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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  FORM 1O-KSB ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 COMMISSION FILE NUMBER
0-25124 SPANTEL COMMUNICATIONS INC. 
 5192 10th Avenue North, Suite D Lake Worth, FL 33463 Telephone Number (804) 967-4258 Securities registered under Section 12(g) of the Exchange Act: Common Stock
($.001 par value). CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(D) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ] CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405 OF
REGULATION S-B CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE CONTAINED, TO
THE BEST OF REGISTRANTS KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENT
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB OR ANY AMENDMENT TO
THIS FORM 10-KSB. [X] STATE ISSUERS REVENUES FOR ITS MOST RECENT FISCAL YEAR: $16,446,832 AGGREGATE
MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES AS OF DECEMBER 31,
2003: $4,781,168. AS OF DECEMBER 31, 2003, THERE ARE 30,211,740 SHARES OF COMMON STOCK
OUTSTANDING. THE ISSUER HAS NO OTHER CLASSES OF STOCK OUTSTANDING.




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2003 ANNUAL REPORT ON FORM 10-KSB TABLE OF CONTENTS PART IItem 1.
    
    Description of BusinessItem 2.
    
    Description of PropertyItem 3.
    
    Legal ProceedingsItem 4.
    
    Submission of Matters to a Vote of Security HoldersPART IIItem 5.
    
    Market for Common Equity and Related Stockholder MattersItem 6.
    
    Managements Discussion and Analysis or Plan of OperationItem 7.
    
    Financial StatementsItem 8.
    
    Changes and Disagreements with Accountants on Accounting and Financial DisclosuresPART IIIItem 9.
    
    Directors and Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange ActItem 10.
    
    Executive CompensationItem 11.
    
    Security Ownership of Certain Beneficial Owners and ManagementItem 12.
    
    Certain Relationships and Related TransactionsItem 13.
    
    Exhibits, List and Reports on Form 8-KItem 14
    
    Controls and proceduresCEO CERTIFICATIONCFO CERTIFICATIONSec. 906 Certification by Chief Executive OfficerSec. 906 Certification by Chief Financial Officer




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PART I 
 ITEM 1. DESCRIPTION OF BUSINESS A. BUSINESS DEVELOPMENT We were incorporated pursuant to the Canada Business Corporations Act on May
17, 1984 under the name 133,166 Canada Inc and subsequently changed our name,
as follows: Effective Date of Name Change
    
    New NameOctober 28, 1986
    
    Eleven Business Acquisitions, Inc.July 23, 1990
    
    Ivana Capital CorporationSeptember 29, 1992
    
    First Ivana Technologies, LtdMarch 30, 1993
    
    VitaMed Pharmaceuticals, LtdJuly 12, 1993
    
    Receptagen, LtdOctober 30, 2001
    
    Spantel Communications, Inc
 We are a reporting issuer and our common shares have been listed on the OTC.BB
under the symbol SPAL. Our shares have been traded on the Over the Counter
Bulletin Board (OTCBB) since July 3, 2001. Reverse Take-Over of Spantel Communications, Inc. (the Transaction): On July
12, 2001, our shareholders approved the Transaction at a shareholders meeting
duly held in accordance with applicable law. The terms of the Transaction
called for the acquisition by us of all (100%) of the issued and outstanding
common shares of Spantel Communications Inc. (SCI). SCI is the parent company
of Spantel 2000 S.A., a Spanish company engaged in the business of providing
long-distance telephone service in Spain. Pursuant to and as a condition of the Transaction, we issued 16,500,000
post-consolidated common shares to the shareholders of SCI in exchange for 100%
of the SCI common shares. An additional condition of the Transaction was a
settlement of certain obligations, whereby we eliminated $528,399 of our
outstanding debt. Additionally, a 10:1 share consolidation took place on
October 16, 2001, prior to the acquisition of SCI, as approved at the
shareholders meeting held on July 12, 2001. As a result of the 10:1 share
consolidation, we had 1,193,636 common shares issued and outstanding
immediately prior to the issuance of a further 16,500,000 common shares for the
acquisition of SCI. Prior to the shareholders meeting, all of our shareholders received a
Management Information Circular, which provided information to enable our
shareholders to make informed decisions concerning the Transaction. Domestication in the State of Florida On October 18, 2001, we completed our domestication and incorporation in the
State of Florida, transferring our charter from Canadian federal jurisdiction.




