##### Table of Contents

---

UNITED STATES  SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 
20549

FORM 10-QSB

|(Mark One)                                                                        
|----------------------------------------------------------------------------------
|                                                                                  
|x                                                                                 
|                                                                                  
|                                                                                  
|                                                                                  
|o                                                                                 
|                                                                                  
|                                                                                  
|                                                                                  
|Commission File No.: 000-33471                                                    
|                                                                                  
|YAK COMMUNICATIONS (USA), INC.                                                    
|(Exact name of small business issuer as specified in its charter)                 
|                                                                                  
|Florida                                                                           
|(State or other jurisdiction of incorporation or organization)                    
|                                                                                  
|55 Town Centre Court, Suite 610 Toronto, Ontario, Canada, M1P 4X4                 
|(Address of principal executive offices)                                          
|                                                                                  
|(416) 296-7111                                                                    
|Issuers Telephone Number, Including Area Code:                                   
|                                                                                  
|(Former Name, Former Address and Former Fiscal Year, if changed since last report)
|                                                                                  

Indicate by a check mark whether the registrant:  (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.

|Yes | x | No | o
|--- | - | -- | -

As of March 31, 2003, 4,392,158 shares of the
issuers Common Stock, no par value per share, were outstanding.

---



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

INDEX TO FORM 10-QSB

|                               |                                                                                                                                                                    | Page
|------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----
|                               |                                                                                                                                                                    |     
|PART I - FINANCIAL INFORMATION |                                                                                                                                                                   
|                               |                                                                                                                                                                    |     
|Item 1.                        | Financial Statements                                                                                                                                               | 1   
|                               |                                                                                                                                                                    |     
|                               | Consolidated Balance Sheets  March 31, 2003 and June 30, 2002                                                                                                      |     
|                               |                                                                                                                                                                    |     
|                               | Consolidated Statements of Stockholders Equity  March 31, 2003 and June 30, 2002                                                                                  |     
|                               |                                                                                                                                                                    |     
|                               | Consolidated Statements of Operations For the Three Months Ended March 31, 2003 and March 31, 2002 and for the Nine Months Ended March 31, 2003 and March 31,
2002 |     
|                               |                                                                                                                                                                    |     
|                               | Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2003 and March 31, 2002 and for the Nine Months Ended March 31, 2003 and March 31,
2002 |     
|                               |                                                                                                                                                                    |     
|                               | Notes to Consolidated Financial Statements                                                                                                                         |     
|                               |                                                                                                                                                                    |     
|Item 2.                        | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                              | 1   
|                               |                                                                                                                                                                    |     
|Item 3                         | Controls and Procedures                                                                                                                                            | 7   
|                               |                                                                                                                                                                    |     
|PART II - OTHER INFORMATION    |                                                                                                                                                                   
|                               |                                                                                                                                                                    |     
|Item 5.                        | Other Events                                                                                                                                                       | 8   
|                               |                                                                                                                                                                    |     
|Item 6.                        | Exhibits and Reports on Form 8-K                                                                                                                                   | 8   
|                               |                                                                                                                                                                    |     
|Signatures                     | 9                                                                                                                                                                 
|                               |                                                                                                                                                                    |     
|Certifications                 | 10                                                                                                                                                                

ii



---

##### Table of Contents

PART I FINANCIAL INFORMATION

|Item 1. | Financial Statements.
|------- | ---------------------

Immediately following the signature page in this Form 10-QSB.

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------

The Managements Discussion and Analysis of Financial Condition and Results of Operations included herein should be read in conjunction with the
Consolidated Financial Statements of Yak Communications (USA), Inc. and Subsidiaries, and the related notes to the Financial Statements included in the Companys Form 10-KSB for the fiscal year ended June 30, 2002, and the Consolidated
Financial Statements and the related notes to the Consolidated Financial Statements included in Item 1 of this quarterly report on Form 10-QSB. Our Consolidated Financial Statements have been prepared in accordance with accounting principles
generally accepted in the U.S. and have been audited by our independent auditors.

The financial information in Managements
Discussion and Analysis of Financial Condition and Results of Operations refers to our continuing operations.

Critical Accounting Policies

We have several significant accounting policies all of which are disclosed in Note 2 to the consolidated financial statements.  Our critical accounting policies
are as follows:

| |  | determining functional currency for the purpose of consolidation; and
| | - | ---------------------------------------------------------------------
| |   |                                                                      
| |  | valuation of property and equipment.                                 

Determining Functional Currency for the Purpose of
Consolidation

We have a foreign subsidiary in Canada that accounts for 96% of our revenue and 91% of our assets as of March 31,
2003.  In preparing our consolidated financial statements, we translate the accounting records from Canadian dollars into United States dollars.  This process results in exchange gains and losses, which under the provisions of SFAS No. 52,
are included as a separate part of our net equity under the caption accumulated other comprehensive income.  Under these provisions, the treatment of these translation gains or losses is dependant upon our managements
determination of the functional currency of our subsidiary.  The functional currency is determined based on managements judgment of the currency that its subsidiary conducts substantially all of its transactions, including billings,
financing and other expenditures, which also includes the dependency upon the parent and the nature of the subsidiarys operations.

1



---

##### Table of Contents

Valuation of Property and Equipment

We assess the
impairment of our property and equipment whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable.  The factors we consider include changes in the manner of use of the acquired assets,
significant negative industry or economic trends and significant changes in technology.  When we determine that the carrying value of property and equipment may not be recoverable, we measure any impairment based on a projected discounted cash
flow method using a discount rate determined by our management.  Net property and equipment totaled $3,354,970 as of March 31, 2003 which represents 21% of total assets.

Results of
Operations

Comparison Of Three Months Ended March 31, 2003 And 2002

Net
revenue increased $4,288,210 (68%) to $10,591,995 for the three months ended March 31, 2003 from $6,303,785 for the three months ended March 31, 2002.  This increase in revenue is from the addition of new customers in existing and new markets
resulting from our marketing efforts and consumer acceptance of our products, along with expansion into three new cities in Canada and eight cities in the United States during the period.  Sales in markets existing from last year increased by
$3,503,148 or 55% and sales in new markets accounted for $785,062 of our revenue increase ($397,589 of which came from our operations in the United States).  In December 2002, we launched our flat rate product LooneyCall that
added $755,658 in new revenue for the three months ended March 31, 2003.  For the three months ended March 31, 2003, 96% of revenue was generated in Canada and the balance (4%) in the United States.

Cost of revenue increased $2,076,777 (43%) to $6,839,036 for the three months ended March 31, 2003 from $4,762,259 for the three months ended March 31, 2002. 
This increase is in direct proportion to the increased telephone traffic volume associated with the growth in our revenues. Cost of revenue is comprised primarily of the cost of long-distance services, fees for the processing and transporting of our
calls, and fixed line access and variable line usage costs.  The overall cost of revenue decreased to 64% of sales for the three months ended March 31, 2003, from 75% of sales for the three months ended March 31, 2002.  The majority of the
cost of revenue is variable, based upon the cost of the long-distance services, processing fees and line usage costs.  As our telephone traffic volume increased, our purchasing power improved significantly; this has allowed us to
lower our long-distance costs.  Furthermore, as our telephone volume increases, many costs such as line access costs will remain fixed, which allows us to improve our margins.

