  Certain
Transactions  Involving Equity Instruments Granted to Other Than Employees." The
measurement  date  for the  fair  value  of the  equity  instruments  issued  is
determined at the earlier of (i) the date at which a commitment for  performance
by the  consultant or vendor is reached or (ii) the date at which the consultant
or vendor's performance is complete. In the case of equity instruments issued to
consultants, the fair value of the equity instrument is recognized over the term
of the consulting  agreement.  In accordance to EITF 00-18, an asset acquired in
exchange for the issuance of fully  vested,  nonforfeitable  equity  instruments
should not be presented or  classified  as an offset to equity on the  grantor's
balance  sheet once the equity  instrument is granted for  accounting  purposes.
Accordingly,  the Company recorded the fair value of the common stock issued for
future consulting services as prepaid services in its consolidated balance sheet
(see Note 7).

Income Taxes

The  Company  accounts  for  income  taxes in  accordance  with  SFAS  No.  109,
"Accounting for Income Taxes." Under the asset and liability  method of SFAS No.
109,  deferred  tax assets and  liabilities  are  recognized  for the future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
differences  are expected to be  recovered  or settled.  Under SFAS No. 109, the
effect  on  deferred  tax  assets  and  liabilities  of a change in tax rates is
recognized  in  operations  in the period that  includes the  enactment  date. A
valuation  allowance is provided  for certain  deferred tax assets if it is more
likely than not that the Company  will not  realize  tax assets  through  future
operations.



                                      F-12

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (Continued)
-----------------------------------------------------------------------------

Loss Per Share

Basic  earnings  per share  ("BEPS") is computed by dividing  loss  available to
common  stockholders by the weighted average number of outstanding common shares
during the period of  computation.  Diluted  earnings per share  ("DEPS")  gives
effect to all dilutive  potential common shares outstanding during the period of
computation.  The  computation of DEPS does not assume  conversion,  exercise or
contingent  exercise of securities  that would have an  anti-dilutive  effect on
earnings.  As of  December  31, 2005 and 2004,  the  Company had no  potentially
dilutive securities that would affect loss per share.

Business Segments

During 2005, the Company operated in one segment,  Wholesale  International Long
Distance, operated from the HUB in Miami, Florida, which was sold during 2005.

New Accounting Pronouncements

In May 2005, the Financial  Accounting  Standards Board ("FASB") issued SFAS No.
154 " Accounting  Changes and Error  Corrections - A Replacement  of APB Opinion
No. 20 and FASB Statement 3. " This  statement  replaces  Accounting  Principles
Board ("APB") Opinion No. 20 ("APB No. 20"),  Accounting  Changes , and SFAS No.
3, " Reporting  Accounting  Changes in Interim Financial  Reporting." APB No. 20
required that most voluntary changes in an accounting principle be recognized by
including  in net income of the period of the  change the  cumulative  effect of
changing  to the new  accounting  principle.  SFAS No.  154  generally  requires
retrospective  application to prior period's financial  statements of changes in
accounting  principle.  SFAS No. 154 is effective in the first reporting  period
beginning  after  December 15, 2005. The adoption of SFAS No. 154 did not have a
material impact on the Company's  consolidated financial condition or results of
operations.

NOTE 2 - ACQUISITIONS AND DISPOSITIONS
--------------------------------------

Acquisition of Y-Tel International, LLC

On  October  12,  2004,  Y-Tel  LLC  entered  into  an  Agreement  and  Plan  of
Reorganization  (the  "Agreement")  with  CPC.  Management   accounted  for  the
reorganization as a capital stock transaction.  Accordingly,  the reorganization
is reported  herein as a  recapitalization  of CPC.  Y-Tel LLC is considered the
acquirer for accounting  purposes (a "reverse  acquisition")  because of (a) its
majority  ownership of CPC, (b) its  representation on CPC's board of directors,
and (c) executive  management  positions held by former officers of the Company.
However,  Y-Tel LLC became a wholly  owned  subsidiary  of CPC after the reverse


                                      F-13

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 2 - ACQUISITIONS AND DISPOSITIONS (Continued)
--------------------------------------------------

acquisition. In connection with the reverse acquisition, CPC changed its name to
Y-Tel International,  Inc. in December 2004. The results of CPC previously filed
with  the  SEC  in  prior  years  are  not  included  herein.  The  accompanying
consolidated  financial  statements include the historical results of operations
of Y-Tel LLC.