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Name Change On October 18, 2001 we filed appropriate documents with the State of Florida
changing our name from Receptagen Ltd. to Spantel Communications, Inc. The
name change became effective on October 30, 2001. B. BUSINESS OF ISSUER Products and Services We are a provider of discount long distance telephone service and are
headquartered in Fuengirola, Spain. The Company had been headquartered in
Madrid, Spain from its inception until November 30, 2002 when all executive
activities were relocated. We market our services primarily to a broad base of
customers that includes small to medium enterprises and larger corporations,
governmental entities, educational institutions, and residential consumers. Our
objective is to become the leading alternative operator in the Spanish
telecommunications market. We believe that we can become an industry leader by (1) developing, marketing
and delivering the premier discount long distance service in the industry
through our sales and service-driven organization; and (2) leveraging our
industry experience and strategic relationships within the telecommunications
arena to provide us with competitive advantages in the areas of
telecommunications acquisition and distribution, call management and
maintenance, sales, marketing and customer services. Our philosophy is to grow
our business by investing in marketing, and delivering our services rather than
investing substantial resources in costly centralized facilities or buying
market share through premium-priced acquisitions. We have ancillary proprietary products and services to enhance our customer
base in order to achieve maximum penetration and revenue. These products and
services include (1) SPANSURF.COM(R), our free Internet Service Provider and
Portal, (2) SPANTEL TECNICA(R), a service providing in-house technical support
and equipment sales/installations of telephone equipment and end user systems. We have conducted substantial research of the discount long distance industry.
We have also engaged various professionals to assist us in areas of industry
and competitive analysis, strategy formulation and corporate development. In a
short period of time, we have attracted a well-regarded and experienced
management team and board of directors with executive management and
entrepreneurial credentials as well as significant telecommunications industry
experience. We have also developed several strategic relationships within the
industry that we believe uniquely position us to capitalize on the growing
demand for discount long distance services. Customers Our prospective customer base is essentially comprised of anyone who has a
fixed line telephone in Spain. Customers are small and large businesses,
government agencies, single family residences and resort




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facilities. Currently, the customer base is made up primarily of residential
and business users, with some entry being made into government facilities. Competition Telefonica has monopolized the telecommunications industry in Spain since phone
service was established approximately 75 years ago. Between 1924 and 1999
telecommunications costs in Spain were some of the highest in all of Europe and
probably would have remained there had it not been for the creation of the
European Union. In the 1990s many of Europes premier countries agreed to
major changes in the way the countries were governed and how businesses were
operated as a condition of entry. Utilities, such as telephone companies were
the first to be deregulated in order to rid the countries of costly monopolies
that hinder economic growth. Competition in long distance telecommunications
has been proven all over the world to lower prices and increase the services
available. The telecommunications industry consists of numerous sectors that include:
local loop, provincial and inter-provincial calls, international calls, calling
cards, data transmission, point-to-point, voice over IP, video conferencing and
the Internet, to name just a few. While the voice telecommunications industry
is considered mature, the Internet and data transmission and video conferencing
sectors are considered to be in their infancy in Spain. 
 ITEM 2. DESCRIPTION OF PROPERTY Our Fuengirola Office, located in Malaga, Spain consists of approximately 2,000
square meters at a rate of 10,720 Euros/Month (USD$13,782 /Month) expiring
January 2005.This office was leased from January to October 2003 from related
party ABC Telemarketing S.L. and since November 2003 was leased from a third
party. Our Madrid Office, located in Madrid, Spain consists of approximately 20 square
meters at a rate of 950 Euros/Month (USD $1,083 /Month) expiring November 2008. The monthly rental rate of each of the above properties is based on the
Consumer Price Index of Spain and is adjusted based on such on a yearly basis. 
 ITEM 3. LEGAL PROCEEDINGS To our knowledge, as of December 31, 2003 there were no legal proceedings
currently threatened or pending against us or our property or subsidiaries. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fiscal year covered by this report, no matters were submitted to a
vote of our security holders, through the solicitation of proxies or otherwise. 
 PART II




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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a). Market Information. There has been a trading market on NASDAQs OTC
Bulletin Board for our common stock since July 3, 2002 under the symbol
SPAL.OB. The trading activity has been generally sporadic and the price has
dropped significantly since trading began. The reported high and low sale
prices for the common stock are shown below for the periods indicated. The
prices reflect inter  dealer prices, without retail mark-up, mark down or
commissions, may not always represent actual transactions. There can be no
assurance that an active trading market will ever develop or if such a market
does develop, that it will continue. High
    
    LowFiscal 2003First Quarter (01/01/03  03/31/03)
    
    
    0.24
    
    
    
    0.07Second Quarter (04/01/03  06/30/03)
    