The cost of long-distance services decreased to 38% for the three months ended March 31, 2003 from 42% for the three months ended March 31, 2002.  This is due to
our greater purchasing power resulting from our higher volumes of traffic, and lower costs resulting from overcapacity in our industry.

2



---

##### Table of Contents

Selling, general and administrative expenses (SG&A) increased $1,036,334 or 125% to $1,864,659 for
the three months ended March 31, 2003 from $828,325 for the three months ended March 31, 2002.  The increase is primarily due to additional spending for marketing and advertising in order to attract new customers and increase our revenue
base.  Of this increase, advertising and promotion was the largest component ($857,596) for the three months ended March 31, 2003, increasing from $261,058 for the three months ended March 31, 2002; of the former amount, we spent $63,031 in
advertising and marketing costs to develop our operations in the United States.  The next largest component of SG&A was salaries, which increased to $439,138 for the three months ended March 31, 2003, from $241,780 for the three months
ended March 31, 2002.  The increase in salaries resulted from hiring additional administrative, technical and customer service employees, which were required to support our growth in sales.  These selling, general and administrative
expenses, other than marketing, are expected to rise at a lower rate than that of our projected revenue increases.

Organizational and
start-up costs for the development of our subsidiary, Yak Communications (America), Inc., and in connection with our joint venture in Peru with Digital Way SA were $64,073 for the three months ended March 31, 2003, compared to $98,328 for the three
months ended March 31, 2002.  The latter amount includes $30,253 spent to continue development of international operations in Peru for the three months ended March 31, 2003.  These costs were composed primarily of legal and consulting fees
incurred to obtain the regulatory licenses and contracts required to commence U.S. operations.

Accounts receivable financing costs
related to the factoring of our trade accounts receivable have decreased $67,982 or 43% to $89,816 for the three months ended March 31, 2003, as compared to $157,798 for the three months ended March 31, 2002.  This change is a direct result of
the reduced borrowing costs with respect to the factoring of an accounts receivable, which were the result of the renegotiation of our factoring arrangement in February 2002.

Depreciation and amortization increased $46,468 (39%) to $165,905 for the three months ended March 31, 2003, as compared to $119,437 for the three months ended March
31, 2002.  This increase is a result of total, year to-date capital spending of our Company of $514,185 for the last three months.

Net income increased by $836,606 to $1,061,042 for the three months ended March 31, 2003, from $224,436 for the three months ended March 31, 2002.  This increase
takes into account an income tax provision of $534,983 for the three months ended March 31, 2003, and none for the three months ended March 31, 2002, due to the application of prior periods income tax losses carried forward.

Comparison Of Nine Months Ended March 31, 2003 And 2002

Net revenue increased $10,648,426
(61%) to $28,068,189 for the nine months ended March 31, 2003 from $17,419,763 for the nine months ended March 31, 2002.  This increase in revenue is from the addition of new customers in existing and new markets resulting from our marketing
efforts

3



---

##### Table of Contents

and consumer acceptance of our products, along with expansion into six new cities in Canada and ten cities in the United States from 2001.  Sales in markets existing from
last year increased by $8,814,877 or 51% and sales in new markets accounted for $1,833,549 of our revenue increase ($1,067,449 of which came from our operations in the United States).  In December 2002, we launched our product
LooneyCall that has added $824,636 in new revenue for the nine months ended March 31, 2003.  For the nine months ended March 31, 2003, 96% of revenue was generated in Canada and the balance (4%) in the United
States.

Cost of revenue increased $4,411,298 (33%) to $17,671,907 for the nine months ended March 31, 2003 from $13,260,609 for the nine
months ended March 31, 2002.  This increase is in direct proportion to the increased telephone traffic volume associated with the growth in our revenues. Cost of revenue is comprised primarily of the cost of long-distance services, fees for the
processing and transporting of our calls, and fixed line access costs and variable line usage costs.  The overall cost of revenue decreased to 62% of sales for the nine months ended March 31, 2003, from 76% of sales for the nine months ended
March 31, 2002.  The majority of the cost of revenue is variable, based upon the cost of the long-distance services, processing fees and line usage costs.  As our telephone traffic volume increased, our purchasing power
improved significantly; this has allowed us to lower our long-distance costs.  Furthermore, as our telephone volume increases, many costs such as line access costs will remain fixed, which allows us to improve our margins.

The costs of long-distance services decreased to 36% for the nine months ended March 31, 2003 from 45% for the nine months ended March 31, 2002. 
This is due to our greater purchasing power resulting from our higher volumes of traffic, and lower cost resulting from overcapacity in our industry.

Selling, general and administrative expenses (SG&A) increased $2,642,506 or 102% to $5,213,447 for the nine months ended March 31, 2003 from
$2,570,941 for the nine months ended March 31, 2002.  The increase is primarily due to additional spending for marketing and advertising in order to attract new customers and increase our revenue base.  Of the increase, advertising and
promotion was the largest component ($2,893,343) for the nine months ended March 31, 2003, increasing from $961,922 for the nine months ended March 31, 2002; of the former amount, we spent $904,237 in advertising and marketing costs to develop our
operations in the United States, as compared to $15,852 for the comparable period in 2002.  The next largest component of SG&A was salaries, which increased to $1,114,601 for the nine months ended March 31, 2003 from $700,873 for the nine
months ended March 31, 2002.  The increase in salaries was a result of hiring additional administrative, technical and customer service employees, which were required to support our growth in sales.  These selling, general and
administrative expenses, other than marketing, are expected to rise at a lower rate than that of our projected revenue increases.

Organizational and start-up costs for the development of our subsidiary, Yak Communications (America), Inc., and in connection with our joint venture in Peru with
Digital Way SA were $415,966 for the nine months ended March 31, 2003, compared to $170,361 for the nine months ended March 31, 2002.  These costs were composed primarily of legal and consulting fees incurred to obtain the regulatory licenses
and contracts required to commence U.S. operations.  We

4



---

##### Table of Contents

spent $275,612 to develop international operations in Peru for the nine months ended March 31, 2003.

Accounts receivable financing costs related to the factoring of our trade accounts receivable have decreased $135,632 or 32% to $291,771 for the nine months ended
March 31, 2003, as compared to $427,403 for the nine months ended March 31, 2002.  This change is a direct result of the reduced borrowing costs with respect to a factoring of an accounts receivable, which were the result of the renegotiation
of our factoring arrangement in February 2002.

Depreciation and amortization increased $177,134 (51%) to $524,726 for the nine
months ended March 31, 2003, as compared to $347,592 for the nine months ended March 31, 2002.  This increase is a result of total, year-to-date capital spending by our Company of $1,011,473 for the last nine months and accelerated depreciation
of $100,000 for equipment no longer in use.

Net income increased by $2,011,537 to $2,444,291 for the nine months ended March 31, 2003,
from $432,754 for the nine months ended March 31, 2002.  This increase takes into account an income tax provision of $1,494,716 for the nine months ended March 31, 2003, and none for the nine months ended March 31, 2002, due to the application
of prior periods income tax losses carried forward.

