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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-K/A

(Amendment No. 2)



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

For the fiscal year ended June 30, 2005

OR



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

Commission File No. 000-33471



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YAK COMMUNICATIONS INC.

(Exact name
of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Florida                                                        |  | 98-0203422                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                                 |  |           
|------------------------------------------------ |  | ----------
|300 Consilium Place, Suite 500, Toronto, Ontario |  | M1H 3G2   
|(Address of principal executive offices)         |  | (Zip Code)

(647) 722-2752

(Registrants telephone number, including area code)



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



|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on which registered
|None                |  | N/A                                      

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

Common Stock, par value $.01 per share



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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  x    No ̈

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 the registrants 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.  x

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.

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

Non-affiliates of YAK Communications Inc. held
8,129,716 shares of Common Stock as of June 30, 2005. The fair market value of the stock held by non-affiliates is $39.4 million based on the sale price of the shares on June 30, 2005.

As of September 14, 2005, 12,897,250 shares of Common Stock, par value $.01, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.



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##### Table of Contents

TABLE OF CONTENTS

Description

Part I



|         |  |                                                                                       |  |     
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|Item     |  |                                                                                       |  | Page
|1.       |  | Business                                                                              |  | 3   
|2.       |  | Properties                                                                            |  | 16  
|3.       |  | Legal Proceedings                                                                     |  | 16  
|4.       |  | Submission of Matters to a Vote of Security Holders                                   |  | 16  
|        
|Part II 
|         |  |                                                                                      
|5.       |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  | 16  
|6.       |  | Selected Financial Data                                                               |  | 18  
|7.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 19  
|7A.      |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 52  
|8.       |  | Financial Statements and Supplementary Data                                           |  | 52  
|9.       |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 52  
|9A.      |  | Controls and Procedures                                                               |  | 52  
|        
|Part III
|         |  |                                                                                      
|10.      |  | Directors and Executive Officers of the Registrant                                    |  | 55  
|11.      |  | Executive Compensation                                                                |  | 60  
|12.      |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 64  
|13.      |  | Certain Relationships and Related Transactions                                        |  | 64  
|14.      |  | Principal Accountant Fees and Services                                                |  | 65  
|        
|Part IV 
|         |  |                                                                                      
|15.      |  | Exhibits, Financial Statement Schedule, and Reports on Form 8-K                       |  | 66  

EXPLANATORY NOTE

Yak Communications Inc., a Florida corporation (the Company) is filing this Amendment No. 2 (the Amendment) to its Annual
Report on Form 10-K for the period ended June 30, 2005 (the Report) to amend previously issued financial statements corrected for certain previous errors in our consolidated balance sheets, statements of operations and statements of
cash flows for the fiscal years ended June 30, 2005, 2004 and 2003, respectively. The Company has provided amended and restated financial statements and notes thereto; updated financials; an updated audit report and the details of the errors
which can be found under Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations, Note 5. Restatement of Financial Statements and Note 16. Quarterly Results of Operations
(Unaudited) to the Companys consolidated financial statements. The Company has also made revisions to Item 1. Business, Item 6. Selected Financial Data, Item 9A. Controls and Procedures,
Item 10. Directors, Executive Officers and Control Persons of the Company, Item 11. Executive Compensation and Item 12. Security Ownership of Certain Beneficial Owners and Management. Pursuant to
Exchange Act Rule 12b-15, the Company is also including currently dated Sarbanes Oxley Act Section 302 and Section 906 certifications of the principal executive and financial officers, which certifications are attached to this Amendment
No. 2 as Exhibits 31.1, 31.2, 32.1 and 32.2, respectively

The Company has restated its financial statements and accompanying notes
included in the originally filed Report to correct for the errors and deficiencies described below.



| |  |  | To correct errors in the accounting for Next Generation Software (initially restated on June 1, 2005, and later amended on September 28, 2005).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------

The Company has further restated its amended reported financial statements and accompanying notes to correct for the errors
and deficiencies which were discovered subsequently:



| |  |  | To correct for the misapplication of SFAS 133, SFAS 150 and EITF 00-19 related to the 2004 issuance of detachable warrants;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | To correct for disclosure deficiencies under SFAS 131;
| | - |  | ------------------------------------------------------



| |  |  | To correct for disclosure deficiencies under SFAS 109;
| | - |  | ------------------------------------------------------



| |  |  | To correct for errors in its Cash Flow Statements for the fiscal years 2003, 2004 and 2005; and
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | To correct for the misclassification of financing expenses related to assignment of accounts receivable for 2003, 2004 and 2005 and enhancement of disclosure of factored accounts
receivable.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Concurrently with the filing of this Amendment No. 2, the Company is filing (i) Amendment No. 1
on Form 10-Q/A to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and (ii) Amendment No. 1 on Form 10-Q/A to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2005.

Form 10K/A No. 1

The Amendment No. 1 on Form 10-K/A amends Part III of the Initial Form 10-K in order to include those disclosures required by Part III of Form 10-K.

Form 10K

Yak
Communications Inc. filed this Annual Report on Form 10-K for the fiscal year ended June 30, 2005 (the Report). In the Report we restated certain amounts previously reported in our consolidated balance sheets, statements of
operations and statements of cash flows for the fiscal years ended June 30, 2004 and 2003, and the notes related thereto as well as the quarterly results of operations for each of the quarters in fiscal 2004 and the first three quarterly
periods of fiscal 2005 as found in Note 16 entitled Quarterly Results of Operations (Unaudited) to the accompanying consolidated financial statements. As previously disclosed, we reviewed the accounting methodology used with respect to a
June 2003 software acquisition transaction and determined to correct and restate our consolidated financial statements for fiscal years 2003 and 2004, along with the quarterly periods contained in fiscal 2004 and the first quarter of fiscal 2005. On
May 31, 2005, we filed various amended Annual Reports on Form 10-K/A and Quarterly Reports on Form 10-Q/A for the applicable annual and quarterly periods.

Subsequent to the May 31, 2005 amended periodic filings, and in conjunction with our continued discussions with the Office of the Chief Accountant (OCA) of the Securities and Exchange Commission (the
SEC) as part of the guidance requested in connection with the accounting for the subject transaction, we discovered errors in our amended filings. On September 27, 2005, our Board of Directors approved managements
recommendation to correct our accounting related to the software acquisition transaction. The errors originated from:



| |  |  | An error in calculating the discount rate used to determine the fair value of the transaction components for the May 31, 2005 restatements. The error caused the Company to
overstate the value of a long-term note payable, joint venture receivable and the subject software in its amended Annual Report on Form 10-K/A for fiscal year 2003 and subsequent filings;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The revaluation of the long-term note payable in the amended Annual Report on Form 10-K/A for fiscal year 2004 was not consistent with GAAP, notwithstanding the fact that the
resultant gain was deferred;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The deferral of the $0.3 million loss on impairment of the joint venture receivable in the amended Annual Report on Form 10-K/A for fiscal year 2004, should have been recognized in
the fourth fiscal quarter of 2004; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The gain on early extinguishment of debt in the third fiscal quarter of 2005 was overstated by $0.2 million.
| | - |  | ------------------------------------------------------------------------------------------------------------

The changes incorporated into this Form 10-K/A corrects our financial statements for fiscal years 2003 and 2004, respectively, as well as each of the
quarters in fiscal years 2004 and 2005 to reflect the fair value of certain software acquired by us on June 30, 2003, and to revise our assets and liabilities accordingly. All applicable amounts relating to these restatements have been
reflected in the consolidated financial statements and disclosed in the notes to the consolidated financial statements contained in this Annual Report on Form 10-K/A. For a more detailed description of the restatements, see Note 5 entitled
Financial Restatements and Note 16 entitled Quarterly Results of Operations (Unaudited) to the accompanying Consolidated Financial Statements.



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PART I

Special Note About Forward Looking Statements

This report contains certain forward- looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Exchange Act of 1934, as amended, which are based on managements exercise of business judgment as well as assumptions made by and information currently available to, management. When used in this document, the words
may, will, anticipate, believe, estimate, expect, intend and words of similar import, are intended to identify any forward-looking statements. You should not place
undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as described in this Annual Report on Form 10-K, as amended, as well as other periodic
reports, filed with the Securities and Exchange Commission, and as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those
anticipated in these forward-looking statements. We undertake no obligation, and do not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date
hereof, or to reflect the occurrence of any unanticipated events. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize.

ITEM 1. BUSINESS

Yak Communications Inc. (Yak or the Company) was incorporated in
Florida in 1998. We are primarily a switch-based reseller providing a variety of discount long distance services primarily in Canada and to a lesser degree the United States, to residential and small business markets, as well as telecommunications
management services to large enterprises in Canada. We also provide Voice over Internet Protocol (VoIP) services to customers in Canada, the United States and internationally. Yak is a registered reseller of telecommunication services
with both the Canadian Radio Television and Telecommunications Commission (CRTC) and the U.S. Federal Communications Commission (FCC). We began operations in Toronto in July 1999 and embarked on a systematic growth strategy
to all of the major urban centers in Canada.

Our principal offerings are dial around services (also known as casual
calling) with both variable and flat rate pricing. Casual calling allows customers to bypass, or dial around, their existing long distance carrier on a selective basis by entering a few extra digits prior to making a call, without permanently
switching carriers. Yak also provides a 1+ service which routes all long distance calls made by the end user to our network. While our early marketing strategy was initially targeted to North American immigrant and ethnic communities,
the service has gained acceptance and brand loyalty throughout the general population. As of June 30, 2005 we have approximately 905,000 recurring residential and small business customers measured by unique Automatic Number Identification
(ANIs).

The Company has five reportable segments: Yak Canada, Yak for Business, Contour, Yak America and WorldCity VoIP.
Segment sales and profit data that follow are consistent with the Companys current management reporting structure. The Yak Canada and Yak America segments provide products such as Dial-Around, 1+, LooneyCall, YakCell and Calling
Card. The Yak for Business segment provides voice and data products, including local lines, long distance, data management and point-to-point private lines. The Contour segment provides telecommunication management services. The WorldCity VoIP
segment provides VoIP services to residential customers. The Eliminations and Other column includes corporate head office assets, management fees, interest income, warrant revaluation and any other costs and expenses not allocated to individual
segments. The Companys selling, general and administrative expenses and cost of revenues, excluding corporate expense, are charged to each segment based on where the expenses are incurred. Segment results for the periods ended June 30,
2005 and 2004 are as follows (in thousands):



|                                          |  |                                 |   |  |                 |   |  |         |  |            |   |  |               |   |  |               |  |                       |   |  |        |  
|----------------------------------------- |  | ------------------------------- | - |  | --------------- | - |  | ------- |  | ---------- | - |  | ------------- | - |  | ------------- |  | --------------------- | - |  | ------ | -
|                                          |  | Fiscal Year Ended June 30, 2005 |  
|                                          |  | YakCanada                       |   |  | Yak forBusiness |   |  | Contour |  | YakAmerica |   |  | WorldCityVoIP |   |  | TotalSegments |  | Eliminationsand other |   |  | Total  |  
|                                          |  | $                               |   |  | $               |   |  | $       |  | $          |   |  | $             |   |  | $             |  | $                     |   |  | $      |  
|Revenues                                  |  | 72,194                          |   |  | 11,753          |   |  | 5,557   |  | 3,007      |   |  | 76            |   |  | 92,587        |  | 113                   |   |  | 92,700 |  
|Cost of Revenues(1)                       |  | 41,899                          |   |  | 8,416           |   |  | 4,085   |  | 3,094      |   |  | 33            |   |  | 57,527        |  | 109                   |   |  | 57,636 |  
|                                          |  |                                 |   |  |                 |   |  |         |  |            |   |  |               |   |  |               |  |                       |   |  |        |  
|Contribution Margin                       |  | 30,295                          |   |  | 3,337           |   |  | 1,472   |  | (87        | ) |  | 43            |   |  | 35,060        |  | 4                     |   |  | 35,064 |  
|General and administration                |  | 8,767                           |   |  | 2,915           |   |  | 1,083   |  | 1,608      |   |  | 1,216         |   |  | 15,589        |  | 3,447                 |   |  | 19,036 |  
|Sales and marketing                       |  | 1,900                           |   |  | 8               |   |  |        |  | 5,358      |   |  |              |   |  | 7,266         |  | 27                    |   |  | 7,293  |  
|Other Expenses                            |  | (10                             | ) |  | 73              |   |  | 101     |  | (126       | ) |  | 390           |   |  | 428           |  | (1,796                | ) |  | (1,368 | )
|Depreciation and Amortization             |  | 2,077                           |   |  | 556             |   |  | 17      |  | 132        |   |  | 141           |   |  | 2,923         |  | 20                    |   |  | 2,943  |  
|                                          |  |                                 |   |  |                 |   |  |         |  |            |   |  |               |   |  |               |  |                       |   |  |        |  
|Segment Earnings (Loss) Before Income Tax |  | 17,561                          |   |  | (215            | ) |  | 271     |  | (7,059     | ) |  | (1,704        | ) |  | 8,854         |  | (1,694                | ) |  | 7,160  |  
|                                          |  |                                 |   |  |                 |   |  |         |  |            |   |  |               |   |  |               |  |                       |   |  |        |  
|Segment Assets                            |  | 38,029                          |   |  | 7,382           |   |  | 2,409   |  | 1,603      |   |  | 1,381         |   |  | 50,804        |  | 444                   |   |  | 51,248 |  
|Long-Lived Assets                         |  | 11,068                          |   |  | 2,705           |   |  | 286     |  | 629        |   |  | 1,379         |   |  | 16,067        |  |                      |   |  | 16,067 |  

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|(1) | Excludes depreciation and amortization of $2,359
|--- | ------------------------------------------------



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|                                                     |  |                                 |  |                 |   |  |         |   |  |            |   |  |               |   |  |               |  |                       |   |  |       
|---------------------------------------------------- |  | ------------------------------- |  | --------------- | - |  | ------- | - |  | ---------- | - |  | ------------- | - |  | ------------- |  | --------------------- | - |  | ------
|                                                     |  | Fiscal Year Ended June 30, 2004
|                                                     |  | YakCanada                       |  | Yak forBusiness |   |  | Contour |   |  | YakAmerica |   |  | WorldCityVoIP |   |  | TotalSegments |  | Eliminationsand other |   |  | Total 
|                                                     |  | $                               |  | $               |   |  | $       |   |  | $          |   |  | $             |   |  | $             |  | $                     |   |  | $     
|Revenues                                             |  | 62,228                          |  | 11,775          |   |  | 5,646   |   |  | 1,074      |   |  |              |   |  | 80,723        |  | 79                    |   |  | 80,802
|Cost of Revenues(2)                                  |  | 39,403                          |  | 8,647           |   |  | 4,018   |   |  | 1,048      |   |  |              |   |  | 53,116        |  | 33                    |   |  | 53,149
|                                                     |  |                                 |  |                 |   |  |         |   |  |            |   |  |               |   |  |               |  |                       |   |  |       
|Contribution Margin                                  |  | 22,825                          |  | 3,128           |   |  | 1,628   |   |  | 26         |   |  |              |   |  | 27,607        |  | 46                    |   |  | 27,653
|General and administration                           |  | 5,558                           |  | 2,950           |   |  | 964     |   |  | 303        |   |  | 172           |   |  | 9,947         |  | 1,534                 |   |  | 11,481
|Sales and marketing                                  |  | 3,571                           |  | 30              |   |  |        |   |  | 204        |   |  |              |   |  | 3,805         |  | 89                    |   |  | 3,894 
|Other Expenses                                       |  | 2,221                           |  | 40              |   |  | (56     | ) |  | (52        | ) |  |              |   |  | 2,153         |  | (1,203                | ) |  | 950   
|Depreciation and Amortization                        |  | 2,372                           |  | 472             |   |  | 60      |   |  | 62         |   |  |              |   |  | 2,966         |  | 14                    |   |  | 2,980 
|                                                     |  |                                 |  |                 |   |  |         |   |  |            |   |  |               |   |  |               |  |                       |   |  |       
|Segment Earnings (Loss) Before Income Tax            |  | 9,103                           |  | (364            | ) |  | 660     |   |  | (491       | ) |  | (172          | ) |  | 8,736         |  | (388                  | ) |  | 8,348 
|                                                     |  |                                 |  |                 |   |  |         |   |  |            |   |  |               |   |  |               |  |                       |   |  |       
|Segment Assets                                       |  | 32,487                          |  | 3,923           |   |  | 2,984   |   |  | 1,023      |   |  | 591           |   |  | 41,008        |  | 12,642                |   |  | 53,650
|Long-Lived Assets                                    |  | 7,919                           |  | 2,255           |   |  | 296     |   |  | 474        |   |  | 591           |   |  | 11,535        |  | 102                   |   |  | 11,637
|(2) Excludes depreciation and amortization of $2,767
|                                                     | 
|                                                     |  | Fiscal Year Ended June 30, 2003
|                                                     |  | YakCanada                       |  | Yak forBusiness |   |  | Contour |   |  | YakAmerica |   |  | WorldCityVoIP |   |  | TotalSegments |  | Eliminationsand other |   |  | Total 
|                                                     |  | $                               |  | $               |   |  | $       |   |  | $          |   |  | $             |   |  | $             |  | $                     |   |  | $     
|Revenues                                             |  | 39,006                          |  |                |   |  |        |   |  | 1,398      |   |  |              |   |  | 40,404        |  |                      |   |  | 40,404
|Cost of Revenues(3)                                  |  | 24,209                          |  |                |   |  |        |   |  | 1,194      |   |  |              |   |  | 25,403        |  |                      |   |  | 25,403
|                                                     |  |                                 |  |                 |   |  |         |   |  |            |   |  |               |   |  |               |  |                       |   |  |       
|Contribution Margin                                  |  | 14,797                          |  |                |   |  |        |   |  | 204        |   |  |              |   |  | 15,001        |  |                      |   |  | 15,001
|General and administration                           |  | 2,722                           |  |                |   |  |        |   |  | 562        |   |  |              |   |  | 3,284         |  | 558                   |   |  | 3,842 
|Sales and marketing                                  |  | 3,002                           |  |                |   |  |        |   |  | 1,141      |   |  |              |   |  | 4,143         |  | 64                    |   |  | 4,207 
|Other expenses                                       |  | 1,149                           |  |                |   |  |        |   |  | (228       | ) |  |              |   |  | 921           |  | (260                  | ) |  | 661   
|Depreciation and Amortization                        |  | 762                             |  |                |   |  |        |   |  | 41         |   |  |              |   |  | 803           |  |                      |   |  | 803   
|                                                     |  |                                 |  |                 |   |  |         |   |  |            |   |  |               |   |  |               |  |                       |   |  |       
|Segment Earnings (Loss) Before Income Tax            |  | 7,162                           |  |                |   |  |        |   |  | (1,312     | ) |  |              |   |  | 5,850         |  | (362                  | ) |  | 5,488 
|                                                     |  |                                 |  |                 |   |  |         |   |  |            |   |  |               |   |  |               |  |                       |   |  |       
|Segment Assets                                       |  | 27,819                          |  |                |   |  |        |   |  | 450        |   |  |              |   |  | 28,269        |  | (1,525                | ) |  | 26,744
|Long-Lived Assets                                    |  | 5,567                           |  |                |   |  |        |   |  | 194        |   |  |              |   |  | 5,761         |  |                      |   |  | 5,761 

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|(3) | Excludes depreciation and amortization of $687
|--- | ----------------------------------------------



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Yak Canada

We are the largest provider of Canadian, dial-around services, with over 70% market share of the dial around market in Canada according to an IDC Canada report published in 2004. Our principal operation and the
majority of our customers and sources of revenue are currently based in Canada.

In November 2003, we purchased a state-of-the-art
Tekelec/SanteraOne switch. This switch has allowed us to accommodate increased telephony volume while creating certain cost efficiencies. These efficiencies include savings on the fixed cost of leasing lines, reducing the amount of lines required,
lowering the lease costs on rental space, and decreasing the maintenance costs relating to the switch.

With the convergence of voice and
data, and the development of technologies such as VoIP, our Harris switches became obsolete. As a result, in April of 2004 we started to transition from our older Harris environment, into our new SanteraOne switching platform. During the current
year, we finalized the decommissioning of each of the older switches in a systematic manner. The last of the Harris switches was fully decommissioned in August 2004.

We continue to operate our communications network with our SanteraOne switch in Toronto, Canada that we augmented to 40,000 ports in March 2005.

We lease lines from other carriers and maintain our own switching systems in Canada. We buy bulk time from multiple carrier networks and international
providers to supply services to customers. All of our long distance calls are routed through our Tekelec/SanteraOne switch. Our switch is interconnected with several North American and international carriers. These interconnection agreements allow
us to both originate and terminate traffic in all geographic locations. The port density and significantly reduced foot print of the SanteraOne switch has enabled us to transition our traffic from our legacy Teltronics/Harris switches, resulting in
significant cost savings and enhanced operational efficiencies. The SanteraOne switch acts as a gateway, processing both traditional circuit switched (PSTN) traffic and internet traffic coming from our VoIP network.

For billing and collections, we have entered into agreements with the incumbent LECs, Bell Canada and Telus Corporation for the billing and collection of
long distance calling charges made by our customers on the Bell Canada local line network in Ontario and Quebec, and by our customers on the Telus local line network in British Columbia and Alberta. We also have a billing and collection agreement
with MTS covering our services in Manitoba, with Sasktel covering our services in Saskatchewan, and with Aliant Telecom covering our services in provinces on the East coast. The billing and collection agreements cover all long distance calls made
through our dial-around switching long distance service and routing system. We track all such calls made, record information about the source, destination, and duration of the call, rate the call, and provide the LECs with this data electronically.
The LEC billing cycles are several times a month and include these charges to customers on their respective invoices termed as other carrier charges. The LECs then collect these amounts on our behalf. Under the terms of the
Billing & Collection Agreement, the LECs are obligated to pay us within 45 days following the month in which the LECs receive our billing records (subject to offsets for non-collectible accounts). Canadian telecommunications
authorities require that all incumbent LECs provide these billing and collection agreements in perpetuity subject only to our continued compliance with their terms and any changes in applicable regulations.

In addition, we have an agreement with Telus Corporation Clearinghouse Operations (Telus clearinghouse) which allows for the handling,
transporting and delivery of our billing records generated by our switching and billing system to Bell Canada and Telus for invoicing and collection. In conjunction with this agreement, we have developed software and implemented hardware that allows
for electronic encrypted signaling and online transmission of the billable records between our system and that of Telus clearinghouse which will allow them to process the billable records. This online transmission process significantly minimizes
delays and errors in the billing. With respect to MTS and Sasktel we handle, transport and deliver our records to them directly and have developed the necessary software to process these records. The advantage of using Telus clearinghouse
service for the Bell Canada and Telus records is efficiency due to the large volume of records we deliver, since Telus clearinghouse has larger systems in place to process such volume in a timelier manner. The number of records we deliver to MTS and
Sasktel is much smaller, and the cost of delivering these records to them directly is lower than through Telus clearinghouse.



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Yak for Business

In July 2003, we purchased Argos Telecom Inc. (renamed Yak for Business) and Contour Telecom Inc. The purchase of Yak for Business was to extend our services to small and medium business customers
(SMEs) by offering a range of innovative services in the Information Technology and Telecommunications sectors. Our customized business solutions are geared towards companies working in different industries.

We offer a wide array of voice services to help businesses meet the needs of their customers, suppliers and employees. Our extensive, scalable voice
network enables us to bring precisely the reach needed for a businessregional, national or international. We offer a full range of voice services including Extended Area Service (EAS), local line service, toll free service,
teleconferencing, long distance, local number portability, telecom system service and support, cabling for both voice and data, and data services.

Contour

Contour Telecom Inc. was purchased in conjunction with Yak for Business (see above) to sell
telecommunications management services to large enterprises. This telecommunications management segment specializes in voice, data, network, and cost management, helping organizations implement and administer their diverse communication
environments.

Contour provides customer-focused telecommunications management to medium and large business. The result is active and
objective management that saves our clients money, and provides significant improvement in service. We accomplish this via an ongoing focus on cost reduction, containment and consolidated billing, while continually striving to improve service
levels. We introduce advanced telecom practices and discipline to our clients while they focus their internal resources on their core business activity.

Yak America

Effective June 2004, Yak was capable of providing long distance services in all states in the
continental United States. In November 2004, we began a new marketing campaign in the United States to gain share of the $3 billion U.S. dial-around market, as estimated by IDC.

In fiscal year 2005, we initiated a network redundancy plan that will have us deploy a second SanteraOne switch in Miami, Florida during fiscal 2006.
This additional switch will carry our U.S. terminating traffic from our U.S. customer base as well as provide disaster recover support and carry overflow traffic from the switch in Toronto. The new site in Miami also contains a mirror copy of all of
our network support systems to provide true redundancy. Additionally, we implemented in fiscal 2005 a Geoprobe real-time monitoring system that assists us in troubleshooting and maintaining our network.

We also made use of the SanteraOne switch and began routing traffic in Internet Protocol (IP) with other carriers. This will assist us in lowering our
traffic termination costs and will be a major focus of the Miami switch deployment where we are co-located with numerous other VoIP providers.

For billing and collections in the United States we have entered into an agreement with Billing Concepts, Inc., which specializes in inter-carrier clearinghouse operations, for handling, transporting and delivery of our billing records to
the LEC for invoicing and collection purposes. Under this U.S. arrangement all amounts invoiced by the LECs on our behalf are paid, less the LECs collection fees, to Billing Concepts, and in turn Billing Concepts pays our company the amounts
received, less their processing fees. This billing and collection arrangement in the U.S., is similar to those arrangements we have established in Canada, however this agreement does not apply to most of the Competitive Local Exchange Carriers
(CLECs) in the U.S. As a result, we do not process calls which originate from certain alternative local line carriers in the United States. Unlike in Canada, CLECs represent a larger market share of calls originating in the U.S. We have
developed software on our switching systems to block customers of CLECs for which we do not have billing and collection agreements in place.

WorldCity VoIP

In September 2004, we launched a voice over high-speed internet service and
piloted our own facilities-based VoIP network. Use of this internet based product enables our customers to originate or receive calls from international locations



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and is a natural extension of our traditional value proposition. Marketing of our VoIP services is expected to expand our
market potential by providing a cost effective access to global markets and positioning our Company as an early supplier of this emerging technology.

Operating Highlights and Accomplishments in 2005:



| |  |  | Increased net revenue by 15% to $92.7 million for the 12 months ended June 30, 2005 from $80.8 million for the 12 months ended June 30, 2004;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reduced long term debt by $4.2 million from $5.2 to $1.0 million, or 81%;
| | - |  | -------------------------------------------------------------------------



| |  |  | Implemented Yaks VoIP services in September 2004 and began our promotional activity in January 2005;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | Financed our ongoing operations from internally-generated working capital;
| | - |  | --------------------------------------------------------------------------



| |  |  | Began marketing of U.S. dial-around services, to niche market ethnic communities;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | Purchased in March 2005 the Ontario and Quebec based local resale customer base and Centrex lines of Navigata Communications Limited thereby acquiring 450 SME customers, totaling
4700 Centrex lines; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Purchased and installed a Geoprobe real-time switching platform to monitor our networks.
| | - |  | ----------------------------------------------------------------------------------------

THE INDUSTRY

The resale of long distance calling was first permitted in the North American market
(Canada and the United States) in the 1980s. The highly competitive and rapidly changing international telecommunications market (deregulation, privatization, the expansion of the resale market) has created significant opportunity for carriers that
can offer high-quality, low cost, international long distance services. This market has been driven by decreased termination costs, a proliferation of call routing options, and increased competition. Meaningful competition in long distance services
in Canada has been in effect since the 1990s. Five very large providers of long distance services dominate the Canadian market: Bell Canada, Telus Corporation, Sprint Canada (acquired by Rogers Communications Inc. on July 1, 2005), Allstream
(acquired by MTS on June 4, 2005) and Primus Telecommunications Canada Inc. For calendar year 2004, the long distance market in Canada was estimated at $4 billion. Recent regulatory reforms and the growing acceptance of VoIP technologies has
seen cable companies, Rogers Communications Inc. and Shaw Communications Inc. enter the Canadian local and long distance markets.

While
the Canadian telecommunications sector is still growing, competitive forces have reduced prices and the market revenue has declined from approximately $12 billion to $11 billion. For the three year period ending 2004, non-traditional segments
(wireless, Internet and VoIP transmission services) grew from $11 billion to $14 billion. This type of competition has led to service innovation, declining prices and significant industry re-structuring.

According to BMO Telecom Research, the telecommunications sector in the United States has continued to experience a moderate decline in year over year
long term growth. However, long distance revenue growth remains relatively strong, with BellSouth and SBC continuing to post double-digit growth rates. With the acquisitions of AT&T (by SBC Communications Inc.) and MCI (by Verizon Communications
Inc.) the pricing environment that has affected the Canadian market is expected to stabilize in the United States.

The legacy voice market
has not experienced significant entry of new players, and in fact, has witnessed noteworthy consolidation. The five primary providers of long distance services in Canada have maintained their relative market positions. The overall size of the
traditional market has been reduced by approximately 9% primarily due to a decline in prices and the nascent entry of VoIP services. Bell Canada and Telus control approximately 55% of the market, while Allstream, Sprint Canada and Primus have an
estimated 24% of the market. The other provincial based incumbent telecommunication service providers  Aliant and Sasktel  collectively have an approximate 12% market share. The remaining alternative providers have approximately 9%.

Dial-around long distance services remain a viable and innovative alternative to traditional 1+ long distance services. We believe that
our market share has been reinforced by recent consolidation within the industry.

The purchase of Sprint Canada by Rogers, a major
Canadian cable, internet and cellular provider, advances Rogers position in the market as a voice service provider. This acquisition further reduces consumer choice, as cable companies and incumbent telephone companies vie for dominance in the
traditional and emerging VoIP markets.



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The stability of the traditional market is being disrupted by the rapid entry of VoIP providers. VoIP is
a telecommunications service that allows customers to make telephone calls over a high-speed internet connection, rather than the traditional analogue telephone line. It is therefore dependent on the end user having access to a high-speed internet
connection. Our VoIP product and services are targeted at this user segment and we expect our internet-based telecommunications services to help us maintain and grow our share of the overall market.

According to a Nielson and Ipsos-Reid survey, North America has significant high-speed internet (cable or DSL) penetration rates. In March 2005,
Canadians had a penetration rate of 77% while only 57% of Americans were connected which provides a significant basis for VoIP growth. At the same time, the portion of the North American market that does not have access to high-speed internet
services provides an opportunity to resell traditional long distances services, such as dial-around or 1+.

Major cable
operators, telephone companies and independents have entered the voice resale services market using VoIP technology. The current independent North American market leader is Vonage Holdings Corp., which announced that it has more than 1 million
lines in service in September 2005. In Canada, the first significant VoIP entrant was Primus Canada which, according to their most recent public filings, currently has 60,000 lines in service. Although these figures represent a small fraction of the
total number of lines in service connecting homes and businesses, there is significant potential for growth given the high-speed internet penetration rates in Canada and the United States. Although cost of customer acquisition in the VoIP
marketplace is significantly higher than that of traditional markets, analysts are increasingly bullish about VoIP and its potential impact on the telecommunications market. The SeaBoard Group (a Canadian technology research and strategy consulting
company) expects that there will be approximately 4 million VoIP lines in Canada by 2008, compared with 418,000 by the end of 2005.

COMPETITION

In both Canada and the United States there are several other dial-around companies competing in the marketplace.

Canada

In Canada, our key competitors include
Alterna-Call, a division of Sprint Canada, and Telehop Communications, Inc., a publicly listed company on the TSX Venture Exchange. Alterna-Call offers dial around services with its principal offering being a domestic (North American) fixed, flat
rate calling service. Telehop offers similar dial-around services, including a regional flat rate product. Telehops annual revenues were approximately $11 million (USD) for the fiscal year ended December 31 2004. Yaks Looney
call product is offered as a direct alternative to our competitors and offers consumers 38 minutes of calling time anywhere in Canada, the U.S., China and Hong Kong for $1 (CAD) and $0.05 per minute thereafter.

United States

In the United States there are many
established companies offering dial around services including Americatel Corp., Vartec Telecom, Inc., Sprint Corp., and MCI Corp. There are hundreds of other dial-around companies offering their services on a regional basis. Vartec was recently
acquired out of bankruptcy proceedings by Comtel Telecom and Comtel Virginia.

Current product offerings by our competitors vary with
different calling plans and rates which are often dependent on the time of day during which the call is made and are, for the most part, flat rate calling i.e., packaged number of minutes for a set amount of cost. Most of these companies have placed
a significant emphasis on North American calling rates (primarily for inter-state and intra-state calling within the U.S.). We believe that there are significant opportunities in the United States for our company to specialize in a pay as you
go program for international discount calling without the myriad of access and service charges.

VoIP/Broadband

Competition from traditional telecommunication companies and non-traditional start-ups entering the VoIP market is at an early stage, but this market has
shown signs of growth which may be indicative of a material change in the telecommunications marketplace. Because this market is at such an early stage of technological development, and because the regulatory agencies are adjusting to the advent of
this technology, no models have emerged to properly gauge competition. Despite the start-up nature of this market, several relatively small companies have begun to market VoIP services including Primus Canada and a variety of U.S. based start-ups
such as Vonage Holdings Corp., 8x8 Inc., Broadvox Limited LLC and SunRocket, Inc.



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No large Canadian incumbent telecommunications company has substantially entered the VoIP marketplace,
although all have announced plans to do so. Cable companies, such as Rogers and Shaw offer their services as an alternative to both the local line and long distance service provided by the incumbent telecommunication service providers.

Several large telecommunications service providers have begun to offer VoIP-based products in the United States (including AT&T, Verizon and
Qwest) and a number of large cable companies such as Comcast and Time Warner are offering VoIP services as well. Vonage, a private company for which public information is limited, is also a competitor in the VoIP marketplace.

Skype Technologies S.A. (a private company to be acquired by eBay) offers a software application that allows people to talk and instant message for free
using PC-to-PC connections. Skype recently launched VoIP services enabling computer users to make phone calls from their PCs and other services that allow users to pay for calls placed to the PSTN. Skype reports that its software has been downloaded
nearly 145 million times and claims to have 47 million people using its services with more than 1.8 million of such uses using one of its optional pay services.

We believe that our current business with its existing customer base, brand recognition, network infrastructure, carrier relationships, and our technical
and strong management team coupled with our free cash flow will allow us to compete in this marketplace. We plan to target niche markets and provide them with a technologically progressive, feature-rich high-speed internet based product.

STRATEGY

In the near and medium term, we expect
our growth to come from several sources:



| |  |  | Increased share of the addressable Canadian and U.S. dial-around and 1+ markets;
| | - |  | --------------------------------------------------------------------------------



| |  |  | Growth of our customer base and product offering to SMEs in Canada through additional marketing campaigns and product development; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Expansion of VoIP initiatives.
| | - |  | ------------------------------

We expect to continue to
generate increased revenues, positive net income, and strong cash flow from our core Canadian dial-around business. These results will serve to fund our growth of dial-around and 1+ services in the United States, and the expansion of our VoIP
product offering. Our goal is to expand the size of the addressable Canadian marketplace by marketing our product suite outside of major urban centers. Through a database marketing plan we intend to target those specific geographical areas where we
can increase penetration and cost effectively expand our services to our niche markets.

DESCRIPTION OF COMPANYS PRODUCTS AND SERVICES

To meet the changing demands of the telecommunications customer, we are continually developing new products.

Current Products:

Yak Dial-Around

Our dial-around service offers competitively priced long distance services. Customers in Canada and the U.S. dial our 10-10-925 Carrier Identification
access Code (CIC) before placing domestic or international long distance calls. The charges for the calls appear on the customers current phone bill. A customer is not required to switch their carrier, and there are no access and
connection fees.

LooneyCall

We offer a flat
rate long distance dial-around product aimed at customers who make long duration long distance calls. LooneyCall enables Canadian customers to purchase up to 38 minutes of long distance time for $1 (CAD) per call to anywhere in Canada the United
States, China and Hong Kong. The charges for the calls appear on the customers current phone bill. A customer is not required to switch their carrier, and there are no access and connection fees.

1+ Program

We also offer a 1+ Billing program for
high-volume dial-around customers. The customer can sign up with our 1+ program, essentially giving us the authorization to move the customer from their current long distance provider to our switch.



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The customer would then receive our lower rates each time he makes a call and would receive a bill directly from Yak.
This service requires that the customer dial just 1 or 011 before making long distance calls, without having to dial the normal access code.

Yak Cell

We offer a competitive cellular long distance service that is being sold to residential and business customers across North America.
Cell phone users simply need to register their cellular phone online and provide a method of payment in order to start saving on long distance. The customer is not required to switch their cellular provider in order to use this service.

WorldCity VoIP

We have developed a range of
voice services over high-speed internet access including local, long distance and other value-added services that are designed to help our customers keep in touch more efficiently and economically compared to traditional telephony services. For our
customers who currently have a broadband connection, WorldCity VoIP combines bundled local and long distance (within North America) calling packages with competitive international rates, plus phone features like Caller ID, Three Way Calling
and Voicemail for one flat price in addition to free member-to-member international calling.

Yak Conference

Yak conferencing service enables a business customer to schedule conference calls for themselves anytime, online. There is no internet access needed for
the other participants in the call. The only charges that apply are the applicable long distance telephone charges from the phone company of the originator.

Yak Travel

The Yak Travel card allows a customer to enjoy low long distance rates while they travel. Yak Travel enables a
customer to call from anywhere in Canada, or the U.S., to anywhere in the world by dialing a local access number and following several voice prompts. This service is billed on either a prepaid or postpaid basis.

SALES & MARKETING ACTIVITIES

Our marketing
strategy is focused on identifying and selling to certain niche markets or collections of customer profiles that use telecommunication services. We continually reinforce the customer relationship and position the Yak brand by emphasizing
services that provide value and quality. We have been successful entering niche ethnic markets across North America by establishing a strong brand presence offering competitively priced services, custom tailored to the international markets we
serve. We currently use print media, television, radio, outdoor advertising, and direct mail marketing materials to develop brand recognition and generate new customers. Targeted direct mail coupled with print media advertising in community
newspapers and on selected television and radio programs has allowed us to reach customers that make long distance domestic and international calls.

In 2005, we expanded our marketing strategy to include the promotion of our dial-around services in the United States. Multi-media marketing campaigns were initiated in Florida, New York and California and we
entered into agreements with celebrity ethnic spokespersons to further grow our United States operations. We expect to continue these campaigns and broaden our use of Internet marketing in conjunction with the development of our
Internet-enabled products.

NETWORK

Our Tekelec/SanteraOne switch has positioned us to more efficiently accommodate the expansion of our customer base. The switch will act as a gateway to both traditional PSTN networks and IP networks. This switch is connected through leased
lines to the Local Exchange Carriers (LECs) tandem and central offices by long haul diverse fiber, and also to Interexchange Carriers (IXCs) networks providing customers access to true coast to coast
networks. Dedicated fiber transport is contracted from different carriers to provide us with the most competitive pricing.

Our
coast-to-coast leased line network in Canada allows us to originate and terminate the majority of our traffic on our own network, thereby reducing our overall switching costs. For calls that terminate outside of Canada, we have agreements with other
off net International and cross border carriers, which are selected by running real time least cost routing algorithms.



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In addition, Yaks network has expanded further into the U.S. by loading our CIC codes in all
Regional Bell Operating Companies (RBOCs) central offices in all mainland 48 states. U.S. customers can reach this network by dialing our CIC code or signing up to Yaks 1+ program. U.S. originated calls are hauled to
our switch in Toronto and terminated on our Canadian network or routed off net if the calls terminate outside of Canada. Further, redundancy has been built in this U.S. network by connecting our switch to two independent major switching
centers in New York City.

For our VoIP customers, all calls are routed through our VoIP network, which is then interconnected with other
VoIP networks or to our Santera PSTN/IP network.

EMPLOYEES

As of June 30, 2005, we have 151 full-time employees including eight part-time employees, with the following breakdown:



| |  |  | Corporate (10)
| | - |  | --------------



| |  |  | Yak Dial-Around (56)
| | - |  | --------------------



| |  |  | Yak VoIP (10)
| | - |  | -------------



| |  |  | Yak for Business (50)
| | - |  | ---------------------



| |  |  | Contour Telecom (25)
| | - |  | --------------------

All of our part-time employees are
paid for their services on an hourly basis. We consider our relations with our employees to be excellent, and none of our employees are covered by a collective bargaining agreement.

GOVERNMENTAL REGULATION

As an international communications company providing telecommunications
services in Canada and the United States, we are subject to varying degrees of regulation in each of the jurisdictions in which we provide services. Laws and regulations applicable to the provision of telecommunications services, and the
interpretation of such laws and regulations, differ significantly among the jurisdictions in which we operate. The summary below describes the primary regulatory developments in the U.S. and Canada that may have a material effect on our business.

In general, the regulation of the telecommunications industry continues to change rapidly both domestically and globally. In both the U.S.
and Canada, telecommunications regulations are from time to time subject to judicial and administrative proceedings, as well as legislative and administrative hearings, in which proposals are made that, if adopted, could change the manner in which
our industry operates. We cannot predict the outcome of these proceedings or their impact on us. There can be no assurance that future regulatory, judicial and legislative changes will not have a material adverse effect on us, or that domestic or
international regulations or third parties will not raise material issues with adverse effect on us.

Canada

Registration and Licensing Requirements. We are registered with the CRTC as a reseller of telecommunications services in Canada. This
is a requirement that has been imposed by the CRTC on all persons that resell telecommunications services in Canada. Registration with the CRTC is the only requirement necessary to have the authorization to resell telecommunications services in
Canada. The provision of certain services, however, requires additional licensing by the Commission or is subject to certain rules and regulations, regardless of whether the services are provided on a resale or a facilities basis.

As of January 1, 1999, new requirements oblige all persons who provide basic international telecommunications services (voice or data) to obtain a
license from the CRTC for the provision of such services. Resellers who provide basic international telecommunications services must therefore obtain an international services license, in addition to registering with the CRTC as a reseller.

The international services licensing regime was established in part because of concerns relating to the potential for anti-competitive
behavior involving foreign monopolists acting in conjunction with a resale affiliate based in Canada. The CRTC also wished to be able to exercise some supervision over Canadian service providers, especially resale affiliates in Canada.



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We are required to hold a Class A license as we operate telecommunications equipment that converts
basic international traffic from circuit switched traffic to data. We currently hold a Class A license from the CRTC. The CRTC issues international telecommunications service provider licenses for a period of five years and has indicated that,
once it gains more experience with the licensing regime it will consider extending the terms to the maximum permitted length of 10 years. Licensees who maintain their licenses in good standing may expect to have them renewed by the CRTC. Currently,
there is no fee payable in order to obtain a basic international telecommunications services license.

Once a Class A license is
obtained, the licensee must keep it current, by advising the CRTC of any changes to the information about the licensee that has been filed with the Commission. The licensee must also file an annual affidavit stating that no changes to the
information on file have taken place or alternatively describing any such changes and retain all data with respect to basic international traffic that it converts from data to circuit-switched. Licensees are also obliged to comply with the
requirements of the Canadian contribution regime (see below) as a condition of their license and to file an annual affidavit attesting to the licensees compliance with this requirement. We are currently in full compliance with all filing
requirements of our Class A license.

Because we do not provide any services on a monopoly basis and are not a resale affiliate, it is
highly unlikely that the CRTC will have any concerns regarding anti-competitive behavior on our part. In addition, because we do not own or operate the underlying transmission facilities used to provide telecommunications services to the public, we
are not classified as a Canadian carrier, but rather as a reseller. As such, we are not subject to the Canadian ownership and control requirements that apply to the facilities-based Canadian carriers.

Contribution Requirements. The CRTC established the contribution regime (a universal access-type regime) in 1992 when it first
opened the long distance market to facilities-based competition. The contribution regime was re-designed in 2000, when the CRTC introduced a revenue-based funding mechanism for subsidizing universal access. The new contribution regime is
broadly-based and requires that contribution be paid on the revenue from the widest possible range of services and service providers. Thus, Incumbent Local Exchange Carriers (ILECs), long distance operators, CLECs, cellular
operators, resellers such as our company and others must all make contribution payments based on their Canadian telecommunications service revenues.

Contribution-eligible revenues are defined as total revenues from Canadian telecommunications services less certain allowable deductions. The most important deduction for us is the inter-carrier payments deduction. To
prevent double taxation, inter-carrier payments to other telecommunications service providers are deducted from the total of Canadian telecommunications service revenues (except where the services are used to provide a
contribution-ineligible service, such as the provision of non-Canadian telecommunications services or where the services are used internally by the acquiring service provider).

For fiscal years 2005 and 2004, the contribution charge was 1.1% of contribution-eligible revenues. The rate is expected to remain stable or
slightly decline in future years. Although we cannot predict whether the CRTC will change its method of contribution assessment and collection in the future, if the current approach remains unchanged and the overall contribution requirement declines
as expected, we do not anticipate that our total contribution payments will become material in future years.

Voice over Internet
Protocol (VoIP) Regulation.Earlier this year, the CRTC released two decisions on the Canadian regulatory framework for VoIP services. It affirmed its preliminary position that VoIP services that provide subscribers with access
to and/or from the PSTN and the ability to make and/or receive local telephone calls are to be regulated as local exchange services. Therefore, existing regulatory requirements would apply depending on the class of service provider, i.e. ILECs,
CLECs and resellers. This approach allows Yak to offer VoIP services as a local reseller with minimal regulatory requirements and Yaks competitors in Canada, particularly the incumbent carriers, will be regulated to a much greater degree (e.g.
ILECs are required to file tariffs and not price their service below cost). As well, the CRTC enunciated that underlying broadband access providers should not discriminate against independent VoIP providers, such as Yak. Although Yak views this
decision as positive, we are still required to develop and implement local service features (such as basic 911 and network-based privacy obligations) that will increase Yaks costs to provide VoIP services. The CRTC has yet to set compliance
dates other than the requirement that VoIP service providers provide basic 911 by July, 2005. Yak currently offers basic 911 to our Canadian subscribers, however the CRTC indicated that the requirement to offer basic 911 is only an interim measure
and in the future it will require VoIP providers to offer full enhanced 911 once technical obstacles are overcome.

The ILECs have appealed
the CRTCs VoIP decision to the Canadian federal cabinet. The ILECs argue that VoIP services are fundamentally different from current local voice services and it should be unregulated. Should their appeal be successful, ILECs would likely not
be required to offer VoIP services pursuant to tariff and would be able to price below cost and/or have greater latitude to discriminate against independent providers, such as Yak.



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Other Regulatory Developments.On February 3, 2005, the CRTC released Telecom Decision
CRTC 2005-6 (Decision 2005-6) with respect to the ILECs Competitive Digital Network services (CDN). In Decision 2005-6, the CRTC set the terms and conditions, as well as the rates that competitors will pay the ILECs for digital
network services they rely on to provide services to their customers. Rates for access to low-speed services, which are legacy copperbased, were set at cost plus 15 per cent. However, rates for high-speed services, which are generally
fibre-based and easier to replicate, were reduced from their prior market level to cost plus a margin of 15 percent. The CRTC found that competitors, such as Yak, still rely heavily on the facilities of telephone companies and that by reducing the
prices for underlying facilities, competitors will be able to offer services to more customers and in more regions and growth in their customer base. We regard this decision as positive and expect to enjoy lower network costs as a result.

United States

In the United States we
operate as an IXC. Because we offer basic communications services, e.g., plain old telephone service between points in two different states (interstate service), and between the U.S. and a foreign country
(international services), these services are subject to the provisions of the Communications Act of 1934, as amended (the Act) and the regulations of the FCC. In addition, we offer basic communications services within a
specific state (intrastate service). Intrastate interexchange services are subject to the telecommunications laws of the state in which the service is provided, as well as subject to regulations made by the states public utility
commission (PUC) pursuant to the relevant telecommunications laws.

Interstate and International Services
Regulation. The FCC regulates the provision of interstate and international basic communications services where such services are provided by a common carrier. A common carrier is an entity that offers basic
communications services to the public or to all prospective users on standard rates, terms and conditions. We are considered to be a common carrier. The FCC has substantially deregulated interstate and international common carrier services.
Nonetheless, we are required to (1) provide our regulated telecommunications services on a non-discriminatory basis upon any reasonable request; (2) charge rates and adopt practices, classifications and regulations that are just and
reasonable; (3) avoid unreasonable discrimination in charges, practices, regulations, facilities and services; and (4) file tariffs setting forth the rates, terms and conditions for our services, or establish an Internet web site that
lists such rates, terms and conditions. Also, we must comply with a variety of license, rate making, reporting and other requirements in our provision of interstate and international telecommunications services, including but not limited to the
payment of annual regulatory fees and other contributions to funds established by the FCC.

In providing international service, we are
subject to certain additional rules and requirements. In particular, we must have a license granted by the FCC to provide international service (sometimes called a Section 214 authorization). We have obtained a Section 214
authorization from the FCC to provide international switched and private line services to foreign locations using our own facilities or using services we lease from other carriers. Other international service rules also may affect our international
business, including rules limiting routes over which U.S. international carriers may be permitted to provide international switched services over private lines interconnected with the public switched network (referred to as International Simple
Resale, or ISR).

Our costs of providing long distance services will be affected by changes in the rates imposed by ILECs
as well as CLECs for origination and termination of calls over local facilities (access charges). Access charges generally comprise a significant portion of the cost of providing interexchange services in the U.S. The FCC has
adopted several orders in recent years having the effect of reducing switched access charges imposed by local telephone companies. The FCC is currently considering further changes in its access charge regime; we cannot predict the outcome of these
proceedings or how such outcome will affect us.

Other carrier compensation issues similarly may affect our operating expenses as well as
our ability to compete with other IXCs and providers of other competitive services, such as VoIP. The FCC has initiated a broad-ranging rulemaking proceeding in which it has proposed the replacement of various forms of intercarrier
compensation; we cannot predict the outcome of this proceeding or its possible effect on our company.

As a provider of interstate and
international telecommunications services, we must contribute to the federal universal service fund (FUSF) established by the FCC. The FUSF ensures that high quality, affordable telecommunications service is available to all Americans.
Pursuant to the FCCs universal service rules, all telecommunications providers must contribute a percentage of their interstate and international end-user telecommunications revenues to the FUSF. Contributions to federal universal service
support mechanisms are determined using a quarterly contribution factor calculated by the FCC. The contribution factor is subject to change quarterly and may be increased or decreased depending upon the needs of the FUSF. The current contribution
factor for the fourth quarter of our fiscal year was 11.1%. In July, these rates fell to 10.2% for our first quarter billed revenue amounts. These costs are passed through to our customers.