Immediately prior to the reorganization, CPC had 4,579,900 outstanding shares of
common stock and no outstanding  shares of preferred  stock.  In accordance with
the Agreement,  CPC issued  10,000,000 shares of its common stock to the members
of Y-Tel LLC in exchange for all of the  outstanding  member  interests of Y-Tel
LLC.  Simultaneously  with the closing of the  acquisition,  Mr. Pack,  the then
President and director of CPC, sold 1,450,400  restricted shares of his personal
CPC common stock in a private  transaction to an unrelated business associate of
the Company. Immediately after the reorganization,  (i) the current stockholders
of CPC  owned  3,129,500  shares,  or  approximately  21%,  and  (ii) CPC is now
controlled  by the former  members of Y-Tel LLC, who own 69% of the  outstanding
CPC shares.  The share exchange ratio in the acquisition was determined  through
arms-length negotiations between Y-Tel LLC and CPC.

In  connection  with  the  reorganization,   CPC  has  entered  into  employment
agreements with two officers (see Note 9).

The proforma  financial  information  has not been presented  because CPC had no
significant operations.

NOTE 3 - PROPERTY AND EQUIPMENT
-------------------------------

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

Equipment                               $     169,681

Less accumulated depreciation                 (12,324)
                                         ------------

Fixed assets, net                       $     157,357
                                         ============


Depreciation  expense for property and equipment for the periods ended  December
31, 2005 and 2004 was $68,791 and $56,717 respectively.

On August 3, 2005,  the Company  entered  into an agreement to sell its property
and equipment in Panama for $300,000. Management has concluded the opportunities
in Panama have  significantly  changed and no longer  require a DMS  platform to
generate  revenue.  Accordingly,  the  Company  recorded an  impairment  loss of


                                      F-14

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 3 - PROPERTY AND EQUIPMENT (Continued)
-------------------------------------------

$159,665  based on the excess of the book value  over the fair  market  value of
such assets on that date.

As of December 12, 2005, the above referenced sale had not occurred.  Therefore,
on December 12, 2005,  the Company  entered into a sales  agreement  (the "Sales
Agreement")  with AIT and a tri-party  agreement  with AIT and  unrelated  third
party,  whereby the Company  agreed to sell its fixed  assets  located in Panama
City, Panama and Miami, Florida (see Note 5).

NOTE 4 - INTANGIBLE ASSET
-------------------------

In October 2004, the Company  entered into an exclusive  worldwide  distribution
agreement (the "Distribution Agreement") with EBI Communications,  Inc. ("EBI").
In accordance  with the  Distribution  Agreement,  the Company  agreed to pay an
exclusive  marketing  fee of  $100,000,  $5,000  payable  upon  execution of the
Distribution  Agreement and $95,000 within 60 days thereafter,  of which $25,000
was paid during the year ended  December 31, 2005.  Also, in  consideration  for
receiving  the exclusive  distribution  rights,  the Company  issued EBI 300,000
shares of restricted common stock valued at approximately $675,000 (based on the
estimated fair market value on the date of issuance) and recorded such amount as
an intangible  asset. The Company was amortizing such amount to expense over the
10-year life of the agreement.

Effective June 2005, the Company terminated the contract with EBI, canceling all
shares and  requiring  EBI to refund all advances  made by the Company under the
Distribution Agreement,  which totaled $55,000 due to alleged breach of contract
by EBI. In connection with the contract  termination,  the Company cancelled the
300,000  shares of common stock issued to EBI (valued at $404,696 on the date of
cancellation)  and recorded the  difference  between the fair value of the stock
cancelled by the Company and the unamortized value of the intangible asset as an
impairment  loss of  $222,000,  in the  accompanying  consolidated  statement of
operations.  In  addition,  the  Company  wrote-off  the amounts due from EBI of
$55,000; due to the uncollectibility of such amounts.