Liquidity and Capital Resources

Our liquidity requirements are for operating activities, purchases of capital assets and interest and principal payments on outstanding indebtedness.  To date,
we have financed our growth through the private placement of equity securities, borrowings, accounts receivable financing, vendor financing and capital lease financing.

Net cash provided from operating activities was $3,140,781 for the nine months ended March 31, 2003, as compared to $899,737 for the nine months ended March 31,
2002.  This was due to a significant increase in our net income from operating activities (before non-cash items) to $3,060,211 for the nine months ended March 31, 2003, as compared to a net income from operating activities (before non-cash
items) of $860,346 for the nine months ended March 31, 2002.

Net cash used in investing activities was $1,629,173 for the nine months
ended March 31, 2003, as compared to $366,394 for the nine months ended March 31, 2002.  These investing activities comprise the cash component of the additions to our property and equipment required to maintain and expand our systems and
operations.  In addition to the above, we invested $117,770 in our initial investment in our joint venture operation in Peru, and invested $500,000 for an equity interest in Odyssey Management Group Inc.

Net cash provided by financing activities was $846,442 for the nine months ended March 31, 2003, as compared to net cash used in financing activities of $242,736 for
the nine months ended March 31, 2002.  This increase is primarily due to advances arising from our marketing agreement with Telus Communications, Inc. of $1,765,059.  These advance payments are described in our

5



---

##### Table of Contents

annual report on Form 10-KSB/A, dated February 24, 2003.  We also used $800,000 in cash to re-purchase 400,000 of our outstanding common shares.

We do not have any plans for any further significant acquisitions of property and equipment during the current fiscal year.  We believe we have
sufficient fixed capacity to accommodate our anticipated volume of telephony traffic in both Canada and the United States during fiscal 2003.  We expect that the only capital additions expected to be made during fiscal year 2003 will be those
required to maintain our existing telephone capacity, which are not expected to be greater than the capital additions made during fiscal year 2002.  The proposed acquisition of Contour Telecom Inc. and Argos Telecom Inc. (see Item 5 - Other
Events) may require us to make additional capital expenditures to accommodate increased telephony traffic.

We believe that our current
operations will be able to generate sufficient cash to meet our current obligations and maintain our current level of operations.  We anticipate that additional working capital that will be required will be funded by increasing our available
borrowings under our accounts receivable factoring arrangements.  We have $6,000,000 available under our current accounts receivable factoring agreement of which approximately $2,860,000 is currently outstanding.  In addition, we may seek
to obtain additional funds from public or private equity or debt offerings; however, we have no plans to do so at this time. We do not intend to significantly increase our marketing efforts in the United States until we are able to determine the
likelihood for success of our business model in the United States.

In addition to the financing sources described above, our
arrangement with Telus Communications, Inc. may provide a further $810,000 of funds for specific use in marketing and advertising our planned expansion.  These amounts are reflected as deferrals of amounts otherwise due to Telus Communications,
Inc. (see discussion above).

Seasonality

The results of any interim period
are not necessarily indicative of the results that might be expected during a full fiscal year; however, we do not believe our business is particularly seasonal in nature.

Trends

Over the past year, several major telecommunication companies have had to reconsolidate or reorganize pursuant to various bankruptcy proceedings
partly due to excess capacity.  This excess capacity has resulted in decreasing prices for long-distance and other telecommunications services.  Once the consolidation of capacity providers in the telecommunications industry stabilizes we
anticipate that prices in the industry will become more stable.

The introduction, and subsequent success, of our
LooneyCall product beginning in December 2002, has resulted in an increased marketing effort in our Canadian markets which we expect will continue over the next 12 months.  Due to this trend, we have not aggressively
marketed

6



---

##### Table of Contents

our product in the United States and we do not expect a material increase in marketing expenditures in this regard over the next 12 months.

In order to increase sales in our existing markets, we plan to develop new services to compliment our dial-around program.  In addition, we are evaluating
international opportunities for our services in markets outside of North America.

FORWARD LOOKING STATEMENTS

From time to time, we make statements about our future results in this Form 10-QSB that may constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are based on our current expectations and the current economic environment. Such statements are subject to known and unknown risks and uncertainties that could cause actual
future results and developments to differ materially from those currently projected. We caution you that these statements are not guarantees of future performance. They involve a number of risks and uncertainties that are difficult to predict. Our
actual results could differ materially from those expressed or implied in the forward-looking statements. Important assumptions and other important factors that could cause our actual results to differ materially from those in the forward-looking
statements, include, but are not limited to: (i) access to sufficient working capital to meet our operating and financial needs; (ii) our ability to respond to growing competition in our markets for discount long distance services as well as the
extent, timing and success of such competition; (iii) our ability to expand into new markets and to effectively manage our growth; (iv) the profitability of our entry and expansion into the U.S. market; (v) customer acceptance and effectiveness of
us as a discount long distance provider and our ability to assimilate new technology and to adapt to technological change in the telecommunications industry; (vi) our ability to develop and provide voice over internet and web-based communications
services; (vii) changes in, or failure to comply with, applicable governmental regulations; (viii) our reliance on our key personnel and the availability of qualified personnel; (ix) the duration and extent of the current economic downturn,
especially in Canada; (x) general economic conditions or material adverse changes in markets we serve; (xi) the risk that our analyses of these risks could be incorrect and that the strategies developed to address them could be unsuccessful; (xii)
changes in our accounting assumptions that regulatory agencies (including the Securities and Exchange Commission) may require or that result from changes in the accounting rules or their application, which could result in an impact on our earnings;
and (xiii) the various other factors discussed in this filing.

|Item 3. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure Controls and Procedures.The
Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed

7



---

##### Table of Contents

within 90 days of the filing date of this report, the chief executive and principal financial officers of the Company concluded that the Companys disclosure
controls and procedures were effective.

Changes in Internal Controls.The Company made no significant changes in its internal controls or in other factors that could
significantly affect these controls subsequent to the date of the evaluation of those controls by the chief executive and principal financial officers.

PART II OTHER INFORMATION

|Item 5. | Other Events.
|------- | -------------

On May 6, 2003, the Company
announced that Yak Communications (Canada) Inc., its wholly-owned subsidiary, entered into an agreement to acquire for cash Contour Telecom Inc. and its wholly-owned subsidiary, Argos Telecom Inc., from AT&T Canada Inc.  We are acquiring
Contour and Argos as complete operating units, including all employees.  The transaction, is expected to close in early July 2003, and is subject to the satisfaction of certain conditions.

|Item 6. | Exhibits and Reports on Form 8-K.
|------- | ---------------------------------
|        |                                  
|        | (a)                              
|        |                                  
|        |                                  
|        |                                  
|        | (b)                              
|        |                                  
|        |                                  
|        |                                  
|        |                                  

8



---

##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|Date: May 14, 2003 | YAK COMMUNICATIONS (USA), INC.
|------------------ | ------------------------------
|                   |                               
|                   | By:                           
|                   |                               
|                   |                               