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The FCC currently is conducting a comprehensive review of the rules governing the methodology by which
entities contribute to the FUSF. While the outcome of this proceeding and its effect on our business cannot be predicted, if any of these proposals are implemented, the amount of our contributions to the FUSF may increase, and could negatively
impact our business, prospects, operating margins, cash flows and financial condition. Changes to federal universal service funding obligations could adversely affect us by increasing the payments owed to support the fund.

As of April 1, 2003, carriers may continue to assess a federal universal service surcharge on their customers, either as a flat amount or a
percentage of a customers revenue, however, this surcharge may not exceed the total amount of the universal service contribution factor currently in effect. As a result, we are precluded from assessing a federal universal service-related
charge on our end user customers in excess of the relevant interstate and international telecommunications portion of customers bill times the relevant contribution factor. We remain able to recover legitimate administrative costs relating to
our contribution to the FUSF, provided that such cost recovery is made through areas other than our universal service line item surcharge.

In addition to cost of service issues affecting IXCs in general, regulatory developments affecting the RBOCs may have an impact on our ability to compete. The Telecommunications Act of 1996, which amended the Act, establishes
standards for RBOCs and their affiliates to obtain from the FCC authority to provide long distance telecommunications services originating in their in-region local access and transport areas, or LATAs, to points outside that area. LATAs are
geographical regions in the United States within which a Bell Operating Company may offer local telephone service. The FCC has approved the RBOCs applications to provide in-region interLATA long distance service in most states. Because of
their existing base of local telephone service customers and their extensive telecommunications network, the RBOCS have the potential to be significant long distance competitors in each of the states in which they have obtained in-region, interLATA
authority from the FCC.

Intrastate Services Regulation. Our intrastate long distance operations are subject to various state
laws and regulations, including, in most jurisdictions, certification and tariff filing requirements. Some state PUCs also require the filing of periodic reports, the payment of various fees and surcharges and compliance with service standards and
consumer protection rules. State PUCs often require pricing approval or notification for certain stock or asset transfers or, in several states, for the issuance of securities or debt or for name changes. We have received formal commission approvals
of applications to provide IXC resale services in Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Missouri, Maryland, Massachusetts, Michigan,
Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Vermont, Washington, West Virginia,
Wisconsin, and Wyoming. We are also authorized to provide IXC resale services on a registration, or unregulated basis, in Iowa, New Jersey, Utah, Virginia and the District of Columbia. Applications for authority to provide intrastate service are
pending in Oklahoma and Alaska.

Certificates of authority can generally be conditioned, modified, canceled, terminated, or revoked by
state regulatory authorities for failure to comply with state laws and/or the rules, regulations, and policies of the state regulatory authorities. Fines and other penalties also may be imposed for such violations. PUCs also regulate access charges
and other pricing for telecommunications services within each state. The regional Bell operating companies and other local exchange carriers have been seeking reduced state regulatory requirements, including greater pricing flexibility which, if
granted, could subject our long distance services to increased price competition. We may also be required to contribute to intrastate universal service funds in some states.

VoIP Regulation. In the United States, traditional telephony service has been subject to extensive federal and state regulation. In
contrast, information services and Internet services have been subject to less or no regulation. To date, the FCC has treated Internet service providers as information service providers and has preempted state jurisdiction (although that ruling has
been appealed). 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. Regulators are struggling
to determine the appropriate regulatory treatment of VoIP services given that such services resemble both traditional telephony and information services.

While the classification of computer-to-phone VoIP services is being considered in the FCCs IP Enabled Servicesproceeding, the FCC has issued orders concerning the appropriate regulatory classification
of certain VoIP services. For example, on February 19, 2004, the FCC granted pulver.coms Petition for Declaratory Ruling that its service is neither telecommunications nor a telecommunications service and that the service is properly
classified as an information service under the 1996 Telecommunications Act. The FCCs Pulver Order addressed only computer-to-computer IP telephony



14



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##### Table of Contents

services and was extremely fact specific. Among the factors identified by the FCC as important to its finding were
that the pulver.com service required the use of a broadband Internet connection, users must be online in order to utilize the service, the pulver.com service did not allow for users to make calls to PSTN users, and the service is offered for free.
In response to a petition filed by AT&T, the FCC issued an order in 2004 concluding that AT&Ts phone-to-phone VoIP service is a telecommunications service under the Act. Users of AT&Ts service described in the petition
originate calls using ordinary telephone lines to communicate with other users of ordinary telephone lines and AT&T used VoIP transmission technology for a portion of the call path. The FCC limited its ruling to services like AT&Ts
which do not require a user to have a broadband Internet access or an adapter that converts the telecommunications to and from IP format at the users premises.

Obligations to Provide E-911.In June 2005, the FCC released a comprehensive VoIP E-911 Order (the Order). The Order applies only to VoIP service offerings that require a broadband
connection, enable two-way communications, allow subscribers to receive calls that originate on the PSTN and that can be used to terminate calls to the PSTN. Such service offerings must include full enhanced 911 (E-911) services
with routing and functionality comparable to the enhanced 911 provided by traditional land-line local exchange carriers. VoIP providers that offer nomadic services, as in the case of Yak, or non-geographic numbers have the additional burden of
implementing a nationwide E-911 solution in order to comply with the FCCs unqualified requirement to ensure that all 911 calls are routed to the appropriate local Public Safety Answering Point (PSAP). The FCC rules require
that providers ensure that 911 calls are not routed to a PSAP that does not correspond to the location of the VoIP user, VoIP providers must implement a system to allow customers to update their registered location in a timely manner.

The FCC Order applies to a number of our VoIP service offerings. We do not currently provide 911 with any of our U.S. based VoIP service
offerings. E-911 service requirements must be in place by November 28, 2005, and the FCC has warned that failure to comply with the rules contained in the Order may be penalized. The FCC indicated that non-compliant VoIP providers
will be subject to enforcement action, including substantial proposed forfeitures and, in appropriate cases, cease and desist orders and proceedings to revoke any FCC licenses held by the VoIP provider. The FCC Order also requires VoIP providers to
advise new and existing subscribers of any E-911 service limitations, and to obtain and keep records of each subscribers acknowledgement of such notification. We expect to comply with these customer notification requirements.

Numerous similarly situated VoIP providers have argued to the FCC that it is not practical for VoIP providers to meet the FCCs November 28,
2005 deadline given the absence of a legal obligation on the part of the traditional local exchange carriers to provide access to the E-911 routing system to VoIP providers, the absence of a legal obligation on PSAPs to accept VoIP E-911 calls, the
extraordinary expense and effort required to establish the routing and functionalities required, and the inability, to date, of any third-party emergency services provider to offer E-911 solutions to VoIP providers. Several providers have appealed
the FCCs order or have filed petitions for reconsideration of the Order. Several parties in these and other filings have argued that the significant technical and cost barriers make it impractical for VoIP providers to meet the
November 28, 2005 deadline and have urged the FCC to extend or modify its requirements. Several parties have urged the FCC to narrow the scope of its requirements or to otherwise modify its rules to reduce the burden of complying with the
FCCs new VoIP E-911 rules. These appeals, petitions for reconsideration, and additional rulemaking are pending and we cannot predict the outcome of those proceedings.

REPORTS TO SECURITY HOLDERS

We may furnish our stockholders with a copy of this Form 10-K/A and with
quarterly or semi-annual reports containing unaudited financial information.

For further information about our company, you may read the
materials we have filed with the SEC without charge at the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You can also obtain copies of these materials at prescribed rates from the
Public Reference Section of the SEC in Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms.

Our SEC filings and the registration statement can also be reviewed by accessing the SECs internet site at http://www.sec.gov, which contains
reports, proxy and information statements and other information regarding registrants that are filed electronically with the SEC.



15



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##### Table of Contents

ITEM 2. PROPERTIES

As of June 30, 2005 we have a number of leases in place to support our business.
In May 2004, we moved from our offices at 55 Town Centre Court to 300 Consilium Place to gain the efficiencies of having the majority of our operations in one location, and consolidating the acquisitions of Yak for Business and Contour business
units. During the 2005 fiscal year, we renewed our lease for our Montreal office, which supports the Quebec operations of Yak for Business, through December 2008.

We currently lease space at 151 Front Street, Toronto, Ontario and 50 NE 9thStreet,
Miami, Florida, to house our telecommunication switches and cross-connect platforms. Both locations are in buildings which house switches for many other telecommunications carriers. This provides us with the advantage of ease of access to other
carriers. These switches are installed in rooms that are environmentally modified, cooled and designed for switching equipment. These facilities have full battery backup for a full 24 hours in the event of a power failure. Our current lease for the
facility at 151 Front Street is for five years (which commenced in March 2002) with annual occupancy costs of approximately $75,000, with an option for another 5 years at then-current rates. Our current lease for the facility at 50 NE 9thStreet commenced in June 2005, for a three year term, and provides for annual occupancy costs of approximately $117,600.



|                                                    |  |             |  |                      |  |                   |         |                      |   |        
|--------------------------------------------------- |  | ----------- |  | -------------------- |  | ----------------- | ------- | -------------------- | - | -------
|Location                                            |  | Square Feet |  | Lease TermExpiration |  | Annual Rent Costs |         | AnnualOccupancyCosts
|300 Consilium Place, 5thFloor, Toronto, Ontario     |  | 19,240      |  | July 09             |  | $                 | 193,100 |                      | $ | 529,800
|50 NE 9thStreet, Miami, Florida                     |  | 100         |  | May 08              |  | $                 | 60,000  |                      | $ | 117,600
|151 Front Street, Toronto, Ontario                  |  | 1,000       |  | February 07         |  | $                 | 48,000  |                      | $ | 74,800 
|55 Town Centre Court, Suite 610, Toronto, Ontario   |  | 6,500       |  | May 06              |  | $                 | 59,900  |                      | $ | 121,300
|55 Town Centre Court, Suite 600, Toronto, Ontario   |  | 3,733       |  | June 05             |  | $                 | 37,400  |                      | $ | 69,700 
|1 Place du Commerce, Suite 340, Brossard, Ontario   |  | 7,100       |  | December 08         |  | $                 | 55,800  |                      | $ | 105,200
|20803 Biscayne Boulevard, Aventura (Miami), Florida |  | 2,805       |  | June 07             |  | $                 | 75,700  |                      | $ | 77,170 

During the fiscal year 2005, both of our 55 Town Centre locations were vacated in anticipation of
our relocation to 300 Consilium Place. No penalties were incurred upon cancellation of the lease for the 55 Town Centre locations.

ITEM 3. LEGAL PROCEEDINGS

We are currently not a party to any material litigation which is not incidental
to the ordinary course of our business and operations. In the ordinary course of business, the Company is from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible
that the resolution of such matters might have a material adverse effect upon the financial condition and/or results of operations of the Company. However, in the opinion of the Companys management, matters currently pending or threatened
against the Company are not expected to have a material adverse effect on the financial position or results of operations of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On December 16, 2004, we held our annual
meeting of stockholders. At this annual meeting, the stockholders voted upon and approved the following matters: to elect seven directors and to approve the appointment of our independent auditors.

PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our Common Stock is
currently quoted on the Nasdaq National Market under the symbol YAKC. Prior to February 9, 2005, our Common Stock was quoted on the Nasdaq SmallCap Market. The following table sets forth the range of the high and low bid quotations
for our common stock for the periods indicated. Such market quotations reflect inter-dealer prices, without mark-up, mark-down or commission and may not necessarily represent actual transactions.



|           |  |      |       |     |   |     
|---------- |  | ---- | ----- | --- | - | ----
|2005       |  | High |       | Low
|1stQuarter |  | $    | 10.65 |     | $ | 5.50
|2ndQuarter |  |      | 8.55  |     |   | 5.61
|3rdQuarter |  |      | 8.50  |     |   | 5.36
|4thQuarter |  |      | 6.40  |     |   | 4.50



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##### Table of Contents

|            |  |      |       |     |   |     
|----------- |  | ---- | ----- | --- | - | ----
|2004        |  | High |       | Low
|1stQuarter* |  | $    | 6.97  |     | $ | 5.72
|2ndQuarter* |  |      | 9.99  |     |   | 6.08
|3rdQuarter  |  |      | 19.85 |     |   | 9.40
|4thQuarter  |  |      | 11.23 |     |   | 7.25

---

|* | Amounts have been restated for the 2:1 stock split effectuated on January 29, 2004 to shareholders of record on January 15, 2004.
|- | ---------------------------------------------------------------------------------------------------------------------------------

As of September 16, 2005, there were approximately 94 holders of record of our common stock. At September 16, 2005, the closing price of our
common stock was $4.15 per share.

We have not paid any dividends on our common stock and we intend to retain all earnings for use in our
operations and to finance the development and the expansion of our business. We do not anticipate paying any dividends on the common stock in the foreseeable future. The payment of dividends is within the discretion of our Board of Directors. Any
future decision with respect to dividends will depend on future earnings, future capital needs and our operating and financial condition, among other factors.



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ITEM 6. SELECTED FINANCIAL DATA

The following sets forth our selected consolidated financial data for the
fiscal years ended June 30, 2005, 2004, and 2003.

Statement of Operations Data:



|                                                    |  |                      |   |  |                 |   |  |                
|--------------------------------------------------- |  | -------------------- | - |  | --------------- | - |  | ---------------
|                                                    |  | Years Ended June 30,
|(in $ thousands)                                    |  | 2005 (Restated)      |   |  | 2004 (Restated) |   |  | 2003 (Restated)
|                                                    |  | $                    |   |  | $               |   |  | $              
|Net revenue                                         |  | 92,700               |   |  | 80,802          |   |  | 40,404         
|Cost of revenue1                                    |  | 57,636               |   |  | 53,149          |   |  | 25,403         
|                                                    |  |                      |   |  |                 |   |  |                
|Contribution margin                                 |  | 35,064               |   |  | 27,653          |   |  | 15,001         
|                                                    |  |                      |   |  |                 |   |  |                
|Operating expenses                                  |  |                      |   |  |                 |   |  |                
|General and administration                          |  | 19,036               |   |  | 11,481          |   |  | 3,842          
|Sales and marketing                                 |  | 7,293                |   |  | 3,894           |   |  | 4,207          
|Depreciation and amortization                       |  | 2,943                |   |  | 2,980           |   |  | 803            
|Writedown of property and equipment and license fee |  |                     |   |  | 313             |   |  | 119            
|                                                    |  |                      |   |  |                 |   |  |                
|Total operating expenses                            |  | 29,272               |   |  | 18,668          |   |  | 8,971          
|                                                    |  |                      |   |  |                 |   |  |                
|Income from operations                              |  | 5,792                |   |  | 8,985           |   |  | 6,030          
|                                                    |  |                      |   |  |                 |   |  |                
|Other expenses (income)                             |  |                      |   |  |                 |   |  |                
|Interest expense                                    |  | 893                  |   |  | 969             |   |  | 513            
|Interest earned                                     |  | (406                 | ) |  | (159            | ) |  |               
|Long-term debt discount amortization                |  | 391                  |   |  | 535             |   |  |               
|                                                    |  |                      |  
|Income from joint marketing agreement               |  | (421                 | ) |  | (539            | ) |  |               
|                                                    |  |                      |  
|Gain on settlement                                  |  | (1,242               | ) |  |                |   |  |               
|Change in fair value of obligation under warrants   |  | (583                 | ) |  | (497            | ) |  |               
|Other expenses                                      |  |                     |   |  | 328             |   |  | 29             
|                                                    |  |                      |   |  |                 |   |  |                
|                                                    |  | (1,368               | ) |  | 637             |   |  | 542            
|                                                    |  |                      |   |  |                 |   |  |                
|Earnings before income tax                          |  | 7,160                |   |  | 8,348           |   |  | 5,488          
|Provisions for income taxes                         |  | 2,397                |   |  | 2,882           |   |  | 1,999          
|                                                    |  |                      |   |  |                 |   |  |                
|Net earnings                                        |  | 4,763                |   |  | 5,466           |   |  | 3,489          
|                                                    |  |                      |   |  |                 |   |  |                

---

|(1) | Excludes depreciation and amortization of $2,359, $2,767 and $687 respectively.
|--- | -------------------------------------------------------------------------------

Balance Sheet Data:



|                     |                |                      |                |  |                |        |  |   |       
|-------------------- | -------------- | -------------------- | -------------- |  | -------------- | ------ |  | - | ------
|(In Thousands)       |                | Years Ended June 30,
|                     | 2005 Restated* |                      | 2004 Restated* |  | 2003 Restated*
|Total Assets         |                | $                    | 51,248         |  | $              | 53,650 |  | $ | 26,744
|Total Liabilities    |                |                      | 19,497         |  |                | 28,002 |  |   | 21,016
|Total Long-Term Debt |                |                      | 977            |  |                | 5,196  |  |   | 5,886 
|Stockholders Equity |                |                      | 31,751         |  |                | 25,648 |  |   | 5,728 

---

|* | For information regarding the restatement of our historical financial statements, see Item 7 Managements Discussion and Analysis of Financial Condition and Results
of Operations  Significant Transactions, Subsequent Events and Financial Restatements and Notes 5 and 16 to our Consolidated Financial Statements included herein.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The
Managements Discussion and Analysis of Financial Condition and Results of Operations included herein should be read in conjunction with the Consolidated Financial Statements of Yak Communications Inc. and Subsidiaries, and the
related notes to the Financial Statements. Our Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles and have been audited by our independent auditors.

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

Overview

We
provide discount, long distance telecommunication services to approximately 905,000 recurring residential and small business customers in both Canada and the United States, using our facilities-based resale model and our Voice over Internet Protocol
(VoIP) network. Residential marketing efforts are primarily concentrated toward consumers who make significant numbers of international calls, directly targeting ethnic markets and communities in major urban centers. Our customer base is
diversified across many ethnic communities which we believe subjects us to a minimal risk of significant rate changes as a result of deregulation or other unforeseen political events in particular countries. We also offer end-to-end
telecommunications services to small-to-medium business enterprises in the Canadian market. Our focus is to provide the highest quality, competitively priced telecommunications services to existing markets. We realize that dial-around long distance
is a commodity and there will be a point in the future when we saturate our own marketplace. As a result, we intend to leverage the cash flow that this business provides to transition into higher growth, higher margin emerging markets such as VoIP.

Yak Canada

We are the largest
participant in the Canadian dial-around market, with over 70% market share. We believe there is opportunity to further expand the Canadian market, and we intend to focus our efforts on retention and growth in this core market. Our goal is to expand
the size of the addressable Canadian marketplace by marketing our product suite outside of major urban centers.

Our primary residential
product offering is dial-around services (also known as casual calling) at both variable and flat rate pricing. Casual calling allows our customers to dial-around their existing long distance carrier on any call by entering a few digits
prior to making the call, without permanently switching long distance carriers. We offer 1+ billing which allows our customers to permanently switch all of their calls from their existing long distance carrier to our long distance
service.

We also provide long distance alternative services to the rapidly growing cellular telephone consumer market. Through a two-stage
dialing process, the cellular telephone user in both Canada and the United States can access domestic and international long distance services at rates favorable to those charged by their incumbent cellular service provider.

Over the past four years, we have established and expanded our own private leased line network throughout all major Canadian provinces. Additionally, we
have achieved comparable network breadth in the U.S. by interconnecting with a major U.S. carrier. Currently, this coast- to-coast network delivers all of our telephony traffic. To further enhance the cost and control advantages of this network, in
September 2003, we purchased a Tekelec/SanteraOne switch and Media Gateway. The port density and significantly reduced foot print of this switch has enabled us to transition our traffic from our legacy Teltronics/Harris switches, resulting in
significant cost savings. The Harris switches have now been decommissioned. Our current level of traffic is using approximately 40,000 ports and our Tekelec/SanteraOne switch is expandable to 200,000 ports. As a result, we anticipate having
significant switching capacity in the foreseeable future.

In addition to the direct cost savings associated with the transition to and
operation of the Santera platform, the transition has also afforded us the opportunity to reduce costs by bringing a greater portion of our traffic onto our own network. Also, we continually pursue other methods of reducing our variable direct costs
such as employing least cost routing of our international traffic, negotiating lower variable costs with multiple carriers to multiple destinations in order to achieve the lowest available cost per minute, and continuing to expand the capacity of
our network to accommodate the growing demand in certain areas of the markets we serve.

In November 2003, we introduced a dial-around
service in Peru. Although Peru represented a very small portion of our total business, this introduction provided us with an opportunity to develop competitive long distance services and to



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proactively test the issues relating to VoIP platform migration internationally. In March 2005, we decided to exit the
Peru market as we evaluated our returns from the Peruvian joint venture and the potential for significant growth versus that available in other markets. Operations in Peru are expected to be fully wound down by the end of the first quarter of fiscal
2006.

Yak for Business

Yak for
Business, our division targeting the Canadian Small to Medium Enterprise (SME) market, provides competitively priced voice and data products, including local lines, long distance, data management and point-to-point private lines. In the
near future, we also intend to introduce a broadband offering to the SME market. Additionally, we offer telecom management services to the mid-to-large sized customer base in Canada through our subsidiary Contour Telecom.

In March 2005, we purchased the Ontario and Quebec local resale customer base and centrex lines of Navigata Communications Ltd., a member of the
Saskatchewan Telecommunications (Sasktel) group of companies for $700,000. As a result of this transaction, we acquired a customer base of approximately 450 SME customers, totaling approximately 4,700 Centrex Lines on which resale services are
provided. We plan to integrate the acquired customers and lines into our Yak for Business division.

Contour

Contour provides customer-focused telecommunications management to medium and large business. The result is active and objective management that saves our
clients money, and provides significant improvement in service. We accomplish this via an ongoing focus on cost reduction, containment and consolidated billing, while continually striving to improve service levels. We introduce advanced telecom
practices and discipline to our clients while they focus their internal resources on their core business activity.

Yak America

In November 2004, we began a marketing campaign in the United States to gain share of the $3 billion U.S. dial-around market, as estimated by IDC. We
promote our dial around services in the United States, relying on our core strategy of niche marketing to ethnic communities to grow market share. Our CIC (Carrier Identification Code) codes, i.e., 10-10-925 and 1+ service are available in 48
states, and we have a targeted marketing campaign in South Florida, New York and Los Angeles. We have entered into agreements with celebrity ethnic spokespersons, specialized internet marketing organizations and utilized print and outdoor media to
further market and expand our U.S. operations. Our strategic focus in the U.S. is supported by our office in Aventura, Florida. Although the U.S. market is highly competitive, our marketing campaign has yielded positive results during the year ended
June 30, 2005, with monthly minutes growing approximately 316%  from approximately 0.6 million in June 2004 to approximately 2.5 million in June 2005. Although this market is intensely competitive, we believe that through
the implementation of a strategically focused approach, there exists an opportunity to grow this market.

WorldCity VoIP

In January 2005, we began marketing our VoIP service, WorldCity VoIP, to residential customers in Canada and the U.S. For customers who
currently have high-speed internet access, WorldCity VoIP includes free member-to-member international calling and combines bundled local and long distance calling packages with very competitive international rates, plus enhanced calling
features like Caller ID, Three Way Calling and Voicemail for one flat price. In addition to the basic package, future releases of the product are expected to provide services such as unified messaging and virtual international phone numbers, where
available. Our VoIP service is generally available everywhere and specific DID (direct dial) numbers are currently available in 53 U.S. cities, 13 Canadian cities and London, England for incoming calling. To advance both the quality and quantity of
our VoIP services, we have engaged the services of Kayote Networks, Inc. and Xten Networks, Inc. Kayote Networks provides recognized industry expertise to help define VoIP technology solutions that break through the typical interoperability issues
that have heretofore inhibited the widespread acceptance of internet based services. Xten provides end user devices that offer consumers choice in how they initiate VoIP calls. Xten provides soft phone capability that allows customers to
make and receive phone calls or video phone calls directly on their personal computer without the need of a regular analogue phone line.

The 2005 promotional launch of our VoIP network has expanded our market by providing cost effective access to global markets. Use of Internet protocol enables us to provide Yak service to customers who wish to originate or receive calls
from multiple international locations and is a natural extension of our traditional value proposition. We expect that lower costs of providing service should translate into significant savings for a new base of customers with high-speed internet
connections.



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We believe that internet-enabled voice services represent an important emerging market opportunity in the
communications industry. The service enables voice communication over broadband IP networks, significantly reducing costs to end users while bundling a broad array of value-added services, e.g., voicemail, call-waiting, caller-ID, call-forwarding,
auto-attendant, find-me/follow-me and roaming.

We believe we are well-positioned to capture market share as VoIP services gain popularity
among traditional phone users. We have initiated strong relationships with technology and network providers to incorporate voice over high-speed internet into our current offering. In January 2005, we commenced a marketing campaign to support our
VoIP product launch. We intend to leverage our successful dial-around business model which concentrates in the ethnic communities for international calling, the market reach of current advertising, and the ability to carry a portion or all of a call
over the Internet, to maximize our VoIP initiative contribution margin potential.

Foreign Currency

Currently, 96.6% of our net revenue is derived from sales and operations in Canada. The functional currency for this revenue is the Canadian dollar. Our
reporting currency for our consolidated financial statements is the U.S. dollar. Although we expect to derive less of our total business directly from Canada in the future, exchange rates have had and may continue to have a significant, and
potentially adverse, effect on our results of operations. Strengthening of the Canadian dollar relative to the U.S. dollar could have a positive impact on our future results of operations.

Significant Transactions, Subsequent Events and Financial Restatements

The Company restated its initially reported financial statements to correct for the errors and deficiencies described below in its initial financials statement and accompanying notes.



| | A. | To correct errors in the accounting for Next Generation Software (initially restated on June 1, 2005, and later amended on September 28, 2005).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------

The Company has further restated its amended reported financial statement to correct for the errors and deficiencies
described below in its amended financial statements and accompanying notes as follows on April 21, 2006:



| | B. | To correct for the misapplication of SFAS 133, SFAS 150 and EITF 00-19 related to the 2004 issuance of detachable warrants;
| | -- | ---------------------------------------------------------------------------------------------------------------------------



| | C. | To correct for disclosure deficiencies under SFAS 131;
| | -- | ------------------------------------------------------



| | D. | To correct for disclosure deficiencies under SFAS 109;
| | -- | ------------------------------------------------------



| | E. | To correct for errors in its Cash Flow Statements for the fiscal years 2003, 2004 and 2005; and
| | -- | -----------------------------------------------------------------------------------------------



| | F. | To correct for the misclassification of financing expense related to assignment of accounts receivable for 2003, 2004 and 2005 and enhancement of disclosure of factored accounts
receivable.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The net effect of the initial and the amended restatements was to increase net income by $583,000 or $0.05
earnings per share for the year ended June 30, 2005. For the fiscal year ending June 30, 2005, the cash flows from operating and investing activities were understated by $1,385,000 and $245,000, respectively, while the cash flows from
financing activities and the effect of exchange rate changes on cash and cash equivalents were overstated by $332,000 and $1,298,000, respectively. At June 30, 2005, liabilities were understated by $1,093,000 while shareholders equity was
overstated by $1,093,000.

The net effect of the initial and the amended restatements was to decrease net income by $156,000 or $0.02
earnings per share for the year ended June 30, 2004. For the fiscal year ending June 30, 2004, the cash flows from investing activities were overstated by $617,000, while cash flows from operating activities, financing activities and the
effect of exchange rate changes on cash and cash equivalents were understated by $107,000, $307,000 and $203,000 respectively. At June 30, 2004, assets and liabilities were understated by $2,789,000, and $5,169,000, respectively, and
shareholders equity was overstated by $2,380,000.

For the fiscal year ending June 30, 2003, the cash flows from operating and
financing activities and the effect of exchange rate changes on cash and cash equivalents were overstated by $289,000, $4,000 and $27,000, respectively, while the cash flow from investing activities was understated by $320,000. At June 30,
2003, there was no impact on the income statement or balance sheet.



21



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The effect of the restatements on the Companys previously reported interim financial statements for
each of the quarters in fiscal year 2003, 2004 and 2005 can be found in Note 16 Quarterly Results of Operations (Unaudited).

The following schedules show the effect on both the initial and amended financial statements of the above matters:



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YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED BALANCE SHEET

FOR THE YEAR ENDED, JUNE 30 2005



|                                                          |  |               |  |        |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                   
|--------------------------------------------------------- |  | ------------- |  | ------ |  | ------------------ |  | ------ |  | ------ | - |  | ------ |  | ------ |  | ------ |  | ------ |  | ------------------
|(in $ thousands)                                          |  | InitialFiling |  | Note5A |  | InitialRestatement |  | Note5A |  | Note5B |   |  | Note5C |  | Note5D |  | Note5E |  | Note5F |  | AmendedRestatement
|                                                          |  | $             |  | $      |  | $                  |  | $      |  | $      |   |  | $      |  | $      |  | $      |  | $      |  | $                 
|ASSETS                                                    |  |               |  |        |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                   
|Current                                                   |  |               |  |        |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                   
|                                                          |  |               |  |        |  |                    |  |        |  |       
|Cash and cash equivalents                                 |  | 16,751        |  |       |  | 16,751             |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 16,751            
|Accounts receivable, net                                  |  | 16,220        |  |       |  | 16,220             |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 16,220            
|Prepaid expenses and other current assets                 |  | 1,413         |  |       |  | 1,413              |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 1,413             
|                                                          |  |               |  |        |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                   
|Total Current Assets                                      |  | 34,384        |  |       |  | 34,384             |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 34,384            
|Property and equipment, net                               |  | 13,559        |  |       |  | 13,559             |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 13,559            
|Intangibles, net                                          |  | 2,005         |  |       |  | 2,005              |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 2,005             
|Goodwill                                                  |  | 503           |  |       |  | 503                |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 503               
|Deferred income taxes                                     |  | 797           |  |       |  | 797                |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 797               
|                                                          |  |               |  |        |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                   
|                                                          |  | 51,248        |  |       |  | 51,248             |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 51,248            
|LIABILITIES                                               |  |               |  |        |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                   
|Current                                                   |  |               |  |        |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                   
|                                                          |  |               |  |        |  |                    |  |        |  |       
|Accounts payable and accrued liabilities                  |  | 11,891        |  |       |  | 11,891             |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 11,891            
|Income taxes payable                                      |  | 3,547         |  |       |  | 3,547              |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 3,547             
|Current portion of advances from TELUS Communications Inc |  | 382           |  |       |  | 382                |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 382               
|Current portion of obligations under capital leases       |  | 511           |  |       |  | 511                |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 511               
|Unearned Revenue                                          |  | 1,096         |  |       |  | 1,096              |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 1,096             
|Obligations Under Warrants                                |  |              |  |       |  |                   |  |       |  | 1,093  |   |  |       |  |       |  |       |  |       |  | 1,093             
|                                                          |  |               |  |        |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                   
|                                                          |  | 17,427        |  |       |  | 17,427             |  |       |  | 1,093  |   |  |       |  |       |  |       |  |       |  | 18,520            
|LONG-TERM DEBT                                            |  |               |  |        |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                   
|Obligations under capital leases                          |  | 977           |  |       |  | 977                |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 977               
|                                                          |  |               |  |        |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                   
|                                                          |  | 977           |  |       |  | 977                |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 977               
|                                                          |  |               |  |        |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                   
|                                                          |  | 18,404        |  |       |  | 18,404             |  |       |  | 1,093  |   |  |       |  |       |  |       |  |       |  | 19,497            
|                                                          |  |               |  |        |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                   
|STOCKHOLDERS EQUITY                                      |  |               |  |        |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                   
|Common stock                                              |  | 225           |  |       |  | 225                |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 225               
|Additional paid in-capital                               |  | 16,692        |  |       |  | 16,692             |  |       |  | 260    |   |  |       |  |       |  |       |  |       |  | 16,952            
|Common stock purchase warrants                            |  | 2,433         |  |       |  | 2,433              |  |       |  | (2,433 | ) |  |       |  |       |  |       |  |       |  |                  
|Accumulated other comprehensive income                    |  | 1,343         |  |       |  | 1,343              |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 1,343             
|Retained earnings                                         |  | 12,151        |  |       |  | 12,151             |  |       |  | 1,080  |   |  |       |  |       |  |       |  |       |  | 13,231            
|                                                          |  |               |  |        |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                   
|                                                          |  | 32,844        |  |       |  | 32,844             |  |       |  | (1,093 | ) |  |       |  |       |  |       |  |       |  | 31,751            
|                                                          |  |               |  |        |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                   
|                                                          |  | 51,248        |  |       |  | 51,248             |  |       |  |       |   |  |       |  |       |  |       |  |       |  | 51,248            
|                                                          |  |               |  |        |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                   



23



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YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME

FOR THE YEAR ENDED, JUNE 30 2005



|                                                         |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|-------------------------------------------------------- |  | ------------- | - |  | ------ |  | ------------------ | - |  | ------ |  | ------ | - |  | ------ |  | ------ |  | ------ |  | ------ | - |  | ------------------ | -
|(in $ thousands)                                         |  | InitialFiling |   |  | Note5A |  | InitialRestatement |   |  | Note5A |  | Note5B |   |  | Note5C |  | Note5D |  | Note5E |  | Note5F |   |  | AmendedRestatement |  
|                                                         |  | $             |   |  | $      |  | $                  |   |  | $      |  | $      |   |  | $      |  | $      |  | $      |  | $      |   |  | $                  |  
|Net revenue                                              |  | 92,700        |   |  |       |  | 92,700             |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 92,700             |  
|Cost of revenue1                                         |  | 57,636        |   |  |       |  | 57,636             |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 57,636             |  
|                                                         |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Contribution margin                                      |  | 35,064        |   |  |       |  | 35,064             |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 35,064             |  
|                                                         |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Operating expenses                                       |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|General and administration                               |  | 19,036        |   |  |       |  | 19,036             |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 19,036             |  
|Sales and marketing                                      |  | 7,293         |   |  |       |  | 7,293              |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 7,293              |  
|Accounts receivable financing                            |  | 429           |   |  |       |  | 429                |   |  |       |  |       |   |  |       |  |       |  |       |  | (429   | ) |  |                   |  
|Depreciation and amortization                            |  | 2,943         |   |  |       |  | 2,943              |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 2,943              |  
|                                                         |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Total operating expenses                                 |  | 29,701        |   |  |       |  | 29,701             |   |  |       |  |       |   |  |       |  |       |  |       |  | (429   | ) |  | 29,272             |  
|                                                         |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Income from operations                                   |  | 5,363         |   |  |       |  | 5,363              |   |  |       |  |       |   |  |       |  |       |  |       |  | 429    |   |  | 5,792              |  
|                                                         |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Other expenses (income)                                  |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Interest expense                                         |  | 464           |   |  |       |  | 464                |   |  |       |  |       |   |  |       |  |       |  |       |  | 429    |   |  | 893                |  
|Interest earned                                          |  | (406          | ) |  |       |  | (406               | ) |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | (406               | )
|Income from joint marketing agreement                    |  | (421          | ) |  |       |  | (421               | ) |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | (421               | )
|Long-term debt discount amortization                     |  | 391           |   |  |       |  | 391                |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 391                |  
|Gain on settlement                                       |  | (1,242        | ) |  |       |  | (1,242             | ) |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | (1,242             | )
|Change in fair value of obligation under warrants        |  |              |   |  |       |  |                   |   |  |       |  | (583   | ) |  |       |  |       |  |       |  |       |   |  | (583               | )
|                                                         |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|                                                         |  | (1,214        | ) |  |       |  | (1,214             | ) |  |       |  | (583   | ) |  |       |  |       |  |       |  | 429    |   |  | (1,368             | )
|                                                         |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Earnings before income tax                               |  | 6,577         |   |  |       |  | 6,577              |   |  |       |  | 583    |   |  |       |  |       |  |       |  |       |   |  | 7,160              |  
|Provisions for income taxes                              |  | 2,397         |   |  |       |  | 2,397              |   |  |       |  |        |   |  |       |  |       |  |       |  |       |   |  | 2,397              |  
|                                                         |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Net earnings                                             |  | 4,180         |   |  |       |  | 4,180              |   |  |       |  | 583    |   |  |       |  |       |  |       |  |       |   |  | 4,763              |  
|Other comprehensive income                               |  | 1,230         |   |  |       |  | 1,230              |   |  |       |  |        |   |  |       |  |       |  |       |  |       |   |  | 1,230              |  
|                                                         |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Comprehensive income                                     |  | 5,410         |   |  |       |  | 5,410              |   |  |       |  | 583    |   |  |       |  |       |  |       |  |       |   |  | 5,993              |  
|                                                         |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Basic earnings per share                                 |  | 0.32          |   |  |       |  | 0.32               |   |  |       |  | 0.05   |   |  |       |  |       |  |       |  |       |   |  | 0.37               |  
|                                                         |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Diluted earnings per share                               |  | 0.32          |   |  |       |  | 0.32               |   |  |       |  | 0.05   |   |  |       |  |       |  |       |  |       |   |  | 0.37               |  
|                                                         |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Weighted average number of common shares outstanding     |  | 12,895        |   |  |       |  | 12,895             |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 12,895             |  
|                                                         |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Weighted average number of common shares  fully diluted |  | 12,901        |   |  |       |  | 12,901             |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 12,901             |  
|                                                         |  |               |   |  |        |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  

---

|(1) | Excludes depreciation and amortization of $2,359.
|--- | -------------------------------------------------



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YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED STATEMENT OF CASH
FLOWS

FOR THE YEAR ENDED, JUNE 30 2005



|                                                                        |  |               |   |  |        |  |                    |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|----------------------------------------------------------------------- |  | ------------- | - |  | ------ |  | ------------------ | - |  | ------ | - |  | ------ | - |  | ------ |  | ------ |  | ------ | - |  | ------ |  | ------------------ | -
|(in $ thousands)                                                        |  | InitialFiling |   |  | Note5A |  | InitialRestatement |   |  | Note5A |   |  | Note5B |   |  | Note5C |  | Note5D |  | Note5E |   |  | Note5F |  | AmendedRestatement |  
|                                                                        |  | $             |   |  | $      |  | $                  |   |  | $      |   |  | $      |   |  | $      |  | $      |  | $      |   |  | $      |  | $                  |  
|CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES                          |  |               |   |  |        |  |                    |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|                                                                        |  |               |   |  |        |  |                    |   |  |       
|Net earnings                                                            |  | 4,180         |   |  |       |  | 4,180              |   |  |       |   |  | 583    |   |  |       |  |       |  |       |   |  |       |  | 4,763              |  
|Adjustments for                                                         |  |               |   |  |        |  |                    |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|Amortization of discount on notes payable                               |  | 391           |   |  |       |  | 391                |   |  |       |   |  |       |   |  |       |  |       |  |       |   |  |       |  | 391                |  
|Depreciation and amortization                                           |  | 2,943         |   |  |       |  | 2,943              |   |  |       |   |  |       |   |  |       |  |       |  |       |   |  |       |  | 2,943              |  
|Deferred income taxes                                                   |  | (559          | ) |  |       |  | (559               | ) |  |       |   |  |       |   |  |       |  |       |  | 32     |   |  |       |  | (527               | )
|Impairment of loan receivable                                           |  | 499           |   |  |       |  | 499                |   |  |       |   |  |       |   |  |       |  |       |  |       |   |  |       |  | 499                |  
|Gain on settlement                                                      |  | (2,406        | ) |  |       |  | (2,406             | ) |  | 1,164  |   |  |       |   |  |       |  |       |  |       |   |  |       |  | (1,242             | )
|Stock compensation expense                                              |  | 81            |   |  |       |  | 81                 |   |  |       |   |  |       |   |  |       |  |       |  |       |   |  |       |  | 81                 |  
|Loss on sale of property, equipment and software                        |  | 49            |   |  |       |  | 49                 |   |  |       |   |  |       |   |  |       |  |       |  | 44     |   |  |       |  | 93                 |  
|Common stock issued through business operations                         |  | 29            |   |  |       |  | 29                 |   |  |       |   |  |       |   |  |       |  |       |  |       |   |  |       |  | 29                 |  
|Change in fair value of obligation under warrants                       |  |              |   |  |       |  |                   |   |  |       |   |  | (583   | ) |  |       |  |       |  |       |   |  |       |  | (583               | )
|Changes in assets and liabilities                                       |  | (4,028        | ) |  |       |  | (4,028             | ) |  |       |   |  |       |   |  |       |  |       |  | 145    |   |  |       |  | (3,883             | )
|                                                                        |  |               |   |  |        |  |                    |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|Cash from operating activities                                          |  | 1,179         |   |  |       |  | 1,179              |   |  | 1,164  |   |  |       |   |  |       |  |       |  | 221    |   |  |       |  | 2,564              |  
|                                                                        |  |               |   |  |        |  |                    |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES                          |  |               |   |  |        |  |                    |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|                                                                        |  |               |   |  |        |  |                    |   |  |       
|Purchase of property and equipment                                      |  | (6,322        | ) |  |       |  | (6,322             | ) |  |       |   |  |       |   |  |       |  |       |  | 245    |   |  |       |  | (6,077             | )
|Purchase of intangibles                                                 |  | (713          | ) |  |       |  | (713               | ) |  |       |   |  |       |   |  |       |  |       |  |       |   |  |       |  | (713               | )
|Proceeds from sale of property, equipment, and software                 |  | 13            |   |  |       |  | 13                 |   |  |       |   |  |       |   |  |       |  |       |  |       |   |  |       |  | 13                 |  
|Loan receivable                                                         |  | (54           | ) |  |       |  | (54                | ) |  |       |   |  |       |   |  |       |  |       |  |       |   |  |       |  | (54                | )
|                                                                        |  |               |   |  |        |  |                    |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|Cash used in investing activities                                       |  | (7,076        | ) |  |       |  | (7,076             | ) |  |       |   |  |       |   |  |       |  |       |  | 245    |   |  |       |  | (6,831             | )
|                                                                        |  |               |   |  |        |  |                    |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES                          |  |               |   |  |        |  |                    |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|                                                                        |  |               |   |  |        |  |                    |   |  |       
|Repayments on obligations under capital leases                          |  | (291          | ) |  |       |  | (291               | ) |  |       |   |  |       |   |  |       |  |       |  | (205   | ) |  |       |  | (496               | )
|Repayments on advances from TELUS Communications Inc.                   |  | (1,206        | ) |  |       |  | (1,206             | ) |  |       |   |  |       |   |  |       |  |       |  | (127   | ) |  |       |  | (1,333             | )
|Receipt of principal portion of Joint Venture receivable                |  | 215           |   |  |       |  | 215                |   |  |       |   |  |       |   |  |       |  |       |  |       |   |  |       |  | 215                |  
|                                                                        |  |               |   |  |        |  |                    |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|Cash from (used in) financing activities                                |  | (1,282        | ) |  |       |  | (1,282             | ) |  |       |   |  |       |   |  |       |  |       |  | (332   | ) |  |       |  | (1,614             | )
|                                                                        |  |               |   |  |        |  |                    |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS            |  | 1,781         |   |  |       |  | 1,781              |   |  | (1,164 | ) |  |       |   |  |       |  |       |  | (134   | ) |  |       |  | 483                |  
|                                                                        |  |               |   |  |        |  |                    |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                        |  | (5,398        | ) |  |       |  | (5,398             | ) |  |       |   |  |       |   |  |       |  |       |  |       |   |  |       |  | (5,398             | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                          |  | 22,149        |   |  |       |  | 22,149             |   |  |       |   |  |       |   |  |       |  |       |  |       |   |  |       |  | 22,149             |  
|                                                                        |  |               |   |  |        |  |                    |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                |  | 16,751        |   |  |       |  | 16,751             |   |  |       |   |  |       |   |  |       |  |       |  |       |   |  |       |  | 16,751             |  
|                                                                        |  |               |   |  |        |  |                    |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|Supplemental disclosure of cash flow information:                       |  |               |   |  |        |  |                    |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|                                                                        |  |               |   |  |        |  |                    |   |  |       
|Interest paid                                                           |  | 464           |   |  |       |  | 464                |   |  |       |   |  |       |   |  |       |  |       |  |       |   |  | 429    |  | 893                |  
|Taxes paid                                                              |  | 736           |   |  |       |  | 736                |   |  |       |   |  |       |   |  |       |  |       |  |       |   |  |       |  | 736                |  
|                                                                        |  |               |   |  |        |  |                    |   |  |       
|Supplemental disclosure of noncash investing and financing activities: |  |               |   |  |        |  |                    |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|                                                                        |  |               |   |  |        |  |                    |   |  |       
|Capital leases for acquisition of furniture and equipment               |  | 312           |   |  |       |  | 312                |   |  |       |   |  |       |   |  |       |  |       |  |       |   |  |       |  | 312                |  
|Issuance of common stock for services rendered                          |  | 29            |   |  |       |  | 29                 |   |  |       |   |  |       |   |  |       |  |       |  |       |   |  |       |  | 29                 |  



25



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##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED BALANCE SHEET

FOR THE YEAR ENDED, JUNE 30 2004



|                                                           |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   
|---------------------------------------------------------- |  | ------------- |  | ------ | - |  | ------------------ |  | ------ |  | ------ | - |  | ------ |  | ------ |  | ------ |  | ------ | - |  | ------------------
|(in $ thousands)                                           |  | InitialFiling |  | Note5A |   |  | InitialRestatement |  | Note5A |  | Note5B |   |  | Note5C |  | Note5D |  | Note5E |  | Note5F |   |  | AmendedRestatement
|                                                           |  | $             |  | $      |   |  | $                  |  | $      |  | $      |   |  | $      |  | $      |  | $      |  | $      |   |  | $                 
|ASSETS                                                     |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   
|Current                                                    |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Cash and cash equivalents                                  |  | 22,149        |  |       |   |  | 22,149             |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 22,149            
|Accounts receivable, net                                   |  | 15,649        |  |       |   |  | 15,649             |  |       |  |       |   |  |       |  |       |  |       |  | (8,271 | ) |  | 7,378             
|Factored accounts receivable                               |  |              |  |       |   |  |                   |  |       |  |       |   |  |       |  |       |  |       |  | 8,271  |   |  | 8,271             
|Income taxes receivable                                    |  | 666           |  | (666   | ) |  |                   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  |                  
|Prepaid expenses and other current assets                  |  | 665           |  | 60     |   |  | 725                |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 725               
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   
|Total Current Assets                                       |  | 39,129        |  | (606   | ) |  | 38,523             |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 38,523            
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Joint venture receivable                                   |  |              |  | 2,805  |   |  | 2,805              |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 2,805             
|Property and equipment, net                                |  | 9,244         |  | 352    |   |  | 9,596              |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 9,596             
|Loan receivable                                            |  | 445           |  |       |   |  | 445                |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 445               
|Intangibles, net                                           |  | 1,585         |  |       |   |  | 1,585              |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 1,585             
|Goodwill                                                   |  | 458           |  |       |   |  | 458                |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 458               
|Deferred income taxes                                      |  |              |  | 238    |   |  | 238                |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 238               
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  | 50,861        |  | 2,789  |   |  | 53,650             |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 53,650            
|LIABILITIES                                                |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   
|Current                                                    |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Accounts payable and accrued liabilities                   |  | 11,509        |  |       |   |  | 11,509             |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 11,509            
|Due to Factor                                              |  | 5,658         |  |       |   |  | 5,658              |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 5,658             
|Income taxes payable                                       |  |              |  | 1,185  |   |  | 1,185              |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 1,185             
|Current portion of advances from TELUS Communications Inc. |  | 1,239         |  |       |   |  | 1,239              |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 1,239             
|Current portion of obligations under capital leases        |  | 392           |  | 1      |   |  | 393                |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 393               
|Current portion of note payable                            |  |               |  | 195    |   |  | 195                |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 195               
|Unearned Revenue                                           |  | 951           |  |       |   |  | 951                |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 951               
|Obligations Under Warrants                                 |  |              |  |       |   |  |                   |  |       |  | 1,676  |   |  |       |  |       |  |       |  |       |   |  | 1,676             
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  | 19,749        |  | 1,381  |   |  | 21,130             |  |       |  | 1,676  |   |  |       |  |       |  |       |  |       |   |  | 22,806            
|LONG-TERM DEBT                                             |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Advances from TELUS Communications Inc.                    |  | 349           |  |       |   |  | 349                |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 349               
|Obligations under capital leases                           |  | 1,073         |  |       |   |  | 1,073              |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 1,073             
|Note payable                                               |  |              |  | 3,774  |   |  | 3,774              |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 3,774             
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  | 1,422         |  | 3,774  |   |  | 5,196              |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 5,196             
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   
|DEFERRED INCOME TAXES                                      |  | 1,662         |  | (1,662 | ) |  |                   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  |                  
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  | 22,833        |  | 3,493  |   |  | 26,326             |  |       |  | 1,676  |   |  |       |  |       |  |       |  |       |   |  | 28,002            
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   
|STOCKHOLDERS EQUITY                                       |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Common stock                                               |  | 225           |  |       |   |  | 225                |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 225               
|Additional paid incapital                                |  | 16,582        |  |       |   |  | 16,582             |  |       |  | 260    |   |  |       |  |       |  |       |  |       |   |  | 16,842            
|Common stock purchase warrants                             |  | 2,433         |  |       |   |  | 2,433              |  |       |  | (2,433 | ) |  |       |  |       |  |       |  |       |   |  |                  
|Accumulated other comprehensive income                     |  | 164           |  | (51    | ) |  | 113                |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 113               
|Retained earnings                                          |  | 8,624         |  | (653   | ) |  | 7,971              |  |       |  | 497    |   |  |       |  |       |  |       |  |       |   |  | 8,468             
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  | 28,028        |  | (704   | ) |  | 27,324             |  |       |  | (1,676 | ) |  |       |  |       |  |       |  |       |   |  | 25,648            
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  | 50,861        |  | 2,789  |   |  | 53,650             |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 53,650            
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                   



