UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-K

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

                   For the fiscal year ended November 30, 2005

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

           For the transition period from ___________ to___________ .

                           Commission File No. 0-4465
                            eLEC COMMUNICATIONS CORP.
             (Exact Name of Registrant as Specified in Its Charter)

                New York                                 13-2511270
      (State or Other Jurisdiction           (I.R.S Employer Identification No.)
   of  Incorporation or Organization)

75 South Broadway, Suite 302, White Plains, New York        10601
      (Address of Principal Executive Offices)           (Zip Code)

                                 (914) 682-0214
              (Registrant's Telephone Number, Including Area Code)

         Securities registered under Section 12(b) of the Exchange Act:

                                      None

         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $.10 per share
--------------------------------------------------------------------------------

      Indicate by check mark if the registrant is a well-known  seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes |_| No |X|

      Indicate by check mark if the  registrant  is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes |_| No |X|

      Indicate by 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 |_| No |X|

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K |_|

      Indicate  by check mark  whether  the  registrant  is a large  accelerated
filer,  an accelerated  filer,  or a  non-accelerated  filer.  See definition of
"accelerated  filer and large  accelerated  filer" in Rule 12b-2 of the Exchange
Act. (Check One):

      Large accelerated  filer |_| Accelerated  filer |_| Non-accelerated  filer
|X|.

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

      On  February 15, 2006, 16,839,282 shares of registrant's common stock were
outstanding.  The  aggregate  market  value  of  the  voting  stock  held  by
non-affiliates as of May 31, 2005 was approximately $7,520,000.

      Documents Incorporated by Reference: None


<PAGE>

                                TABLE OF CONTENTS

                                     PART I

Item 1.    Business
Item 1A.   Risk Factors
Item 1B.   Unresolved Staff Comments
Item 2.    Properties
Item 3.    Legal Proceedings
Item 4.    Submission of Matters to a Vote of Security Holders

                                     PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters
           and Issuer Purchases of Equity Securities
Item 6.    Selected Financial Data
Item 7.    Management's Discussion and Analysis  of Financial Condition and
           Results of Operations
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk
Item 8.    Financial Statements and Supplementary Data
Item 9.    Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure
Item 9A.   Controls and Procedures

                                    PART III

Item 10.   Directors and Executive Officers of the Registrant
Item 11.   Executive Compensation
Item 12.   Security Ownership of Certain Beneficial Owners and Management and
           Related Stockholder Matters
Item 13.   Certain Relationships and Related Transactions
Item 14.   Principal Accountant Fees and Services

                                     PART IV

Item 15.   Exhibits and Financial Statement Schedules

                                   SIGNATURES


<PAGE>

      The statements  contained in this Report that are not historical facts are
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation Reform Act of 1995 with respect to our financial  condition,  results
of   operations   and   business,   which  can  be  identified  by  the  use  of
forward-looking   terminology,   such  as  "estimates,"   "projects,"   "plans,"
"believes,"  "expects,"  "anticipates,"  "intends,"  or the negative  thereof or
other variations  thereon,  or by discussions of strategy that involve risks and
uncertainties.  Management  wishes to caution the reader of the  forward-looking
statements that such statements, which are contained in this Report, reflect our
current  beliefs  with  respect to future  events and involve  known and unknown
risks, uncertainties and other factors, including, but not limited to, economic,
competitive,  regulatory,  technological,  key  employee,  and general  business
factors affecting our operations,  markets, growth, services, products, licenses
and  other  factors  discussed  in our other  filings  with the  Securities  and
Exchange   Commission,   and  that  these   statements  are  only  estimates  or
predictions.  No assurances  can be given  regarding the  achievement  of future
results, as actual results may differ materially as a result of risks facing us,
and actual events may differ from the assumptions underlying the statements that
have been made regarding  anticipated events.  Factors that may cause our actual
results, performance or achievements,  or industry results, to differ materially
from those  contemplated by such  forward-looking  statements  include,  without
limitation:

              o  The availability of additional funds to successfully pursue our
                 business plan;

              o  The impact of changes the Federal Communications Commission or
                 State Public Service Commissions may make to existing
                 telecommunication laws and regulations, including laws dealing
                 with Internet telephony;

              o  The highly competitive nature of our industry;

              o  The acceptance of VoIP technology by mainstream consumers;

              o  Our ability to retain key personnel;

              o  Our ability to maintain adequate customer care and manage our
                 churn rate;

              o  The cooperation of incumbent carriers and industry service
                 partners that have signed agreements with us;

              o  Our ability to maintain, attract and integrate internal
                 management, technical information and management information
                 systems;

              o  Our ability to market our services to current and new customers
                 and generate customer demand for our products and services in
                 the geographical areas in which we operate;

              o  The availability and maintenance of suitable vendor
                 relationships, in a timely manner, at reasonable cost;

              o  Our ability to manage rapid growth while maintaining adequate
                 controls and procedures;

              o  The decrease in telecommunications prices to consumers; and

              o  General economic conditions.

      These forward-looking statements are subject to numerous assumptions,
      risks and uncertainties that may cause our actual results to be materially
      different from any future results expressed or implied by us in those
      statements. Some of these risks are described in "Risk Factors" in Item 1A
      of this Report.

These risk  factors  should be  considered  in  connection  with any  subsequent
written or oral  forward-looking  statements  that we or  persons  acting on our
behalf may issue.  All  written  and oral  forward  looking  statements  made in
connection with this Report that are attributable to us or persons acting on our
behalf are expressly qualified in their entirety by these cautionary statements.
Given  these  uncertainties,  we


<PAGE>

caution investors not to unduly rely on our  forward-looking  statements.  We do
not undertake  any  obligation to review or confirm  analysts'  expectations  or
estimates or to release publicly any revisions to any forward-looking statements
to reflect events or circumstances after the date of this document or to reflect
the occurrence of  unanticipated  events.  Further,  the  information  about our
intentions  contained in this document is a statement of our intention as of the
date of this  document  and is based upon,  among  other  things,  the  existing
regulatory environment,  industry conditions,  market conditions and prices, the
economy  in  general  and our  assumptions  as of such  date.  We may change our
intentions,  at any time and  without  notice,  based  upon any  changes in such
factors, in our assumptions or otherwise.

                                     PART I

      In this Annual Report on Form 10-K,  we will refer to eLEC  Communications
Corp., a New York corporation, as "our company," "we," "us," and "our."

Item 1. - Business

Overview

      We are a provider of local and long distance voice telephone  services and
integrated Voice over Internet Protocol ("VoIP")  telephony  services.  Internet
Protocol ("IP") telephony is the real time transmission of voice  communications
in the form of digitized "packets" of information over the Internet or a private
network,  which  is  analogous  to the way in which  e-mail  and  other  data is
transmitted.  We use  proprietary  softswitch  technology that runs on Cisco and
Dell hardware to provide wholesale telephony services to other service providers
and  directly  to retail  consumers.  Our  technology  enables  telecom  service
providers,  cable operators,  wireless  carriers,  Internet  service  providers,
resellers or any company seeking to offer premier packet communications services
the ability to provide a feature-rich VoIP service offering.

      The  anticipated  rollout of worldwide  VoIP services is expected to allow
consumers  and  businesses  to  communicate  at  dramatically  reduced  costs in
comparison to traditional telephony networks. Traditionally,  telephony carriers
have built networks  based on circuit  switching  technology,  which creates and
maintains  a dedicated  path for  individual  telephone  calls until the call is
terminated.   While  circuit-switched  networks  have  provided  reliable  voice
communications  services for more than 100 years,  transmission  capacity is not
efficiently  utilized  in a  circuit-switched  system.  Under  circuit-switching
technology,  when a person  makes a  telephone  call,  a circuit is created  and
remains  dedicated for the entire  duration of that call,  rendering the circuit
unavailable for the  transmission  of any other calls.  Because of the high cost
and   inefficiencies   of   a   circuit-switched   network,   we   have   leased
circuit-switched  network  elements  from  other  carriers  in order to  provide
wireline services to customers.

      Data networks,  such as IP networks,  utilize packet switching  technology
that divides signals into packets and simultaneously  routes them over different
channels to a final  destination  where they are  reassembled  into the original
order in which they were transmitted.  No dedicated  circuits are required and a
fixed amount of bandwidth is not needed for the duration of each call.  The more
efficient  use  of  network   capacity   results  in  the  ability  to  transmit
significantly  higher amounts of traffic over a  packet-switched  network than a
circuit-switched network.  Packet-switching technology enables service providers
to  converge  traditional  voice and data  networks  in an  efficient  manner by
carrying voice,  fax, video and data traffic over the same network.  IP networks
are therefore less expensive for carriers to operate, and these cost savings can
be passed on to the consumer in the form of lower costs for local, long distance
and international long distance telephone services.


                                        2
<PAGE>

      Because of the network cost savings that are inherent in an IP network, we
have  created  our  own  proprietary  IP  platform  and have transitioned into a
facilities-based  VoIP  service  provider.  In  addition  to the cost savings we
obtain  from  the  efficient  use  of  network  capacity, we believe our network
equipment costs are lower than most other carriers as our network and technology
require  significantly  less  capital  expenditures  than  a traditional Class 5
telecom  switch in a circuit-switched network, and less equipment costs than our
VoIP  competitors  that  utilize  a  packet-switched  network.  Our  proprietary
softswitch,  however,  provides more than 20 of the Class 5 call features, voice
mail  and  enhanced call handling on our own Session Initiation Protocol ("SIP")
server  suite.  Our  VoIP  features  are  controlled by us instead of a software
vendor,  as  we  write the code for any new features that we desire to offer our
customers.  We  have  no  software licensing fees and our other variable network
costs  are expected to drop as we increase our network traffic and as we attract
more pure VoIP users with traffic that does not incur the cost of originating or
terminating on a circuit switched network.

      Our SIP servers  are part of a cluster of servers,  which we refer to as a
server farm, in which each server performs  different  network tasks,  including
back-up and  redundant  services.  We believe the server farm  structure  can be
easily and  cost-effectively  scaled as our VoIP  business  grows.  In addition,
servers within our server farm can be assigned  different tasks as demand on the
network dictates. If an individual server ceases to function, our server farm is
designed in a manner that  subscribers  should not have a call  interrupted.  We
support origination and termination using both the G.711 and G.729 voice codecs.
Codecs are the  algorithms  that enable us to carry  analog  voice  traffic over
digital  lines.  There are  several  codecs that vary in  complexity,  bandwidth
required and voice quality. We primarily use G.711 and G.729 codecs.  G.711 is a
standard to represent 8 bit compressed pulse code modulation samples for signals
of voice frequency.  It creates a 64 kilobit per second  bitstream,  and we find
that  approximately  90% of the current VoIP  traffic in the United  States uses
G.711.  We frequently  process G.711 VoIP traffic  because some of our wholesale
customers  do not have the ability to handle  G.729.  We prefer the G.729 codec,
which  allows us to  utilize  VoIP in more cost  effective  ways.  It allows for
compressing more calls in limited bandwidth, reducing the call to 8 kilobits per
second.  For all of our retail  customers and our more  sophisticated  wholesale
accounts, we use G.729 to save cost and enhance the quality of the call.

      Some  VoIP  carriers use only G.711 compression under the theory that when
more  bandwidth is used, the voice quality is normally better. We find, however,
that  our  G.729  VoIP traffic provides a higher quality voice conversation than
the  G.711  processed  by  other  VoIP  carriers  because when we utilize only 8
kilobits  per second of bandwidth, fewer packets are lost. Under G.711, with the
wider  bitstream,  the  packets  are  more  susceptible  to dropping off and not
reaching  their  intended  destination,  resulting in sound jitter or periods of
silence  during  a  telephone call. In addition to the high quality of our G.729
product,  it  requires  only one-eighth the bandwidth of G.711 to bring customer
traffic into and out of our switch, further reducing our costs of providing VoIP
service.  Similarly,  using G.729 compression, we offer a bandwidth cost savings
to  our  customers.  A  small  office that uses six of our VoIP lines is able to
support  the  data  and  telephony  needs  of  the office with only one standard
residential  high-speed  Internet  connection  with  a  384  kilobits per second
upstream  speed. This customer would need to buy significantly more bandwidth if
the  VoIP  lines  were  utilizing  G.711  compression. With the quality and cost
advantages  of  G.729,  we anticipate G.729 will become increasingly utilized by
VoIP carriers.


                                        3
<PAGE>

Development of Business

      We were  incorporated  in the  State of New  York  under  the  name  Sirco
Products Co. Inc. in 1964 and developed a line of high quality handbags,  totes,
luggage  and sport bags.  Between  1995 and 1999,  we  divested  our handbag and
luggage operations, which had experienced several years of operating losses.

      We commenced operations in the telecommunications  industry in fiscal 1998
by acquiring Essex Communications,  Inc. ("Essex"),  a newly-formed  Competitive
Local Exchange  Carrier  ("CLEC") formed to attract and retain a  geographically
concentrated  customer  base in the  metropolitan  New  York  region,  primarily
through  the resale of  products  and  services  of  incumbent  and  alternative
facilities-based local providers.

      In January 2000, we acquired  Telecarrier  Services,  Inc. ("TSI"), a CLEC
that  operated in the states of  Massachusetts,  New Jersey,  New York and Rhode
Island and provided long distance service in 13 states. Most of TSI's operations
were acquired by Essex after the  acquisition  was complete,  and TSI maintained
its licenses as an inactive  subsidiary.  On July 29, 2002, TSI commenced a case
under chapter 11 of the  Bankruptcy  Code. In February 2004, TSI filed a plan of
reorganization pursuant to which the capital stock of a reorganized TSI would be
sold by  competitive  bid and the proceeds  from the sale of such stock would be
used to make  distributions  to  creditors  of TSI.  In April  2004,  the  court
accepted our plan to purchase all the stock of a reorganized  TSI for a price of
$325,000. The purchase of TSI and its emergence from bankruptcy was completed in
October 2004.

      On December 31, 2002, we sold certain assets of Essex to Essex Acquisition
Corp. ("EAC"), a wholly-owned subsidiary of BiznessOnline.com, Inc. ("Biz"). EAC
purchased  selected assets and assumed certain  liabilities in conjunction  with
this transaction. The remaining shell of Essex was sold to Glad Holdings, LLC on
September  11,  2003.  As  a  result  of  such  sale,  we  recorded  a  gain  of
approximately $7,314,000 in the fourth quarter of fiscal 2003.

      In November 2002, we began the operations of New Rochelle  Telephone Corp.
("NRTC") as a start-up  CLEC. We have since been able to rebuild a customer base
in NRTC similar to the one we had sold to EAC.

      On August 4, 2004, we incorporated VoX Communications Corp. ("VoX") as our
wholly-owned  VoIP  subsidiary to pursue the deployment of our own VoIP network.
In  addition  to  the  general  cost advantages of VoIP service noted above, the
market  research firm of In-Stat has estimated that VoIP communications services
will  grow  to 55 million VoIP subscribers worldwide generating over $17 billion
in  annual  revenue by 2009. We believe that IP communications technologies will
continue  to  rapidly advance and will further the potential for the Internet to
become  the  preferred  medium  of communications and commerce. Consequently, in
fiscal  2005  we  expended  a  vast  amount  of  our  resources on the planning,
development  and  implementation  of  our  VoIP  network.  In  February 2006, we
successfully  relaunched  our  web  site  (www.voxcorp.net),  which supports the
wholesale  and  retail  sales of our VoIP services, which enable local, national
and international calling. We also completed the implementation of 911 emergency
services  for  every  VoIP line that we sell. In February 2006, our VoIP network
processed  approximately  500,000 minutes of voice traffic, whereas our wireline
business carried approximately 17 million minutes of traffic.

Available Information

      We maintain a corporate website with the address www.elec.net. We have not
incorporated  by reference into this Report on Form 10-K the  information on any
of our websites and you should not


                                        4
<PAGE>

consider  any of such  information  to be a part of this  document.  Our website
addresses are included in this document for  reference  only. We make  available
free of charge through our corporate  website our Annual Reports on Form 10-K or
10-KSB,  Quarterly  Reports on Form 10-Q or Form 10-QSB and  Current  Reports on
Form 8-K, and amendments to these reports, through a link to the EDGAR database,
as soon as reasonably  practicable  after we  electronically  file such material
with, or furnish such material to, the Securities and Exchange Commission.


Our Products and Services

      Our service  offerings  are  tailored to meet the  specific  needs of both
wholesale and retail customers. As a facilities-based VoIP carrier, we market to
wholesale  accounts that have an existing customer base of residential and small
business  users.  We provide a compelling  product  offering to CLECs,  Internet
Service Providers ("ISPs"), cable providers,  affinity groups and others. Our IP
based services include:

   o  Rapid market entry in U.S. and eventually worldwide

   o  High-quality, reliable voice services

   o  Disruptive technology

   o  Free use of our softswitch and application servers

   o  Low priced services

   o  Flexibility to change platform to needs of individual carrier

   o  Customer service web site

   o  End user web site

   o  Automatic sign-up on the Internet

      Our wholesale customers are able to buy our VoIP services and quickly roll
out  a  private-labeled  solution  to  their  customers.  We  have  identified
approximately  1,100  independent  cable  companies  that  do  not  have  a VoIP
solution.  Many  of  these  companies  are already providing high-speed Internet
access  to their customers. We believe upselling VoIP services to their Internet
subscribers  is  a  natural  fit.  Under our private label program, we give each
wholesaler  its  own  customer  support  web  site  that  is  branded  with  the
wholesaler's  own logo so the wholesaler's customers will view the wholesaler as
the  VoIP service provider. Our product empowers our wholesale customers to sell
VoIP  services  rapidly  and inexpensively, without risking their own capital on
expensive  switches  and custom IP software. We anticipate significant growth in
our  wholesale  business  in  fiscal  2006,  as we have signed wholesale service
agreements  with  several  carriers,  some of which have the resources to obtain
more  than  100,000  VoIP  customers.  One  reason  we  have focused much of our
resources  on  building a robust wholesale platform is that we believe the rapid
growth  of  wholesale  VoIP  revenue will not require significant amounts of our
cash.  Our  wholesale  customers  will  incur  the  customer acquisition cost of
signing  up  a  new  subscriber,  the  cost of an integrated access device or IP
telephone  and  the cost of providing customer service. As these accounts scale,
we  will  incur additional network costs and technical support costs, but in our
business  model, the projected cash outlay for these costs will be offset by the
additional  revenue received from our increased billings to wholesale customers.
We also project that the cash collected from


                                        5
<PAGE>

revenue growth will be sufficient to allow us to expand our network equipment to
support such growth due to the low facilities cost that we incur per subscriber.

      Our retail customers  consist of small  businesses and residential  users.
These customers buy our VoIP services,  our landline  services or both. Our VoIP
services are available  nationwide,  while our landline  services are limited to
the states of New Jersey,  New York and  Pennsylvania.  We primarily  market our
services through two distribution channels. We use third-party  telemarketers to
attract  small  business and  residential  accounts  (typically  less than three
telephone  lines for each  account),  and we use agents and direct  marketing to
attract small business and  residential  accounts  (typically one to 10 lines in
size for each  account).  To  further  help our  customers  manage  their  phone
service, and to differentiate ourselves from other service providers, we provide
a secure  customer web site with the tools to help our customers to manage their
accounts. These tools include the following:

    o Billing management: we provide customers with Web-based access to billing
      records, invoices, payment history and individual call records;

    o Payment processing: we provide customers with the ability to process or
      change secure credit card information over the Web to make payments to us;

    o Account provisioning: we provide customers with Web pages through which
      they can order new services, new phone numbers, including virtual numbers,
      and advanced features;

    o Customer care: we provide customers with first tier customer care to
      explain how to use features, to perform simple diagnostic checks and
      repairs and to contact us via email.

      The  pricing  and  robust  nature  of our  feature  packages  also help to
differentiate us from our competitors. For landline customers, we offer the same
calling  features  offered by the Incumbent Local Exchange Carrier ("ILEC") from
which we are buying and reselling  services,  but we charge less for each of the
features.  We also  bundle  certain  key  features,  such as  Caller ID and Call
Waiting, in an unlimited monthly calling plan. For our VoIP customers,  we offer
differentiating features, such as fax lines and toll free numbers. The following
features are offered to our VoIP customer, at no extra charge:

   o  911 Dialing

   o  Voicemail

   o  Caller ID

   o  Call Waiting

   o  Call Forwarding

   o  Three Way Calling

   o  Free In-Network Calls

   o  Call Return

   o  Caller ID Block

   o  International Call Blocking

   o  Directory Assistance Blocking

   o  Do Not Disturb

   o  Speed Dial

   o  Online Account Management

For  an additional competitive charge, our VoIP customers can receive additional
premium features, such as:

   o  411 Directory Assistance


                                        6
<PAGE>

   o  Virtual numbers

   o  Local number portability

Our Network

      We operate a sophisticated  VoIP network to deliver our VoIP services.  We
carefully  monitor the network as it automatically  minimizes the route taken by
packets carrying a voice  conversation,  and  self-regulates  traffic volumes to
directly  control the quality of service from the origination to the termination
of a call.  Calls are  connected on our network with minimal post dial delay and
our G.729  compression  yields virtually no jitter.  When compared to other VoIP
carriers,  or  wireline  connections,  we  deliver  a  high  quality  call.  Our
softswitch  utilizes advanced SIP infrastructure on a cluster of SIP servers and
has the ability to scale at a low cost.  The collective  thought  process of our
SIP servers makes us unique,  as they are capable of "thinking"  about what they
are doing and will perform  self-healing  functions  when  necessary to ensure a
call is not dropped. Unlike many of our competitors, we do not rely on Microsoft
to power our softswitch. By using our own open-source software platform, we have
been able to create a  neurological  network  and to avoid the delays of waiting
for software upgrades from Microsoft and the problems associated with having too
much reliance on one vendor in order to run our network.

      We consider VoIP to be an application on an IP transport. Our network does
not  use  the  mainframe  technology  approach  that  Sonus  Networks,  Inc.  or
BroadSoft,  Inc.  promotes.  Instead,  we  have  a  fully  scalable,  redundant,
power-backed  stable  platform with a server farm that contains no  specifically
designed telecom equipment.  By not relying on the telecom equipment and related
software of the larger equipment vendors, we are able to own and control our own
proprietary  source  code  and to  scale  without  the  limitations  of  delays,
equipment  financing,  installation and integration and source code updates that
equipment  vendors impose on the VoIP carriers.  Our approach is very similar to
the server cluster type of approach that has provided Google,  Inc.  substantial
computing resources at a low cost.

Business Strategy

      Our objective is to build a profitable  telephone  company on a stable and
scalable  platform with minimal  network costs. We want to be known for our high
quality of service,  robust features and ability to deliver any new product to a
wholesale  customer or a web store without delay. We believe that to achieve our
objective we need to have "cradle to grave"  automation of our  back-office  web
and billing  systems.  We have  written  our  software  for maximum  automation,
flexibility and changeability.

      We know from  experience  in  provisioning  complex  telecom  orders  that
back-office automation is a key factor in keeping overhead costs low. Technology
continues  to work for 24 hours a day and we  believe  that the  fewer  people a
company has in the back office,  the more  efficiently  it can run, which should
drive down the cost per order.

      When an order is entered  into our web based order entry  system more than
50 database tables are populated.  No extra back-office  employees are needed to
guide the order though our systems. Some of the high-level, completely automated
steps that occur when a customer enters an order are as follows:

   o  Telephone number is assigned if in stock, or ordered if not in stock

   o  Customer's credit card is charged

   o  E911 address is formatted and sent to the Automatic Location
      Identification database


                                        7
<PAGE>

   o  The configuration file for an integrated access device ("IAD") is sent to
      the provisioning server

   o  The web portal database is populated so the subscriber can view his
      account

   o  Provisioning status emails are generated and sent to the subscriber

   o  The appropriate entries are made into the billing system for the chosen
      plan

   o  Federal Express is contacted and a shipping label is printed to ship the
      IAD

   o  A welcome letter is generated

      Given our current level of  automation,  we believe we can handle  between
500 and 1,000 orders a day. The order  processing and  auto-provisioning  of the
IAD into the back office provisioning system and billing systems is seamless and
integrated  and is designed to handle a single order  entered on our web site or
many thousands of orders flowing through an Extensible Markup Language,  or XML,
bulk entry portal.

      A very  complex  part of the web  process  that we  created  with  our own
software  is the  ability to  deliver a new  product  into the web  provisioning
systems   without  any  software  code  additions  or  changes.   The  products,
provisioning  and  interface to the  back-office  and billing  systems have been
"soft coded," which means they are data driven. We can simply key new parameters
pertaining  to a  particular  product  into our  database,  and a new product is
automatically  created and available for purchase in the web store. We also have
the ability to load a variable  set of products in the web store  depending on a
specific sales campaign or agent.

      Our  automation  strategy and soft code approach is further  leveraged for
our wholesale  customers.  We are able to set up a new wholesale  account with a
custom web store,  logo,  terms and  conditions,  privacy  policy,  products and
anything else the wholesaler  requires with no additional code being  developed.
Everything is uploadable or configurable so that we can scale.

      We  believe  our  "cradle to grave"  automation  strategy  in a  wholesale
environment,  in which we are able to sell our VoIP services to other  carriers,
such as cable  companies,  CLECs  and  Internet  service  providers,  will be an
important factor that differentiates us from other VoIP service providers.  Many
VoIP service  providers are primarily selling a retail product and are incurring
substantial  customer  acquisition costs in order to grow their subscriber base.
These companies have access to  significantly  more capital than we have and are
generating  large  operating  losses  because of the rapid growth rate they have
achieved.  Other VoIP service providers have a wholesale offering,  but have not
been able to implement a satisfactory  billing  platform or E911  functionality.
Many of these carriers do not have the ability to implement custom programs on a
zero code basis,  and some do not even own their own code and are dependent upon
a vendor to provide them with quarterly or semi-annual upgrades so they can keep
up with the new  products  being  offered  in the  industry.  We  believe  these
wholesale  competitors  will not have the same success in scaling their business
as we plan to experience.

      Furthermore,  our strategy is to grow rapidly by  leveraging  the capital,
customer base and marketing  strength of our  wholesale  customers.  Many of our
targeted wholesale  customers and some of our existing wholesale  customers have
ample  capital  to  market a  private-labeled  VoIP  product  to their  existing
customer   base  or  to  new   customers.   We  believe  our   strength  is  our
technology-based  platform.  By providing  our  technology  to cable  companies,
CLECs, Internet service providers,  agents, affinity groups and any other entity
that  desires to offer a VoIP  telephony  product,  we  believe we will  require
significantly  less cash  resources  than other VoIP  providers  will require to
attract a similar number of subscribers.


                                        8
<PAGE>

Sales and Marketing

      In  establishing our VoIP business, we initially do not plan to compete on
price.  We believe we have a stable, high-quality, feature-rich service so as to
allow  us  to   distinguish   ourselves  from  lower-priced  VoIP  alternatives.
Furthermore,  a  VoIP  line  offers  substantial savings to any customer that is
switching  from  a  circuit-switched  line. In addition to enjoying an unlimited
local  and  national  calling plan for approximately $20 less per month than the
cost  of  Plain  Old Telephone Service ("POTS") provided by an ILEC or CLEC, the
VoIP  consumer also can save approximately $10 a month in telecom taxes, as VoIP
generally  is  considered  data  communications  and is subject to substantially
fewer  taxes  than  a POTS line. If we need to lower our prices in the future to
capture market share, we believe that option will be available to us.