9



---

##### Table of Contents

CERTIFICATIONS

|I, Charles Zwebner, certify that:                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                     
|1.          I have reviewed this quarterly report on Form 10-QSB of Yak Communications (USA), Inc.;                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                     
|2.          Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;           
|                                                                                                                                                                                                                                                                                                                                                     
|3.          Based on my knowledge, the consolidated financial statements, and other financial information included
in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;                 
|                                                                                                                                                                                                                                                                                                                                                     
|4.          I am responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                
|a)                                                                                                                                                                                                                                                                                                                                                    | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to me by others within those entities, particularly during the period in which this quarterly report is being prepared;
|                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                
|b)                                                                                                                                                                                                                                                                                                                                                    | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                
|c)                                                                                                                                                                                                                                                                                                                                                    | presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation
Date;                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                     
|5.          I have disclosed, based on my most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent functions):                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                
|a)                                                                                                                                                                                                                                                                                                                                                    | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and 
|                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                
|b)                                                                                                                                                                                                                                                                                                                                                    | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls;
and                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                     
|6.          I have indicated in this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                

|Date: May 14, 2003 | By: | /s/  CHARLES ZWEBNER                                                  
|------------------ | --- | ----------------------------------------------------------------------
|                   |     |                                                                       
|                   |     | Charles Zwebner  Chief Executive Officer & Principal Financial Officer

10



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



|                                             |  | Note |  | March 31,2003 |  | June 30,2002 | 
|-------------------------------------------- |  | ---- |  | ------------- |  | ------------ | 
|                                             |  |      |  |               |  |              | 
|                                             |  |      |  | (unaudited)   |  |              | 
|                                             |  |      |  | $             |  | $            | 
|                                             |  |      |  |               |  |              | 
|ASSETS                                       |  |      |  |               |  |              | 
|CURRENT                                      |  |      |  |               |  |              | 
|Cash and cash equivalents                    |  |      |  | 2,946,491     |  | 582,513      | 
|Accounts receivable                          |  | 6    |  | 7,897,336     |  | 4,886,802    | 
|Prepaid expenses and sundry assets           |  |      |  | 673,169       |  | 425,783      | 
|Income taxes recoverable                     |  |      |  |              |  | 6,244        | 
|                                             |  |      |  |               |  |              | 
|                                             |  |      |  | 11,516,996    |  | 5,901,342    | 
|INVESTMENT IN ODYSSEY MANAGEMENT GROUP, INC. |  | 3    |  | 500,000       |  |             | 
|PROPERTY AND EQUIPMENT                       |  | 4    |  | 3,354,970     |  | 2,844,112    | 
|INVESTMENT IN JOINT VENTURE                  |  | 5    |  | 117,700       |  |             | 
|DEPOSITS                                     |  |      |  | 65,877        |  | 63,646       | 
|                                             |  |      |  |               |  |              | 
|                                             |  |      |  | 15,555,543    |  | 8,809,100    | 
|                                             |  |      |  |               |  |              | 

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

- 11 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



|                                                               |  | Note |  | March 31,2003 |  | June 30,2002 |  
|-------------------------------------------------------------- |  | ---- |  | ------------- |  | ------------ | -
|                                                               |  |      |  |               |  |              |  
|                                                               |  |      |  | (unaudited)   |  |              |  
|                                                               |  |      |  | $             |  | $            |  
|                                                               |  |      |  |               |  |              |  
|LIABILITIES                                                    |  |      |  |               |  |              |  
|CURRENT                                                        |  |      |  |               |  |              |  
|Accounts payable and accrued liabilities                       |  |      |  | 1,728,263     |  | 1,146,253    |  
|Amounts due to network access and usage                        |  |      |  | 733,593       |  | 523,543      |  
|Amounts due to long distance carriers                          |  |      |  | 2,780,531     |  | 1,943,754    |  
|Amounts due for equipment                                      |  |      |  | 115,785       |  | 188,976      |  
|Due to Factor                                                  |  | 6    |  | 2,859,997     |  | 3,006,017    |  
|Income taxes payable                                           |  |      |  | 1,490,087     |  |             |  
|Current portion of obligations under capital leases            |  | 7    |  | 34,921        |  | 129,110      |  
|Subscriptions payable to Odyssey Management Group, Inc.        |  | 3    |  | 325,709       |  |             |  
|Current portion of advances from Telus Communications Inc.     |  | 8    |  | 810,000       |  |             |  
|                                                               |  |      |  |               |  |              |  
|                                                               |  |      |  | 10,878,886    |  | 6,937,653    |  
|                                                               |  |      |  |               |  |              |  
|LONG-TERM DEBT                                                 |  |      |  |               |  |              |  
|Obligations under capital leases                               |  | 7    |  | 17,217        |  | 9,970        |  
|Advances from Telus Communications Inc.                        |  | 8    |  | 1,098,834     |  | 143,775      |  
|                                                               |  |      |  |               |  |              |  
|                                                               |  |      |  | 1,116,051     |  | 153,745      |  
|                                                               |  |      |  |               |  |              |  
|DEFERRED INCOME TAXES                                          |  | 9    |  | 293,558       |  | 204,000      |  
|                                                               |  |      |  |               |  |              |  
|                                                               |  |      |  | 12,288,495    |  | 7,295,398    |  
|                                                               |  |      |  |               |  |              |  
|                                                               |  |      |  |               |  |              |  
|STOCKHOLDERS EQUITY                                           |  |      |  |               |  |              |  
|COMMON STOCK                                                   |  | 10   |  | 197,521       |  | 201,521      |  
|SERIES A CONVERTIBLE PREFERRED STOCK                           |  | 10   |  |              |  |             |  
|ADDITIONAL PAID-IN CAPITAL                                     |  |      |  | 936,060       |  | 1,732,060    |  
|ACCUMULATED OTHER COMPREHENSIVE INCOME -TRANSLATION ADJUSTMENT |  |      |  | 176,287       |  | 67,232       |  
|RETAINED EARNINGS (DEFICIT)                                    |  |      |  | 1,957,180     |  | (487,111     | )
|                                                               |  |      |  |               |  |              |  
|                                                               |  |      |  | 3,267,048     |  | 1,513,702    |  
|                                                               |  |      |  |               |  |              |  
|                                                               |  |      |  | 15,555,543    |  | 8,809,100    |  
|                                                               |  |      |  |               |  |              |  