    
    0.12
    
    
    
    0.03Third Quarter (07/01/03  09/31/03)
    
    
    0.34
    
    
    
    0.08Fourth Quarter (10/01/03  12/31/03)
    
    
    0.50
    
    
    
    0.17Fiscal 2002Third Quarter (07/03/02)- 09/30/02
    
    
    4.00
    
    
    
    0.32Fourth Quarter(10/01/02)- 12/31/02
    
    
    0.38
    
    
    
    0.10
 (b) Holders. As of December 31, 2003 there were 1,332 shareholders of
record. (c) Dividends. There have been no dividends declared on our outstanding
common stock for the last three (3) fiscal years. (d) Recent Sales of Unregistered Stock. We have not executed any sales of
unregistered securities in the last three years. In September, 2001, we issued
4,115,110 shares of our common stock for
shareholder loans in the amount of $4,115,110. On December 30, 2003, we
issued 8,352,994 shares of our common stock for the
assumption of debt payable to a related party in the amount of $1,503,539.




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ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Forward-Looking Statements May Not Prove Accurate When used in this Form 10-KSB, the words anticipated, estimate, expect
and other similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks, uncertainties and
assumptions including the possibility that we will fail to generate projected
revenues. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or projected. MANAGEMENTS DISCUSSION AND ANALYSIS The following discussion is intended to assist in an understanding of our
consolidated financial position as of December 31, 2003, and the results of our
operations for the year then ended. You should read the following discussion and analysis of financial condition
and results of our operations together with the consolidated financial
statements and notes, which appear elsewhere herein. This discussion contains
forward-looking statements that involve risks and uncertainties. As a result of
many factors, such as those set forth in Item 1 Description of Business our
actual results may differ materially from those anticipated in these
forward-looking statements. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31,2003 COMPARED TO YEAR ENDED DECEMBER 31,2002 The following comparable analysis of our operations is based on United States
Dollars. This is important because our operations are located in Spain and the
value of the Euro, as compared to the United States Dollar, has substantially
increased (approximately 20%-30%) from the prior year. Accordingly, if the
following analysis were stated in Euros, the percentage changes would be
significantly different. REVENUES Revenues are derived primarily from the number of minutes of use (or fractions
thereof) that are billed and recorded upon completion of telephone calls. We
maintain local market pricing structures for our services and generally price
our services at a discount to the prices charged by the local incumbent
telecommunications operators and other established carriers. We have
experienced, and expect to continue to experience, declining revenue per minute
in all of our markets as a result of increasing competition, which we expect
will be offset by increased minute volumes and decreased operating costs per
minute. The main services we provide are the following: a) Post payment telephone services to residential and commercial clients
(international, national, local, mobile voice and data services).




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b) Prepayment telephone services to phone shops and small business. c) Direct access. d) Switch and phone set. e) Telephone cards. f) Technical services. Revenues for the year ended December 31, 2003, increased $4,950,109 or 43.06 %
to $16,446,832, from $11,496,723 for the year ended December 31, 2003. Total
revenues were significantly higher than the previous year due primarily to the
growth of our customer base through an increase in regional coverage, increased
sales of telecommunications services through the implementation of marketing
campaigns and expansion into related businesses, and the increase in use per
customer. We have been actively engaged in the telecommunications industry since 1999.
Our target customers are small to medium-sized businesses, and to some extent
niche consumer markets, including selected communities with significant
immigrant population. We also have contracts with various call boxes, or public
phone rooms, to whom we provide minutes on a pre-paid basis. Our client contracts generally include an agreed-upon price schedule that
details both fixed and variable prices for contracted services. The client
contracts generally are indefinite and can be canceled at anytime by either
party. Our sales representatives can easily add additional services to existing
contracts, enabling clients to increase the number of locations through which
they access our network, increase the speed of that access, increase the
sophistication of the services they use, or extend the term for existing
services. COMPONENTS OF COSTS AND EXPENSES: COMMUNICATIONS EXPENSE Our communications expense is primarily affected by the volume of traffic
relative to facilities leased on a point-to-point, fixed-cost basis and
capacity leased on a per minute basis with volume discounts. The majority of
our communications expense is variable, including local access charges and
transmission capacity leased on a per-minute of use basis. A significant
percentage of our international transmission facilities will continue to be
leased on a variable cost basis. Communications expense for the year ended December 31, 2003 increased
$1,160,122 or 14.70% to $9,053,680 from $7,893,558 for the year ended December
31, 2002. However, because of our increase in revenue, our margin between
communications expense and revenue increased. The increase was primarily due
to the expansion of our business coupled with better pricing as a result of
negotiations with our major