      We are taking the following actions to grow our VoIP business:

         o     Market  VoIP  Services  to  ILEC  Customers.  We  have  years  of
      experience  selling POTS lines one at a time.  Similarly,  we plan to sell
      VoIP  lines  one at a time to  residential  consumers,  as there  are many
      advantages in both speed and simplicity when we only have to provision one
      or two lines per location.  We have instituted an outbound call program to
      sell to new customers, and a Google ad campaign to attract Internet users.
      We also are exploring direct response to an inbound call center.

         o     Offer VoIP on a Wholesale  Basis. We believe our VoIP platform is
      scalable and stable. We designed and built our platform with the intention
      of  carrying  more  than one  million  customers.  We are  allowing  other
      entities  that want to offer VoIP to an existing  customer  base access to
      our platform on a wholesale  basis.  An  independent  cable  company,  for
      example,  may not have the  technological  expertise to build its own VoIP
      platform,  or may realize that any efforts to do so would take more than a
      year to accomplish.  We plan to continue to attract wholesale  accounts by
      offering our platform on a private-label basis.

         o     Utilize our Technological  Expertise in VoIP to Add New Products.
      We have  developed a robust IP  platform  that we intend to use to develop
      further product  enhancements.  By adding new features and technologically
      innovative  products,  we believe we can continue to attract new customers
      and provide additional  incentives for current customers to continue using
      our services.  We currently support WiFi phones and have approximately 100
      WiFi phones users on our network.

Competition

      The communications industry is highly competitive and the market for
enhanced Internet and IP communications services is new and rapidly evolving. We
believe the primary competitive factors that will determine our success in the
Internet and IP communications market are:

              o   Quality of service

              o   Responsive customer care services

              o   Ability to provide  customers with a telephone number in their
                  local calling area

              o   Pricing levels and policies


                                        9
<PAGE>

              o   Ability to provide 911 service

              o   Bundled service offerings

              o   Innovative features

              o   Ease of use

              o   Accurate billing

              o   Brand recognition

              o   Quality of IAD supported by us and used by our customer

      Future  competition  could  come  from a variety of companies, both in the
Internet  and  telecommunications industries. This includes major companies that
have  been  in  operation  for  many years and have greater resources and larger
subscriber  bases  than  we  have, as well as companies operating in the growing
market  of  discount  telecommunications  services,  including calling cards and
prepaid  cards.  In  addition,  some  Internet  service  providers have begun to
aggressively  enhance  their  real  time  interactive  communications,  and  are
focusing  initially  on  instant  messaging,  with the intent to progress toward
providing PC-to-Phone services and VoIP services.

      We  anticipate  that  competition  will also come from several traditional
telecommunications  companies,  including  industry  leaders, such as AT&T Inc.,
Sprint  Nextel  Corporation,  Deutsche  Telekom  AG,  WorldCom  Inc.  and  Qwest
Communications  International,  Inc.,as  well  as established broadband services
providers,  such  as Time Warner Inc., Comcast Corporation, and Cablevision Inc.
These  companies  have  all announced their intention to offer enhanced Internet
and  IP  communications  services in both the United States and internationally.
All of these competitors are significantly larger than we are and have:


    o   substantially greater financial, technical and marketing resources;

    o   stronger name recognition and customer loyalty;

    o   well-established relationships with many of our target customers;

    o   larger networks; and

    o   large existing user base to cross sell new services.


            These  and other  competitors  may be able to  bundle  services  and
products  that are not  offered by us together  with  enhanced  Internet  and IP
communications  services,  which  could  place us at a  significant  competitive
disadvantage.  Many of our competitors  enjoy economies of scale that can result
in lower cost structure for  transmission  and related costs,  which could cause
significant pricing pressures within the industry.

Government Regulation

      United States regulatory environment

      We  believe  that,  under  United States law, based on specific regulatory
classifications  and  recent  regulatory decisions, VoIP communications services
will  continue  to  constitute  information  services  (as  opposed to regulated
telecommunications   services).  Therefore,  such  services  are  not  currently
regulated  by  the   state  public  service  agencies  charged  with  regulating
telecommunications  carriers. Nevertheless, aspects of the VoIP services that we
are providing are subject to regulation by the Federal Communications Commission
("FCC,") and there may be some


                                       10
<PAGE>

regulatory movement toward having VoIP providers collect and remit certain taxes
that telecom  providers  currently  collect and remit. We cannot assure you that
such  services  will not be regulated in the future.  Several  efforts have been
made or are  currently  being  considered  in the United States to enact federal
legislation that would either regulate or exempt from regulation  communications
services provided over the Internet.

      In addition, the FCC is currently considering reforms to universal service
funding and may  consider  whether to impose  various  types of  charges,  other
common  carrier  regulations  and/or  additional  operational  burdens upon some
providers of Internet and IP telephony.  On May 19, 2005,  the FCC gave Internet
phone  companies  four  months to provide  911  service to their  customers  and
ordered  incumbent  carriers  to  make  emergency  networks  accessible  to VoIP
providers.  The  four-month  period began from date of  publication of the FCC's
order in the  federal  register  in July 2005.  We were unable to meet this time
frame and applied for a six-month  waiver.  We now are able to offer 911 service
to our customers.  The FCC also is considering reforms to law-enforcement agency
regulations  and may consider  imposing  various types of charges,  other common
carrier regulations and/or additional operational burdens upon some providers of
Internet  and IP  telephony.  The FCC has  stated  that the  development  of new
technologies, such as IP telephony, may increase the strain on universal service
funding and emergency services  provisioning and hinder law enforcement agencies
activities.  In that regard,  the FCC is currently  reviewing  whether to extend
universal service, emergency services provisioning and/or law-enforcement agency
assistance  obligations to non-traditional  providers,  such as facilities-based
and non-facilities-based providers of VoIP services.

      Several carriers have asked the FCC to make definitive  rulings  regarding
the classification of their IP telephony  services.  In response to one of those
requests, the FCC determined that a particular free, peer-to-peer IP application
is an  interstate  information  service.  The FCC's ruling  applies only to that
particular application and does not affect the regulatory  classification of the
services we offer.  The FCC also has determined  that  IP-enabled  services with
certain characteristics are interstate services subject to federal jurisdiction,
rather than state regulation.  We cannot predict, however, that services we will
make available to certain  purchasers of our phones would be found by the FCC to
meet the  characteristics  established  by the  FCC.  In  addition,  the FCC has
initiated a generic proceeding to investigate the legal and regulatory framework
for  all  IP-enabled  services,  including  IP  telephony  services.  Thus,  the
regulatory  classification issue is now before the FCC. Any ruling by the FCC on
the regulatory  considerations affecting Internet and IP telephony services will
affect our operations and revenues.

      If the FCC were to  determine  that  certain  services  are subject to FCC
regulations as telecommunications  services,  the FCC might require providers of
Internet and IP telephony  services to be subject to traditional  common carrier
regulation, make universal service contributions,  implement new hardware and/or
software to aid emergency  services  response and aid law  enforcement  agencies
and/or  pay  access  charges.  It is also  possible  that  the  FCC may  adopt a
regulatory  framework other than traditional  common carrier  regulation,  which
would apply to Internet and IP telephony  providers.  Despite the FCC's actions,
state  regulatory  authorities  may also retain  jurisdiction  to  regulate  the
provision  of, and impose  charges  on,  intrastate  Internet  and IP  telephony
services.  Several state regulatory  authorities  have initiated  proceedings to
examine  the  regulation  of such.  Many,  but not all,  of the states that have
looked at the regulation of IP telephony services have deferred consideration of
the issue pending the outcome of the FCC's proceedings.

      International regulatory environment

      The  regulatory  treatment  of Internet  and IP  telephony  outside of the
United States varies widely from country to country.  A number of countries that
currently  prohibit  competition  in the  provision of


                                       11
<PAGE>

voice  telephony may also prohibit IP telephony.  Other  countries  permit,  but
regulate,  IP telephony.  Some  countries  will  evaluate  proposed IP telephony
service on a case-by-case  basis and determine whether it should be regulated as
a voice  service  or as another  telecommunications  service.  Finally,  in many
countries IP telephony has not yet been  addressed by  legislation or regulatory
action.

      In 2003, the European  Commission  adopted  directives for a new framework
for electronic communications regulation that, in part, attempt to harmonize the
regulations  that apply to services  regardless  of the  technology  used by the
provider.  Under  the New  Regulatory  Framework,  there  is no  distinction  in
regulation made based upon technology between switched or packet-based networks.
As a  result,  some  types  of IP  telephony  services  may  be  regulated  like
traditional telephony services while others may remain free from regulation. The
European  Commission  currently is reviewing how IP telephony  services fit into
the New  Regulatory  Framework.  Although  it has been  suggested  that a "light
touch" to  regulation  be taken,  we cannot  predict  what  future  actions  the
European  Commission and courts reviewing the New Regulatory  Framework may take
regarding IP telephony and related matters, or what impact, if any, such actions
may have on our business.

Employees

      As of  February  15,  2006,  we  employed  42  employees,  of whom 39 were
employed on a full-time  basis and three were employed on a part-time  basis. We
are not  subject to any  collective  bargaining  agreement  and we  believe  our
relationship with our employees is good.

Item 1A. Risk Factors

Risks Relating to Our Business

We have incurred losses since inception of our telephone business and we may be
unable to achieve profitability or generate positive cash flow.

      We  have  not  generated  operating  profits  since  fiscal 1996. While we
reported  net  income  of  $170,253  and  $8,323,211  in  fiscal  2004 and 2003,
respectively,  we   reported  losses  from  our  telecommunications  operations.
Furthermore,  in fiscal 2005, we reported losses of approximately $2,266,000. In
fiscal  2004,  net  income  of  $170,253  resulted  primarily  from  the gain of
approximately  $743,000  resulting  from  a  settlement  with  creditors  in the
bankruptcy proceedings of a subsidiary. In fiscal 2003, net income of $8,323,211
resulted  primarily  from  the  gain  on the disposition of a subsidiary and the
disposition  of  property  of  approximately $11,306,000. In fiscal 2005, fiscal
2004  and  fiscal  2003,  we  generated   operating  losses   of   approximately
($2,402,000),    ($642,000)    and   ($2,948,000),   respectively,    from   our
telecommunications  operations.  We expect to continue to incur operating losses
until  we  develop  our  telecommunications  operations  to  a level at which it
generates sufficient revenues to cover operating expenses.


                                       12
<PAGE>

We have an unproven  business  model and can give no assurance that our business
model and strategy will be successful.

      Our  business strategy is unproven and we do not know whether our business
model  and  strategy  will be successful. We intend to sell wholesale and retail
VoIP services to residential consumers and small businesses and de-emphasize the
wireline  business  that we have utilized for the majority of our revenues since
fiscal 2000. We have developed our own proprietary IP platform and for the first
time in our operating history, we are a facilities-based carrier. We believe our
network is robust and efficient, but it has not carried the hundreds of millions
of  minutes that we anticipate will eventually use our network. Our inability to
scale  our  VoIP  network  and  execute  effectively as a VoIP provider, if that
occurs,  would  significantly  diminish  our ability to generate sufficient VoIP
revenue to achieve profitability.

We have a need for additional financing.

      Due  to  our  recent  operating losses and our additional requirements for
working capital to establish and grow our business, over the past several months
we  have  sold  debt  and additional shares of capital stock to fund our working
capital  needs. We expect that we will continue to sell our capital stock, incur
additional  indebtedness  or  sell  other  assets  we  currently own to fund the
anticipated growth of our telecommunications business and implement our business
objectives.  There can be no assurance that we will be able to obtain additional
funding  when  needed,  or that such funding, if available, will be available on
terms  we  find acceptable. If we cannot obtain additional funds when needed, we
may  be  forced to curtail or cease our activities, which may result in the loss
of all or a substantial portion of your investment.

We depend on incumbent carriers as a key component for our business.

      To  limit  our capital expenditures and support staff, we rely extensively
on  third  parties.  We  lease  our local exchange network and our long distance
network.  As  a  result,  we  depend  entirely  on  incumbent  carriers  for the
transmission  of  customer  telephone  calls for our CLEC subsidiaries. The risk
factors  inherent  in  this  approach  include,  but  are  not  limited  to, the
following:

            o     the  inability  to  negotiate  and  renew  favorable wholesale
                  agreements;

            o     lack  of  timeliness  of  the  ILEC  in  processing our orders
                  for customers seeking to utilize our services;

            o     dependence  on  the  effectiveness  of  internal  and external
                  telemarketing services to attract new customers;

            o     dependence  on  third-party  contractors  to  install
                  necessary  equipment  and  wiring at our customers facilities;
                  and

            o     dependence  on  a  facilities-based  carrier  to  provide  our
                  customers with repair services and new installation services.

We depend on a third-party billing system to bill our customers.

            The accurate and prompt billing of our customers is essential to our
operations  and  future  profitability.  We  utilize  a  third-party  system for
billing, tracking and customer service. Our former Chairman, who also owns stock
in  our  company, is the Chairman and CEO of our billing company, and we believe
all transactions with this company are at arms-length. The system is designed to
provide  us  with  a high degree of flexibility to handle custom rate plans that
provide  consumers  discounts  from  the incumbent local carriers' rate plans or
bundled plans that include various features and long distance services. Although
we believe the system is very functional, it is currently set


                                       13
<PAGE>

up  to  support approximately 500,000 local lines in six states, and its ability
to  handle  substantially  more  customers is not fully tested. In addition, the
billing  company  we  utilize  competes  with us as a CLEC and may terminate its
billing  services at any time. Furthermore, in the most recent audited financial
statements  of  the  billing  company  we utilize, the report of the independent
public  accountants expressed substantial doubt about its ability to continue as
a going concern. This strategy exposes us to various risks that include, but are
not limited to, the following:

            o     the  inability  to  adapt  the  billing  system to process the
                  number of customers we are targeting in our marketing plans;

            o     the  failure  of  the  system  to  provide  all of the billing
                  services that we require;

            o     the  possibility  that  we  may  want  to  provide services in
                  a  state  that our billing company has difficulty rating calls
                  and processing data for us; and

            o     the  possibility  that  we  may  need  to quickly engage a new
                  billing  company to process our invoices to our customers, and
                  devote  a  large  amount of internal res ources at one time to
                  work on this transition.

Our business is dependent upon our ability to resell long distance services, for
which we currently rely on only one third-party carrier.

      We  offer long distance telephone services as part of our service package.
We  currently  have a wholesale agreement with only one long distance carrier to
provide  transmission  and  termination  services  for  all of our long distance
traffic.  Recently,  several  long  distance carriers have encountered financial
difficulties,  including  the  carrier  utilized  by  us. Financial difficulties
encountered  by  our  current  carrier  or  any  other carrier with which we are
negotiating  could  cause disruption to our operations and loss of customers and
revenues.

We  could  be  liable  for  breaches  of  security  on  our web site, fraudulent
activities of our users, or the failure of third-party vendors to deliver credit
card transaction processing services.

      A  fundamental  requirement  for operating a customer-friendly CLEC and an
internet-based,   worldwide  voice   service  is  the  secure   transmission  of
confidential  information  over  public  networks.  Although  we  have developed
systems  and  processes  that  are  designed to protect consumer information and
prevent fraudulent credit card transactions and other security breaches, failure
to  mitigate  such fraud or breaches may adversely affect our operating results.
The  law  relating  to  the liability of providers of online payment services is
currently  unsettled.  We rely on third party providers to process and guarantee
payments  made  by  our  customers up to certain limits, and we may be unable to
prevent  our  users from fraudulently receiving goods and services. Any costs we
incur  as  a  result  of  fraudulent  transactions  could  harm our business. In
addition,  the  functionality  of  our  current billing system relies on certain
third-party  vendors  delivering  services.  If  these  vendors  are  unable  or
unwilling to provide services, we will not be able to charge for our services in
a timely or scalable fashion.

We may face difficulties managing our anticipated rapid expansion.

      We  are  attempting to grow our business rapidly in terms of the number of
services we offer, the number of customers we serve and the regions we serve. In
particular,  we  are  expending  substantial sums to expand our VoIP initiative.
There  can  be  no  assurance  that  our  marketing  initiatives will proceed as
expected or that they will be successful, particularly in light of the legal and
regulatory and competitive


                                       14
<PAGE>

uncertainties  described  elsewhere  in  this  report.  Furthermore, there is no
assurance that we will successfully manage our efforts to:

            o     expand, train, manage and retain our employee base;

            o     expand and improve our customer service and support systems;

            o     introduce  and  market  new  VoIP  products  and  services and
                  new pricing plans;

            o     capitalize  on  new  opportunities  in  the  competitive
                  marketplace; or

            o     control our expenses.

      The  strains  posed  by  these  new  demands are magnified by the emerging
nature  of  our  operations.  If  we  cannot  manage our growth effectively, our
results of operations could be adversely affected.

The  failure  of  our  customers  to  pay  their  bills  on a timely basis could
adversely affect our cash flow.

      Our  target  customers  consist  of  residences  and  small businesses. We
anticipate  having  to  bill  and  collect  numerous  relatively  small customer
accounts.  We  may  experience  difficulty in collecting amounts due on a timely
basis.  We have experienced difficulty with residential wireline accounts in the
past  and  have incurred significant bad debt write offs. Our failure to collect
accounts  receivable  owed  to  us by our residential wireline or wholesale VoIP
customers  on  a  timely  basis  could  have  a  material  adverse effect on our
business, financial condition, results of operations and cash flow.

Acquisitions  could  divert  management's  time and attention, dilute the voting
power  of  existing  shareholders  and  have  a  material  adverse effect on our
business.

      As  part  of our growth strategy, we may continue to acquire complementary
businesses  and assets. Acquisitions that we may make in the future could result
in  the  diversion  of  time  and personnel from our business. We also may issue
shares  of  common  stock  or  other securities in connection with acquisitions,
which  could result in the dilution of the voting power of existing shareholders
and  could  dilute  earnings per share. Any acquisitions would be accompanied by
other risks commonly encountered in such transactions, including the following:

            o     difficulties  integrating  the  operations  and  personnel  of
                  acquired companies;

            o     the  additional  financial  resources  required  to  fund  the
                  operations of acquired companies;

            o     the potential disruption of our business;

            o     our  ability  to  maximize  our  financial  and  strategic
                  position  by  the  incorporation  of  acquired  technology  or
                  businesses with our product and service offerings;

            o     the  difficulty  of  maintaining  uniform  standards,
                  controls, procedures and policies;

            o     the  potential  loss  of  key  employees  of  acquired
                  companies;

            o     the  impairment  of  employee  and  customer  relationships as
                  a result of changes in management; and


                                       15
<PAGE>

            o     significant expenditures to consummate acquisitions.

      As  a  part of our acquisition strategy, we may engage in discussions with
various  businesses  respecting  their potential acquisition. In connection with
these  discussions,  we  and  each  potential  acquired  business  may  exchange
confidential  operational  and  financial  information,  conduct  due  diligence
inquiries,  and  consider  the  structure, terms and conditions of the potential
acquisition.  In  certain cases, the prospective acquired business may agree not
to discuss a potential acquisition with any other party for a specific period of
time, may grant us certain rights in the event the acquisition is not completed,
and  may  agree to take other actions designed to enhance the possibility of the
acquisition. Potential acquisition discussions may take place over a long period
of  time,  may  involve difficult business integration and other issues, and may
require  solutions  for  numerous family relationship, management succession and
related  matters. As a result of these and other factors, potential acquisitions
that  from  time  to time appear likely to occur may not result in binding legal
agreements  and  may  not be consummated. Our acquisition agreements may contain
purchase  price  adjustments,  rights of set-off and other remedies in the event
that  certain  unforeseen  liabilities  or  issues  arise  in connection with an
acquisition.  These remedies, however, may not be sufficient to compensate us in
the event that any unforeseen liabilities or other issues arise.

We  need  to  retain  key  management  personnel  and  hire additional qualified
personnel.  We are dependent on the efforts of our executive officers and senior
management and on our ability to hire and retain qualified management personnel.

      A  small  number of key management and operating employees and consultants
manage  our  telecommunications  business.  Our  loss  of  such  employees  or
consultants  or  their  failure  to  work effectively as a team could materially
adversely  impact  our  telecommunications  business.  Competition for qualified
executives  in  the  telecommunications  and  data  communication  industries is
intense and there are a limited number of persons with applicable experience. We
believe that our future success in the telecommunications business significantly
depends  on  our  ability  to  attract  and  retain highly skilled and qualified
telecommunications  personnel.  We  have  not entered into employment agreements
with  any  of  our  senior  officers. The loss of any of Paul H. Riss, our Chief
Executive  Officer,  Michael  Khalilian,  our  Chief Technology Officer, or Mark
Richards,  our  Chief  Information  Officer  and  the  President  of  our  Vox
Communications subsidiary, could adversely affect our business.

We  may  be  unable  to  adapt  to rapid technology trends and evolving industry
standards.

      The  communications  industry  is subject to rapid and significant changes
due  to  technology  innovation,  evolving  industry standards, and frequent new
service  and  product  introductions.  New  services  and  products based on new
technologies  or  new  industry  standards  expose  us  to risks of technical or
product  obsolescence. We will need to use technologies effectively, continue to
develop  our  technical expertise and enhance our existing products and services
in  a  timely  manner  to  compete  successfully in this industry. We may not be
successful  in  using  new  technologies effectively, developing new products or
enhancing  existing  products  and  services  in a timely manner or that any new
technologies or enhancements used by us or offered to our customers will achieve
market acceptance.

The telecommunications industry is highly regulated and amendments to or repeals
of  existing  regulations  or  the  adoption  of new regulations could adversely
affect our business, financial condition or results of operations.


                                       16
<PAGE>

      Federal,  state  and  local  regulation  may affect our telecommunications
business.  Since  regulation  of  the  telecommunications industry is frequently
changing,  we  cannot  predict  whether, when and to what extent new regulations
will  affect  us.  The following factors, among others, may adversely affect our
business, financial condition and results of operations:

            o   delays in obtaining required regulatory approvals;

            o   new court decisions;

            o   the enactment of new adverse regulations; and

            o   the establishment of strict regulatory requirements.

The  communications services industry is highly competitive and we may be unable
to compete effectively.

      The  communications  industry,  including  Internet  and data services, is
highly  competitive,  rapidly  evolving  and  subject  to constant technological
change and intense marketing by providers with similar products and services. We
expect  that  new  competitors  are  likely  to join existing competitors in the
communications  industry,  including  the  market  for  VoIP,  Internet and data
services.  Many  of  our  current  competitors are significantly larger and have
substantially  greater market presence, as well as greater financial, technical,
operational,  marketing  and  other resources and experience, than we do. In the
event  that  such a competitor expends significant sales and marketing resources
in  one  or  several markets, we may not be able to compete successfully in such
markets. We believe that competition will continue to increase, placing downward
pressure on prices. Such pressure could adversely affect our gross margins if we
are  not  able  to  reduce our costs commensurate with such price reductions. In
addition, the pace of technological change makes it impossible for us to predict
whether we will face new competitors using different technologies to provide the
same  or  similar  services  offered  or  proposed  to  be offered by us. If our
competitors  were  to provide better and more cost effective services than ours,
our business initiatives could be materially and adversely affected.

Industry consolidation could make it more difficult for us to compete.

      Companies offering Internet, data and communications services are, in some
circumstances,  consolidating.  We  may not be able to compete successfully with
businesses  that  have  combined,  or  will  combine,  to produce companies with
substantially  greater  financial,  sales and marketing resources, larger client
bases, extended networks and infra-structures and more established relationships
with  vendors,  distributors  and  partners  than we have. With these heightened
competitive  pressures,  there is a risk that our financial performance could be
adversely impacted and the value of our common stock could decline.

Risks Relating to Our VoIP Business

      Part  of our long-term strategy in building a profitable telephone company
includes  the  marketing of our technology for VoIP-based telephony applications
through our wholly-owned subsidiary, VoX. VoIP is a new technology that involves
many unique risks, including those set forth below.

The VoIP telephony market is subject to rapid technological change and we depend
on new product introductions in order to grow our VoIP business.

      VoIP  telephony  is  an  emerging  market  that  is characterized by rapid
changes in customer


                                       17
<PAGE>

requirements,  frequent  introductions  of  new  and  enhanced  products,  and
continuing  and rapid technological advancement. To compete successfully in this
emerging  market,  we must continue to design, develop and sell new and enhanced
VoIP  telephony  software products and services that provide increasingly higher
levels  of  performance  and  reliability  at lower cost. These new and enhanced
products  must  take  advantage  of  technological advancements and changes, and
respond  to  new customer requirements. Our success in designing, developing and
selling  such  products  and  services  will  depend  on  a  variety of factors,
including:

            o   the identification of market demand for new products;

            o   the scalability of our VoIP telephony software products;

            o   product and feature selection;

            o   timely implementation of product design and development;

            o   product performance;

            o   cost-effectiveness of products under development;

            o   effective distribution processes; and

            o   success of promotional efforts.

      Additionally, we may also be required to collaborate with third parties to
develop our products and may not be able to do so on a timely and cost-effective
basis,  if  at all. We have in the past experienced delays in the development of
new  products  and  the  enhancement  of existing products, and such delays will
likely  occur  in  the  future. If we are unable, due to resource constraints or
technological  or  other  reasons,  to  develop  and  introduce  new or enhanced
products  in  a  timely  manner, if such new or enhanced products do not achieve
sufficient  market  acceptance,  or  if  such new product introductions decrease
demand  for  existing  products,  our  operating  results  would decline and our
business would not grow.

We  may not be successful if the Internet is not adopted by a significant number
of users as a means of communications.

      If the market for IP-based communications and the related services that we
will  make  available does not grow at the rate we anticipate or at all, we will
not  be  able  to realize our anticipated revenues with respect to our broadband
phone  service.  To be successful, IP-based communications require validation as
an  effective  means of communication and as a viable alternative to traditional
phone  service.  Demand  and market acceptance for newly introduced services are
subject  to  a  high  level  of  uncertainty. The Internet may not prove to be a
viable alternative to traditional phone service for reasons including:


    o   inconsistent quality or speed of service;

    o   traffic congestion on the Internet;

    o   potentially inadequate development of the necessary infrastructure;

    o   lack of acceptable security technologies;

    o   lack   of  timely   development  and  commercialization  of  performance
        improvements; and


                                       18
<PAGE>

    o   unavailability of cost-effective, high-speed access to the Internet.

Future  legislation  or  regulation  of  the Internet and/or VoIP services could
restrict  our business, prevent us from offering service or increase our cost of
doing business.

      At  present  there  are few laws, regulations or rulings that specifically
address  access  to or commerce on the Internet, including VoIP services. We are
unable  to  predict the impact, if any, that future legislation, legal decisions
or  regulations  concerning  the  Internet  may  have on our business, financial
condition  or  results  of  operations. Regulation may be targeted toward, among
other  things, assessing access or settlement charges, imposing taxes related to
Internet  communications,  imposing  tariffs  or regulations based on encryption
concerns  or  the characteristics and quality of products and services, imposing
additional regulations and requirements related to the handling of emergency 911
services, any of which could restrict our business or increase our cost of doing
business.  The  increasing  growth  of  the  VoIP  market and popularity of VoIP
products  and  services  heighten the risk that governments or other legislative
bodies  will  seek  to  regulate  VoIP  and  the  Internet.  In addition, large,
established  telecommunication companies may devote substantial lobbying efforts
to  influence  the regulation of the broadband IP telephony market, which may be
contrary to our interests.