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

- 12 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY



|                                                                      |  | Common stock |   | Additionalpaid-incapital |   | Series APreferred stock |        | Accumulatedothercomprehensiveincome |        | Retainedearnings(deficit) |   | StockholdersEquity(Deficit) | 
|--------------------------------------------------------------------- |  | ------------ | - | ------------------------ | - | ----------------------- | ------ | ----------------------------------- | ------ | ------------------------- | - | ---------------------------- | 
|                                                                      |  |              |   |                          |   |                         |        |                                     |       
|                                                                      |  | Shares       |   | Amount                   |   |                         | Shares |                                     | Amount |                           |   |                              | 
|                                                                      |  |              |   |                          |   |                         |        |                                     |        |                           |   |                              | 
|                                                                      |  |              |   | $                        |   | $                       |        |                                     |        | $                         |   | $                            | 
|Balance, June 30, 2001                                                |  | 4,055,158    |   | 194,151                  |   | 764,359                 |        | 497,000                             |        | 497,000                   |   | 31,585                       | 
|Common stock issued under employee stock award                        |  | 40,000       |   | 400                      |   | 79,600                  |        |                                    |        |                          |   |                             | 
|Common stock issued for conversion of debt to equity                  |  | 200,000      |   | 2,000                    |   | 396,071                 |        |                                    |        |                          |   |                             | 
|Common stock issued for conversion of preferred stock in common stock |  | 497,000      |   | 4,970                    |   | 492,030                 |        | (497,000                            | )      | (497,000                  | ) |                             | 
|Foreign currency translation adjustment                               |  |             |   |                         |   |                        |        |                                    |        |                          |   | 35,647                       | 
|Dividends on preferred stock                                          |  |             |   |                         |   |                        |        |                                    |        |                          |   |                             | 
|Net income                                                            |  |             |   |                         |   |                        |        |                                    |        |                          |   |                             | 
|                                                                      |  |              |   |                          |   |                         |        |                                     |        |                           |   |                              | 
|Balance, June 30, 2002                                                |  | 4,792,158    |   | 201,521                  |   | 1,732,060               |        |                                    |        |                          |   | 67,232                       | 
|Common stock repurchase (unaudited)                                   |  | (400,000     | ) | (4,000                   | ) | (796,000                | )      |                                    |        |                          |   |                             | 
|Foreign currency translation adjustment (unaudited)                   |  |             |   |                         |   |                        |        |                                    |        |                          |   | 109,055                      | 
|Net income (unaudited)                                                |  |             |   |                         |   |                        |        |                                    |        |                          |   |                             | 
|                                                                      |  |              |   |                          |   |                         |        |                                     |        |                           |   |                              | 
|Balance, December 31, 2002 (unaudited)                                |  | 4,392,158    |   | 197,521                  |   | 936,060                 |        |                                    |        |                          |   | 176,287                      | 
|                                                                      |  |              |   |                          |   |                         |        |                                     |        |                           |   |                              | 

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

- 13 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                             |  | Three months endedMarch 31, |  | Nine months endedMarch 31, | 
|------------------------------------------------------------ |  | --------------------------- |  | -------------------------- | 
|                                                             |  |                             |  |                            | 
|                                                             |  | 2003                        |  | 2002                       | 
|                                                             |  |                             |  |                            | 
|                                                             |  | (unaudited)$                |  | (unaudited)$               | 
|NET REVENUE                                                  |  | 10,591,995                  |  | 6,303,785                  | 
|COST OF REVENUE                                              |  | 6,839,036                   |  | 4,762,259                  | 
|                                                             |  |                             |  |                            | 
|GROSS MARGIN                                                 |  | 3,752,959                   |  | 1,541,526                  | 
|                                                             |  |                             |  |                            | 
|EXPENSES                                                     |  |                             |  |                            | 
|Advertising and promotion                                    |  | 857,596                     |  | 261,058                    | 
|General and administration                                   |  | 976,810                     |  | 567,267                    | 
|Employee stock award cost                                    |  |                            |  |                           | 
|Organizational and start-up costs                            |  | 64,073                      |  | 98,328                     | 
|Accounts receivable financing                                |  | 89,816                      |  | 157,798                    | 
|Interest on capital lease obligations                        |  | 2,734                       |  | 6,099                      | 
|Refinancing costs                                            |  |                            |  | 107,103                    | 
|Depreciation and amortization                                |  | 165,905                     |  | 119,437                    | 
|                                                             |  |                             |  |                            | 
|                                                             |  | 2,156,934                   |  | 1,317,090                  | 
|                                                             |  |                             |  |                            | 
|INCOME BEFORE INCOME TAX                                     |  | 1,596,025                   |  | 224,436                    | 
|PROVISION FOR INCOME TAXES                                   |  | 534,983                     |  |                           | 
|                                                             |  |                             |  |                            | 
|NET INCOME                                                   |  | 1,061,042                   |  | 224,436                    | 
|                                                             |  |                             |  |                            | 
|BASIC EARNINGS PER SHARE                                     |  | 0.22                        |  | 0.05                       | 
|                                                             |  |                             |  |                            | 
|DILUTED EARNINGS PER SHARE                                   |  | 0.17                        |  | 0.04                       | 
|                                                             |  |                             |  |                            | 
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING         |  | 4,663,269                   |  | 4,295,158                  | 
|                                                             |  |                             |  |                            | 
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES - ASSUMING DILUTION |  | 5,947,269                   |  | 6,076,158                  | 
|                                                             |  |                             |  |                            | 

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

- 14 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                 |  | Three months endedMarch 31, |   | Nine months endedMarch 31, |  
|-------------------------------------------------------------------------------- |  | --------------------------- | - | -------------------------- | -
|                                                                                 |  |                             |   |                            |  
|                                                                                 |  | 2003                        |   | 2002                       |  
|                                                                                 |  |                             |   |                            |  
|                                                                                 |  | (unaudited)$                |   | (unaudited)$               |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                             |  |                             |   |                            |  
|Net income                                                                       |  | 1,061,042                   |   | 224,436                    |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |                             |   |                            |  
|Depreciation and amortization                                                    |  | 165,905                     |   | 119,437                    |  
|Deferred income taxes                                                            |  | 19,603                      |   |                           |  
|Employee stock award cost                                                        |  |                            |   |                           |  
|Loss on disposal of assets                                                       |  | 19                          |   |                           |  
|Changes in assets and liabilities:                                               |  |                             |   |                            |  
|Decrease (increase) in:                                                          |  |                             |   |                            |  
|Accounts receivable                                                              |  | (1,431,897                  | ) | (187,014                   | )
|Prepaid expenses and sundry                                                      |  | (175,313                    | ) | (243,377                   | )
|Deferred costs                                                                   |  |                            |   | 26,897                     |  
|Deposits                                                                         |  | 4,464                       |   | 254                        |  
|Increase (decrease) in:                                                          |  |                             |   |                            |  
|Accounts payable and accrued liabilities                                         |  | 561,506                     |   | 53,477                     |  
|Amounts due for network access and usage                                         |  | 349,285                     |   | 247,787                    |  
|Amounts due to long distance carriers                                            |  | 431,068                     |   | (69,522                    | )
|Amounts due for equipment                                                        |  | 27,850                      |   | (130,808                   | )
|Income taxes payable                                                             |  | 607,977                     |   |                           |  
|Due to Factor                                                                    |  | 83,798                      |   | 600,149                    |  
|Subscriptions payable                                                            |  | 325,709                     |   |                           |  
|                                                                                 |  |                             |   |                            |  
|Net cash provided by operating activities                                        |  | 2,031,016                   |   | 641,716                    |  
|                                                                                 |  |                             |   |                            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                             |  |                             |   |                            |  
|Investment in joint venture                                                      |  | (17,700                     | ) |                           |  
|Investment in Odyssey Management Group, Inc.                                     |  | (500,000                    | ) |                           |  
|Purchase of property and equipment                                               |  | (514,185                    | ) | (136,687                   | )
|Proceeds from sale of assets                                                     |  |                            |   |                           |  
|                                                                                 |  |                             |   |                            |  
|Net cash used in investing activities                                            |  | (1,031,885                  | ) | (136,687                   | )
|                                                                                 |  |                             |   |                            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                             |  |                             |   |                            |  
|Repayments on obligations under capital leases                                   |  | (23,958                     | ) | (62,197                    | )
|Advances from Telus Communications Inc.                                          |  | 742,809                     |   |                           |  
|Repurchase of capital stock                                                      |  | (800,000                    | ) |                           |  
|Note payable                                                                     |  |                            |   | 175,221                    |  
|Due to related parties                                                           |  |                            |   | (292,448                   | )
|Note payable                                                                     |  |                            |   | (9,870                     | )
|                                                                                 |  |                             |   |                            |  
|Net cash provided by (used in) financing activities                              |  | (81,149                     | ) | (189,294                   | )
|                                                                                 |  |                             |   |                            |  
|INCREASE IN CASH AND CASH EQUIVALENTS                                            |  | 917,982                     |   | 315,735                    |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                   |  | 2,028,509                   |   | 34,276                     |  
|                                                                                 |  |                             |   |                            |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                         |  | 2,946,491                   |   | 350,011                    |  
|                                                                                 |  |                             |   |                            |  