During the years ended December 31, 2005 and 2004, the Company  expensed $36,554
and $11,750, respectively, through the date of termination.

NOTE 5 - RELATED PARTY TRANSACTIONS
-----------------------------------

On February  18, 2004,  the Company  repurchased  2,474,581  member units from a
majority  member for  $242,000  for the purpose of  reissuing  such units to new
members. At December 31, 2004, the remaining balance to be paid was $227,000. In
January 2005, as part of a settlement agreement (see below), all amounts payable
to the related  party were  forgiven and the $227,000 was recorded as additional
paid in capital.

                                      F-15

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 5 - RELATED PARTY TRANSACTIONS, continued
----------------------------------------------

As of December  31,  2004,  the Company  purchased  several  pieces of equipment
totaling  $135,472  and  received  contract  labor and other  services  totaling
$197,949 in 2004 from AIT Wireless ("AIT"),  a company owned by a stockholder of
the Company.  In January 2005,  the Company and the related party entered into a
settlement  agreement  (the  "Settlement")  for all amounts owed and amounts due
between the parties. In accordance with the Settlement, the Company was required
to make  payments of $20,000 per month  beginning  in February  2005 and a final
payment  of  $12,402  in  June  2006.  Due  to  the  Company's  working  capital
restrictions,   the  Company  was  in  default  under  its  obligations  of  the
Settlement. There are no default provisions per the Settlement.

On December 12, 2005, the Company  entered into a Sales Agreement with AIT and a
Tri-Party  agreement with AIT and an unrelated  third party.  In connection with
the Sales  Agreement,  the  Company  sold fixed  assets with a net book value of
$300,000  in  exchange  for  cancellation  of  debt  owed  AIT of  $182,598.  In
connection  with the Tri-Party  Agreement,  the Company sold fixed assets with a
net book value of $473,476 to an unrelated third party in consideration  for the
cancellation  of debt  owed to AIT of  $127,500,  a  non-interest  bearing  note
receivable of $48,000 and cash of $47,500. As a result of the transactions,  the
Company  recognized  an  aggregate  loss on sale of property  and  equipment  of
$367,878.  The Company has obtained a full release of the amounts owed to AIT as
a result  of these  agreements.  Under  the  terms of the note  receivable,  the
Company is to receive $8,000 per month beginning in January 2006. The agreements
are summarized as follows:

Cancellation of debt                 $            310,098
Note receivable                                    48,000
Cash                                               47,500
                                     --------------------
                                     $            405,598
                                     ====================


The Company  entered into  consulting  agreements  with three  stockholders  for
services provided through June 2005 (see Note 9).

NOTE 6 - DEBT
-------------

In June 2005,  the Company issued a convertible  note payable (the  "Convertible
Note")  totaling  $70,000,  bearing  interest  at 8% per  annum.  Principal  and
interest were due on June 22, 2007. The Convertible Note and accrued interest of
$2,800 was  converted  at $4.00 per share into  18,200  shares of the  Company's
common stock in December 2005.




                                      F-16

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 7 - EQUITY
---------------

Common Stock

During the year ended December 31, 2005 the Company issued  1,547,641  shares of
restricted common stock for cash totaling $964,429.

In December 2005, the Company issued 18,200 shares of common stock in connection
with the conversion of notes payable and accrued interest (see Note 6).

During the year ended  December  31,  2005,  the Company  issued 1,800 shares of
common stock for $2,100 in connection with the exercise of warrants.