26



---

##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME

FOR THE YEAR ENDED, JUNE 30 2004



|                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|-------------------------------------------------------- |  | ------------- | - |  | ------ | - |  | ------------------ | - |  | ------ |  | ------ | - |  | ------ |  | ------ |  | ------ |  | ------ | - |  | ------------------ | -
|(in $ thousands)                                         |  | InitialFiling |   |  | Note5A |   |  | InitialRestatement |   |  | Note5A |  | Note5B |   |  | Note5C |  | Note5D |  | Note5E |  | Note5F |   |  | AmendedRestatement |  
|                                                         |  | $             |   |  | $      |   |  | $                  |   |  | $      |  | $      |   |  | $      |  | $      |  | $      |  | $      |   |  | $                  |  
|Net revenue                                              |  | 80,802        |   |  |       |   |  | 80,802             |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 80,802             |  
|Cost of revenue1                                         |  | 53,149        |   |  |       |   |  | 53,149             |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 53,149             |  
|                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Contribution margin                                      |  | 27,653        |   |  |       |   |  | 27,653             |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 27,653             |  
|                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Operating expenses                                       |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|General and administration                               |  | 11,481        |   |  |       |   |  | 11,481             |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 11,481             |  
|Sales and marketing                                      |  | 3,894         |   |  |       |   |  | 3,894              |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 3,894              |  
|Accounts receivable financing                            |  | 514           |   |  |       |   |  | 514                |   |  |       |  |       |   |  |       |  |       |  |       |  | (514   | ) |  |                   |  
|Depreciation and amortization                            |  | 3,002         |   |  | (22    | ) |  | 2,980              |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 2,980              |  
|Writedown of property and equipment and license fee      |  | 313           |   |  |       |   |  | 313                |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 313                |  
|                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Total operating expenses                                 |  | 19,204        |   |  | (22    | ) |  | 19,182             |   |  |       |  |       |   |  |       |  |       |  |       |  | (514   | ) |  | 18,668             |  
|                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Income from operations                                   |  | 8,449         |   |  | 22     |   |  | 8,471              |   |  |       |  |       |   |  |       |  |       |  |       |  | 514    |   |  | 8,985              |  
|                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Other expenses (income)                                  |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Interest expense                                         |  | 619           |   |  | (164   | ) |  | 455                |   |  |       |  |       |   |  |       |  |       |  |       |  | 514    |   |  | 969                |  
|Interest earned                                          |  | (159          | ) |  |       |   |  | (159               | ) |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | (159               | )
|Income from joint marketing agreement                    |  | (614          | ) |  | 75     |   |  | (539               | ) |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | (539               | )
|Longterm debt discount amortization                     |  |              |   |  | 535    |   |  | 535                |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 535                |  
|Change in fair value of obligation under warrants        |  |              |   |  |       |   |  |                   |   |  |       |  | (497   | ) |  |       |  |       |  |       |  |       |   |  | (497               | )
|Other Expenses                                           |  | 51            |   |  | 277    |   |  | 328                |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 328                |  
|                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|                                                         |  | (103          | ) |  | 723    |   |  | 620                |   |  |       |  | (497   | ) |  |       |  |       |  |       |  | 514    |   |  | 637                |  
|                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Earnings before income tax                               |  | 8,552         |   |  | (701   | ) |  | 7,851              |   |  |       |  | 497    |   |  |       |  |       |  |       |  |       |   |  | 8,348              |  
|Provisions for income taxes                              |  | 2,930         |   |  | (48    | ) |  | 2,882              |   |  |       |  |        |   |  |       |  |       |  |       |  |       |   |  | 2,882              |  
|                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Net earnings                                             |  | 5,622         |   |  | (653   | ) |  | 4,969              |   |  |       |  | 497    |   |  |       |  |       |  |       |  |       |   |  | 5,466              |  
|Other comprehensive income                               |  | (313          | ) |  | (51    | ) |  | (364               | ) |  |       |  |        |   |  |       |  |       |  |       |  |       |   |  | (364               | )
|                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Comprehensive income                                     |  | 5,309         |   |  | (704   | ) |  | 4,605              |   |  |       |  | 497    |   |  |       |  |       |  |       |  |       |   |  | 5,102              |  
|                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Basic earnings per share                                 |  | 0.53          |   |  | (0.07  | ) |  | 0.46               |   |  |       |  | 0.05   |   |  |       |  |       |  |       |  |       |   |  | 0.51               |  
|                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Diluted earnings per share                               |  | 0.49          |   |  | (0.05  | ) |  | 0.44               |   |  |       |  | 0.04   |   |  |       |  |       |  |       |  |       |   |  | 0.48               |  
|                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Weighted average number of common shares outstanding     |  | 10,706        |   |  |       |   |  | 10,706             |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 10,706             |  
|                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  
|Weighted average number of common shares  fully diluted |  | 11,405        |   |  |       |   |  | 11,405             |   |  |       |  |       |   |  |       |  |       |  |       |  |       |   |  | 11,405             |  
|                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  |                    |  

---

|(1) | Excludes depreciation and amortization of $2,767
|--- | ------------------------------------------------



27



---

##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED STATEMENT OF CASH
FLOWS

FOR THE YEAR ENDED, JUNE 30 2004



|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|----------------------------------------------------------------------- |  | ------------- | - |  | ------ | - |  | ------------------ | - |  | ------ |  | ------ | - |  | ------ |  | ------ |  | ------ | - |  | ------ |  | ------------------ | -
|(in $ thousands)                                                        |  | InitialFiling |   |  | Note5A |   |  | InitialRestatement |   |  | Note5A |  | Note5B |   |  | Note5C |  | Note5D |  | Note5E |   |  | Note5F |  | AmendedRestatement |  
|                                                                        |  | $             |   |  | $      |   |  | $                  |   |  | $      |  | $      |   |  | $      |  | $      |  | $      |   |  | $      |  | $                  |  
|CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES                          |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|                                                                        |  |               |   |  |        |   |  |                    |   | 
|Net earnings                                                            |  | 5,622         |   |  | (653   | ) |  | 4,969              |   |  |       |  | 497    |   |  |       |  |       |  |       |   |  |       |  | 5,466              |  
|Adjustments for                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|Amortization of discount on notes payable                               |  |              |   |  | 535    |   |  | 535                |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | 535                |  
|Depreciation and amortization                                           |  | 3,002         |   |  | (22    | ) |  | 2,980              |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | 2,980              |  
|Deferred income taxes                                                   |  | 2,930         |   |  | (800   | ) |  | 2,130              |   |  |       |  |       |   |  |       |  |       |  | 460    |   |  |       |  | 2,590              |  
|Writedown of property and equipment and license fee                     |  | 313           |   |  |       |   |  | 313                |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | 313                |  
|Stock compensation expense                                              |  | 26            |   |  |       |   |  | 26                 |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | 26                 |  
|Loss on impairment of joint venture receivable                          |  |              |   |  | 277    |   |  | 277                |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | 277                |  
|Common stock issued through business operations                         |  | 141           |   |  |       |   |  | 141                |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | 141                |  
|Share of net (gain)/loss of affiliate                                   |  | (39           | ) |  |       |   |  | (39                | ) |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | (39                | )
|Change in fair value of obligation under warrants                       |  |              |   |  |       |   |  |                   |   |  |       |  | (497   | ) |  |       |  |       |  |       |   |  |       |  | (497               | )
|Changes in assets and liabilities                                       |  | 6             |   |  | 801    |   |  | 807                |   |  |       |  |       |   |  |       |  |       |  | (491   | ) |  |       |  | 316                |  
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|Cash from operating activities                                          |  | 12,001        |   |  | 138    |   |  | 12,139             |   |  |       |  |       |   |  |       |  |       |  | (31    | ) |  |       |  | 12,108             |  
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES                          |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|                                                                        |  |               |   |  |        |   |  |                    |   | 
|Purchase of property and equipment                                      |  | (4,995        | ) |  |       |   |  | (4,995             | ) |  |       |  |       |   |  |       |  |       |  | (617   | ) |  |       |  | (5,612             | )
|Purchase of shares of Contour Telecom                                   |  | (5,473        | ) |  |       |   |  | (5,473             | ) |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | (5,473             | )
|Investment in Odyssey Management Group, Inc.                            |  | 510           |   |  |       |   |  | 510                |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | 510                |  
|Foreign exchange difference on purchase of shares of Contour Telecom    |  | 52            |   |  |       |   |  | 52                 |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | 52                 |  
|Loan receivable                                                         |  | (285          | ) |  |       |   |  | (285               | ) |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | (285               | )
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|Cash used in investing activities                                       |  | (10,191       | ) |  |       |   |  | (10,191            | ) |  |       |  |       |   |  |       |  |       |  | (617   | ) |  |       |  | (10,808            | )
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES                          |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|                                                                        |  |               |   |  |        |   |  |                    |   | 
|Issuance of common shares                                               |  | 16,823        |   |  |       |   |  | 16,823             |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | 16,823             |  
|Repayments on obligations under capital leases                          |  | (35           | ) |  |       |   |  | (35                | ) |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | (35                | )
|Repayments on advances from TELUS Communications Inc.                   |  | (1,028        | ) |  |       |   |  | (1,028             | ) |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | (1,028             | )
|Repayments on notes payable                                             |  | (500          | ) |  | (67    | ) |  | (567               | ) |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | (567               | )
|Receipt of principal portion of Joint Venture receivable                |  |               |   |  | 374    |   |  | 374                |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | 374                |  
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|Cash from (used in) financing activities                                |  | 15,260        |   |  | 307    |   |  | 15,567             |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | 15,567             |  
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS            |  | (364          | ) |  | (445   | ) |  | (809               | ) |  |       |  |       |   |  |       |  |       |  | 648    |   |  |       |  | (161               | )
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                        |  | 16,706        |   |  |       |   |  | 16,706             |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | 16,706             |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                          |  | 5,443         |   |  |       |   |  | 5,443              |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | 5,443              |  
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                |  | 22,149        |   |  |       |   |  | 22,149             |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | 22,149             |  
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|Supplemental disclosure of cash flow information:                       |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|Interest paid                                                           |  | 1,132         |   |  |       |   |  | 1,132              |   |  |       |  |       |   |  |       |  |       |  |       |   |  | 514    |  | 1,646              |  
|Taxes paid                                                              |  | 1,361         |   |  |       |   |  | 1,361              |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | 1,361              |  
|                                                                        |  |               |   |  |        |   |  |                    |   | 
|Supplemental disclosure of noncash investing and financing activities: |  |               |   |  |        |   |  |                    |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|Capital leases for acquisition of furniture and equipment               |  | 1,473         |   |  |       |   |  | 1,473              |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  | 1,473              |  
|Notes payable on purchase of software                                   |  | 6,041         |   |  | (6,041 | ) |  |                   |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  |                   |  
|Joint Venture receivable on purchase of software                        |  | 4,985         |   |  | (4,985 | ) |  |                   |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  |                   |  
|Acquisition of Software                                                 |  | 1,561         |   |  | (1,561 | ) |  |                   |   |  |       |  |       |   |  |       |  |       |  |       |   |  |       |  |                   |  



28



---

##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED BALANCE SHEET

FOR THE YEAR ENDED, JUNE 30 2003



|                                                           |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|---------------------------------------------------------- |  | ------------- |  | ------ | - |  | ------------------ |  | ------ |  | ------ |  | ------ |  | ------ |  | ------ |  | ------ | - |  | ------------------
|(in $ thousands)                                           |  | InitialFiling |  | Note5A |   |  | InitialRestatement |  | Note5A |  | Note5B |  | Note5C |  | Note5D |  | Note5E |  | Note5F |   |  | AmendedRestatement
|                                                           |  | $             |  | $      |   |  | $                  |  | $      |  | $      |  | $      |  | $      |  | $      |  | $      |   |  | $                 
|ASSETS                                                     |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Current                                                    |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Cash and cash equivalents                                  |  | 5,443         |  |       |   |  | 5,443              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 5,443             
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Accounts receivable, net                                   |  | 9,336         |  |       |   |  | 9,336              |  |       |  |       |  |       |  |       |  |       |  | (6,177 | ) |  | 3,159             
|Factored accounts receivable                               |  |              |  |       |   |  |                   |  |       |  |       |  |       |  |       |  |       |  | 6,177  |   |  | 6,177             
|Prepaid expenses and other current assets                  |  | 657           |  | 60     |   |  | 717                |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 717               
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Total Current Assets                                       |  | 15,436        |  | 60     |   |  | 15,496             |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 15,496            
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Joint venture receivable                                   |  |              |  | 3,196  |   |  | 3,196              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 3,196             
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Property and equipment, net                                |  | 13,858        |  | (8,097 | ) |  | 5,761              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 5,761             
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Loan receivable                                            |  | 161           |  |       |   |  | 161                |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 161               
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Deferred acquisition costs                                 |  | 1,659         |  |       |   |  | 1,659              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 1,659             
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Investment in affiliate                                    |  | 471           |  |       |   |  | 471                |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 471               
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  | 31,585        |  | (4,841 | ) |  | 26,744             |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 26,744            
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|LIABILITIES                                                |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Current                                                    |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Accounts payable and accrued liabilities                   |  | 7,117         |  |       |   |  | 7,117              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 7,117             
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Due to Factor                                              |  | 4,690         |  |       |   |  | 4,690              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 4,690             
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Income taxes payable                                       |  | 613           |  | 1,099  |   |  | 1,712              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 1,712             
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Shortterm notes payable                                   |  | 400           |  | (400   | ) |  |                   |  |       |  |       |  |       |  |       |  |       |  |       |   |  |                  
|Current portion of advances from TELUS Communications Inc. |  | 1,031         |  |       |   |  | 1,031              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 1,031             
|Current portion of obligations under capital leases        |  | 13            |  |       |   |  | 13                 |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 13                
|Current portion of note payable                            |  | 99            |  | 468    |   |  | 567                |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 567               
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  | 13,963        |  | 1,167  |   |  | 15,130             |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 15,130            
|LONG-TERM DEBT                                             |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Advances from TELUS Communications Inc.                    |  | 1,585         |  |       |   |  | 1,585              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 1,585             
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Obligations under capital leases                           |  | 15            |  |       |   |  | 15                 |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 15                
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Deferred income taxes                                      |  | 1,859         |  | (1,099 | ) |  | 760                |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 760               
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Note payable                                               |  | 8,435         |  | (4,909 | ) |  | 3,526              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 3,526             
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  | 11,894        |  | (6,008 | ) |  | 5,886              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 5,886             
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  | 25,857        |  | (4,841 | ) |  | 21,016             |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 21,016            
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|STOCKHOLDERS EQUITY                                       |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Common stock                                               |  | 199           |  |       |   |  | 199                |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 199               
|Additional paid in-capital                                |  | 2,050         |  |       |   |  | 2,050              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 2,050             
|Accumulated other comprehensive income                     |  | 477           |  |       |   |  | 477                |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 477               
|                                                           |  |               |  |        |   |  |                    |  |        | 
|Retained earnings                                          |  | 3,002         |  |       |   |  | 3,002              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 3,002             
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  | 5,728         |  |       |   |  | 5,728              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 5,728             
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|                                                           |  | 31,585        |  | (4,841 | ) |  | 26,744             |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 26,744            
|                                                           |  |               |  |        |   |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   



29



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YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME

FOR THE YEAR ENDED, JUNE 30 2003



|                                                         |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|-------------------------------------------------------- |  | ------------- |  | ------ |  | ------------------ |  | ------ |  | ------ |  | ------ |  | ------ |  | ------ |  | ------ | - |  | ------------------
|(in $ thousands)                                         |  | InitialFiling |  | Note5A |  | InitialRestatement |  | Note5A |  | Note5B |  | Note5C |  | Note5D |  | Note5E |  | Note5F |   |  | AmendedRestatement
|                                                         |  | $             |  | $      |  | $                  |  | $      |  | $      |  | $      |  | $      |  | $      |  | $      |   |  | $                 
|Net revenue                                              |  | 40,404        |  |       |  | 40,404             |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 40,404            
|Cost of revenue1                                         |  | 25,403        |  |       |  | 25,403             |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 25,403            
|                                                         |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Contribution margin                                      |  | 15,001        |  |       |  | 15,001             |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 15,001            
|                                                         |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Operating expenses                                       |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|                                                         |  |               |  |        |  |                    |  |        |  |       
|General and administration                               |  | 3,842         |  |       |  | 3,842              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 3,842             
|Sales and marketing                                      |  | 4,207         |  |       |  | 4,207              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 4,207             
|Accounts receivable financing                            |  | 499           |  |       |  | 499                |  |       |  |       |  |       |  |       |  |       |  | (499   | ) |  |                  
|Depreciation and amortization                            |  | 803           |  |       |  | 803                |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 803               
|Writedown of property and equipment and license fee      |  | 119           |  |       |  | 119                |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 119               
|                                                         |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Total operating expenses                                 |  | 9,470         |  |       |  | 9,470              |  |       |  |       |  |       |  |       |  |       |  | (499   | ) |  | 8,971             
|                                                         |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Income from operations                                   |  | 5,531         |  |       |  | 5,531              |  |       |  |       |  |       |  |       |  |       |  | 499    |   |  | 6,030             
|                                                         |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Other expenses (income)                                  |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Interest expense                                         |  | 14            |  |       |  | 14                 |  |       |  |       |  |       |  |       |  |       |  | 499    |   |  | 513               
|Other expenses                                           |  | 29            |  |       |  | 29                 |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 29                
|                                                         |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|                                                         |  | 43            |  |       |  | 43                 |  |       |  |       |  |       |  |       |  |       |  | 499    |   |  | 542               
|                                                         |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Earnings before income tax                               |  | 5,488         |  |       |  | 5,488              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 5,488             
|                                                         |  |               |  |        |  |                    |  |        |  |       
|Provisions for income taxes                              |  | 1,999         |  |       |  | 1,999              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 1,999             
|                                                         |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Net earnings                                             |  | 3,489         |  |       |  | 3,489              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 3,489             
|                                                         |  |               |  |        |  |                    |  |        |  |       
|Other comprehensive income                               |  | 410           |  |       |  | 410                |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 410               
|                                                         |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Comprehensive income                                     |  | 3,899         |  |       |  | 3,899              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 3,899             
|                                                         |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Basic earnings per share                                 |  | 0.37          |  |       |  | 0.37               |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 0.37              
|                                                         |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Diluted earnings per share                               |  | 0.29          |  |       |  | 0.29               |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 0.29              
|                                                         |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Weighted average number of common shares outstanding     |  | 9,328         |  |       |  | 9,328              |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 9,328             
|                                                         |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   
|Weighted average number of common shares  fully diluted |  | 11,896        |  |       |  | 11,896             |  |       |  |       |  |       |  |       |  |       |  |       |   |  | 11,896            
|                                                         |  |               |  |        |  |                    |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                   

---

|(1) | Excludes depreciation and amortization of $687
|--- | ----------------------------------------------

|
|



30



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YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED STATEMENT OF CASH
FLOWS

FOR THE YEAR ENDED, JUNE 30 2003



|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                    |  
|----------------------------------------------------------------------- |  | ------------- | - |  | ------ | - |  | ------------------ | - |  | ------ |  | ------ |  | ------ |  | ------ |  | ------ | - |  | ------ |  | ------------------ | -
|(in $ thousands)                                                        |  | InitialFiling |   |  | Note5A |   |  | InitialRestatement |   |  | Note5A |  | Note5B |  | Note5C |  | Note5D |  | Note5E |   |  | Note5F |  | AmendedRestatement |  
|                                                                        |  | $             |   |  | $      |   |  | $                  |   |  | $      |  | $      |  | $      |  | $      |  | $      |   |  | $      |  | $                  |  
|CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES                          |  |               |   |  |        |   |  |                    |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                    |  
|                                                                        |  |               |   |  |        |   |  |                    |   | 
|Net earnings                                                            |  | 3,489         |   |  |       |   |  | 3,489              |   |  |       |  |       |  |       |  |       |  |       |   |  |       |  | 3,489              |  
|                                                                        |  |               |   |  |        |   |  |                    |   | 
|Adjustments for                                                         |  |               |   |  |        |   |  |                    |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                    |  
|                                                                        |  |               |   |  |        |   |  |                    |   | 
|Depreciation and amortization                                           |  | 803           |   |  |       |   |  | 803                |   |  |       |  |       |  |       |  |       |  |       |   |  |       |  | 803                |  
|                                                                        |  |               |   |  |        |   |  |                    |   | 
|Deferred income taxes                                                   |  | 1,446         |   |  | (1,100 | ) |  | 346                |   |  |       |  |       |  |       |  |       |  | 120    |   |  |       |  | 466                |  
|Writedown of property and equipment and license fee                     |  | 119           |   |  |       |   |  | 119                |   |  |       |  |       |  |       |  |       |  |       |   |  |       |  | 119                |  
|Loss on sale of property, equipment and software                        |  | 2             |   |  |       |   |  | 2                  |   |  |       |  |       |  |       |  |       |  |       |   |  |       |  | 2                  |  
|Common stock issued through business operations                         |  | 116           |   |  |       |   |  | 116                |   |  |       |  |       |  |       |  |       |  |       |   |  |       |  | 116                |  
|Share of net (gain)/loss of affiliate                                   |  | 29            |   |  |       |   |  | 29                 |   |  |       |  |       |  |       |  |       |  |       |   |  |       |  | 29                 |  
|Changes in assets and liabilities                                       |  | 1,000         |   |  | 1,100  |   |  | 2,100              |   |  |       |  |       |  |       |  |       |  | (409   | ) |  |       |  | 1,691              |  
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                    |  
|Cash from operating activities                                          |  | 7,004         |   |  |       |   |  | 7,004              |   |  |       |  |       |  |       |  |       |  | (289   | ) |  |       |  | 6,715              |  
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                    |  
|CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES                          |  |               |   |  |        |   |  |                    |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                    |  
|                                                                        |  |               |   |  |        |   |  |                    |   | 
|Purchase of property and equipment                                      |  | (2,795        | ) |  |       |   |  | (2,795             | ) |  |       |  |       |  |       |  |       |  | 320    |   |  |       |  | (2,475             | )
|Investment in Odyssey Management Group, Inc.                            |  | (500          | ) |  |       |   |  | (500               | ) |  |       |  |       |  |       |  |       |  |       |   |  |       |  | (500               | )
|                                                                        |  |               |   |  |        |   |  |                    |   | 
|Loan receivable                                                         |  | (161          | ) |  |       |   |  | (161               | ) |  |       |  |       |  |       |  |       |  |       |   |  |       |  | (161               | )
|                                                                        |  |               |   |  |        |   |  |                    |   | 
|Increase in deferred acquisition cost                                   |  | (1,659        | ) |  |       |   |  | (1,659             | ) |  |       |  |       |  |       |  |       |  |       |   |  |       |  | (1,659             | )
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                    |  
|Cash used in investing activities                                       |  | (5,115        | ) |  |       |   |  | (5,115             | ) |  |       |  |       |  |       |  |       |  | 320    |   |  |       |  | (4,795             | )
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                    |  
|CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES                          |  |               |   |  |        |   |  |                    |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                    |  
|                                                                        |  |               |   |  |        |   |  |                    |   | 
|Issuance of common shares                                               |  | 1,000         |   |  |       |   |  | 1,000              |   |  |       |  |       |  |       |  |       |  |       |   |  |       |  | 1,000              |  
|Repayments on obligations under capital leases                          |  | (111          | ) |  |       |   |  | (111               | ) |  |       |  |       |  |       |  |       |  | (4     | ) |  |       |  | (115               | )
|Repayments on advances from TELUS Communications Inc.                   |  | 2,472         |   |  |       |   |  | 2,472              |   |  |       |  |       |  |       |  |       |  |       |   |  |       |  | 2,472              |  
|                                                                        |  |               |   |  |        |   |  |                    |   | 
|Repurchase of capital stock                                             |  | (800          | ) |  |       |   |  | (800               | ) |  |       |  |       |  |       |  |       |  |       |   |  |       |  | (800               | )
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                    |  
|Cash from (used in) financing activities                                |  | 2,561         |   |  |       |   |  | 2,561              |   |  |       |  |       |  |       |  |       |  | (4     | ) |  |       |  | 2,557              |  
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                    |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS            |  | 410           |   |  |       |   |  | 410                |   |  |       |  |       |  |       |  |       |  | (27    | ) |  |       |  | 383                |  
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                    |  
|(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                        |  | 4,860         |   |  |       |   |  | 4,860              |   |  |       |  |       |  |       |  |       |  |       |   |  |       |  | 4,860              |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                          |  | 583           |   |  |       |   |  | 583                |   |  |       |  |       |  |       |  |       |  |       |   |  |       |  | 583                |  
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                    |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                |  | 5,443         |   |  |       |   |  | 5,443              |   |  |       |  |       |  |       |  |       |  |       |   |  |       |  | 5,443              |  
|                                                                        |  |               |   |  |        |   |  |                    |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                    |  
|Supplemental disclosure of cash flow information:                       |  |               |   |  |        |   |  |                    |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                    |  
|Interest paid                                                           |  | 14            |   |  |       |   |  | 14                 |   |  |       |  |       |  |       |  |       |  |       |   |  | 499    |  | 513                |  
|                                                                        |  |               |   |  |        |   |  |                    |   | 
|Supplemental disclosure of non-cash investing and financing activities: |  |               |   |  |        |   |  |                    |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                    |  
|                                                                        |  |               |   |  |        |   |  |                    |   | 
|Notes payable on purchase of software                                   |  | 8,935         |   |  | (5,217 | ) |  | 3,718              |   |  |       |  |       |  |       |  |       |  |       |   |  |       |  | 3,718              |  
|Joint Venture receivable on purchase of software                        |  |              |   |  | 3,196  |   |  | 3,196              |   |  |       |  |       |  |       |  |       |  |       |   |  |       |  | 3,196              |  
|Issuance of common stock for services rendered                          |  | 116           |   |  |       |   |  | 116                |   |  |       |  |       |  |       |  |       |  |       |   |  |       |  | 116                |  
|Acquisition of Software                                                 |  |              |   |  | 1,561  |   |  | 1,561              |   |  |       |  |       |  |       |  |       |  |       |   |  |       |  | 1,561              |  



31



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|5A. | Correction of the error in the accounting for Next Generation Software initially restated on June 1, 2005 and subsequently amended on September 28,
2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

Initial Software Transaction

On June 20, 2003, the Companys wholly-owned subsidiary, Yak Communications (Canada) Inc. (Yak Canada), acquired certain telecommunications software from Consortio, Inc., a Delaware corporation
and Convenxia Limited, a corporation organized under the laws of the United Kingdom (collectively, the Sellers), pursuant to the terms and conditions of a Software Acquisition Agreement. Payments made or due to the Sellers for the
software were as follows: (a) $0.6 million in cash was paid at the closing of the transaction; (b) delivery of a non-interest bearing short-term promissory note executed in favor of Consortio, Inc. in the principal amount of $0.4 million
providing for equal monthly payments of $40 thousand and (c) the balance of the purchase price was evidenced by a long-term promissory note executed in favor of Consortio, Inc. in the principal amount of $8.5 million bearing interest at
7.25% per annum. Under the long-term note, interest and principal were payable quarterly in the amount of $175 thousand commencing September 30, 2003 with the balance due July 15, 2012. The sole recourse of the lender under the
long-term note was the subject software. Yak Canada was also issued a warrant to purchase up to 8% of the issued and outstanding common stock of Convenxia Limited, with an exercise period ending June 30, 2012. The exercise price is based on a
predetermined formula using a calculation of fair value of the grantor at the time of exercise.

In addition to the purchase of the
software, Yak Canada and the Sellers entered into a joint venture agreement under which an exclusive license was granted to the Sellers for the use of the software for telecommunication services outside Canada to non-Yak customers. Under the joint
venture agreement, Yak Canada was entitled to receive 4% of all gross revenue arising from the sale of services using the acquired software pursuant to such license with minimum quarterly payments of $150 thousand through June 30, 2006 and,
thereafter, 2.75% of gross revenue with minimum quarterly payments of $175 thousand. The expiration date of the joint venture was July 15, 2015.

May 31, 2005 Restatement of June 30, 2003 and June 30, 2004 Financial Statements

During the fourth fiscal quarter of fiscal 2005, the Company determined that the assumptions on which the valuations of this software acquisition were made and the agreement recorded were in error. On May 31, 2005, the financial
statements for fiscal years ended June 30, 2003 and 2004 were amended and restated. As a result, in its June 30, 2003 amended Annual Report on Form 10-K/A filed on May 31, 2005, the Company estimated the fair value of each of the
components of the software transaction as follows:



|                         |  |   |            
|------------------------ |  | - | -----------
|Software                 |  | $ | 1.7 million
|Warrants                 |  |   | 0.1 million
|Joint venture receivable |  |   | 5.0 million
|                         |  |   |            
|                         | 
|Total assets acquired    |  | $ | 6.8 million
|Cash paid                |  | $ | 0.7 million
|Short-term note payable  |  |   | 0.4 million
|Long-term note payable   |  |   | 5.7 million
|                         |  |   |            
|Total consideration paid |  | $ | 6.8 million

The assumptions underlying the restatement of the software and warrant fair values were as
follows:



| |  |  | Software - The Company valued the acquired software at $5.9 million, which is the mid-point of a range of $5.4 million to $6.4 million as determined by management based on a
third-party valuation. Applying by analogy the concepts of Statement of Financial Accounting Standards No. 141 (FAS 141), the Company allocated, on a pro rata basis, the excess of the fair value of the assets acquired over the fair value of the
consideration paid ($4.2 million) to reduce the amounts that otherwise would have been assigned to the non-financial acquired asset (the software). As a result, the amount recorded for the acquired software was reduced for accounting purposes from
its estimated fair value of $5.9 million to its carrying value of $1.7 million;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants  The fair value of the Convenxia warrants was derived using the Black-Scholes valuation model. The range of possible cash outcomes varied based on estimated future
revenues of Convenxia Limited. Because Convenxia is a privately-held entity, enterprise valuation multiples and volatility inputs necessary for the Black-Scholes model were derived from comparable public company statistics;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



32



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| |  |  | Estimates of the fair value of the joint venture receivable, the short-term note payable and the long-term note payable were based on the guidance of Statement of Financial
Accounting Concepts No. 7, Using Cash Flow Information and Present Value in Accounting Measurements (SFAC No. 7) which provides a framework for using future cash flows and present value as the basis for accounting measurements of fair
value. Consistent with the methodology of SFAC No. 7, the Company used the expected cash flow approach to estimate fair value, focusing on explicit assumptions regarding the range of possible cash outcomes and their respective probabilities.
These fair values are based on the following assumptions:
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Receivable from joint venture: The range of possible cash outcomes varied based on the expected length of time that the joint venture would remain intact. The present value of
contractual cash flows was calculated using a discount rate equal to the Companys weighted average cost of capital plus 200 basis points;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Short-term note payable: The present value of contractual cash flows was calculated using a discount rate equal to the Companys weighted average cost of capital; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Long-term note payable: Similar to the joint venture receivable fair value estimate, the range of possible cash outcomes varied based on the expected length of time that the joint
venture would remain intact and also on the probabilities that the balloon payment would ultimately be paid in 2012. The present value of contractual cash flows was calculated using a discount rate equal to the Companys weighted average cost
of capital.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Subsequent to the May 31, 2005 filing of its amended 2003 and 2004 annual reports, and in conjunction with
its continued discussions with the Office of the Chief Accountant (OCA) of the Securities and Exchange Commission in connection with the Companys request for guidance in this regard, management discovered that a calculation error
was made in its determination of the fair value of various components of the Convenxia transaction. On September 27, 2005, Yaks Board of Directors approved managements recommendation to correct this accounting. For additional
details see comments under Second Restatement of Amounts Previously Reported in June 30, 2003 and June 30, 2004 Financial Statements included in this Annual Report, below.

Effect of 2004 Strategic Change

In the fourth quarter of fiscal 2004, the Company made the determination that the development of the software for Yaks own internal use would require the full time and effort of all involved parties. The Company believed that the
continuing development of the software for internal use over the next several years would be the key aspect of the software transaction and not its commercialization. In addition, the Company became increasingly aware that whichever software was
developed for VoIP, it was more likely than not to become obsolete on or before the due date of the balloon payment on the long-term note (June 2012).

Given these two issues, in its amended Annual Report on Form 10-K/A for fiscal year 2004, the Company modified the probability assumptions for the range of possible cash outcomes related to the fair value calculations
of the receivable from the joint venture and the long-term note payable. The probabilities that the cash flows from the joint venture would be received, or that the $7.3 million balloon payment otherwise due in 2012 on the long-term note would be
paid by Yak were reduced to zero probability (from a 20% probability in prior assumptions). Accordingly, in its amended Annual Report on Form 10-K/A for fiscal year 2004, the Company reduced the fair value of the long-term note payable at
June 30, 2004 by $1.7 million, from $5.8 million to $4.1 million and concurrently recorded an impairment in the fair value of the joint venture receivable of $0.6 million, from $4.6 million to $4.0 million. Because the note liability was not
legally extinguished and only the expected cash flow inflows and outflows changed, the resultant net gain of $1.1 million was deferred and classified on the fiscal year 2004 balance sheet as Deferred Revenue. There was no impact on the
Companys Consolidated Statements of Income nor on the Consolidated Statements of Cash Flows for the three months ended June 30, 2004.

As discussed above, subsequent to its recent (May 31, 2005) filing of its amended financial statements for fiscal year 2004, and in conjunction with its continued discussions with the OCA, management determined that the reduction in fair
value of the long-term note payable and the deferral of the loss on impairment of the joint venture receivable were errors in accounting. As stated above, Yaks Board of Directors has approved managements recommendation to correct this
accounting. For additional details see comments under Second Restatement of Amounts Previously Reported in June 30, 2003 and June 30, 2004 Financial Statements included in this Annual Report, below.



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March 2005 Note Settlement

On March 3, 2005, the Company entered into a settlement agreement with the Sellers. Pursuant to the settlement agreement, the Company paid $150
thousand to the Sellers and committed to complete $350 thousand of further development of the software in exchange for a discharge of any further obligation under the long-term note, which note had a principal amount of $8.4 million outstanding at
December 31, 2004. Pursuant to the settlement agreement, all guaranteed payments made under the joint venture agreement would also cease. Accordingly, the Company reduced the amount recorded for the fair value of the long-term note payable at
March 31, 2005 by $4.1 million, to $150 thousand and concurrently recorded an impairment of fair value of the joint venture receivable of $3.8 million, reducing the carrying value to zero. Because the note liability was legally extinguished,
the resultant net gain of $300 thousand and the previously deferred gain of $1.1 million from the fourth fiscal quarter of 2004 were recognized in the third fiscal quarter of 2005. A total gain on early extinguishment of debt of $1.4 million was
recognized in the Companys Consolidated Statements of Income for the quarter ended March 31, 2005.

As discussed above,
subsequent to its recent (May 31, 2005) filing of its amended financial statements for the quarter ended March 31, 2005, and in conjunction with its continued discussions with the OCA, management determined that the gain recognized on early
extinguishment of debt was overstated by $200 thousand. As stated above, the Companys Board of Directors approved managements recommendation to correct this accounting. For additional details see comments under Second Restatement
of Amounts Previously Reported in June 30, 2003 and June 30, 2004 Financial Statements included in this Annual Report, below.

Second Restatement of Amounts Previously Reported in June 30, 2003 and June 30, 2004 Financial Statements included in this Annual Report

Subsequent to the May 31, 2005 filing of its amended Annual Report on Form 10-K/A for fiscal years 2003 and 2004, and as a result of our continuing discussions with the OCA, the Company discovered errors in its
amended filings. The Companys Board of Directors has approved managements recommendation to correct its accounting for the Convenxia software transaction. The errors originated from:



| |  |  | An error in calculating the discount rate used to determine the fair value of the transaction components for the May 31, 2005 restatements. The error caused the Company to
overstate the value of the long-term note payable, the joint venture receivable and the software in its amended Annual Report on Form 10-K/A for fiscal year 2003 and subsequent filings;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The revaluation of the long-term note payable in the amended Annual Report on Form 10- K/A for the fiscal year ended June 30, 2004 10-K/A was not consistent with GAAP,
notwithstanding the fact that the resultant gain was deferred;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The loss on impairment of the joint venture receivable was incorrectly deferred in the amended Annual Report on Form 10-K/A for fiscal year 2004. The loss should have been
recognized in the fourth fiscal quarter of 2004; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The $1.4 million gain recognized on early extinguishment of debt in the third fiscal quarter of 2005 was overstated by $200 thousand.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------

As a result of these corrections, the Company restated the amounts previously reported in its financial statements for fiscal years 2003 and 2004, as well
as each of the quarters in fiscal year 2004 and the first three quarters of fiscal 2005.



|5B. | Correction of error for the misapplication of SFAS 133, SFAS 150 and EITF 00-19 related to the 2004 issuance of detachable warrants
|--- | -----------------------------------------------------------------------------------------------------------------------------------

Management has determined that the prior accounting for its 2004 detachable warrants issued in conjunction with its securities offering was in error. The
Company initially classified the Warrants as an equity instrument; however a put feature that can be exercised in certain circumstances contained within the instrument precludes this classification. The instrument has now been classified as a
Liability in accordance with the application of the provisions of SFAS 133, SFAS 150, and EITF 00-19.



34



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##### Table of Contents

As a result of this error, liabilities at June 30, 2004 were understated by $1,676,000 and
shareholders equity was overstated by $1,676,000. Further the standards requires the Company to re-measure the value of the warrants at the end of each reporting period with the resulting increase or decrease to the liability reported as a
component of the Statement of Income and Comprehensive Income. As a result of a decrease in the value of the Warrants since issuance, the net income of the Company for fiscal 2004 and 2005 were previously understated by $497,000 and $583,000 or
$0.05 per share and $0.05 per share, respectively. As a result of this error at June 30, 2005, liabilities were understated by $1,093,000 and shareholders equity was overstated by $1,093,000.



|5C. | Correction for disclosure deficiencies under SFAS 131
|--- | -----------------------------------------------------

The Company has modified its segmented disclosure to comply with the standards of SFAS 131 and to further provide meaningful information to readers of its financial statements.

There was no effect on the net earnings, earnings per share, assets, liabilities, and stockholders equity.

See note 15, for amended disclosure.



|5D. | Correction of error for disclosure deficiencies under SFAS 109
|--- | --------------------------------------------------------------

The Company modified its income tax statutory rate reconciliation to comply with the provisions of SFAS 109 paragraph 47. There was no effect on the assets, liabilities, stockholders equity or Statement of
Income and Comprehensive Income of the Company as a result of this change.

Further, the Company removed confusing language from its
Deferred Tax note related to tax benefits related to employee stock options.

There was no effect on the net earnings, earnings per share,
assets, liabilities, and stockholders equity.

See note 9, for amended disclosure.



|5E. | Correction of errors in Cash Flow Statements for the Fiscal Years 2003, 2004 and 2005
|--- | -------------------------------------------------------------------------------------

The Company has modified its cash flow statement to correct for disclosure inaccuracies resulting from errors in the exchange rates used to translate
foreign currency cash flows to the Companys reporting currency and to correct for an error in the reporting of the gain on settlement. The Company previously completed its cash flow statement at the consolidated level and failed to consider
the foreign currency effects appropriately. For the fiscal year ending June 30, 2005, the cash flows from operating and investing activities were understated by $221,000 and $245,000, respectively, while the cash flows from financing activities
and the effect of exchange rate changes on cash and cash equivalents were overstated by $332,000 and $134,000, respectively. For the fiscal year ending June 30, 2004, the cash flows from operating and investing activities were overstated by
$31,000 and $617,000, respectively, while the effect of exchange rate changes on cash and cash equivalents was understated by $648,000. For fiscal year ending June 30, 2003, the cash flows from operating and financing activities and the effect
of exchange rate changes on cash and cash equivalents were overstated by $289,000, $4,000 and $27,000, respectively, while the cash flow from investing activities and was understated by $320,000. There was no effect on the net income, earnings per
share, assets, liabilities, and shareholders equity.



|5F. | Correction for the misclassification of financing expenses related to assignment of accounts receivable for 2003, 2004 and 2005 and enhancement of disclosure of factored accounts
receivable.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company misclassified financing costs as operating expenses for the fiscal years 2003, 2004 and 2005
versus disclosing such costs below the line as an element of interest expense as discussed by the AICPAs Special Committee on Classification of Items of Comprehensive Income. The effect of this misclassification was an
overstatement of operating expenses and understatement of income from operations for the years ending 2003, 2004 and 2005 in the amount of $499,000, $514,000 and $429,000, respectively. There was no effect on the net income, earnings per share,
assets, liabilities or shareholders equity as a result of this change. The effect of the restatement on the Companys previously reported interim financial statements for each of the quarters in fiscal year 2004 and 2005 can be found in
Note 16 Quarterly Results of Operations (Unaudited). The Company enhanced its disclosure of accounts receivable assigned under financing agreement. The effect of this enhancement was to reduce accounts receivable and to separately
disclose the factored accounts receivable for the years ended June 30, 2003 and 2004 in the amount of $6,177 and $8,271, respectively.



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Critical Accounting Policies

The preparation of financial statements, in conformity with U.S. generally accepted accounting principles (GAAP), requires management to make estimates and assumptions about future events that affect the
amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment.

This listing of critical accounting policies is not intended to be a comprehensive list of all of the Companys accounting policies. In many cases,
the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP, with no need for managements judgment regarding accounting policy. We believe that of our significant accounting policies, as discussed in Note 2 to
the consolidated financial statements included in this Annual Report on Form 10-K the following accounting policies involve a higher degree of judgment and complexity:

Revenue Recognition

Revenue is recognized when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the Companys price to the customer is fixed and determinable, and collection of the resulting receivable is reasonably assured. Revenue is derived from telecommunications usage based on
minutes of use. Revenue derived from usage is recognized as services are provided, based on agreed upon usage rates. Revenue is recorded net of estimated customer credits and uncollectible billings, which are recorded at the same time the
corresponding revenue is recognized.

Provision for Doubtful Accounts

As of June 30, 2005, we had $16.7 million of gross trade accounts receivable with a recorded allowance for doubtful accounts of $0.5 million. We review the adequacy of our allowance for doubtful accounts on an
ongoing basis, using historical collection trends, analyses of receivable portfolios by business unit and by reviewing specific accounts and make adjustments in the allowance as necessary. Changes in economic conditions or dramatic changes in the
telecommunications industry could have an impact on the collection of receivable balances or future allowance considerations.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity at acquisition of three months or less to be cash
equivalents. The Company maintains its cash and cash equivalents primarily with financial institutions in Toronto, Canada. These accounts may from time to time exceed federally insured limits. The Company has not experienced any losses on such
accounts.

Income Taxes

We account for
income taxes in accordance with SFAS No. 109 Accounting for Income Taxes which requires an asset and liability approach to financial accounting and reporting for income taxes. We have generated deferred income tax liabilities
primarily due to the accounting basis of our assets exceeding the tax basis of those same assets. These liabilities are offset by certain net operating loss carryforwards that are available for twenty years from the date incurred and which begin to
expire in the year 2023. Our ability to fully utilize these net operating loss carryforwards is highly dependent on our ability to generate future income in the tax jurisdictions that the losses originated. If these estimates and assumptions change
in the future, we will be required to adjust our deferred tax valuation allowances.

Our income tax accounts reflect estimates of the
outcome or settlement of various asserted and unasserted income tax contingencies including tax audits and administrative appeals. At any point in time, several tax years may be in various stages of audit or appeals or could be subject to audit by
various taxing jurisdictions. This requires a periodic identification and evaluation of significant doubtful or controversial issues, both individually and in the aggregate. The results of these audits, appeals, or expiration of the statute of
limitations could affect our prior estimates for income tax accounts.

The effective income tax rate in any period may be materially
impacted by the overall level of income (loss) before income taxes, the jurisdictional mix and magnitude of income (loss), changes in the income tax laws (which may be retroactive), changes in the expected outcome or settlement of an income tax
contingency, changes in the deferred tax valuation allowance, and adjustments of a deferred tax asset or liability for enacted changes in tax laws or rates.



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##### Table of Contents

Customer Lists

As of June 30, 2005, customer lists were recorded at a net book value of $2.0 million, representing the unamortized cost of customer lists purchased as part of the Argos (now Yak for Business) and Contour
acquisitions in July 2003 as well as the customer base purchased from Navigata Communications Ltd. in March 2005, as discussed above. Customer lists are amortized on a straight-line basis over five years, which represents the estimated customer
life-cycle in the telecom industry. If the retention rate for acquired customers is less than initially estimated, accelerated amortization or impairment may be necessary.

Impairment of Long-lived Assets and Goodwill

As of June 30, 2005, our long-lived assets were
comprised primarily of $13,559 of property and equipment and $503 of goodwill. We review the carrying value of long-lived assets and goodwill according to Statement of Financial Accounting Standard (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assetsand SFAS 142 Goodwill and Other Intangible Assets. Our estimate of useful lives on property and equipment are based on assumptions using historical data and industry trends. Impairment is
recorded on long-lived assets when assets are identified for disposal or other events suggesting impairment occur and if the carrying value of the long-lived asset exceeds its anticipated undiscounted future net cash flows. Impairment is recorded on
goodwill when the carrying value of a reporting unit exceeds the anticipated undiscounted future net cash flows of that reporting unit. In each case, if an impairment loss is recognized, it is based on the difference between the assets fair
value and its carrying value.

The determination and measurement of an impairment loss requires the continuous use of significant judgments
and estimates. Our assumptions related to estimates of future cash flows are based on historical results of cash flows adjusted for management projections for future periods taking into account known conditions and planned future activities. Our
assumptions regarding the fair value of our long-lived assets and goodwill are based on the discounted future cash flows. Future events may result in differences in managements judgments and estimates. Factors that could result in increased
future impairment charges include increases in interest rates, which would impact discount rates; unfavorable economic conditions or other factors, such as a change in our expectations for growth and public acceptance of IP telephony technology,
which could decrease revenues and profitability; and changes in our cost structure.

Obligation Under Warrants and Registration Rights Agreement

In accordance with the provisions of SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities (SFAS No.
133) along with related interpretations EITF No. 00-19 Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock (EITF 00-19) and EITF No. 05-2 The Meaning
of Conventional Convertible Debt Instrument in Issue No. 00-19 (EITF 05-2). SFAS No. 133 requires every derivative instrument (including certain derivative instruments embedded in other contracts) to be recorded in the
Balance Sheet as either an asset or liability measured at its fair value, with changes in the derivatives fair value recognized currently in earnings unless specific hedge accounting criteria are met. We made the determination, that the
detachable Warrants issued in 2004 is a Derivative instrument and measured its value at $2,173, at inception. Additionally, at the end of each reporting period, the accounting standard requires the Company to mark to market the recorded value of any
outstanding derivatives, resulting in an adjustment to the recorded liability; the resulting adjustment, if any being reflected as a gain or loss earnings in the applicable reporting period. Since the inception of the Warrants, the fair value under
the Black-Scholes method of valuation has declined and the Company has recorded a cumulative pre-tax gain of $1,408 as the value of the Warrants declined. The Company values the Warrants using the Black-Scholes option-pricing model to determine fair
value, this model requires management to make assumptions on the expected volatility rates, risk-free interest rates and the instruments expected remaining life. These assumptions require significant management judgment. The Company also
recorded an obligation in 2005 of $540 related to a breech of the warrant and rights registration agreement.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and 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. Actual results could differ from those
estimates.

Significant estimates include revenue recognition, the allowance for doubtful accounts, purchase accounting (including the
ultimate recoverability of intangibles and other long-lived assets), valuation of deferred tax assets, accrued obligations and contingencies surrounding litigation. These policies have the potential to have a significant impact on our financial
statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events which are
continuous in nature.

The Company accounts for intangible assets in accordance with Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations (SFAS 141) and SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). All business combinations are accounted for using the purchase method. Goodwill is not
amortized, but is tested for impairment at least annually. Intangible assets are recorded based on estimates of fair value at the time of the acquisition and finite life intangibles are amortized over their estimated useful lives.

The Company assesses the fair value of goodwill based upon a discounted cash flow methodology. If the carrying amount of the net assets of the reporting
unit to which the goodwill relates exceeds the estimated fair value of the reporting unit determined through the discounted cash flow analysis, goodwill impairment may be present. The Company would measure the goodwill impairment loss based upon the
fair value of the underlying assets and liabilities, and estimate the implied fair value of goodwill. An impairment loss would be recognized to the extent that the business recorded goodwill exceeded the implied fair value of goodwill. The Company
tests for impairment annually at June 30 of each year. No impairment was present upon the performance of these tests in 2005 and 2004. We cannot predict the occurrence of future events that might adversely affect the reported value of goodwill.
Such events may include, but are not limited to, strategic decisions made in response to economic and competitive conditions, and judgments on the validity of the Companys prospects or due to other factors not known to management at this time.

Regularly, the Company evaluates whether events or circumstances have occurred that indicate the carrying value of its other amortizable
intangible assets may not be recoverable. When factors indicate the asset may not be recoverable, the Company compares the related future net cash flows to the carrying value of the asset to determine if impairment exists. If the expected future net
cash flows are less than carrying value, impairment is recognized to the extent that the carrying value exceeds the fair value of the asset.

The Company is involved from time to time in various legal matters arising out of its operations in the normal course of business. On a case by case basis, the Company evaluates the likelihood of possible outcomes for this litigation. Based
on this evaluation, the Company determines whether the recognition of a liability is appropriate. If the likelihood of a negative outcome is probable, and the amount is estimable, the Company accounts for the liability in the current period. A
change in the circumstances surrounding any current litigation could have a material impact on the financial statements.



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We estimated the fair value of the assets and liabilities associated with the purchase of certain
telecommunications software from Consortio, Inc and Convenxia Limited noted above, based on the related estimated cash flows. Statement of Financial Accounting Concepts No. 7 (SFAC No. 7) provides a framework for using future cash flows
and present value as the basis for accounting measurements of fair value. When observable marketplace-determined values are not available, discounted cash flows are often used to estimate fair value. Consistent with the methodology of SFAC
No. 7, we used the expected cash flow approach to estimate fair value, focusing on explicit assumptions about the range of possible cash outcomes and their respective probabilities.

Stock Based Compensation

Statement of Financial Accounting Standard (SFAS) No. 123.
Accounting for Stock Based Compensation, defines fair value-based method of accounting for stock-based employee compensation plans and transaction in which an entity issued its equity instruments to acquire goods or services from non-employees, and
encourages but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. We have chosen to account for employee stock-based compensation plans using the intrinsic-value method prescribed in
Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting form Stock issued to Employees, and related interpretations. Accordingly, employee compensation cost for stock is measured as the excess, if any, of the estimated fair
value of our stock at the date of the grant over the amount an employee must pay to acquire the stock.

In December 2004, the FASB issued
SFAS No. 123(R) Share-Based Payment, which addresses the accounting for share-based payment transactions. SFAS No. 123(R) eliminates the ability to account for share-based compensation transactions using APB 25, and generally requires
instead that such transactions be accounted for and recognized in the statement of operations based on their fair value. SFAS No. 123(R) will be effective for public companies that do not file as small business issuers as of the beginning of
the first interim or annual reporting period that begins after June 15, 2005. Management is evaluating the provisions of this standard. Depending upon the number and terms of options that may be granted in future periods, the implementation of
this standard could have a material impact on the Companys financial position and results of operations.