Supplemental disclosure of cash flow information (note 11).

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

- 15 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.

ORGANIZATION AND BUSINESS

Yak Communications (USA), Inc. is a switch based reseller specializing in offering dial-around long-distance services to consumers. The Company was incorporated in the
State of Florida on December 24, 1998 and operates as a holding company of its wholly-owned subsidiaries in the United States and Canada.

The Company began
offering its services to consumers in Canada in July 1999 and in the United States commencing December 2001.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and reflect the following policies:

Principles of consolidation

These consolidated financial statements include the accounts of Yak Communications (USA),
Inc. and its wholly-owned subsidiaries - Yak Communications (America), Inc. and Yak Communications (Canada), Inc. (collectively the Company). All intercompany balances and transactions are eliminated upon consolidation.

Revenue recognition

The Company records revenue from the sale of
dial-around services and the resale of long-distance services at the time of customer usage based upon minutes of use.

Cost of revenue

Cost of revenue includes network costs that consist of the cost of long-distance services, processing costs, line access and usage costs. These costs are recognized when
incurred.

- 16 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(contd)

Use of estimates

The preparation of
consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. These estimates are reviewed
periodically and, as adjustments become necessary, they are reported in earnings in the period in which they become known.

Computation of earnings per
common share

Basic earnings per share is computed by dividing the earnings attributable to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental common shares issuable
upon exercise of convertible preferred stock and stock options.

Foreign currency translation and foreign assets

In accordance with the provisions of Statement of Financial Accounting Standards (SFAS), No. 52, Foreign Currency Translation, assets and liabilities of the
Companys foreign subsidiary were translated into United States dollars at the exchange rates in effect on the reporting date. Income and expenses are translated at an average exchange rate for the respective period. For the foreign subsidiary
which utilizes its local currency as its functional currency, the resulting translation gains and losses are included in other comprehensive income. Gains or losses resulting from foreign exchange transactions are reflected in earnings.

- 17 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(contd)

Cash and cash equivalents

Cash and cash
equivalents are comprised of cash and term deposits with original maturity dates of less than 90 days.

Property and equipment

Property and equipment is stated at cost less accumulated depreciation which is provided on the straight-line and declining balance methods over the estimated useful lives of the
assets as follows:



|Telecom switching systems                            |  | 20% declining balance  | 
|---------------------------------------------------- |  | ---------------------- | 
|Billing, administration and customer service systems |  | 20% declining balance  | 
|Carrier identification codes loading                 |  | 20% declining balance  | 
|Office furniture and equipment                       |  | 20% declining balance  | 
|Leasehold improvements                               |  | over term of the lease | 
|Computer hardware                                    |  | 20% declining balance  | 
|Automobile                                           |  | 20% declining balance  | 
|Installed lines                                      |  | 20% declining balance  | 

Cost includes major expenditures
for improvements and replacements which extend useful lives or increase capacity of assets as well as expenditures necessary to place assets into readiness for use. Costs incurred during the application development stage are capitalized and
amortized over the estimated useful life of the systems. Expenditures for maintenance and repairs are expensed as incurred.

- 18 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(contd)

Property and equipment (contd)

The
Company periodically evaluates the realizability of its property and equipment. In making such evaluations, the Company compares certain financial indicators such as expected undiscounted future revenues and cash flows to the carrying amount of the
assets.

Assets under capital lease are amortized using rates consistent with similar assets.

Income taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No.
109 Accounting for Income Taxes which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial
statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets
and liabilities.

Cost of Start-up Activities

The Company
expenses the cost of start-up activities and organizational costs as incurred in accordance with statement of position 98-5 Reporting on the Costs of Start-up Activities.

- 19 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(contd)

Advertising and promotion expense

Advertising costs are expensed as incurred. The costs of promotional marketing materials are deferred and expensed as used.

Stock option
plan

The Company accounts for stock options issued to employees in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, which permits
entities to continue to apply the provisions of Accounting Principles Board (APB) Opinion No.25, Accounting for Stock Issued to Employees, and provide pro forma disclosures of the effect on net income and net income per share
for employee stock option grants as if the fair value based method, as defined in SFAS No. 123 in its annual consolidated financial statements, has been applied. The Company has elected to apply the provisions of APB Opinion No. 25 and provide the
pro forma disclosures required by SFAS No. 123. Under APB Opinion No. 25, the Company recognizes no compensation expense related to employee stock options, as no options are granted at a price below the fair market value on the day of
grant.

Comprehensive income

The Company reports and
presents comprehensive income and its components in accordance with SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 requires only additional disclosures in the consolidated financial statements; it does not affect the Companys
financial position or results of operations.

Other comprehensive income is comprised of the foreign translation adjustment arising from the conversion from
Canadian dollars to U.S. dollars and is presented as a separate component of stockholders equity.

- 20 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(contd)

Comprehensive income (contd)

Comprehensive income for the nine months ended March 31, 2003 and 2002 are as follows:



|                                        |  | March 31,2003 |  | March 31,2002 |  
|--------------------------------------- |  | ------------- |  | ------------- | -
|                                        |  |               |  |               |  
|                                        |  | $             |  | $             |  
|Net income                              |  | 2,444,291     |  | 432,754       |  
|Foreign currency translation adjustment |  | 109,055       |  | (109,737      | )
|                                        |  |               |  |               |  
|                                        |  | 2,553,346     |  | 323,017       |  
|                                        |  |               |  |               |  

Fair value of financial instruments

SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires disclosure of the fair value of certain financial instruments for which it is practicable to estimate
fair value. For purpose of the disclosure requirements, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.
The carrying values of cash, receivables, accounts payable, and other current liabilities are reasonable estimates of their fair value due to the short-term maturity of the underlying financial instruments. The carrying value of the capital leases
is a reasonable estimate of its fair value based on current rates for equipment obligations.

The estimated difference between the carrying value and the fair
value of the advances from Telus Communications Inc. in which no interest has been charged is not material.