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suppliers offset by a decrease in a new business line where the margins are
currently lower. MARKETING, SELLING, GENERAL AND ADMINISTRATIVE Our marketing, selling, general and administrative expenses consist primarily
of costs incurred to gain new customers, introduction of new products and
services, provide ongoing customer service and continued expansion. These costs
are principally comprised of costs associated with employee compensation,
occupancy, insurance, professional fees, sales and marketing (including sales
commissions) and bad debt expenses. We expect that during periods of significant expansion, selling, general and
administrative expenses will increase materially. Accordingly, our results of
operations will vary depending on the timing and speed of our expansion
strategy and, during a period of rapid expansion, will not necessarily reflect
the performance of our more established markets. These expenses increased to $5,708,470, or 15.05%, from $4,961,629 for the year
ended December 31, 2002. This increase is principally a result of the
following. Marketing and selling expense decreased by $598,674 because the
Company discontinued certain arrangements with various advertisers and outside
marketers, and reduced staff, thus reducing costs and commissions paid.
Consulting fees decreased by $72,094 because we reduced the hiring of advisors
in the third quarter of 2003. Additionally general and administrative expenses
increased by $1,327,539 primarily as a result of higher mailing expenses paid
due to a significant increase in customers. BANDWIDTH AND RELATED COSTS We have been operating as a switch-less reseller, therefore, not incurring
costs associated with bandwidth. As we grow and evolve into a switched carrier,
bandwidth and related costs will primarily be comprised of leasing expenses
associated with network circuits. We will obtain backbone capacity through
short-term leases and will bear leasing expenses regardless of whether we lease
directly or indirectly through another entity that may lease communications
lines locally on our behalf. As bandwidth prices drop and capacity becomes
available for purchase or long-term lease, we may use short-term leases on
major international and regional routes with economical long-term solutions. We
expect to purchase longer-term capacity where it is economical to do so. NETWORK OPERATIONS Upon changing to a switched carrier, our network operation expenses will
include costs associated with our network management, operations and support
activities. These costs generally include leasing and outsourcing expenses.




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Our earnings are subject to wide fluctuations since there are many factors over
which we have little or no control. In particular, the overall volume of usage,
the volatility and general level of long distance prices, are important
variables that may significantly affect our operations. Spantel was granted a B1 License on September 21, 2000,which gives us the right
to develop our own proprietary network with access code (1030). As there is
currently an overcapacity in Spain, Spantel made a request to the CMT
(telephone regulatory authority), which was granted, to outsource its network
operations to avoid incurring the substantial costs establishing a network. As a result of this approval, Spantel reached an agreement with BT Ignite, a
subsidiary of British Telecom, for the development, deployment and management
of a network throughout Spain using the 1030 access code. This was the first of
its kind agreement in Spain for a company such as Spantel to use the
infrastructure of another carrier to carry and manage its traffic. The system was developed in 2002 and we directed all new customers to the
network and we migrated our existing customer base in such a way as to minimize
disruption of our revenues. This innovative agreement has helped to reduce our
costs and increase our efficiency and quality, enabling us to offer a wider
array of services that customers expect to receive from their carriers. INCOME FROM CONTINUING OPERATIONS Our income from continuing operations increased to $1,119,841 for the year
ended December 31, 2003 versus a loss of $1,902,664 for the year ended December
31, 2002, or an increase of 163.1%. This increase was primarily due to the
increase of revenues with a corresponding increase in the margin of revenues
over communications expense, with the increased margin exceeding our marketing,
selling and general and administrative costs. EXTRAORDINARY ITEM The Company successfully renegotiated the terms of its trade payable with a
vendor on April 28, 2003. As an inducement to encourage the Company to
purchase from the vendor in the future, the vendor agreed to a long-term debt
arrangement extending the maturity until October 15, 2005. In conjunction with
two installment payments of 396,228 EUR and 413,166 EUR on July 1, 2003 and
October 1, 2003, respectively, we will pay 30 equal payments of 66,666 EUR
starting May 15, 2003. We computed an imputed interest rate of 2.91%, 50 basis
points over EURIBOR, to determine the discounted cash flows of the debt
arrangement at April 28, 2003. The difference between the carrying value of
the trade payable and the discounted cash flows of $89,193 was recorded as an
extraordinary item on a debt restructuring. ASSETS AND LIABILITIES