Results of Operations

The following information for the fiscal years ended June 30, 2005, 2004 and 2003 reflects all the items included in the consolidated statements of
operations as a percentage of net revenue (all amounts in U.S. dollars):



|                                                    |  |                     |    |  |                |    |  |                |  
|--------------------------------------------------- |  | ------------------- | -- |  | -------------- | -- |  | -------------- | -
|                                                    |  | Year Ended June 30, |   
|(in $ thousands)                                    |  | 2005(Restated)      |    |  | 2004(Restated) |    |  | 2003(Restated) |  
|                                                    |  | $                   |    |  | $              |    |  | $              |  
|Net revenue                                         |  | 100.00              | %  |  | 100.00         | %  |  | 100.00         | %
|Cost of revenue1                                    |  | 62.17               | %  |  | 65.78          | %  |  | 62.87          | %
|                                                    |  |                     |    |  |                |    |  |                |  
|Contribution margin                                 |  | 37.83               | %  |  | 34.22          | %  |  | 37.13          | %
|                                                    |  |                     |    |  |                |    |  |                |  
|Operating expenses                                  |  |                     |    |  |                |    |  |                |  
|General and administration                          |  | 20.54               | %  |  | 14.21          | %  |  | 9.51           | %
|Sales and marketing                                 |  | 7.87                | %  |  | 4.82           | %  |  | 10.41          | %
|Depreciation and amortization                       |  | 3.17                | %  |  | 3.69           | %  |  | 1.99           | %
|Writedown of property and equipment and license fee |  |                    |    |  | 0.39           | %  |  | 0.29           | %
|                                                    |  |                     |    |  |                |    |  |                |  
|Total operating expenses                            |  | 31.58               | %  |  | 23.11          | %  |  | 22.20          | %
|                                                    |  |                     |    |  |                |    |  |                |  
|Income from operations                              |  | 6.25                | %  |  | 11.11          | %  |  | 14.93          | %
|                                                    |  |                     |    |  |                |    |  |                |  
|Other expenses (income)                             |  |                     |    |  |                |    |  |                |  
|Interest expense                                    |  | 0.96                | %  |  | 1.20           | %  |  | 1.27           | %
|Interest earned                                     |  | (0.44               | )% |  | (0.20          | )% |  |               |  
|Longterm debt discount amortization                |  | 0.42                | %  |  | 0.66           | %  |  |               |  
|Income from joint marketing agreement               |  | (0.45               | )% |  | (0.67          | )% |  |               |  
|Gain on settlement                                  |  | (1.34               | )% |  |               |    |  |               |  
|Change in fair value of obligation under warrants   |  | (0.63               | )% |  | (0.62          | )% |  |               |  
|Other expenses                                      |  |                    |    |  | 0.41           | %  |  | 0.07           | %
|                                                    |  |                     |    |  |                |    |  |                |  
|                                                    |  | (1.48               | )% |  | 0.78           | %  |  | 1.34           | %
|                                                    |  |                     |    |  |                |    |  |                |  
|Earnings before income tax                          |  | 7.73                | %  |  | 10.34          | %  |  | 13.58          | %
|Provisions for income taxes                         |  | 2.59                | %  |  | 3.57           | %  |  | 4.95           | %
|                                                    |  |                     |    |  |                |    |  |                |  
|Net earnings                                        |  | 5.14                | %  |  | 6.77           | %  |  | 8.63           | %
|                                                    |  |                     |    |  |                |    |  |                |  

---

|(1) | Excludes depreciation and amortization of $2,359 (2.5%), $2,767 (3.4%) and $687 (1.7%) respectively.
|--- | ----------------------------------------------------------------------------------------------------



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The following information for the years ended June 30, 2005 and 2004 is provided for informational
purposes and should be read in conjunction with the Consolidated Condensed Financial Statements and Notes

For the Year Ended
June 30, 2005



|                     |  |         |  |           |  |           |  |        
|-------------------- |  | ------- |  | --------- |  | --------- |  | -------
|Products             |  | Revenue |  | Customers |  | Minutes   |  | Calls  
|                     |  | $       |  |           |  |           |  |        
|Dial-Around/1+       |  | 66,465  |  | 831       |  | 1,060,514 |  | 94,689 
|LooneyCall           |  | 8,226   |  | 68        |  | 94,538    |  | 6,954  
|Yakcell/Calling Card |  | 510     |  | 6         |  | 4,590     |  | 542    
|Total Core Revenue   |  | 75,201  |  | 905       |  | 1,159,642 |  | 102,185
|Yak for Business     |  | 11,753  |  |           |  |           |  |        
|Contour              |  | 5,557   |  |           |  |           |  |        
|WorldCity VoIP       |  | 76      |  |           |  |           |  |        
|Other                |  | 113     |  |           |  |           |  |        
|Net Revenue          |  | 92,700  |  |           |  |           |  |        

For the Year Ended June 30, 2004



|                     |  |         |  |           |  |         |  |       
|-------------------- |  | ------- |  | --------- |  | ------- |  | ------
|Products             |  | Revenue |  | Customers |  | Minutes |  | Calls 
|                     |  | $       |  |           |  |         |  |       
|Dial-Around/1+       |  | 54,217  |  | 718       |  | 856,542 |  | 75,150
|LooneyCall           |  | 8,953   |  | 92        |  | 108,255 |  | 7,723 
|Yakcell/Calling Card |  | 132     |  | 1         |  | 819     |  | 127   
|Total Core Revenue   |  | 63,302  |  | 811       |  | 965,616 |  | 83,000
|Yak for Business     |  | 11,775  |  |           |  |         |  |       
|Contour              |  | 5,646   |  |           |  |         |  |       
|WorldCity VoIP       |  |        |  |           |  |         |  |       
|Other                |  | 79      |  |           |  |         |  |       
|Net Revenue          |  | 80,802  |  |           |  |         |  |       

For the Year Ended June 30, 2003



|                     |  |         |  |           |  |         |  |       
|-------------------- |  | ------- |  | --------- |  | ------- |  | ------
|Products             |  | Revenue |  | Customers |  | Minutes |  | Calls 
|                     |  | $       |  |           |  |         |  |       
|Dial-Around/1+       |  | 38,326  |  | 553       |  | 514,025 |  | 58,949
|LooneyCall           |  | 2,078   |  | 69        |  | 29,082  |  | 2,021 
|Yakcell/Calling Card |  |        |  | 1         |  | 39      |  | 5     
|Total Core Revenue   |  | 40,404  |  | 623       |  | 543,146 |  | 60,975
|Yak for Business     |  |        |  |           |  |         |  |       
|Contour              |  |        |  |           |  |         |  |       
|WorldCity VoIP       |  |        |  |           |  |         |  |       
|Other                |  |        |  |           |  |         |  |       
|Net Revenue          |  | 40,404  |  |           |  |         |  |       

Results of Operations for the fiscal year ended June 30, 2005 as compared to the fiscal year ended
June 30, 2004.

Revenue

Net
revenue increased $11.9 million, or 15%, to $92.7 million for the fiscal year ended June 30, 2005, from $80.8 million for the fiscal year ended June 30, 2004. We experienced growth of $11.4 million in dial-around revenue, primarily as a
result of our advertising campaigns and the expansion of our network capability from coast to coast in the Canadian and



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American markets. The balance of the increase was predominantly due to our 1+ product which added revenues of
$0.9 million for the period ended June 30, 2005, which were partially offset by a decrease in revenues from our LooneyCall product of $0.7 million.

Yak Canada

Our Canadian revenue increased by $10.0 million, or 16%, to $72.2 million for the year
ended June 30, 2005 from $62.2 million for the year ended June 30, 2004. This was mainly due to the Dial Around product that increased $9.5 million to $62.6 million for the year ended June 30, 2005 from $53.1 million for the fiscal
year ended June 30, 2004.

The Average Rate per Minute (ARPM) we derive from our core dial around services was $0.064 for the period
ending June 30, 2005 as compared to $0.065 for the period ended June 30, 2004. Due to the competitive nature of the business and the fact that long distance services are a commodity product, we expect continual, gradual erosion in the ARPM
in the coming years. See the discussion in Direct Costs below regarding the actions we are taking to control costs and maintain margins.

Yak America

We achieved significant growth in the U.S market during this fiscal year, with revenue in our U.S. operating
territories increasing by $1.9 million to $3.0 million for the year ended June 30, 2005 from $1.1 million for the year ended June 30, 2004. This was achieved by successfully implementing our plan in the U.S, which included actions such as:



| |  |  | Completion of the loading of our CIC access codes in the 48 mainland states;
| | - |  | ----------------------------------------------------------------------------



| |  |  | Launch of our 1+ product in the fall of 2004; and
| | - |  | -------------------------------------------------



| |  |  | Targeted marketing campaigns using a variety of media including; the internet, newspaper advertisements, flyers and commercials featuring various spokespeople.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

Yak for Business

The
contributed revenue for Yak for Business was essentially unchanged at $11.8 million (unadjusted for foreign exchange) for the fiscal year ended June 30, 2005, when compared to revenue for the fiscal year ended June 30, 2004. Yak for
Business intends to continue to focus on our growth opportunities in the small and medium business markets.

Revenue decreased by $0.9
million during the year due to the renegotiation of rates with our data customers because of a shift in service technology. This shift moved away from Frame Relay and towards DSL where Yak for Business customers were passed the savings reflected in
such a price reduction. This decrease in revenue was mostly offset by the appreciation of the Canadian dollar.

Contour

Contour Telecom contributed revenue of approximately $5.6 for the fiscal year ended June 30, 2005 which represented a decrease of $0.1 million from
the comparable period in 2004 when unadjusted for the foreign exchange rate. For information regarding foreign currency risk, see Item 7.A Quantitative and Qualitative Disclosures about Market Risk, below. Revenue decreased by $0.5
million primarily due to renegotiation of rates with our main customer and customer churn. These two factors were partially offset by the appreciation of the Canadian dollar.

WorldCity VoIP

For the first year of operations, VoIP revenues were $76 thousand for the fiscal year
ended June 30, 2005. The start up of this product was in September 2004 with approximate 60% of the revenue being generated in Canada.



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Our other revenue is comprised mainly of our operations in Peru and Digital Way S.A.

Direct Costs

Cost of revenue (which excludes
depreciation and amortization for the years ending 2005 and 2004 was $2,359 and $2,767, respectively) increased $4.5 million or 8.5%, to $57.6 million for the fiscal year ended June 30, 2005, from $53.1 million for the fiscal year ended
June 30, 2004. The overall cost of revenue decreased to 62.2% of sales for the fiscal year ended June 30, 2005, from 65.8% of sales for the fiscal year ended June 30, 2004. Margins improved primarily as a result of the increased
utilization of our leased line network. We continue to build out our Canadian network, which enables us to bring a greater share of traffic onto our own network, resulting in a higher utilization of fixed-cost access lines. As a result
of the continued downward pressure on the price of long distance telephony, we are utilizing real-time, least cost routing algorithms and contracting with various carriers to efficiently and effectively manage direct costs.

The table below presents a breakdown of the direct costs of our core dial-around business, in Canada and the United States, into its long distance and
other components (all revenue amounts in thousands of U.S. dollars):



|                      |  |                                           |  |       |               |  |        |               |       |   |  |        |  |      |  
|--------------------- |  | ----------------------------------------- |  | ----- | ------------- |  | ------ | ------------- | ----- | - |  | ------ |  | ---- | -
|                      |  | Breakdown of Direct Cost for Core Revenue | 
|                      |  | June 30, 2005                             |  |       | June 30, 2004 |  |        | June 30, 2003 |      
|                      |  | $                                         |  | %     |               |  | $      |               | %     |   |  | $      |  | %    |  
|Core Revenue*         |  | 75,201                                    |  | 100.0 | %             |  | 63,302 |               | 100.0 | % |  | 40,404 |  | 100  | %
|Long Distance Charges |  | 20,791                                    |  | 27.6  | %             |  | 22,523 |               | 35.6  | % |  | 14,616 |  | 36.2 | %
|Other Fees**          |  | 24,202                                    |  | 32.2  | %             |  | 17,928 |               | 28.3  | % |  | 11,251 |  | 27.8 | %
|Contribution Margin   |  | 30,208                                    |  | 40.2  | %             |  | 22,851 |               | 36.1  | % |  | 14,537 |  | 36.0 | %

---

|* | Core revenue is equal to Net Revenue per the financial statements less revenue from Yak for Business, Contour and other miscellaneous revenue. (See above breakout of revenue)
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Other fees include line access charges for our leased line network, occupancy, call processing fees, CRTC contribution fees (universal service fees paid to the Canadian
telecommunications regulator), and costs to originate and terminate traffic on our leased line network.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cost of revenue in
our dial-around business is comprised primarily of the cost of long distance services, fees for the processing and transporting of our calls and fixed and variable line access costs. The cost of the pure long distance component of services has
decreased to $20.8 million or 27.6% for the fiscal year ended June 30, 2005, from $22.5 million or 35.6% for the fiscal year ended June 30, 2004. The decrease in the relative percentage of revenue is a result of actively seeking
competitive routes and the effect of deregulation on the cost of long distance in other international markets. The cost of the Other Fees component of services (see list above) has increased to 32.2% for the fiscal year ended
June 30, 2005, from 28.3% for the fiscal year ended June 30, 2004. The majority of this increase is due to call processing fees and switch costs.

Contribution Margins

Our overall contribution margin for the Company increased to 37.8% for the fiscal year ended
June 30, 2005, from 34.2% for the fiscal year ended June 30, 2004. The increase in margin can be mainly attributed to efficiently employing real-time least cost routing algorithms and contracting with various carriers in order to manage
the direct costs as efficiently as possible.

Yak Canada

Contribution margin for our operations in Yak Canada increased by $7.5 million or 32.7% to $30.3 million for the fiscal year ended June 30, 2005 compared to the same period ended June 30, 2004. This is the
result of increased revenues ($10.0 million) and the reductions of cost of goods sold as a percentage of revenue. The overall cost of revenue decreased to 58.0% of sales for the fiscal year ended June 30, 2005, from 63.3% of sales for the
fiscal year ended June 30, 2004. Margins improved primarily as a result of the increased utilization of our leased line network.



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Yak America

Contribution margin for our operations in Yak America decreased by $0.1 million for the period ended June 30, 2005 compared to the same period ended June 30, 2004. This is the result of the increasing long distance costs as a
percentage of revenue from 63.5% in 2004 to 66.9% in 2005 due to customers calling mix. This increase in costs was partially offset by an improvement in call processing fees that dropped from 27.1% to 23.2% as a percentage of revenue for the years
ended 2004 and 2005, respectively.

Yak for Business

Yak for Business contribution margin increased 1.8% to 28.4% for the fiscal year ending June 30, 2005, compared to 26.6% for the fiscal year ending June 30, 2004. The increase is due to the acquisition of
Navigatas customer base in March 2005.

Contour

Contour contribution margin decreased 2.3%, to 26.5% for the fiscal year ending June 30, 2005, compared to 28.8 for the fiscal year ending June 30, 2004. The decrease is largely the result of lower
management fees charged to customers, combined with an increase in local line costs in 2005 due to supplier credits that were received and applied in 2004.

WorldCity VoIP

WorldCity VoIP contribution margin was $43 thousand for the year ended June 30, 2005. We constantly
analyze potential opportunities in the international market with regard to targeted campaigns, and believe there still remain high margin opportunities that can be utilized.

The table below highlights the relative proportion of calls terminating in the U.S. and Canada as compared to those terminating internationally as well
as the total of both categories:

Termination of Traffic by Destination



|                                    |  |           |   |  |               |   |  |           |  
|----------------------------------- |  | --------- | - |  | ------------- | - |  | --------- | -
|(All amounts in Thousands) Products |  | US/Canada |   |  | International |   |  | Total     |  
|2005                                |  |           |   |  |               |   |  |           |  
|Billed Minutes                      |  | 909,811   |   |  | 249,830       |   |  | 1,159,641 |  
|                                    |  | 78.5      | % |  | 21.5          | % |  | 100.0     | %
|2004                                |  |           |   |  |               |   |  |           |  
|Billed Minutes                      |  | 724,308   |   |  | 241,308       |   |  | 965,616   |  
|%                                   |  | 75.0      | % |  | 25.0          | % |  | 100.0     | %
|2003                                |  |           |   |  |               |   |  |           |  
|Billed Minutes                      |  | 375,762   |   |  | 167,384       |   |  | 543,146   |  
|%                                   |  | 69.2      | % |  | 30.8          | % |  | 100.0     | %

General & Administrative Expenses

General and administrative expenses (G&A) increased $7.5 million or 65.8%, to $19.0 million for the fiscal year ended June 30, 2005,
from $11.5 million for the fiscal year ended June 30, 2004. Of this increase, $3.6 million can be attributed mainly to salaries and benefits. The remaining increase of G&A of $3.7 million can be mainly attributed to increases in legal and
consulting fees ($1.4 million), the establishment of an impairment reserve relating to the joint venture in Peru ($0.5 million), bad debts ($0.4 million), management recruiting costs ($0.3 million) and occupancy costs ($0.3 million).

The largest component of the increase in G&A was salaries. This is a result of hiring additional senior management (including several executives with
extensive telecommunications experience) and customer service representatives to facilitate the future growth of our business. The costs of recruiting these senior management positions totaled $0.3 million for the year. Additionally, as we move into
new markets and introduce new products, we have invested in our front-line customer support organization. We believe that customer service has been a key differentiating factor for us and we expect that this will continue in the future.



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Legal and consulting expenses increased $1.2 million or 87% to $2.5 million for fiscal year ended
June 30, 2005. The increase in expense is primarily a result of tax compliance and other legal matters related to the introduction of our products into the U.S. market; $0.5 million of costs were incurred due to the accounting restatement with
respect to a historical software transaction; fees incurred for Sarbanes-Oxley compliance; as well as fees in connection with regulatory matters and the $0.6 million in fees associated with due diligence efforts associated with certain acquisition
opportunities. Neither restatement costs nor Sarbanes-Oxley costs had been incurred in prior years.

We entered into a commercial services
and marketing agreement with a joint venture participant in Peru for which an impairment reserve was taken during the fiscal year. Initially, we provided financing to assist in the joint ventures development of dial-around long-distance
service for which we would process the joint ventures international traffic and earn 50% of the profits generated by the business. During the fiscal year, an independent valuation was obtained and an impairment on the loan for its full value
of $0.5 million was recorded leaving a balance at June 30, 2005 of $nil. At June 30, 2005 and June 30, 2004, we had made advances of $0.1 million and $0.3 million respectively under this agreement of which $nil ($0.4 million as of
June 30, 2004) is a loan receivable.

Expenditures for occupancy increased by $0.3 million for the fiscal year ended June 30,
2005 as a result of the consolidation to our new offices at 300 Consilium Place in Toronto, Ontario and the additional locations related to our purchase of Yak for Business and Contour. Please see the discussion in the Properties section
for a complete list of all of the properties currently under lease.

Sales & Marketing

Overall, sales and marketing expenses increased $3.4 million, or 87%, to $7.3 million for the fiscal year ended June 30, 2005, from $3.9 million for
the fiscal year ended June 30, 2004. However, in our Canadian territory, the cost of advertising decreased by $1.7 million to $1.9 million for the fiscal year ended June 30, 2005, primarily due to decreased direct mail and promotional
activities for our dial-around product in Ontario and cost reductions resulting from a switch in advertising agencies. Advertisement spending of $5.3 million in our U.S. markets began in the current calendar year. Upon entering the U.S. market, we
invested advertising dollars in certain specific metropolitan areas in order to increase our brand awareness. The significant increase in the amount of advertising in the U.S. market was to support the launch of our dial-around and 1+ service
through a focused campaign of flyers, TV commercials and internet-based advertising.

Organizational and start-up costs for the continued
development of our VoIP initiative were $0.5 million for the year ended June 30, 2005. These costs were composed primarily of employee-related expenses ($0.3 million), occupancy and office related expenses ($0.1 million), and legal fees ($0.1
million). The VoIP product was announced on September 8, 2004, and as we continue to further develop the product we anticipate there will be further organizational and startup costs related to this business.

Interest on Note Payable

On June 20, 2003, we
purchased certain telecommunications software from an unrelated third party for $9.5 million. The consideration paid by Yak was $0.6 million in cash, a non-interest bearing short-term promissory note of $0.4 million and the balance was evidenced by
a long-term promissory note in the amount of $8.5 million. This long-term note bore interest at 7.25% per annum and required quarterly payments of principal and interest of $200,000 and was due July 15, 2012. The sole recourse by the
holder of this long-term note was the software. On March 3, 2005, we entered into a settlement agreement with the sellers of the subject software. Pursuant to the settlement agreement, Yak paid $150,000 to the sellers and committed to complete
further development of the software in an amount of $350,000 over a four-month period. In exchange we received a discharge of any further obligation under the long-term promissory note which had an outstanding principal amount of $8.4 million at
December 31, 2004. All guaranteed payments made under the joint venture agreement were also terminated.

Financing

Accounts receivable financing costs (which are included in interest expense) relate to the factoring of our trade accounts receivable decreased to $0.4
million for the fiscal year ended June 30, 2005, compared with $0.5 million for the fiscal year ended June 30, 2004. Given the amount of cash on hand, it was determined that financing our receivables was not necessary, and therefore, we
fully paid down our factoring facility in March 2005.



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Depreciation & Amortization

Depreciation and amortization remained flat at $2.9 million for the fiscal year ended June 30, 2005 when compared to the fiscal year ended June 30, 2004. This was due to minimal new capital expenditures and
the continued amortization of the property and equipment that have been capitalized on the balance sheet.

Results of Operations for the fiscal year
ended June 30, 2004 as compared to the fiscal year ended June 30, 2003.

Net revenue increased $40.4 million, or 100%, to
$80.8 million for the fiscal year ended June 30, 2004, from $40.4 million for the fiscal year ended June 30, 2003. We experienced steady growth of $15.9 million in the dial-around revenue, as a result of our advertising campaigns and the
expansion of our network capability from coast to coast in the Canadian market. On a year over year basis, our revenue in Western Canada increased $7.1 million, Ontario and Quebec grew by $8.3 million, and Eastern Canada added $0.6 million. Since we
launched our products to the east coast of Canada in October of 2003, we have experienced continual growth. The balance of the increase in our core revenue was as a result of our LooneyCall product which added revenues of $9 million for
the period ended June 30, 2004, compared to just $2.1 million for the period ending June 30, 2003.

Cost of revenue increased
$27.7 million or 109.2%, to $53.1 million for the fiscal year ended June 30, 2004, from $25.4 million for the fiscal year ended June 30, 2003. The overall cost of revenue increased to 65.8% of sales for the fiscal year ended June 30,
2004, from 62.9% of sales for the fiscal year ended June 30, 2003. This increase in cost of sales is a result of the lower margins of our Contour and Argos businesses as compared to those of our core dial-around operations. As a result of the
continual downward pressure on the price of long distance, our company is actively employing real-time least cost routing algorithms and contracting with various carriers in order to manage the direct costs as efficiently as possible. In addition,
to further control costs, we have continued to build out our network, which enables us to bring a greater share of our traffic onto our own network, resulting in a higher utilization of our fixed-cost access lines.

Sales and marketing expenses decreased $0.3 million or 7.4% to $3.9 million for the fiscal year ended June 30, 2004, from $4.2 million for the
fiscal year ended June 30, 2003. The cost of advertising and promotion increased $0.6 million to $3.7 million for the fiscal year ended June 30, 2004 in our Canadian territory, primarily due to increased direct mail and promotional
activities for our dial-around product in Ontario, to support the introduction to the east coast and to grow the business in the rest of country. Spending for advertising in our U.S. territory decreased by $0.9 million to $0.2 million for the fiscal
year ended June 30, 2004, from $1.1 million for the fiscal year ended June 30, 2003. Upon entering the U.S. market in 2003, we invested advertising dollars in specific metropolitan areas in order to increase our brand awareness. The
operating model that we employed in Canada was not as suitable in the more complex U.S. market and management decided to retrench in the U.S. market and reduced expenditures until our CIC access codes were fully loaded and tested in all 48 states
and we had re-strategized our marketing initiatives. It is managements intention to significantly increase the amount of advertising in the U.S. market to support the launch of our 1+ service in the first quarter of 2005, through a focused
campaign of flyers, TV commercials and internet-based advertising.

General and administrative expenses (G&A) increased
$7.7 million or 199%, to $11.5 million for the fiscal year ended June 30, 2004, from $3.8 million for the fiscal year ended June 30, 2003. Of this increase, $3.9 million can be attributed directly to our acquisition of Contour and Argos.
The remaining increase of G&A of $3.8 million can be attributed mainly to increases of Salaries ($1.9 million), Legal and Audit ($1.1 million), Occupancy ($0.2 million) and Consulting Services ($0.1 million).

The largest component of the increase in G&A was salaries, a result of hiring additional administration, technical and customer service employees
that were required to support our growth during fiscal year 2004, and support the launch of our VoIP product in the first quarter of fiscal 2005. It is anticipated that salaries will continue to increase in our Broadband division as we add employees
in the technical and customer service areas, proportionate to the growth of that business. In addition, to facilitate our future growth, we added five executives with extensive telecommunications experience to the management team which increased
salaries by $0.3 million for the period ended June 30, 2004.

Legal and Audit expenses increased $1.1 million or 321% to $1.4 million
for fiscal year ended June 30, 2004. The majority of the increase was in professional fees including regulatory matters, support of our VoIP development, in addition to the costs associated with exploring the Companys new growth
opportunities and financing alternatives. In addition, the Company incurred costs of approximately $0.4 million related to due diligence costs of an acquisition that was eventually abandoned.

Depreciation and amortization increased $2.2 million, or 271%, to $3.0 million for the fiscal year ended June 30, 2004, as compared to $0.8 million
for the fiscal year ended June 30, 2003. This increase resulted primarily from an increase in



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capital spending and a reduction in the estimated useful life of existing telecommunication switching systems, the latter
of which amounted to $1.3 million in increased depreciation. The accelerated write-down of the switching systems is based on a conservative view of their remaining useful lives. Amortization of customer lists for the period was $400,000.

Liquidity and Capital Resources

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

For the fiscal year ended June 30, 2005,
there was a decrease in cash and cash equivalents of $5.4 million, compared to an increase of $16.7 million in the prior fiscal year. Net cash provided from operating activities during the fiscal year decreased to $2.6 million, as compared to $12.1
million for the fiscal year ended June 30, 2004. This was primarily due to our pay-down of the receivable factoring facility (in the approximate amount of $6.2 million) and the decrease in deferred income taxes ($3.1 million from the prior
fiscal year).

Net cash used in investing activities decreased to $6.8 million for the fiscal year ended June 30, 2005, as compared to
$10.8 million for the fiscal year ended June 30, 2004. For the fiscal year ended June 30, 2005, we used cash for acquisition of property and equipment of $6.1 million, primarily for our telecommunications software and broadband equipment.
It is expected that we will continue to add to our network and network equipment in the coming year to support the growth of the business. In addition, we continue to actively pursue acquisitions that we believe will be accretive in nature to our
existing business.

Significant commitments that will require the use of cash in future periods include obligations under operating leases,
capital leases, advances under contract and other agreements, as shown in the following table (in millions):

Payments Due by Period



|                        |  |       |     |                  |   |           |  |           |     |                   |   |   |  |   |  
|----------------------- |  | ----- | --- | ---------------- | - | --------- |  | --------- | --- | ----------------- | - | - |  | - | -
|Contractual Obligations |  | Total |     | Less Than 1 Year |   | 1-3 Years |  | 3-5 Years |     | More Than 5 Years
|Operating Leases        |  | $     | 2.1 |                  | $ | 0.9       |  | $         | 1.2 |                   |   |  |  |   | 
|Telus Advances          |  | $     | 0.4 |                  | $ | 0.4       |  |           |    |                   |   |  |  |   | 
|Carrier Commitments     |  | $     | 5.7 |                  | $ | 3.3       |  | $         | 2.4 |                   |   |  |  |   | 
|Total                   |  | $     | 8.2 |                  | $ | 4.6       |  | $         | 3.6 |                   | $ |  |  | $ | 

Net cash used by financing activities was $1.6 million for the fiscal year ended June 30,
2005, as compared to $15.6 million provided by financing activities for the fiscal year ended June 30, 2004. During 2005, $1.3 million was used to reduce our long term debt owed to long distance carriers, whereas money was previously raised via
the issuance of common shares in the third quarter of fiscal 2004.

We believe we have sufficient fixed network capacity to meet our
anticipated volume of telephony traffic in both Canada and the U.S. during fiscal 2006. Based on our current products, we do not anticipate spending additional capital on our Canadian switching platform; however, we are currently building an
additional switch in the U.S. to provide for long-term growth and network redundancy as well as accommodating technological change and operating improvements.

For the twelve months ended June 30, 2005, Yak For Business (formerly known as Argos Telecom) had revenue of $11.8 million and, Contour Telecom had revenue of $5.6 million. We expect this amount to be
substantially equal for the next 12 months. Having now launched our VoIP product, we anticipate releasing additional products aimed specifically at the small and medium business customer.

As a result of the continued convergence of voice and data, the release of our VoIP product is a significant event because it provides us with a vehicle
for future growth. As high-speed internet based services gain a critical level of acceptance in the marketplace, the ability to bundle other services with this core offering will become an important distinguishing factor between the many
competitors. We plan to continue to research and augment our core offerings with value-added services that are priced competitively and address the demands of the market.

In addition to our VoIP product, we have introduced a new 1+ product in the U.S. market. The introduction of this new product is consistent with our previously stated intentions of increasing our presence in the U.S.
market. Through new product introductions and potentially new acquisitions, we anticipate growing our customer base in the U.S. market substantially over the medium to long-term.



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We believe that our current operations will be able to continue to generate sufficient cash to meet our
current obligations and support the growth of our business through new product introductions, e.g., VoIP and the launch of our 1+ product in the U.S. market. We may seek to obtain additional funds from public or private equity or debt offerings to
fund new opportunities that may arise.

New Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets, which eliminates the exception for non-monetary exchanges of similar productive assets and replaces it with a general
exception for exchanges of non-monetary assets that do not have commercial substance. SFAS No. 153 will be effective for non-monetary transactions occurring after June 15, 2005. The Company does not expect the adoption of SFAS No. 153
will have a material impact on the consolidated financial statements.

Stock Based Compensation

Statement of Financial Accounting Standard (SFAS) No. 123. Accounting for Stock Based Compensation, defines fair value-based method of
accounting for stock-based employee compensation plans and transaction in which an entity issued its equity instruments to acquire goods or services from non-employees, and encourages but does not require companies to record compensation cost for
stock-based employee compensation plans at fair value. We have chosen to account for employee stock-based compensation plans using the intrinsic-value method prescribed in Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting
form Stock issued to Employees, and related interpretations. Accordingly, employee compensation cost for stock is measured as the excess, if any, of the estimated fair value of our stock at the date of the grant over the amount an employee must pay
to acquire the stock.

In December 2004, the FASB issued SFAS No. 123(R) Share-Based Payment, which addresses the accounting for
share-based payment transactions. SFAS No. 123(R) eliminates the ability to account for share-based compensation transactions using APB 25, and generally requires instead that such transactions be accounted for and recognized in the statement
of operations based on their fair value. SFAS No. 123(R) will be effective for public companies that do not file as small business issuers as of the beginning of the first interim or annual reporting period that begins after June 15, 2005.
Management is evaluating the provisions of this standard. Depending upon the number and terms of options that may be granted in future periods, the implementation of this standard could have a material impact on the Companys financial position
and results of operations.

Forward Looking Statements

This report contains certain forward- looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended,
which are based on managements exercise of business judgment as well as assumptions made by and information currently available to, management. When used in this document, the words may, will, anticipate,
believe, estimate, expect, intend and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These
statements reflect our current view of future events and are subject to certain risks and uncertainties as described in this Annual Report on Form 10-K, as amended, as well as other periodic reports, filed with the Securities and Exchange
Commission, and as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements.
We undertake no obligation, and do not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any
unanticipated events. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize.

Inflation

Inflation did not have a significant impact on our results during the last fiscal quarter.

Off-Balance Sheet Transactions.

We do
not engage in any material off-balance sheet transactions.



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Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and all other information contained in our public filings before making an investment decision about our common stock. While
the risks described below are the ones we believe are most important for you to consider, these risks are not the only ones that we face. If any of the following risks actually occurs, our business, operating results or financial condition could
suffer, the market value of our common stock could decline and you could lose all or part of your investment.

Our actual results may
differ materially from those expressed or implied in the forward-looking statements. Important assumptions and other important factors that could cause our actual results to differ materially from those in the forward-looking statements, include,
but are not limited to:



| |  |  | access to sufficient working capital to meet our operating and financial needs;
| | - |  | -------------------------------------------------------------------------------



| |  |  | our ability to respond to growing competition in our markets for discount long distance services as well as the extent, timing and success of such competition;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to expand into new markets and to effectively manage our growth;
| | - |  | ----------------------------------------------------------------------------



| |  |  | profitability of our expansion into the U.S. market;
| | - |  | ----------------------------------------------------



| |  |  | customer acceptance and effectiveness of us as a discount long distance provider and our ability to assimilate new technology and to adapt to technological change in the
telecommunications industry;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to develop and provide voice over internet and web-based communications services;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | changes in, or failure to comply with, applicable governmental regulation;
| | - |  | --------------------------------------------------------------------------



| |  |  | changes in tax laws or rates;
| | - |  | -----------------------------



| |  |  | our reliance on our key personnel and the availability of qualified personnel;
| | - |  | ------------------------------------------------------------------------------



| |  |  | general economic conditions or material adverse changes in markets we serve;
| | - |  | ----------------------------------------------------------------------------



| |  |  | risk that our analyses of these risks could be incorrect and that the strategies developed to address them could be unsuccessful;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in our accounting assumptions that regulatory agencies, including the Securities and Exchange Commission, may require or that result from changes in the accounting rules or
their application, which could result in an impact on our earnings;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | integrating the operations of newly acquired businesses;
| | - |  | --------------------------------------------------------



| |  |  | successful deployment of new equipment and realization of material savings there from; and
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | various other factors discussed in this filing.
| | - |  | -----------------------------------------------

Industry
trends and specific risks may affect our future business and results. The matters discussed below could cause our future results to differ from past results or those described in forward-looking statements and could have a material adverse effect on
our business, financial condition, results of operations and stock price.

Our future growth depends on our ability to attract new customers.

Our success will depend on our ability to effectively anticipate and adapt to customer requirements and offer products and services
that meet customer demands. Any failure of our current or prospective customers to purchase products from us for any reason, including a downturn in their economic fortunes, would seriously harm our ability to grow our business. Increasingly, our
growth will depend on our ability to successfully fund and develop and introduce new and enhanced products. The development of new or enhanced products is a costly, complex and uncertain process that requires us to anticipate accurately future
technological and market trends. We cannot be sure whether our new product offerings will be successfully developed and introduced to the market on a timely basis, or at all. If we do not develop these products in a timely manner, our competitive
position and financial condition could be adversely affected.



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In addition, as we introduce new or enhanced products, we must also manage the transition from older
products to newer products. If we fail to do so, we may disrupt customer ordering patterns or may not be able to ensure that adequate supplies of new products can be delivered to meet anticipated customer demand. Any failure to effectively manage
this transition may cause us to lose current and prospective customers.

Our business is dependent upon our ability to keep pace with the latest
technological changes.

The international telecommunications industry is changing rapidly due to deregulation, technological
improvements, and expansion of telecommunications infrastructure, privatization and the globalization of national economies. There can be no assurance that one or more of these factors will not vary in a manner that could have a material adverse
effect on us. In addition, deregulation of any particular market may cause such market to shift unpredictably. There can be no assurance that we will be able to compete effectively or adjust our contemplated plan of development to meet changing
market conditions. The market for our services and the telecommunications industry generally is in a period of rapid technological evolution, marked by the introduction of new product and service offerings and increasing transmission capacity for
services similar to those provided by us. Failure to respond in a timely and cost-effective way to these technological developments could result in serious harm to our business and operating results. We have derived, and we expect to continue to
derive, a substantial portion of our revenues from providing telecommunications services that are based upon current technologies which are capable of adapting to future technologies. As a result, our success will depend, in part, on our ability to
afford the cost of acquiring new hardware and software associated with new technologies, develop and market service offerings that have significant customer demand, respond in a timely manner to the technological advances of our customers, evolving
industry standards and changing client preferences. Our profitability will depend on our ability to offer, on a timely and cost-effective basis, services that meet evolving industry standards. There can be no assurance that we will be able to access
or adapt to such technological changes at a competitive price, maintain competitive services or obtain new technologies on a timely basis or on satisfactory terms.

The increase of services offered by our competitors could adversely impact our business.

Recently, telecommunications
providers have increased the range of telecommunication services they offer to customers. This activity and the potential continuing trend towards offering new services may lead to a greater ability among our competitors to provide a comprehensive
range of telecommunications services, which could lead to a reduction in demand for our services. Moreover, by offering certain services to end users, competitors could reduce the number of our current or potential customers and increase the
bargaining power of our remaining customers, which may adversely impact our business.

Our business is susceptible to severe pricing pressures from the
larger carriers.

The long distance telecommunications industry is significantly impacted by the marketing campaigns and associated
pricing decisions of the larger carriers. There has been downward pressure on prices in the industry in recent years, a trend that we expect to continue. Our competitors within the Canadian market include BCE, Telus, and Allstream. More recently,
Canadas large cable operators have launched or are expected to launch bundled VoIP/long distance services. Additionally, as we launch our products into the U.S. market, our competitors will expand dramatically and will likely include AT&T,
MCI, Sprint, the RBOCs, and the major wireless carriers. The recent acquisition of AT&T Corp. by SBC Communications, and Verizon Communications Inc.s purchase of MCI Inc. may further intensify competitive pressures in the U.S. long
distance market. We would also expect that the competition will be intense in certain emerging markets including those associated with our VoIP product. Many of our competitors are significantly larger than we are and have substantially greater
financial, technical and marketing resources, larger networks, a broader portfolio of service offerings, greater control over transmission lines, stronger name recognition and customer loyalty, and long-standing relationships with our target
customers. As a result, our ability to attract and retain customers particularly in the United States may be adversely affected.

The success of our
broadband initiative is dependent on growth and public acceptance of IP telephony as well as our ability to adapt to rapid technological changes in IP telephony.

The development of broadband telephony in Canada and the United States is in its nascent stages. It is uncertain as to how competition in our markets for telephony opportunities provided by broadband applications will
develop. The financial models for return on pricing, capital expenditures and return on investment have not been fully developed so it is difficult to gauge what applications will be financially successful. The success of our broadband initiative is
dependent upon future demand for IP telephony systems and services which, in turn, will depend on a number of factors including IP telephony achieving a similar level of reliability that users of the public switched telephone network have come to
expect from their telephone service. IP telephony service providers must offer cost and feature benefits to their customers that are sufficient to cause the customers to switch away from traditional telephony service providers. If any or all of
these factors fail to occur, our broadband business may not grow.



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Our services are subject to various types of governmental regulation.

While our retail services have been largely deregulated by the CRTC, any change in CRTC policy, regulations or interpretations could have a material
adverse effect on Yaks operations and financial condition and operating results.

Although we currently comply with the CRTCs
obligations to provide basic 911 services, the CRTC indicated that this is only an interim measure and expects VoIP providers to offer full enhanced 911 services. We may not have the capability to offer enhanced 911 services as required by the
CRTC.

We do not currently offer any 911 services in the United States, and may not be able to provide E-911 services, as required by the
FCC Order, by the FCCs November 28, 2005 deadline. Compliance with the FCC Order will require us to negotiate and secure expensive routing arrangements with traditional local exchange carriers and Public Safety Answering Points throughout
the United States. We may also seek to engage a third-party provider of E-911 services for compliance purposes but no third-party provider currently offers a comprehensive nationwide solution. If we are not able to implement a comprehensive E-911
solution by the November 28, 2005 deadline, we may be compelled to modify our existing offerings, seek an extension or waiver of the FCC requirements, cease providing VoIP service, or be in material violation of the FCC rules and, as a result,
at risk for substantial enforcement penalties.

Further, if the FCC were to determine that those VoIP service providers like Yak, 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 affect on our broadband initiative. In addition, although the FCC has
declared that certain VoIP services are interstate in nature and therefore subject to federal regulation, state regulatory authorities potentially still retain some oversight of may determine that intrastate IP telephony service and could impose
some regulatory burdens on VoIP providers should be subject to local regulation, certification and fees. Further, although other aspects of the regulatory status of VoIP telephony remain undecided at the FCC, the FCC and other U.S. regulatory bodies
have begun to assert regulatory authority and impose obligations on VoIP telephony providers. The effect of potential future VoIP telephony laws and regulations on our broadband initiative in the United States cannot yet be determined.

Additionally, our ability to offer VoIP services outside North America is subject to the local regulatory environment, which may be unknown,
complicated and often uncertain. Regulatory treatment of VoIP telephony outside North America varies from country to country. There is no assurance that we will immediately be in compliance with the applicable laws and regulations of the markets we
have identified as promising for our VoIP services. Some countries may assert that we are required to register as a telecommunications

Any future
acquisitions could be difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results.

We may expand our operations through acquisitions over time. This may require significant management time and financial resources because we may need to integrate widely dispersed operations with distinct corporate cultures. Our failure to
manage future acquisitions successfully could seriously harm our operating results. Also, acquisition costs could cause our quarterly operating results to vary significantly. Furthermore, our stockholders would be diluted if we financed the
acquisitions by incurring convertible debt or issuing securities.

The current expansion of the Company will continue to put pressure on management.

Our continued growth and expansion may place a significant strain on our management, operational and financial resources, and increase
demand on our systems and controls. We entered the SME market in July 2003, launched our VoIP service in September 2004 and expanded into the U.S. 1+ market in the Fall of 2004. To manage our growth effectively, we must continue to implement and
improve our operational and financial systems and controls, purchase and utilize other transmission facilities, and expand, train and manage our employee base. If we inaccurately forecast the movement of traffic onto our network, we could have
insufficient or excessive transmission facilities and disproportionate fixed expenses. As we proceed with our development, operational difficulties could arise from additional demand placed on customer support, billing and management information
systems, on our support, sales and marketing and administrative resources and on our network infrastructure.

We have a significant dependence on
Transmission Facilities-Based Carriers.

We primarily connect our customers telephone calls through transmission lines that we
lease under a variety of arrangements with other facilities-based long distance carriers. Many of these carriers are, or may become, our competitors.



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Our ability to maintain and expand our business depends on our ability to maintain favorable relationships with the
facilities-based carriers from which we lease transmission lines. Where competition in the underlying access facilities does not exist, regulators mandate non-discriminatory access to such facilities. If our relationship with one or more of these
carriers were to deteriorate or terminate, it could have a material adverse effect upon our cost structure, service quality, network diversity, results of operations and financial condition. Similarly, if regulators should prematurely deregulate
this market, it could have a similar material adverse effect.

Compliance with changing regulation of corporate governance and public disclosure may
result in additional expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure,
including the Sarbanes-Oxley Act of 2002, new SEC regulations and other trading market rules, are creating uncertainty for companies such as ours. We are committed to maintaining high standards of corporate governance and public disclosure. As a
result, we intend to invest all appropriate resources to comply with evolving standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating
activities to compliance activities.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our
financial results.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent
fraud. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement. As
discussed in Item 9A. Controls and Procedures, we are continuing to work to improve our internal controls. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and
reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Inadequate internal
controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

Our quarterly results may fluctuate causing our stock price to decline.

A number of factors, many of which are outside of
our control, are likely to cause these fluctuations.

The factors outside of our control include:



| |  |  | long distance telecommunications market conditions as well as economic conditions generally;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | fluctuations in demand for our services;
| | - |  | ----------------------------------------



| |  |  | reductions in the prices of services offered by our competitors;
| | - |  | ----------------------------------------------------------------



| |  |  | costs of integrating technologies or businesses that we add; and
| | - |  | ----------------------------------------------------------------



| |  |  | changes in foreign exchange rates.
| | - |  | ----------------------------------

The factors
substantially within our control include:



| |  |  | the timing of expansion into new markets, both domestically and internationally; and
| | - |  | ------------------------------------------------------------------------------------



| |  |  | the timing and payments associated with possible acquisitions.
| | - |  | --------------------------------------------------------------

Because our operating results may vary significantly from quarter to quarter, our operating results may not meet the expectations of securities analysts and investors, and our common stock could decline significantly which may expose us to
risks of securities litigation, impair our ability to attract and retain qualified individuals using equity incentives and make it more difficult to complete acquisitions using equity as consideration.



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Our critical accounting policies and significant estimates made may not be appropriate or accurate.

We have selected accounting policies that we believe are appropriate for the business conducted and that comply with accounting policies generally
accepted in the United States. Such accounting policies and their application may change from time to time, as new standards and interpretations emerge or the application of existing standards change. Additionally, financial statements involve the
use of estimates and the application of professional judgment, which may be challenged by auditors, regulators and investors from time to time. Qualified people exercising due care, may make judgments at any point in time utilizing the best
available information, including the use of subject matter experts, and may reach conclusions that are not appropriate. You are encouraged to read and obtain a full understanding of the financial statements and related notes contained in our
securities filings and the related reports of the independent auditor. The critical accounting policies we selected and identified may require thorough study and assessment by you in order for you to reach a conclusion about the appropriateness and
reasonableness of the policy or estimate, given the facts and circumstances. You should reach your own conclusion on the appropriateness, fairness and application of the accounting policies we have applied and estimates we have made in consultation
with your financial and other advisors before making any decision to invest in us.

Our internal disclosure controls may not reduce to a relatively low
level the risk that a material error in our financial statements may go undetected.

Our Certifying Officers are responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Yak Communications. Accordingly, the Certifying Officers designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under their supervision, to ensure that material information relating to Yak, including our consolidated subsidiaries, is made known to the Certifying Officers by others within those entities. We
regularly evaluate the effectiveness of disclosure controls and procedures and report our conclusions about the effectiveness of the disclosure controls quarterly on our Form 10-Q and annually on our Form 10-K. In completing such reporting we
disclose, as appropriate, any significant change in our internal control over financial reporting that occurred during our most recent fiscal period that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting. This disclosure, based on our most recent evaluation of our disclosure controls and procedures, is made to our auditors and the audit committee of our Board of Directors (or persons performing the equivalent functions). All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect our ability to record, process, summarize and report financial information are
reported in our public filings. Additionally, any fraud, whether or not material, that involves management or other employees who have a significant role in our internal control over financial reporting is reported on such filings as applicable.

The Certifying Officers have reported six separate events of control deficiencies, constituting material weaknesses. Control deficiencies
were last reported in the second quarter of 2006, ended December 31, 2005. We have undertaken specific measures to cure or mitigate the ineffective controls and procedures identified in our filings. Such measures have included adding
professionally designated accounting staff, systems, process and control changes. We believe that the changes made to date will resolve our control deficiencies in the near term. The details of the control deficiencies are detailed in the following
filings:



| |  |  | Form 10-K for the year ended June 30, 2005, as amended;
| | - |  | -------------------------------------------------------



| |  |  | Form 10-Q for the quarter ended September 30, 2005, as amended; and
| | - |  | -------------------------------------------------------------------



| |  |  | Form 10-Q for the quarter ended December 31, 2005 as amended.
| | - |  | -------------------------------------------------------------

While management is responsible for ensuring an effective control environment and has taken steps to ensure that the internal control environment remains free of significant deficiencies and/or material weaknesses,
the inherent nature of our business and rapidly changing environment may affect managements ability to be successful with this initiative.

There
can be no assurance that we will not have to restate our financial statements.

We have completed several restatements of previously
reported financial results, affecting seven separate reporting periods over the last two years. The details of these restatements covering the reporting periods are detailed in the following filings:



| |  |  | Form 10-K for the year ended June 30, 2005, as amended;
| | - |  | -------------------------------------------------------



| |  |  | Form 10-Q for the quarter ended September 30, 2005, as amended; and
| | - |  | -------------------------------------------------------------------



| |  |  | Form 10-Q for the quarter ended December 31, 2005 as amended.
| | - |  | -------------------------------------------------------------



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In response to this situation, we have taken what we believe to be the necessary measures to ensure that
restatements will not occur in the future. However, there can be no certainty that future restatements will not be necessary due to evolving policies, revised or new accounting pronouncements or otherwise.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risk exposures
relate to changes in foreign currency exchange rates.

Foreign currencyIn excess of 96.6% of our current revenue is derived
from sales and operations in Canada. The reporting currency for our consolidated financial statements is the U.S. dollar. The functional currency for each of our operating entities is the respective local currency. In the future we expect to derive
a greater proportion of our revenues outside of Canada; however, in the short-term, changes in the exchange rate may continue to have a significant, and potentially adverse effect on our results of operations. Our primary risk of loss regarding
foreign currency exchange rate risk is caused by fluctuations in the U.S. dollar/Canadian dollar.

We are exposed to financial statement
gains and losses as a result of translating the operating results and financial position of our Canadian subsidiary. We translate the Canadian dollar statements of operations into U.S. dollar using the average exchange rate during the reporting
period. Changes in foreign exchange rates affect our reported profits and losses and cash flows and may distort comparisons from year to year. As an example, if the U.S. dollar were to strengthen relative to the Canadian dollar, it would take a
greater amount of revenue and profits in Canadian dollars to achieve a similar level of results in U.S. dollars compared to the previous year.

For example, during the year ended June 30, 2005 and 2004, the U.S. dollar weakened compared to the Canadian dollar. As a result, the revenue from our Canadian subsidiary increased $3.5 million or 3.2% (as compared to 42% in 2004) in
Canadian dollars, but increased $8.8 million or 10.9% (as compared to 59% in 2004 when stated in U.S. dollars).

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Companys audited consolidated financial
statements for the fiscal years ended June 30, 2005 and June 30, 2004, immediately follow the signature page to this Form 10-K/A.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Controls and Procedures

As of the end of the period covered by this Amended Annual Report (the Amended Report), our Chief Executive Officer and Chief Accounting
Officer (the Certifying Officers) conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act), the
term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act
is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions (SEC) rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuers management, including the Certifying Officers,
to allow timely decisions regarding required disclosure. Based on this evaluation, the Certifying Officers have concluded that our disclosure controls and procedures were not effective to ensure that material information is recorded, processed,
summarized and reported by our management on a timely basis in order to comply with our disclosure obligations under the Exchange Act, and the rules and regulations promulgated thereunder. The Company determined that this deficiency constituted a
material weakness and detailed below are the circumstances surrounding this matter.