On December 1, 2005 the Company  entered into a stock  purchase  agreement  with
Marcatus & Partners  regarding the purchase of 2,625,000  shares of common stock
for $1,200,000.  The stock certificates have been issued and are currently being
held in escrow until receipt of funds. As the shares are in escrow,  the Company
has not recorded the shares as issued and  outstanding  at December 31, 2005. As
of May 15, 2006, the Company has not received any funds.

Prior to the reverse  acquisition  with CPC,  the Company  issued the  following
membership units:

In January 2004, a member  relinquished  197,967 member units to the Company for
no  consideration  in order for the Company to resell such units and utilize the
proceeds for working capital.

As  described  in Note 5, the  Company  entered  into an  agreement  to purchase
2,474,581  member  units from a majority  member for  $242,000  for the  purpose
reselling such member units for working capital.

During 2004,  holders of notes payable  converted  $190,000 into 752,273  member
units.

During 2004, the Company sold 435,520 member units for $152,000.

In October 2004, the Company completed a recapitalization, whereby it authorized
and  issued an  aggregate  of  10,000,000  member  units to the  members  of the
Company.  All previously issued member units were cancelled and new certificates
reflecting  the new  allocation of member units were issued.  The allocation was
based on the then current  ownership  percentages,  subsequent to accounting for
the addition of the new Company  President and an  adjustment  from treasury for
units  relinquished  for working  capital needs of the Company.  The member unit
amounts  and per  unit  amounts  referred  to in  these  consolidated  financial
statements have been adjusted to reflect such recapitalization.

In December 2004, the Company issued 37,750 shares of restricted common stock in
connection with the conversion of $151,000 of principal and accrued interest.


                                      F-17

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 7 - EQUITY (Continued)
---------------------------

Stock for Services

During the year ended  December 31, 2005,  the Company  issued  75,000 shares of
restricted  common stock to the Company's new Chief Technical Officer and 50,000
shares of restricted common stock to a new board member as signing bonuses.  The
aggregate of 125,000 shares were valued at $175,000  (based on the fair value of
the common stock at the respective  measurement  dates) and expensed  during the
year ended December 31, 2005.

During the twelve  month period ended  December  31,  2005,  the Company  issued
173,200 shares of restricted  common stock to various  consultants in connection
with the performance of consulting  services.  The 173,200 shares were valued at
$168,920  (based  on the  fair  value  of the  common  stock  at the  respective
measurement dates) and expensed during the year ended December 31, 2005.

During the twelve  month period ended  December  31,  2005,  the Company  issued
62,500 shares of restricted  common stock to various  consultants  in connection
with the performance of consulting  services to be performed through March 2006.
The 62,500 shares were valued at $126,250 (based on the fair value of the common
stock at the respective  measurement  dates) and recorded as prepaid services in
the accompanying  consolidated  balance sheet.  Such amount will be amortized to
expense over the lives of the related agreements, of which $109,064 was expensed
during the year ended December 31, 2005.

During the year ended  December 31, 2004,  the Company  issued 510,000 shares of
restricted   common  stock  to  various   consultants  in  connection  with  the
performance of consulting  services to be performed  through  December 2005. The
510,000 shares were valued at $1,470,000  (based on the fair value of the common
stock at the respective measurement dates) and recorded as prepaid services upon
grant.  Such amount was being amortized to expense over the lives of the related
agreements, of which $1,123,542 and $196,458 was expensed during the years ended
December  31,  2005 and 2004,  respectively.  Effective  June 2005,  the Company
terminated  its  contract  with  consultants,  and  as  a  result,  recorded  an
impairment  loss  of  $150,000  in  the  accompanying   consolidated   financial
statements  based on the carrying  value of the prepaid  services at the time of
the contract termination.

During the year ended  December 31, 2004,  the Company  issued 300,000 shares of
restricted  common  stock  in  connection  with  an  exclusive   distributorship
agreement.  The 300,000 shares were valued at $675,000  (based on the fair value
of the common  stock at the date of the  agreement),  and were  cancelled by the
Company in 2005 (see Note 4).

In October 2004,  the Company  issued  1,166,392  member units to its President,
valued at $407,080  (based on the estimated fair value on the date of issuance),
in connection with a signing bonus and was expensed upon issuance.