- 21 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(contd)

Credit risk

Financial instruments that
potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable and cash and cash equivalents. The Company has in place systems to prevent and detect fraud. The Companys system limits credit to
any one customer in the amount of $225 without formal approval. On occasion, defaults occur on receivables. The Company makes a provision when deemed necessary. As of March 31, 2003 and June 30, 2002, the allowance for doubtful accounts was
approximately $13,000 and $19,000 respectively. The Company places its cash and cash equivalents in high quality financial instruments.

Reclassifications

Certain classifications were made to prior period balances to conform to the current period presentation.

Unaudited interim financial statements

The accompanying financial statements of
the Company for the nine months ended March 31, 2003 and 2002 are unaudited. All adjustments (consisting only of normal recurring adjustments) have been made which in the opinion of management, are necessary for a fair presentation thereof. Results
of operations for the nine months ended March 31, 2003 and 2002 are not necessarily indicative of the results that may be expected for the year, ending June 30, 2003 or for any future interim period.

3.

INVESTMENT IN ODYSSEY MANAGEMENT GROUP,
INC.

On March 28, 2003, the Company purchased 20% of the outstanding shares of Odyssey Management Group, Inc., a corporation of which the Companys
chairman is a shareholder and director, for $500,000 payable $174,290 cash and a note for $325,709, payable $36,190 per month due December 15, 2003.

The
Company has the option until March 28, 2005, to purchase up to an additional 31% of the outstanding shares of Odyssey Management Group, Inc. at their fair market value.

- 22
-



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4.

PROPERTY AND EQUIPMENT

Property and equipment consist of the following:



|                                                     |  |           |  |                         |  | Net book value | 
|---------------------------------------------------- |  | --------- |  | ----------------------- |  | -------------- | 
|                                                     |  |           |  |                         |  |                | 
|                                                     |  | Cost      |  | Accumulateddepreciation |  | March 31,2003  | 
|                                                     |  |           |  |                         |  |                | 
|                                                     |  | $         |  | $                       |  | $              | 
|Telecom switching systems                            |  | 2,933,562 |  | 1,059,280               |  | 1,874,282      | 
|Billing, administration and customer service systems |  | 1,067,331 |  | 360,207                 |  | 707,124        | 
|Carrier identification codes loading                 |  | 231,487   |  | 42,037                  |  | 189,450        | 
|Office furniture and equipment                       |  | 106,730   |  | 19,765                  |  | 86,965         | 
|Leasehold improvements                               |  | 68,239    |  | 14,685                  |  | 53,554         | 
|Computer hardware                                    |  | 131,729   |  | 16,727                  |  | 115,002        | 
|Automobile                                           |  | 5,909     |  | 2,241                   |  | 3,668          | 
|Installed lines                                      |  | 415,096   |  | 90,171                  |  | 324,925        | 
|                                                     |  |           |  |                         |  |                | 
|                                                     |  | 4,960,083 |  | 1,605,113               |  | 3,354,970      | 
|                                                     |  |           |  |                         |  |                | 

Telecom switching systems include assets under capital leases having a net book
value of approximately $706,000 as of March 31, 2003 and $858,000 as of June 30, 2002.

Depreciation expense for property and equipment including equipment
under capital leases for the periods ended March 31, 2003 and March 31, 2002 was approximately $525,000 and $463,000 respectively.

5.

INVESTMENT IN JOINT VENTURE

The Company has
entered into a commercial services and marketing agreement with a company in Peru to provide up to $400,000 to assist in its development of dial-around long-distance services for which the Company will process its international traffic and earn 50%
of the profits generated by the business. At March 31, 2003, the Company had advances of $117,700 under this agreement and it is committed to advance a further $282,300 over the next three months.

- 23 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6.

DUE TO FACTOR

The amounts due to factor are secured by a pledge of the Companys accounts receivable. The Company has an agreement to sell an undivided interest in certain accounts
receivable with recourse to a Factor. Payments are collected by the Factor from the sold accounts receivable; the collections are reinvested by the Factor in new accounts receivable of the Company, and a yield, as defined in the agreement is
transferred to the Factor. As at March 31, 2003, the amount sold under the agreement, expiring February 2004, that had not been collected was approximately $6,221,000 (June 30, 2002 - $3,913,164) which will be forwarded to the Company once collected
after repayment of the Factors advances.

7.

OBLIGATIONS UNDER CAPITAL LEASES

The
Companys capital leases are for terms of 24 to 36 months at annual interest rates ranging from 9.25% to15.00%.

The future minimum lease payments
required under the capital lease agreements are as follows:



|                                |  | $      | 
|------------------------------- |  | ------ | 
|                                |  |        | 
|For the periods ended March 31, |  |        | 
|2003                            |  | 37,207 | 
|2004                            |  | 16,153 | 
|2005                            |  | 8,076  | 
|                                |  |        | 
|Total minimum lease payments    |  | 61,436 | 
|Amounts representing interest   |  | 9,298  | 
|                                |  |        | 
|Principal                       |  | 52,138 | 
|Current portion                 |  | 34,921 | 
|                                |  |        | 
|                                |  | 17,217 | 
|                                |  |        | 

- 24 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

8.

ADVANCES FROM TELUS COMMUNICATIONS INC.
(Telus)

Telus provides the Company with marketing credits to a total maximum value of $3,250,000. The marketing credits are calculated as 25% of the value
of monthly billed revenue to the Company by Telus in the preceding month to a maximum of $270,000 per month.

The Company is restricted to spend this amount on
advertising and promotional activities within sixty days of the credits being advanced to the Company.

Marketing credits will be repaid commencing July 1,
2003 and ending June 30, 2006. Repayments are by way of paying an additional $0.005/minute, at a minimum of $90,000 per month. The repayments are non-interest bearing as long as no payments are in default, and are classified as follows:



|          |  | $         | 
|--------- |  | --------- | 
|          |  |           | 
|Current   |  | 810,000   | 
|Long-term |  | 1,098,834 | 
|          |  |           | 
|          |  | 1,908,834 | 
|          |  |           | 

9.

DEFERRED INCOME TAXES

Deferred income taxes
reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred tax liabilities of March 31, 2003 and June 30,
2002 are approximately $294,000 and $204,000 respectively and relate to the difference between the depreciation used for Canadian tax purposes and financial reporting purposes.

As of March 31, 2003, the Company has net operating loss carryforwards for U.S. Federal income tax purposes of $325,000 which may provide future income tax benefits expiring between 2010 and 2022.

Realization of the net operating loss carryforward is dependant on generating sufficient taxable income before expiration of the loss carryforwards. As such management has provided
a valuation allowance for the full amount of the deferred tax asset of $100,000 as of March 31, 2003 related to the U.S. operations.

- 25 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10.

CAPITAL STOCK

Common stock

100,000,000 shares authorized, no par value, stated value $0.01 per
share.

On December 28, 2001, 40,000 common shares were issued to employees under an employee stock award.

On December 31, 2001, 200,000 common shares were issued for the conversion of a debt to a related party of $398,071.

On March 3, 2003, 400,000 common shares were repurchased by the Company for $800,000.

Series A convertible preferred
stock

500,000 shares authorized, par value $1.00 per share.