      Many  regulatory actions are underway or are being contemplated by federal
and  state  authorities,  including the FCC and other state regulatory agencies.
There  is  risk that a regulatory agency may require us to conform to rules that
are  unsuitable  for  VoIP  communications  technologies or rules that cannot be
complied  with  due  to  the  nature  and  efficiencies  of  IP  routing, or are
unnecessary  or unreasonable in light of the manner in which we offer service to
our  customers.  It  is  not  possible  to separate the Internet, or any service
offered  over  it,  into  intrastate  and  interstate components. While suitable
alternatives  may  be  developed  in the future, the current IP network does not
enable  us  to  identify  the  geographic  nature  of the traffic traversing the
Internet.

Our  emergency  calling services are different from those offered by traditional
wireline telephone companies and may expose us to significant liability.

      Our  911  calling  service  is  more  limited,  in certain areas, than the
emergency  calling services offered by traditional wireline telephone companies.
In  each  case, those differences may cause significant delays, or even failure,
in a caller's receipt of the emergency assistance he or she needs.

      Traditional  wireline  telephone  companies  route  emergency calls over a
dedicated  infrastructure  directly  to  an emergency services dispatcher at the
public  safety  answering  point,  or PSAP, in the caller's area. Generally, the
dispatcher  automatically receives the caller's phone number and actual location
information.  While  our  911  service  being  deployed  in the United States is
designed  to  route calls in a fashion similar to traditional wireline services,
our  911  capabilities  may  not  reach  the  intended PSAP, although we do have
procedures  in  place  to  ensure  that  a  dispatcher  somewhere is reached. In
addition,  the only location information that our E911 service can transmit to a
dispatcher  at a PSAP is the information that our customers have registered with
us. A customer's registered location may be different from the customer's actual
location  at  the  time of the call because customers can use their enabled VoIP
device  to  make  calls  almost anywhere a broadband connection is available. In
such  cases,  as  described  below,  we  offer  customers  alternative access to
emergency services.

      We  are  also  providing  E911 service that is comparable to the emergency
calling  services  obtained  by  customers  of  traditional  wireline  telephone
companies in the same area. For those customers, emergency


                                       19
<PAGE>

calls  are  routed,  subject  to the limitations discussed below, directly to an
emergency  services  dispatcher  at  the  PSAP  in  the  area  of the customer's
registered location. The dispatcher will have automatic access to the customer's
telephone  number  and  registered  location information. However, if a customer
places an emergency call using the customer's enabled VoIP device and the device
is in a location different from the one registered with us, the E911 system will
still  route  the  call  to  a  dispatcher  in  the registered location, not the
customer's  actual location at the time of the call. Every time a customer moves
his  or  her  enabled  VoIP  device to a new location, the customer's registered
location  information  must be updated and verified. Until that takes place, the
customer  will  have  to  verbally advise the emergency dispatcher of his or her
actual location at the time of the call and wait for the call to be transferred,
if possible, to the appropriate local emergency response center before emergency
assistance can be dispatched.

      In  some cases, even under our E911 service, emergency calls may be routed
to  a  local  PSAP,  designated statewide default answering point or appropriate
local  emergency  authority that is not capable of receiving our transmission of
the  caller's  registered  location information and, in some cases, the caller's
phone  number.  Where  the  emergency  call  center  is  unable  to  process the
information,  the  caller is provided a service that is similar to the basic 911
services  offered  to some wireline telephone customers. In these instances, the
emergency  caller  may be required to verbally advise the operator of his or her
location  at the time of the call and, in some cases, a call back number so that
the  call can be handled or forwarded to an appropriate emergency dispatcher. We
are  continuing  our  efforts  to deploy our E911 service such that all relevant
information is displayed and will be routed to the appropriate PSAP in the first
instance.

      Customers  who  are  located  in areas in which we are currently unable to
provide  either E911 or the basic 911 described above, as well as WiFi telephone
and  SoftPhone  users,  are supported by a national call center that is run by a
third-party  provider  and  operates  24  hours  a  day, seven days a week. When
reaching the call center, a caller must provide his or her physical location and
call  back number, after which an operator will coordinate connecting the caller
to the appropriate PSAP or emergency services provider.

      Our  softswitching  platform  and  back office systems are technologically
advanced and the essential service delivery of providing emergency call handling
is  of  paramount  importance  to  us.  We  have  developed  a  web portal where
subscribers  can  maintain  the  flexibility  of  providing  us with a currently
correct  physical  location  should  they  take  the  VoIP  device away from the
registered  location.  We  cannot guarantee they will actually remember to enter
this information in the web portal when they move their VoIP device, and if they
do  not  make this update, the emergency call will be routed to the address that
was  previously  notified. This flexibility, along with the ability to call into
our  customer  support  call center to update the address, is compliant with the
current requirements of the FCC regarding emergency calling.

      If  one  of our customers experiences a broadband or power outage, or if a
network  failure  were  to  occur,  the  customer  will  not be able to reach an
emergency services provider.

      Delays our customers encounter when making E911 or basic 911 calls and any
inability  of  the  answering  point  to  automatically  recognize  the caller's
location or telephone number can have devastating consequences. Customers may in
the  future attempt to hold us responsible for any loss, damage, personal injury
or  death suffered as a result. Some traditional telephone companies also may be
unable  to  provide  the  precise location or the caller's telephone number when
their  customers  place  emergency  calls.  However, while we are not covered by
legislation  exempting  us  from liability for failures of our emergency calling
services,  traditional  telephone companies are covered. This liability could be
significant. In addition, we have lost, and may in the future lose, existing and
prospective customers


                                       20
<PAGE>

because  of  the  limitations inherent in our emergency calling services. Any of
these  factors  could cause us to lose revenues, incur greater expenses or cause
our reputation or financial results to suffer.

The  success  of our planned expansion is dependent upon market developments and
usage patterns.

      Our  purchase of network equipment and placement of our VoIP software will
be based in part on our expectations concerning future revenue growth and market
developments.  As  we  expand  our  network, we will be required to make capital
expenditures,  in addition to making financial commitments for DS-3 circuits and
colocation space, and to add additional employees. If our traffic volume were to
decrease,  or  fail  to  increase  to  the  extent expected or necessary to make
efficient  use  of  our  network,  our  costs  as a percentage of revenues would
increase  significantly,  which  would  have  a materially adverse effect on our
financial condition and results of operations.

Potential  regulation  of  Internet service providers could adversely affect our
operations.

      To  date,  the  FCC  has treated Internet service providers as information
service  providers.  Information  service  providers  are  currently exempt from
federal  and  state   regulations  governing   common  carriers,  including  the
obligation  to  pay access charges and contribute to the universal service fund.
The  FCC is currently examining the status of Internet service providers and the
services  they  provide.  If  the  FCC  were  to determine that Internet service
providers,  or  the  services  they  provide,  are  subject  to  FCC regulation,
including  the  payment  of  access  charges  and  contribution to the universal
service  funds,  it  could  have  a  material  adverse  effect  on our business,
financial condition and operating results.

Our  success  depends  on  our  ability to handle a large number of simultaneous
calls, which our network may not be able to accommodate.

      We  expect  the  volume of simultaneous calls to increase significantly as
our  VoIP  subscriber  base  grows. Our network hardware and software may not be
able  to  accommodate  this  additional  volume.  If  we  fail  to  maintain  an
appropriate level of operating performance, or if our VoIP service is disrupted,
our  reputation  could  be  hurt and we could lose customers, which could have a
material  adverse  effect  on  our  business, financial condition and results of
operations.

Our  growth  in  our  VoIP  business  is dependent upon our ability to build new
relationships with VoIP carriers and to bring on new customers.

      Our  ability  to  grow  through quick and cost effective deployment of our
VoIP  services  is  due,  in  part, to our ability to create new interconnection
agreements  with  VoIP  carriers  that can provide us with telephone numbers and
termination service to sign contracts with new customers, and, in many cases, to
enter into joint venture or strategic agreements with local partners, as well as
to satisfy newly enacted regulatory requirements to operate in emerging markets.
While  we  pursue  several opportunities simultaneously, we might not be able to
create  the  necessary  partnerships  and  interconnections, expand our customer
base, deploy networks and generate profitable traffic over these networks within
the time frame envisioned.

We  are  pursuing  new  business lines, that require specialized skill sets. Our
ability  to effectuate our business plan is due, in part, to the roll out of new
services.

      Our  ability  to  deploy  new  products  and  services  may be hampered by
technical  and  operational  issues  that  could  delay  our  ability  to derive
profitable revenue from these service offerings. These issues include


                                       21
<PAGE>

our  ability  to  competitively  price  such products and services. In addition,
certain  VoIP  service  offerings  are  relatively new in our industry and their
market  potential  is  relatively  untested. Additionally, our ability to market
these products and service offerings may prove difficult. To date, our customers
use  approximately  only  500,000  VoIP  minutes  per month. As a result we have
derived extremely limited revenue from our VoIP service offerings  and there can
be  no  assurance  that  we  will  increase  our  current  focus  and/or  derive
significant revenue from such offerings.

We rely on third party equipment suppliers.

      We  are  dependent  on third party equipment suppliers for equipment, VoIP
phones  and  adapter  devices, including UTStarcom Inc., Cisco Systems, Inc. and
Motorola,  Inc.  If  these  suppliers  fail  to  continue product development or
research and development or fail to deliver quality products or support services
on  a  timely  basis, or we are unable to develop alternative sources, if and as
required,  our  financial condition or results of operations could be materially
adversely impacted.

We may not be able to maintain adequate customer care during periods of growth
or in connection with our addition of new and complex VoIP devices, which could
adversely affect our ability to grow and cause our financial results to be
negatively impacted.

      Good  customer  care is important to acquiring and retaining customers. As
we  continue to grow our VoIP business, we will need to expand our customer care
operations  quickly  enough to meet the needs of our increased customer base. We
may  face  additional  challenges in training our customer care staff. If we are
unable  to  hire,  train  and  retain  sufficient  personnel to provide adequate
customer care, we may experience slower growth, increased costs and higher churn
levels, which would cause our financial results to be negatively impacted.

If  we  are  unable  to  improve  our  process  for  local  number  portability
provisioning, our growth may be negatively impacted.

      We  support  local  number portability for our customers, which allows our
customers  to  retain  their  existing telephone numbers when subscribing to our
services.  Transferring  numbers is a manual process that in the past could have
taken  us  20  business days or longer, although we have taken steps to automate
this  process  to  reduce  the  delay. A new VoX customer must maintain both VoX
service  and  the  customer's existing telephone service during the transferring
process.  By  comparison, transferring wireless telephone numbers among wireless
service  providers  generally  takes  several  hours,  and transferring wireline
telephone numbers among traditional wireline service providers generally takes a
few  days. The additional delay that we experience is due to our reliance on the
telephone  company  from  which  the customer is transferring and to the lack of
full  automation  in  our  process.  Further,  because  VoX  is  not a regulated
telecommunications  provider, it must rely on the telephone companies, over whom
we  have no control, to transfer numbers. Local number portability is considered
an  important  feature  by  many  potential  customers, and if we fail to reduce
related  delays,  we  may  experience  increased  difficulty  in  acquiring  new
customers.

Risks Relating to Our Common Stock

Disappointing  quarterly  revenue  or operating results could cause the price of
our common stock to fall.


                                       22
<PAGE>

      Our  quarterly  revenue and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter. If our quarterly revenue or
operating results fall below the expectations of investors or security analysts,
the  price  of  our common stock could fall substantially. Our quarterly revenue
and operating results may fluctuate as a result of a variety of factors, many of
which are outside our control, including:

            o     the  amount  and  timing  of  expenditures  relating  to  the
                  rollout of our POTS and VoIP service offerings;

            o     our  ability  to  obtain,  and  the  timing  of,  necessary
                  regulatory approvals;

            o     the  rate  at  which  we  are  able  to  attract  customers
                  within  our  target  markets  and  our ability to retain these
                  customers at sufficient aggregate revenue levels;

            o     our ability to deploy our network on a timely basis;

            o     the availability of financing to continue our expansion;

            o     technical difficulties or network downtime;

            o     the  availability  of  incumbent  carrier's  wholesale
                  service  program for the establishment of our own full-service
                  platform  and  timing  of  the  implementation  of  our  VoIP
                  platform; and

            o     the  introduction  of  new  services  or  technologies  by our
                  competitors  and  resulting  pressures  on  the pricing of our
                  service.

We do not intend to pay dividends on our common stock in the foreseeable future,
which  could  cause  the  market price of our common stock and the value of your
investment to decline.

      We  expect  to  retain  earnings,  if  any,  to  finance the expansion and
development  of our business. Our Board of Directors will decide whether to make
future cash dividend payments. Such decision will depend on, among other things,
the following factors:

            o     our earnings;

            o     our capital requirements;

            o     our operating condition;

            o     our financial condition; and

            o     our  compliance  with  various  financing  covenants  to which
                  we  are  or may become a party. Our agreement with our primary
                  lender currently precludes the payment of dividends.

The  market  for our  common  stock is  thinly  traded,  which  could  result in
fluctuations in the value of our common stock.


                                       23
<PAGE>

      Although there is a public market for our common stock, the market for our
common  stock  is thinly traded. The trading prices of our common stock could be
subject to wide fluctuations in response to, among other events and factors, the
following:

            o     variations in our operating results;

            o     sales  of  a  large  number  of  shares  by  our  existing
                  shareholders;

            o     announcements by us or others;

            o     developments affecting us or our competitors; and

            o     extreme price and volume fluctuations in the stock market.

Our  common  stock  price is likely to be highly volatile, which could cause the
value of your investment to decline.

      The  market  price  of our common stock is likely to be highly volatile as
the  stock  market  in  general,  and  the  market  for  small cap and micro cap
technology  companies  in  particular,  has  been  highly volatile. For example,
during  the  last  12  months our common stock has traded at prices ranging from
$0.32  to  $0.72  per share. Investors may not be able to resell their shares of
our common stock following periods of volatility because of the market's adverse
reaction to volatility. We cannot assure you that our common stock will trade at
the  same  levels  of  our stocks in our industry or that our industry stocks in
general  will sustain their current market prices. Factors that could cause such
volatility may include, among other things:

            o     actual  or  anticipated  fluctuations  in  our  quarterly
                  operating results;

            o     large purchases or sales or our common stock;

            o     announcements of technological innovations;

            o     changes in financial estimates by securities analysts;

            o     investor perception of our business prospects;

            o     conditions or trends in the telecommunications industry;

            o     changes  in  the  market  valuations  of  other
                  industry-related companies;

            o     the  acceptance  of  market  makers  and  institutional
                  investors of our business model and our common stock; and

            o     worldwide economic or financial conditions.


                                       24
<PAGE>

Effect of certain charter provisions.

      Authority  of Board of Directors to Issue Preferred Stock. Pursuant to the
terms  of  our  charter, our Board of Directors has the authority to issue up to
1,000,000  shares  of  preferred  stock  in  one  or  more  series. Our Board of
Directors  may  also  determine  the prices, rights, preferences, privileges and
restrictions,  including voting rights, of the shares within each series without
any  further  shareholder  vote  or  action.  The  rights  of the holders of our
preferred  stock may adversely affect the rights of the holders of common stock.
While  the  issuance  of  such  preferred  stock  could  facilitate  possible
acquisitions  and  other  corporate  activities,  it  could  also impede a third
party's ability to acquire control of our company.

      Limitation of Liability of Directors. Pursuant to the terms of our charter
and to the extent New York law permits, we and our shareholders may not hold our
directors  personally  liable  for  monetary damages in the event of a breach of
fiduciary duty.

Provisions  of  New  York law may discourage a takeover attempt even if doing so
may be beneficial to our shareholders.

      Certain  anti-takeover  provisions of New York law could delay or hinder a
change of control of our company. While such provisions generally facilitate our
Board  of  Directors' ability to maximize shareholder value, they may discourage
takeovers  that  could  be  in  the  best interest of certain shareholders. Such
provisions could adversely affect the market value of our stock in the future.

We are exposed to potential risks from recent legislation requiring companies to
evaluate internal controls under Section 404 of the Sarbanes Oxley Act of 2002.

      We  are  evaluating  and documenting our internal controls systems so that
when we are required to do so, our management will be able to report on, and our
independent  auditors  to  attest to, our internal controls, as required by this
legislation. We will be performing the system and process evaluation and testing
(and  any  necessary  remediation)  required  in  an  effort  to comply with the
management  certification and auditor attestation requirements of Section 404 of
the  Sarbanes Oxley Act. As a result, we expect to incur additional expenses and
diversion  of  management's  time.  We  have  reported  material  weaknesses and
significant  deficiencies  in  our  disclosure  controls  and procedures and our
internal  control over financial reporting because of a deficiency in the number
of  qualified  personnel in our accounting department. While we anticipate being
able  to  rectify this weakness and to fully implement the requirements relating
to  internal  controls and all other aspects of Section 404 in a timely fashion,
we  cannot  be certain as to the timing of completion of our evaluation, testing
and  remediation  actions or the impact of the same on our operations. If we are
not able to implement the requirements of Section 404 in a timely manner or with
adequate  compliance,  we  might  be  subject  to  sanctions or investigation by
regulatory authorities, such as the Securities and Exchange Commission. Any such
action  could  adversely  affect our financial results and could cause our stock
price to decline.

Item 1B. Unresolved Staff Comments

None.


                                       25
<PAGE>

Item 2. - Properties

      The  following  table sets forth  pertinent  facts  concerning  our office
leases at February 15, 2006.

<TABLE>
<CAPTION>
            Location                  Use         Approximate Square Feet         Annual Rent
            --------                  ---         -----------------------         -----------
<S>                                  <C>                   <C>                      <C>
     75 South Broadway               Office                4,000                    $77,000
     White Plains, NY 10601

     118 Celebration Avenue          Office                2,000                    $52,700
     Celebration, FL 34747
</TABLE>

      The lease for our office  space in White  Plains,  New York is a five-year
lease  that  began on  December  1, 2003 and our lease for our  office  space in
Celebration,  Florida is a three-year  lease that began on February 1, 2005.  We
also lease  colocation  space in two  locations  in Orlando  that are subject to
written  agreements  that are  renewable  each year.  We believe we will need to
lease  additional  office space of between  6,000 and 10,000 square feet to meet
our operating needs in fiscal 2006. We have been considering  leases in Orlando,
Florida with annual rentals between approximately $100,000 and $150,000.

Item 3. - Legal Proceedings

      We  are subject to legal proceedings and claims that arise in the ordinary
course  of  business.  In  the  opinion  of  management,  the amount of ultimate
liability,  if  any,  is  not  likely to have a material effect on our financial
condition,  results  of  operations  or  liquidity.  However,  as the outcome of
litigation  or  legal claims is difficult to predict, significant changes in the
estimated exposures could occur.

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

      None.


                                       26
<PAGE>

                                     PART II

Item 5. -     Market for Common Equity, Related  Stockholder  Matters and Small
              Business Issuer Purchases of Equity Securities

      Our  common  stock currently trades on The OTC Bulletin Board(R) ("OTCBB")
under  the  symbol ELEC. The high and low closing sales price for each quarterly
period of our last two fiscal years are listed below:


                                                    High            Low
              Fiscal 2004                           ----            ---
              -----------
                       1st Quarter                 $0.25          $0.13
                       2nd Quarter                  0.26           0.14
                       3rd Quarter                  0.36           0.14
                       4th Quarter                  0.40           0.21

              Fiscal 2005
              -----------
                       1st Quarter                 $0.74          $0.28
                       2nd Quarter                  0.69           0.35
                       3rd Quarter                  0.58           0.36
                       4th Quarter                  0.53           0.35

      The quotations set forth in the table above reflect  inter-dealer  prices,
without  retail  mark-up,  mark-down  or  commission,  and may  not  necessarily
represent actual  transactions.  As of February 15, 2006, there were 195 holders
of record of our common stock and approximately 3,000 beneficial holders.

      We have never paid dividends on our common stock and do not expected to do
so in the foreseeable future. Our loan agreements with Laurus Master Funds, Ltd.
("Laurus")  do  not  allow  us  to  directly  or  indirectly  declare or pay any
dividends  so  long  as certain amounts of our secured convertible term notes to
Laurus remain outstanding.


                                       27
<PAGE>


            The following  table  provides  information  as of November 30, 2005
with  respect  to shares of our  common  stock that are  issuable  under  equity
compensation plans.

<TABLE>
<CAPTION>
                                                                                                 Number of securities
                                                                                                remaining available to
                                              Number of securities                               future issuance under
                                                to be issued upon         Weighted-average        equity compensation
                                                   exercise of           exercise price of         plans (excluding
                                              outstanding options,      outstanding options,    securities reflected in
                                               warrants and rights      warrants and rights           column (a))
              Plan Category                            (a)                      (b)                       (c)
------------------------------------------- ---------------------------------------------------------------------------
<S>                                                     <C>                         <C>                       <C>
Equity compensation plans
  approved by security holders:

   Employee Stock Option Plan (1)                       1,555,000                   $0.38                          --
   1996 Restricted Stock Plan (2)                              --                                             400,000
                                                        ---------                                             -------
                                Subtotal                1,555,000                                             400,000
                                                        ---------                                             -------
Equity compensation plans
   not approved by security holders:


   Employee stock options                               1,900,000                    0.24                          --
   Employee Stock Option Plan (1)                         734,000                    0.39                     266,000
   Laurus Master Fund, Ltd. (3)                         2,477,578                    0.33                          --
   Source Capital Group, Inc. (3)                         516,263                    0.62                          --
   Kaufman Bros. Warrants (4)                             250,000                    1.63                          --
   Capital TT, LLC (5)                                    150,000                    0.63                          --
                                                        ---------                                             -------
                                Subtotal                6,027,841                                             266,000
                                                        ---------                                             -------

                                   Total                7,582,841                                             666,000
                                                        =========                                             =======
</TABLE>

      ________________________________

      (1)   Our  Employee  Stock  Option Plan  allows for the  granting of share
            options  to  Board  members,  officers,  non-officer  employees  and
            consultants.

      (2)   Our  Restricted  Stock Plan  provides for the issuance of restricted
            share grants to officers and non-officer employees.

      (3)   Warrants  were issued in  conjunction  with  financings  provided by
            Laurus Master Fund, Ltd..

      (4)   The Kaufman  Bros.  warrants  were  granted for  investment  banking
            services. These warrants expired unexercised on February 26, 2006.

      (5)   Warrants were issued for consulting services.

                                       28
<PAGE>

Item 6. - Selected Financial Data

      The  following  selected  financial  information  has been  taken from our
consolidated  financial  statements.  The  information set forth below should be
read in  conjunction  with  "Management's  Discussion  and Analysis of Financial
Condition and Results of  Operations"  and the financial  statements and related
notes included elsewhere in this Report.

<TABLE>
<CAPTION>
                                 2005         2004         2003         2002         2001
                               ---------    ---------    --------     ---------    ---------
                                         (In thousands, except per share amounts)
<S>                            <C>          <C>          <C>          <C>          <C>
Selected Income Statement Data:
Net Sales                      $  15,881    $   9,558    $   5,568    $  14,242    $  19,693
Gross Profit                       7,279        4,820        2,802        5,266        7,153
Loss From Continuing
 Operations                       (2,402)        (642)      (2,948)      (4,481)     (12,601)
(Loss) Income From
 Discontinued Operations              --           --           --           --           (4)
Earnings (Loss)                   (2,266)         170        8,323       (3,319)     (12,374)
Earnings (Loss) From
 Continuing Operations
 per Common Share:
  Basic                            (0.14)        0.01         0.53        (0.21)       (0.83)
  Diluted                          (0.14)        0.01         0.53        (0.21)       (0.83)
Cash Dividends                        --           --           --           --           --

Selected Balance Sheet Data:
Working Capital                $    (974)   $  (1,939)   $  (1,938)   $ (11,214)   $  (8,031)
Property, Plant, Equipment           594          192           25        1,827        2,168
Total Assets                       4,385        1,904        1,637        4,885        7,281
Long-Term Debt (Less Current
 Maturities)                       1,655         --           --          1,145        1,288
Stockholders' Equity              (2,364)      (1,696)      (1,864)     (10,162)      (6,626)
</TABLE>


                                       29
<PAGE>

Item 7. - Management's Discussion and Analysis or Plan of Operation

      Certain   statements  set  forth  below  under  this  caption   constitute
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform  Act of  1995.  Please  refer  to page 1 of this  Report  for
additional factors relating to such statements.

Overview

      We have operated as a telephone  service provider since 1998. We built our
telephony  business by leasing lines from incumbent local exchange  carriers and
reselling  their  services,  while  maintaining the vision of becoming a carrier
that  provides  Voice over  Internet  Protocol,  or VoIP,  to both  carriers and
end-users.  We have succeeded in our efforts to transition to a facilities-based
VoIP provider,  and we currently offer  telephony  services over the Internet or
over a wireline.  We offer our VoIP services throughout the United States and in
many foreign  countries,  whereas our wireline  services are offered only in the
States of  Pennsylvania,  New Jersey and New York. Our VoIP  technology  enables
voice  communications  over the Internet through the conversion of voice signals
into data packets. In order to use our VoIP service,  customers must have access
to a high-speed Internet  connection.  Our VoIP technology  generally uses eight
kilobits per second to transmit data packets over an Internet  connection.  This
high  compression  of the packet  allows us to provide a superior  quality voice
call without  excessive  bandwidth  use,  and gives us an  advantage  over other
carriers  that use  approximately  64 kilobits  per second to transmit  the data
packets that carry a voice conversation.

      The  roll-out of our VoIP product has taken  significantly  longer than we
anticipated.  A key  reason  for the delay was our  concern  over a June 3, 2005
order  released by the FCC  regarding  proposed  rulemaking  for VoIP  emergency
services.  Among other things,  the order  required VoIP  carriers,  like us, to
provide enhanced  emergency dialing  capabilities,  or E911, to all customers by
November 28,  2005.  Furthermore,  on November 7, 2005,  the FCC issued a Public
Notice  indicating  that VoIP  providers  that have not fully  complied with the
enhanced emergency dialing capabilities  requirement by November 28, 2005 should
discontinue  marketing  their services and accepting new customers.  Although we
filed a petition for an  extension of time and limited  waiver of certain of the
enhanced emergency service  requirements,  our existing wholesale  customers and
potential new customers were reluctant to move forward selling our VoIP product.
While we had  been  able to  acquire  emergency  dialing  services  for  certain
telephone  numbers  that we leased  from a CLEC,  we believed  the  geographical
footprint of numbers was not extensive  enough to entice new accounts to sign up
for our services.

      In February 2006, we first became capable of providing  emergency  dialing
service for every VoIP line on our service  platform.  In the first two weeks of
February 2006, 14 potential wholesale customers signed nondisclosure  agreements
with us and began  negotiating  wholesale VoIP contracts.  By February 17, 2006,
three of those customers had signed a wholesale  service agreement and sent us a
deposit. Although we cannot control when our wholesale customers send us orders,
we anticipate being able to sign up several  significant  wholesale  accounts in
fiscal 2006. We believe the  functionality  and changeability of our back-office
systems  provide  us with a  unique  flexibility  of being  able to  adapt  VoIP
programs to the needs of various wholesale  customers without us having to write
new code.  We believe our ability to  implement  custom  programs on a zero code
basis,  combined  with our emergency  services  offering and our ability to port
local  telephone  numbers  from  other  carriers,  including  wireless  and VoIP
carriers,  will help differentiate us from other VoIP wholesale  providers,  and
generate rapid sale growth in VoIP services in 2006.