                                      F-18

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 7 - EQUITY (Continued)
---------------------------

In October 2004, the Company issued 618,004 member units to an existing  member,
valued at approximately  $215,688 (based on the estimated fair value on the date
of issuance) for services rendered and were expensed upon issuance.

Stock Options

In connection with the reverse acquisition (see Note 2), the Company adopted the
existing  2001 Stock  Option  Plan (the  "Plan") of CPC.  The Plan has  reserved
3,500,000 shares of common stock, as amended.  Under provisions of the Plan, the
exercise  price of the options  shall be determined by the Board of Directors at
the time of grant.  The  exercise  period shall be no more than 10 years and the
awards  will  vest  over a  period  of time to be  determined  by the  Board  of
Directors.

During the year ended  December 31, 2005,  the Company  expensed  $1,226,250  as
stock  compensation  expenses for the vesting of options  issued to  consultants
during fiscal 2004. In connection with  consulting  agreements (see Note 9) with
three Company stockholders,  the Company issued options to purchase an aggregate
of 1,500,000  shares of common stock during fiscal 2004,  with an exercise price
of $0.55,  which vested  immediately  and expire  through  September  2007.  The
options were valued using the Black Scholes option pricing model at an aggregate
of $1,635,000.  The Company  amortized such amount over the lives of the related
consulting agreements which ended on June 30, 2005.

In connection with employment  agreements (see Note 9), during 2004, the Company
issued  options to purchase an aggregate of 1,000,000  shares of common stock to
two officers,  with an exercise  price of $0.55,  which vested  immediately  and
expire through  September  2007. The Company  recorded  compensation  expense of
$550,000 in connection with the issuance of the employee options.

Stock  option  activity  for the years  ended  December  31, 2005 and 2004 is as
follows:

                                                                Weighted Average
                                                       Number    Exercise Price
                                                    of Options      Per Share
                                                    ----------     -----------
       Outstanding at January 1, 2004                        -     $         -
          Granted                                    2,500,000            0.55
          Exercised                                          -               -
          Canceled                                           -               -
                                                    ----------     -----------
       Outstanding and exercisable at December
          31, 2004 and 2005                          2,500,000     $      0.55
                                                    ==========     ===========



                                      F-19

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 7 - EQUITY (Continued)
---------------------------

The weighted average fair value of options granted during 2004 was $1.09.  There
were no options granted during 2005. the weighted average remaining  contractual
life of these options at December 31, 2005 was 1.75 years.

The fair  value of each  option  granted  during  2004 was  estimated  using the
Black-Scholes  option  pricing  model on the date of grant  using the  following
assumptions:  (i) no dividend  yield,  (ii) average  volatility  of 270 percent,
(iii) weighted average risk free interest rate of approximately 3.5 percent, and
(iv) average expected life of 3 years.

The  Black-Scholes  option  valuation method was developed for use in estimating
the fair value of traded  options  which have no  vesting  restrictions  and are
fully  transferable.  In addition,  option valuation models require the input of
highly  subjective  assumptions  including the expected stock price  volatility.
Because the Company's employee stock options have characteristics  significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

Warrants

In connection  with the reverse  acquisition  with CPC (see Note 2), the Company
assumed Class A warrants to issue 27,900  shares of the  Company's  common stock
and Class B warrants to issue 27,900 shares of the Company's  common stock.  The
Class A  warrants  are  exercisable  at $1.00,  vested  upon grant and expire in
September 2006, as amended. Based on the estimated fair value of the warrants at
the date of the expiration extension,  there was no additional expense recorded.
The Class B warrants are  exercisable at $1.50 per share,  vested upon grant and
expire in September 2006.

During the year ended  December  31, 2005, a total of 1,200 Class A Warrants and
600 Class B Warrants were exercised for total proceeds of $2,100.