These shares are convertible at the holders option into common stock at a conversion rate of one share of common stock for each share of Series A preferred stock. The holders of Series A preferred stock are entitled to receive an annual
cash dividend of 4% per share. The Company may redeem the Series A preferred stock at a redemption price of $1.00 per share. On June 30, 2002, 497,000 shares of Series A preferred stock were converted into 497,000 common shares.

- 26 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION



|                                           |  | Three months endedMarch 31, |  | Nine months endedMarch 31, | 
|------------------------------------------ |  | --------------------------- |  | -------------------------- | 
|                                           |  |                             |  |                            | 
|                                           |  | 2003                        |  | 2002                       | 
|                                           |  |                             |  |                            | 
|                                           |  | (unaudited)                 |  | (unaudited)                | 
|                                           |  | $                           |  | $                          | 
|Interest paid                              |  | 2,734                       |  | 6,099                      | 
|Common stock issued for services           |  |                            |  |                           | 
|Conversion of loan payable to common stock |  |                            |  |                           | 
|Cash and cash equivalents consists of:     |  |                             |  |                            | 
|Cash balance                               |  | 525,519                     |  | 350,011                    | 
|Short-term investments                     |  | 2,420,972                   |  |                           | 

12.

COMMITMENTS

The Company has lease commitments
for its premises which expire at various dates through March 2007. The future minimum lease payments are as follows:



|                               |  | $      | 
|------------------------------ |  | ------ | 
|                               |  |        | 
|For the period ended March 31, |  |        | 
|2003                           |  | 30,000 | 
|2004                           |  | 80,000 | 
|2005                           |  | 80,000 | 
|2006                           |  | 77,000 | 
|2007                           |  | 25,000 | 

- 27 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

13.

STOCK OPTION PLAN

Effective June 30, 1999, the Company adopted a Stock Option Plan (the Plan) which permits the issuance of stock options to selected employees and directors. The Company
reserved 640,000 shares of common stock for grant under the Plan. Options granted may be either nonqualified or incentive stock options and will expire no later than 20 years from the date of grant (10 years for incentive options). No options have
been issued under this plan.

On December 21, 2000, nonqualified options for 1,284,000 common shares were granted to an individual who is a director and chief
executive officer and are exercisable at $1.56 per share on or before December 31, 2003, or upon the sale of the Company. In the event of the chief executive officers death or termination of employment prior to the exercise of the options and
before December 31, 2003, the Company is obligated to purchase the optioned shares at a price equal to the fair market value of the shares less the option price. The purchase consideration of the option shares shall be in stock of the Company.

If compensation cost for the Companys grants for stock-based compensation had been recorded consistent with the fair value-based method of accounting
per SFAS No. 123, the Companys pro forma net income (loss), and pro forma basic and diluted net income (loss) per share for the nine months ending March 31, would be as follows:



|                                    |  | For the nine months ended | 
|----------------------------------- |  | ------------------------- | 
|                                    |  |                           | 
|                                    |  | March 31,2003             | 
|                                    |  |                           | 
|                                    |  | $                         | 
|Net income as reported              |  | 2,444,291                 | 
|Pro forma net income (loss)         |  | 2,444,291                 | 
|Basic net income (loss) per share   |  |                           | 
|As reported                         |  | 0.51                      | 
|Pro forma                           |  | 0.51                      | 
|Diluted net income (loss) per share |  |                           | 
|As reported                         |  | 0.40                      | 
|Pro forma                           |  | 0.40                      | 

- 28 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

14.

RELATED PARTY TRANSACTIONS

(a)

The Company paid office rent for the nine months ended March 31, 2003 and 2002 of
$nil and $68,000 and purchased property and equipment of $14,000 for the nine months ended March 31, 2003 from a corporation of which the Companys chairman is a shareholder and director.

(b)

The Company paid marketing and design fees for the nine months ending March 31, 2003
and 2002 of $71,604 and $55,981 respectively to a corporation controlled by an officer and shareholder.

(c)

The Company paid professional fees for the nine months ending March 31, 2003 and 2002 of $40,285 and $15,000 respectively to a director and minority shareholder.

(d)

The Company paid consulting fees for the nine months ending March 31, 2002 and
2001 of $83,326 and $75,882 to a corporation controlled by a minority shareholder.

(e)

The Company paid consulting fees for the nine months ended March 31, 2003 of $150,000 to a shareholder for the development of international operations.

(f)

The Company paid a management fee for the nine months ended March 31, 2003 of
$90,000 to a corporation controlled by the Companys chairman.

(g)

A
shareholder of the Company is a Director of the joint venture in Peru.

These transactions have all been accounted for at their exchange amounts.

15.

ECONOMIC DEPENDENCE

The Company is dependent in Ontario and Quebec upon Bell Canada and in British Columbia and Alberta upon Telus Corp. to provide billing and collection services to its customers
under renewable agreements. The Company is also dependent upon TELUS Communications Inc. to provide billing, transport and handling services under a renewable agreement which expires in June 2003. Management expects that these agreements will
automatically renew.

- 29 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

16.

ADVERTISING AND PROMOTION

The Company expenses advertising costs as incurred which includes direct-mail advertising, newspaper and television advertising. Advertising expense for the nine months
ended March 31, 2003 and 2002 were approximately $2,893,000 and $962,000, respectively.

17.

SEGMENTED AND RELATED INFORMATION

The Company
operates in one reportable segment in three geographic regions - Canada, the United States and International. Summary information with respect to the Companys operations by geographic regions are as follows:



|                        |  | For the nine months ended |  
|----------------------- |  | ------------------------- | -
|                        |  |                           |  
|                        |  | March 31,2003             |  
|                        |  |                           |  
|                        |  | $                         |  
|Net revenue             |  |                           |  
|Canada                  |  | 26,955,548                |  
|United States           |  | 1,112,641                 |  
|                        |  |                           |  
|                        |  | 28,068,189                |  
|                        |  |                           |  
|Operating profit (loss) |  |                           |  
|Canada                  |  | 5,295,127                 |  
|United States           |  | (1,178,091                | )
|International           |  | (178,029                  | )
|                        |  |                           |  
|                        |  | 3,939,007                 |  
|                        |  |                           |  
|Assets                  |  |                           |  
|Canada                  |  | 14,196,127                |  
|United States           |  | 1,241,716                 |  
|International           |  | 117,700                   |  
|                        |  |                           |  
|                        |  | 15,555,543                |  
|                        |  |                           |  

- 30 -



---

##### Table of Contents

YAK COMMUNICATIONS (USA), INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

18.

SUBSEQUENT EVENT

On May 6, 2003 the Company entered into an acquisition agreement with Contour Telecom Inc. and its subsidiary Argos Telecom Inc, and made a deposit of $2,000,000 in connection with
this agreement. This acquisition will be for cash and is expected to close on July 2, 2003 subject to the satisfaction of certain conditions.

- 31 -



---

##### Table of Contents



Exhibit
Index



|Exhibit No. |  | Description                                                                                                                                                                                                 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           
|99.1        |  | Certificate Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 executed by the Chief Executive Officer and Principal Financial Officer of the Company.