                                       30
<PAGE>

Revenues

      Revenues  consist  of  telephony  services  revenue and customer equipment
revenue.

      Telephony  services  revenue.  Substantially all of our operating revenues
are  telephony services revenue. We offer several bundled plans, unlimited plans
and  basic  plans  for residential and business customers. Each of our unlimited
plans  offers  unlimited  domestic calling, subject to certain restrictions, and
each  of  our  basic plans offers a limited number of calling minutes per month.
Under  our  basic  plans,  we  charge  on  a per minute basis when the number of
calling minutes included in the plan is exceeded for a particular month. For all
of  our  U.S.  plans, we charge on a per minute basis for international calls to
destinations  other  than  Canada. These per minute fees are not included in our
monthly  subscription  fees.  Any  plan we offer to individual end-users is also
available  to  our wholesale customers at a reduced rate. VoIP revenues have not
been significant to date.

      We derive most of our telephony services revenue from monthly subscription
fees we charge our customers  under our service plans.  We also offer a VoIP fax
service,  virtual phone numbers, toll free numbers and other services,  for each
of which we may  charge an  additional  monthly  fee.  We  automatically  charge
service  fees  monthly in advance to the credit  cards of all of our VoIP retail
customers and  approximately  10% of our wireline  customers.  We  automatically
charge the per minute fees not included in our monthly  subscription fees to our
customers'  credit cards monthly in arrears  unless they exceed a certain dollar
threshold, in which case they are charged immediately.

      By  collecting  monthly  subscription  fees in advance and  certain  other
charges immediately after they are incurred, we are able to reduce the amount of
accounts  receivable  we have  outstanding,  which  lowers our  working  capital
requirements.  Collecting fees and charges in this manner also helps us mitigate
bad  debt  exposure  and  is one of the  industry-accepted  practices  for  VoIP
carriers.  Approximately  90% of our  leased  wireline  customers  do not pay by
credit  card and are  mailed an  invoice  that is due  within  25 days.  We have
experienced  growth periods with significant bad debts from wireline  customers.
We do not  anticipate  the same level of bad debt  exposure in our VoIP  service
offerings,  as our wholesale customers are required to place a one month deposit
and our retail  customers  are required to pay by credit  card.  If a customer's
credit card is declined, we generally suspend international calling capabilities
as well as the  customer's  ability to incur domestic usage charges in excess of
its plan  minutes.  Historically,  in most  cases,  we are able to  correct  the
problem  with the  customer  within the  current  monthly  billing  cycle.  If a
customer's  credit  card  cannot be  successfully  processed  during the current
month's billing cycle, we generally terminate the account.

      We  also  generate  revenue  by  charging  a  fee  for activating service.
Further,  we  generally  charge  a disconnect fee to customers who do not return
their  IAD  to  us  upon  termination  of service, if the length of time between
activation  and  termination is less than one year. Disconnect fees are recorded
as revenue and are recognized at the time the customer terminates service. These
revenues were nominal in fiscal 2005.

      Telephony  services  revenue  is  offset by the cost of  certain  customer
acquisition activities, such as rebates and promotions.

      Customer equipment revenue. Customer equipment revenue consists of revenue
from sales of customer equipment to our wholesalers or directly to customers. In
addition,


                                       31
<PAGE>

customer  equipment  revenue  includes  the  fees  we  charge  our customers for
shipping any equipment to them. These revenues were nominal in fiscal 2005.

Cost of Revenues

      Direct  cost of  telephony  services.  Direct cost of  telephony  services
primarily  consists of fees that we pay to third  parties on an ongoing basis in
order to provide our services. These fees include:

      o Usage charges and line and port costs from reselling wireline service of
incumbent carriers.

      o Access  charges we pay to other  telephone  companies to terminate  VoIP
calls on the public switched  telephone network ("PSTN").  When a VoX subscriber
calls another VoX subscriber, we do not pay an access charge, as the call routes
through our network without touching the PSTN.

      o The cost of leasing  interconnections  to route calls over the  Internet
and transfer  calls  between the Internet and the PSTN of various long  distance
carriers.

      o The cost of leasing from other telephone companies the telephone numbers
we provide  to our  customers.  We lease  these  telephone  numbers on a monthly
basis.

      o The cost of co-locating  our connection  point  equipment in third-party
facilities owned by other telephone companies.

      o The cost of providing local number  portability,  which allows customers
to move their existing  telephone  numbers from another provider to our service.
Only  regulated  telecommunications  providers  have  access to the  centralized
number  databases that facilitate  this process.  Because VoX is not a regulated
telecommunications  provider, we must pay other telecommunications  providers to
process our local number portability requests.

      o The  cost of  complying  with  the new FCC  regulations  regarding  VoIP
emergency  services,  which  require us to provide  enhanced  emergency  dialing
capabilities  to  transmit  911  calls for all of our  customers.  This cost may
increase in future periods.

      o Taxes we pay on our  purchases of  telecommunications  services from our
suppliers.

      Direct cost of customer equipment and shipping.  Direct cost of goods sold
primarily  consists of costs we incur when a customer  first  subscribes  to our
service. These costs include:

      o The cost of the  equipment we provide to customers  who subscribe to our
service  through our direct sales channel,  in each case in excess of activation
fees.

      o The cost of shipping and handling for customer equipment,  together with
the installation manual, we ship to customers.


                                       32
<PAGE>

Results of Operations

Fiscal Year 2005 Compared to Fiscal Year 2004

      Our revenues for fiscal 2005  increased by  approximately  $6,323,000,  or
approximately  66%, to  approximately  $15,881,000 as compared to  approximately
$9,558,000 reported for fiscal 2004. The growth in revenues was directly related
to the  increased  number of leased local access lines we served in fiscal 2005.
In fiscal 2006, we want more of our telephony service revenues to come from VoIP
services than from wireline services. Consequently,  almost all of our marketing
efforts are  focused on  obtaining  additional  VoIP lines.  We  anticipate  the
continuation  of normal  customer  churn in our leased  line  business in fiscal
2006, and expect that the bulk of our revenues during fiscal 2006 will come from
our provision of VoIP services.  We anticipate  that many of these lines will be
from wholesale customers.

      We have certain wholesale  customers that have the financial resources and
marketing capability to reach out to their existing customers and sell more than
100,000  VoIP lines in fiscal  2006.  However,  we do not control the  marketing
dollars of our wholesale  customers or the timing of their marketing efforts. We
continue  to sign up  wholesale  customers  because we are  confident  they will
eventually  provide us significant  numbers of new VoIP lines.  However,  we are
currently  unable to model or predict  such sales  activity.  In order to better
control our anticipated  future sales,  we are testing various retail  marketing
channels, and in February 2006, we obtained a non-binding term sheet to purchase
a telephony  company that has a  successful  inbound  marketing  program that is
anchored by direct response advertising. We believe this company will be able to
acquire for us up to 3,000 retail VoIP lines per month, but we cannot be certain
that our purchase will be  completed,  as we have not finished our due diligence
efforts or finalized a definitive purchase agreement.

      Our gross profit for fiscal 2005 increased by approximately  $2,459,000 to
approximately  $7,279,000 from approximately $4,820,000 reported in fiscal 2004,
while our gross profit  percentage of 45.8% in fiscal 2005, as compared to 50.4%
in fiscal 2004,  decreased by 4.6 percentage  points primarily due to the higher
fees we were  charged for leasing  lines and ports from Verizon  Services  Corp.
("Verizon").  The  increase in our  dollars of gross  profit  resulted  from the
increase in our customer base in fiscal 2005 over fiscal 2004.  Our gross profit
percentage of  approximately  45.8% reflected our sales strategy of selling only
in those states in which we believe we will be able to achieve a gross margin of
over 40%.  Our  selling  strategy  in fiscal  2006 is to continue to sell leased
wirelines in states in which we are offered the  opportunity  to achieve  higher
margins.  However,  we anticipate  selling  substantially more new VoIP lines in
fiscal  2006 than  leased  lines.  It is  difficult  for us to predict the gross
margins  we will  achieve  on our VoIP  lines  because  we are  offering  both a
wholesale  and a retail  product  and the gross  margin  will be impacted by the
product mix.

      Selling,  general  and  administrative  expenses  ("SG&A")  increased  by
approximately  $4,038,000,  or  approximately 74.1%, to approximately $9,485,000
for  fiscal 2005 from approximately $5,447,000 reported in the prior year fiscal
period.  Of  this  increase,  approximately $2,563,000 was for bad debt expense,
approximately $816,000 was for increased personnel costs, of which approximately
$403,000  was  related  to  VoX,  approximately  $230,000 was for billing costs,
approximately  $144,000  was  for  non-employee  option  costs and approximately
$187,000  was  for  other VoX operating costs. From January 2005 until mid-April
2005, our CLECs attracted an unusually high number of residential consumers that
did  not  pay  our  invoices, and for which we subsequently terminated services,
even  though  such  customers had qualifying credit scores. Going forward, we do
not anticipate the continuation of this high percentage of bad debt expense with
our  CLEC  customers,  as we have decreased our marketing efforts to acquire new
customers


                                       33
<PAGE>

in favor of marketing to acquire new VoIP customers. With our VoIP customers, we
anticipate  minimal  bad  debt expense,  as we require  credit card payment from
our residential VoIP users, and all of our wholesale accounts are credit checked
and  required  to pay us a deposit for future  services.  We also  believe  VoIP
customers will generate a significantly  lower bad debt percentage  because they
tend to be more  sophisticated  Internet  users  that are  already  paying for a
broadband connection.

      Depreciation  and amortization expense increased by approximately $182,000
to  approximately  $196,000 for fiscal 2005 as compared to approximately $14,000
for  the  prior  fiscal  year.  Approximately  $143,000  of the increase was for
deferred  financing  costs  related  to  the  Laurus  financing (See Note 8) and
approximately $40,000 related to our VoIP platform.

      Interest  expense  increased  by  approximately  $679,000 to approximately
$682,000  for  the  year  ended  November  30, 2005 as compared to approximately
$3,000  for the prior fiscal year, as a result of increased borrowings under our
financing  agreements  (See  Note  8).  We anticipate that interest expense will
increase due to the interest that we project we will pay on the debt we incurred
on November 30, 2005.

      Other income amounted to approximately $66,000 for the year ended November
30,  2005  as  compared  to  $46,000 for the prior fiscal year. For fiscal 2005,
other income of approximately $66,000 resulted primarily from commission income.
For  fiscal  2004, other income of approximately $46,000 resulted primarily from
commission  income  of  approximately  $91,000,  which  was  partially offset by
approximately  $45,000  in  additional  costs  associated  with  the sale of our
headquarters building in the fourth quarter of fiscal 2003.

      For  the year ended November 30, 2005, we recorded income of approximately
$177,000,  which  resulted  from  the change in the market value of the warrants
issued  to  Laurus  as part of the Laurus financing (See Note 8). No such income
was recorded in fiscal 2004.

      For the fiscal years ended November 30, 2005 and 2004, we recorded gain on
the  sale  of  investment  securities  and  other  investments  of approximately
$378,000  and  $1,000,  respectively. In fiscal 2005, the gain resulted from the
sale  of shares of Cordia Corporation of approximately $160,000 and Talk America
Holding, Inc. warrants of approximately $218,000.

      In fiscal 2005 we reversed liabilities related to our discontinued luggage
business in the amount of approximately $198,000. No such adjustment was made in
fiscal 2004.

      For  the  fiscal  year  ended  November  30,  2004,  we reported a gain on
settlement with creditors of approximately $904,000, which was offset in part by
approximately  $161,000  in  professional fees. No such gain was recorded in the
fiscal year ended November 30, 2005 (See Note 10).

      For  the fiscal year ended November 30, 2004, we recorded a tax benefit of
$26,000  that  resulted  from the reduction of an estimated accrual of corporate
tax  expense  for  fiscal  2003. No such benefit was recorded in the fiscal year
ended November 30, 2005.


                                       34
<PAGE>

Fiscal Year 2004 Compared to Fiscal Year 2003

      Our revenues for fiscal 2004  increased by  approximately  $3,990,000,  or
approximately  72%, to  approximately  $9,558,000  as compared to  approximately
$5,568,000  reported for fiscal 2003. The growth in revenues is directly related
to the  growth in our  customer  base or number of local  access  lines  that we
served.  We ended fiscal 2004 with 24,034  billed  lines,  as compared to 10,835
billed lines at November 30, 2003.  Although the line count  increased by 13,199
lines,  or 122%, in fiscal 2004,  due to  insufficient  cash flow to support our
telemarketing  costs in the first half of fiscal 2004, most of the increase came
in the second  half of our  fiscal  year.  Therefore,  annual  revenues  did not
increase by the same percentage as the percentage increase in our line count.

      Our gross profit for fiscal 2004 increased by approximately  $2,018,000 to
approximately  $4,820,000 from approximately $2,802,000 reported in fiscal 2003,
while our gross profit  percentage  of 50.4% in fiscal 2004 as compared to 50.3%
in  fiscal  2003  essentially  remained  the same from  fiscal  period to fiscal
period.  The increase in our dollars of gross profit  resulted from the increase
in our  customer  base in  fiscal  2004  over  fiscal  2003.  Our  gross  profit
percentage of  approximately  50.4% reflected our sales strategy to sell only in
those  states in which we believe  we will be able to achieve a gross  margin of
over 40

      Selling,   general  and  administrative  expenses  ("SG&A")  decreased  by
approximately  $215,000, or approximately 3.8%, to approximately  $5,447,000 for
fiscal 2004 from  approximately  $5,662,000  reported  in the prior  fiscal year
period. Although we grew our revenues significantly in fiscal 2004, we were able
to limit our SG&A. Our occupancy costs were substantially  lower in fiscal 2004,
as we  incurred  rental  expense of  approximately  $6,000  per month  under our
existing  headquarters lease as compared to the occupancy costs of approximately
$22,000 per month we incurred in  operating  our former  headquarters  building,
which we sold in the fourth quarter of fiscal 2003.

      Depreciation expense decreased by approximately  $74,000, to approximately
$14,000 for fiscal 2004 as compared to  approximately  $88,000 for fiscal  2003.
The decline in  depreciation  expense was primarily  attributable to the sale of
our  headquarters  building in the fourth quarter of fiscal 2003 and to the sale
of certain assets to EAC in the first quarter of fiscal 2003.

      Interest  expense  decreased by approximately  $172,000,  to approximately
$3,000 for fiscal 2004 as compared to  approximately  $175,000  for fiscal 2003.
The decrease in interest expense was primarily  attributable to the repayment of
a mortgage note in conjunction with the sale of our headquarters building in the
fourth quarter of fiscal 2003.

      Other income, net for fiscal 2004 was approximately $46,000 as compared to
approximately  $164,000  for fiscal  2003.  The income for fiscal 2004  resulted
primarily from commission income of approximately  $88,000,  which was partially
offset by charges for  environmental  costs of  approximately  $45,000  directly
related to the sale of our headquarters building in the fourth quarter of fiscal
2003.  The income for fiscal 2003 resulted  primarily from rental and commission
income of approximately  $210,000,  which was partially offset by the write-down
of our investment in Cordia Corporation of approximately $71,000.

      In fiscal 2004,  we reported  income of  approximately  $904,000 from debt
reduction  related to the TSI bankruptcy.  No such income was reported in fiscal
2003.  Bankruptcy  reorganization  costs  for  fiscal


                                       35
<PAGE>

years  2004  and  2003 of  approximately  $161,000  and  $70,000,  respectively,
represented legal cost associated with the TSI bankruptcy.

      In fiscal 2003,  we sold Essex  assets,  Essex stock and our  headquarters
building. The sales netted a gain of approximately  $11,306,000.  We had no such
asset sales in fiscal 2004.

      In  fiscal  2004,  gain on the sale of  investment  securities  and  other
investments  of  approximately   $1,000,   resulted  from  the  sale  of  Cordia
Corporation  ("Cordia") shares as compared to the gain of approximately $122,000
in fiscal  2003,  which  resulted  from the sale of  shares  of Cordia  and Talk
America Holdings Inc.

      In fiscal  2004,  we recorded a net tax benefit of  approximately  $48,000
offset by a current year provision of $22,000, which resulted from the reduction
of an  estimated  accrual of corporate  tax expense for fiscal  2003.  In fiscal
2003, we recorded estimated corporate tax expense of approximately $75,000.

Liquidity and Capital Resources

      At  November  30,  2005, we had cash and cash equivalents of approximately
$206,000  and  negative working capital of approximately $974,000 as compared to
cash and cash equivalents of approximately $372,000 and negative working capital
of  approximately  $1,939,000 at November 30, 2004. At November 30, 2005, we had
loan  proceeds  receivable  of  approximately $1,753,000 in conjunction with our
November 2005 financing (See Note 8).

      Net cash used in operating activities aggregated approximately $2,165,000,
$80,000  and  $1,636,000  in  fiscal  2005,  2004  and  2003,  respectively. The
principal  use of cash from operating activities in fiscal 2005 was the loss for
the  year  of approximately $2,266,000. The principal use of cash from operating
activities  in  fiscal  2004   was  the  increase  in   accounts  receivable  of
approximately  $1,590,000,  which  was offset by a non-cash item, an increase in
the  provision  for doubtful accounts of approximately $1,049,000. The principal
use  of  cash  from  operating  activities  in  fiscal  2003  was  net income of
approximately  $8,323,000,  which  was  offset  by non-cash gains on the sale of
Essex assets and subsidiary of approximately $10,825,000.

      Net   cash   provided   by  (used  in)  investing   activities  aggregated
approximately  $(12,000),  $(186,000)  and  $2,529,000  in fiscal 2005, 2004 and
2003,  respectively.  The  principal  use  of  cash from investing activities in
fiscal 2005 was the net proceeds of approximately $385,000 received from sale of
investment securities and other investments, which was offset by the purchase of
property and equipment of approximately $390,000. The principal use of cash from
investing  activities  in fiscal 2004 was the purchase of property and equipment
of  approximately  $182,000.  T he  principal  source  of  cash  from  investing
activities  in  fiscal 2003 was the net proceeds of $2,100,000 received from the
sale of our corporate headquarters building.

      Net  cash   provided   by  (used  in)   financing   activities  aggregated
approximately  $2,011,000  , $(31,000) and $(1,163,000) in fiscal 2005, 2004 and
2003,  respectively.  The  principal source of cash from financing activities in
fiscal  2005  was  the  net proceeds from short-term borrowings of approximately
$274,000  and  net  proceeds  from  a  secured convertible note of approximately
$1,744,000.  In fiscal 2004, net cash used in financing activities resulted from
the  repayment  of  debt.  In fiscal 2003, net cash used in financing activities
resulted  primarily  from the repayment of a mortgage note payable in respect to
our former corporate headquarters building of $1,100,000.

      In fiscal 2005 and 2004, we spent  approximately  $390,000 and $182,000 on
capital expenditures,  primarily for software related to our VoIP initiative. We
intend to spend a similar  amount for software  enhancements  in fiscal 2006. We
believe we also will make capital  expenditures  for our VoIP  platform and that
capital  additions will be flexible  depending upon the number of customers that
we are able to attract to our network.

      The  report  of  our  independent registered public accounting firm on our
2005 financial statements indicates there is substantial doubt about our ability
to  continue  as  a  going concern. We have sustained net losses from operations
during  the last three years, as we have worked to build our customer base since
the sale of almost all of our customers on December 31, 2002, and


                                       36
<PAGE>

subsequently  worked  to  build the software and back-office systems required to
provide  VoIP  telephony services. Our operating losses have been funded through
the  sale  of  non-operating  assets,  the  issuance  of  equity  securities and
borrowings.  We  believe  current cash and other financials resources, including
the  potential  sale  of  CLEC  assets or the borrowing of money from individual
investors,  will  be  sufficient  to finance our operations through at least the
next  twelve  months. However, we continually evaluate our cash needs and growth
opportunities  and  we anticipate seeking additional equity or debt financing in
order to achieve our overall business objectives. There can be no assurance that
such  financing  will  be  available,  or, if available, will be at a price that
would  be  acceptable  to  us.  Failure  to  generate sufficient revenues, raise
additional  capital  or  reduce  certain  discretionary  spending  could have an
adverse  impact  on  our ability to achieve our longer-term business objectives,
and would adversely affect our ability to continue operating as a going concern.

New Accounting Standards

      The new accounting  pronouncements in Note 1 to our consolidated financial
statements,  which are  included  in this  Report,  are  incorporated  herein by
reference.

Critical Accounting Policies and Estimates

      The  preparation  of financial  statements  in conformity  with  generally
accepted accounting principles ("GAAP") in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets,  liabilities and disclosures of contingent assets and liabilities at the
date of the financial  statements and reported  amounts of revenues and expenses
during the reporting period. The most significant estimates include:

            *   revenue  recognition  and  estimating  allowance  for doubtful
                accounts;

            *   valuation of long-lived assets;

            *   income tax valuation allowance; and

            *   valuation of debt discount.

      We continually  evaluate our accounting  policies and the estimates we use
to prepare our consolidated financial statements.  In general, the estimates are
based on historical  experience,  on information from third party  professionals
and on various other sources and assumptions  that are believed to be reasonable
under  the  facts  and  circumstances  at the  time  such  estimates  are  made.
Management considers an accounting estimate to be critical if:

            *   it requires  assumptions to be made that were uncertain at the
                time the estimate was made; and

            *   changes in the  estimate,  or the use of different  estimating
                methods,  could  have a  material  impact on our  consolidated
                results of operations or financial condition.

      Actual results could differ from those estimates.  Significant  accounting
policies are described in Note 1 to our consolidated financial statements, which
are  included in this  Report.  In many cases,  the  accounting  treatment  of a
particular transaction is specifically dictated by GAAP. There are also areas in
which  management's  judgment in selecting any available  alternative  would not
produce a materially different result.

      Certain of our accounting policies are deemed "critical",  as they require
management's  highest  degree  of  judgment,   estimates  and  assumptions.  The
following  critical  accounting  policies are not intended to be a comprehensive
list of all of our accounting policies or estimates:


                                       37
<PAGE>

Revenue Recognition

      We  apply  the  provisions  of  Staff  Accounting  Bulletin  101  "Revenue
Recognition". We recognize revenue from telecommunication services in the period
that  the  service  is  provided.   We  estimate   amounts  earned  for  carrier
interconnection and access fees based on usage.

Accounts Receivable

      In an effort to increase the number of our customer  lines,  we attempt to
purchase lists of potential customers that have credit scores that are deemed to
be credit  worthy.  Other than  having an  acceptable  credit  score,  we do not
perform significant initial credit evaluations of our customers. Once a customer
is billed for services,  we actively manage the accounts  receivable to minimize
credit risk.

      We maintain an allowance for doubtful  accounts,  which is estimated based
upon historical  experience as well as specific customer  collection issues that
have been  identified.  We cannot  guarantee that we will continue to experience
the same credit loss rates that we have in the past.

Impairment of Long-Lived Assets

      We follow the provisions of SFAS No. 144,  "Accounting  for the Impairment
or Disposal of Long-Lived  Assets." This statement  requires that certain assets
be reviewed for impairment  and, if impaired,  remeasured at fair value whenever
events or changes in  circumstances  indicate  that the  carrying  amount of the
asset may not be recoverable. Impairment loss estimates are primarily based upon
management's  analysis and review of the carrying value of long-lived  assets at
each balance sheet date, utilizing an undiscounted future cash flow calculation.
During fiscal years 2005, 2004 and 2003, there were no impairment losses.

Income Taxes

      We  estimate  the degree to which tax assets and loss  carryforwards  will
result in a benefit  based on  expected  profitability  by tax  jurisdiction.  A
valuation  allowance for such tax assets and loss carryforwards is provided when
it is  determined  that such assets  will more likely than not go unused.  If it
becomes more likely than not that a tax asset or loss carryforward will be used,
the related  valuation  allowance on such assets is reversed.  If actual  future
taxable income by tax jurisdiction varies from estimates,  additional allowances
or reversals of reserves may be necessary.

Item 7A. - Quantitative and Qualitative Disclosure About Market Risk

      Our debt is primarily under two borrowing arrangements with one lender and
such  borrowings  are  at rate of 2% and 3% over the prime rate. We currently do
not  use interest rate derivative instruments to manage our exposure to interest
rate changes. As a result of conversion features, warrants and lender discounts,
the  effective  rate  of  interest has been calculated at rates of approximately
121% on our February 2005 financing and 68% on our November 2005 financing.

Item 8. - Financial Statements and Supplementary Data

      The following  consolidated  financial statements,  notes thereto, and the
related  independent  auditors' report contained on page F-2 to our consolidated
financial statements are herein incorporated:

  Consolidated balance sheets - November 30, 2005 and 2004

  Consolidated  statements of operations - Years ended  November 30, 2005,  2004
  and 2003

  Consolidated  statements  of  stockholders'  equity  deficiency  - Years ended
  November 30, 2005, 2004 and 2003

  Consolidated  statements of cash flows - Years ended  November 30, 2005,  2004
  and 2003

  Notes to  consolidated  financial  statements - Years ended November 30, 2005,
  2004 and 2003

                                       38
<PAGE>

                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

                      CONSOLIDATED FINANCIAL STATEMENTS AND
                              REPORT OF INDEPENDENT
                        REGISTERED PUBLIC ACCOUNTING FIRM



<PAGE>


             Report of Independent Registered Public Accounting Firm
             -------------------------------------------------------


The Board of Directors
eLEC Communications Corp.
White Plains, New York

We have audited the consolidated balance sheets of eLEC Communications Corp. and
subsidiaries  as of  November  30, 2005 and 2004,  and the related  consolidated
statements of operations,  stockholders'  equity deficiency,  and cash flows for
the years ended  November 30, 2005,  2004 and 2003. Our audits also included the
financial  statement  schedule  on page F-38.  These  financial  statements  and
financial statement schedule are the responsibility of the Company's management.
Our  responsibility  is to express an opinion on the  financial  statements  and
schedule based on our audits.

We conducted our audits in accordance  with the Standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial position of eLEC
Communications  Corp. and subsidiaries as of November 30, 2005 and 2004, and the
consolidated  results of their  operations  and cash  flows for the years  ended
November 30, 2005,  2004 and 2003, in conformity  with U.S.  generally  accepted
accounting principles.  Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly, in all material respects,  the information set forth
therein.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern.  As further discussed in Note
2 to the financial  statements,  the Company has suffered  recurring losses from
operations that raise  substantial doubt about the Company's ability to continue
as a going  concern.  Management's  plans in  regard to these  matters  are also
described in Note 2. The  consolidated  financial  statements do not include any
adjustments that might result from the outcome of this uncertainty.



                                        NUSSBAUM YATES & WOLPOW, P.C.