During  the year  ended  December  31,  2005,  the  Company  issued a warrant to
purchase 50,000 shares of restricted  common stock to a consultant in connection
with the  performance  of consulting  services to be performed  through  January
2006.  The  warrant was valued at $175,500  (based on the Black  Scholes  option
pricing  model),  has an exercise price of $4.00,  vests monthly through January
2006 and expires in January 2008. Such amount is being expensed over the life of
the related  agreement,  of which  $160,875 was  expensed  during the year ended
December 31, 2005.

The  following  represents a summary of the warrants  outstanding  for the years
ended December 31, 2005 and 2004:



                                      F-20

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 7 - EQUITY (Continued)
---------------------------

                                                                     Weighted
                                                                      Average
                                                     Number       Exercise Price
                                                   of Warrants       Per Share
                                                  -------------   --------------
         Outstanding at January 1, 2004                  55,800   $         1.25
           Granted                                            -                -
           Exercised                                          -                -
           Expired/Forfeited                                  -                -
                                                  -------------   --------------
         Balance at December 31, 2004                    55,800   $         1.25
           Granted                                       50,000             4.00
           Exercised                                     (1,800)            1.17
           Expired/Forfeited                                  -                -
                                                  -------------   --------------
         Balance at December 31, 2005                   104,000   $         2.56
                                                  -------------   --------------

         Weighted average fair value of warrants
                  granted:  2005                                  $         3.51
                                                                  ==============

The following summarizes  information about warrants outstanding at December 31,
2005:

<TABLE>
<CAPTION>
                                             Warrants Outstanding                                 Warrants Exercisable
                           ------------------------------------------------------------    ---------------------------------
                                                    Weighted
                                                     Average              Weighted                                  Weighted
                             Number of              Remaining             Average               Number              Average
         Exercise             Shares               Contractual            Exercise                of                Exercise
          Price             Outstanding           Life (Years)             Price                Shares               Price
   --------------------    -----------------   -------------------   ------------------    ---------------------------------

    <S>                         <C>               <C>                <C>                   <C>                    <C>
    $1.00 - $1.50                    54,000            0.7                $    1.25             54,000                 $1.25
    $4.00                            50,000            2.1                $    4.00             45,833                  4.00

                           -----------------                         ------------------    ---------------------------------

                                    104,000                               $    2.56             99,833                 $2.51
                           =================                         ==================    =================================
</TABLE>


The fair value of each  warrant  granted  during  2005 was  estimated  using the
Black-Scholes  option  pricing  model on the date of grant  using the  following
assumptions:  (i) no dividend  yield,  (ii) average  volatility  of 175%,  (iii)
weighted  average risk free interest rate of 3.9% and (iv) average expected life
of 3 years.



                                      F-21

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 8 - INCOME TAXES

Prior to October 12, 2004, the Company elected to be taxed as a partnership. All
income and losses  were passed  through to the  members  and the members  report
these on their individual  income tax returns.  There was no significant  entity
level income tax for the Company for Federal and State purposes up to such date.

At December 31, 2005,  the Company had  approximately  $7,074,000 of federal and
state net operating loss  carryforwards for tax reporting  purposes available to
offset future taxable income; federal and state net operating loss carryforwards
expire  through  2025.  Under the Tax  Reform  Act of 1986,  the  amounts of and
benefits from net operating losses carried forward may be impaired or limited in
certain  circumstances.  Events which may cause limitations in the amount of net
operating  losses that the Company may utilize in any one year include,  but are
not limited to, a  cumulative  ownership  change of more than 50 percent  over a
three-year  period.  At December 31,  2005,  the effect of such  limitation,  if
imposed, has not been determined.

Deferred tax assets  consist  primarily of the tax effect of net operating  loss
carryforwards.  The  Company  has  provided a full  valuation  allowance  on the
deferred tax assets  because of the  uncertainty  regarding  realizability.  The
valuation allowance increased  approximately  $1,989,000 and $676,000 during the
years ended December 31, 2005 and 2004, respectively.