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On June 20, 2003, the Companys wholly-owned subsidiary, Yak Communications (Canada) Inc.,
acquired certain telecommunications software from Consortio, Inc., a Delaware corporation and Convenxia Limited, a corporation organized under the laws of the United Kingdom. During the fourth quarter in 2005, the Company determined that the
assumptions on which the valuations of the software acquisition were made and the agreement recorded were in error. The Company previously restated its consolidated financial statements for fiscal years 2003 and 2004 and for certain interim fiscal
periods to correct accounting errors relating to the accounting treatment of the software acquisition transaction which, in part, was the result of a material weakness in the Companys internal controls. The Company filed such amended reports,
including its amended Annual Report on Form 10-K/A including its amended and restated consolidated financial statements for fiscal years 2003 and 2004 with the SEC on May 31, 2005 to correct and restate said consolidated financial statements.

However, subsequent to the May 31, 2005 filing of its amended Annual Report on Form 10-K/A for fiscal years 2003 and 2004, and as a
result of the Companys subsequent dialogue with the SECs Office of Chief Accountant (OCA), the Company discovered additional errors in its May 2005 amended and restated filings. Namely, the errors were as follows:



| |  |  | An error in calculating the discount rate used to determine the fair value of the June 2003 software acquisition transaction components for the May 31, 2005 restatements. The
error caused the Company to overstate the value of the long-term note payable, the joint venture receivable and the software in its amended Annual Report on Form 10-K/A for fiscal year 2003 and subsequent filings;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The revaluation of the long-term note payable in the amended Annual Report on Form 10-K/A for the fiscal year ended June 30, 2004 10-K/A was not consistent with U.S. GAAP,
notwithstanding the fact that the resultant gain was deferred;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The loss on impairment of the joint venture receivable was incorrectly deferred in the amended Annual Report on Form 10-K/A for fiscal year 2004. The loss should have been
recognized in the fourth fiscal quarter of 2004; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The $1.4 million gain recognized on early extinguishment of debt in the third fiscal quarter of 2005 was overstated by $200,000.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------

To reflect the foregoing corrections, the Company has restated the amounts previously reported in its consolidated financial statements for fiscal years
2003 and 2004 as well as each of the quarters in fiscal years 2004 and 2005. The Companys response timeline to the foregoing deficiencies was as follows: the material weakness was detected on or about February 24, 2005, subsequent to and
as a result of its dialogue with the OCA; the Company promptly commenced its efforts to address the matter and completed its remedial steps by September 28, 2005, resulting in the filing of the affected public reports.

Subsequent to the foregoing discovery, the Company has determined to remedy the material weakness described above and, as of the date hereof, has taken
the following steps to improve its disclosure controls and procedures:



| |  |  | has added several accounting personnel to its accounting team, including a new Chief Accounting Officer (a certified public accountant and a chartered accountant) to oversee changes
in the design of the Companys internal controls, to formalize the control environment and to improve the accounting and financial reporting of the Company as well as has engaged accounting consultants and other outside professionals during the
year to assist in the performance of certain Chief Financial Officer (CFO) functions on an interim basis and to maintain and improve our internal controls over financial reporting;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | has completed the implementation of a new general ledger accounting system; and
| | - |  | -------------------------------------------------------------------------------



| |  |  | has modified its billing process and procedures for certain classification of revenue.
| | - |  | --------------------------------------------------------------------------------------



| |  |  | The Company did not make any other additional changes to its disclosure controls and procedures to the discovery of the deficiency described above. The Company believes that the
completion of these remedial steps will allow the Company to conclude that our disclosure controls and procedures are effective to
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ensure that material information is recorded, processed, summarized and reported by our management on a
timely basis in order to comply with our disclosure obligations under the Exchange Act and the rules and regulations thereunder. The Company will continue to evaluate its disclosure controls and procedures and to seek to both implement, on a timely
basis, changes to its disclosure controls and procedures that may be necessary to keep them effective in light of any changes in the nature of its business and any rapidly changing environment and improve them.

Additionally, in the same amended and restated financial statements, the Company corrected the following errors:



| |  |  | Misapplication of SFAS 133, SFAS 150, and EITF 00-19. Previously erroneously classified as an equity instrument in connection with the Companys securities offering,
this instrument has now been classified as a liability in accordance with the application of the provisions of SFAS 133, SFAS 150, and EITF 00-19. As a result of this error, liabilities at June 30, 2004 were understated by $1,676,000 and
shareholders equity was overstated by $1,676,000. As a result of a decrease in the value of the warrants since issuance, the net income of the Company for fiscal 2004 and 2005 were previously understated by $497,000 and $583,000, or $0.05 per
share and $0.05 per share, respectively. As a result of this error at June 30, 2005, liabilities were understated by $1,093,000 and shareholders equity was overstated by $1,093,000;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Correction of error under SFAS 131. The Company has modified its segmented disclosure to comply with the standards of SFAS 131 and to further provide meaningful information
to readers of its financial statements. There was no effect on the net income, earnings per share, assets, liabilities, and shareholders equity;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Correction of error under SFAS 109.The Company modified its income tax statutory rate reconciliation to comply with the provisions of SFAS 109, par. 47. There was no effect
on the assets, liabilities, shareholders equity or Statement of Income and Comprehensive Income of the Company as a result of this change. Further, the Company removed confusing language from its Deferred Tax note related to tax benefits
related to employee stock options. There was no effect on the net income, earnings per share, assets, liabilities, and shareholders equity;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Correction of errors in Cash Flow Statements for the Fiscal Years 2003, 2004 and 2005. The Company has modified its cash flow statements to correct for disclosure
inaccuracies resulting from errors in the exchange rates used to translate foreign currency cash flows to the Companys reporting currency and to correct for an error in the reporting of the gain on settlement. The Company previously completed
its cash flow statement at the consolidated level and failed to consider the foreign currency effects appropriately. For the fiscal year ending June 30, 2005, the cash flows from operating and investing activities were understated by $221,000
and $245,000, respectively, while the cash flows from financing activities and the effect of exchange rate changes on cash and cash equivalents were overstated by $332,000 and $134,000, respectively. For the fiscal year ending June 30, 2004,
the cash flows from operating and investing activities were overstated by $31,000 and $617,000, respectively, while the effect of exchange rate changes on cash and cash equivalents was understated by $648,000. For fiscal year ending June 30,
2003, the cash flows from operating and financing activities and the effect of exchange rate changes on cash and cash equivalents were overstated by $289,000, $4,000 and $27,000, respectively, while the cash flow from investing activities and was
understated by $320,000. There was no effect on the net income, earnings per share, assets, liabilities, and shareholders equity; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Correction for the misclassification of financing expenses related to assignment of accounts receivable for 2003, 2004 and 2005 and enhancement of disclosure of factored accounts
receivable. The Company misclassified financing costs as operating expenses for the fiscal years 2003, 2004 and 2005 versus disclosing such costs below the line as an element of interest expense as discussed by the AICPAs Special Committee
on Classification of Items of Comprehensive Income. The effect of this misclassification was an overstatement of operating expenses and understatement of income from operations for the years ending 2003, 2004 and 2005 in the amount of
$499,000, $514,000 and $429,000, respectively. There was no effect on the net income, earnings per share, assets, liabilities or shareholders equity as a result of this change. The Company enhanced its disclosure of accounts receivable
assigned under financing agreement. The effect of this enhancement was to reduce accounts receivable and to separately disclose the factored accounts receivable for the years ended June 30, 2003 and 2004 in the amount of $6,177 and $8,271,
respectively.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company believes that the foregoing errors were caused by the fact that the Company has been without a
full-time CFO throughout the second half of fiscal 2005 and the first quarter of fiscal 2006. The Company has engaged additional accounting personnel to its accounting team, including a new Chief Accounting Officer (a certified public accountant and
a



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chartered accountant) to oversee changes in the design of the Companys internal controls, to formalize the control
environment and to improve the accounting and financial reporting of the Company. The Company also has engaged accounting consultants and other outside professionals during the year to assist in the performance of certain Chief Financial Officer
(CFO) functions on an interim basis and to maintain and improve our internal controls over financial reporting. The Company believes that the foregoing remedial steps coupled with educational and professional development of its accounting personnel
would be sufficient to prevent a reoccurrence of the foregoing accounting errors. The Company did not make any other additional changes to its disclosure controls and procedures.

There were no changes in the Companys internal control over financial reporting, as that term is defined in Rules 13a-15(f) and
15d-15(f) promulgated under the Exchange Act, identified in connection with the above-described evaluation that occurred during the fiscal period in question that has materially affected or is reasonably likely to materially affect, the
Companys internal control over financial reporting.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS OF THE COMPANY

The executive officers and directors of the
registrant are as follows:



|                          |  |     |  |                                                      
|------------------------- |  | --- |  | -----------------------------------------------------
|NAME                      |  | AGE |  | POSITION                                             
|Charles Zwebner           |  | 46  |  | President, Chief Executive Officer and Director      
|Anthony Heller            |  | 54  |  | Director                                             
|Anthony Greenwood         |  | 47  |  | Director and Secretary                               
|Gary Clifford(1)          |  | 37  |  | Director                                             
|Adrian Garbacz(1)         |  | 46  |  | Director                                             
|Joseph Grunwald(1) (2)    |  | 42  |  | Director                                             
|R. Gregory Breetz, Jr.(1) |  | 43  |  | Director                                             
|Kevin Crumbo(2)           |  | 40  |  | Director                                             
|Valerie Ferraro           |  | 54  |  | President  Yak Communications (Canada) Inc.         
|David Hurwitz             |  | 42  |  | Director - VoIP Initiatives                          
|Paul Broude               |  | 27  |  | Chief Accounting Officer, Principal Financial Officer

---

|(1) | Member of Audit and Governance and Nominating Committees.
|--- | ---------------------------------------------------------

|(2) | Member of Compensation Committee.
|--- | ---------------------------------

BOARD OF DIRECTORS

CHARLES ZWEBNER

Mr. Zwebner is the founder of our company, and has served as our President, Chief Executive Officer, and Chairman of our Board of Directors since our inception in December 1998. Prior to organizing our company, he served as the
President of CardCaller Canada Inc. (1992-1998) and was a member of its Board of Directors. Mr. Zwebner founded CardCaller Canada in 1992, which developed the first Canadian fixed amount prepaid, multilingual telephone calling card. In June
1997, the shareholders, including Mr. Zwebner, of CardCall International Holdings, Inc. (CIH), the parent of CardCaller Canada, sold all of their shares in CIH to a U.S. public corporation. Mr. Zwebner continued as President
and a director of CardCaller Canada until his resignation in August 1998. Prior to Mr. Zwebners resignation, the new owner of CIH disposed of substantially all of the assets of that company. Mr. Zwebner holds a B.A. in Computer
Science and Business Administration from York University.

ANTHONY HELLER.

Mr. Heller has served as a Director of our company since December 1998. He has served as the President of Plazacorp Investments Limited (a real
estate development company based in Toronto, Canada) since 1994. Since that time, Plazacorp has completed over $300 million worth of real estate developments principally in Canada. Mr. Heller has also been involved in venture capital financings
and has consulted to both privately held and publicly traded companies in which he has invested.



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ANTHONY GREENWOOD

Mr. Greenwood has served as a Director of our company since December 2001. He is a Canadian attorney with Greenwoods Barristers &
Solicitors. He was educated in Europe and North America, and practices law and acts as a consultant to both Canadian and U.S. private and public corporations in the area of business law, cross border financing, and dispute resolutions. He is a
member of the International Law and Business Law sections of the American Bar Association and sits on several committees including the International Business Law Committee of the Section of Business Law. He is also a member of the Canadian Bar
Association, the London, England-based International Bar Association, and the Tokyo-based Inter-Pacific Bar Association. Mr. Greenwood is an author of many academic articles in the areas of secured financing, corporate finance, financial
service regulation, and international debt recovery & dispute resolution, and is an associate editor of the Canadian-based international Banking & Finance Law Review and an editor of the Australian-based international law
publication Journal of Banking and Finance, Law & Practice. Mr. Greenwood is also a part time lecturer at the Osgoode Hall Law School (Toronto, Canada).

GARY CLIFFORD

Mr. Clifford is a Managing Director of Clifford Capital Corporation. Clifford Capital is a private equity firm focused on Leveraged Buy Outs and on assisting companies with special situations. The Company works with small and medium
sized enterprises, both private and public, primarily located in North America. Mr. Clifford serves as an Independent Director for QuStream Corporation (TSX Venture: QVC) (www.qustream.com). Mr. Clifford joined the board in December
2005 following the shareholders meeting and at that time became the Chairman of the audit committee of our Board of Directors.

Mr. Clifford is a Chartered Accountant and a graduate of the University of Toronto with an undergraduate degree in Management.

ADRIAN GARBACZ

Mr. Garbacz has been a member of our board of directors since January 21,
2003. Mr. Garbacz is currently self-employed in the real estate and development industry in New York. Previously, he was the Chief Executive Officer of The Grisdale Group of Companies in Queens, NY, which was also involved in the real estate
development and finance industry. Mr. Garbacz received a B.A. in Accounting (1985) from Touro College and his certified public accountant designation in the state of New York in 1987. Mr. Garbacz is a member of the audit committee of
our Board of Directors.

JOSEPH GRUNWALD

Mr. Grunwald has been a member of our board of directors since January 21, 2003. Mr. Grunwald has been involved in the banking industry for
over 15 years. He is currently a Senior Vice President with Safra Bank, New York, NY where he is Director of Domestic Business Development. Mr. Grunwald received a B.A. in Economics (1983) from the City University of New York and an M.B.A.
from Long Island University (1986). Joseph Grunwald is a member of the audit committee of our Board of Directors.

R.
GREGORY BREETZ, JR.

Mr. Breetz has served as a Director since 2004. He is currently the CFO for Dolphin Equity Partners, a New
York City based venture capital fund. Dolphin Equity invests primarily in telecommunications and media companies. Prior to joining Dolphin, Mr. Breetz was with XO Communications and McCaw Cellular in various financial roles. Mr. Breetz has
a BS in Accounting from the University of Kentucky and is a CPA. Mr. Breetz is a member of the audit committee.

KEVIN CRUMBO

Mr. Crumbo has served as a Director since 2004. He began his career in San Francisco at the tax practice
of Coopers & Lybrand and subsequently moved into the financial analysis industry working for a Fortune 200 financial services firm. He later advanced into senior financial roles for bioscience and healthcare companies with highlights
including successful turn-arounds, private placements, and various business combinations. Now leading Kraft Corporate Recovery Services, LLC, he assists clients in a variety of industries with turn-around management, corporate governance reviews,
and litigation support. Telecommunications companies comprise a large portion of his consulting clients, and he has recently consulted with Yak on a variety of matters. Mr. Crumbo received a B.S. in Accounting from the University of Kentucky in
1988 and M.B.A. from Vanderbilt University in 1996. He holds certificates in public and forensic accounting. Though he does not practice as a certified public or other accountant, he has earned certificates in both public and forensic accounting.



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MANAGEMENT

A brief description of management of the Company is as follows:

VALERIE FERRARO

Ms. Ferraro joined Yak Communications in 2004 following a 30-year career with Bell Canada. She has extensive experience leading
multi-discipline organizations in the small/medium and Enterprise-level business markets, and has directed Sales, Engineering and Project Management organizations in Voice, Data and Internet based technologies. A multi-year member of Bell
Canadas Presidents Club, she pioneered the development of the companys Wholesale division  the Carrier Services Group (CSG). As the Sr. Director, CSG, Ms. Ferraro held primary responsibility for the
organizational design, marketing and sales strategy, regulatory compliance, customer and employee satisfaction, revenue growth and financial controls of the organization. Under her leadership, CSG experienced four digit increases in revenue growth
and profitability increases, as the group mandate expanded to include National Canadian Wholesale, as well as United States and International markets. Ms. Ferraro holds a BA(Hon) and has completed numerous professional management and financial
courses at the various Canadian universities.

DAVID HURWITZ

Mr. Hurwitz became President of the VoIP Initiative in November 2003. He has over 18 years experience in the competitive telecommunications industry,
encompassing business development, general management, strategic sales and marketing initiatives, and M&A. Prior to joining Yak, Mr. Hurwitz founded InTandem Communications, Inc., a telecommunications reseller acquired by Cognigen
Networks In September of 2003. For 81/2 years prior to InTandem, Mr. Hurwitz served as COO and
subsequently President & CEO of Capsule Communications, Inc., a publicly traded long distance carrier that was acquired by Covista Communications, Inc. in February of 2002. Mr. Hurwitz has also held management-level positions with
RCN Corporation, InterNet Communications Services, Inc. and FiberNet, Inc.

PAUL BROUDE

Mr. Broude joined the company in June 2005 after being with PricewaterhouseCoopers as an Audit Manager. Having also worked in Bermuda and France,
much of his auditing experience was in the financial and manufacturing industries using Canadian, U.S. and International auditing standards. Mr. Broude is a Chartered Accountant in Canada, a Certified Public Accountant (Illinois) and holds a
Masters in Accounting degree from the University of Waterloo.

CORPORATE GOVERNANCE

Our business and affairs are managed under the direction of our Board of Directors, except with respect to those matters reserved for our shareholders.
The Board of Directors establishes our overall corporate policies, reviews the performance of senior management in executing our business strategy and managing our day-to-day operations, acts as an advisor to our senior management and reviews our
long-term strategic plans. Our Boards mission is to further the long-term interests of our shareholders. Members of the Board of Directors are kept informed of our business through discussions with our management, primarily at meetings of the
Board of Directors and its committees, and through reports and analyses presented to them. The Board and each of its committees also have the authority to retain, at the Companys expense, outside counsel, consultants or other advisors in
the performance of their duties.

Meetings of the Board of Directors

During the fiscal year ended June 30, 2005, there were 13 meetings of the Board of Directors. Each director attended in excess of 75% of the total
number of meetings of our Board of Directors during fiscal year 2005. In addition, from time to time, the members of the Board and its Audit Committee acted by unanimous written consent pursuant to Florida law. We have no formal policy regarding
attendance by our directors at our annual shareholder meetings, although we encourage this attendance and most of our directors have historically attended these meetings. Our officers are elected annually by our Board of Directors and serve at the
discretion of the Board. Our directors hold office until the expiration of their term or until their successors have been duly elected and qualified.



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BOARD OF DIRECTORS COMMITTEES

Our Board of Directors has a standing Audit Committee, Compensation Committee and Nominating and Governance Committee.

Audit Committee

Our Board of Directors has an
Audit Committee which currently consists of Messrs. Garbacz, Grunwald, Clifford and Breetz. The Audit Committee assists the Board of Directors in its oversight of the quality and integrity of our accounting, auditing and reporting practices. The
Audit Committees functions include meeting with our management and our independent auditors, reviewing and discussing our audited and unaudited financial statements with our management, recommending to the Board of Directors the engagement of
our independent auditors, reviewing with such auditors the plan and results of their audit of our financial statements, determining the independence of such auditors and discussing with management and the independent auditors the quality and
adequacy of our internal controls as required by Section 404 of the Sarbanes-Oxley Act of 2002.

During the fiscal year ended
June 30, 2005, the Audit Committee held 16 meetings. The Audit Committee has the authority and responsibility to hire one or more independent auditors to audit our books, records and financial statements and to review our systems of accounting
(including our systems of internal control), to discuss with our independent auditors the results of their audit and review, to conduct periodic independent reviews of the systems of accounting (including systems of internal control), and to make
reports periodically to the Board of Directors with respect to its findings. Our Board of Directors has determined that each Audit Committee member has sufficient knowledge in financial and auditing matters to serve on the Committee.

All of the members of the Audit Committee are independent of the Company (as defined under current Rule 4200(a)(15) of the National Association of
Securities Dealers (NASD) listing standards). We consider Mr. Breetz a financial expert as defined under Item 401 of Regulation S-K.

Governance and Nominating Committee

The Governance and Nominating Committee consists of
Messrs. Garbacz, Grunwald, Clifford and Breetz, all of whom meet the independence requirements prescribed by the Marketplace Rules of the NASD. The committee is responsible for recommending candidates for election to the Board of Directors for
approval and nomination by the Board of Directors. The committee is also responsible for making recommendations to the Board of Directors or otherwise acting with respect to corporate governance matters, including board size and membership
qualifications, new director orientation, committee structure and membership, communications with shareholders, and board and committee self-evaluations. The Governance and Nominating Committee operates under a written charter adopted by our Board
of Directors.

The Committee will consider director candidates recommended by shareholders. In considering candidates submitted by
shareholders, the Committee will take into consideration the needs of the Board and the qualifications of the candidate. The Committee may also take into consideration the number of shares held by the recommending shareholder and the length of time
that such shares have been held. To have a candidate considered by the Committee, a shareholder must submit the recommendation in writing and must include: (i) the name of the shareholder and evidence of the persons ownership of Company
stock, including the number of shares owned and the length of time of ownership; and (ii) the name of the candidate, the candidates resume or a listing of his or her qualifications to be a director and the persons consent to be
named as a director if nominated by the Committee.

The shareholder recommendation and information described above must be sent to our
corporate secretary at 300 Consilium Place, Suite 500, Toronto, Ontario M1H 3G2, and must be received by the corporate secretary not less than 90 nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of
shareholders; provided, however, that in the event that the annual meeting is called for a date that is not within 25 days before or after such anniversary date, notice by the shareholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs.

The Committee believes that the minimum qualifications for serving as a director of the Company are that a nominee demonstrate, by significant accomplishment in his or her field, an ability to make a meaningful
contribution to the Boards oversight of our business and affairs and have an impeccable record and reputation for honest and ethical conduct in both his or her professional and personal activities. In addition, the Committee examines a
candidates specific experiences and skills, time availability in light of other commitments, potential conflicts of interest and independence from management and the Company. We also seek to have the Board represent a diversity of backgrounds,
and experience.



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The Committee identifies potential nominees by asking current directors and executive officers to notify
the Committee if they become aware of persons, meeting the criteria described above, who have had a change in circumstances that might make them available to serve on the Board. The Committee also, from time to time, may engage firms that specialize
in identifying director candidates. As described above, the Committee will also consider candidates recommended by shareholders.

Once a
person has been identified by the Committee as a potential candidate, the Committee may collect and review publicly available information regarding the person to assess whether the person should be considered further. If the Committee determines
that the candidate warrants further consideration, the Committee chairperson contacts the person. Generally, if the person expresses a willingness to be considered and to serve on the Board, the Committee requests information from the candidate,
reviews the persons accomplishments and qualifications, including in light of any other candidates that the Committee might be considering, and conducts one or more interviews with the candidate. Members of the Committee may contact one or
more references provided by the candidate or may contact other members of the business community or other persons that may have greater first-hand knowledge of the candidates accomplishments. The Committees evaluation process does not
vary based on whether or not a candidate is recommended by a shareholder, although, as stated above, the Committee may take into consideration the number of shares held by the recommending shareholder and the length of time that such shares have
been held.

Compensation Committee

The Compensation Committee consists of Messrs. Crumbo and Grunwald, both of whom meet the independence requirements prescribed by the Marketplace Rules of the NASD. The committee is responsible for reviewing and approving, on behalf of our
Board of Directors, management recommendations regarding all forms of compensation to be provided to our executive officers and directors, including stock compensation, and all bonus and stock compensation to all employees. The Compensation
Committee operates under a written charter adopted by our Board of Directors. During fiscal 2005, the Compensation Committee held two meetings.

Code
of Ethics

We have adopted a Code of Ethics applicable to all directors, officers and employees, including the chief executive
officer, senior financial officers and other persons performing similar functions. The Code of Ethics is a statement of business practices and principles of behavior that support our commitment to conducting business while maintaining the highest
standards of business conduct and ethics. Our Code of Ethics covers topics including, but not limited to, compliance resources, conflicts of interest, compliance with laws, rules and regulations, internal reporting of violations and accountability
for adherence to the Code. Any amendment of the Code of Ethics or any waiver of its provisions for a director, executive officer or senior financial officer must be approved by the Board of Directors. We will publicly disclose any such waivers or
amendments pursuant to applicable SEC and NASDAQ Stock Market regulations.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires the Companys executive officers and directors, and persons
who beneficially own more than ten percent (10%) of a registered class of the Companys equity securities (collectively Reporting Persons), to file reports of ownership and changes in ownership with the Securities and Exchange
Commission. In addition, under Section 16(a), trusts for which a Reporting Person is a trustee and a beneficiary (or for which a member of his immediate family is a beneficiary) may have a separate reporting obligation with regard to ownership
of the Common Stock and other equity securities of the Company. Such Reporting Persons are required by rules of the Securities and Exchange Commission to furnish the Company with copies of all Section 16(a) reports they file. Based solely upon
a review of the copies of such forms furnished to the Company and written representations from the Reporting Persons, the Company believes that during the fiscal year ended June 30, 2005, all persons subject to the reporting requirements of
Section 16(a) filed the required reports on a timely basis.



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ITEM 11. EXECUTIVE COMPENSATION

Compensation

The following restated table sets forth information about the compensation paid or accrued by the Company to the Companys Chief Executive Officer
and the three most highly compensated executive officers, for the last three completed fiscal years:

SUMMARY COMPENSATION TABLE(4)



|                                                                                      |      |                     |        |        |                       |  |                               |                      |                    |           |  |   |              |    
|------------------------------------------------------------------------------------- | ---- | ------------------- | ------ | ------ | --------------------- |  | ----------------------------- | -------------------- | ------------------ | --------- |  | - | ------------ | ---
|Name and Principal Position                                                           |      | Annual Compensation |        | Awards |                      
|                                                                                      | Year |                     | Salary |        | Bonus                 |  | Securities Underlying Options |                      | Other Compensation |          
|Charles Zwebner  President, and Chief Executive Officer                              |      | 200520042003        |        | $$$    | 320,000210,000120,000 |  | $$$                           | 150,00067,000175,000 |                    |        |  | $ | 12,815,000 | (1)
|                                                                                      |      |                     |        |        |                      
|Valerie Ferraro  President-Yak Communications (Canada) Inc. (2)                      |      | 200520042003        |        | $      | 194,000             |  | $                             | 76,000             |                    | 50,000  |  |   |           |    
|                                                                                      |      |                     |        |        |                      
|David Hurwitz  President of the VoIP Initiative (3)                                  |      | 200520042003        |        | $$     | 222,000102,000       |  | $                             | 40,000             |                    | 130,000 |  |   |           |    
|                                                                                      |      |                     |        |        |                      
|Margaret Noble  Former Chief Accounting Officer, Interim Principal Financial Officer |      | 200520042003        |        | $$     | 110,00091,500        |  | $$                            | 13,00022,000        |                    |        |  |   |           |    
|                                                                                      |      |                     |        |        |                      
|Paul Broude  Chief Accounting Officer, Principal Financial Officer (5)               |      | 200520042003        |        | $      | 1,200               |  |                               |                   |                    |        |  |   |           |    

---

|(1) | On December 31, 2003, the Company issued 2,260,934 shares of its common stock to Mr. Zwebner in connection with the exchange of an option to purchase 2,568,000 held by
Mr. Zwebner. Such shares of common stock were valued at an aggregate of $12,815,000, or 2,260,934 shares of common stock assuming a discounted market price of $5.67 per share as of November 30, 2003. See Compensation of Officers
 Employment Agreements below.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Valerie Ferraro joined the Company in February, 2004. Ms. Ferraro signed an employment agreement with Yak Communications (Canada) Inc. dated December 21, 2005.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | David Hurwitz joined the Company in November, 2003.
|--- | ---------------------------------------------------

|(4) | This table has been restated from our 10-K/A filing made on October 28, 2005 to accurately disclose the compensation of our Executive Officers in each of the past three years.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Paul Broude joined the Company in June, 2005. Mr. Broudes annual compensation is $130,000.
|--- | -------------------------------------------------------------------------------------------



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Compensation of Directors

The compensation plan for each independent director is as follows: (i) $3,000 per quarter; and (ii) $6,000 per annum (in addition to items (i) and (iii) hereof); and (iii) $3,000 for
attendance at the Companys annual meeting of shareholders, along with travel expenses related thereto; and (iv) issuance of 2,000 shares of the common stock of the Company per annum for continued service on the Board of Directors.

In addition to the foregoing, the members of our Audit Committee received additional compensation for their extraordinary services in
connection with the restatement of certain of our historical financial statements. The members of the Audit Committee during 2005 received fees of $17,000 each and the former chairman received fees of $50,000. These amounts were reviewed by the
Compensation Committee and recommended to the full Board of Directors which approved the amounts and payment of the fees. The fees were based on an hourly rate of $200.

STOCK OPTION PLAN

In June 1999, we established a Stock Option Plan for key employees which covers up
to 640,000 shares of our common stock. There are currently two officers with outstanding options as follows:



|                |  |                   |  |                |  |              |  |             |  |                                
|--------------- |  | ----------------- |  | -------------- |  | ------------ |  | ----------- |  | -------------------------------
|Employee        |  | Option Grant Date |  | Vesting Period |  | # of Options |  | Grant Price |  | Options Vested at June 30, 2005
|Valerie Ferraro |  | May 11, 2004      |  | 4 Years        |  | 50,000       |  | 6.57        |  | 12,500                         
|David Hurwitz   |  | November 17, 2003 |  | 4 Years        |  | 130,000      |  | 6.50        |  | 32,500                         

STOCK AWARD PLAN

The Company has authorized a one-time Stock Award Plan whereby the Company may issue up to an aggregate of 40,000 shares of its common stock to certain of its employees as the Board of Directors may determine in its
discretion, as of December 28, 2001, all 40,000 shares were issued under this Plan.

Employment Contracts, Terminations of Employment and Change
in Control Arrangements

On January 1, 2005, the Company and our Canadian subsidiary entered into an Employment Agreement with
Charles Zwebner, our President and Chief Executive Officer, which provides him an annual base salary of $300,000. The Employment Agreement expires on December 31, 2006, unless terminated earlier in accordance with the provisions of the
agreement. Mr. Zwebners employment agreement also provides for annual salary increases and bonuses as determined by our Board of Directors.

Indemnification of Officers and Directors

Our Articles of Incorporation and Bylaws designate the relative duties and
responsibilities of our officers, establish procedures for actions by directors and shareholders and other items. Our Articles of Incorporation and Bylaws also contain indemnification provisions that permit us to indemnify our officers and directors
to the maximum extent provided by Florida law.

We have entered into indemnification agreements with all of our directors to provide them
with the maximum indemnification allowed under our Bylaws and applicable law, including indemnification for all judgments and expenses incurred as the result of any lawsuit in which such person is named as a defendant by reason of being our
director, to the extent indemnification is permitted by the laws of Florida. We believe that the limitation of liability provisions in our Articles of Incorporation and the indemnification agreements will enhance our ability to continue to attract
and retain qualified individuals to serve as directors and officers.

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee is now or ever was an officer or an employee of ours. None of our executive officers serves as a member of the
compensation committee of any entity in which one or more of its executive officers serves as a member of our Board of Directors or Compensation Committee. There were no Compensation Committee interlocks during fiscal 2005.

Compensation Committee Report on Executive Compensation

The policy of the Board of Directors is to maintain executive compensation at competitive levels that will permit us to attract, motivate and retain individuals with superior managerial abilities. The levels of
compensation are intended to reward individual initiative and achievement, while motivating our executives to increase shareholder value by improving our performance and profitability.



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The Compensation Committee reviews the base salaries of our executive officers annually, as well as all
bonus and stock compensation for all employees, considering factors such as corporate progress toward achieving objectives (without reference to any specific performance-related targets) and individual performance experience and expertise. In
determining our employees overall compensation, the Compensation Committee also reviews certain compensation levels at other companies. Additional factors reviewed by the Compensation Committee in determining appropriate compensation levels
include subjective factors related to corporate and individual performance.

The Compensation Committee adopted a policy which places
executive compensation under an annual review, pursuant to which bonuses and additional option grants, as well as increases to salary, will be based on performance goals as established by the committee and the individual executives at the
commencement of each year of employment.

Members of the Compensation Committee

Kevin Crumbo

Joseph Grunwald

PERFORMANCE GRAPH

The following graph presents the performance of our common stock for the period
September 10, 2002 (the first day our common stock was quoted on the OTC Bulletin Board) to June 30, 2005. Our common stock is compared to the Russell Microcap Index and a peer group. The peer group is comprised of the following companies:
Boston Communications Group Inc., Impsat Fiber Networks, Inc., ITC Deltacom, Inc., LCC International, Inc., Lynch Interactive Corp., Moscow Cablecom Corp., Multiband Corporation, PAC-West Telecom, Inc., Primus Telecommunications Group, Inc. and US
LEC Corp. The graph assumes that the value of the investment in our common stock and of each of the named indices was $100 at September 10, 2002 and that all dividends were reinvested. The information contained in this graph is not necessarily
indicative of our future performance.



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LOGO



|                         |  |                         |  |        |  |        |  |       
|------------------------ |  | ----------------------- |  | ------ |  | ------ |  | ------
|                         |  | Cumulative Total Return
|                         |  | 9/10/02                 |  | 6/03   |  | 6/04   |  | 6/05  
|YAK COMMUNICATIONS, INC. |  | 100.00                  |  | 326.67 |  | 568.25 |  | 307.94
|RUSSELL MICROCAP         |  | 100.00                  |  | 125.35 |  | 174.20 |  | 181.48
|PEER GROUP               |  | 100.00                  |  | 258.90 |  | 276.76 |  | 97.10 



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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following restated table sets
forth the beneficial ownership of shares of our common stock by (i) each person who is known to us to be the beneficial owner of more than 5% of our common stock; (ii) each director and named executive officer (defined above) individually;
and (iii) all directors and executive officers as a group. Beneficial ownership of common stock has been determined for this purpose in accordance with Rules 13d-3 and 13d-5 of the Securities and Exchange Commission, under the Securities
Exchange Act of 1934, as amended, which provide, among other things, that a person is deemed to be the beneficial owner of common stock if such person, directly or indirectly, has or shares voting power or investment power with respect to the common
stock or has the right to acquire such ownership within sixty days after the date of this report. Unless otherwise indicated, the address of each person listed is c/o Yak Communications Inc., 300 Consilium Place, Suite 500, Toronto, Ontario M1H 3G2.



|                                                             |  |                     |     |  |                     
|------------------------------------------------------------ |  | ------------------- | --- |  | --------------------
|Name and Address of Beneficial Owners                        |  | Number of Shares(4) |     |  | Percent of Class (1)
|Directors and Executive Officers                             |  |                     |     |  |                     
|Charles Zwebner                                              |  | 3,259,734           | (2) |  | 25.3                
|Anthony Heller                                               |  | 944,800             | (3) |  | 7.3                 
|Anthony Greenwood                                            |  | 15,000              |     |  | *                   
|                                                             |  |                    
|Gary M. Clifford                                             |  | 10,000              |     |  | *                   
|                                                             |  |                    
|Adrian Garbacz                                               |  | 6,000               |     |  | *                   
|Joseph Grunwald                                              |  | 6,000               |     |  | *                   
|R. Gregory Breetz                                            |  | 2,000               |     |  | *                   
|Kevin Crumbo                                                 |  | 2,000               |     |  | *                   
|Valerie Ferraro                                              |  | 12,500              |     |  | *                   
|                                                             |  |                    
|David B. Hurwitz                                             |  | 65,000              |     |  | *                   
|Margaret Noble                                               |  | 15,000              |     |  | *                   
|All Directors and Executive Officers as a Group (10 persons) |  | 4,338,034           |     |  | 33.6                

---

|* | Less than 1%.
|- | -------------

|(1) | Based on 12,905,250 shares of common stock outstanding as of March 27, 2006.
|--- | ----------------------------------------------------------------------------

|(2) | Includes 1,523,800 shares of common stock currently held in the name of 1231912 Ontario, Inc., a corporation controlled by Charles Zwebner.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes 400,000 shares of common stock currently held in the name of 1054311 Ontario limited and 254,000 shares of common stock currently held in the name of Helmsbridge Holdings,
Ltd., corporations controlled by Anthony Heller.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Number of shares owned by each named executive officer have been restated based on ownership under the stock option plan listed above.
|--- | --------------------------------------------------------------------------------------------------------------------------------------

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We paid professional fees for consulting and
executive search services for the current year of $173,000 to Kraft Corporate Recovery Services, LLC (Kraft) and Kraft Search Associates, LLC. Mr. Crumbo, a member of our Board of Directors, is a principal and employee of Kraft.
This director became a related party in October 2004 and as of June 30, 2005 there was a balance of $136,000 owing. These services were provided pursuant to written agreements copies of which are included in our Form 8-K filed on April 6,
2005. These agreements were approved by our Audit Committee.



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We paid professional fees for legal services for the years ending June 30, 2005, 2004 and 2003 of
$171,000, $160,000 and $109,000 respectively to Greenwoods Barristers and Solicitors, of which Anthony Greenwood is a director and minority shareholder. These legal services were provided pursuant to a standard engagement agreement between us and
Greenwoods Barristers and Solicitors. This engagement agreement was approved by our Audit Committee. For the fiscal years ended June 30, 2005, 2004 and 2003 there was no balance owing.

We paid $18,000 of marketing and design fees for the year ending June 30, 2005 to Mitchell Shore, a former officer and minority shareholder. This
former officer ceased to be a related party as of June 30, 2004. In the years ended June 30, 2004 and 2003, $142,000 and $122,000 was paid respectively to a corporation controlled by Mr. Shore as a related party transaction.

On November 12, 2002, the Company entered into a Commercial Services and Marketing Agreement with Digital Way, S.A., a Peruvian
corporation (Digital Way). In addition, Yak Communications (Canada), Inc., a subsidiary of the Company, entered into a Telecommunications Services and Disbursement Agreement with Digital Way. Pursuant to these agreements, the Company was
providing certain telecommunication services to Digital Way. The operations of this joint venture are expected to be wound down by the end of the first fiscal quarter of 2006. As of July 31, 2005 the agreement between the two above mentioned
companies was terminated. Digital Way is partlyowned by Universal Communications Systems, Inc., a public company whose chairman and principal shareholder is Michael Zwebner. Michael Zwebner is also a director of Digital Way. Michael Zwebner
and Charles Zwebner are brothers.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The following table summarizes the aggregate fees billed and expected to
be billed to us by Horwath Orenstein LLP:

Principal Accountant Fees and Services



|                       |  |      |         |      |   |        
|---------------------- |  | ---- | ------- | ---- | - | -------
|                       |  | 2005 |         | 2004
|Audit Fees (a)         |  | $    | 168,000 |      | $ | 100,000
|Audit-Related Fees (b) |  |      | 84,000  |      |   | 30,000 
|Tax Fees (c)           |  |      | 16,000  |      |   | 12,000 
|All Other Fees (d)     |  |      | 22,000  |      |   | 93,000 
|                       |  |      |         |      |   |        
|Total                  |  | $    | 290,000 |      | $ | 235,000
|                       |  |      |         |      |   |        

---

|(a) | Audit Fees include the aggregate fees billed by our auditors, for professional services rendered for the audit of the Companys annual financial statement, along with fees for
the reviews of the financial statements included in the Companys Quarterly Reports on Form 10-QSB during that fiscal.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Audit Related Fees include the aggregate of fees billed for services related to the Companys SEC and Nasdaq filings and applications and preparation of special audit reports
filed with the CRTC.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Tax Fees include the aggregate fees billed by our auditors for taxation compliance related services.
|--- | ----------------------------------------------------------------------------------------------------

|(d) | All Other Fees include the aggregate fees billed by our auditors for services rendered to the Company, other than the services covered in Audit Fees. These fees
primarily related to non-audit acquisition services relating to the Companys due diligence review and other due diligence engagements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Audit Committee believes that the services provided to the Company for such fees noted above were compatible with maintaining such principal auditors independence.

Pre-Approval Policy

The Audit
Committees policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed
as to the particular service or category of service and is subject to a specific budget. The Audit Committee requires the independent auditors and management to report on the actual fees charged for each category of service at Audit Committee
meetings throughout the year.

During the year, circumstances may arise when it may become necessary to engage the independent auditors for
additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific



65



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pre-approval before engaging the independent auditors. The Audit Committee has delegated pre-approval authority to the
Chair of the Audit Committee for those instances when pre-approval is needed prior to a scheduled Audit Committee meeting. The Chair of the Audit Committee must report on such approvals at the next scheduled Audit Committee meeting.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K



|(a) | Exhibits.
|--- | ---------



|            |  |                                                                                                                                                                                                                                                     
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION OF DOCUMENT                                                                                                                                                                                                                             
|3.1(1)      |  | Articles of Incorporation of the Company, as filed on December 24, 1998, with the Secretary of State of the State of Florida.                                                                                                                       
|            | 
|3.2(1)      |  | Articles of Amendment to the Articles of Incorporation of the Company, increasing the number of authorized common stock from 50 million shares to 100 million shares, as filed on June 4, 1999,
with the Secretary of State of the State of Florida.
|            | 
|3.3(1)      |  | Articles of Amendment to the Articles of Incorporation of the Company, designating Series A Convertible Preferred Stock, as filed on July 27, 1999, with the Secretary of State of the State of
Florida.                                            
|            | 
|3.4(1)      |  | Bylaws of the Company.                                                                                                                                                                                                                              
|            | 
|10.1(2)     |  | EMI Translation Service Agreement, dated October 24, 2004, between Telus Communications, Inc. and the Company.                                                                                                                                      
|            | 
|10.2(2)     |  | Invoice Ready Billing and Information Management Services Agreement, extended April 21, 2005, between Yak Communications (America) Inc. and Billing Concepts, Inc.                                                                                  
|            | 
|10.3(2)     |  | Lease of Office Space Agreement, dated November 6, 2003, between Yak Communications (Canada) Inc. and Oxford Properties Group Inc.                                                                                                                  
|            | 
|10.4(3)     |  | Employment Agreement between the Company, Yak Communications (Canada), Inc. and Charles Zwebner, effective as of January 1, 2004.                                                                                                                   
|            | 
|10.5(3)     |  | Professional Services Agreement between Yak Communications (Canada) Inc. and Convexia Limited, dated as of April 7, 2004.                                                                                                                           
|            | 
|10.6(1)     |  | 1999 Stock Option Plan.                                                                                                                                                                                                                             
|            | 
|10.7(1)     |  | Billing and Collection Services Agreement, dated August 8, 2000, between the Company and Telus Corporation.                                                                                                                                         
|            | 
|10.8(4)     |  | Billing and Collection Services Agreement, dated November 1, 2001, between the Company and Bell Canada.                                                                                                                                             
|            | 
|10.9(4)     |  | Receivables Sale Agreement, dated as of February 8, 2002, by and between Yak Communications (Canada) Inc., Yak Communications (America), Inc., Yak Communications (USA), Inc. and Textron
Financial Canada Limited.                                 
|            | 
|10.10(5)    |  | Stock Purchase Agreement, dated as of March 28, 2003, by and between Yak Communications (USA), Inc. and Odyssey Management Group, Inc.                                                                                                              
|            | 
|10.11(6)    |  | Software Acquisition Agreement, dated as of June 20, 2003, by and between Yak Communications (Canada) Inc., Consortio, Inc. and Convenxia Limited.                                                                                                  
|            | 
|10.12(7)    |  | Share and Debt Purchase Agreement, dated as of May 5, 2003, by and among Yak Communications (Canada) Inc., AT&T Canada Corp. and AT&T Canada Ltd.                                                                                                   
|            | 
|10.13(8)    |  | Engagement Letter with Kraft Corporate Recovery Services, LLC, dated March 31, 2005.                                                                                                                                                                
|            | 
|10.14(8)    |  | Search Assignment Agreement with Kraft Search Associates, LLC, dated March 31, 2005.                                                                                                                                                                
|            | 
|21(2)       |  | Subsidiaries.                                                                                                                                                                                                                                       
|            | 
|23          |  | Consent of Horwath Orenstein LLP.                                                                                                                                                                                                                   
|            | 
|31.1        |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer                                                                                                                                                                                   



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|     |  |                                                                                                                                                       
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|31.2 |  | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer                                                                                 
|     | 
|32.1 |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.    
|     | 
|32.2 |  | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

---

|(1) | Incorporated by reference from our Registration Statement on Form 10SB, as filed with the SEC on January 3, 2002.
|--- | -----------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference from our Annual Report on Form 10-K as filed with the SEC on September 28, 2005.
|--- | ----------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference from our Annual Report on Form 10-KSB as filed with the SEC on September 27, 2004.
|--- | ------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference from our Annual Report on Form 10-KSB as filed with the SEC on September 27, 2002.
|--- | ------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference from our Current Report on Form 8-K as filed with the SEC on April 15, 2003.
|--- | ------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference from our Current Report on Form 8-K as filed with the SEC on July 7, 2003.
|--- | ----------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference from our Current Report on Form 8-K as filed with the SEC on July 15, 2003.
|--- | -----------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference from our Current Report on Form 8-K as filed with the SEC on April 6, 2005.
|--- | -----------------------------------------------------------------------------------------------------



|(b) | Reports on Form 8-K.
|--- | --------------------

None.



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SIGNATURES

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



|                    |  |                         |  |                                                                              
|------------------- |  | ----------------------- |  | -----------------------------------------------------------------------------
|                    |  | Yak Communications Inc.
|                    |  |                        
|Date:April 21, 2006 |  | By:                     |  | /S/ CHARLES ZWEBNER                                                          
|                    |  |                         |  | Charles Zwebner, Chairman of the Board of Directors & Chief Executive Officer
|                    |  |                        
|                    |  | By:                     |  | /S/ PAUL BROUDE                                                              
|                    |  |                         |  | Paul Broude, Chief Accounting Officer and Principal Financial Officer        
|                    |  |                        
|                    |  | By:                     |  | /S/ GARY CLIFFORD                                                            
|                    |  |                         |  | Gary Clifford, Director                                                      
|                    |  |                        
|                    |  | By:                     |  | /S/ ADRIAN GARBACZ                                                           
|                    |  |                         |  | Adrian Garbacz, Director                                                     
|                    |  |                        
|                    |  | By:                     |  | /S/ ANTHONY GREENWOOD                                                        
|                    |  |                         |  | Anthony Greenwood, Director                                                  
|                    |  |                        
|                    |  | By:                     |  | /S/ ANTHONY HELLER                                                           
|                    |  |                         |  | Anthony Heller, Director                                                     
|                    |  |                        
|                    |  | By:                     |  | /S/ JOSEPH GRUNWALD                                                          
|                    |  |                         |  | Joseph Grunwald, Director                                                    
|                    |  |                        
|                    |  | By:                     |  | /S/ KEVIN CRUMBO                                                             
|                    |  |                         |  | Kevin Crumbo, Director                                                       
|                    |  |                        
|                    |  | By:                     |  | /S/ R. GREGORY BREETZ                                                        
|                    |  |                         |  | R. Gregory Breetz, Director                                                  



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CONSOLIDATED

FINANCIAL STATEMENTS

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

For the years ended June 30, 2005 and 2004



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LOGO

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Yak Communication Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Yak
Communication Inc. and Subsidiaries (the Company)as of June 30, 2005 and 2004 and the related consolidated statements of income and comprehensive income, stockholders equity and cash flows for each of the years in the
three-year period ended June 30, 2005. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America including the standards of the Public
Company Accounting Oversight Board. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 consolidated
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Yak Communication Inc. and Subsidiaries as of June 30, 2005 and 2004 and the results of their operations and their cash flows for each of the three
years in the period ended June 30, 2005, in conformity with accounting principles generally accepted in the United States of America.

As described in note
5 to the consolidated financial statements, the Company restated its consolidated financial statements as of and for the years ended June 30, 2005, 2004 and 2003.



|                          |  |                      
|------------------------- |  | ---------------------
|/s/ Horwath Orenstein LLP |  |                      
|Toronto, Canada           |  | Chartered Accountants

September 15, 2005, except for Note 5A as to which the date is September 27, 2005, and Notes 5B to 5F as to which
the date is March 31, 2006.