Melville, New York
February 14, 2006


                                      F-1
<PAGE>
<TABLE>
<CAPTION>

                              eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

                                      CONSOLIDATED BALANCE SHEETS

                                      NOVEMBER 30, 2005 AND 2004


                                                ASSETS

                                                                             2005            2004
                                                                         ------------    ------------
<S>                                                                      <C>             <C>
Current assets:
    Cash and cash equivalents                                            $    205,998    $    371,852
    Loan proceeds receivable                                                1,753,500              --
    Accounts receivable, net of allowance of
        $258,336 and $547,768 in 2005 and 2004                                989,887       1,247,063
    Prepaid expenses and other current assets                                 103,193          42,179
                                                                         ------------    ------------

                  Total current assets                                      3,052,578       1,661,094

Property and equipment, net                                                   593,811         192,413

Deferred finance costs, net                                                   542,893              --

Other assets                                                                  195,809          50,295
                                                                         ------------    ------------

                  Total assets                                           $  4,385,091    $  1,903,802
                                                                         ------------    ------------

                            LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY

Current liabilities:
    Short-term borrowings                                                $    326,103    $         --
    Current portion of long-term debt and capital
        lease obligations                                                      43,891          32,100
    Accounts payable and accrued expenses                                   2,743,623       2,445,947
    Taxes payable                                                             632,147         721,108
    Due to related party                                                        2,737          59,384
    Deferred revenues                                                         278,200         341,702
                                                                         ------------    ------------

                  Total current liabilities                                 4,026,701       3,600,241

Long-term debt and capital lease obligations, less
    current maturities                                                      1,654,591              --
Warrant liability                                                           1,067,526              --
                                                                         ------------    ------------

                  Total liabilities                                         6,748,818       3,600,241
                                                                         ------------    ------------

Stockholders' equity deficiency:
    Preferred stock, $.10 par value; 1,000,000 shares
        authorized, none issued and outstanding                                    --              --
    Common stock, $.10 par value; 50,000,000 shares
        authorized; 16,839,282 and 16,254,282
        shares issued and outstanding in 2005 and 2004                      1,683,928       1,625,428
    Capital in excess of par value                                         27,169,409      25,624,234
    Deficit                                                               (31,209,645)    (28,943,850)
    Accumulated other comprehensive loss, unrealized
        loss on securities                                                     (7,419)         (2,251)
                                                                         ------------    ------------

                  Total stockholders' equity deficiency                    (2,363,727)     (1,696,439)
                                                                         ------------    ------------

                  Total liabilities and stockholders'
                       equity  deficiency                                $  4,385,091    $  1,903,802
                                                                         ------------    ------------

                     See accompanying notes to consolidated financial statements.
</TABLE>

                                                 F-2
<PAGE>
<TABLE>
<CAPTION>
                            eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

                              CONSOLIDATED STATEMENTS OF OPERATIONS

                           YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

                                                        2005            2004            2003
                                                    ------------    ------------    ------------
<S>                                                 <C>             <C>             <C>
Revenues                                            $ 15,880,803    $  9,557,600    $  5,568,004
                                                    ------------    ------------    ------------

Cost and expenses:
    Costs of services                                  8,601,525       4,738,038       2,765,811
    Selling, general and administrative                5,872,848       4,398,673       4,680,165
    Provision for bad debts                            3,612,005       1,048,559         981,920
    Depreciation and amortization                        196,377          14,480          88,460
                                                    ------------    ------------    ------------

              Total costs and expenses                18,282,755      10,199,750       8,516,356
                                                    ------------    ------------    ------------

Loss from operations                                  (2,401,952)       (642,150)     (2,948,352)
                                                    ------------    ------------    ------------

Other income (expense):
    Interest expense                                    (682,266)         (3,126)       (174,800)
    Other income, net                                     65,521          45,795         163,528
    Indebtedness adjustment                              198,059              --              --
    Mark to market adjustment in warrant carrying
      amount                                             176,657              --              --
    Gain on sale of investment securities
      and other investments                              378,186             770         121,687
    Gain on disposition of subsidiary                         --              --      10,825,332
    Gain on sale and disposal of property,
      plant and equipment                                     --              --         480,574
                                                    ------------    ------------    ------------

              Total other income, net                    136,157          43,439      11,416,321
                                                    ------------    ------------    ------------

Income (loss) before bankruptcy
  reorganization items and income tax
  benefit (expense)                                   (2,265,795)       (598,711)      8,467,969
                                                    ------------    ------------    ------------

Reorganization items:
    Gain on settlement with creditors                         --         904,027              --
    Professional fees                                         --        (161,000)        (69,758)
                                                    ------------    ------------    ------------

                                                              --         743,027         (69,758)
                                                    ------------    ------------    ------------

Income (loss) before income tax
  benefit (expense)                                   (2,265,795)        144,316       8,398,211

Income tax (benefit) expense                                  --         (25,937)         75,000
                                                    ------------    ------------    ------------

Net income (loss)                                   $ (2,265,795)   $    170,253    $  8,323,211
                                                    ------------    ------------    ------------

Basic earnings (loss) per share                     $       (.14)   $        .01    $        .53
                                                    ------------    ------------    ------------
Diluted earnings (loss) per share                   $       (.14)   $        .01    $        .53
                                                    ------------    ------------    ------------

Weighted average number of common
  shares outstanding:
       Basic                                          16,770,789      16,254,282      15,771,219
                                                    ------------    ------------    ------------
       Diluted                                        16,770,789      16,715,808      15,841,941
                                                    ------------    ------------    ------------

                   See accompanying notes to consolidated financial statements.
</TABLE>
                                               F-3
<PAGE>
<TABLE>
<CAPTION>
                              eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY DEFICIENCY
                             YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

                                                                                            Capital
                                   Preferred Stock              Common Stock             in Excess of
                                Shares         Amount        Shares          Amount        Par Value
                             ------------   ------------   ------------   ------------   ------------
<S>                         <C>            <C>              <C>          <C>            <C>
Balance, December 1, 2002              16   $          2     15,619,282   $  1,561,928   $ 25,671,342
    Net income
    Less reclassification
        adjustment for
    gains realized
        in net income
    Comprehensive income
    Stock issued for
        interest expense                                        630,000         63,000        (19,110)
    Conversion of Series
          B preferred
          stock to common
          stock                       (16)  $         (2)        16,000          1,600         (1,598)
                             ------------   ------------   ------------   ------------   ------------

Balance, November 30, 2003             --             --     16,265,282      1,626,528     25,650,634
    Net income
    Unrealized holding
          loss
    Comprehensive income
    Retirement of
          treasury stock                                        (11,000)        (1,100)       (26,400)
                             ------------   ------------   ------------   ------------   ------------

Balance, November 30, 2004             --             --     16,254,282      1,625,428     25,624,234
    Net loss
    Unrealized holding
          loss
    Comprehensive loss
    Exercise of common
     stock options                                              425,000         42,500         18,000
    Stock issued for debt
     issue costs                                                160,000         16,000         16,000
    Beneficial conversion
     feature of
     convertible notes
     payable                                                                                  973,545
    Options and warrants
     granted for services                                                                     537,630
                             ------------   ------------   ------------   ------------   ------------
Balance, November 30, 2005             --             --     16,839,282   $  1,683,928   $ 27,169,409
                             ============   ============   ============   ============   ============
</TABLE>
<TABLE>
<CAPTION>

                                                             Accumulated    Stockholders'
                                                         Other Stockholders'    Total
                                               Treasury     Comprehensive      Equity
                                Deficit          Stock      Income (Loss)    Deficiency
                             ------------    ------------   ------------    ------------
<S>                         <C>             <C>            <C>             <C>
Balance, December 1, 2002    $(37,437,314)   $    (27,500)  $     69,922    $(10,161,620)
                                                                            ------------
    Net income                  8,323,211                                      8,323,211
    Less reclassification
        adjustment for
    gains realized
        in net income                                            (69,922)        (69,922)
                                                                            ------------
    Comprehensive income                                                       8,253,289
    Stock issued for
        interest expense                                                          43,890
    Conversion of Series
          B preferred
          stock to common
          stock                                                                       --
                             ------------    ------------   ------------    ------------

Balance, November 30, 2003    (29,114,103)        (27,500)            --      (1,864,441)
                                                                            ------------
    Net income                    170,253                                        170,253
    Unrealized holding
          loss                                                    (2,251)         (2,251)
                                                                            ------------
    Comprehensive income                                                         168,002
    Retirement of
          treasury stock                           27,500                             --
                             ------------    ------------   ------------    ------------

Balance, November 30, 2004    (28,943,850)             --         (2,251)     (1,696,439)
                                                                            ------------
    Net loss                   (2,265,795)                                    (2,265,795)
    Unrealized holding
          loss                                                    (5,168)         (5,168)
                                                                            ------------
    Comprehensive loss                                                        (2,270,963)
    Exercise of common
     stock options                                                                60,500
    Stock issued for debt
     issue costs                                                                  32,000
    Beneficial conversion
     feature of
     convertible notes
     payable                                                                     973,545
    Options and warrants
     granted for services                                                        537,630
                             ------------    ------------   ------------    ------------
Balance, November 30, 2005   $(31,209,645)   $         --   $     (7,419)   $ (2,363,727)
                             ============    ============   ============    ============

                     See accompanying notes to consolidated financial statements.
</TABLE>

                                                 F-4
<PAGE>
<TABLE>
<CAPTION>

                                  eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

                                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

                                                                      2005            2004            2003
                                                                  ------------    ------------    ------------
<S>                                                               <C>             <C>             <C>
Operating activities:
   Net income (loss)                                              $ (2,265,795)   $    170,253    $  8,323,211
   Adjustments to reconcile net income (loss)
     to net cash used in operating activities:
       Depreciation and amortization                                   196,377          14,480          88,460
       Gain on sale of investment securities and
              other investments                                       (378,186)             --        (121,687)
       Loss on write-down of other investments                              --              --          71,430
       Gain on sale and disposal of property,
               plant and equipment                                          --              --        (480,574)
       Gain on settlement with creditors                                    --        (904,027)             --
       Common stock options and warrants granted for services          143,162              --          43,890
       Gain on disposition of subsidiary                                    --              --     (10,825,332)
       Provision for bad debts                                       3,612,005       1,048,559         981,920
       Amortization  of debt discount                                   30.748              --              --
       Non-cash mark to market adjustment                             (176,657)             --              --
       Indebtedness adjustment                                        (198,059)             --              --
       Changes in assets and liabilities:
          Accounts receivable                                       (3,354,829)     (1,590,973)     (1,517,838)
          Prepaid expenses and other current assets                    (61,014)        140,251          97,399
          Distribution to bankruptcy creditors                              --        (301,170)             --
          Other assets                                                 (49,837)             --         189,855
          Accounts payable and accrued expenses                        545,735       1,050,704         915,065
          Taxes payable                                                (88,961)        315,011         406,097
          Deferred revenues                                            (63,502)        220,564         121,138
          Related party, net                                           (56,647)       (243,684)         71,363
                                                                  ------------    ------------    ------------

Net cash used in operating activities                               (2,165,460)        (80,032)     (1,635,603)
                                                                  ------------    ------------    ------------

Investing activities, net of effects of acquisitions:
   Purchase of property and equipment                                 (389,758)       (181,502)             --
   Proceeds from sale of investment securities                         385,192              --          98,274
   Proceeds from sale of other investments                                  --              --         100,000
   Purchase of investment securities                                    (7,006)         (4,546)             --
   Proceeds from sale of property, plant and
    equipment                                                               --              --       2,121,746
   Proceeds from collection of other assets                                 --              --         209,102
                                                                  ------------    ------------    ------------

Net cash provided by (used in) investing activities                    (11,572)       (186,048)      2,529,122
                                                                  ------------    ------------    ------------

                                                  (Continued)
                         See accompanying notes to consolidated financial statements.
</TABLE>

                                                     F-5
<PAGE>
<TABLE>
<CAPTION>

                          eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                         YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

                                                       2005          2004            2003
                                                   -----------    -----------    -----------
<S>                                                <C>            <C>            <C>
Financing activities:
    Net proceeds from short-term borrowings and
        issuances of common stock                  $   273,686    $        --    $   380,000
    Proceeds from exercise of stock options             60,500             --             --
    Net proceeds from secured convertible
        term note                                    1,744,500             --             --
    Finance costs paid                                 (65,977)            --             --
    Repayment of short-term borrowings                      --             --       (380,000)
    Repayment of long-term debt and capital
        lease obligations                               (1,531)        (7,260)    (1,163,025)
    Principal payments on pre-petition bank debt
        in bankruptcy proceedings                           --        (23,830)            --
                                                   -----------    -----------    -----------

Net cash provided by (used in) financing
        activities                                   2,011,178        (31,090)    (1,163,025)
                                                   -----------    -----------    -----------

Decrease in cash and cash equivalents                 (165,854)      (297,170)      (269,506)

Cash and cash equivalents at beginning of year         371,852        669,022        938,528
                                                   -----------    -----------    -----------

Cash and cash equivalents at end of year           $   205,998    $   371,852    $   669,022
                                                   -----------    -----------    -----------

Cash paid during the year for:
    Interest                                       $   551,667    $     3,126    $   121,532
                                                   -----------    -----------    -----------
    Taxes                                          $        --    $    27,593    $        --
                                                   -----------    -----------    -----------

Supplemental disclosure of non-cash investing
    and financing activities:

    See Notes 5, 6, 7, 8 and 14 for non-cash investing and financing activities.


                See accompanying notes to consolidated financial statements.
</TABLE>

                                             F-6
<PAGE>

                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

1.    Description of Business and Summary of Accounting Principles
      ------------------------------------------------------------

      Description of Business and Concentrations

      eLEC  Communications  Corp.  ("eLEC" or the  "Company") is a  full-service
      telecommunications company that focuses on developing integrated telephone
      service in the competitive local exchange carrier ("CLEC") industry and by
      utilizing  high-speed internet  connections to provide voice over internet
      protocol  services  ("VOIP").  VOIP revenues have not been  significant to
      date. The Company offers small and medium-sized businesses and residential
      customers an integrated set of  telecommunications  products and services,
      including local  exchange,  local access,  and domestic and  international
      long distance telephone.

      The Company  presently  operates in one business  segment.  The  principal
      focus of the  Company,  as a  communications  provider,  is to resell  and
      provide low-cost alternative  telecommunication services and other bundled
      services, focusing on small business users and residential customers.

      Principles of Consolidation

      The consolidated  financial statements include the accounts of the Company
      and  its  wholly-owned   subsidiaries  after  elimination  of  significant
      intercompany balances and transactions. Investments in less than 20% owned
      companies that do not have readily  determinable  fair values were carried
      at cost prior to their disposition.

      Investment Securities

      The Company follows Statement of Financial  Accounting  Standards No. 115,
      "Accounting for Certain Investments in Debt and Equity Securities",  which
      requires   that   investment   securities   be   classified   as  trading,
      held-to-maturity or available-for-sale.  Investment securities at November
      30,  2005  and  2004   consisted  of  equity   securities   classified  as
      available-for-sale  and are carried at fair value with unrealized gains or
      losses reported in a separate component of shareholders' equity.

      Property, Plant and Equipment and Depreciation

      Property,  plant and  equipment  are  recorded  at cost.  Depreciation  is
      computed  primarily by use of accelerated and  straight-line  methods over
      the estimated  useful lives of the assets.  The estimated useful lives are
      three to five years for computer equipment and software, five to ten years
      for machinery and equipment, and five years for furniture and fixtures.

                                      F-7
<PAGE>

                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

1.    Description of Business and Summary of Accounting Principles (Continued)
      -----------------------------------------------------------------------

      Computer Software Development Costs

      Direct  development costs associated with  internal-use  computer software
      are accounted for under  Statement of Position  98-1  "Accounting  for the
      Costs of Computer Software Developed or Obtained for Internal Use" and are
      capitalized.  Costs incurred during the preliminary project stage, as well
      as for maintenance and training, are expensed as incurred. Amortization is
      provided  on a  straight-line  basis over the shorter of five years or the
      estimated useful life of the software.

      Computer software  developed or obtained for internal use were included in
      property  and  equipment  at November 30, 2005 and 2004 and were valued at
      $508,000 and $170,000,  respectively,  net of accumulated  depreciation of
      $39,275 and $0, respectively,  at November 30, 2005 and 2004. Amortization
      expense was $39,275, $0 and $0, respectively, for the years ended November
      30, 2005,  2004 and 2003.  As of November 30, 2004,  such software had not
      been placed in service.

      Income Taxes

      The Company  accounts for income  taxes  according  to the  provisions  of
      Statement of Financial  Accounting Standards ("SFAS") No. 109, "Accounting
      for Income Taxes." Under the liability  method  specified by SFAS No. 109,
      deferred tax assets and liabilities are determined based on the difference
      between the financial  statement and tax bases of assets and  liabilities,
      as  measured  by the  enacted  tax rates that will be in effect when these
      differences  reverse,  and the effect of net operating loss carryforwards.
      Deferred  tax expense is the result of changes in deferred  tax assets and
      liabilities.  A valuation  allowance has been established to eliminate the
      deferred  tax assets as it is more likely than not that such  deferred tax
      assets will not be realized.

      Revenue Recognition

      Revenues from voice,  data and other  telecommunications-related  services
      are  recognized  in the  period  in  which  subscribers  use  the  related
      services.  Revenues for carrier  interconnection and access are recognized
      in  the  period  in  which  the  service  is  provided.  Deferred  revenue
      represents  the unearned  portion of local  service and features  that are
      billed a month in advance.

                                      F-8
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

1.    Description of Business and Summary of Accounting Principles (Continued)
      -----------------------------------------------------------------------

      Collectibility of Accounts Receivable

      Trade  receivables  potentially  subject the Company to credit  risk.  The
      Company  extends  credit to its customers  and generally  does not require
      collateral.  During fiscal years ended  November 30, 2005,  2004 and 2003,
      the Company  accepted most new customers and extended initial credit based
      upon credit  scored  lists and payment  history of telephone  bills,  when
      available.  Once a customer is billed for services,  the Company  actively
      manages the accounts  receivable  to minimize  credit risk.  Approximately
      $93,000  and  $96,000 as of November  30,  2005 and 2004  represented  net
      amounts due (after allowance for doubtful collection) from entities in the
      telecommunications industry related to carrier interconnection and access.

      In order  to  record  the  Company's  accounts  receivable  at  their  net
      realizable  value,  the  Company  must  assess  their  collectibility.   A
      considerable  amount  of  judgment  is  required  in  order  to make  this
      assessment,  including  an  analysis  of  historical  bad  debts and other
      adjustments,  a review of the aging of the Company's receivables,  and the
      current  creditworthiness of the Company's  customers.  Generally,  when a
      customer  account  reaches a certain  level of  delinquency,  the  Company
      disconnects  the  customer's  service and  provides an  allowance  for the
      related  amount  receivable  from the  customer.  The Company has recorded
      allowances for  receivables  that it considered  uncollectible,  including
      amounts  for the  resolution  of  potential  credit  and other  collection
      issues,  such as  disputed  invoices,  customer  satisfaction  claims  and
      pricing discrepancies. However, depending on how such potential issues are
      resolved,  or if the financial condition of any of the Company's customers
      was to  deteriorate  and its  ability  to make  required  payments  became
      impaired,  increases  in these  allowances  may be  required.  The Company
      writes off the accounts receivable balance from a customer and the related
      allowance  established  when it believes it has exhausted  all  reasonable
      collection  efforts.  As of November 30, 2005 and 2004, the Company had no
      individual  customer  that  constituted  more  than  10% of  its  accounts
      receivable.  For the years ended  November  30,  2005,  2004 and 2003,  no
      individual customer accounted for more than 10% of the Company's revenues.

      During the years  ended  November  30,  2005,  2004 and 2003,  the Company
      recorded  bad debt expense of  approximately  $3,612,000,  $1,049,000  and
      $982,000, respectively.

      Deferred Finance Costs

      Deferred  finance costs represent fees paid to third parties that provided
      services in connection with securing financing.  These costs are amortized
      on a straight-line basis over the loan term.

                                      F-9
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

1.    Description of Business and Summary of Accounting Principles (Continued)
      -----------------------------------------------------------------------

      Earnings (Loss) Per Share

      Basic earnings  (loss) per share is computed by dividing net income (loss)
      by the weighted-average  number of shares outstanding.  To the extent that
      stock option warrants and convertible  securities are anti-dilutive,  they
      are excluded from the  calculation of diluted  earnings  (loss) per share.
      Diluted  earnings per share included the dilutive effect of stock options,
      warrants  and,  in  2003,   convertible  preferred  stock.   Approximately
      1,130,000 and  1,500,000 of the Company's  stock options and warrants were
      excluded from the 2004 and 2003  calculations of the diluted  earnings per
      share  because the exercise  price of the stock  options and warrants were
      greater than the average price of the common shares, and, therefore, their
      inclusion would have been  anti-dilutive.  For 2005, the Company  excluded
      from its loss per share calculations all common stock equivalents  because
      their effect on loss per share was anti-dilutive.

      Cash and Cash Equivalents

      The  Company  considers  all  highly  liquid  investments  purchased  with
      original maturities of three months or less to be cash equivalents.

      Impairment of Long-Lived Assets

      The Company reviews  long-lived  assets for impairment  whenever events or
      changes in circumstances indicate that the carrying amount of an asset may
      not be  recoverable.  Recoverability  of  assets  to be held  and  used is
      measured  by a  comparison  of the  carrying  amount of an asset to future
      forecasted  net  undiscounted  cash flows  expected to be generated by the
      asset. If such assets are considered to be impaired,  the impairment to be
      recognized  is measured by the amount by which the carrying  amount of the
      assets  exceeds  the fair  values.  The Company  has  determined  that its
      long-lived assets are not impaired.

      Use of Estimates

      In preparing  financial  statements in conformity with generally  accepted
      accounting  principles,  management  is  required  to make  estimates  and
      assumptions  that affect the reported  amounts of assets and  liabilities,
      the  disclosure of contingent  assets and  liabilities  at the date of the
      financial  statements,  and the reported  amounts of revenues and expenses
      during the reporting period. Significant estimates relate to the allowance
      for doubtful  accounts  receivable,  income tax valuation  allowance,  and
      conclusions  regarding the impairment of long-lived assets. On a continual
      basis,  management reviews its estimates,  utilizing  currently  available
      information, changes in facts and circumstances, historical experience and
      reasonable  assumptions.  After such reviews,  and if deemed  appropriate,
      those estimates are adjusted accordingly. Actual results could differ from
      those estimates.

                                      F-10
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

1.    Description of Business and Summary of Accounting Principles (Continued)
      ------------------------------------------------------------------------

      Advertising

      Advertising   costs  are  expensed  as  incurred.   Such  costs  were  not
      significant in any of the years presented herein.

      Accounting for Derivative Instruments

      The Company  accounts for derivative  instruments in accordance  with SFAS
      No. 133 "Accounting for Derivative Instruments and Hedging Activities," as
      amended,   which  establishes   accounting  and  reporting  standards  for
      derivative   instruments  and  hedging   activities,   including   certain
      derivative   instruments  imbedded  in  other  financial   instruments  or
      contracts and requires recognition of all derivatives on the balance sheet
      at  fair  value,  regardless  of  the  hedging  relationship  designation.
      Accounting for the changes in the fair value of the derivative instruments
      depends on whether the derivatives  qualify as hedge relationships and the
      types of the  relationships  designated are based on the exposures hedged.
      Changes in the fair value of  derivatives  designated as fair value hedges
      are  recognized  in earnings  along with fair value  changes of the hedged
      item.  Changes in the fair value of  derivatives  designated  as cash flow
      hedges  are  recorded  in  other  comprehensive   income  (loss)  and  are
      recognized in earnings when the hedged item affects  earnings.  Changes in
      the fair  value of  derivative  instruments  which are not  designated  as
      hedges are recognized in earnings as other income (loss).  At November 30,
      2005 and 2004,  the Company did not have any derivative  instruments  that
      were designated as hedges.

      Fair Value of Financial Instruments

      The following methods and assumptions were used to estimate the fair value
      of each class of significant financial instruments:

      o     Cash and Cash Equivalents

            The carrying  amount  approximates  fair value  because of the short
            maturity of those instruments.

      o     Investment Securities

            The fair value of the  Company's  investment  in  marketable  equity
            securities is based upon the quoted market price.

      o     Short-Term Borrowings and Capital Lease Obligations

            The fair  value of the  Company's  capital  lessee  obligations  are
            estimated  based on current rates offered to the Company for debt of
            the same remaining maturities and approximates the carrying amount.

                                      F-11
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

1.    Description of Business and Summary of Accounting Principles (Continued)
      ------------------------------------------------------------------------

      o     Derivative Instruments

            The Company has issued debt and/or equity instruments, some of which
            have  required a  determination  of their fair value and/or the fair
            value of certain  related  derivatives,  where quoted  market prices
            were not published or readily available.  The Company bases its fair
            value determinations using the Black-Scholes  method, which requires
            judgments and estimates  including,  the volatility of the Company's
            common  stock,  expected  dividends on the  Company's  common stock,
            interest  rate  assumptions  and  expected  length  of  the  related
            instruments.

      The Company has no instruments with significant off-balance-sheet risk.

      Stock Compensation Plan

      The Company accounts for its stock option awards under the intrinsic value
      based method of accounting  prescribed by APB Opinion No. 25,  "Accounting
      for Stock Issued to  Employees,"  and related  interpretations,  including
      Financial  Accounting  Standards  Board  ("FASB")  Interpretation  No. 44,
      "Accounting for Certain  Transactions  Including Stock  Compensation,"  an
      interpretation  of APB Opinion  No. 25.  Under the  intrinsic  value based
      method,  compensation  cost is the excess,  if any,  of the quoted  market
      price of the stock at grant date or other measurement date over the amount
      an  employee  must pay to acquire the stock.  The Company  makes pro forma
      disclosures of net income and earning per share as if the fair value based
      method  of  accounting  had been  applied  as  required  by SFAS No.  123,
      "Accounting  for  Stock-Based  Compensation"  and SFAS 148 "Accounting for
      Stock-Based  Compensation-Transition  and Disclosure-an  Amendment of SFAS
      123."

      The  Company's  1995 Stock Option Plan (the "1995 Plan")  provides for the
      grant of up to 3,400,000  incentive  stock  options,  non-qualified  stock
      options,  tandem stock appreciation  rights, and stock appreciation rights
      of shares of common stock. Under the Plan,  incentive stock options may be
      granted at no less than the fair market  value of the  Company's  stock on
      the date of grant,  and in the case of an  optionee  who owns  directly or
      indirectly   more  than  10%  of  the   outstanding   voting   stock  ("an
      Affilitate"),  110%  of the  market  price  on the  date of  grant.  As of
      November 30, 2005,  approximately 46,000 option shares remain unissued and
      will not be available  for future  issuance,  as the plan can no longer be
      used for option grants.

      The Company's 2004 Equity  Incentive Plan (the "Incentive  Plan") provides
      for the grant of up to 1,000,000  incentive  stock options,  non-qualified
      stock options,  tandem stock  appreciation  rights, and stock appreciation
      rights of shares of common  stock.  Under the  Incentive  Plan,  incentive
      stock  options may be granted at no less than the fair market value of the
      Company's  stock on the date of grant,  and in the case of an optionee who
      owns directly or indirectly more than 10% of the outstanding  voting stock
      ("an  Affiliate"),  110% of the market  price on the date of grant.  As of
      November 30, 2005, approximately 266,000 option shares remain unissued and
      will not be available  for future  issuance,  as the plan can no longer be
      used for option grants.

                                      F-12
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

1.    Description of Business and Summary of Accounting Principles (Continued)
      ------------------------------------------------------------------------

      Stock Compensation Plan (Continued)

      The  Company's  Non-employee  Director  Stock Option Plan provides for the
      grant of options to purchase  10,000 shares of the Company's  common stock
      to each  non-employee  director on the first  business day following  each
      annual  meeting  of the  shareholders  of the  Company.  Under  this Plan,
      options  may be  granted  at no less  than  the fair  market  value of the
      Company's common stock on the date of grant.