Deferred tax assets consist of the following at December 31, 2005:


         Deferred tax assets:
            Net operating loss carryforwards               $        2,665,000
            Less valuation allowance                               (2,665,000)
                                                            -----------------

                                                           $                -
                                                            =================

A reconciliation  of income taxes computed at the federal  statutory rate of 34%
to the provision for income taxes is as follows for the years ended December 31,
2005 and for the period from October 14, 2004 through December 31, 2004:

                                                             2005        2004
                                                          ----------  ----------

         Computed benefit at federal statutory rate          (34)%       (34)%
         State income tax benefit, net of federal effect      (6)%        (5)%
         Increase in valuation allowance                      38%         39%
         Other                                                 2%          -
                                                          ----------  ----------

                                                               -           -
                                                          ==========  ==========

                                      F-22

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 9 - COMMITMENTS AND CONTINGENCIES

Indemnities and Guarantees

The Company has made certain  indemnities and guarantees,  under which it may be
required to make payments to a guaranteed or indemnified  party,  in relation to
certain transactions. The Company indemnifies its directors, officers, employees
and  agents to the  maximum  extent  permitted  under the laws of the  States of
Florida and Delaware.  In connection with its facility  leases,  the Company has
indemnified  its  lessors  for  certain  claims  arising  from  the  use  of the
facilities.  In  connection  with  certain  of  its  stock  purchase  and  other
agreements,  the Company has  indemnified  lenders,  sellers,  and various other
parties for certain claims arising from the Company's breach of representations,
warranties and other provisions contained in the agreements. The duration of the
guarantees  and  indemnities  do not provide for any  limitation  of the maximum
potential future payments the Company could be obligated to make.  Historically,
the Company has not been  obligated to make any  payments for these  obligations
and no liabilities  have been recorded for these  indemnities  and guarantees in
the accompanying condensed consolidated balance sheet.

Litigation

From time to time,  the Company may be involved in various  claims,  lawsuits or
disputes  arising in the normal  operations of its business.  The Company is not
currently  involved in any such matters which  management  believes could have a
material  adverse  effect on the Company's  consolidated  financial  position or
consolidated results of operations.

Employment Agreements

During 2004, the Company entered into  employment  agreements with two officers.
Effective  November 28, 2005, the Company  terminated  the employment  agreement
with the CEO, pursuant to the termination  provisions  within the contract.  The
remaining  employment with the CFO is in through September 2006 and continues in
effect from year to year thereafter unless otherwise terminated, pursuant to the
terms of such  contract.  Future annual minimum  payments under this  employment
agreement approximate $144,000,  with potential annual increases, as defined. In
connection with these employment agreements,  the Company issued options in 2004
to purchase an aggregate of 1,000,000 shares of common stock (see Note 7).

Consulting Agreements

In October  2004,  the Company  entered into  consulting  agreements  with three
stockholders.  Such agreements were in effect through June 2005 and provided for
aggregate monthly consulting fees of $36,000.  In connection with the consulting
agreements,  the Company  issued  options to purchase an  aggregate of 1,500,000
shares of common stock (see Note 7).




                                      F-23

<PAGE>

                            Y-TEL INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 For The Years Ended December 31, 2005 and 2004


NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)
--------------------------------------------------

Operating Leases

The Company leases its facilities under cancelable  operating lease  agreements.
The leases  expire on various  dates through July 2006 and provide for aggregate
monthly rents of approximately $700. Rental expense for the years ended December
31, 2005 and 2004 was approximately $127,000 and $265,000, respectively.


NOTE 10 - SUBSEQUENT EVENTS (UNAUDITED)
---------------------------------------

Subsequent to December 31, 2005,  the Company issued 92,600 shares of its common
stock for proceeds of $20,655.

Subsequent to December 31, 2005,  the Company  issued 1,200 shares of its common
stock to a  consultant  for  services  provided.  The shares were valued at $600
(based  on the fair  value of the  common  stock at the  measurement  date)  and
expensed during the quarter ended March 31, 2006.




















                                      F-24