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##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED BALANCE SHEET

AS AT JUNE 30,



|                                  |  |                |  |               
|--------------------------------- |  | -------------- |  | --------------
|(in $ thousands)                  |  | 2005(Restated) |  | 2004(Restated)
|                                  |  | $              |  | $             
|ASSETS                            |  |                |  |               
|CURRENT                           |  |                |  |               
|Cash and cash equivalents         |  | 16,751         |  | 22,149        
|Accounts receivable, net          |  | 16,220         |  | 7,378         
|Factored accounts receivable      |  |               |  | 8,271         
|Prepaid expenses and other assets |  | 1,413          |  | 725           
|                                  |  |                |  |               
|TOTAL CURRENT ASSETS              |  | 34,384         |  | 38,523        
|JOINT VENTURE RECEIVABLE          |  |               |  | 2,805         
|PROPERTY AND EQUIPMENT, NET       |  | 13,559         |  | 9,596         
|LOAN RECEIVABLE                   |  |               |  | 445           
|INTANGIBLES, NET                  |  | 2,005          |  | 1,585         
|GOODWILL                          |  | 503            |  | 458           
|DEFERRED INCOME TAXES             |  | 797            |  | 238           
|                                  |  |                |  |               
|                                  |  | 51,248         |  | 53,650        
|                                  |  |                |  |               

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



F-2



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##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED BALANCE SHEETS



|                                                           |  |                         |  |                        
|---------------------------------------------------------- |  | ----------------------- |  | -----------------------
|(in $ thousands)                                           |  | June 30, 2005(Restated) |  | June 30, 2004(Restated)
|                                                           |  | $                       |  | $                      
|LIABILITIES                                                |  |                         |  |                        
|Current                                                    |  |                         |  |                        
|Accounts payable and accrued liabilities                   |  | 11,891                  |  | 11,509                 
|Due to Factor                                              |  |                        |  | 5,658                  
|Income taxes payable                                       |  | 3,547                   |  | 1,185                  
|Current portion of advances from TELUS Communications Inc. |  | 382                     |  | 1,239                  
|Current portion of obligations under capital leases        |  | 511                     |  | 393                    
|Current portion of note payable                            |  |                        |  | 195                    
|Unearned Revenue                                           |  | 1,096                   |  | 951                    
|Obligations Under Warrants                                 |  | 1,093                   |  | 1,676                  
|                                                           |  |                         |  |                        
|                                                           |  | 18,520                  |  | 22,806                 
|                                                           |  |                         |  |                        
|LONG-TERM DEBT                                             |  |                         |  |                        
|Advances from TELUS Communications Inc.                    |  |                        |  | 349                    
|Obligations under capital leases                           |  | 977                     |  | 1,073                  
|Note payable                                               |  |                        |  | 3,774                  
|                                                           |  |                         |  |                        
|                                                           |  | 977                     |  | 5,196                  
|                                                           |  |                         |  |                        
|                                                           |  | 19,497                  |  | 28,002                 
|                                                           |  |                         |  |                        
|STOCKHOLDERS EQUITY                                       |  |                         |  |                        
|Common stock                                               |  | 225                     |  | 225                    
|Additional paid in-capital                                |  | 16,952                  |  | 16,842                 
|Common stock purchase warrants                             |  |                        |  |                       
|Accumulated other comprehensive income                     |  | 1,343                   |  | 113                    
|Retained earnings                                          |  | 13,231                  |  | 8,468                  
|                                                           |  |                         |  |                        
|                                                           |  | 31,751                  |  | 25,648                 
|                                                           |  |                         |  |                        
|                                                           |  | 51,248                  |  | 53,650                 
|                                                           |  |                         |  |                        

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



F-3



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##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY



|                                                              |  |              |   |  |                          |   |  |                              |   |                              |   |                                     |   |  |                           |   |  |                                   |   |  |        |  
|------------------------------------------------------------- |  | ------------ | - |  | ------------------------ | - |  | ---------------------------- | - | ---------------------------- | - | ----------------------------------- | - |  | ------------------------- | - |  | --------------------------------- | - |  | ------ | -
|                                                              |  | Common Stock |   |  | Additionalpaid-incapital |   |  | Series APreferredStockShares |   | Series APreferredStockAmount |   | Accumulatedothercomprehensiveincome |   |  | Retainedearnings(deficit) |   |  | TotalStockholdersEquity(Deficit) |  
|(in $ thousands)                                              |  | Shares       |   |  | Amount                   |   |  |                              |   |                              |   |                                    
|                                                              |  |              |   |  | $                        |   |  | $                            |   |                              |   |                                     | $ |  | $                         |   |  | $                                 |   |  | $      |  
|Balance, June 30, 2002                                        |  | 9,584        |   |  | 201                      |   |  | 1,732                        |   |                              |  |                                     |  |  | 67                        |   |  | (487                              | ) |  | 1,513  |  
|Foreign currency translation adjustment                       |  |             |   |  |                         |   |  |                             |   |                              |  |                                     |  |  | 410                       |   |  |                                  |   |  | 410    |  
|Common stock redeemed                                         |  | (800         | ) |  | (4                       | ) |  | (796                         | ) |                              |  |                                     |  |  |                          |   |  |                                  |   |  | (800   | )
|Common stock issued for cash                                  |  | 320          |   |  | 2                        |   |  | 998                          |   |                              |  |                                     |  |  |                          |   |  |                                  |   |  | 1,000  |  
|Common stock issued for services                              |  | 29           |   |  |                         |   |  | 116                          |   |                              |  |                                     |  |  |                          |   |  |                                  |   |  | 116    |  
|Net earnings                                                  |  |             |   |  |                         |   |  |                             |   |                              |  |                                     |  |  |                          |   |  | 3,489                             |   |  | 3,489  |  
|                                                              |  |              |   |  |                          |   |  |                              |   |                              |   |                                     |   |  |                           |   |  |                                   |   |  |        |  
|Balance, June 30, 2003 (Restated)                             |  | 9,133        |   |  | 199                      |   |  | 2,050                        |   |                              |  |                                     |  |  | 477                       |   |  | 3,002                             |   |  | 5,728  |  
|Foreign currency translation adjustment                       |  |             |   |  |                         |   |  |                             |   |                              |  |                                     |  |  | (364                      | ) |  |                                  |   |  | (364   | )
|Common stock issued to obtain note payable                    |  | 20           |   |  |                         |   |  | 90                           |   |                              |  |                                     |  |  |                          |   |  |                                  |   |  | 90     |  
|Common stock issued in exchange for stock options surrendered |  | 2,261        |   |  | 11                       |   |  | (11                          | ) |                              |  |                                     |  |  |                          |   |  |                                  |   |  |       |  
|Common stock issued for services                              |  | 9            |   |  |                         |   |  | 51                           |   |                              |  |                                     |  |  |                          |   |  |                                  |   |  | 51     |  
|Stock compensation expense                                    |  |             |   |  |                         |   |  | 26                           |   |                              |  |                                     |  |  |                          |   |  |                                  |   |  | 26     |  
|Common stock issued for cash                                  |  | 1,470        |   |  | 15                       |   |  | 14,636                       |   |                              |  |                                     |  |  |                          |   |  |                                  |   |  | 14,651 |  
|Net earnings                                                  |  |             |   |  |                         |   |  |                             |   |                              |  |                                     |  |  |                          |   |  | 5,466                             |   |  | 5,466  |  
|                                                              |  |              |   |  |                          |   |  |                              |   |                              |   |                                     |   |  |                           |   |  |                                   |   |  |        |  
|Balance, June 30, 2004 (Restated)                             |  | 12,893       |   |  | 225                      |   |  | 16,842                       |   |                              |  |                                     |  |  | 113                       |   |  | 8,468                             |   |  | 25,648 |  
|Foreign currency translation adjustment                       |  |             |   |  |                         |   |  |                             |   |                              |  |                                     |  |  | 1,230                     |   |  |                                  |   |  | 1,230  |  
|Common stock issued for services                              |  | 4            |   |  |                         |   |  | 29                           |   |                              |  |                                     |  |  |                          |   |  |                                  |   |  | 29     |  
|Stock compensation expense                                    |  |             |   |  |                         |   |  | 81                           |   |                              |  |                                     |  |  |                          |   |  |                                  |   |  | 81     |  
|Net earnings                                                  |  |             |   |  |                         |   |  |                             |   |                              |  |                                     |  |  |                          |   |  | 4,763                             |   |  | 4,763  |  
|                                                              |  |              |   |  |                          |   |  |                              |   |                              |   |                                     |   |  |                           |   |  |                                   |   |  |        |  
|Balance, June 30, 2005 (Restated)                             |  | 12,897       |   |  | 225                      |   |  | 16,952                       |   |                              |  |                                     |  |  | 1,343                     |   |  | 13,231                            |   |  | 31,751 |  
|                                                              |  |              |   |  |                          |   |  |                              |   |                              |   |                                     |   |  |                           |   |  |                                   |   |  |        |  

---

|(1) | On January 29, 2004 a two-for-one stock split of the Companys outstanding shares occurred. The common share figures presented reflect the two-for-one split as if it had
occurred as of June 30, 2003.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME



|                                                         |  |                                  |   |  |                                  |   |  |                                   
|-------------------------------------------------------- |  | -------------------------------- | - |  | -------------------------------- | - |  | ----------------------------------
|(in $ thousands)                                         |  | Year EndedJune 30,2005(Restated) |   |  | Year EndedJune 30,2004(Restated) |   |  | Year Ended June 30, 2003(Restated)
|                                                         |  | $                                |   |  | $                                |   |  | $                                 
|Net revenue                                              |  | 92,700                           |   |  | 80,802                           |   |  | 40,404                            
|Cost of revenue1                                         |  | 57,636                           |   |  | 53,149                           |   |  | 25,403                            
|                                                         |  |                                  |   |  |                                  |   |  |                                   
|Contribution margin                                      |  | 35,064                           |   |  | 27,653                           |   |  | 15,001                            
|                                                         |  |                                  |   |  |                                  |   |  |                                   
|Operating expenses                                       |  |                                  |   |  |                                  |   |  |                                   
|General and administration                               |  | 19,036                           |   |  | 11,481                           |   |  | 3,842                             
|Sales and marketing                                      |  | 7,293                            |   |  | 3,894                            |   |  | 4,207                             
|Depreciation and amortization                            |  | 2,943                            |   |  | 2,980                            |   |  | 803                               
|Writedown of property and equipment and license fee      |  |                                 |   |  | 313                              |   |  | 119                               
|                                                         |  |                                  |   |  |                                  |   |  |                                   
|Total operating expenses                                 |  | 29,272                           |   |  | 18,668                           |   |  | 8,971                             
|                                                         |  |                                  |   |  |                                  |   |  |                                   
|Income from operations                                   |  | 5,792                            |   |  | 8,985                            |   |  | 6,030                             
|                                                         |  |                                  |   |  |                                  |   |  |                                   
|Other expenses (income)                                  |  |                                  |   |  |                                  |   |  |                                   
|Interest expense                                         |  | 893                              |   |  | 969                              |   |  | 513                               
|Interest earned                                          |  | (406                             | ) |  | (159                             | ) |  |                                  
|Longterm debt discount amortization                     |  | 391                              |   |  | 535                              |   |  |                                  
|Income from joint marketing agreement                    |  | (421                             | ) |  | (539                             | ) |  |                                  
|Gain on settlement                                       |  | (1,242                           | ) |  |                                 |   |  |                                  
|Change in fair value of obligation under warrants        |  | (583                             | ) |  | (497                             | ) |  |                                  
|Other Expenses                                           |  |                                 |   |  | 328                              |   |  | 29                                
|                                                         |  |                                  |   |  |                                  |   |  |                                   
|                                                         |  | (1,368                           | ) |  | 637                              |   |  | 542                               
|                                                         |  |                                  |   |  |                                  |   |  |                                   
|Earnings before income tax                               |  | 7,160                            |   |  | 8,348                            |   |  | 5,488                             
|Provisions for income taxes                              |  | 2,397                            |   |  | 2,882                            |   |  | 1,999                             
|                                                         |  |                                  |   |  |                                  |   |  |                                   
|Net earnings                                             |  | 4,763                            |   |  | 5,466                            |   |  | 3,489                             
|Other comprehensive income                               |  | 1,230                            |   |  | (364                             | ) |  | 410                               
|                                                         |  |                                  |   |  |                                  |   |  |                                   
|Comprehensive income                                     |  | 5,993                            |   |  | 5,102                            |   |  | 3,899                             
|                                                         |  |                                  |   |  |                                  |   |  |                                   
|Basic earnings per share                                 |  | 0.37                             |   |  | 0.51                             |   |  | 0.37                              
|                                                         |  |                                  |   |  |                                  |   |  |                                   
|Diluted earnings per share                               |  | 0.37                             |   |  | 0.48                             |   |  | 0.29                              
|                                                         |  |                                  |   |  |                                  |   |  |                                   
|Weighted average number of common shares outstanding     |  | 12,895                           |   |  | 10,706                           |   |  | 9,328                             
|                                                         |  |                                  |   |  |                                  |   |  |                                   
|Weighted average number of common shares  fully diluted |  | 12,901                           |   |  | 11,405                           |   |  | 11,896                            
|                                                         |  |                                  |   |  |                                  |   |  |                                   

---

|(1) | Excludes depreciation and amortization of $2,359, $2,767 and $687, respectively.
|--- | --------------------------------------------------------------------------------

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



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##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED STATEMENTS OF CASH
FLOWS



|                                                                        |  |                                     |   |  |                                    |   |  |                                    |  
|----------------------------------------------------------------------- |  | ----------------------------------- | - |  | ---------------------------------- | - |  | ---------------------------------- | -
|(in $ thousands)                                                        |  | Year Ended June 30, 2005 (Restated) |   |  | Year Ended June 30, 2004(Restated) |   |  | Year Ended June 30, 2003(Restated) |  
|                                                                        |  | $                                   |   |  | $                                  |   |  | $                                  |  
|CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES                          |  |                                     |   |  |                                    |   |  |                                    |  
|Net earnings                                                            |  | 4,763                               |   |  | 5,466                              |   |  | 3,489                              |  
|Adjustments for                                                         |  |                                     |   |  |                                    |   |  |                                    |  
|Amortization of discount on note payable                                |  | 391                                 |   |  | 535                                |   |  |                                   |  
|Depreciation and amortization                                           |  | 2,943                               |   |  | 2,980                              |   |  | 803                                |  
|Deferred income taxes                                                   |  | (527                                | ) |  | 2,590                              |   |  | 466                                |  
|Writedown of property and equipment and license fee                     |  |                                    |   |  | 313                                |   |  | 119                                |  
|Impairment of loan receivable                                           |  | 499                                 |   |  |                                   |   |  |                                   |  
|Gain on settlement                                                      |  | (1,242                              | ) |  |                                   |   |  |                                   |  
|Stock compensation expense                                              |  | 81                                  |   |  | 26                                 |   |  |                                   |  
|Loss on impairment of joint venture receivable                          |  |                                    |   |  | 277                                |   |  |                                   |  
|Loss on sale of property, equipment and software                        |  | 93                                  |   |  |                                   |   |  | 2                                  |  
|Common stock issued through business operations                         |  | 29                                  |   |  | 141                                |   |  | 116                                |  
|Share of net (gain)/loss of affiliate                                   |  |                                    |   |  | (39                                | ) |  | 29                                 |  
|Change in fair value of obligation under warrants                       |  | (583                                | ) |  | (497                               | ) |  |                                   |  
|Changes in assets and liabilities                                       |  | (3,883                              | ) |  | 316                                |   |  | 1,691                              |  
|                                                                        |  |                                     |   |  |                                    |   |  |                                    |  
|Cash from operating activities                                          |  | 2,564                               |   |  | 12,108                             |   |  | 6,715                              |  
|                                                                        |  |                                     |   |  |                                    |   |  |                                    |  
|CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES                          |  |                                     |   |  |                                    |   |  |                                    |  
|Purchase of property and equipment                                      |  | (6,077                              | ) |  | (5,612                             | ) |  | (2,475                             | )
|Purchase of intangibles                                                 |  | (713                                | ) |  |                                   |   |  |                                   |  
|Proceeds from sale of property, equipment, and software                 |  | 13                                  |   |  |                                   |   |  |                                   |  
|Purchase of shares of Contour Telecom                                   |  |                                    |   |  | (5,473                             | ) |  |                                   |  
|Investment in Odyssey Management Group, Inc                             |  |                                    |   |  | 510                                |   |  | (500                               | )
|Foreign exchange difference on purchase of shares of Contour Telecom    |  |                                    |   |  | 52                                 |   |  |                                   |  
|Loan receivable                                                         |  | (54                                 | ) |  | (285                               | ) |  | (161                               | )
|Increase in deferred acquisition cost                                   |  |                                    |   |  |                                   |   |  | (1,659                             | )
|                                                                        |  |                                     |   |  |                                    |   |  |                                    |  
|Cash used in investing activities                                       |  | (6,831                              | ) |  | (10,808                            | ) |  | (4,795                             | )
|                                                                        |  |                                     |   |  |                                    |   |  |                                    |  
|CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES                          |  |                                     |   |  |                                    |   |  |                                    |  
|Issuance of common shares                                               |  |                                    |   |  | 16,823                             |   |  | 1,000                              |  
|Repayments on obligations under capital leases                          |  | (496                                | ) |  | (35                                | ) |  | (115                               | )
|Repayments on advances from TELUS Communications Inc                    |  | (1,333                              | ) |  | (1,028                             | ) |  | 2,472                              |  
|Repayments on notes payable                                             |  |                                    |   |  | (567                               | ) |  |                                   |  
|Repurchase of capital stock                                             |  |                                    |   |  |                                   |   |  | (800                               | )
|Receipt of principal portion of Joint Venture receivable                |  | 215                                 |   |  | 374                                |   |  |                                   |  
|                                                                        |  |                                     |   |  |                                    |   |  |                                    |  
|Cash from (used in) financing activities                                |  | (1,614                              | ) |  | 15,567                             |   |  | 2,557                              |  
|                                                                        |  |                                     |   |  |                                    |   |  |                                    |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS            |  | 483                                 |   |  | (161                               | ) |  | 383                                |  
|                                                                        |  |                                     |   |  |                                    |   |  |                                    |  
|(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                        |  | (5,398                              | ) |  | 16,706                             |   |  | 4,860                              |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                          |  | 22,149                              |   |  | 5,443                              |   |  | 583                                |  
|                                                                        |  |                                     |   |  |                                    |   |  |                                    |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                |  | 16,751                              |   |  | 22,149                             |   |  | 5,443                              |  
|                                                                        |  |                                     |   |  |                                    |   |  |                                    |  
|Supplemental disclosure of cash flow information:                       |  |                                     |   |  |                                    |   |  |                                    |  
|Interest paid                                                           |  | 893                                 |   |  | 1,646                              |   |  | 513                                |  
|Taxes paid                                                              |  | 736                                 |   |  | 1,361                              |   |  |                                   |  
|Supplemental disclosure of noncash investing and financing activities: |  |                                     |   |  |                                    |   |  |                                    |  
|Capital leases for acquisition of furniture and equipment               |  | 312                                 |   |  | 1,473                              |   |  |                                   |  
|Notes payable on purchase of software                                   |  |                                    |   |  |                                   |   |  | 3,718                              |  
|Joint Venture receivable on purchase of software                        |  |                                    |   |  |                                   |   |  | 3,195                              |  
|Issuance of common stock for services rendered                          |  | 29                                  |   |  |                                   |   |  | 116                                |  
|Acquisition of Software                                                 |  |                                    |   |  |                                   |   |  | 1,561                              |  

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



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##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS

(in $ thousands)



|1. | ORGANIZATION AND BUSINESS
|-- | -------------------------

On December 15,
2003, Yak Communications Inc. (Yak or the Company) changed its name from Yak Communications (USA) Inc. Yak is a switch-based reseller providing a variety of discount long distance services primarily in Canada and to a lesser
degree the United States, to residential and small business markets, as well as telecommunications management services to large enterprises in Canada. The Company also provides Voice over Internet Protocol (VoIP) services to customers in
Canada, the United States and internationally. The Company was incorporated in the State of Florida on December 24, 1998 and operates as a holding company of its wholly-owned subsidiaries in the United States and Canada.

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



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------

These
consolidated financial statements are presented in United States dollars and have been prepared in accordance with U.S. generally accepted accounting principles and reflect the following policies:

Principles of consolidation

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

Use of estimates

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

Revenue recognition

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the Companys price to the customer is fixed and determinable, and collection of the resulting receivable is
reasonably assured. Revenue is derived from telecommunications usage based on minutes of use. Revenue derived from usage is recognized as services are provided, based on agreed upon usage rates. Revenue is recorded net of estimated customer credits
and uncollectible billings, which are recorded at the same time the corresponding revenue is recognized. Revenue from billings for services rendered where collectibility is not assured is recognized when the cash is collected.

Cost of revenue

Cost of revenue
includes network costs that consist of the cost of long-distance services, processing costs, line access and usage costs. These costs are recognized as incurred. Cost of revenue excludes depreciation and amortization of $2,359, $2,767, and $687,
respectively.

Contour Telecom Inc.s supplier service costs come directly from the telecommunications carriers and are recorded at the
time of customer usage based upon amounts billed by the respective service providers.

Cash and cash equivalents

Cash and cash equivalents are comprised of cash and term deposits with original maturity dates of 90 days or less. Cash and cash equivalents are stated at
cost which approximates market value, and are concentrated in three major financial institutions.



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##### Table of Contents

Property, equipment and software

Property, equipment and software (including assets under capital leases) are stated at cost less accumulated amortization. Amortization is computed on
individual assets using the declining balance method at rates adequate to amortize the cost of applicable assets over their useful lives the estimated useful lives of the assets, generally three to ten years. Leasehold improvements are amortized
over the term of the lease.

Cost includes major expenditures for improvements and replacements which extend useful lives or increase
capacity of assets as well as expenditures necessary to place assets into readiness for use. Expenditures for maintenance and repairs are expensed as incurred. In accordance with Statement of Position 98-1, Accounting of the Costs of Computer
Software Developed or Obtained for Internal Use(SOP 98-1), costs for internal use software that are incurred in the preliminary project stage and in the post-implementation stage are expensed as incurred. Costs incurred during the
application development stage are capitalized and amortized over the estimated useful life of the software, beginning when the software is placed in use.

Impairment of long-lived assets

In accordance with Statement of Financial Accounting Standard
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets(SFAS No. 144), the Company reviews long-lived assets for impairment whenever facts and circumstances indicate that the carrying amounts of such
assets may not be recoverable. An impairment loss is recognized only if the carrying amount of the asset is not recoverable and exceeds its fair value. Recoverability of assets to be held and used is measured by comparing the carrying amount of an
asset to the estimated discounted future net cash flows expected to be generated by the asset. If the assets carrying value is not recoverable, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds
its fair value. Fair values are determined by using a combination of comparable market values and discounted cash flows as appropriate.

Goodwill and Intangible Assets

In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142), with indefinite useful lives are not amortized, while those identified intangible assets with finite useful lives are amortized over their useful lives. Finite life intangibles are customer lists
and are stated at cost less accumulated amortization which is calculated on a straight-line basis over five years. Aggregate amortization expense for intangible assets for the years ended June 30, 2005, 2004 and 2003, was $475, $400 and $nil,
respectively. Estimated amortization expense for intangible assets for each of the five remaining succeeding fiscal years is as follows:



|                     |  |        |    
|-------------------- |  | ------ | ---
|Year ending June 30, |  | Amount
|2006                 |  | $      | 588
|2007                 |  | $      | 588
|2008                 |  | $      | 588
|2009                 |  | $      | 141
|2010                 |  | $      | 100

Goodwill represents the excess, if any, of the purchase consideration over the fair value of the
identifiable tangible and intangible net assets. Under SFAS No. 142, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Companys annual test
of impairment is June 30th. The impairment test is carried out in two steps. In the first step, the carrying amount of the reporting unit is compared with its fair value. When the fair value of a reporting unit exceeds its carrying amount,
goodwill of the reporting unit is considered not to be impaired and the second step of the impairment test is unnecessary. The second step is carried out when the fair value of a reporting unit is less than its carrying value. In this case, the
total fair value attributable to that reporting unit is allocated to the assets and liabilities of the reporting unit as though it were purchased on the impairment testing date. If the amount attributable to goodwill is less than the existing
carrying value of the goodwill as recorded, the shortfall is recognized as an impairment loss and presented as a separate line in the income statement.

Intangible assets that have indefinite lives and are acquired in business combinations individually or with a group of other assets are also tested for impairment annually, or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The impairment test compares the carrying amount of the intangible asset with its fair value, and an impairment loss is recognized in the income statement for the excess, if any.

There was no impairment of goodwill or other indefinite life intangibles for the years ended June 30, 2005, 2004 and 2003.



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##### Table of Contents

Joint venture (Peru)

The Companys proportionate share of revenues, expenses, assets and liabilities in an unincorporated joint venture are consolidated in the Companys accounts.

Cost of Start-up Activities

The
Company expenses the cost of start-up activities and organizational costs as related to broadband activities incurred in accordance with Statement of Position 98-5, Reporting on the Costs of Start-up Activities(SOP 98-5).

Advertising and promotion expense

In accordance with the Statement of Position 93-7, Reporting on Advertising Costs(SOP 93-7), the Company charges the production costs of commercials and programming to operations in the period
during which the production first aired. The costs of other advertising, promotion and marketing programs are charged to operations in the period incurred. The cost of promotional marketing materials are deferred and expensed as used. For the years
ended June 30, 2005, 2004 and 2003, advertising expenses totaled $6,510, $3,213 and $4,052 respectively.

Income taxes

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

Computation of earnings per common share

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

Foreign currency translation and foreign assets

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

Financial instruments - Valuation

In accordance with Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments(SFAS 107), requires disclosure of the fair value of certain
financial instruments for which it is practicable to estimate fair value. For purposes of the disclosure requirements, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between
willing parties, other than in a forced sale or liquidation. The carrying values of cash and cash equivalents, accounts receivable, Joint venture receivable, loan receivable, accounts payable and other current liabilities and capital leases are
reasonable estimates of their fair value due to the short-term nature of the underlying financial instruments. The carrying value of the capital leases is a reasonable estimate of their fair value based on current rates for equipment obligations.

Financial instruments - Risk

Unless otherwise noted, it is managements opinion that the Company is not exposed to significant interest or currency risks arising from financial instruments as the Companys subsidiaries are self-sustaining operations. The
Company has in place systems to minimize credit risk and prevent fraudulent use by customers. On occasion, defaults occur on receivables. The Company makes a provision for losses when deemed necessary.

Obligation Under Warrants and Registration Rights Agreement

In accordance with the provisions of SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133) along with related interpretations EITF No. 00-19 Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock (EITF 00-19) and EITF No. 05-2 The Meaning of Conventional Convertible Debt Instrument in Issue No. 00-19
(EITF 05-2). SFAS No. 133 requires every derivative instrument (including certain derivative instruments embedded in other contracts) to be recorded in the Balance Sheet as either an asset or liability measured at its fair value, with
changes in the derivatives fair value recognized currently in earnings unless specific hedge accounting criteria are met. We made the determination, that the detachable Warrants issued in 2004 is a Derivative instrument and measured its value
at $2,173, at inception. Additionally, at the end of each reporting period, the accounting standard requires the Company to mark to market the recorded value of any outstanding derivatives, resulting in an adjustment to the recorded liability; the
resulting adjustment, if any being reflected as a gain or loss earnings in the applicable reporting period. Since the inception of the Warrants, the fair value under the Black-Scholes method of valuation has declined and the Company has recorded a
cumulative pre-tax gain of $1,408 as the value of the Warrants declined. The Company values the Warrants using the Black-Scholes option-pricing model to determine fair value, this model requires management to make assumptions on the expected
volatility rates, risk-free interest rates and the instruments expected remaining life. These assumptions require significant management judgment. The Company also recorded an obligation in 2005 of $540 related to a breech of the warrant and
rights registration agreement.

Estimating Fair Value

Management estimated the fair value of the assets and liabilities associated with the purchase of certain telecommunications software from Consortio, Inc. and Convenxia Limited, based on the related estimated cash
flows. Statement of Financial Accounting Concepts



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##### Table of Contents

No. 7 (SFAC No. 7) provides a framework for using future cash flows and present
value as the basis for accounting measurements of fair value. When observable marketplace-determined values are not available, discounted cash flows are often used to estimate fair value. In accordance with SFAC No. 7, the Company used the
expected cash flow approach to estimate fair value, focusing on explicit assumptions about the range of possible cash outcomes and their respective probabilities.

Credit Risk

The Company assesses the collectability of its accounts receivable and provides an
allowance for doubtful accounts as it deems reasonable. Ninety-seven percent of the companys accounts receivable relate to Canadian customers.

A reconciliation of the allowance for doubtful accounts provision for the year is presented below:



|                                              |  |                    |   |  |                 |   |  |                 |  
|--------------------------------------------- |  | ------------------ | - |  | --------------- | - |  | --------------- | -
|                                              |  | For the Year-Ended |  
|                                              |  | 2005               |   |  | 2004 (Restated) |   |  | 2003 (Restated) |  
|                                              |  | $                  |   |  | $               |   |  | $               |  
|Opening balance                               |  | 348                |   |  | 15              |   |  | 20              |  
|Additional allowance provided during the year |  | 700                |   |  | 471             |   |  | 39              |  
|Bad debts write-off                           |  | (495               | ) |  | (138            | ) |  | (44             | )
|                                              |  |                    |   |  |                 |   |  |                 |  
|Ending Balance                                |  | 553                |   |  | 348             |   |  | 15              |  
|                                              |  |                    |   |  |                 |   |  |                 |  

For the year-ended June 30, 2005, 2004 and 2003 there is no interest accrued on overdue
amounts.

Stock-based compensation

Compensation expense under stock options is reported using the intrinsic method under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25 Accounting
for Stock Issued to Employees and related interpretations. Under this method compensation cost is reflected in net income for options granted with an exercise price less than market price of the underlying common stock at the date of grant.
The Company has adopted only the disclosure provision of SFAS 123, Accounting for Stock-Based Compensation as amended by SFAS No. 148 Accounting for Stock-Based Compensation -Transition and Disclosure.



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##### Table of Contents

Had compensation cost for the Companys grants of stock-based compensation been recorded consistent
with the fair value-based method of accounting per SFAS No. 123, as amended by SFAS No. 148, the Companys pro forma net earnings, and pro forma basic and diluted net earnings per share for the periods ended June 30, would have
been as follows:



|                                                                                       |  |                |   |  |                 |   |  |                
|-------------------------------------------------------------------------------------- |  | -------------- | - |  | --------------- | - |  | ---------------
|                                                                                       |  | June 30,      
|                                                                                       |  | 2005(Restated) |   |  | 2004 (Restated) |   |  | 2003 (Restated)
|                                                                                       |  | $              |   |  | $               |   |  | $              
|Net earnings as reported                                                               |  | 4,763          |   |  | 5,466           |   |  | 3,489          
|Less: Stock-based compensation determined under fair value based method for all awards |  | (210           | ) |  | (162            | ) |  |               
|Addback: Intrinsic value                                                               |  | 81             |   |  | 26              |   |  |               
|                                                                                       |  |                |   |  |                 |   |  |                
|Pro forma net earnings                                                                 |  | 4,634          |   |  | 5,330           |   |  | 3,489          
|                                                                                       |  |                |   |  |                 |   |  |                
|Basic net earnings per share                                                           |  |                |   |  |                 |   |  |                
|As reported                                                                            |  | 0.37           |   |  | 0.51            |   |  | 0.37           
|Pro forma                                                                              |  | 0.36           |   |  | 0.49            |   |  | 0.37           
|Diluted net earnings per share                                                         |  |                |   |  |                 |   |  |                
|As reported                                                                            |  | 0.37           |   |  | 0.48            |   |  | 0.29           
|Pro forma                                                                              |  | 0.36           |   |  | 0.47            |   |  | 0.29           

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

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:



|                |  |          |   |  |                 |   |  |                
|--------------- |  | -------- | - |  | --------------- | - |  | ---------------
|                |  | June 30,
|                |  | 2005     |   |  | 2004 (Restated) |   |  | 2003 (Restated)
|Risk free rate: |  | 3.0      | % |  | 3.0             | % |  |               
|Dividends:      |  |         |   |  |                |   |  |               
|Volatility:     |  | 79.3     | % |  | 60.0            | % |  |               
|Expected Life:  |  | 5 years  |   |  | 5 years         |   |  |               

Reclassifications

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

New Accounting Pronouncements

In
December, 2004, the Financial Accounting Standards Board (FASB) issued Statement of Accounting Standard No. 123(R), Share-Based Payment, (SFAS 123(R)), which addresses the accounting for share-based compensation
transactions. SFAS 123(R) eliminates the ability to account for share-based compensation transactions using APB 25, and generally requires instead that such transactions be accounted for and recognized in the statement of operations based on their
fair value. SFAS 123(R) will be effective for public companies that do not file as small business issuers as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. The Company is evaluating the
provisions and will apply this standard beginning in 2006. Depending upon the number and terms of options that may be granted in future periods, the implementation of this standard could have a material impact on the Companys future financial
position and results of operations.

In December 2004, the FASB issued Statement of Accounting Standard No. 153, Exchanges of
Nonmonetary Assets(SFAS 153), which eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance.
SFAS No. 153 will be effective for nonmonetary transactions occurring after June 15, 2005. The Company does not expect the adoption of SFAS No. 153 will have a material impact on the consolidated financial statements.



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##### Table of Contents

|3. | DUE TO FACTOR
|-- | -------------

The amounts due to factor are
secured by an assignment of the Companys accounts receivable. The Company has an agreement, expiring February 2006, to finance undivided interests in certain accounts receivable with recourse to the Factor. Payments are received by the Factor
from the financed accounts receivable; the collections are reinvested by the Factor in new accounts receivable of the Company, and a yield, as defined in the agreement is transferred to the Factor. At June 30, 2005 the amounts assigned under
the agreement that had not been collected were $nil (June 30, 2004 - $5,658).



|4. | PROPERTY AND EQUIPMENT
|-- | ----------------------

Property and equipment
consist of the following:



|                                                     |  |                          |   |  |                          |  
|---------------------------------------------------- |  | ------------------------ | - |  | ------------------------ | -
|                                                     |  | June 30, 2005 (Restated) |   |  | June 30, 2004 (Restated) |  
|                                                     |  | $                        |   |  | $                        |  
|Telecommunication switching systems                  |  | 6,791                    |   |  | 6,103                    |  
|Telecommunication software                           |  | 4,067                    |   |  | 2,123                    |  
|Billing, administration and customer service systems |  | 2,121                    |   |  | 1,679                    |  
|Installed lines                                      |  | 1,963                    |   |  | 1,085                    |  
|Broadband Equipment                                  |  | 1,562                    |   |  | 591                      |  
|Office furniture and equipment                       |  | 3,329                    |   |  | 2,468                    |  
|Computer equipment                                   |  | 1,244                    |   |  | 903                      |  
|Carrier identification codes loading                 |  | 834                      |   |  | 578                      |  
|Leasehold improvements                               |  | 723                      |   |  | 575                      |  
|Computer software                                    |  | 292                      |   |  | 267                      |  
|Automobile                                           |  |                         |   |  | 6                        |  
|                                                     |  |                          |   |  |                          |  
|Total Cost                                           |  | 22,926                   |   |  | 16,378                   |  
|                                                     |  |                         
|Accumulated Amortization                             |  | (9,367                   | ) |  | (6,782                   | )
|                                                     |  |                         
|Net Book Value                                       |  | 13,559                   |   |  | 9,596                    |  
|                                                     |  |                          |   |  |                          |  

Telecom switching systems include assets under capital leases having a gross value of approximately
$1,756 and net book value of approximately $1,463 as at June 30, 2005 and $1,366 and $1,230 as at June 30, 2004 respectively. Office furniture and equipment includes assets under capital leases having a gross value of approximately $366
and a net book value of approximately $300 as at June 30, 2005. At June 30, 2004 there were no such assets under capital lease.



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##### Table of Contents

|5. | RESTATEMENT OF FINANCIAL STATEMENTS
|-- | -----------------------------------

The Company
restated its initially reported financial statements to correct for the errors and deficiencies described below in its initial financials statement and accompanying notes.



| | A. | To correct errors in the accounting for Next Generation Software (initially restated on June 1, 2005, and later amended on September 28, 2005).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------

The Company has further restated its amended reported financial statement to correct for the errors and deficiencies
described below in its amended financial statements and accompanying notes as follows on April 21, 2006:



| | B. | To correct for the misapplication of SFAS 133, SFAS 150 and EITF 00-19 related to the 2004 issuance of detachable warrants;
| | -- | ---------------------------------------------------------------------------------------------------------------------------



| | C. | To correct for disclosure deficiencies under SFAS 131;
| | -- | ------------------------------------------------------



| | D. | To correct for disclosure deficiencies under SFAS 109;
| | -- | ------------------------------------------------------



| | E. | To correct for errors in its Cash Flow Statements for the fiscal years 2003, 2004 and 2005; and
| | -- | -----------------------------------------------------------------------------------------------



| | F. | To correct for the misclassification of financing expense related to assignment of accounts receivable for 2003, 2004 and 2005 and enhancement of disclosure of factored accounts
receivable.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The net effect of the initial and the amended restatements was to increase net income by $583,000 or $0.05
earnings per share for the year ended June 30, 2005. For the fiscal year ending June 30, 2005, the cash flows from operating and investing activities were understated by $1,385,000 and $245,000, respectively, while the cash flows from
financing activities and the effect of exchange rate changes on cash and cash equivalents were overstated by $332,000 and $1,298,000, respectively. At June 30, 2005, liabilities were understated by $1,093,000 while shareholders equity was
overstated by $1,093,000.

The net effect of the initial and the amended restatements was to decrease net income by $156,000 or $0.02
earnings per share for the year ended June 30, 2004. For the fiscal year ending June 30, 2004, the cash flows from investing activities were overstated by $617,000, while cash flows from operating activities, financing activities and the
effect of exchange rate changes on cash and cash equivalents were understated by $107,000, $307,000 and $203,000 respectively. At June 30, 2004, assets and liabilities were understated by $2,789,000, and $5,169,000, respectively, and
shareholders equity was overstated by $2,380,000.

For the fiscal year ending June 30, 2003, the cash flows from operating and
financing activities and the effect of exchange rate changes on cash and cash equivalents were overstated by $289,000, $4,000 and $27,000, respectively, while the cash flow from investing activities was understated by $320,000. At June 30,
2003, there was no impact on the income statement or balance sheet.

The effect of the restatements on the Companys previously
reported interim financial statements for each of the quarters in fiscal year 2003, 2004 and the first three quarterly periods of 2005 can be found in Note 16 Quarterly Results of Operations (Unaudited).

The schedules below show the effect on both the initial and amended financial statements of the above matters:



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##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED BALANCE SHEET

FOR THE YEAR ENDED, JUNE 30 2005



|                                                          |  |               |  |        |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|--------------------------------------------------------- |  | ------------- |  | ------ |  | ------------------ |  | ------- |  | ------- | - |  | ------- |  | ------- |  | ------- |  | ------- |  | ------------------
|(in $ thousands)                                          |  | InitialFiling |  | Note5A |  | InitialRestatement |  | Note 5A |  | Note 5B |   |  | Note 5C |  | Note 5D |  | Note 5E |  | Note 5F |  | AmendedRestatement
|                                                          |  | $             |  | $      |  | $                  |  | $       |  | $       |   |  | $       |  | $       |  | $       |  | $       |  | $                 
|ASSETS                                                    |  |               |  |        |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|Current                                                   |  |               |  |        |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|Cash and cash equivalents                                 |  | 16,751        |  |       |  | 16,751             |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 16,751            
|Accounts receivable, net                                  |  | 16,220        |  |       |  | 16,220             |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 16,220            
|Prepaid expenses and other current assets                 |  | 1,413         |  |       |  | 1,413              |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 1,413             
|                                                          |  |               |  |        |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|Total Current Assets                                      |  | 34,384        |  |       |  | 34,384             |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 34,384            
|                                                          |  |               |  |        |  |                    |  |         |  |        
|Property and equipment, net                               |  | 13,559        |  |       |  | 13,559             |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 13,559            
|Intangibles, net                                          |  | 2,005         |  |       |  | 2,005              |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 2,005             
|Goodwill                                                  |  | 503           |  |       |  | 503                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 503               
|Deferred income taxes                                     |  | 797           |  |       |  | 797                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 797               
|                                                          |  |               |  |        |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|                                                          |  | 51,248        |  |       |  | 51,248             |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 51,248            
|                                                          |  |               |  |        |  |                    |  |         |  |        
|LIABILITIES                                               |  |               |  |        |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|Current                                                   |  |               |  |        |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|Accounts payable and accrued liabilities                  |  | 11,891        |  |       |  | 11,891             |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 11,891            
|Income taxes payable                                      |  | 3,547         |  |       |  | 3,547              |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 3,547             
|Current portion of advances from TELUS Communications Inc |  | 382           |  |       |  | 382                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 382               
|Current portion of obligations under capital leases       |  | 511           |  |       |  | 511                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 511               
|Unearned Revenue                                          |  | 1,096         |  |       |  | 1,096              |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 1,096             
|Obligations Under Warrants                                |  |              |  |       |  |                   |  |        |  | 1,093   |   |  |        |  |        |  |        |  |        |  | 1,093             
|                                                          |  |               |  |        |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|                                                          |  | 17,427        |  |       |  | 17,427             |  |        |  | 1,093   |   |  |        |  |        |  |        |  |        |  | 18,520            
|LONG-TERM DEBT                                            |  |               |  |        |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|Obligations under capital leases                          |  | 977           |  |       |  | 977                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 977               
|                                                          |  |               |  |        |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|                                                          |  | 977           |  |       |  | 977                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 977               
|                                                          |  |               |  |        |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|                                                          |  | 18,404        |  |       |  | 18,404             |  |        |  | 1,093   |   |  |        |  |        |  |        |  |        |  | 19,497            
|                                                          |  |               |  |        |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|STOCKHOLDERS EQUITY                                      |  |               |  |        |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|Common stock                                              |  | 225           |  |       |  | 225                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 225               
|Additional paid incapital                                |  | 16,692        |  |       |  | 16,692             |  |        |  | 260     |   |  |        |  |        |  |        |  |        |  | 16,952            
|Common stock purchase warrants                            |  | 2,433         |  |       |  | 2,433              |  |        |  | (2,433  | ) |  |        |  |        |  |        |  |        |  |                  
|Accumulated other comprehensive income                    |  | 1,343         |  |       |  | 1,343              |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 1,343             
|Retained earnings                                         |  | 12,151        |  |       |  | 12,151             |  |        |  | 1,080   |   |  |        |  |        |  |        |  |        |  | 13,231            
|                                                          |  |               |  |        |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|                                                          |  | 32,844        |  |       |  | 32,844             |  |        |  | (1,093  | ) |  |        |  |        |  |        |  |        |  | 31,751            
|                                                          |  |               |  |        |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|                                                          |  | 51,248        |  |       |  | 51,248             |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 51,248            
|                                                          |  |               |  |        |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   



F-14



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##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME

FOR THE YEAR ENDED, JUNE 30 2005



|                                                         |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|-------------------------------------------------------- |  | ------------- | - |  | ------- |  | ------------------ | - |  | ------- |  | ------- | - |  | ------- |  | ------- |  | ------- |  | ------- | - |  | ------------------ | -
|(in $ thousands)                                         |  | InitialFiling |   |  | Note 5A |  | InitialRestatement |   |  | Note 5A |  | Note 5B |   |  | Note 5C |  | Note 5D |  | Note 5E |  | Note 5F |   |  | AmendedRestatement |  
|                                                         |  | $             |   |  | $       |  | $                  |   |  | $       |  | $       |   |  | $       |  | $       |  | $       |  | $       |   |  | $                  |  
|Net revenue                                              |  | 92,700        |   |  |        |  | 92,700             |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 92,700             |  
|Cost of revenue1                                         |  | 57,636        |   |  |        |  | 57,636             |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 57,636             |  
|                                                         |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Contribution margin                                      |  | 35,064        |   |  |        |  | 35,064             |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 35,064             |  
|                                                         |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Operating expenses                                       |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|General and administration                               |  | 19,036        |   |  |        |  | 19,036             |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 19,036             |  
|Sales and marketing                                      |  | 7,293         |   |  |        |  | 7,293              |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 7,293              |  
|Accounts receivable financing                            |  | 429           |   |  |        |  | 429                |   |  |        |  |        |   |  |        |  |        |  |        |  | (429    | ) |  |                   |  
|Depreciation and amortization                            |  | 2,943         |   |  |        |  | 2,943              |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 2,943              |  
|                                                         |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Total operating expenses                                 |  | 29,701        |   |  |        |  | 29,701             |   |  |        |  |        |   |  |        |  |        |  |        |  | (429    | ) |  | 29,272             |  
|                                                         |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Income from operations                                   |  | 5,363         |   |  |        |  | 5,363              |   |  |        |  |        |   |  |        |  |        |  |        |  | 429     |   |  | 5,792              |  
|                                                         |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Other expenses (income)                                  |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Interest expense                                         |  | 464           |   |  |        |  | 464                |   |  |        |  |        |   |  |        |  |        |  |        |  | 429     |   |  | 893                |  
|Interest earned                                          |  | (406          | ) |  |        |  | (406               | ) |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | (406               | )
|Income from joint marketing agreement                    |  | (421          | ) |  |        |  | (421               | ) |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | (421               | )
|Longterm debt discount amortization                     |  | 391           |   |  |        |  | 391                |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 391                |  
|Gain on settlement                                       |  | (1,242        | ) |  |        |  | (1,242             | ) |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | (1,242             | )
|Change in fair value of obligation under warrants        |  |              |   |  |        |  |                   |   |  |        |  | (583    | ) |  |        |  |        |  |        |  |        |   |  | (583               | )
|                                                         |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|                                                         |  | (1,214        | ) |  |        |  | (1,214             | ) |  |        |  | (583    | ) |  |        |  |        |  |        |  | 429     |   |  | (1,368             | )
|                                                         |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Earnings before income tax                               |  | 6,577         |   |  |        |  | 6,577              |   |  |        |  | 583     |   |  |        |  |        |  |        |  |        |   |  | 7,160              |  
|Provisions for income taxes                              |  | 2,397         |   |  |        |  | 2,397              |   |  |        |  |         |   |  |        |  |        |  |        |  |        |   |  | 2,397              |  
|                                                         |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Net earnings                                             |  | 4,180         |   |  |        |  | 4,180              |   |  |        |  | 583     |   |  |        |  |        |  |        |  |        |   |  | 4,763              |  
|Other comprehensive income                               |  | 1,230         |   |  |        |  | 1,230              |   |  |        |  |         |   |  |        |  |        |  |        |  |        |   |  | 1,230              |  
|                                                         |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Comprehensive income                                     |  | 5,410         |   |  |        |  | 5,410              |   |  |        |  | 583     |   |  |        |  |        |  |        |  |        |   |  | 5,993              |  
|                                                         |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Basic earnings per share                                 |  | 0.32          |   |  |        |  | 0.32               |   |  |        |  | 0.05    |   |  |        |  |        |  |        |  |        |   |  | 0.37               |  
|                                                         |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Diluted earnings per share                               |  | 0.32          |   |  |        |  | 0.32               |   |  |        |  | 0.05    |   |  |        |  |        |  |        |  |        |   |  | 0.37               |  
|                                                         |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Weighted average number of common shares outstanding     |  | 12,895        |   |  |        |  | 12,895             |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 12,895             |  
|                                                         |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Weighted average number of common shares  fully diluted |  | 12,901        |   |  |        |  | 12,901             |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 12,901             |  
|                                                         |  |               |   |  |         |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  

---

|(1) | Excludes depreciation and amortization of $2,359.
|--- | -------------------------------------------------



F-15



---

##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED STATEMENT OF CASH
FLOWS

FOR THE YEAR ENDED, JUNE 30 2005



|                                                                        |  |               |   |  |         |  |                    |   |  |         |   |  |         |   |  |         |  |         |  |         |   |  |         |  |                    |  
|----------------------------------------------------------------------- |  | ------------- | - |  | ------- |  | ------------------ | - |  | ------- | - |  | ------- | - |  | ------- |  | ------- |  | ------- | - |  | ------- |  | ------------------ | -
|(in $ thousands)                                                        |  | InitialFiling |   |  | Note 5A |  | InitialRestatement |   |  | Note 5A |   |  | Note 5B |   |  | Note 5C |  | Note 5D |  | Note 5E |   |  | Note 5F |  | AmendedRestatement |  
|                                                                        |  | $             |   |  | $       |  | $                  |   |  | $       |   |  | $       |   |  | $       |  | $       |  | $       |   |  | $       |  | $                  |  
|CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES                          |  |               |   |  |         |  |                    |   |  |         |   |  |         |   |  |         |  |         |  |         |   |  |         |  |                    |  
|Net earnings                                                            |  | 4,180         |   |  |        |  | 4,180              |   |  |        |   |  | 583     |   |  |        |  |        |  |        |   |  |        |  | 4,763              |  
|Adjustments for                                                         |  |               |   |  |         |  |                    |   |  |         |   |  |         |   |  |         |  |         |  |         |   |  |         |  |                    |  
|Amortization of discount on note payable                                |  | 391           |   |  |        |  | 391                |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  | 391                |  
|Depreciation and amortization                                           |  | 2,943         |   |  |        |  | 2,943              |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  | 2,943              |  
|Deferred income taxes                                                   |  | (559          | ) |  |        |  | (559               | ) |  |        |   |  |        |   |  |        |  |        |  | 32      |   |  |        |  | (527               | )
|Impairment of loan receivable                                           |  | 499           |   |  |        |  | 499                |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  | 499                |  
|Gain on settlement                                                      |  | (2,406        | ) |  |        |  | (2,406             | ) |  | 1,164   |   |  |        |   |  |        |  |        |  |        |   |  |        |  | (1,242             | )
|Stock compensation expense                                              |  | 81            |   |  |        |  | 81                 |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  | 81                 |  
|Loss on sale of property, equipment and software                        |  | 49            |   |  |        |  | 49                 |   |  |        |   |  |        |   |  |        |  |        |  | 44      |   |  |        |  | 93                 |  
|Common stock issued through business operations                         |  | 29            |   |  |        |  | 29                 |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  | 29                 |  
|Change in fair value of obligation under warrants                       |  |              |   |  |        |  |                   |   |  |        |   |  | (583    | ) |  |        |  |        |  |        |   |  |        |  | (583               | )
|Changes in assets and liabilities                                       |  | (4,028        | ) |  |        |  | (4,028             | ) |  |        |   |  |        |   |  |        |  |        |  | 145     |   |  |        |  | (3,883             | )
|                                                                        |  |               |   |  |         |  |                    |   |  |         |   |  |         |   |  |         |  |         |  |         |   |  |         |  |                    |  
|Cash from operating activities                                          |  | 1,179         |   |  |        |  | 1,179              |   |  | 1,164   |   |  |        |   |  |        |  |        |  | 221     |   |  |        |  | 2,564              |  
|                                                                        |  |               |   |  |         |  |                    |   |  |         |   |  |         |   |  |         |  |         |  |         |   |  |         |  |                    |  
|CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES                          |  |               |   |  |         |  |                    |   |  |         |   |  |         |   |  |         |  |         |  |         |   |  |         |  |                    |  
|Purchase of property and equipment                                      |  | (6,322        | ) |  |        |  | (6,322             | ) |  |        |   |  |        |   |  |        |  |        |  | 245     |   |  |        |  | (6,077             | )
|Purchase of intangibles                                                 |  | (713          | ) |  |        |  | (713               | ) |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  | (713               | )
|Proceeds from sale of property, equipment, and software                 |  | 13            |   |  |        |  | 13                 |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  | 13                 |  
|Loan receivable                                                         |  | (54           | ) |  |        |  | (54                | ) |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  | (54                | )
|                                                                        |  |               |   |  |         |  |                    |   |  |         |   |  |         |   |  |         |  |         |  |         |   |  |         |  |                    |  
|Cash used in investing activities                                       |  | (7,076        | ) |  |        |  | (7,076             | ) |  |        |   |  |        |   |  |        |  |        |  | 245     |   |  |        |  | (6,831             | )
|                                                                        |  |               |   |  |         |  |                    |   |  |         |   |  |         |   |  |         |  |         |  |         |   |  |         |  |                    |  
|CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES                          |  |               |   |  |         |  |                    |   |  |         |   |  |         |   |  |         |  |         |  |         |   |  |         |  |                    |  
|Repayments on obligations under capital leases                          |  | (291          | ) |  |        |  | (291               | ) |  |        |   |  |        |   |  |        |  |        |  | (205    | ) |  |        |  | (496               | )
|Repayments on advances from TELUS Communications Inc.                   |  | (1,206        | ) |  |        |  | (1,206             | ) |  |        |   |  |        |   |  |        |  |        |  | (127    | ) |  |        |  | (1,333             | )
|Receipt of principal portion of Joint Venture receivable                |  | 215           |   |  |        |  | 215                |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  | 215                |  
|                                                                        |  |               |   |  |         |  |                    |   |  |         |   |  |         |   |  |         |  |         |  |         |   |  |         |  |                    |  
|Cash from (used in) financing activities                                |  | (1,282        | ) |  |        |  | (1,282             | ) |  |        |   |  |        |   |  |        |  |        |  | (332    | ) |  |        |  | (1,614             | )
|                                                                        |  |               |   |  |         |  |                    |   |  |         |   |  |         |   |  |         |  |         |  |         |   |  |         |  |                    |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS            |  | 1,781         |   |  |        |  | 1,781              |   |  | (1,164  | ) |  |        |   |  |        |  |        |  | (134    | ) |  |        |  | 483                |  
|                                                                        |  |               |   |  |         |  |                    |   |  |         |   |  |         |   |  |         |  |         |  |         |   |  |         |  |                    |  
|(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                        |  | (5,398        | ) |  |        |  | (5,398             | ) |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  | (5,398             | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                          |  | 22,149        |   |  |        |  | 22,149             |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  | 22,149             |  
|                                                                        |  |               |   |  |         |  |                    |   |  |         |   |  |         |   |  |         |  |         |  |         |   |  |         |  |                    |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                |  | 16,751        |   |  |        |  | 16,751             |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  | 16,751             |  
|                                                                        |  |               |   |  |         |  |                    |   |  |         |   |  |         |   |  |         |  |         |  |         |   |  |         |  |                    |  
|Supplemental disclosure of cash flow information:                       |  |               |   |  |         |  |                    |   |  |         |   |  |         |   |  |         |  |         |  |         |   |  |         |  |                    |  
|Interest paid                                                           |  | 464           |   |  |        |  | 464                |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  | 429     |  | 893                |  
|Taxes paid                                                              |  | 736           |   |  |        |  | 736                |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  | 736                |  
|Supplemental disclosure of non-cash investing and financing activities: |  |               |   |  |         |  |                    |   |  |         |   |  |         |   |  |         |  |         |  |         |   |  |         |  |                    |  
|Capital leases for acquisition of furniture and equipment               |  | 312           |   |  |        |  | 312                |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  | 312                |  
|Issuance of common stock for services rendered                          |  | 29            |   |  |        |  | 29                 |   |  |        |   |  |        |   |  |        |  |        |  |        |   |  |        |  | 29                 |  