      For  disclosure  purposes,  the fair value of each stock  option  grant is
      estimated  on the date of grant  using  the Black  Scholes  option-pricing
      model  with the  following  weighted  average  assumptions  used for stock
      options granted in 2005, 2004 and 2003, respectively:  annual dividends of
      $-0- for all years,  expected volatility of 152%, 158% and 159%, risk-free
      interest rate of 3.05%,  1.25% and 1.15%,  and expected life of five years
      for all grants. The  weighted-average  fair value of stock options granted
      in 2005, 2004 and 2003 was $.31, $.21 and $.09, respectively.

      Under the above model,  the total value of stock options  granted in 2005,
      2004  and  2003  was   approximately   $503,000,   $466,000  and  $69,000,
      respectively,  which would be amortized  ratably on a pro forma basis over
      the related vesting  periods,  which range from immediate  vesting to five
      years. Had compensation  cost been determined based upon the fair value of
      the stock  options at grant date for all awards,  the Company's net income
      (loss) and  earnings  (loss) per share would have been  changed to the pro
      forma amounts indicated below:

<TABLE>
<CAPTION>
                                                   2005            2004             2003
                                               ------------    ------------    ------------
<S>                                            <C>             <C>             <C>
      Net income (loss):
         As reported                           $ (2,265,795)   $    170,253    $  8,323,211
         Stock-based compensation cost,
           net of related tax effects, that
           would have been included in the
           determination of net income
           if the fair value based method
           has been applied to all awards           356,533         279,145         294,338
                                               ------------    ------------    ------------
      Pro forma net income (loss)              $ (2,622,328)   $   (108,892)   $  8,028,873
                                               ------------    ------------    ------------

      Basic earnings (loss) per share:
           As reported                         $       (.14)   $        .01    $        .53
           Pro forma                           $       (.16)   $       (.01)   $        .51

      Diluted earnings (loss) per share:
           As reported                         $       (.14)   $        .01    $        .53
           Pro forma                           $       (.16)   $       (.01)   $        .51

      Stock-based employee
           compensation cost, net of related
           tax effects, included in the
           determination of net income as
           reported                            $         --    $         --    $         --
                                               ------------    ------------    ------------
</TABLE>

                                      F-13
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

1.    Description of Business and Summary of Accounting Principles (Continued)
      ------------------------------------------------------------------------

      Recent Accounting Pronouncements

      On December 16, 2004,  the  Financial  Accounting  Standards  Board (FASB)
      issued  Statement  No. 123 (revised  2004) that will require  compensation
      costs related to share-based payment  transactions to be recognized in the
      financial statements.  With limited exceptions, the amount of compensation
      cost will be measured based on the grant-date  fair value of the equity or
      liability  instruments  listed.  In  addition,  liability  awards  will be
      measured each reporting  period.  Statement 123(R) replaces FASB Statement
      No. 123,  "Accounting  for Stock-Based  Compensation,"  and supercedes APB
      Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123(R) is
      effective  as of the  beginning of the first  interim or annual  reporting
      period of the first fiscal year that begins on or after June 15, 2005. The
      Company is currently assessing the impact of adopting SFAS 123(R).

2.    Going Concern Matters and Realization of Assets
      -----------------------------------------------

      The  accompanying  financial  statements  have  been  prepared  on a going
      concern  basis,  which  contemplates  the  realization  of assets  and the
      satisfaction of liabilities in the ordinary  course of business.  However,
      the  Company  has  sustained   substantial   losses  from  its  continuing
      operations  in  recent  years  and  has  negative  working  capital  and a
      stockholders' equity deficiency.  In addition, the Company is experiencing
      difficulty in generating  sufficient cash flow to meet its obligations and
      sustain its operations.  The Company expects its operating losses and cash
      deficits from operations to continue through fiscal 2006.

      Based  on its  current  business  plans,  the  Company  believes  that its
      existing cash resources  will be sufficient to fund its operating  losses,
      capital  expenditures,   lease  and  debt  payments  and  working  capital
      requirements  only through the second quarter of fiscal 2006. As a result,
      the Company will need to raise additional cash through some combination of
      borrowings,  sale of equity or debt securities or sale of assets to enable
      it to meet its cash requirements.

      The Company may not be able to raise sufficient additional debt, equity or
      other cash on acceptable terms, if at all. Failure to generate  sufficient
      revenues,   achieve  certain  other  business  plan  objectives  or  raise
      additional  funds could have a material  adverse  effect on the  Company's
      results of operations,  cash flows and financial  position,  including its
      ability  to  continue  as  a  going   concern,   and  may  require  it  to
      significantly reduce, reorganize, discontinue or shut down its operations.

                                      F-14
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

2.    Going Concern Matters and Realization of Assets (Continued)
      -----------------------------------------------------------

      In view of the matters described above,  recoverability of a major portion
      of the recorded asset amounts shown in the  accompanying  balance sheet is
      dependent  upon  continued  operations of the Company  which,  in turn, is
      dependent upon the Company's ability to meet its financing requirements on
      a continuing basis, and to succeed in its future operations. The financial
      statements do not include any adjustments  relating to the  recoverability
      and classification of recorded asset amounts or amounts and classification
      of  liabilities  that might be  necessary  should the Company be unable to
      continue in its existence.

      Management's plans include:

      1.    Evaluating  offers  to sell part or all of its  wireline  subscriber
            base and  plans to use the  proceeds  to  continue  the  growth  and
            marketing efforts of its VoIP lines.

      2.    Seeking additional  financing to purchase target businesses that are
            generating positive cash flow.

      3.    Continuing  operations  as a VoIP carrier and  increasing  its sales
            channels  and  sales  staff so its VoIP  facilities  are more  fully
            utilized.

      There can be no  assurance  that the  Company  will be able to achieve its
      business  plan  objectives  or that it will achieve or maintain  cash flow
      positive operating results.  If the Company is unable to generate adequate
      funds from its operations or raise additional funds, it may not be able to
      repay its  existing  debt,  continue  to operate its  network,  respond to
      competitive pressures or fund its operations. As a result, the Company may
      be required to significantly reduce, reorganize,  discontinue or shut down
      its  operations.  The  Company's  financial  statements do not include any
      adjustments that might result from this uncertainty.

3.    Investment and Other Securities
      -------------------------------

<TABLE>
<CAPTION>
                                                             Fair        Unrealized
                                              Cost           Value      Holding Loss
                                          ------------   ------------   ------------
<S>                                       <C>            <C>            <C>
      At November 30, 2005:

         Equity securities, included in
            other assets                  $      9,469   $      2,050   ($     7,419)
                                          ------------   ------------   ------------

      At November 30, 2004

        Equity securities, included in
            other assets                  $      4,546   $      2,295   ($     2,251)
                                          ------------   ------------   ------------
</TABLE>

      The Company  exercised  its  warrant,  which was not publicly  traded,  to
      purchase 95,238 of shares of Talk America Holding,  Inc. ("Talk") at $6.30
      per share, in August 2005,  recognizing a gain of approximately  $218,000.
      As of  November  30,  2005,  the  gain  is  included  in the  Consolidated
      Statements  of Operations  under the caption,  "Gain on sale of investment
      securities and other investments."

                                      F-15
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

4.    Other Investments
      -----------------

      The Company held shares in Cordia Corporation ("Cordia"),  a publicly-held
      company whose shares were quoted in the over-the-counter market. Cordia is
      controlled by entities owned by a shareholder  and former  employee of the
      Company and members of his family. Due to the thinly-traded  nature of the
      Cordia  shares,  such shares had not been  accounted  for as a  marketable
      equity  security in  accordance  with  Statement of  Financial  Accounting
      Standards No. 115, but instead were carried at cost.

      During the years ended November 30, 2005,  2004 and 2003, the Company sold
      82,080,  2,000 and 70,000  shares of Cordia  stock,  resulting in gains of
      $159,776,  $770  and  $33,722.  Some  of  these  shares  were  sold  at  a
      significant discount to published market prices. At November 30, 2003, the
      Company wrote off its remaining  investment in Cordia amounting to $71,430
      because the value of the Cordia investment was deemed to be worthless.  At
      November  30,  2005 and 2004,  the Company  held 100 and 81,180  shares of
      Cordia.

5.    Property, Plant and Equipment
      -----------------------------

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

      Machinery and equipment             $   82,605   $   82,605
      Computer equipment and software        903,532      448,780
      Furniture and fixtures                  90,452       90,452
                                          ----------   ----------
                                           1,076,589      621,837
      Less accumulated depreciation and
        amortization                         482,778      429,424
                                          ----------   ----------

                                          $  593,811   $  192,413
                                          ----------   ----------

      On October 8, 2003, The Company sold its New Rochelle,  New York corporate
      headquarters.  The  Company  received  proceeds  of  $2,200,000  and  used
      $1,100,000  of such  proceeds to retire in full the mortgage  note on this
      property.  As a  result  of the  sale,  the  Company  recorded  a gain  of
      approximately $546,000 in the fourth quarter of 2003.

      The Company placed  approximately  $100,000 in escrow to be used to remedy
      potential  environmental  costs.  As of November 30,  2003,  approximately
      $91,000  remained in escrow.  In 2004, all but  approximately  $46,000 was
      returned  to the Company and was used to cover  environmental  costs.  The
      $45,000 is included in other income, net.

                                      F-16
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

6.    Deferred Finance Costs
      ----------------------

      At November 30, 2005

                                 Gross    Accumulated
                                 Asset    Amortization      Net
                               --------   ------------   --------

      Deferred finance costs   $676,342   $    133,449   $542,893
                               --------   ------------   --------

      Amortization expense of deferred finance costs for the year ended November
      30,  2005 was  $133,449.  There  were no such  costs for the  years  ended
      November 30, 2004 and 2003.

      Future amortization of deferred finance costs are as follows:

             Years ended November 30,

                       2006                         $ 214,935
                       2007                           213,343
                       2008                           114,615
                                                    ---------

                                                    $ 542,893
                                                    =========

7.    Short-Term Borrowings
      ---------------------

      During the year ended  November 30, 2003,  the Company  borrowed  $380,000
      from certain  individuals  that was repaid upon the sale of the  corporate
      headquarters  described  in  Note  5.  Interest  expense  related  to such
      borrowings  amounted to approximately  $45,000,  including the issuance by
      the  Company of 630,000  shares of common  stock  valued at  approximately
      $44,000.

      On December 17, 2004,  the Company sold a promissory  note (the "Note") in
      the principal  amount of $328,767 and issued  160,000 shares of restricted
      common  stock  to an  unaffiliated  party  for  $273,686,  net of  related
      financing costs.  $32,000 of the proceeds has been allocated to the common
      stock.  The Note was payable on December  17, 2005 and was  unsecured.  On
      December 16, 2005,  the Company paid $328,767 to the holder of the Note in
      full settlement of the obligation.  The Note required the Company to spend
      the  proceeds  of the Note on sales and  marketing  efforts.  The  Company
      incurred  costs of $36,314 in  connection  with the  issuance of the Note,
      which was amortized over the term of the Note. Amortization of these costs
      for the year ended  November  30,  2005 was  $34,722,  and is  included in
      depreciation  and amortization  expense.  Amortization of the $32,000 debt
      discount for the year ended November 30, 2005 was $30,597 and was included
      in interest expense.  On November 30, 2005, $326,103 was due the holder of
      the Note. The effective interest rate on the Note was 22.7%.

                                      F-17
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

8.    Long-Term Debt and Capital Lease Obligations
      --------------------------------------------

      The following  table  summarizes  components of long-term debt and capital
      lease obligations as of November 30, 2005 and 2004:

                                                             November 30
                                                       -----------------------
                                                          2005         2004
                                                       ----------   ----------

      Convertible note due February 8, 2008 (a) (c)    $  695,651   $       --
      Convertible note due November 30, 2008 (b) (c)      907,266           --
      Capital lease obligations (Note 12)                  95,565       32,100
                                                       ----------   ----------
             Total                                      1,698,482       32,100
      Amount maturing within one year                      43,891       32,100
                                                       ----------   ----------
      Long-term debt and capital lease obligations     $1,654,591   $       --
                                                       ----------   ----------

      Payments of long-term debt and capital lease  obligations are scheduled as
      follows:

                                   Convertible  Capital Lease
                                       Notes     Obligations     Total
                                    ----------   -----------   ----------

            2006                    $  742,704   $    60,966   $  803,670
            2007                     1,512,104        20,277    1,532,381
            2008                     1,634,896        20,277    1,655,173
            2009                            --        18,071       18,071
            2010                            --         6,462        6,462
                                    ----------   -----------   ----------
                                     3,889,704       126,053    4,015,757

      Less amount representing
         interest                    2,286,787        30,488    2,317,275
                                    ----------   -----------   ----------

      Principal portion of future
      payments                       1,602,917        95,565    1,698,482

      Less current portion (1)              --        43,891       43,891
                                    ----------   -----------   ----------

      Long-term portion             $1,602,917   $    51,674   $1,654,591
                                    ----------   -----------   ----------

      (1)   The convertible notes contain an interest only payment component for
            a portion of fiscal 2006, and there will be negative amortization on
            such  indebtedness  for  fiscal  2006.  Accordingly,   none  of  the
            convertible  debt has been classified as a current  liability in the
            accompanying financial statements.

                                      F-18
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

8.    Long-Term Debt and Capital Lease Obligations (Continued)
      --------------------------------------------------------

(a)   On  February  8,  2005,  the  Company  entered  into a  secured  financing
      arrangement with a lender. The financing consisted of a $2 million secured
      convertible term note (the "February 2005  Financing")  that, as modified,
      matures on February 8, 2008. The note is convertible into shares of common
      stock at a fixed price of $0.63 per share. The conversion price is subject
      to anti-dilution protection as defined in the agreement.

      In connection with this financing,  the Company issued the lender warrants
      to  purchase  up to  793,650  shares of common  stock.  The  warrants  are
      exercisable  through February 8, 2012 as follows:  264,550 shares at $0.72
      per share; 264,550 shares at $0.79 per share; and the balance at $0.95 per
      share. The underlying contracts contained certain provisions providing for
      a potential  cash  settlement,  and  accordingly,  the warrants  have been
      classified   as  debt.   The  Company   recorded   discounts   aggregating
      approximately $1,316,000, of which, approximately $504,000 represented the
      value of the warrants using the Black-Scholes method with an interest rate
      of 2.31%,  volatility of 158%,  zero  dividends and expected term of seven
      years;   approximately  $706,000  represented  the  beneficial  conversion
      feature inherent in the instrument; and approximately $106,000 represented
      debt issue costs paid to the lender.  Such  discounts are being  amortized
      using the  effective  interest  method over the term of the related  debt.
      Although the stated  interest  rate of the  convertible  note is the prime
      rate plus 3%, as a result of the aforementioned  discounts,  the effective
      interest rate of the note, as modified,  is approximately  121% per annum.
      The  Company  incurred  fees to third  parties  in  connection  with  this
      financing  aggregating  approximately  $367,000,   including  warrants  to
      purchase up to 253,968 shares of common stock.  These warrants were valued
      at $150,000  using the  Black-Scholes  method  using the same  assumptions
      described above.  These warrants are exercisable  through February 8, 2009
      at $.63 per  share.  Amortization  of the third  party  debt  issue  costs
      associated  with this  financing for the year ended  November 30, 2005 was
      approximately $99,000. The warrant liability is adjusted at each reporting
      date to fair market value.  For the year ended November 30, 2005, the fair
      market value  adjustment  resulted in the Company  decreasing the recorded
      liability amount by $176,657.

                                      F-19
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

8.    Long-Term Debt and Capital Lease Obligations (Continued)
      --------------------------------------------------------

      The  convertible  note is to be repaid using cash or an equity  conversion
      option as  follows:  the Company is  obligated  to make  monthly  interest
      payments  through  May 1, 2005,  then  monthly  principal  payments in the
      amount of approximately $61,000 plus interest on the outstanding principal
      amount of the  convertible  note  through  November 1, 2005,  then monthly
      interest  payments from December 2005 through April 2006, and then monthly
      principal   payments  of  approximately   $75,000  plus  interest  on  the
      outstanding  remaining  principal  amount of the convertible note starting
      May 1, 2006 through  February 2008. The lender may direct that the monthly
      amount  payable on the next payment date shall be paid in either shares of
      common stock or a combination of cash and common stock. Any portion of the
      monthly amount paid in cash shall be paid to the lender in an amount equal
      to 102% of the principal  portion of the monthly amount due. If the lender
      elects to  receive  all or a portion  of the  monthly  amount in shares of
      common stock, the number of such shares to be issued will be determined by
      dividing the portion of the monthly  amount to be paid in shares of common
      stock, by the applicable fixed conversion price, which is $0.63 per share.
      None of the payments made during the year ended  November 30, 2005 were in
      shares, and all were made in cash.

      A  registration  rights  agreement  was executed  requiring the Company to
      register  under the  Securities  Act of 1933,  as  amended,  the shares of
      common stock underlying the convertible note and warrants.  A registration
      statement filed in response to such requirement was declared  effective on
      June 10, 2005.

(b)   On  November  30,  2005,  the  Company  entered  into a  second  financing
      arrangement  with  the  lender  (the  "November  2005  Financing").   This
      financing  consisted of a $2 million  secured  convertible  term note that
      matures on  November  30,  2008.  The note is  convertible  into shares of
      common stock at a fixed price of $0.61 per share.  The conversion price is
      subject to anti-dilution protection as specified in the note. The proceeds
      of the  financing  were held in escrow,  and  received  by the  Company on
      December 1, 2005.

      In connection with this financing,  the Company issued the lender warrants
      to purchase up to 1,683,928  shares of the  Company's  common  stock.  The
      warrants are exercisable at $.10 per share through  November 30, 2020. The
      underlying  contracts contain certain provisions providing for a potential
      cash  settlement,  and  accordingly,  the warrants have been classified as
      debt. The Company recorded discounts aggregating approximately $1,093,000,
      of which,  approximately  $740,000  represented  the value of the warrants
      using the Black-Scholes method with an interest rate of 3.05%,  volatility
      of 152%, zero dividends and expected term of fifteen years;  approximately
      $268,000  represented the beneficial  conversion  feature  inherent in the
      instrument; and approximately $85,000 represented debt issue costs paid to
      the  lender.  Such  discounts  are being  amortized  using  the  effective
      interest  method over the term of the related  debt.  Although  the stated
      interest  rate of the  convertible  note is the  prime  rate plus 2%, as a
      result of the aforementioned discounts, the effective interest rate of the
      note is  approximately  68% per annum.  The Company incurred fees to third
      parties  in  connection  with  this  financing  aggregating  approximately
      $273,000,  including  warrants to purchase up to 262,296  shares of common
      stock.  These  warrants  were valued at  approximately  $99,000  using the
      Black-Scholes  method using the same assumptions  described  above.  These
      warrants are exercisable  through November 30, 2009 at $.61 per share. The
      warrant  liability will be adjusted at each future  reporting date to fair
      market value.

                                      F-20
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

8.    Long-Term Debt and Capital Lease Obligations (Continued)
      --------------------------------------------------------

      The  convertible  note is to be repaid using cash or an equity  conversion
      option as  follows:  the Company is  obligated  to make  monthly  interest
      payments  through  May 1, 2006,  then  monthly  principal  payments in the
      amount of approximately $33,000 plus interest on the outstanding principal
      amount of the  convertible  note through  November 30, 2008, when the note
      has a balloon  payment  due of  approximately  $  967,000.  The lender may
      direct that the monthly  amount  payable on the next payment date shall be
      paid in either shares of common stock or a combination  of cash and common
      stock. Any portion of the monthly amount paid in cash shall be paid to the
      lender in an amount equal to 102% of the principal  portion of the monthly
      amount  due.  If the  lender  elects to  receive  all or a portion  of the
      monthly amount in shares of common stock,  the number of such shares to be
      issued will be determined by dividing the portion of the monthly amount to
      be paid in shares of common  stock,  by the  applicable  fixed  conversion
      price, which is $0.61 per share.

      The Company  determined,  in  accordance  with SFAS 133,  "Accounting  for
      Derivative  Instruments and Hedging  Activities," that the warrants issued
      to  the  lender  in  the  February  2005  and  November  2005   financings
      represented derivatives.  Accordingly, the Company recorded the fair value
      of these derivatives as a debt discount and a non-current liability on its
      consolidated  balance  sheet.  The note  discounts are being  amortized to
      interest  expense using the "Effective  Interest  Method" of  amortization
      over the term of the related indebtedness. At November 30, 2005, the value
      of the  derivatives  was  decreased  by $176,657 to the then  current fair
      value of  $1,067,526,  with a  corresponding  credit to other income.  The
      Company will continue to mark these  derivatives  to market on a quarterly
      basis.

      A  registration  rights  agreement  was executed  requiring the Company to
      register  under the  Securities  Act of 1933,  as  amended,  the shares of
      common stock  underlying the convertible note and warrants by February 28,
      2006, and the registration  statement is required to be declared effective
      within 180 days of the closing of this financing. The agreement contains a
      penalty  provision of approximately  $30,000 per month for each month that
      the Company is not in compliance with the terms of the registration rights
      agreement.

(c)   To secure the  payment  of all  obligations  to the  lender,  the  Company
      entered into a Master  Security  Agreement  that assigns and grants to the
      lender a continuing  security interest and first lien on all of the assets
      of the  Company and its  subsidiaries.  In the event the Company or any of
      its  subsidiaries  wishes to finance an acquisition in the ordinary course
      of  business  of any  hereafter-acquired  equipment  and  has  obtained  a
      commitment  from a  financing  source to finance  such  equipment  from an
      unrelated  third  party,  the lender has  agreed to release  its  security
      interest on such  hereafter-acquired  equipment  so financed by such third
      party financing source.

                                      F-21
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

8.    Long-Term Debt and Capital Lease Obligations (Continued)
      --------------------------------------------------------

      The  February  2005  Financing  carries  a  stated  interest rate equal to
      the prime rate plus three percent, and the November 2005 Financing carries
      a stated interest rate equal to the prime rate plus two percent. The prime
      rate was 7% as of November 30, 2005.The interest rate on the February 2005
      Financing  will  be decreased 200 basis points (two percent) per annum for
      each  25%  increase in the price of the Company's common stock above $0.63
      per  share  at  determination  dates  defined  in  the  agreement, and the
      interest  rate  on the November 2005 Financing will be decreased 200 basis
      points  (two  percent) per annum for each 25% increase in the price of the
      Company's common stock above $.61 per share at determination dates defined
      in the agreement if, at that time, the Company has on file with the SEC an
      effective  registration statement for the resale of shares of common stock
      issued  or  issuable  upon  conversion  of  the financings and the related
      warrants. As of February 14, 2006, the Company has on file with the SEC an
      effective  registration statement for the resale of shares of common stock
      underlying  the  February  2005  Financing.  The Company expects to file a
      registration statement to register the shares underlying the November 2005
      Financing in March 2006. Any change in the interest rate on such debt will
      be  determined  on  a monthly basis. In no event will the interest rate on
      the  convertible  notes  be  less  than 0.00%. Interest on the convertible
      notes  is payable monthly in arrears on the first day of each month during
      the  term  of  the  related  financings.  Since the price of the Company's
      common  stock  has  not  increased above the aforementioned price targets,
      there have not been any reductions in the interest rates to date.

      In connection with the financings,  the Company has agreed, so long as 25%
      of the principal  amount of the  financings  are  outstanding,  to certain
      restrictive covenants,  including, among others, that the Company will not
      declare or pay any dividends, issue any preferred stock that is subject to
      mandatory  redemption  prior to the one year  anniversary  of the maturity
      date as defined in the  agreement,  redeem any of its  preferred  stock or
      other equity interests,  dissolve, liquidate or merge with any other party
      unless,  in the case of a merger,  the  Company is the  surviving  entity,
      incur any  indebtedness  except as  defined in the  agreement,  or assume,
      guarantee,  endorse or otherwise become directly or contingently liable in
      connection with any other party's obligations.

9.    Income Taxes
      ------------

      At November 30, 2005, the Company had net operating loss carryforwards for
      Federal income tax purposes of approximately  $23,000,000  expiring in the
      years 2008 through 2025.  There is an annual  limitation of  approximately
      $187,000  on the  utilization  of  approximately  $2,400,000  of such  net
      operating loss carryfowards  under the provisions of Internal Revenue Code
      Section 382.

                                      F-22
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

9.    Income Taxes (Continued)
      ------------------------

      At November 30, 2005, the Company's net operating loss  carryforwards  are
      scheduled to expire as follows:

                    Year ended November 30

                            2008                     $  1,110,000
                            2009                        1,050,000
                            2010                        1,000,000
                            2012                        3,100,000
                            2018                        2,710,000
                            2019                        2,510,000
                            2020                        2,350,000
                            2021                        5,850,000
                            2022                          770,000
                            2024                          450,000
                            2025                        2,100,000
                                                     ------------

                                                     $ 23,000,000
                                                     ============

      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.
      Significant   components  of  the   Company's   deferred  tax  assets  and
      liabilities as of November 30, 2005 and 2004 were as follows:

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

      Deferred tax assets:
         Net operating loss carryforwards   $ 7,820,000    $ 7,090,000
         Allowance for doubtful accounts         80,000        190,000
                                            -----------    -----------
                                              7,900,000      7,280,000
      Valuation allowance                    (7,900,000)    (7,280,000)
                                            -----------    -----------

      Net deferred assets                   $        --    $        --
                                            -----------    -----------

                                      F-23
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

9.    Income Taxes (Continued)
      ------------------------

      The  following is a  reconciliation  of the tax  provisions  for the three
      years ended  November 30, 2005,  2004 and 2003 with the statutory  Federal
      income tax rates:

<TABLE>
<CAPTION>
                                                     Percentage of Pre-Tax Income
                                                     ----------------------------
                                                      2005       2004       2003
                                                     ------     ------     ------
<S>                                                   <C>         <C>        <C>
      Statutory Federal income tax rate               (34.0%)     34.0%      35.0%

      Utilization of net operating loss carryovers       --         --      (34.1)

      Income (loss) generating no tax benefit
        or expense                                     28.8      (34.0)        --

      State taxes net of Federal effect                  --       15.3         --

      Reversal of accrual for prior year items           --      (33.3)        --

      Permanent differences                             5.2         --         --
                                                     ------     ------     ------

                                                         --      (18.0)%       .9%
                                                     ------     ------     ------
</TABLE>

      For the year ended November 30, 2004,  the Company  recorded a tax benefit
      of approximately $48,000 which resulted from the reduction of an estimated
      accrual of tax expense for the year ended November 30, 2003, offset by tax
      expense of $22,000 for the year ended November 30, 2004.

10.   Subsidiary's Plan of Reorganization
      -----------------------------------

      On April 8, 2004,  the United  States  Bankruptcy  Court for the  Southern
      District of New York confirmed a Plan of  Reorganization  (the "Plan") for
      Telecarrier Services,  Inc. ("TSI"). On July 29, 2002, TSI, a wholly-owned
      subsidiary,  had filed a voluntary petition for relief under Chapter 11 of
      the Federal  Bankruptcy Code in the United States Bankruptcy Court for the
      Southern District of New York. The Plan authorized the Company to disburse
      $325,000  to  creditors  in  full  satisfaction  of  claims  amounting  to
      approximately $1,229,000.

                                      F-24
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

10.   Subsidiary's Plan of Reorganization (Continued)
      -----------------------------------------------

      For the year ended November 30, 2004, TSI reported a gain of $904,027 as a
      result  of being  judicially  released  from  liabilities  and  claims  as
      follows:

      Pre-petition claims:
           Unsecured line of credit                  $  150,000
           Trade payables and due to related party      618,482
           Other accrued expenses                       103,250
                                                     ----------

             Total pre-petition claims                  871,732

      Post-petition payables and accrued expenses        68,124
      Administrative claims and legal costs             289,171
                                                     ----------

             Total claims                             1,229,027

           Distribution to creditors                    325,000
                                                     ----------

             Gain on debt reduction                  $  904,027
                                                     ----------


      TSI had an agreement, effective January 2, 2002, with Telco Services, Inc.
      ("Telco"),  a corporation  owned by a former  shareholder  of the Company,
      under which Telco provided TSI with collection,  sales and other services.
      As a result of a court-stipulated agreement between TSI and Telco, entered
      into on February  6, 2004,  the amount  owed Telco for such  services  was
      reduced by approximately  $51,000. Such reduction was included in the gain
      on settlement  with  creditors for the year ended November 30, 2004. As of
      November 30, 2004, all of Telco's claims related to the TSI bankruptcy had
      been  paid  in  full,  including  $65,000  in  administrative  claims  and
      approximately  $31,000 in unsecured claims. The President of Telco is also
      the President of Glad Holdings (see Note 13).

11.   Pension Plans
      -------------

      The Company  sponsors a defined benefit plan covering two active employees
      and a number  of former  employers.  The  Company's  funding  policy  with
      respect to the defined  benefit  plan is to  contribute  annually not less
      than the minimum  required by applicable  law and  regulation to cover the
      normal cost and to fund  supplemental  costs,  if any,  from the date each
      supplemental cost was incurred.  Contributions are intended to provide not
      only for  benefits  attributed  to  service  to date,  but also for  those
      expected to be earned in the  future.  Plan assets  consist  primarily  of
      investments in conservation equity and debt securities. The Company uses a
      November 30 measurement date for its pension plan.

                                      F-25
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

11.   Pension Plans (Continued)
      ------------------------

      Effective June 30, 1995, the plan was frozen, ceasing all benefit accruals
      and resulting in a plan curtailment.

      Obligations and Funded Status at November 30:

      Pension Benefits                                    2005         2004
                                                       ---------    ---------

      Change in benefit obligation:
           Benefit obligation at beginning of year     $(867,026)   $(820,709)
           Interest cost                                 (58,435)     (52,125)
           Actuarial loss                                (99,785)     (32,373)
           Benefits paid                                  63,710       38,181
                                                       ---------    ---------

           Benefit obligation at end of year           $(961,536)   $(867,026)
                                                       ---------    ---------

      Change in plan assets:
           Fair value of plan assets at beginning of
             year                                      $ 580,073    $ 498,149
           Actuarial return on plan assets                48,380       31,105
           Employer contribution                          70,000       89,000
           Benefits paid                                 (63,710)     (38,181)
                                                       ---------    ---------

           Fair value of plan assets at end of year    $ 634,743    $ 580,073
                                                       ---------    ---------


                                             2005         2004         2003
                                          ---------    ---------    ---------

      Funded status                       $(326,793)   $(286,953)   $(322,560)
                                          ---------    ---------    ---------
           Net amount recognized          $(326,793)   $(286,953)   $(322,560)
                                          ---------    ---------    ---------

      Amounts recognized in the statement of financial position consist of:

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

      Accrued benefit cost                             $(326,793)   $(286,953)
                                                       ---------    ---------
      Net amount recognized                            $(326,793)   $(286,953)
                                                       ---------    ---------

      The  accumulated  benefit  obligation  for the Company's  defined  benefit
      pension  plan was  $961,536  and  $867,026 at November  30, 2005 and 2004,
      respectively.

                                      F-26
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

11.   Pension Plans (Continued)
      -------------------------

      Information   required  for  pension  plan  with  an  accumulated  benefit
      obligation in excess of plan assets:

                                                         November 30
                                                  ----------------------
                                                     2005         2004
                                                  ---------    ---------

      Projected benefit obligation                $(961,536)   $(867,026)
      Accumulated benefit obligation               (961,536)   $(867,026)
      Fair value of plan assets                     634,743    $ 580,073

      Components of Net Periodic Benefit Cost


                                         2005        2004        2003
                                       --------    --------    --------

      Interest cost                    $ 58,435    $ 52,125    $ 54,086
      Expected return on plan assets    (45,474)    (41,390)    (35,411)
      Amortization of net loss           16,834      37,356      34,057
                                       --------    --------    --------

      Net periodic benefit cost        $ 29,795    $ 48,091    $ 52,732
                                       --------    --------    --------

      Assumptions

      Weighted-average  assumptions  used to determine net periodic benefit cost
      as of November 30:

                                          2005        2004        2003
                                        --------    --------    --------

      Discount rate                         6.25%       6.25%       7.00%
      Expected long-term return
         on plan assets                     8.00%       8.00%       8.00%

      The expected  return on Plan assets  should  remain  constant from year to
      year since the long-term expectation should not change significantly based
      on a single year's experience. A rate of 8% was adopted for this purpose.

                                      F-27
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

11.   Pension Plans (Continued)
      -------------------------

      Plan Assets

      The Company's pension plan weighted-average  asset allocations at November
      30, 2005 and 2004, by asset category are as follows:

                               November 30
                             ----------------
                               2005      2004
                             ------    ------

      Asset Category
         Equity securities     56.0%     51.8%
         Debt securities       22.0%     22.0%
         Other                 22.0%     26.2%
                             ------    ------

         Total                100.0%    100.0%
                             ------    ------

      The  current  investment  policy  for  pension  plan  assets  is to reduce
      exposure to equity market risks.  The current  strategy for Plan assets is
      to  invest  in  conservative  equity  and debt  securities.  The Plan also
      maintains a significant cash balance.

      Equity  securities  include the  Company's  common stock in the amounts of
      approximately  $25,700  (4.4%  of plan  assets)  and  $5,400  (.1% of plan
      assets) at November 30, 2005 and 2004.

      Cash flows - Contributions

      The Company  expects to contribute  approximately  $100,000 to its defined
      benefit plan in fiscal 2006.

      Estimated Future Benefit Payments

      The following pension benefit payments are expected to be paid:

                2006                               $ 16,615
                2007                                 39,304
                2008                                 43,427
                2009                                 53,435
                2010                                 56,387
                2011-2015                           305,394
                                                   --------
                                                   $514,562
                                                   ========

                                      F-28
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

11.   Pension Plans (Continued)
      ------------------------

      Defined Contribution Plan

      The  Company  has a 401(k)  profit  sharing  plan for the  benefit  of all
      eligible   employees,   as  defined.   The  plan  provides  for  voluntary
      contributions  not to exceed  the  statutory  limitation  provided  by the
      Internal Revenue Code. The Company may make  discretionary  contributions.
      There were no  contributions  made for the years ended  November 30, 2005,
      2004 and 2003.

12.   Commitments and Contingency
      ---------------------------

      Operating Leases

      The  Company  leases its  facility  under  noncancelable  operating  lease
      agreements which expire through 2008.

      Rent  expense was  approximately  $130,000,  $82,000 and $67,000 in fiscal
      2005,  2004 and 2003,  respectively.  In addition to the annual rent,  the
      Company pays real estate taxes, insurance and other occupancy costs on its
      leased facilities.

      The  minimum  annual  commitments  under all  operating  leases  that have
      remaining  noncancelable  terms in excess of one year are approximately as
      follows:

                Year ended November 30
                ----------------------

                       2006                     $ 143,000
                       2007                       133,000
                       2008                        90,000
                                                ---------

                                                $ 366,000
                                                ---------

      Capital Lease Obligations

      The  Company  leases  certain  machinery  and  equipment  with lease terms
      through 2008.  Obligations  under capital leases have been recorded in the
      accompanying  financial  statements at the present value of future minimum
      lease payments,  discounted at interest rates ranging from 11.7% to 16.6%.
      The capitalized cost and accumulated depreciation included in property and
      equipment was as follows:

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

      Cost                       $134,563   $ 69,567
      Accumulated depreciation     72,868     69,567
                                 --------   --------

                                 $ 61,695   $     --
                                 --------   --------

                                      F-29
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

12.   Commitments and Contingency (Continued)
      ---------------------------------------

      The future  minimum lease payments under the capital lease and net present
      value  of  future  minimum  lease  payments  for  the  ensuing  years  are
      summarized as follows:

                   Year ended November 30
                   ----------------------

                            2006                                      $  60,966
                            2007                                         20,277
                            2008                                         20,277
                            2009                                         18,071
                            2010                                          6,462
                                                                      ---------

                                                                      $ 126,053

                Less amount representing interest                        30,488
                                                                      ---------

                Present value of future minimum lease
                    payments                                          $  95,565
                                                                      ---------

      Purchase commitments

      New Rochelle Telephone Company ("NRTC"), a wholly-owned  subsidiary of the
      Company,   completed  its   negotiations   with  Verizon   Services  Corp.
      ("Verizon")  and signed a  Wholesale  Advantage  Services  Agreement  (the
      "Agreement")  effective  January 1, 2005.  The  Agreement  is a  long-term
      commercial   alternative  to  the  unbundled   network  elements  platform
      ("UNE-P")  and allows NRTC to purchase  from Verizon  wholesale  dial tone
      services on terms that preserve,  in all material respects,  the features,
      functionality and ordering  processes  previously  available to NRTC under
      Verizon's UNE-P service offering.  The rates and charges for such services
      are fixed at agreed upon price  levels that should  allow NRTC to continue
      to offer its existing telephone services at competitive  prices.  Pursuant
      to the Agreement,  NRTC and the Company are required to keep  confidential
      all  additional  terms and  provisions of the  Agreement.  The Company has
      minimum line commitments in connection with the Agreement.

      Other commitments

      During the year ended November 30, 2005, the Company  entered into minimum
      purchase  agreements with certain  wholesale  providers of services needed
      for the VoIP business. The agreements require minimum fees as follows:

                    Year ended November 30
                    ----------------------

                             2006                   $ 247,000
                             2007                      36,000
                             2008                      15,000
                                                    ---------

                                                    $ 298,000
                                                    ---------

      Litigation

      The Company is subject to legal  proceedings  and claims that arise in the
      ordinary course of its business. In the opinion of management,  the amount
      of ultimate liability,  if any, is not likely to have a material effect on
      the  financial  condition,  results  of  operations  or  liquidity  of the
      Company.  However,  as the  outcome  of  litigation  or  legal  claims  is
      difficult to predict, significant changes in the estimated exposures could
      occur.

                                      F-30
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

13.   Related Party Transactions
      --------------------------

      TSI had an agreement, effective January 2, 2002, with Telco Services, Inc.
      ("Telco"), a corporation owned by a former shareholder,  under which Telco
      provided TSI with collection,  sales and other services. Expenses incurred
      in connection with this agreement, which were included in selling, general
      and administrative  expenses in the consolidated  statement of operations,
      amounted to  approximately  $21,000 for the year ended  November 30, 2003.
      The  President of Telco is also the  President of Glad Holdings LLC ("Glad
      Holdings") (see Note 14).

      During the years  ended  November  30,  2005,  2004 and 2003,  the Company
      billed  Cordia,  a  related  party  (see Note 4),  approximately  $70,000,
      $388,000 and $197,000 for rent, telemarketing services,  commissions,  and
      other costs. Cordia billed the Company  approximately  $578,000,  $585,000
      and  $395,000 for the years ended  November  30,  2005,  2004 and 2003 for
      billing and other services.  As of November 30, 2005 and 2004, the Company
      owed Cordia approximately $3,000 and $59,000.

14.   Asset Sale
      ----------

      On September  3, 2002,  the Company  entered into an agreement  with Essex
      Acquisition Corp. ("EAC"), a wholly-owned subsidiary of BiznessOnline.com,
      Inc.  ("Biz"),   to  sell   substantially  all  of  the  assets  of  Essex
      Communications   Inc.,   ("Essex"),   a  former  wholly-owned   subsidiary
      (amounting to  approximately  $1,102,000  at November 30, 2002),  for five
      dollars plus the assumption of certain liabilities of Essex,  amounting to
      approximately  $10,081,000 at November 30, 2002, including all obligations
      due  and  payable  to  Essex's  largest  vendor,  Verizon  Services  Corp.
      ("Verizon").  EAC entered into an agreement  with Verizon that  provided a
      payment  schedule  for the  liabilities  assumed  from Essex,  and Verizon
      granted EAC a discount on the assumed liabilities  provided EAC adhered to
      the payout  schedule.  EAC also paid the Company $270,000 to reimburse the
      Company for amounts paid by the Company to Essex's lender. The sale closed
      on December  31,  2002.  As the  creditors of Essex did not consent to the
      assignment of their claims,  Essex had remained  liable for  substantially
      all the obligations assumed in the sale until such time as they were paid.
      The June 30, 2002 unaudited financial statements of Biz indicated that Biz
      had a stockholders' equity deficiency of approximately $20,500,000 and had
      negative  working  capital of  approximately  $3,500,000.  The most recent
      independent  auditor's  report of Biz  expressed  significant  doubt about
      Biz's ability to continue as a going concern. These factors indicated that
      there was significant  uncertainty as to Biz and its subsidiaries' ability
      to repay the obligations described above. Accordingly, the Company did not
      record any gain until Essex was  released  from the  assumed  obligations.
      During the period  December 1, 2002 through  September  11, 2003,  EAC had
      settled liabilities of approximately $3,511,000 and, accordingly, gain was
      recorded for such amount.

                                      F-31
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

14.   Asset Sale (Continued)
      ---------------------

      On September  11, 2003,  the Company sold all of the  outstanding  capital
      stock of Essex to Glad  Holdings  (see  Note  13),  a New  Jersey  limited
      liability  company,  for an aggregate purchase price of $100 and a general
      release from Glad  Holdings  with  respect to any and all matters  arising
      prior  to  September  11,  2003.  The  Company,  based  on  all  available
      information and consultation with counsel,  concluded that it was unlikely
      that any  creditor of Essex would be able to hold the Company  responsible
      for any debts or liabilities of Essex.  As a result  thereof,  the Company
      believed  it had been  released of all the  liabilities  related to Essex,
      which amounted to approximately $7,314,000 on such date, and, accordingly,
      recorded such amount as gain in the fourth quarter fiscal of 2003.

      The following  unaudited pro form summary  presents  information as if the
      sale of Essex's  assets had  occurred at the  beginning  of the year ended
      November 30, 2003. The pro forma amounts include certain  adjustments that
      eliminate all the operations of Essex for the periods  presented.  The pro
      forma  information  does not  necessarily  reflect the actual results that
      would have  occurred  had the sale taken place for the periods  presented,
      nor is it  necessarily  indicative of the future  results of operations of
      the remaining company:

                                                      2003
                                                   -----------
                                                   (unaudited)
                                                   -----------

                Revenues                           $ 4,675,000
                                                   -----------

                Net loss                            (2,107,000)
                                                   -----------

                Basic and diluted loss per share   $      (.13)
                                                   -----------

15.   Stockholders' Equity
      --------------------

      The Company is authorized to issue  1,000,000  shares of preferred  stock,
      par value $.10 per share,  with rights and  privileges to be determined by
      the Board of Directors.

      The  Company  was  authorized  to  issue up to 1,300  shares  of  Series B
      preferred  stock $.10 par value,  and such stock was  entitled  to receive
      dividends  when as, and if dividends  were  declared by the Company on its
      common stock.  Each holder of Series B preferred  stock had the right,  at
      the option of the holder,  to convert  each share of such stock into 1,000
      shares of common stock.  The holders of shares of Series B preferred stock
      were  entitled  to that  number  of  votes  on all  matters  presented  to
      shareholders  equal to the number of shares of common stock then  issuable
      upon conversion of such shares of preferred stock.

      During  fiscal 2003,  the  remaining  Series B  shareholder  converted its
      Series B preferred  shares to common shares,  resulting in the issuance of
      16,000 shares of common stock.

                                      F-32
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

15.   Stockholder's Equity (Continued)
      -------------------------------

      The following is a summary of outstanding options:

                                                                    Weighted-
                                                                    Average
                                       Number of   Exercise Price   Exercise
                                        Shares       Per Share       Price
                                      ----------    -----------    ----------

      Outstanding December 1, 2002     1,618,453    $.10 - $4.88   $     1.60

      Granted during year ended
           November 30, 2003             740,000    $       0.10   $     0.10

      Canceled during year ended
           November 30, 2003            (635,119)   $.58 - $4.88   $     1.91
                                      ----------

      Outstanding November 30, 2003    1,723,334    $.10 - $2.50   $     0.84

      Granted during year ended
           November 30, 2004           2,185,000    $.16 - $0.28   $     0.23

      Canceled during year ended
           November 30, 2004            (435,834)   $.10 - $2.25   $     1.35
                                      ----------

      Outstanding November 30, 2004    3,472,500    $.10 - $2.50   $     0.40

      Granted during year ended
           November 30, 2005           1,625,500    $.36 - $0.59   $     0.43

      Canceled during year ended
           November 30, 2005            (909,000)   $.10 - $2.50   $     0.80
                                      ----------

      Outstanding November 30, 2005    4,189,000    $.10 - $1.44   $     0.32
                                      ----------

      Options exercisable,
           November 30, 2005             926,500    $.10 - $1.44   $     0.40
                                      ----------

      Options exercisable,
           November 30, 2004             937,500    $.10 - $2.50   $     0.40
                                      ----------

      Options exercisable,
           November 30, 2003             621,334    $.72 - $2.50   $     1.43
                                      ----------

                                      F-33
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

15.   Stockholders' Equity (Continued)
      -------------------------------

      The following table summarizes  information about the options  outstanding
      at November 30, 2005:

<TABLE>
<CAPTION>
                                   Options Outstanding                    Options Exercisable
                        ------------------------------------------    --------------------------
                                          Weighted-
                                          Average        Weighted-                     Weighted-
        Range of                         Remaining        Average                       Average
        Exercise            Number       Contractual     Exercise       Number         Exercise
          Prices         Outstanding    Life (Years)       Price      Outstanding        Price
      ---------------    -----------    ------------     ---------    -----------        -----
      <S>                 <C>               <C>           <C>           <C>              <C>
      $  .10 - $  .97     4,119,000         3.51          $ .30         856,500          $ .31
      $1.44                  70,000         1.44          $1.44          70,000          $1.44
</TABLE>

      On October 24,  1996,  the  shareholders  of the Company  adopted the eLEC
      Communications  Corp.  1996 Restricted  Stock Award Plan (the  "Restricted
      Stock Award Plan").  An aggregate of 400,000 shares of common stock of the
      Company have been reserved for issuance in connections with awards granted
      under the  Restricted  Stock Award Plan.  Such shares may be awarded  from
      either  authorized  and unissued  shares or treasury  shares.  The maximum
      number of shares that may be awarded under the Restricted Stock Award Plan
      to any  individual  officer or key  employee  is  100,000.  No shares were
      awarded during fiscal 2005, 2004 and 2003.

      As of November 30, 2005 and 2004, warrants were outstanding to purchase up
      to 3,393,841 and 550,000  shares of the  Company's  common stock at prices
      ranging from $.10 to $1.63 and $1.54 to $2.50, respectively.  The warrants
      expire through November 2020.

16.   Earnings (Loss) Per Common Share
      --------------------------------

      Earnings (Loss) per common share data was computed as follows:
<TABLE>
<CAPTION>

                                                  2005            2004           2003
                                             ------------    ------------   ------------
<S>                                          <C>             <C>            <C>
      Net income (loss)                      $ (2,265,795)   $    170,253   $  8,323,211
                                             ------------    ------------   ------------

      Weighted average common
           shares outstanding                  16,770,789      16,254,282     15,771,219
      Effect of dilutive securities, stock
           options and preferred stock                 --         461,526         70,722
                                             ------------    ------------   ------------

      Weighted average dilutive
          common shares outstanding            16,770,789      16,715,808     15,841,941
                                             ------------    ------------   ------------

      Earnings (loss)
           per common share - basic          $       (.14)   $        .01   $        .53
                                             ------------    ------------   ------------
      Earnings (loss)
           per common share - diluted        $       (.14)   $        .01   $        .53
                                             ------------    ------------   ------------
</TABLE>

                                      F-34
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

17.   Risks and Uncertainties
      -----------------------

      The Company buys substantially all of the telecommunications services that
      it resells from Regional Bell  Operating  Companies  ("RBOC's"),  and long
      distance  carriers and is,  therefore,  highly  dependent  upon them.  The
      Company  believes that its  relationship  with them is  satisfactory.  The
      Company   believes   that   there   are  less   desirable   suppliers   of
      telecommunication  services  in the  geographical  location  in which  the
      Company  conducts  business.  In  addition,  the  Company  is at  risk  to
      regulatory  agreements that govern the rates to be charged to the Company.
      In light of the foregoing,  it is reasonably possible that the loss of the
      Company's  relationship  with such  vendors or a  significant  unfavorable
      change  in  the  regulatory  agreements  structure  would  have  a  severe
      near-term impact on the Company's ability to conduct its resale business.

      Future results of operations  involve a number of risks and uncertainties.
      Factors  that could  affect  future  operating  results and cash flows and
      cause actual results to vary materially from historical  results  include,
      but are not limited to:

      o     The  Company's  business  strategy with respect to bundled local and
            long distance services may not succeed.

      o     Failure to manage, or difficulties in managing, the Company's growth
            operations  or  restructurings  including  attracting  and retaining
            qualified  personnel and opening up new  territories for its service
            with favorable gross margins.

      o     Dependence on the  availability or  functionality of incumbent local
            telephone companies' networks and the resale of such services.

      o     Increased price competition in local and long distance service.

      o     Failure or  interruption  in the Company's  network and  information
            systems.

      o     Changes in government policy, regulation and enforcement.

      o     Failure of the  Company's  collection  management  system and credit
            controls efforts for customers.

      o     Inability to adapt to technological change.

      o     Competition in the telecommunications industry.

      o     Inability to manage customer attrition and bad debt expense.

      o     Adverse change in Company's relationship with third-party carriers.

      o     Failure or bankruptcy of other telecommunications companies whom the
            Company relies upon for services and revenues.

      o     Lack of capital,  borrowing capacity, and inability to generate cash
            flow.

                                      F-35
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

18.   Selected Quarterly Financial Information (Unaudited)
      ----------------------------------------------------

      For the first three  quarters of the year ended  November  30,  2005,  the
      Company  accreted  the  interest  related  to the  debt  discounts  of the
      February 2005 Financing and amortized the debt issue costs related thereto
      over a one year  period.  During  the  fourth  quarter  of the year  ended
      November 30, 2005, the Company  reevaluated the appropriateness of the one
      year amortization period, and determined that the related indebtedness had
      an initial three year maturity date, and that such  three-year  period was
      the appropriate  period for the related  accretion and  amortization.  The
      Company  initially  used  a one  year  period  based  on a  clause  in the
      documents  relating to the  February  2005  Financing  that  required  the
      Company  to enter  into a  service  provider  agreement  with a  wholesale
      telephone  service  provider in order for the maturity date of the loan to
      be  extended  from  February 8, 2006 to  February  8, 2008.  However,  the
      Company,  as of the financing date, had already agreed to the terms of the
      service provider agreement with Verizon,  and had effectively entered into
      such  service  provider  agreement,  which was  effective as of January 1,
      2005. The Company had also  miscalculated a component of the accretion for
      the first three  quarters of the year ended  November  30, 2005 related to
      the warrant component of the discount.  Accordingly,  as a result of these
      errors,  in the fourth  quarter of the year ended  November 30, 2005,  the
      Company   determined  that  previously   recorded   interest  expense  and
      amortization of deferred financing costs had been overstated  cumulatively
      by  approximately  $245,000  through  the third  quarter of the year ended
      November 30, 2005, and accordingly, reduced interest expense in the fourth
      quarter of the year  ended  November  30,  2005 by such  amount,  of which
      approximately  $21,000  related to the quarter  ended  February  28, 2005,
      $106,000  related to the quarter ended May 31, 2005, and $118,000  related
      to the quarter ended August 31, 2005.

      The  quarterly  information  for the fiscal year ended  November  30, 2005
      presented  below has been restated from that  previously  included in Form
      10-QSB for the respective quarters.

      The  Company  has  determined  that  the  effect  of  these errors are not
      material,  and accordingly, the Company does not intend to amend its prior
      filings.  However, the comparative financial statements to be presented in
      future filings will be restated.

                                      F-36
<PAGE>
                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003

18.   Selected Quarterly Financial Information (Unaudited) (Continued)
      ----------------------------------------------------------------

      During the fourth quarter of the year ended November 30, 2005, the Company
      reversed a  liability  in the amount of  $198,059  that was related to the
      discontinuance of the luggage business of the Company.  There has not been
      any demand for payment of the  liabilities  and the Company has determined
      that the statute of limitations has expired. The liability had been on the
      Company's  balance  sheet under the caption  accounts  payable and accrued
      expenses at November 30, 2004.

<TABLE>
<CAPTION>
                                    First         Second         Third           Fourth
      November 30, 2005            Quarter        Quarter        Quarter         Quarter
                                 -----------    -----------    -----------    -----------
<S>                              <C>            <C>            <C>            <C>
      Revenue                    $ 3,863,479    $ 4,815,376    $ 4,146,759    $ 3,055,189
                                 -----------    -----------    -----------    -----------
      Operating loss             $  (395,729)   $(1,138,964)   $  (424,088)   $  (443,171)
                                 -----------    -----------    -----------    -----------
      Net loss                   $  (380,589)   $(1,235,060)   $  (257,140)   $  (393,006)
                                 -----------    -----------    -----------    -----------
      Net loss per share-
         basic                   $      (.02)   $      (.07)   $      (.02)   $      (.02)
                                 -----------    -----------    -----------    -----------
      Net loss per share-
         diluted                 $      (.02)   $      (.07)   $      (.02)   $      (.02)
                                 -----------    -----------    -----------    -----------
</TABLE>
<TABLE>
<CAPTION>
                                    First         Second         Third           Fourth
      November 30, 2004            Quarter        Quarter        Quarter         Quarter
                                 -----------    -----------    -----------    -----------
<S>                              <C>            <C>            <C>            <C>
      Revenue                    $ 1,873,992    $ 1,895,932    $ 2,438,064    $ 3,349,612
                                 -----------    -----------    -----------    -----------
      Operating income  (loss)   $    53,413    $   (28,060)   $  (396,086)   $  (271,417)
                                 -----------    -----------    -----------    -----------
      Net income (loss)          $    56,140    $   808,464    $  (418,584)   $  (275,767)
                                 -----------    -----------    -----------    -----------
      Earnings (loss) per
      share-basic                $       .00    $       .05    $      (.03)   $      (.02)
                                 -----------    -----------    -----------    -----------
      Earnings (loss) per
      share-diluted              $       .00    $       .05    $      (.03)   $      (.02)
                                 -----------    -----------    -----------    -----------
</TABLE>

      For  the  years  ended  November  30,  2005  and 2004, the sum of the four
      individual  quarters  earnings (loss) per share does not equal the amounts
      presented on the Consolidated Statements of Operations due to rounding.