F-16



---

##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED BALANCE SHEET

FOR THE YEAR ENDED, JUNE 30 2004



|                                                           |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|---------------------------------------------------------- |  | ------------- |  | ------- | - |  | ------------------ |  | ------- |  | ------- | - |  | ------- |  | ------- |  | ------- |  | ------- |  | ------------------
|(in $ thousands)                                           |  | InitialFiling |  | Note 5A |   |  | InitialRestatement |  | Note 5A |  | Note 5B |   |  | Note 5C |  | Note 5D |  | Note 5E |  | Note 5F |  | AmendedRestatement
|                                                           |  | $             |  | $       |   |  | $                  |  | $       |  | $       |   |  | $       |  | $       |  | $       |  | $       |  | $                 
|ASSETS                                                     |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|Current                                                    |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|Cash and cash equivalents                                  |  | 22,149        |  |        |   |  | 22,149             |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 22,149            
|Accounts receivable, net                                   |  | 15,649        |  |        |   |  | 15,649             |  |        |  |        |   |  |        |  |        |  |        |  | 8,271   |  | 7,378             
|Factored accounts receivable                               |  |              |  |        |   |  |                   |  |        |  |        |   |  |        |  |        |  |        |  | 8,271   |  | 8,271             
|Income taxes receivable                                    |  | 666           |  | (666    | ) |  |                   |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                  
|Prepaid expenses and other current assets                  |  | 665           |  | 60      |   |  | 725                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 725               
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|Total Current Assets                                       |  | 39,129        |  | (606    | ) |  | 38,523             |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 38,523            
|                                                           |  |               |  |         |   |  |                    |  |         | 
|Joint venture receivable                                   |  |              |  | 2,805   |   |  | 2,805              |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 2,805             
|Property and equipment, net                                |  | 9,244         |  | 352     |   |  | 9,596              |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 9,596             
|Loan receivable                                            |  | 445           |  |        |   |  | 445                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 445               
|Intangibles, net                                           |  | 1,585         |  |        |   |  | 1,585              |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 1,585             
|Goodwill                                                   |  | 458           |  |        |   |  | 458                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 458               
|Deferred income taxes                                      |  |              |  | 238     |   |  | 238                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 238               
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|                                                           |  | 50,861        |  | 2,789   |   |  | 53,650             |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 53,650            
|LIABILITIES                                                |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|Current                                                    |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|Accounts payable and accrued liabilities                   |  | 11,509        |  |        |   |  | 11,509             |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 11,509            
|Due to Factor                                              |  | 5,658         |  |        |   |  | 5,658              |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 5,658             
|Income taxes payable                                       |  |              |  | 1,185   |   |  | 1,185              |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 1,185             
|Current portion of advances from TELUS Communications Inc. |  | 1,239         |  |        |   |  | 1,239              |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 1,239             
|Current portion of obligations under capital leases        |  | 392           |  | 1       |   |  | 393                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 393               
|Current portion of note payable                            |  |               |  | 195     |   |  | 195                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 195               
|Unearned Revenue                                           |  | 951           |  |        |   |  | 951                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 951               
|Obligations Under Warrants                                 |  |              |  |        |   |  |                   |  |        |  | 1,676   |   |  |        |  |        |  |        |  |        |  | 1,676             
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|                                                           |  | 19,749        |  | 1,381   |   |  | 21,130             |  |        |  | 1,676   |   |  |        |  |        |  |        |  |        |  | 22,806            
|LONG-TERM DEBT                                             |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|Advances from TELUS Communications Inc.                    |  | 349           |  |        |   |  | 349                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 349               
|Obligations under capital leases                           |  | 1,073         |  |        |   |  | 1,073              |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 1,073             
|Note payable                                               |  |              |  | 3,774   |   |  | 3,774              |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 3,774             
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|                                                           |  | 1,422         |  | 3,774   |   |  | 5,196              |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 5,196             
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|DEFERRED INCOME TAXES                                      |  | 1,662         |  | (1,662  | ) |  |                   |  |        |  |        |   |  |        |  |        |  |        |  |        |  |                  
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|                                                           |  | 22,833        |  | 3,493   |   |  | 26,326             |  |        |  | 1,676   |   |  |        |  |        |  |        |  |        |  | 28,002            
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|STOCKHOLDERS EQUITY                                       |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|Common stock                                               |  | 225           |  |        |   |  | 225                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 225               
|Additional paid in-capital                                |  | 16,582        |  |        |   |  | 16,582             |  |        |  | 260     |   |  |        |  |        |  |        |  |        |  | 16,842            
|Common stock purchase warrants                             |  | 2,433         |  |        |   |  | 2,433              |  |        |  | (2,433  | ) |  |        |  |        |  |        |  |        |  |                  
|Accumulated other comprehensive income                     |  | 164           |  | (51     | ) |  | 113                |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 113               
|Retained earnings                                          |  | 8,624         |  | (653    | ) |  | 7,971              |  |        |  | 497     |   |  |        |  |        |  |        |  |        |  | 8,468             
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|                                                           |  | 28,028        |  | (704    | ) |  | 27,324             |  |        |  | (1,676  | ) |  |        |  |        |  |        |  |        |  | 25,648            
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   
|                                                           |  | 50,861        |  | 2,789   |   |  | 53,650             |  |        |  |        |   |  |        |  |        |  |        |  |        |  | 53,650            
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |   |  |         |  |         |  |         |  |         |  |                   



F-17



---

##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME

FOR THE YEAR ENDED, JUNE 30 2004



|                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|-------------------------------------------------------- |  | ------------- | - |  | ------- | - |  | ------------------ | - |  | ------- |  | ------- | - |  | ------- |  | ------- |  | ------- |  | ------- | - |  | ------------------ | -
|(in $ thousands)                                         |  | InitialFiling |   |  | Note 5A |   |  | InitialRestatement |   |  | Note 5A |  | Note 5B |   |  | Note 5C |  | Note 5D |  | Note 5E |  | Note 5F |   |  | AmendedRestatement |  
|                                                         |  | $             |   |  | $       |   |  | $                  |   |  | $       |  | $       |   |  | $       |  | $       |  | $       |  | $       |   |  | $                  |  
|Net revenue                                              |  | 80,802        |   |  |        |   |  | 80,802             |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 80,802             |  
|Cost of revenue1                                         |  | 53,149        |   |  |        |   |  | 53,149             |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 53,149             |  
|                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Contribution margin                                      |  | 27,653        |   |  |        |   |  | 27,653             |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 27,653             |  
|                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Operating expenses                                       |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|General and administration                               |  | 11,481        |   |  |        |   |  | 11,481             |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 11,481             |  
|Sales and marketing                                      |  | 3,894         |   |  |        |   |  | 3,894              |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 3,894              |  
|Accounts receivable financing                            |  | 514           |   |  |        |   |  | 514                |   |  |        |  |        |   |  |        |  |        |  |        |  | (514    | ) |  |                   |  
|Depreciation and amortization                            |  | 3,002         |   |  | (22     | ) |  | 2,980              |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 2,980              |  
|Writedown of property and equipment and license fee      |  | 313           |   |  |        |   |  | 313                |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 313                |  
|                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Total operating expenses                                 |  | 19,204        |   |  | (22     | ) |  | 19,182             |   |  |        |  |        |   |  |        |  |        |  |        |  | (514    | ) |  | 18,668             |  
|                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Income from operations                                   |  | 8,449         |   |  | 22      |   |  | 8,471              |   |  |        |  |        |   |  |        |  |        |  |        |  | 514     |   |  | 8,985              |  
|                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Other expenses (income)                                  |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Interest expense                                         |  | 619           |   |  | (164    | ) |  | 455                |   |  |        |  |        |   |  |        |  |        |  |        |  | 514     |   |  | 969                |  
|Interest earned                                          |  | (159          | ) |  |        |   |  | (159               | ) |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | (159               | )
|Income from joint marketing agreement                    |  | (614          | ) |  | 75      |   |  | (539               | ) |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | (539               | )
|Long-term debt discount amortization                     |  |              |   |  | 535     |   |  | 535                |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 535                |  
|Change in fair value of obligation under warrants        |  |              |   |  |        |   |  |                   |   |  |        |  | (497    | ) |  |        |  |        |  |        |  |        |   |  | (497               | )
|Other Expenses                                           |  | 51            |   |  | 277     |   |  | 328                |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 328                |  
|                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|                                                         |  | (103          | ) |  | 723     |   |  | 620                |   |  |        |  | (497    | ) |  |        |  |        |  |        |  | 514     |   |  | 637                |  
|                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Earnings before income tax                               |  | 8,552         |   |  | (701    | ) |  | 7,851              |   |  |        |  | 497     |   |  |        |  |        |  |        |  |        |   |  | 8,348              |  
|Provisions for income taxes                              |  | 2,930         |   |  | (48     | ) |  | 2,882              |   |  |        |  |         |   |  |        |  |        |  |        |  |        |   |  | 2,882              |  
|                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Net earnings                                             |  | 5,622         |   |  | (653    | ) |  | 4,969              |   |  |        |  | 497     |   |  |        |  |        |  |        |  |        |   |  | 5,466              |  
|Other comprehensive income                               |  | (313          | ) |  | (51     | ) |  | (364               | ) |  |        |  |         |   |  |        |  |        |  |        |  |        |   |  | (364               | )
|                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Comprehensive income                                     |  | 5,309         |   |  | (704    | ) |  | 4,605              |   |  |        |  | 497     |   |  |        |  |        |  |        |  |        |   |  | 5,102              |  
|                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Basic earnings per share                                 |  | 0.53          |   |  | (0.07   | ) |  | 0.46               |   |  |        |  | 0.05    |   |  |        |  |        |  |        |  |        |   |  | 0.51               |  
|                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Diluted earnings per share                               |  | 0.49          |   |  | (0.05   | ) |  | 0.44               |   |  |        |  | 0.04    |   |  |        |  |        |  |        |  |        |   |  | 0.48               |  
|                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Weighted average number of common shares outstanding     |  | 10,706        |   |  |        |   |  | 10,706             |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 10,706             |  
|                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  
|Weighted average number of common shares  fully diluted |  | 11,405        |   |  |        |   |  | 11,405             |   |  |        |  |        |   |  |        |  |        |  |        |  |        |   |  | 11,405             |  
|                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |  |         |   |  |                    |  

---

|(1) | Excludes depreciation and amortization of $2,767
|--- | ------------------------------------------------



F-18



---

##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED STATEMENT OF CASH
FLOWS

FOR THE YEAR ENDED, JUNE 30 2004



|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |   |  |         |  |                     |  
|----------------------------------------------------------------------- |  | ------------- | - |  | ------- | - |  | ------------------ | - |  | ------- |  | ------- | - |  | ------- |  | ------- |  | ------- | - |  | ------- |  | ------------------- | -
|(in $ thousands)                                                        |  | InitialFiling |   |  | Note 5A |   |  | InitialRestatement |   |  | Note 5A |  | Note 5B |   |  | Note 5C |  | Note 5D |  | Note 5E |   |  | Note 5F |  | Amended Restatement |  
|                                                                        |  | $             |   |  | $       |   |  | $                  |   |  | $       |  | $       |   |  | $       |  | $       |  | $       |   |  | $       |  | $                   |  
|CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES                          |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |   |  |         |  |                     |  
|Net earnings                                                            |  | 5,622         |   |  | (653    | ) |  | 4,969              |   |  |        |  | 497     |   |  |        |  |        |  |        |   |  |        |  | 5,466               |  
|Adjustments for                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |   |  |         |  |                     |  
|Amortization of discount on note payable                                |  |              |   |  | 535     |   |  | 535                |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | 535                 |  
|Depreciation and amortization                                           |  | 3,002         |   |  | (22     | ) |  | 2,980              |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | 2,980               |  
|Deferred income taxes                                                   |  | 2,930         |   |  | (800    | ) |  | 2,130              |   |  |        |  |        |   |  |        |  |        |  | 460     |   |  |        |  | 2,590               |  
|Writedown of property and equipment and license fee                     |  | 313           |   |  |        |   |  | 313                |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | 313                 |  
|Stock compensation expense                                              |  | 26            |   |  |        |   |  | 26                 |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | 26                  |  
|Loss on impairment of joint venture receivable                          |  |              |   |  | 277     |   |  | 277                |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | 277                 |  
|Common stock issued through business operations                         |  | 141           |   |  |        |   |  | 141                |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | 141                 |  
|Share of net (gain)/loss of affiliate                                   |  | (39           | ) |  |        |   |  | (39                | ) |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | (39                 | )
|Change in fair value of obligation under warrants                       |  |              |   |  |        |   |  |                   |   |  |        |  | (497    | ) |  |        |  |        |  |        |   |  |        |  | (497                | )
|Changes in assets and liabilities                                       |  | 6             |   |  | 801     |   |  | 807                |   |  |        |  |        |   |  |        |  |        |  | (491    | ) |  |        |  | 316                 |  
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |   |  |         |  |                     |  
|Cash from operating activities                                          |  | 12,001        |   |  | 138     |   |  | 12,139             |   |  |        |  |        |   |  |        |  |        |  | (31     | ) |  |        |  | 12,108              |  
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |   |  |         |  |                     |  
|CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES                          |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |   |  |         |  |                     |  
|Purchase of property and equipment                                      |  | (4,995        | ) |  |        |   |  | (4,995             | ) |  |        |  |        |   |  |        |  |        |  | (617    | ) |  |        |  | (5,612              | )
|Purchase of shares of Contour Telecom                                   |  | (5,473        | ) |  |        |   |  | (5,473             | ) |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | (5,473              | )
|Investment in Odyssey Management Group, Inc.                            |  | 510           |   |  |        |   |  | 510                |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | 510                 |  
|Foreign exchange difference on purchase of shares of Contour Telecom    |  | 52            |   |  |        |   |  | 52                 |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | 52                  |  
|Loan receivable                                                         |  | (285          | ) |  |        |   |  | (285               | ) |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | (285                | )
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |   |  |         |  |                     |  
|Cash used in investing activities                                       |  | (10,191       | ) |  |        |   |  | (10,191            | ) |  |        |  |        |   |  |        |  |        |  | (617    | ) |  |        |  | (10,808             | )
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |   |  |         |  |                     |  
|CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES                          |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |   |  |         |  |                     |  
|Issuance of common shares                                               |  | 16,823        |   |  |        |   |  | 16,823             |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | 16,823              |  
|Repayments on obligations under capital leases                          |  | (35           | ) |  |        |   |  | (35                | ) |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | (35                 | )
|Repayments on advances from TELUS Communications Inc.                   |  | (1,028        | ) |  |        |   |  | (1,028             | ) |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | (1,028              | )
|Repayments on notes payable                                             |  | (500          | ) |  | (67     | ) |  | (567               | ) |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | (567                | )
|Receipt of principal portion of Joint Venture receivable                |  |               |   |  | 374     |   |  | 374                |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | 374                 |  
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |   |  |         |  |                     |  
|Cash from (used in) financing activities                                |  | 15,260        |   |  | 307     |   |  | 15,567             |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | 15,567              |  
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |   |  |         |  |                     |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS            |  | (364          | ) |  | (445    | ) |  | (809               | ) |  |        |  |        |   |  |        |  |        |  | 648     |   |  |        |  | (161                | )
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |   |  |         |  |                     |  
|(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                        |  | 16,706        |   |  |        |   |  | 16,706             |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | 16,706              |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                          |  | 5,443         |   |  |        |   |  | 5,443              |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | 5,443               |  
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |   |  |         |  |                     |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                |  | 22,149        |   |  |        |   |  | 22,149             |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | 22,149              |  
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |   |  |         |  |                     |  
|Supplemental disclosure of cash flow information:                       |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |   |  |         |  |                     |  
|Interest paid                                                           |  | 1,132         |   |  |        |   |  | 1,132              |   |  |        |  |        |   |  |        |  |        |  |        |   |  | 514     |  | 1,646               |  
|Taxes paid                                                              |  | 1,361         |   |  |        |   |  | 1,361              |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | 1,361               |  
|Supplemental disclosure of non-cash investing and financing activities: |  |               |   |  |         |   |  |                    |   |  |         |  |         |   |  |         |  |         |  |         |   |  |         |  |                     |  
|Capital leases for acquisition of furniture and equipment               |  | 1,473         |   |  |        |   |  | 1,473              |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  | 1,473               |  
|Notes payable on purchase of software                                   |  | 6,041         |   |  | (6,041  | ) |  |                   |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|Joint Venture receivable on purchase of software                        |  | 4,985         |   |  | (4,985  | ) |  |                   |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  
|Acquisition of Software                                                 |  | 1,561         |   |  | (1,561  | ) |  |                   |   |  |        |  |        |   |  |        |  |        |  |        |   |  |        |  |                    |  



F-19



---

##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED BALANCE SHEET

FOR THE YEAR ENDED, JUNE 30 2003



|                                                           |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|---------------------------------------------------------- |  | ------------- |  | ------- | - |  | ------------------ |  | ------- |  | ------- |  | ------- |  | ------- |  | ------- |  | ------- | - |  | ------------------
|(in $ thousands)                                           |  | InitialFiling |  | Note 5A |   |  | InitialRestatement |  | Note 5A |  | Note 5B |  | Note 5C |  | Note 5D |  | Note 5E |  | Note 5F |   |  | AmendedRestatement
|                                                           |  | $             |  | $       |   |  | $                  |  | $       |  | $       |  | $       |  | $       |  | $       |  | $       |   |  | $                 
|ASSETS                                                     |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Current                                                    |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Cash and cash equivalents                                  |  | 5,443         |  |        |   |  | 5,443              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 5,443             
|Accounts receivable, net                                   |  | 9,336         |  |        |   |  | 9,336              |  |        |  |        |  |        |  |        |  |        |  | (6,177  | ) |  | 3,159             
|Factored accounts receivable                               |  |              |  |        |   |  |                   |  |        |  |        |  |        |  |        |  |        |  | 6,177   |   |  | 6,177             
|Prepaid expenses and other current assets                  |  | 657           |  | 60      |   |  | 717                |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 717               
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Total Current Assets                                       |  | 15,436        |  | 60      |   |  | 15,496             |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 15,496            
|                                                           |  |               |  |         |   |  |                    |  |         | 
|Joint venture receivable                                   |  |              |  | 3,196   |   |  | 3,196              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 3,196             
|Property and equipment, net                                |  | 13,858        |  | (8,097  | ) |  | 5,761              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 5,761             
|Loan receivable                                            |  | 161           |  |        |   |  | 161                |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 161               
|Deferred acquisition costs                                 |  | 1,659         |  |        |   |  | 1,659              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 1,659             
|Investment in affiliate                                    |  | 471           |  |        |   |  | 471                |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 471               
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|                                                           |  | 31,585        |  | (4,841  | ) |  | 26,744             |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 26,744            
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|LIABILITIES                                                |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Current                                                    |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Accounts payable and accrued liabilities                   |  | 7,117         |  |        |   |  | 7,117              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 7,117             
|Due to Factor                                              |  | 4,690         |  |        |   |  | 4,690              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 4,690             
|Income taxes payable                                       |  | 613           |  | 1,099   |   |  | 1,712              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 1,712             
|Short-term notes payable                                   |  | 400           |  | (400    | ) |  |                   |  |        |  |        |  |        |  |        |  |        |  |        |   |  |                  
|Current portion of advances from TELUS Communications Inc. |  | 1,031         |  |        |   |  | 1,031              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 1,031             
|Current portion of obligations under capital leases        |  | 13            |  |        |   |  | 13                 |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 13                
|Current portion of note payable                            |  | 99            |  | 468     |   |  | 567                |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 567               
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|                                                           |  | 13,963        |  | 1,167   |   |  | 15,130             |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 15,130            
|LONG-TERM DEBT                                             |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Advances from TELUS Communications Inc.                    |  | 1,585         |  |        |   |  | 1,585              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 1,585             
|Obligations under capital leases                           |  | 15            |  |        |   |  | 15                 |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 15                
|Deferred income taxes                                      |  | 1,859         |  | (1,099  | ) |  | 760                |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 760               
|Note payable                                               |  | 8,435         |  | (4,909  | ) |  | 3,526              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 3,526             
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|                                                           |  | 11,894        |  | (6,008  | ) |  | 5,886              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 5,886             
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|                                                           |  | 25,857        |  | (4,841  | ) |  | 21,016             |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 21,016            
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|STOCKHOLDERS EQUITY                                       |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Common stock                                               |  | 199           |  |        |   |  | 199                |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 199               
|Additional paid in-capital                                |  | 2,050         |  |        |   |  | 2,050              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 2,050             
|Accumulated other comprehensive income                     |  | 477           |  |        |   |  | 477                |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 477               
|Retained earnings                                          |  | 3,002         |  |        |   |  | 3,002              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 3,002             
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|                                                           |  | 5,728         |  |        |   |  | 5,728              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 5,728             
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|                                                           |  | 31,585        |  | (4,841  | ) |  | 26,744             |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 26,744            
|                                                           |  |               |  |         |   |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   



F-20



---

##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME

FOR THE YEAR ENDED, JUNE 30 2003



|                                                         |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|-------------------------------------------------------- |  | ------------- |  | ------- |  | ------------------ |  | ------- |  | ------- |  | ------- |  | ------- |  | ------- |  | ------- | - |  | ------------------
|(in $ thousands)                                         |  | InitialFiling |  | Note 5A |  | InitialRestatement |  | Note 5A |  | Note 5B |  | Note 5C |  | Note 5D |  | Note 5E |  | Note 5F |   |  | AmendedRestatement
|                                                         |  | $             |  | $       |  | $                  |  | $       |  | $       |  | $       |  | $       |  | $       |  | $       |   |  | $                 
|Net revenue                                              |  | 40,404        |  |        |  | 40,404             |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 40,404            
|Cost of revenue1                                         |  | 25,403        |  |        |  | 25,403             |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 25,403            
|                                                         |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Contribution margin                                      |  | 15,001        |  |        |  | 15,001             |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 15,001            
|                                                         |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Operating expenses                                       |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|General and administration                               |  | 3,842         |  |        |  | 3,842              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 3,842             
|Sales and marketing                                      |  | 4,207         |  |        |  | 4,207              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 4,207             
|Accounts receivable financing                            |  | 499           |  |        |  | 499                |  |        |  |        |  |        |  |        |  |        |  | (499    | ) |  |                  
|Depreciation and amortization                            |  | 803           |  |        |  | 803                |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 803               
|Writedown of property and equipment and license fee      |  | 119           |  |        |  | 119                |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 119               
|                                                         |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Total operating expenses                                 |  | 9,470         |  |        |  | 9,470              |  |        |  |        |  |        |  |        |  |        |  | (499    | ) |  | 8,971             
|                                                         |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Income from operations                                   |  | 5,531         |  |        |  | 5,531              |  |        |  |        |  |        |  |        |  |        |  | 499     |   |  | 6,030             
|                                                         |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Other expenses (income)                                  |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Interest expense                                         |  | 14            |  |        |  | 14                 |  |        |  |        |  |        |  |        |  |        |  | 499     |   |  | 513               
|Other expenses                                           |  | 29            |  |        |  | 29                 |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 29                
|                                                         |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|                                                         |  | 43            |  |        |  | 43                 |  |        |  |        |  |        |  |        |  |        |  | 499     |   |  | 542               
|                                                         |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Earnings before income tax                               |  | 5,488         |  |        |  | 5,488              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 5,488             
|Provisions for income taxes                              |  | 1,999         |  |        |  | 1,999              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 1,999             
|                                                         |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Net earnings                                             |  | 3,489         |  |        |  | 3,489              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 3,489             
|Other comprehensive income                               |  | 410           |  |        |  | 410                |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 410               
|                                                         |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Comprehensive income                                     |  | 3,899         |  |        |  | 3,899              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 3,899             
|                                                         |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Basic earnings per share                                 |  | 0.37          |  |        |  | 0.37               |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 0.37              
|                                                         |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Diluted earnings per share                               |  | 0.29          |  |        |  | 0.29               |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 0.29              
|                                                         |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Weighted average number of common shares outstanding     |  | 9,328         |  |        |  | 9,328              |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 9,328             
|                                                         |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   
|Weighted average number of common shares  fully diluted |  | 11,896        |  |        |  | 11,896             |  |        |  |        |  |        |  |        |  |        |  |        |   |  | 11,896            
|                                                         |  |               |  |         |  |                    |  |         |  |         |  |         |  |         |  |         |  |         |   |  |                   

---

|(1) | Excludes depreciation and amortization of $687
|--- | ----------------------------------------------



F-21



---

##### Table of Contents

YAK COMMUNICATIONS INC. AND SUBSIDIARIES

(formerly Yak Communications (USA), Inc.)

CONSOLIDATED STATEMENT OF CASH
FLOWS

FOR THE YEAR ENDED, JUNE 30 2003



|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |  |         |  |         |  |         |   |  |         |  |                    |  
|----------------------------------------------------------------------- |  | ------------- | - |  | ------- | - |  | ------------------ | - |  | ------- |  | ------- |  | ------- |  | ------- |  | ------- | - |  | ------- |  | ------------------ | -
|(in $ thousands)                                                        |  | InitialFiling |   |  | Note 5A |   |  | InitialRestatement |   |  | Note 5A |  | Note 5B |  | Note 5C |  | Note 5D |  | Note 5E |   |  | Note 5F |  | AmendedRestatement |  
|                                                                        |  | $             |   |  | $       |   |  | $                  |   |  | $       |  | $       |  | $       |  | $       |  | $       |   |  | $       |  | $                  |  
|CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES                          |  |               |   |  |         |   |  |                    |   |  |         |  |         |  |         |  |         |  |         |   |  |         |  |                    |  
|Net earnings                                                            |  | 3,489         |   |  |        |   |  | 3,489              |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  | 3,489              |  
|Adjustments for                                                         |  |               |   |  |         |   |  |                    |   |  |         |  |         |  |         |  |         |  |         |   |  |         |  |                   |  
|Depreciation and amortization                                           |  | 803           |   |  |        |   |  | 803                |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  | 803                |  
|Deferred income taxes                                                   |  | 1,446         |   |  | (1,100  | ) |  | 346                |   |  |        |  |        |  |        |  |        |  | 120     |   |  |        |  | 466                |  
|Writedown of property and equipment and license fee                     |  | 119           |   |  |        |   |  | 119                |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  | 119                |  
|Loss on sale of property, equipment and software                        |  | 2             |   |  |        |   |  | 2                  |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  | 2                  |  
|Common stock issued through business operations                         |  | 116           |   |  |        |   |  | 116                |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  | 116                |  
|Share of net (gain)/loss of affiliate                                   |  | 29            |   |  |        |   |  | 29                 |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  | 29                 |  
|Changes in assets and liabilities                                       |  | 1,000         |   |  | 1,100   |   |  | 2,100              |   |  |        |  |        |  |        |  |        |  | (409    | ) |  |        |  | 1,691              |  
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |  |         |  |         |  |         |   |  |         |  |                    |  
|Cash from operating activities                                          |  | 7,004         |   |  |        |   |  | 7,004              |   |  |        |  |        |  |        |  |        |  | (289    | ) |  |        |  | 6,715              |  
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |  |         |  |         |  |         |   |  |         |  |                    |  
|CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES                          |  |               |   |  |         |   |  |                    |   |  |         |  |         |  |         |  |         |  |         |   |  |         |  |                    |  
|Purchase of property and equipment                                      |  | (2,795        | ) |  |        |   |  | (2,795             | ) |  |        |  |        |  |        |  |        |  | 320     |   |  |        |  | (2,475             | )
|Investment in Odyssey Management Group, Inc.                            |  | (500          | ) |  |        |   |  | (500               | ) |  |        |  |        |  |        |  |        |  |        |   |  |        |  | (500               | )
|Loan receivable                                                         |  | (161          | ) |  |        |   |  | (161               | ) |  |        |  |        |  |        |  |        |  |        |   |  |        |  | (161               | )
|Increase in deferred acquisition cost                                   |  | (1,659        | ) |  |        |   |  | (1,659             | ) |  |        |  |        |  |        |  |        |  |        |   |  |        |  | (1,659             | )
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |  |         |  |         |  |         |   |  |         |  |                    |  
|Cash used in investing activities                                       |  | (5,115        | ) |  |        |   |  | (5,115             | ) |  |        |  |        |  |        |  |        |  | 320     |   |  |        |  | (4,795             | )
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |  |         |  |         |  |         |   |  |         |  |                    |  
|CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES                          |  |               |   |  |         |   |  |                    |   |  |         |  |         |  |         |  |         |  |         |   |  |         |  |                    |  
|Issuance of common shares                                               |  | 1,000         |   |  |        |   |  | 1,000              |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  | 1,000              |  
|Repayments on obligations under capital leases                          |  | (111          | ) |  |        |   |  | (111               | ) |  |        |  |        |  |        |  |        |  | (4      | ) |  |        |  | (115               | )
|Repayments on advances from TELUS Communications Inc.                   |  | 2,472         |   |  |        |   |  | 2,472              |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  | 2,472              |  
|Repurchase of capital stock                                             |  | (800          | ) |  |        |   |  | (800               | ) |  |        |  |        |  |        |  |        |  |        |   |  |        |  | (800               | )
|Receipt of principal portion of Joint Venture receivable                |  |              |   |  |        |   |  |                   |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  |                   |  
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |  |         |  |         |  |         |   |  |         |  |                    |  
|Cash from (used in) financing activities                                |  | 2,561         |   |  |        |   |  | 2,561              |   |  |        |  |        |  |        |  |        |  | (4      | ) |  |        |  | 2,557              |  
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |  |         |  |         |  |         |   |  |         |  |                    |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS            |  | 410           |   |  |        |   |  | 410                |   |  |        |  |        |  |        |  |        |  | (27     | ) |  |        |  | 383                |  
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |  |         |  |         |  |         |   |  |         |  |                    |  
|(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                        |  | 4,860         |   |  |        |   |  | 4,860              |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  | 4,860              |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                          |  | 583           |   |  |        |   |  | 583                |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  | 583                |  
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |  |         |  |         |  |         |   |  |         |  |                    |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                |  | 5,443         |   |  |        |   |  | 5,443              |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  | 5,443              |  
|                                                                        |  |               |   |  |         |   |  |                    |   |  |         |  |         |  |         |  |         |  |         |   |  |         |  |                    |  
|Supplemental disclosure of cash flow information:                       |  |               |   |  |         |   |  |                    |   |  |         |  |         |  |         |  |         |  |         |   |  |         |  |                    |  
|Interest paid                                                           |  | 14            |   |  |        |   |  | 14                 |   |  |        |  |        |  |        |  |        |  |        |   |  | 499     |  | 513                |  
|Supplemental disclosure of non-cash investing and financing activities: |  |               |   |  |         |   |  |                    |   |  |         |  |         |  |         |  |         |  |         |   |  |         |  |                    |  
|Notes payable on purchase of software                                   |  | 8,935         |   |  | (5,217  | ) |  | 3,718              |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  | 3,718              |  
|Joint Venture receivable on purchase of software                        |  |              |   |  | 3,196   |   |  | 3,196              |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  | 3,196              |  
|Issuance of common stock for services rendered                          |  | 116           |   |  |        |   |  | 116                |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  | 116                |  
|Acquisition of Software                                                 |  |              |   |  | 1,561   |   |  | 1,561              |   |  |        |  |        |  |        |  |        |  |        |   |  |        |  | 1,561              |  



F-22



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##### Table of Contents

|5A. | Correction of the error in the accounting for Next Generation Software initially restated on June 1, 2005 and subsequently amended on September 28,
2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

Initial Software Transaction

On June 20, 2003, the Companys wholly-owned subsidiary, Yak Communications (Canada) Inc. (Yak Canada), acquired certain telecommunications software from Consortio, Inc., a Delaware corporation
and Convenxia Limited, a corporation organized under the laws of the United Kingdom (collectively, the Sellers), pursuant to the terms and conditions of a Software Acquisition Agreement. Payments made or due to the Sellers for the
software were as follows: (a) $0.6 million in cash was paid at the closing of the transaction; (b) delivery of a non-interest bearing short-term promissory note executed in favor of Consortio, Inc. in the principal amount of $0.4 million
providing for equal monthly payments of $40 thousand and (c) the balance of the purchase price was evidenced by a long-term promissory note executed in favor of Consortio, Inc. in the principal amount of $8.5 million bearing interest at
7.25% per annum. Under the long-term note, interest and principal were payable quarterly in the amount of $175 thousand commencing September 30, 2003 with the balance due July 15, 2012. The sole recourse of the lender under the
long-term note was the subject software. Yak Canada was also issued a warrant to purchase up to 8% of the issued and outstanding common stock of Convenxia Limited, with an exercise period ending June 30, 2012. The exercise price is based on a
predetermined formula using a calculation of fair value of the grantor at the time of exercise.

In addition to the purchase of the
software, Yak Canada and the Sellers entered into a joint venture agreement under which an exclusive license was granted to the Sellers for the use of the software for telecommunication services outside Canada to non-Yak customers. Under the joint
venture agreement, Yak Canada was entitled to receive 4% of all gross revenue arising from the sale of services using the acquired software pursuant to such license with minimum quarterly payments of $150 thousand through June 30, 2006 and,
thereafter, 2.75% of gross revenue with minimum quarterly payments of $175 thousand. The expiration date of the joint venture was July 15, 2015.

May 31, 2005 Restatement of June 30, 2003 and June 30, 2004 Financial Statements

During the fourth fiscal quarter of fiscal 2005, the Company determined that the assumptions on which the valuations of this software acquisition were made and the agreement recorded were in error. On May 31, 2005, the financial
statements for fiscal years ended June 30, 2003 and 2004 were amended and restated. As a result, in its June 30, 2003 amended Annual Report on Form 10-K/A filed on May 31, 2005, the Company estimated the fair value of each of the
components of the software transaction as follows:



|                         |  |   |            
|------------------------ |  | - | -----------
|Software                 |  | $ | 1.7 million
|Warrants                 |  |   | 0.1 million
|Joint venture receivable |  |   | 5.0 million
|                         |  |   |            
|Total assets acquired    |  | $ | 6.8 million
|Cash paid                |  | $ | 0.7 million
|Short-term note payable  |  |   | 0.4 million
|Long-term note payable   |  |   | 5.7 million
|                         |  |   |            
|Total consideration paid |  | $ | 6.8 million

The assumptions underlying the restatement of the software and warrant fair values were as
follows:



| |  |  | Software  The Company valued the acquired software at $5.9 million, which is the mid-point of a range of $5.4 million to $6.4 million as determined by management based on a
third-party valuation. Applying by analogy the concepts of Statement of Financial Accounting Standards No. 141 (FAS 141), the Company allocated, on a pro rata basis, the excess of the fair value of the assets acquired over the fair value of the
consideration paid ($4.2 million) to reduce the amounts that otherwise would have been assigned to the non-financial acquired asset (the software). As a result, the amount recorded for the acquired software was reduced for accounting purposes from
its estimated fair value of $5.9 million to its carrying value of $1.7 million;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Warrants  The fair value of the Convenxia warrants was derived using the Black-Scholes valuation model. The range of possible cash outcomes varied based on estimated future
revenues of Convenxia Limited. Because Convenxia is a privately-held entity, enterprise valuation multiples and volatility inputs necessary for the Black-Scholes model were derived from comparable public company statistics;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | Estimates of the fair value of the joint venture receivable, the short-term note payable and the long-term note payable were based on the guidance of Statement of Financial
Accounting Concepts No. 7, Using Cash Flow Information and Present Value in Accounting Measurements (SFAC No. 7) which provides a framework for using future cash flows and present value as the basis for accounting measurements of fair
value. Consistent with the methodology of SFAC No. 7, the Company used the expected cash flow approach to estimate fair value, focusing on explicit assumptions regarding the range of possible cash outcomes and their respective probabilities.
These fair values are based on the following assumptions:
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Receivable from joint venture: The range of possible cash outcomes varied based on the expected length of time that the joint venture would remain intact. The present value of
contractual cash flows was calculated using a discount rate equal to the Companys weighted average cost of capital plus 200 basis points;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Short-term note payable: The present value of contractual cash flows was calculated using a discount rate equal to the Companys weighted average cost of capital; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Long-term note payable: Similar to the joint venture receivable fair value estimate, the range of possible cash outcomes varied based on the expected length of time that the joint
venture would remain intact and also on the probabilities that the balloon payment would ultimately be paid in 2012. The present value of contractual cash flows was calculated using a discount rate equal to the Companys weighted average cost
of capital.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Subsequent to the May 31, 2005 filing of its amended 2003 and 2004 annual reports, and in conjunction with
its continued discussions with the Office of the Chief Accountant (OCA) of the Securities and Exchange Commission in connection with the Companys request for guidance in this regard, management discovered that a calculation error
was made in its determination of the fair value of various components of the Convenxia transaction. On September 27, 2005, Yaks Board of Directors approved managements recommendation to correct this accounting. For additional
details see comments under Second Restatement of Amounts Previously Reported in June 30, 2003 and June 30, 2004 Financial Statements included in this Annual Report, below.

Effect of 2004 Strategic Change

In the fourth quarter of fiscal 2004, the Company made the determination that the development of the software for Yaks own internal use would require the full time and effort of all involved parties. The Company believed that the
continuing development of the software for internal use over the next several years would be the key aspect of the software transaction and not its commercialization. In addition, the Company became increasingly aware that whichever software was
developed for VoIP, it was more likely than not to become obsolete on or before the due date of the balloon payment on the long-term note (June 2012).

Given these two issues, in its amended Annual Report on Form 10-K/A for fiscal year 2004, the Company modified the probability assumptions for the range of possible cash outcomes related to the fair value calculations
of the receivable from the joint venture and the long-term note payable. The probabilities that the cash flows from the joint venture would be received, or that the $7.3 million balloon payment otherwise due in 2012 on the long-term note would be
paid by Yak were reduced to zero probability (from a 20% probability in prior assumptions). Accordingly, in its amended Annual Report on Form 10-K/A for fiscal year 2004, the Company reduced the fair value of the long-term note payable at
June 30, 2004 by $1.7 million, from $5.8 million to $4.1 million and concurrently recorded an impairment in the fair value of the joint venture receivable of $0.6 million, from $4.6 million to $4.0 million. Because the note liability was not
legally extinguished and only the expected cash flow inflows and outflows changed, the resultant net gain of $1.1 million was deferred and classified on the fiscal year 2004 balance sheet as Deferred Revenue. There was no impact on the
Companys Consolidated Statements of Income nor on the Consolidated Statements of Cash Flows for the three months ended June 30, 2004.

As discussed above, subsequent to its recent (May 31, 2005) filing of its amended financial statements for fiscal year 2004, and in conjunction with its continued discussions with the OCA, management determined that the reduction in fair
value of the long-term note payable and the deferral of the loss on impairment of the joint venture receivable were errors in accounting. As stated above, Yaks Board of Directors has approved managements recommendation to correct this
accounting. For additional details see comments under Second Restatement of Amounts Previously Reported in June 30, 2003 and June 30, 2004 Financial Statements included in this Annual Report, below.

March 2005 Note Settlement

On March 3, 2005, the Company entered into a settlement agreement with the Sellers. Pursuant to the settlement agreement, the Company paid $150 thousand to the Sellers and committed to complete $350 thousand of further development of
the software in exchange for a discharge of any further obligation under the long-term note, which note had a principal amount of $8.4 million



F-24



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##### Table of Contents

outstanding at December 31, 2004. Pursuant to the settlement agreement, all guaranteed payments made
under the joint venture agreement would also cease. Accordingly, the Company reduced the amount recorded for the fair value of the long-term note payable at March 31, 2005 by $4.1 million, to $150 thousand and concurrently recorded an
impairment of fair value of the joint venture receivable of $3.8 million, reducing the carrying value to zero. Because the note liability was legally extinguished, the resultant net gain of $300 thousand and the previously deferred gain of $1.1
million from the fourth fiscal quarter of 2004 were recognized in the third fiscal quarter of 2005. A total gain on early extinguishment of debt of $1.4 million was recognized in the Companys Consolidated Statements of Income for the quarter
ended March 31, 2005.

As discussed above, subsequent to its recent (May 31, 2005) filing of its amended financial statements for the
quarter ended March 31, 2005, and in conjunction with its continued discussions with the OCA, management determined that the gain recognized on early extinguishment of debt was overstated by $200 thousand. As stated above, the Companys
Board of Directors approved managements recommendation to correct this accounting. For additional details see comments under Second Restatement of Amounts Previously Reported in June 30, 2003 and June 30, 2004 Financial
Statements included in this Annual Report, below.

Second Restatement of Amounts Previously Reported in June 30, 2003 and
June 30, 2004 Financial Statements included in this Annual Report

Subsequent to the May 31, 2005 filing of its amended
Annual Report on Form 10-K/A for fiscal years 2003 and 2004, and as a result of our continuing discussions with the OCA, the Company discovered errors in its amended filings. The Companys Board of Directors has approved managements
recommendation to correct its accounting for the Convenxia software transaction. The errors originated from:



| |  |  | An error in calculating the discount rate used to determine the fair value of the transaction components for the May 31, 2005 restatements. The error caused the Company to
overstate the value of the long-term note payable, the joint venture receivable and the software in its amended Annual Report on Form 10-K/A for fiscal year 2003 and subsequent filings;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The revaluation of the long-term note payable in the amended Annual Report on Form 10- K/A for the fiscal year ended June 30, 2004 10-K/A was not consistent with GAAP,
notwithstanding the fact that the resultant gain was deferred;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The loss on impairment of the joint venture receivable was incorrectly deferred in the amended Annual Report on Form 10-K/A for fiscal year 2004. The loss should have been
recognized in the fourth fiscal quarter of 2004; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The $1.4 million gain recognized on early extinguishment of debt in the third fiscal quarter of 2005 was overstated by $200 thousand.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------

As a result of these corrections, the Company restated the amounts previously reported in its financial statements for fiscal years 2003 and 2004, as well
as each of the quarters in fiscal year 2004 and the first three quarters of fiscal 2005.



|5B. | Correction of error for the misapplication of SFAS 133, SFAS 150 and EITF 00-19 related to the 2004 issuance of detachable warrants
|--- | -----------------------------------------------------------------------------------------------------------------------------------

Management has determined that the prior accounting for its 2004 detachable warrants issued in conjunction with its securities offering was in error. The
Company initially classified the Warrants as an equity instrument; however a put feature that can be exercised in certain circumstances contained within the instrument precludes this classification. The instrument has now been classified as a
Liability in accordance with the application of the provisions of SFAS 133, SFAS 150, and EITF 00-19.

As a result of this error,
liabilities at June 30, 2004 were understated by $1,676,000 and shareholders equity was overstated by $1,676,000. Further the standards requires the Company to re-measure the value of the warrants at the end of each reporting period with
the resulting increase or decrease to the liability reported as a component of the Statement of Income and Comprehensive Income. As a result of a decrease in the value of the Warrants since issuance, the net income of the Company for fiscal 2004 and
2005 were previously understated by $497,000 and $583,000 or $0.05 per share and $0.05 per share, respectively. As a result of this error at June 30, 2005, liabilities were understated by $1,093,000 and shareholders equity was overstated
by $1,093,000.



|5C. | Correction for disclosure deficiencies under SFAS 131
|--- | -----------------------------------------------------

The Company has modified its segmented disclosure to comply with the standards of SFAS 131 and to further provide meaningful information to readers of its financial statements.



F-25



---

##### Table of Contents

There was no effect on the net earnings, earnings per share, assets, liabilities, and stockholders
equity.

See note 15, for amended disclosure.



|5D. | Correction of error for disclosure deficiencies under SFAS 109
|--- | --------------------------------------------------------------

The Company modified its income tax statutory rate reconciliation to comply with the provisions of SFAS 109 paragraph 47. There was no effect on the assets, liabilities, stockholders equity or Statement of
Income and Comprehensive Income of the Company as a result of this change.

Further, the Company removed confusing language from its
Deferred Tax note related to tax benefits related to employee stock options.

There was no effect on the net earnings, earnings per share,
assets, liabilities, and stockholders equity.

See note 9, for amended disclosure.



|5E. | Correction of errors in Cash Flow Statements for the Fiscal Years 2003, 2004 and 2005
|--- | -------------------------------------------------------------------------------------

The Company has modified its cash flow statement to correct for disclosure inaccuracies resulting from errors in the exchange rates used to translate
foreign currency cash flows to the Companys reporting currency and to correct for an error in the reporting of the gain on settlement. The Company previously completed its cash flow statement at the consolidated level and failed to consider
the foreign currency effects appropriately. For the fiscal year ending June 30, 2005, the cash flows from operating and investing activities were understated by $221,000 and $245,000, respectively, while the cash flows from financing activities
and the effect of exchange rate changes on cash and cash equivalents were overstated by $332,000 and $134,000, respectively. For the fiscal year ending June 30, 2004, the cash flows from operating and investing activities were overstated by
$31,000 and $617,000, respectively, while the effect of exchange rate changes on cash and cash equivalents was understated by $648,000. For fiscal year ending June 30, 2003, the cash flows from operating and financing activities and the effect
of exchange rate changes on cash and cash equivalents were overstated by $289,000, $4,000 and $27,000, respectively, while the cash flow from investing activities and was understated by $320,000. There was no effect on the net income, earnings per
share, assets, liabilities, and shareholders equity.



|5F. | Correction for the misclassification of financing expenses related to assignment of accounts receivable for 2003, 2004 and 2005 and enhancement of disclosure of factored accounts
receivable.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company misclassified financing costs as operating expenses for the fiscal years 2003, 2004 and 2005
versus disclosing such costs below the line as an element of interest expense as discussed by the AICPAs Special Committee on Classification of Items of Comprehensive Income. The effect of this misclassification was an
overstatement of operating expenses and understatement of income from operations for the years ending 2003, 2004 and 2005 in the amount of $499,000, $514,000 and $429,000, respectively. There was no effect on the net income, earnings per share,
assets, liabilities or shareholders equity as a result of this change. The effect of the restatement on the Companys previously reported interim financial statements for each of the quarters in fiscal year 2004 and 2005 can be found in
Note 16 Quarterly Results of Operations (Unaudited). The Company enhanced its disclosure of accounts receivable assigned under financing agreement. The effect of this enhancement was to reduce accounts receivable and to separately
disclose the factored accounts receivable for the years ended June 30, 2003 and 2004 in the amount of $6,177 and $8,271, respectively.



|6. | LOAN RECEIVABLE
|-- | ---------------

The Company entered into a
commercial services and marketing agreement with the Companys Joint Venture participant in Peru to provide financing to assist in the Joint Ventures development of dial-around long-distance service for which the Company will process the
Joint Ventures international traffic and earn 50% of the profits generated by the business. During the year, the joint venture was terminated and an impairment on the loan for its full value of $499 was recorded leaving a balance at
June 30, 2005 of $nil. For the years ended June 30, 2005 and June 30, 2004 the Company had made advances of $54 and $285 respectively under this agreement, of which $nil ($445  June 30, 2004) is a loan receivable (see Note
20).



|7. | ADVANCES FROM TELUS COMMUNICATIONS INC. (Telus)
|-- | -----------------------------------------------

In
fiscal 2003, in return for the Companys commitment to promote its advertising and marketing activities, Telus (a third party network line provider) provided the Company with a deferral of amounts due to Telus to a total maximum value of
$3,250. The deferral was calculated as 25% of the value of monthly billed revenue to the Company by Telus in the preceding month to a maximum of $270 per month. This deferral is based on the requirement that 75% of the Companys long-distance
business is allocated to Telus.



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##### Table of Contents

Repayment of the deferred amounts commenced September 15, 2003 and ends October 15, 2005.
Repayments are a minimum of $113 per month, plus additional amounts based upon volumes. Up to June 30, 2005, the Companys monthly payments have been the minimum amount. The repayments are non-interest bearing as long as no payments are in
default, and are classified as:



|          |  |              |  |                       
|--------- |  | ------------ |  | ----------------------
|          |  | June 30,2005 |  | June 30,2004(Restated)
|          |  | $            |  | $                     
|Current   |  | 382          |  | 1,239                 
|Long-term |  |             |  | 349                   
|          |  |              |  |                       
|          |  | 382          |  | 1,588                 
|          |  |              |  |                       



|8. | OBLIGATIONS UNDER CAPITAL LEASES
|-- | --------------------------------

The
Companys capital leases are for terms of 24 to 60 months at annual interest rates ranging from 9.25% to 15.00%. The year ending June 30, 2007 includes a buyout of $243.

The future minimum lease payments as at June 30, 2005 required under the capital lease agreements are as follows:



|                              |  |      
|----------------------------- |  | -----
|                              |  | $    
|Year ending June 30, 2006     |  | 631  
|Year ending June 30, 2007     |  | 576  
|Year ending June 30, 2008     |  | 422  
|Year ending June 30, 2009     |  | 61   
|Year ending June 30, 2010     |  |     
|                              |  |      
|Total minimum lease payments  |  | 1,690
|Amounts representing interest |  | 203  
|                              |  |      
|Principal                     |  | 1,487
|Current portion               |  | 511  
|                              |  |      
|                              |  | 976  
|                              |  |      



|9. | INCOME TAXES
|-- | ------------

The domestic and international
components of earnings (loss) before income taxes are as follows:



|                             |  |                |   |  |                |   |  |                |  
|---------------------------- |  | -------------- | - |  | -------------- | - |  | -------------- | -
|                             |  | 2005(Restated) |   |  | 2004(Restated) |   |  | 2003(Restated) |  
|                             |  | $              |   |  | $              |   |  | $              |  
|United States                |  | (8,430         | ) |  | (1,167         | ) |  | (1,545         | )
|Foreign                      |  | 15,590         |   |  | 9,515          |   |  | 7,033          |  
|                             |  |                |  
|Earnings before income taxes |  | 7,160          |   |  | 8,348          |   |  | 5,488          |  
|                             |  |                |   |  |                |   |  |                |  

A reconciliation of the tax provision of the Company at the U.S. statutory rate to the provision
for income tax as reported is as follows:



|                                                                |  |                        |   |  |                        |   |  |                        |  
|--------------------------------------------------------------- |  | ---------------------- | - |  | ---------------------- | - |  | ---------------------- | -
|                                                                |  | June 30,2005(Restated) |   |  | June 30,2004(Restated) |   |  | June 30,2003(Restated) |  
|                                                                |  | $                      |   |  | $                      |   |  | $                      |  
|Earnings before income taxes                                    |  | 7,160                  |   |  | 8,348                  |   |  | 5,488                  |  
|                                                                |  |                        |   |  |                        |   |  |                        |  
|Income tax expense, based on a statutory income tax rate of 34% |  | 2,434                  |   |  | 2,838                  |   |  | 1,866                  |  
|Increase (decrease) in income taxes resulting from:             |  |                        |   |  |                        |   |  |                        |  
|Foreign tax differential                                        |  | 331                    |   |  | 202                    |   |  | 149                    |  
|State and local income tax benefit                              |  | (148                   | ) |  | (26                    | ) |  | (8                     | )
|Other                                                           |  | (220                   | ) |  | (132                   | ) |  | (8                     | )
|Provision for income taxes                                      |  | 2,397                  |   |  | 2,882                  |   |  | 1,999                  |  
|                                                                |  |                        |   |  |                        |   |  |                        |  



F-27



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##### Table of Contents

The components of the income tax expense are as follows:



|                   |  |                |   |  |                |   |  |               
|------------------ |  | -------------- | - |  | -------------- | - |  | --------------
|                   |  | 2005(Restated) |   |  | 2004(Restated) |   |  | 2003(Restated)
|                   |  | $              |   |  | $              |   |  | $             
|Current            |  |                |   |  |                |   |  |               
|United States      |  |               |   |  |               |   |  |              
|Foreign            |  | 3,147          |   |  | 752            |   |  | 1,652         
|Deferred           |  |                |   |  |                |   |  |               
|United States      |  | (2,455         | ) |  | (412           | ) |  |              
|Foreign            |  | 1,705          |   |  | 2,542          |   |  | 347           
|                   |  |                |   |  |                |   |  |               
|Income tax expense |  | 2,397          |   |  | 2,882          |   |  | 1,999         
|                   |  |                |   |  |                |   |  |               

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 have been recognized in the Companys accounts as follows:



|                                                                                                          |  |                |   |  |                |  
|--------------------------------------------------------------------------------------------------------- |  | -------------- | - |  | -------------- | -
|                                                                                                          |  | 2005(Restated) |   |  | 2004(Restated) |  
|                                                                                                          |  | $              |   |  | $              |  
|Accounting value of property and equipment in excess of tax base (tax base in excess of accounting value) |  | (1,729         | ) |  | (24            | )
|Unrealized United States tax loss carry-forward                                                           |  | 2,526          |   |  | 262            |  
|Valuation allowance                                                                                       |  |               |   |  |               |  
|                                                                                                          |  |                |   |  |                |  
|Deferred income taxes (liability)                                                                         |  | 797            |   |  | 238            |  
|                                                                                                          |  |                |   |  |                |  

The recognized loss carry forward for the year ended June 30, 2005 and June 30, 2004, is
$2,526 and $262, respectively. There was no unrecorded loss carry forwards at the end of the respective periods.

U.S. income taxes and
foreign withholding taxes are not provided for on undistributed earnings of foreign subsidiaries, as the earnings are considered to be indefinitely reinvested in the operations of such subsidiaries. The accumulated amount of these earnings was
approximately $20,918 and $10,211 for the years ended June 30, 2005 and 2004, respectively. Determination of the net amount of unrecognized U.S. income tax with respect to these earnings is not practical.

The Company has losses of approximately $7,984 available to reduce future taxable income. Such benefits will be recorded as an adjustment to the tax
provision in the year realized. The losses will expire as follows:



|     |  |      
|---- |  | -----
|     |  | $    
|2020 |  | 53   
|2021 |  | 202  
|2022 |  | 91   
|2023 |  | 268  
|2024 |  | 149  
|2025 |  | 7,221
|     |  |      
|     |  | 7,984
|     |  |      



|10. | COMMON STOCK
|--- | ------------

Common Stock, par value of
$0.01,100,000,000 shares authorized.

Series A Preferred Stock, no par value, 1,000,000 shares authorized.

On July 15, 2003, 20,000 common shares were issued, as consideration for a short-term loan in the amount of $714 due December 31, 2003, to an
unrelated party.



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##### Table of Contents

On December 30, 2003, pursuant to a stock option granted in December 2000, issued 2,260,934 shares
of its common stock to its chief executive officer and director. The option provided for the issuance of 2,568,000 shares of common stock less the surrender of 307,066 shares of common stock which was the number of shares determined by an
independent valuator on December 5, 2003, assuming a discounted market price of $5.67 per share as of November 30, 2003. The transaction was accounted for as a cashless exercise of the option as the option holder held 1,523,800 common
shares prior to December 30, 2003.

On December 31, 2003, 9,000 common shares were issued to directors for services rendered with
a value of $51.

On January 29, 2004 a two-for-one stock split of the Companys outstanding shares was distributed to shareholders
of record at January 15, 2004. For every one share of the Companys common stock held on the record date, a holder received one additional share. All share information has been adjusted retroactively for the stock split.

On March 18, 2004, 1,470,000 common shares were issued for gross proceeds of $18,008 less direct costs associated with the transaction of $997 for
net proceeds of $17,011. An additional $187 of costs were incurred in the quarter ended June 30, 2004 bringing the final net proceeds to $16,823. Attached to these shares were common stock warrants issued to purchase 367,500 shares of the
Companys common stock. These warrants have an exercise price of $17.00 and expire March 18, 2010. The warrants include a put feature that can be exercised in certain circumstances. According to the guidance of EITF No. 00-19, this feature
meets the definition of a derivative. Accordingly, the Company bifurcated the derivative from the host contract and recorded the liability at its fair value of $2,173 with a corresponding entry to stockholders equity. The warrants were valued
using the Black-Scholes option pricing model.

On October 14, 2004, 4,000 common shares were issued to directors for services rendered
of $29.



|11. | STOCK OPTION PLAN
|--- | -----------------

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



|                                                     |  |                        |   |  |                                |     
|---------------------------------------------------- |  | ---------------------- | - |  | ------------------------------ | ----
|                                                     |  | Number ofStock Options |   |  | Weighted-AverageExercise Price
|Outstanding, June 30, 2003                           |  |                       |   |  | $                              |    
|Granted (Fair value of stock upon issuance was 7.25) |  | 280,000                |   |  |                                | 6.51
|Exercised                                            |  |                       |   |  |                                |    
|Forfeited/expired                                    |  |                       |   |  |                                |    
|                                                     |  |                        |   |  |                                |     
|Outstanding, June 30, 2004                           |  | 280,000                |   |  |                                | 6.51
|Granted (Fair value of stock upon issuance was 7.30) |  | 50,000                 |   |  |                                | 6.41
|Exercised                                            |  |                       |   |  |                                |    
|Forfeited/expired                                    |  | (50,000                | ) |  |                                | 6.50
|                                                     |  |                        |   |  |                                |     
|Outstanding, June 30, 2005                           |  | 280,000                |   |  |                                | 6.50

Stock-based compensation



|                    |      |                     |         |                                                    |      |                                 |   |                   |  |                                |  |   |     
|------------------- | ---- | ------------------- | ------- | -------------------------------------------------- | ---- | ------------------------------- | - | ----------------- |  | ------------------------------ |  | - | ----
|Options Outstanding |      | Options Exercisable
|Exercise Price      |      | NumberOutstanding   |         | Weighted -AverageRemaining ContractualLife (Years) |      | Weighted- AverageExercise Price |   | NumberExercisable |  | Weighted-AverageExercise Price
|$                   | 6.41 |                     | 50,000  |                                                    | 4.19 |                                 | $ | 6.41              |  |                               |  | $ | 6.41
|$                   | 6.50 |                     | 180,000 |                                                    | 2.38 |                                 | $ | 6.50              |  | 45,000                         |  | $ | 6.50
|$                   | 6.57 |                     | 50,000  |                                                    | 3.87 |                                 | $ | 6.57              |  | 12,500                         |  | $ | 6.57

In addition to these Stock Option Plans, on December 21, 2000, nonqualified options for
2,568,000 common shares were granted to an individual who is a director and chief executive officer and are exercisable at $0.78 per share on or before December 31, 2003, or upon the sale of the Company. These options were exchanged for
2,260,934 shares of Common Stock on December 30, 2003 (see Note 10).



|12. | COMMITMENTS
|--- | -----------

The Company has operating lease
commitments for its premises, service vehicles and operating lease commitments for network access lines which expire at various dates through July 2009. The future minimum lease payments (exclusive of operating costs and payments for additional
usage) for the years ending June 30, are as follows:



|                 |  |                    |  |                          |  |                 
|---------------- |  | ------------------ |  | ------------------------ |  | ----------------
|Expiring through |  | TelecomObligations |  | Facility/RentObligations |  | OtherCommitments
|2006             |  | 4,012              |  | 530                      |  | 30              
|2007             |  | 1,899              |  | 514                      |  | 30              
|2008             |  | 353                |  | 397                      |  | 19              
|2009             |  | 106                |  | 246                      |  | 3               
|2010             |  |                   |  | 16                       |  |                



F-29



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##### Table of Contents

Under the terms of an agreement with one of their long distance providers, the Company is committed to
purchase a minimum amount of long distance services for $570 for the year ending June 30, 2006.



|13. | RELATED PARTY TRANSACTIONS
|--- | --------------------------



| | (a) | The Company paid professional fees for consulting and executive search services for the current year of $173 to a company in which Mr. Crumbo (a director and minority
shareholder) is a principal and employee. This director became a related party in October 2004. As of June 30, 2005 there was a balance of $136 owing.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | The Company paid $18 of marketing and design fees for the year ending June 30, 2005 to a former officer and minority shareholder. This former officer ceased to be a related
party as of June 30, 2004. In the years ended June 30, 2004 and 2003, $142 and $122 was paid respectively to a corporation controlled by this same former officer and minority shareholder as a related party transaction. As of June 30,
2005, 2004 and 2003 there was a balance of $nil, $41 and $117 owing respectively.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | The Company paid professional fees for legal services for the years ending June 30, 2005, 2004 and 2003 of $171, $160 and $109 respectively to a director and minority
shareholder. For the years ended June 30, 2005, 2004 and 2003 there was no balance owing.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | The Company made advances to the joint venture in Peru for the year ended June 30, 2005 and 2004 in the amount of $54 and $286. (see Note 6Loan Receivable). A minority
shareholder and director of the other joint venture participant is related to the CEO of the Company (see Note 20).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



|14. | ECONOMIC DEPENDENCE
|--- | -------------------

The Company is dependent in
Canada upon carriers to provide billing and collection services to its customers under renewable agreements. The Company is also dependent upon TELUS Communications Inc. to provide billing, transport and handling services under a renewable agreement
which expires in June 2007. Management expects that these agreements will be renewed.

The Company purchases long-distance services from a
number of carriers and does not believe that there is an economic dependence on any one carrier.



|15. | SEGMENTED AND RELATED INFORMATION
|--- | ---------------------------------

The Company has
five reportable segments: Yak Canada, Yak for Business, Contour, Yak America and VoIP. Segment sales and profit data that follow are consistent with the Companys current management reporting structure. The Yak Canada and Yak America segments
provide products such as Dial-Around, 1+, LooneyCall, YakCell and Calling Card. The Yak for Business segment provides voice and data products, including local lines, long distance, data management and point-to-point private lines. The
Contour segment provides telecommunication management services. The WorldCity VoIP segment provides VoIP services to residential customers. The Eliminations and Other column includes corporate head office assets, management fees, interest income,
warrant revaluation and any other costs and expenses not allocated to individual segments. The Companys selling, general and administrative expenses and cost of revenues, excluding corporate expense, are charged to each segment based on where
the expenses are incurred. Segment results for the periods ended June 30, 2005, 2004 and 2003 are as follows (in thousands):



|                                          |  |                                 |   |  |                 |   |  |         |  |            |   |  |               |   |  |               |  |                       |   |  |        |  
|----------------------------------------- |  | ------------------------------- | - |  | --------------- | - |  | ------- |  | ---------- | - |  | ------------- | - |  | ------------- |  | --------------------- | - |  | ------ | -
|                                          |  | Fiscal Year Ended June 30, 2005 |  
|                                          |  | YakCanada                       |   |  | Yak forBusiness |   |  | Contour |  | YakAmerica |   |  | WorldCityVoIP |   |  | TotalSegments |  | Eliminationsand other |   |  | Total  |  
|                                          |  | $                               |   |  | $               |   |  | $       |  | $          |   |  | $             |   |  | $             |  | $                     |   |  | $      |  
|Revenues                                  |  | 72,194                          |   |  | 11,753          |   |  | 5,557   |  | 3,007      |   |  | 76            |   |  | 92,587        |  | 113                   |   |  | 92,700 |  
|Cost of Revenues(1)                       |  | 41,899                          |   |  | 8,416           |   |  | 4,085   |  | 3,094      |   |  | 33            |   |  | 57,527        |  | 109                   |   |  | 57,636 |  
|                                          |  |                                 |   |  |                 |   |  |         |  |            |   |  |               |   |  |               |  |                       |   |  |        |  
|Contribution Margin                       |  | 30,295                          |   |  | 3,337           |   |  | 1,472   |  | (87        | ) |  | 43            |   |  | 35,060        |  | 4                     |   |  | 35,064 |  
|General and administration                |  | 8,767                           |   |  | 2,915           |   |  | 1,083   |  | 1,608      |   |  | 1,216         |   |  | 15,589        |  | 3,447                 |   |  | 19,036 |  
|Sales and marketing                       |  | 1,900                           |   |  | 8               |   |  |        |  | 5,358      |   |  |              |   |  | 7,266         |  | 27                    |   |  | 7,293  |  
|Other Expenses                            |  | (10                             | ) |  | 73              |   |  | 101     |  | (126       | ) |  | 390           |   |  | 428           |  | (1,796                | ) |  | (1,368 | )
|Depreciation and Amortization             |  | 2,077                           |   |  | 556             |   |  | 17      |  | 132        |   |  | 141           |   |  | 2,923         |  | 20                    |   |  | 2,943  |  
|                                          |  |                                 |   |  |                 |   |  |         |  |            |   |  |               |   |  |               |  |                       |   |  |        |  
|Segment Earnings (Loss) Before Income Tax |  | 17,561                          |   |  | (215            | ) |  | 271     |  | (7,059     | ) |  | (1,704        | ) |  | 8,854         |  | (1,694                | ) |  | 7,160  |  
|                                          |  |                                 |   |  |                 |   |  |         |  |            |   |  |               |   |  |               |  |                       |   |  |        |  
|Segment Assets                            |  | 38,029                          |   |  | 7,382           |   |  | 2,409   |  | 1,603      |   |  | 1,381         |   |  | 50,804        |  | 444                   |   |  | 51,248 |  
|Long-Lived Assets                         |  | 11,068                          |   |  | 2,705           |   |  | 286     |  | 629        |   |  | 1,379         |   |  | 16,067        |  |                      |   |  | 16,067 |  

---

|(1) | Excludes depreciation and amortization of $2,359
|--- | ------------------------------------------------



F-30



---

##### Table of Contents

|                                          |  |                                 |  |                 |   |  |         |   |  |            |   |  |               |   |  |               |  |                       |   |  |       
|----------------------------------------- |  | ------------------------------- |  | --------------- | - |  | ------- | - |  | ---------- | - |  | ------------- | - |  | ------------- |  | --------------------- | - |  | ------
|                                          |  | Fiscal Year Ended June 30, 2004
|                                          |  | YakCanada                       |  | Yak forBusiness |   |  | Contour |   |  | YakAmerica |   |  | WorldCityVoIP |   |  | TotalSegments |  | Eliminationsand other |   |  | Total 
|                                          |  | $                               |  | $               |   |  | $       |   |  | $          |   |  | $             |   |  | $             |  | $                     |   |  | $     
|Revenues                                  |  | 62,228                          |  | 11,775          |   |  | 5,646   |   |  | 1,074      |   |  |              |   |  | 80,723        |  | 79                    |   |  | 80,802
|Cost of Revenues(2)                       |  | 39,403                          |  | 8,647           |   |  | 4,018   |   |  | 1,048      |   |  |              |   |  | 53,116        |  | 33                    |   |  | 53,149
|                                          |  |                                 |  |                 |   |  |         |   |  |            |   |  |               |   |  |               |  |                       |   |  |       
|Contribution Margin                       |  | 22,825                          |  | 3,128           |   |  | 1,628   |   |  | 26         |   |  |              |   |  | 27,607        |  | 46                    |   |  | 27,653
|                                          |  |                                 |  |                 |   |  |         |  
|General and administration                |  | 5,558                           |  | 2,950           |   |  | 964     |   |  | 303        |   |  | 172           |   |  | 9,947         |  | 1,534                 |   |  | 11,481
|Sales and marketing                       |  | 3,571                           |  | 30              |   |  |        |   |  | 204        |   |  |              |   |  | 3,805         |  | 89                    |   |  | 3,894 
|Other Expenses                            |  | 2,221                           |  | 40              |   |  | (56     | ) |  | (52        | ) |  |              |   |  | 2,153         |  | (1,203                | ) |  | 950   
|Depreciation and Amortization             |  | 2,372                           |  | 472             |   |  | 60      |   |  | 62         |   |  |              |   |  | 2,966         |  | 14                    |   |  | 2,980 
|                                          |  |                                 |  |                 |   |  |         |   |  |            |   |  |               |   |  |               |  |                       |   |  |       
|Segment Earnings (Loss) Before Income Tax |  | 9,103                           |  | (364            | ) |  | 660     |   |  | (491       | ) |  | (172          | ) |  | 8,736         |  | (388                  | ) |  | 8,348 
|                                          |  |                                 |  |                 |   |  |         |   |  |            |   |  |               |   |  |               |  |                       |   |  |       
|Segment Assets                            |  | 32,487                          |  | 3,923           |   |  | 2,984   |   |  | 1,023      |   |  | 591           |   |  | 41,008        |  | 12,642                |   |  | 53,650
|Long-Lived Assets                         |  | 7,919                           |  | 2,255           |   |  | 296     |   |  | 474        |   |  | 591           |   |  | 11,535        |  | 102                   |   |  | 11,637

---

|(2) | Excludes depreciation and amortization of $2,767
|--- | ------------------------------------------------



|                                          |  |                                 |  |                 |  |         |  |            |   |  |               |  |               |  |                       |   |  |       
|----------------------------------------- |  | ------------------------------- |  | --------------- |  | ------- |  | ---------- | - |  | ------------- |  | ------------- |  | --------------------- | - |  | ------
|                                          |  | Fiscal Year Ended June 30, 2003
|                                          |  | YakCanada                       |  | Yak forBusiness |  | Contour |  | YakAmerica |   |  | WorldCityVoIP |  | TotalSegments |  | Eliminationsand other |   |  | Total 
|                                          |  | $                               |  | $               |  | $       |  | $          |   |  | $             |  | $             |  | $                     |   |  | $     
|Revenues                                  |  | 39,006                          |  |                |  |        |  | 1,398      |   |  |              |  | 40,404        |  |                      |   |  | 40,404
|Cost of Revenues(3)                       |  | 24,209                          |  |                |  |        |  | 1,194      |   |  |              |  | 25,403        |  |                      |   |  | 25,403
|                                          |  |                                 |  |                 |  |         |  |            |   |  |               |  |               |  |                       |   |  |       
|Contribution Margin                       |  | 14,797                          |  |                |  |        |  | 204        |   |  |              |  | 15,001        |  |                      |   |  | 15,001
|                                          |  |                                 |  |                 |  |         |  |           
|General and administration                |  | 2,722                           |  |                |  |        |  | 562        |   |  |              |  | 3,284         |  | 558                   |   |  | 3,842 
|Sales and marketing                       |  | 3,002                           |  |                |  |        |  | 1,141      |   |  |              |  | 4,143         |  | 64                    |   |  | 4,207 
|Other expenses                            |  | 1,149                           |  |                |  |        |  | (228       | ) |  |              |  | 921           |  | (260                  | ) |  | 661   
|Depreciation and Amortization             |  | 762                             |  |                |  |        |  | 41         |   |  |              |  | 803           |  |                      |   |  | 803   
|                                          |  |                                 |  |                 |  |         |  |            |   |  |               |  |               |  |                       |   |  |       
|Segment Earnings (Loss) Before Income Tax |  | 7,162                           |  |                |  |        |  | (1,312     | ) |  |              |  | 5,850         |  | (362                  | ) |  | 5,488 
|                                          |  |                                 |  |                 |  |         |  |            |   |  |               |  |               |  |                       |   |  |       
|Segment Assets                            |  | 27,819                          |  |                |  |        |  | 450        |   |  |              |  | 28,269        |  | (1,525                | ) |  | 26,744
|LongLived Assets                         |  | 5,567                           |  |                |  |        |  | 194        |   |  |              |  | 5,761         |  |                      |   |  | 5,761 

---

|(3) | Excludes depreciation and amortization of $687
|--- | ----------------------------------------------



F-31



---

##### Table of Contents

The Company offers, discounted long-distance services, in two geographic regions - Canada and the United
States. For the three months ended December 31, 2004, the Company also provided services to a third geographic region (primarily Peru). Summary information with respect to the Companys operations by geographic regions is as follows:



|                                  |  |                |   |  |                |   |  |                |  
|--------------------------------- |  | -------------- | - |  | -------------- | - |  | -------------- | -
|                                  |  | 2005(Restated) |   |  | 2004(Restated) |   |  | 2003(Restated) |  
|                                  |  | $              |   |  | $              |   |  | $              |  
|Net revenue                       |  |                |   |  |                |   |  |                |  
|Canada                            |  | 89,434         |   |  | 79,569         |   |  | 39,005         |  
|United States                     |  | 3,036          |   |  | 1,074          |   |  | 1,399          |  
|International                     |  | 230            |   |  | 159            |   |  |               |  
|                                  |  |                |   |  |                |   |  |                |  
|                                  |  | 92,700         |   |  | 80,802         |   |  | 40,404         |  
|                                  |  |                |   |  |                |   |  |                |  
|Earnings (loss) before income tax |  |                |   |  |                |   |  |                |  
|Canada                            |  | 15,984         |   |  | 9,518          |   |  | 7,223          |  
|                                  |  |                |  
|United States                     |  | (8,430         | ) |  | (1,167         | ) |  | (1,545         | )
|                                  |  |                |  
|International                     |  | (394           | ) |  | (3             | ) |  | (190           | )
|                                  |  |                |  
|                                  |  | 7,160          |   |  | 8,348          |   |  | 5,488          |  
|                                  |  |                |   |  |                |   |  |                |  
|                                  |  |                |  
|                                  |  | 2005(Restated) |   |  | 2004(Restated) |   |  | 2003(Restated) |  
|                                  |  | $              |   |  | $              |   |  | $              |  
|Long-lived Assets                 |  |                |   |  |                |   |  |                |  
|Canada                            |  | 15,438         |   |  | 11,061         |   |  | 5,567          |  
|United States                     |  | 629            |   |  | 576            |   |  | 194            |  
|International                     |  |               |   |  |               |   |  |               |  
|                                  |  |                |  
|                                  |  | 16,067         |   |  | 11,637         |   |  | 5,761          |  
|                                  |  |                |   |  |                |   |  |                |  

The Canadian assets include goodwill as at June 30, 2005 and June 30, 2004 of $503 and
$458 respectively and other intangibles of $2,005 and $1,585 respectively.

Loss before income taxes in the United States includes
corporate head office costs and expenses not allocated to segments.

In accordance with FAS 131, the asset segment includes all long-lived
assets other than financial instruments, deferred acquisition costs and deferred tax assets for the current year.



|16. | QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
|--- | -------------------------------------------

At
June 30, 2005, the Company restated the amounts previously reported in its financial statements as of and for the year ended June 30, 2004 as well as each of the quarters in fiscal years 2005 and 2004. All applicable amounts relating to
these restatements have been reflected in the consolidated financial statements and these notes to the consolidated financial statements. See Note 5 for further information relating to the restatements. Comparative earnings per share figures have
been adjusted to reflect the stock split on January 29, 2004.



F-32



---

##### Table of Contents

|                                         |  |               |  |                                      |  |               |  |                |  |             |  |             |  |             |  |            
|---------------------------------------- |  | ------------- |  | ------------------------------------ |  | ------------- |  | -------------- |  | ----------- |  | ----------- |  | ----------- |  | -----------
|                                         |  |               |  | Fiscal 2005  For the Quarters Ended |  |              
|                                         |  | First Quarter |  | Second Quarter                       |  | Third Quarter |  | Fourth Quarter
|                                         |  | As Reported   |  | As Restated                          |  | As Reported   |  | As Restated    |  | As Reported |  | As Restated |  | As Reported |  | As Restated
|                                         |  | $             |  | Note 5 $                             |  | $             |  | Note 5 $       |  | $           |  | Note 5 $    |  | $           |  | Note 5 $   
|Assets                                   |  |               |  |                                      |  |               |  |                |  |             |  |             |  |             |  |            
|Total current assets                     |  | 39,043        |  | 39,043                               |  | 38,718        |  | 38,718         |  | 37,836      |  | 37,836      |  | 34,384      |  | 34,384     
|Joint venture receivable                 |  | 3,976         |  | 2,782                                |  | 3,904         |  | 2,759          |  |            |  |            |  |            |  |           
|Property & Equipment, Net                |  | 11,993        |  | 11,837                               |  | 12,556        |  | 12,399         |  | 12,694      |  | 12,538      |  | 13,559      |  | 13,559     
|Loan Receivable                          |  | 414           |  | 414                                  |  | 200           |  | 200            |  |            |  |            |  |            |  |           
|Net Intangibles and Goodwill             |  | 2,085         |  | 2,085                                |  | 2,109         |  | 2,109          |  | 2,680       |  | 2,680       |  | 2,508       |  | 2,508      
|Deferred Income Taxes                    |  | 321           |  | 321                                  |  | 366           |  | 366            |  | 924         |  | 924         |  | 797         |  | 797        
|                                         |  |               |  |                                      |  |               |  |                |  |             |  |             |  |             |  |            
|Total Assets                             |  | 57,832        |  | 56,482                               |  | 57,853        |  | 56,551         |  | 54,134      |  | 53,978      |  | 51,248      |  | 51,248     
|                                         |  |               |  |                                      |  |               |  |               
|Current Liabilities                      |  |               |  |                                      |  |               |  |                |  |             |  |             |  |             |  |            
|Accounts Payable and Accrued Liabilities |  | 11,876        |  | 11,876                               |  | 9,317         |  | 9,317          |  | 10,220      |  | 10,220      |  | 11,891      |  | 11,891     
|Due to Factor                            |  | 5,298         |  | 5,298                                |  | 5,790         |  | 5,790          |  | 4,095       |  | 4,095       |  |            |  |           
|Income Taxes Payable                     |  | 1,940         |  | 1,908                                |  | 2,516         |  | 2,503          |  | 3,829       |  | 3,813       |  | 3,547       |  | 3,547      
|Current portion of long term debt        |  | 1,932         |  | 1,932                                |  | 1,670         |  | 1,670          |  | 1,255       |  | 1,255       |  | 893         |  | 893        
|Deferred Revenue                         |  | 1,110         |  | 0                                    |  | 1,110         |  |               |  |            |  |            |  |            |  |           
|Unearned Revenue                         |  | 1,000         |  | 1,000                                |  | 998           |  | 998            |  | 1,183       |  | 1,183       |  | 1,096       |  | 1,096      
|Obligation Under Warrants                |  |              |  | 1,373                                |  |              |  | 1,259          |  |            |  | 789         |  |            |  | 1,093      
|Long Term Debt                           |  |               |  |                                      |  |               |  |                |  |             |  |             |  |             |  |            
|Advances from TELUS Commun. Inc.         |  | 42            |  | 42                                   |  |              |  |               |  |            |  |            |  |            |  |           
|Obligations under capital leases         |  | 1,297         |  | 1,297                                |  | 1,234         |  | 1,234          |  | 1,106       |  | 1,106       |  | 977         |  | 977        
|Note Payable                             |  | 4,054         |  | 3,904                                |  | 4,186         |  | 4,034          |  |            |  |            |  |            |  |           
|                                         |  |               |  |                                      |  |               |  |                |  |             |  |             |  |             |  |            
|                                         |  | 28,549        |  | 28,630                               |  | 26,821        |  | 26,805         |  | 21,688      |  | 22,461      |  | 18,404      |  | 19,497     
|                                         |  |               |  |                                      |  |               |  |               
|Common Stock & Paid-In Capital           |  | 19,253        |  | 17,080                               |  | 19,291        |  | 17,118         |  | 19,331      |  | 17,158      |  | 19,350      |  | 17,177     
|Accumulated Comprehensive Income         |  | 634           |  | 634                                  |  | 1,100         |  | 1,100          |  | 913         |  | 913         |  | 1,343       |  | 1,343      
|Retained Earnings                        |  | 9,396         |  | 10,138                               |  | 10,641        |  | 11,528         |  | 12,202      |  | 13,446      |  | 12,151      |  | 13,231     
|                                         |  |               |  |                                      |  |               |  |               
|Total Liab. and Shareholders Equity     |  | 57,832        |  | 56,482                               |  | 57,853        |  | 56,551         |  | 54,134      |  | 53,978      |  | 51,248      |  | 51,248     



|                                                  |  |               |   |  |                |   |  |               |   |  |                |   |  |             |   |  |             |   |  |             |   |  |             |  
|------------------------------------------------- |  | ------------- | - |  | -------------- | - |  | ------------- | - |  | -------------- | - |  | ----------- | - |  | ----------- | - |  | ----------- | - |  | ----------- | -
|                                                  |  | First Quarter |   |  | Second Quarter |   |  | Third Quarter |   |  | Fourth Quarter |  
|                                                  |  | As Reported   |   |  | As Restated    |   |  | As Reported   |   |  | As Restated    |   |  | As Reported |   |  | As Restated |   |  | As Reported |   |  | As Restated |  
|                                                  |  | $             |   |  | Note 5 $       |   |  | $             |   |  | Note 5 $       |   |  | $           |   |  | Note 5 $    |   |  | $           |   |  | Note 5 $    |  
|Net revenue                                       |  | 21,197        |   |  | 21,197         |   |  | 24,153        |   |  | 24,153         |   |  | 23,850      |   |  | 23,850      |   |  | 23,500      |   |  | 23,500      |  
|Contribution Margin(1)                            |  | 7,439         |   |  | 7,439          |   |  | 9,532         |   |  | 9,532          |   |  | 9,052       |   |  | 9,052       |   |  | 9,041       |   |  | 9,041       |  
|Income from Operations                            |  | 2,154         |   |  | 2,276          |   |  | 2,004         |   |  | 2,064          |   |  | 1,058       |   |  | 1,192       |   |  | 147         |   |  | 260         |  
|Other Expenses (Income)                           |  |               |   |  |                |   |  |               |   |  |                |   |  |             |   |  |             |   |  |             |   |  |             |  
|Interest expense                                  |  | 142           |   |  | 264            |   |  | 154           |   |  | 214            |   |  | 153         |   |  | 286         |   |  | 17          |   |  | 130         |  
|Interest earned                                   |  | (78           | ) |  | (78            | ) |  | (105          | ) |  | (105           | ) |  | (117        | ) |  | (117        | ) |  | (107        | ) |  | (107        | )
|Income from joint marketing agreement             |  | (93           | ) |  | (141           | ) |  | (92           | ) |  | (140           | ) |  | (87         | ) |  | (135        | ) |  | (5          | ) |  | (5          | )
|Long-term debt discount amortization              |  | 132           |   |  | 131            |   |  | 132           |   |  | 130            |   |  | 132         |   |  | 130         |   |  |            |   |  |            |  
|Change in fair value of obligation under warrants |  |              |   |  | (303           | ) |  |              |   |  | (114           | ) |  |            |   |  | (470        | ) |  |            |   |  | 304         |  
|Gain on settlement                                |  |              |   |  |               |   |  |              |   |  |               |   |  | (1,447      | ) |  | (1,242      | ) |  |            |   |  |            |  
|                                                  |  |               |   |  |                |   |  |               |   |  |                |   |  |             |   |  |             |   |  |             |   |  |             |  
|Earnings Before Income Tax                        |  | 2,051         |   |  | 2,404          |   |  | 1,915         |   |  | 2,079          |   |  | 2,424       |   |  | 2,740       |   |  | 242         |   |  | (63         | )
|Provision for Income Tax                          |  | 717           |   |  | 734            |   |  | 671           |   |  | 689            |   |  | 863         |   |  | 822         |   |  | 152         |   |  | 152         |  
|                                                  |  |               |   |  |                |   |  |               |   |  |                |   |  |             |   |  |             |   |  |             |   |  |             |  
|Net earnings                                      |  | 1,334         |   |  | 1,670          |   |  | 1,244         |   |  | 1,390          |   |  | 1,561       |   |  | 1,918       |   |  | 90          |   |  | (215        | )
|                                                  |  |               |   |  |                |   |  |               |   |  |                |   |  |             |   |  |             |   |  |             |   |  |             |  
|Earnings per share -                              |  |               |   |  |                |   |  |               |   |  |                |   |  |             |   |  |             |   |  |             |   |  |             |  
|Basic - EPS                                       |  | 0.10          |   |  | 0.13           |   |  | 0.10          |   |  | 0.11           |   |  | 0.12        |   |  | 0.15        |   |  | 0.01        |   |  | (0.02       | )
|Diluted - EPS                                     |  | 0.10          |   |  | 0.13           |   |  | 0.10          |   |  | 0.11           |   |  | 0.12        |   |  | 0.15        |   |  | 0.01        |   |  | (0.02       | )

---

|(1) | Excludes depreciation and amortization of $2,359, $2,767 and $687 respectively.
|--- | -------------------------------------------------------------------------------



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##### Table of Contents

|                                           |  |               |  |                                      |  |               |  |                |  |             |  |             |  |             |  |            
|------------------------------------------ |  | ------------- |  | ------------------------------------ |  | ------------- |  | -------------- |  | ----------- |  | ----------- |  | ----------- |  | -----------
|                                           |  |               |  | Fiscal 2004 - For the Quarters Ended |  |              
|                                           |  | First Quarter |  | Second Quarter                       |  | Third Quarter |  | Fourth Quarter
|                                           |  | As Reported   |  | As Restated                          |  | As Reported   |  | As Restated    |  | As Reported |  | As Restated |  | As Reported |  | As Restated
|                                           |  | $             |  | Note 5 $                             |  | $             |  | Note 5 $       |  | $           |  | Note 5 $    |  | $           |  | Note 5 $   
|Assets                                     |  |               |  |                                      |  |               |  |                |  |             |  |             |  |             |  |            
|Total current assets                       |  | 18,184        |  | 18,184                               |  | 19,669        |  | 19,669         |  | 38,373      |  | 38,373      |  | 38,523      |  | 38,523     
|Joint venture receivable                   |  | 4,894         |  | 3,168                                |  | 4,801         |  | 3,141          |  | 4,707       |  | 3,112       |  | 4,046       |  | 2,805      
|Property & Equipment, Net                  |  | 7,194         |  | 7,037                                |  | 7,407         |  | 7,249          |  | 8,633       |  | 8,476       |  | 9,753       |  | 9,596      
|Loan Receivable                            |  | 251           |  | 251                                  |  | 379           |  | 379            |  | 416         |  | 416         |  | 445         |  | 445        
|Deferred Acquisition Costs                 |  |              |  |                                     |  |              |  |               |  | 228         |  | 228         |  |            |  |           
|Investment in affiliate                    |  | 435           |  | 435                                  |  | 406           |  | 406            |  | 490         |  | 490         |  |            |  |           
|Net Intangibles and Goodwill               |  | 2,275         |  | 2,275                                |  | 2,339         |  | 2,339          |  | 2,214       |  | 2,214       |  | 2,043       |  | 2,043      
|Deferred Income Taxes                      |  | 1,520         |  | 1,520                                |  | 708           |  | 708            |  | 43          |  | 43          |  | 238         |  | 238        
|                                           |  |               |  |                                      |  |               |  |                |  |             |  |             |  |             |  |            
|Total Assets                               |  | 34,753        |  | 32,870                               |  | 35,709        |  | 33,891         |  | 55,104      |  | 53,352      |  | 55,048      |  | 53,650     
|Current Liabilities                        |  |               |  |                                      |  |               |  |                |  |             |  |             |  |             |  |            
|Accounts Payable and Accrued Liabilities   |  | 10,989        |  | 10,989                               |  | 11,198        |  | 11,198         |  | 13,318      |  | 13,318      |  | 11,509      |  | 11,509     
|Due to Factor                              |  | 4,687         |  | 4,687                                |  | 5,306         |  | 5,306          |  | 5,453       |  | 5,453       |  | 5,658       |  | 5,658      
|Income Taxes Payable                       |  | 1,405         |  | 1,417                                |  | 1,041         |  | 1,065          |  | 432         |  | 468         |  | 1,234       |  | 1,185      
|Current portion of long term debt          |  | 2,434         |  | 2,434                                |  | 1,684         |  | 1,684          |  | 1,632       |  | 1,632       |  | 1,827       |  | 1,827      
|Deferred Revenue                           |  | 974           |  | 974                                  |  | 1,028         |  | 1,028          |  | 1,012       |  | 1,012       |  | 1,110       |  |           
|Unearned Revenue                           |  |              |  |                                     |  |              |  |               |  |            |  |            |  | 951         |  | 951        
|Obligation Under Warrant                   |  |              |  |                                     |  |              |  |               |  |            |  | 2,164       |  |            |  | 1,676      
|Long Term Debt                             |  |               |  |                                      |  |               |  |                |  |             |  |             |  |             |  |            
|Advances from TELUS Commun. Inc.           |  | 1,270         |  | 1,270                                |  | 1,006         |  | 1,006          |  | 677         |  | 677         |  | 349         |  | 349        
|Obligations under capital leases           |  | 15            |  | 15                                   |  | 10            |  | 10             |  | 67          |  | 67          |  | 1,073       |  | 1,073      
|Note Payable                               |  | 5,486         |  | 3,568                                |  | 5,501         |  | 3,614          |  | 5,517       |  | 3,662       |  | 3,922       |  | 3,774      
|                                           |  |               |  |                                      |  |               |  |                |  |             |  |             |  |             |  |            
|                                           |  | 27,260        |  | 25,354                               |  | 26,774        |  | 24,911         |  | 28,108      |  | 28,453      |  | 27,633      |  | 28,002     
|                                           |  |               |  |                                      |  |               |  |               
|Common Stock & Paid-In Capital             |  | 2,340         |  | 2,340                                |  | 2,394         |  | 2,394          |  | 19,416      |  | 17,243      |  | 19,240      |  | 17,067     
|Accumulated Comprehensive Income           |  | 473           |  | 473                                  |  | 709           |  | 709            |  | 617         |  | 617         |  | 113         |  | 113        
|Retained Earnings                          |  | 4,680         |  | 4,703                                |  | 5,832         |  | 5,877          |  | 6,963       |  | 7,039       |  | 8,062       |  | 8,468      
|                                           |  |               |  |                                      |  |               |  |                |  |             |  |             |  |             |  |            
|Total Liabilities and Shareholders Equity |  | 34,753        |  | 32,870                               |  | 35,709        |  | 33,891         |  | 55,104      |  | 53,352      |  | 55,048      |  | 53,650     



F-34



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##### Table of Contents

|                                                  |  |               |   |  |                                      |   |  |               |   |  |                |   |  |             |   |  |             |   |  |             |   |  |             |  
|------------------------------------------------- |  | ------------- | - |  | ------------------------------------ | - |  | ------------- | - |  | -------------- | - |  | ----------- | - |  | ----------- | - |  | ----------- | - |  | ----------- | -
|                                                  |  |               |   |  | Fiscal 2004 - For the Quarters Ended |   |  |               |  
|                                                  |  | First Quarter |   |  | Second Quarter                       |   |  | Third Quarter |   |  | Fourth Quarter |  
|                                                  |  | As Reported   |   |  | As Restated                          |   |  | As Reported   |   |  | As Restated    |   |  | As Reported |   |  | As Restated |   |  | As Reported |   |  | As Restated |  
|                                                  |  |               |   |  | Note 5                               |   |  |               |   |  | Note 5         |   |  |             |   |  | Note 5      |   |  |             |   |  | Note 5      |  
|                                                  |  | $             |   |  | $                                    |   |  | $             |   |  | $              |   |  | $           |   |  | $           |   |  | $           |   |  | $           |  
|Net Revenue                                       |  | 18,791        |   |  | 18,791                               |   |  | 20,240        |   |  | 20,240         |   |  | 21,465      |   |  | 21,465      |   |  | 20,306      |   |  | 20,306      |  
|Contribution Margin                               |  | 6,595         |   |  | 6,595                                |   |  | 6,944         |   |  | 6,944          |   |  | 7,098       |   |  | 7,098       |   |  | 7,018       |   |  | 7,018       |  
|Income from Operations                            |  | 2,639         |   |  | 2,833                                |   |  | 2,059         |   |  | 2,246          |   |  | 1,828       |   |  | 1,972       |   |  | 1,856       |   |  | 1,934       |  
|Other Expenses (Income)                           |  |               |   |  |                                      |   |  |               |   |  |                |   |  |             |   |  |             |   |  |             |   |  |             |  
|Interest expense                                  |  | 139           |   |  | 265                                  |   |  | 136           |   |  | 255            |   |  | 134         |   |  | 256         |   |  | 137         |   |  | 194         |  
|Interest earned                                   |  | (20           | ) |  | (20                                  | ) |  | (18           | ) |  | (18            | ) |  | (33         | ) |  | (33         | ) |  | (88         | ) |  | (88         | )
|Income from joint marketing agreement             |  | (71           | ) |  | (136                                 | ) |  | (70           | ) |  | (136           | ) |  | (69         | ) |  | (135        | ) |  | (67         | ) |  | (133        | )
|Long-term debt discount amortization              |  | 80            |   |  | 134                                  |   |  | 80            |   |  | 134            |   |  | 80          |   |  | 134         |   |  | 80          |   |  | 134         |  
|Change in fair value of obligation under warrants |  |              |   |  |                                     |   |  |              |   |  |               |   |  |            |   |  | (9          | ) |  |            |   |  | (488        | )
|Other expenses                                    |  | 35            |   |  | 80                                   |   |  | 30            |   |  | 75             |   |  | 34          |   |  | 34          |   |  | (138        | ) |  | 139         |  
|                                                  |  |               |   |  |                                      |   |  |               |   |  |                |   |  |             |   |  |             |   |  |             |   |  |             |  
|Earnings Before Income Tax                        |  | 2,476         |   |  | 2,511                                |   |  | 1,901         |   |  | 1,936          |   |  | 1,682       |   |  | 1,725       |   |  | 1,932       |   |  | 2,176       |  
|Provision for Income Tax                          |  | 797           |   |  | 810                                  |   |  | 750           |   |  | 762            |   |  | 551         |   |  | 563         |   |  | 833         |   |  | 747         |  
|                                                  |  |               |   |  |                                      |   |  |               |   |  |                |   |  |             |   |  |             |   |  |             |   |  |             |  
|Net earnings                                      |  | 1,679         |   |  | 1,701                                |   |  | 1,151         |   |  | 1,174          |   |  | 1,131       |   |  | 1,162       |   |  | 1,099       |   |  | 1,429       |  
|                                                  |  |               |   |  |                                      |   |  |               |   |  |                |   |  |             |   |  |             |   |  |             |   |  |             |  
|Earnings per share -                              |  |               |   |  |                                      |   |  |               |   |  |                |   |  |             |   |  |             |   |  |             |   |  |             |  
|Basic - EPS                                       |  | 0.15          |   |  | 0.15                                 |   |  | 0.13          |   |  | 0.13           |   |  | 0.10        |   |  | 0.10        |   |  | 0.10        |   |  | 0.13        |  
|Diluted - EPS                                     |  | 0.14          |   |  | 0.14                                 |   |  | 0.10          |   |  | 0.10           |   |  | 0.10        |   |  | 0.10        |   |  | 0.10        |   |  | 0.13        |  



|17. | EARNINGS PER SHARE
|--- | ------------------

Basic earnings per share is
determined by dividing net income applicable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share amounts are similarly computed, but include the effect, when dilutive, of the
Companys weighted average number of stock options outstanding. Potentially dilutive common stock purchase warrants have not been considered in the computation of earnings per share in fiscal 2005 and 2004 because the effect would be
antidilutive.

Earnings per share for the years ended June 30, 2005, 2004 and 2003 are calculated as follows:



|                                                             |  |                 |  |                |  |               
|------------------------------------------------------------ |  | --------------- |  | -------------- |  | --------------
|                                                             |  | 2005 (Restated) |  | 2004(Restated) |  | 2003(Restated)
|                                                             |  | $               |  | $              |  | $             
|Net earnings applicable to common stockholders - basic       |  | 4,763           |  | 5,466          |  | 3,489         
|                                                             |  |                 |  |                |  |               
|Net earnings applicable to common stockholders - diluted     |  | 4,763           |  | 5,466          |  | 3,489         
|                                                             |  |                 |  |                |  |               
|Average shares outstanding:                                  |  |                 |  |                |  |               
|Weighted average number of common shares outstanding - basic |  | 12,895          |  | 10,706         |  | 9,328         
|Effect of dilutive securities:                               |  |                 |  |                |  |               
|Stock options                                                |  | 6               |  | 699            |  | 2,568         
|                                                             |  |                 |  |                |  |               
|                                                             |  | 12,901          |  | 11,405         |  | 11,896        
|                                                             |  |                 |  |                |  |               
|Basic earnings per share                                     |  | 0.37            |  | 0.51           |  | 0.37          
|                                                             |  |                 |  |                |  |               
|Diluted earnings per share                                   |  | 0.37            |  | 0.48           |  | 0.29          
|                                                             |  |                 |  |                |  |               



|18. | CONTINGENCIES
|--- | -------------

Various lawsuits and claims are
pending against the Company and estimated provisions have been included in current liabilities where appropriate. It is the opinion of management that the final determination of these claims will not have a material adverse effect on the financial
position on the results of the Company.



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##### Table of Contents

|19. | STATEMENT OF CASH FLOWS
|--- | -----------------------

The following recap
presents the detail of the net change in assets and liabilities presented in the statement of cash flows for the years ended June 30, 2005, 2004 and 2003:



|                                         |  |                        |   |  |                        |   |  |                        |  
|---------------------------------------- |  | ---------------------- | - |  | ---------------------- | - |  | ---------------------- | -
|                                         |  | June 30,2005(Restated) |   |  | June 30,2004(Restated) |   |  | June 30,2003(Restated) |  
|                                         |  | $                      |   |  | $                      |   |  | $                      |  
|Decrease (increase) in:                  |  |                        |   |  |                        |   |  |                        |  
|Accounts receivable                      |  | (7,966                 | ) |  | (4,276                 | ) |  | (1,735                 | )
|Factored accounts receivable             |  | 8,838                  |   |  | (2,033                 | ) |  | (1,688                 | )
|Prepaid expenses and sundry              |  | (615                   | ) |  | (14                    | ) |  | (228                   | )
|Income taxes recoverable                 |  |                       |   |  |                       |   |  |                       |  
|Increase (decrease) in:                  |  |                        |   |  |                        |   |  |                        |  
|Deferred revenue                         |  | 56                     |   |  | 952                    |   |  |                       |  
|Accounts payable and accrued liabilities |  | (219                   | ) |  | 3,966                  |   |  | 2,642                  |  
|Income taxes payable                     |  | 2,268                  |   |  | (537                   | ) |  | 1,534                  |  
|Due to Factor                            |  | (6,245                 | ) |  | 962                    |   |  | 1,166                  |  
|Add: Net assets acquired from Contour    |  |                       |   |  | 1,296                  |   |  |                       |  
|                                         |  |                        |   |  |                        |   |  |                        |  
|                                         |  | (3,883                 | ) |  | 316                    |   |  | 1,691                  |  
|                                         |  |                        |   |  |                        |   |  |                        |  



|20. | SUBSEQUENT EVENTS
|--- | -----------------

Subsequent to year end, the
Company entered into a settlement agreement with its joint venture participant in Peru to terminate the venture and discontinue its operations. Accordingly, subsequent to the year ended June 30, 2005, the Company has written off its
proportionate share of assets and liabilities of the joint venture resulting in a further impairment of $85, concurrent with the discontinuation of the joint venture.



F-36



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##### Table of Contents

EXHIBIT INDEX



|            |  |                                                                                                                                                       
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION OF DOCUMENT                                                                                                                               
|23          |  | Consent of Horwath Orenstein LLP.                                                                                                                     
|            | 
|31.1        |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer                                                                                     
|            | 
|31.2        |  | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer                                                                                 
|            | 
|32.1        |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.    
|            | 
|32.2        |  | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.