19.   Accounts Payable and Accrued Expenses
      -------------------------------------
<TABLE>
<CAPTION>
                                                                      November 30,
                                                                   2005         2004
                                                                ----------   ----------
<S>                                                             <C>          <C>
      Trade payables                                            $1,963,162   $1,492,142
      Accrued pension liability                                    326,793      286,953
      Other, individually less than 5% of current liabilities      453,668      666,852
                                                                ----------   ----------
                                                                $2,743,623   $2,445,947
                                                                ----------   ----------
</TABLE>

                                      F-37
<PAGE>

                   eLEC COMMUNICATIONS CORP. AND SUBSIDIARIES

                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS

                  YEARS ENDED NOVEMBER 30, 2005, 2004 AND 2003
<TABLE>
<CAPTION>

            Column A                   Column B      Column C    Column D     Column E
-----------------------------------   ----------   ----------   ----------   ----------

                                                   Additions
                                      Balance at   Charged to    Accounts     Balance at
                                      Beginning    Costs and     Written       End of
           Description                of Period     Expenses*      Off         Period
-----------------------------------   ----------   ----------   ----------   ----------
<S>                                   <C>          <C>          <C>          <C>
Year ended November 30, 2005:
   Allowance for doubtful accounts    $  548,000   $3,612,000   $3,902,000   $  258,000
   Valuation allowance for deferred
     tax asset                        $7,280,000   $  620,000   $       --   $7,900,000

Year ended November 30, 2004:
   Allowance for doubtful accounts    $  170,000   $1,049,000   $  671,000   $  548,000
   Valuation allowance for deferred
     tax asset                        $6,700,000   $  580,000   $       --   $7,280,000

Year ended November 30, 2003:
   Allowance for doubtful accounts    $   14,000   $  982,000   $  826,000   $  170,000
   Valuation allowance for deferred
     tax asset                        $9,370,000   $       --   $2,670,000   $6,700,000

*Net of recoveries
</TABLE>

                                      F-38
<PAGE>

Item 9. - Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

       None.

Item 9A. Controls and Procedures.

      (a)  Disclosure  Controls  and   Procedures.   Our  management,  with  the
participation  of  our  chief  executive  officer/chief  financial  officer, has
evaluated  the  effectiveness of our disclosure controls and procedures (as such
term  is  defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act  of  1934,  as  amended  (the  "Exchange  Act")) as of the end of the period
covered  by  this   Report.  Based  on  such  evaluation,  our  chief  executive
officer/chief  financial  officer  has  concluded  that,  as  of the end of such
period,  for the reasons set forth below, our disclosure controls and procedures
were  not effective.  We are presently taking the necessary steps to improve the
effectiveness  of  such  disclosure  controls  and  procedures.

      (b)  Internal  Control  Over  Financial Reporting. There have not been any
changes  in  our  internal  control  over  financial  reporting (as such term is
defined  in  Rules  13a-15(f)  and  15d-15(f) under the Exchange Act) during the
fourth  quarter  of 2005 that have materially affected, or are reasonably likely
to  materially  affect,  our  internal  control  over  financial  reporting.  In
connection  with  our  year-end  November  30, 2005 audit, our management became
aware  of  a lack of staffing within our accounting department, both in terms of
the  small number of employees performing our financial and accounting functions
and  their  lack  of  experience  to account for complex financial transactions.
Management  believes  the lack of qualified personnel, in the aggregate, amounts
to a material weakness in our internal control over financial reporting. We will
continue  to  evaluate  the  employees  involved,  the  need  to  engage outside
consultants  with  technical  and  accounting  related expertise to assist us in
accounting  for  complex  financial  transactions  and  the hiring of additional
accounting staff with complex financing experience.

      We are also evaluating our internal controls systems so that when we are
required to do so, our management will be able to report on, and our independent
auditors to attest to, our internal controls, as required by Section 404 of the
Sarbanes-Oxley Act of 2002.  We will be performing the system and process
evaluation and testing (and any necessary remediation) required in an effort to
comply with the management certification and auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act. In connection with our year-end November
30, 2005 audit, we have identified the following control deficiencies and issues
with our internal controls over financial reporting that we believe amount in
the aggregate to a significant deficiency in our internal controls over
financial reporting:


                                       39
<PAGE>
            Due  to  the  voluminous nature of state and local telecom taxes and
      the  small  quantity of taxes payable to certain municipalities, we do not
      remit  all  our  telecom  taxes  in a timely manner. Certain taxes that we
      should   be   remitting  on   a  monthly  basis,  we  remit  quarterly  or
      semi-annually  because  many  of  the  checks  and  returns  that  we  are
      processing  are for insignificant amounts. We are aware of other telephone
      companies  that follow this process. We continue to monitor the responses,
      if  any, we receive from the tax authorities regarding late filings and we
      intend to remit such taxes in a timely manner in the future.




                                       40
<PAGE>

                                    PART III

Item 10. - Directors and Executive Officers of the Registrant.

      The following table sets forth certain information regarding our directors
and executive officers as of February 15, 2006. All of the following individuals
currently serve as directors of our company.

<TABLE>
<CAPTION>
                              Principal Occupation for Past Five Years and
Name                  Age     Current Public Directorships or Trusteeships
----                  ---     --------------------------------------------
<S>                   <C>     <C>
Paul H. Riss          50      Director since 1995;  acting  Chairman of our board of directors since March 2005;
                              our Chief Executive  Officer since August 1999 and our Chief Financial Officer and
                              Treasurer since November 1996.

Greg M. Cooper        46      Director  since April 2004;  partner for more than five years of Cooper, Niemann &
                              Co., CPAs, LLP, certified public accountants;  member of the board of directors of
                              Mid  Hudson   Cooperative   Insurance   Company  in   Montgomery,   New  York,   a
                              privately-held insurance company.

Gayle Greer           64      Director  since  January  2005;  Ms.  Greer  retired  in  1998  from  Time  Warner
                              Entertainment  after  serving  over 20 years in a number of  executive  positions,
                              including most recently Senior Vice President of Time Warner Cable;  co-founder of
                              GS2.Net,  a business service  provider,  and served as its Chairwoman from 1999 to
                              April 2001;  co-founder  of the National  Association  of  Minorities in Cable and
                              Telecommunications  and served as its Chairwoman from 1981 to 1985;  member of the
                              board of directors of ING North America Financial  Services Company,  an insurance
                              and financial services company, since 1997.

Michael H.            43      Director and Chief  Technology  Officer  since  October  2004;  director and Chief
Khalilian                     Technology  Officer  of  eLEC  and  VoX  Communications  Corp.,  our  wholly-owned
                              subsidiary,  since October 2004;  Chairman of the Board of Directors and President
                              of  International  Packet  Communications  Consortium,  an industry  VoIP forum of
                              which Mr.  Khalilian  was a founding  member,  since July 2001;  Chief  Technology
                              Officer and  director  of Volo  Communications  Inc.,  a  wholesale  VoIP  service
                              provider,  from January 2003 to July 2004; Chief  Technologist and advisor for the
                              Telecom  Business  Groups at NTT from January 2002 to June 2003;  Senior  Engineer
                              and Senior Director for the Cable,  Communications  and Telecom business groups at
                              Time Warner Communications from March 1996 to May 2002.
</TABLE>

Code of Ethics

      We  have  adopted  a  Code  of  Ethics  that applies to all our employees,
including  our  executive  officers.  A  copy  of  this code is available on our
website  at  http://www.elec.net/news/20050330a.php.  We also have an additional
Code  of  Ethics for Financial Executives and Employees that is available on our
website  at  http://www.elec.net/news/20050330b.php.  We  intend to disclose any
changes  in  or  waivers  from  these  codes  that  are  required to be publicly
disclosed  by  posting  such  information  on our website or by filing a Current
Report on Form 8-K.

Section 16(a) Beneficial Ownership Reporting Compliance

      Section  16(a) of the Exchange Act requires our  directors  and  executive
officers, and persons who own more than ten percent of a registered class of our
equity securities ("10% Shareholders"), to file with the Securities and Exchange
Commission  (the  "Commission")  initial  reports of  ownership  and  reports of
changes in ownership of our common stock and other equity securities.  Officers,
directors and 10%


                                       41
<PAGE>

Shareholders are required by Commission  regulation to furnish us with copies of
all Section 16(a) forms they file.

      Based  solely  on our review of the copies of such reports received by us,
we  believe  that for the fiscal year ended November 30, 2005, all Section 16(a)
filing  requirements  applicable to our officers, directors and 10% shareholders
were complied with, except (i) Gayle Greer, a board member, was late in filing a
Statement of Changes of Beneficial Ownership of Securities on Form 4 for options
granted to her on June 15, 2005 to purchase 10,000 shares of our common stock.

Item 11. - Executive Compensation.

      The  following  table sets  forth,  for the fiscal  years  indicated,  all
compensation  awarded  to,  earned  by or paid to Mr.  Paul H.  Riss,  our Chief
Executive Officer Chief Financial Officer and Treasurer,  Mr. Michael Khalilian,
our Chief  Technology  Officer,  and Mr. Mark  Richards,  the  President  of VoX
Communications Corp., our wholly-owned  subsidiary  (collectively referred to as
the "Named Executives").  No other executive officer received more than $100,000
in compensation during fiscal 2005.

<TABLE>
<CAPTION>
                                            Compensation Table

                                                                                         Long-Term
                                   Annual Compensation                              Compensation Awards
                                   -------------------                              -------------------

Name and                     Fiscal                              Other Annual                  All Other
Principal Position            Year     Salary($)    Bonus($)   Compensation ($)   Options(#)  Compensation
------------------           ------    ---------    --------   ----------------   ----------  ------------
<S>                           <C>      <C>          <C>          <C>              <C>             <C>
Paul H. Riss                  2005     $150,000     None         None             None            None
  Chief Executive Officer,    2004      150,000     None         None             100,000         None
  Chief Financial Officer     2003      150,000     None         None             250,000         None
  and Treasurer

Michael H. Khalilian(1)       2005      120,000     None         None             None            None
  Chief Technology            2004       12,000     None         None             900,000         None
   Officer                    2003      None        None         None             None            None

Mark Richards(2)              2005      120,000     None         None             None            None
  President of VoX            2004       22,569     None         None             1,000,000       None
  Communications Corp.        2003      None        None         None             None            None
  Subsidiary
</TABLE>

(1) Mr. Khalilian became our Chief Technology Officer in October 2004.

(2) Mr.  Richards  became the  President  of our  wholly-owned  subsidiary,  VoX
Communications Corp., in October 2004.


                                       42
<PAGE>

      On December 5, 2005, the Compensation  Committee of the Board of Directors
took action to increase the annual base salary of our Chief Executive Officer to
$175,000.

      Stock Option Grants

      No grants of stock options or stock appreciation rights ("SARs") were made
during fiscal 2005 to the Named Executives.

      Stock Option Exercises

      The following table contains  information  relating to the exercise of our
stock options by the Named  Executives in fiscal 2005, as well as the number and
value of their unexercised options as of November 30, 2005.

                 Aggregated Option Exercises in Last Fiscal Year
                        and Fiscal Year-End Option Values

<TABLE>
<CAPTION>
                                                        Number of Securities               Value of Unexercised In-the-
                                                        Underlying  Unexercised Options    Money Options at Fiscal Year-
                              Shares                    -------------------------------    -----------------------------
                           Acquired on       Value      at Fiscal Year-End(#)(1)           End ($)(2)
Name                       Exercise (#)   Realized($)   (Exercisable     Unexercisable     Exercisable     Unexercisable
----                       ------------   -----------   ------------     -------------     -----------     -------------
<S>                            <C>           <C>          <C>               <C>             <C>               <C>
Paul H. Riss                    --            --          420,000             --            $111,000             --

Michael Khalilian               --            --          450,000           450,000           94,500          $94,500

Mark Richards                   --            --          400,000           600,000           76,000          114,000
</TABLE>

___________________
(1)   The sum of the numbers under the Exercisable and  Unexercisable  column of
      this heading represents the Named Executives' total outstanding options to
      purchase shares of common stock.

(2)   The dollar amounts shown under the Exercisable and  Unexercisable  columns
      of the  heading  represent  the number of  exercisable  and  unexercisable
      options,  respectively,  that were  "In-the-Money"  on November  30, 2005,
      multiplied by the difference between the closing price of our common stock
      on November 30, 2005, which was $0.44 per share, and the exercise price of
      the options. For purposes of these calculations,  In-the-Money options are
      those with an exercise price below $0.44 per share.

Board of Directors Compensation

      We do not  currently  compensate  directors  for  service  on our board of
directors.  We maintain a Non-Employee Director Stock Option Plan (the "Director
Option Plan").  Under the Director  Option Plan, each  non-employee  director is
granted a non-statutory  option to purchase 10,000 shares of our common stock on
the date on which he or she is elected,  re-elected or appointed to our board of
directors.


                                       43
<PAGE>

Options  granted  pursuant to the Director  Option Plan will vest in full on the
one-year  anniversary of the grant date,  provided the non-employee  director is
still our director at that time.  The exercise  price granted under the Director
Option  Plan is 100% of the fair market  value per share of our common  stock on
the date of the grant, as reported on The OTC Bulletin Board.

Item 12. - Security  Ownership of Certain  Beneficial  Owners and Management and
Related Stockholder Matters.

      The  following  table  sets  forth,  as  of  February 15, 2006, the names,
addresses  and  number  of  shares of our common stock beneficially owned by all
persons  known  to us to be beneficial owners of more than 5% of the outstanding
shares  of  our  common  stock,  and the names and number of shares beneficially
owned by all of our directors and all of our executive officers and directors as
a group (except as indicated, each beneficial owner listed exercises sole voting
power  and  sole  dispositive  power  over the shares beneficially owned). As of
February  15,  2006,  we  had  a  total  of  16,839,282  shares  of common stock
outstanding:

                                         Number of Shares     Percent of Shares
Name and Address                        Beneficially Owned    Beneficially Owned
----------------                        ------------------    ------------------
Paul H. Riss
eLEC Communications Corp.                  1,512,000(1)       8.8%
75 South Broadway, Suite 302
White Plains, New York 10601

Michael H. Khalilian
478 E. Altamonte Drive, Suite 108-480        575,000(2)       3.3%
Altamonte Springs, Florida 32701

Mark Richards                                410,000(3)       2.4%
610 Sycamore Street, Suite 120
Celebration, Florida 34747

Greg M. Cooper                               125,000(4)       *
Cooper, Neiman & Co., CPAs, LLP
PO Box 190
Mongaup Valley, New York 12762

Gayle Greer                                   53,300 (5)      *
75 South Broadway, Suite 302
White Plains, New York 10601

All directors and executive officers
  as a group (five individuals)            2,675,300          14.7%

__________________________
* Less than 1%.

(1)  Includes  420,000  shares of  common  stock  subject  to  options  that are
presently exercisable or exercisable within 60 days after February 15, 2006.

(2)  Includes  450,000  shares of  common  stock  subject  to  options  that are
presently exercisable or exercisable within 60 days after February 15, 2006.

(3)  Includes  400,000  shares of  common  stock  subject  to  options  that are
presently exercisable or exercisable within 60 days after February 15, 2006.


                                       44
<PAGE>

(4) Includes 85,000 shares of common stock subject to options that are presently
exercisable or exercisable  within 60 days after February 15, 2006.

(5) Includes 50,000 shares of common stock subject to options that are presently
exercisable or exercisable within 60 days after February 15, 2006.

Item 13. - Certain Relationships and Related Transactions.

      We believe that all purchases from or transactions with affiliated parties
were on terms  and at  prices  substantially  similar  to those  available  from
unaffiliated third parties.

Item 14. Principal Accountant Fees and Services.

Audit  Fees.  The  aggregate  fees  billed by Nussbaum Yates & Wolpow, P.C., our
principal  accountants,  for professional services rendered for the audit of our
consolidated  financial  statements included in our Annual Report on Form 10-KSB
and  review  of  financial  statements included in our Quarterly Reports on Form
10-QSB,  or  for  services  that  are  normally  provided  by  the accountant in
connection  with statutory and regulatory filings or engagements during the last
two fiscal years was $142,226 and $103,936, respectively.

Audit-Related  Fees.  We did not engage  our  principal  accountants  to provide
assurance or related services during the last two fiscal years.

Tax Fees.  The  aggregate  fees  billed  by our  principal  accountants  for tax
compliance,  tax advice and tax planning services rendered to us during the last
two fiscal years was $20,000 and $15,000, respectively.

All Other Fees. We did not engage our principal  accountants to render  services
to us during the last two fiscal years, other than as reported above.

Pre-Approval  Policies  and  Procedures.  Our  Board of  Directors  has the sole
authority to appoint or replace our independent  auditor.  Our Board is directly
responsible  for the  compensation  and oversight of the work of our independent
auditor  (including  resolution  of  disagreements  between  management  and the
independent auditor regarding financial  reporting) for the purpose of preparing
or issuing an audit report or related work. Our  independent  auditor is engaged
by, and reports directly to, our Board.

      Our Board  pre-approves  all  auditing  services and  permitted  non-audit
services  (including  the fees and terms  thereof) to be performed for us by our
independent auditor, subject to the de minimis exceptions for non-audit services
described in Section 10A(i)(1)(B) of the Exchange Act, all of which are approved
by our Board prior to the completion of the audit. In the event pre-approval for
such auditing services and permitted  non-audit services cannot be obtained as a
result of inherent  time  constraints  in the matter for which such services are
required,  the Chairman of our Board may  pre-approve  such  services,  and will
report for  ratification  such  pre-approval  to our Board at its next scheduled
meeting.  Our Board has  complied  with the  procedures  set forth above and all
services reported above were approved in accordance with such procedures.


                                       45
<PAGE>

                                     PART IV

Item 15. - Exhibits and Financial Statement Schedules.

(a) Documents filed as part of this report:

(1) Report of Independent Registered Public Accounting Firm
    Financial Statements covered by the Report of Independent Registered
     Public Accounting Firm
    Consolidated Balance Sheets as of November 30, 2005 and 2004
    Consolidated Statements of Operations for the Years ended November 30, 2005,
     2004 and 2003
    Consolidated Statements of Stockholders'Equity Deficiency for the years
     ended November 30, 2005, 2004 and 2003
    Consolidated statements of Cash Flows for the years ended November 30, 2005,
     2004 and 2003
    Notes to Consolidated Financial Statements for the years ended November 30,
     2005, 2004 and 2003

(2) Schedules for the years ended November 30, 2005, 2005 and 2003
    Schedule II - Valuation and Qualifying Accounts.

(b) Exhibits

(3) Articles of Incorporation and By-laws

    (a) Certificate of Incorporation,  as amended,  incorporated by reference to
        our  Registration  Statement on Form S-1 filed with the  Securities  and
        Exchange  Commission  on  August  27,  1969  under  Registration  Number
        2-34436.

    (b) Certificate   of  Amendment  of  the   Certificate   of   Incorporation,
        incorporated  by reference to our definitive  proxy statement filed with
        the  Securities  and Exchange  Commission in connection  with our Annual
        Meeting of Shareholders held in May 1984.

    (c) Certificate   of  Amendment  to  the   Certificate   of   Incorporation,
        incorporated  by reference to Exhibit 3(b) to our Annual  Report on Form
        10-K for the year ended November 30, 1988.

    (d) Certificate   of  Amendment  to  the   Certificate   of   Incorporation,
        incorporated  by reference to Exhibit 3(e) to our Annual  Report on Form
        10-K for the year ended November 30, 1994, as amended.

    (e) Certificate   of  Amendment  of  the   Certificate   of   Incorporation,
        incorporated  by reference to Exhibit 3 to our Quarterly  Report on Form
        10-Q for the quarter ended August 30, 1995.

    (f) Certificate   of  Amendment  of  the   Certificate   of   Incorporation,
        incorporated  by reference to Exhibit 3(f) to our Annual  Report on Form
        10-K for the year ended November 30, 1998.

    (g) Certificate   of  Amendment  of  the   Certificate   of   Incorporation,
        incorporated by reference to Exhibit 3.2 to our Quarterly Report on Form
        10-Q for the quarter ended August 31, 1998.

    (h) Certificate   of  Amendment  of  the   Certificate   of   Incorporation,
        incorporated  by reference to Exhibit 3(1) to our Current Report on Form
        8-K dated November 16, 1999.


                                       46
<PAGE>


    (i) By-laws,  amended  and  restated as of December  1996,  incorporated  by
        reference to Exhibit 3(e) to our Annual Report on Form 10-K for the year
        ended November 30, 1996.

(10) Material Contracts

    (a) 1995 Stock Option Plan,  incorporated  by reference to Exhibit  10(I) to
        our Annual Report on Form 10-K for the year ended  November 30, 1995, as
        amended.

    (b) 1996 Restricted Stock Award Plan, incorporated by reference to Exhibit A
        to our Proxy Statement dated October 24, 1996.

    (c) Non-Employee   Director  Stock  Option  Plan,   dated  March  30,  2001,
        incorporated  by reference to Exhibit 10(c) to our Annual Report on Form
        10-KSB for the year ended November 30, 2003.

    (d) Lease  Agreement  between  South  Broadway  WP, LLC,  Landlord,  and New
        Rochelle  Telephone Corp.,  Tenant,  dated August 2003,  incorporated by
        reference to Exhibit  10(d) to our Annual  Report on Form 10-KSB for the
        year ended November 30, 2003.

    (e) Office  Lease  between  Lexin  Celebration,  LLC, as  Landlord,  and Vox
        Communications Corp., as Tenant, dated January 25, 2005.

    (f) Securities  Purchase  Agreement,  dated as of February 8, 2005,  between
        eLEC Communications Corp. and Laurus Master Fund, Ltd.,  incorporated by
        reference  to  Exhibit  10.1 to our  Current  Report  on Form 8-K  dated
        February 8, 2005.

    (g) Secured  Convertible  Term Note,  dated as of February 8, 2005,  between
        eLEC Communications Corp. and Laurus Master Fund, Ltd.,  incorporated by
        reference  to  Exhibit  10.2 to our  Current  Report  on Form 8-K  dated
        February 8, 2005.

    (h) Master Security  Agreement,  dated as of February 8, 2005, among us, New
        Rochelle Telephone Corp., Telecarrier Services, Inc., Vox Communications
        Corp., Line One, Inc., AVI Holding Corp. and TelcoSoftware.com  Corp. in
        favor of Laurus Master Fund, Ltd.,  incorporated by reference to Exhibit
        10.3 to our Current Report on Form 8-K dated February 8, 2005.

    (i) Stock Pledge Agreement,  dated as of February 8, 2005,  executed by eLEC
        Communications Corp. in favor of Laurus Master Fund, Ltd.,  incorporated
        by  reference  to Exhibit  10.4 to our Current  Report on Form 8-K dated
        February 8, 2005.

    (j) Subsidiary  Guaranty,  dated as of  February  8, 2005,  executed  by New
        Rochelle Telephone Corp., Telecarrier Services, Inc., Vox Communications
        Corp.,  Line One, Inc., AVI Holding Corp. and  TelcoSoftware.com  Corp.,
        incorporated  by reference to Exhibit 10.5 to our Current Report on Form
        8-K dated February 8, 2005.

    (k) Registration  Rights  Agreement,  dated as of February 8, 2005,  between
        eLEC Communications Corp. and Laurus Master Fund, Ltd.,  incorporated by
        reference  to  Exhibit  10.6 to our  Current  Report  on Form 8-K  dated
        February 8, 2005.

    (l) Common Stock  Purchase  Warrant,  dated as of February 8, 2005,  between
        eLEC Communications Corp. and Laurus Master Fund, Ltd.,  incorporated by
        reference  to  Exhibit  10.7 to our  Current  Report  on Form 8-K  dated
        February 8, 2005.

    (m) Form of Common  Stock  Purchase  Warrant,  dated as of February 8, 2005,
        issued by eLEC Communications Corp. to or on the order of Source Capital
        Group,  Inc.,  incorporated  by reference to Exhibit 10.8 to our Current
        Report on Form 8-K dated February 8, 2005.

    (n) Securities  Purchase  Agreement,  dated as of November 30, 2005, between
        eLEC Communications Corp. and Laurus Master Fund, Ltd.,  incorporated by
        reference  to  Exhibit  10.1 to our  Current  Report  on Form 8-K  dated
        November 30, 2005.

    (o) Secured  Convertible  Term Note,  dated as of February 8, 2005,  between
        eLEC Communications Corp. and Laurus Master Fund, Ltd.,  incorporated by
        reference  to  Exhibit  10.2 to our  Current  Report  on Form 8-K  dated
        November 30, 2005.

    (p) Reaffirmation and Ratification Agreement, dated as of November 30, 2005,
        executed by eLEC  Communications  Corp.,  New Rochelle  Telephone Corp.,
        Telecarrier  Services,  Inc., Vox Communications  Corp., Line One, Inc.,
        AVI Holding Corp. and


                                       47
<PAGE>

        TelcoSoftware.com Corp. incorporated by reference to Exhibit 10.3 to our
        Current Report on Form 8-K dated November 30, 2005.

    (q) Registration  Rights Agreement,  dated as of November 30, 2005,  between
        eLEC Communications Corp. and Laurus Master Fund, Ltd.,  incorporated by
        reference  to  Exhibit  10.4 to our  Current  Report  on Form 8-K  dated
        November 30, 2005.

    (r) Common Stock Purchase  Warrant,  dated as of November 30, 2005,  between
        eLEC Communications Corp. and Laurus Master Fund, Ltd.,  incorporated by
        reference  to  Exhibit  10.5 to our  Current  Report  on Form 8-K  dated
        November 30, 2005.

    (s) Form of Common Stock  Purchase  Warrant,  dated as of November 30, 2005,
        issued by eLEC Communications Corp. to or on the order of Source Capital
        Group,  Inc.,  incorporated  by reference to Exhibit 10.6 to our Current
        Report on Form 8-K dated November 30, 2005.

(22)   Subsidiaries - The significant wholly-owned subsidiaries are as follows:

       Name                                       Jurisdiction of Organization
       ----                                       ----------------------------
       New Rochelle Telephone Corp.                         New York
       Telecarrier Services, Inc.                           Delaware
       VoX Communications Corp.                             Delaware

(23)   Consent of Nussbaum Yates & Wolpow, P.C.

(31.1) Certification  of  our  Chief  Executive  Officer  and  Chief  Financial
       Officer, Paul H. Riss, pursuant to Section 302 of the Sarbanes-Oxley Act
       of 2002.

(32.1) Certification  of  our  Chief  Executive  Officer  and  Chief  Financial
       Officer, Paul H. Riss, pursuant to Section 906 of the Sarbanes-Oxley Act
       of 2002.


                                       48
<PAGE>

                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, we have duly caused this Report to be signed on our behalf
by the undersigned, thereunto duly authorized on the 2nd day of March 2006.

                                        eLEC COMMUNICATIONS CORP.
                                                (Company)


                                        By: /s/ Paul H. Riss
                                           ------------------------------------
                                           Paul H. Riss
                                           Chief Executive Officer

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

<TABLE>
<CAPTION>
        Signature                                   Title                            Date
---------------------------          ----------------------------------       -----------------
<S>                                  <C>                                      <C>
/s/ Paul H. Riss                     Chairman of the Board of Directors       March 2, 2006
------------------------------       Chief Executive Officer
Paul H. Riss                         Chief Financial Officer
                                     (Principal Accounting Officer)


/s/ Greg M. Cooper                   Director                                 March 2, 2006
------------------------------
Greg M. Cooper


/s/ Gayle Greer                      Director                                 March 2, 2006
------------------------------
Gayle Greer


/s/ Michael Khalilian                Director                                 March 2, 2006
------------------------------
Michael Khalilian
</TABLE>


                                       49