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As of December 31, 2003, we had total assets of $10,247,029 and total
liabilities of $9,964,483 compared to $7,545,924 and $9,760,632 respectively,
as of December 31, 2002. No assurances can be made as to our ability to meet
our cash requirements in connection with any expansion of our operations or any
possible business combinations. CASH FLOW Cash flows from operations increased $1,616,446 to $3,137,316 for year ended
December 31, 2003, reflecting the increase in net income from operations. CAPITAL RESOURCES Our capital resources have been provided primarily by capital contributions
from stockholders, stockholders loans and the exchange of outstanding debt
into our common stock. WORKING CAPITAL AND LIQUIDITY As of December 31, 2003, we had a working capital deficit of approximately
$1,630,505 versus a working capital deficit of $4,344,270 as of December 31,
2002. We believe that it will be necessary to continue to improve our working
capital position. This may be achieved by continuing to sustain profitable
operations and by continuing to increase revenues and related margins. PLAN OF OPERATION We plan to internally grow our existing customer base through the further
implementation of our marketing plan. This marketing plan features a
combination of services to build revenues both with existing and new customers.
This campaign is designed to enhance customer service and to both entice and
hold customer loyalty. We are also looking to add new products. Additionally we intend to pursue the acquisition of similarly situated
telecommunications companies, primarily in Spain. These acquisitions of
additional customers will improve both our revenues and the margins of the new
and the existing traffic. These acquisitions will be financed through internal
cash flow, if possible, or the raising of additional capital through equity or
debt offerings. In December, 2003, we entered into an agreement with Globatel, SL, located
in Palma de Mallorca to purchase a portfolio of telephone clients. It is estimated
that the total purchase price will approximate $476,000 of which we paid
$214,000 in January 2004. An additional 80% of the remaining amount is due in
August, 2004 with the final payment due in February, 2005.




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In January, 2004, we entered into an agreement with Sky Link Comunicaciones
S.A. of Madrid to purchase its portfolio of telephone clients. The purchase
price is approximately $523,000 and can be adjusted if certain average monthly
revenues in the future are different than current revenues. We made an initial
payment of $363,000 and have a remaining payment due in July, 2004. We have contracted with Uni 2, BT, among others, to purchase telephone time.
These contracts are variable by the number of minutes used and the
point-to-point destination of the call. We have negotiated better prices and
more facilities with these suppliers therefore we should be able to increase
current margins in cost of minutes versus revenue minutes sold. We are going to continue to negotiate with our banks to reduce the current
charges and other fees charged. SUBSEQUENT LOANS In January, 2004, we loaned Globatel SL $225,000 at the EURIBOR interest rate
of 2.4% due in monthly payments until January, 2007. In addition, in February,
2004, we loaned Globatel an additional $187,500 at the EURIBOR rate of 2.4% due
in monthly payments until June, 2007. The loans are secured by Globatels
portfolio of telephone clients. YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001 Revenues: Revenue is derived primarily from the number of minutes of use (or fractions
thereof) that are billed and recorded upon completion of telephone calls. We
maintain local market pricing structures for our services and generally price
our services at a discount to the prices charged by the local incumbent
telecommunications operators and other established carriers. We have
experienced, and expect to continue to experience, declining revenue per minute
in all of our markets as a result of increasing competition, which we expect
will be offset by increased minute volumes and decreased operating costs per
minute. The main services we provide are the following:  a)
    
    Post payment telephone services to residential and commercial
clients (international, national, local, mobile voice and data
services).b)
    
    Prepayment telephone services to phone shops and small business.c)
    
    Direct access.d)
    
    Switch and phone set.




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e)
    
    Telephone cards.f)
    
    Technical services. Revenue for the year ended December 31, 2002 was $11,496,723 versus $7,418,194
in fiscal year 2001. Total revenue was significantly higher than the previous
year due to the overall increase in number of customers and the amount of
service used by each customer. We have been actively engaged in the telecommunications industry since 1999.
Our target customers are small to medium-sized businesses, and to some extent
niche consumer markets, including selected communities with significant
immigrant population. The Company also has contracts with various locotorios,
or public phone rooms, to whom we provide minutes on a pre-paid basis. Our client contracts generally include an agreed-upon price schedule that
details both fixed and variable prices for contracted services. The client
contracts generally are indefinite and can be canceled at anytime by either
party. Our sales representatives can easily add additional services to existing
contracts, enabling clients to increase the number of locations through which
they access our network, increase the speed of that access, increase the
sophistication of the services they use, or extend the term for existing
services. COMPONENTS OF COSTS AND EXPENSES: COMMUNICATIONS EXPENSE Our communications expense is primarily affected by the volume of traffic
relative to facilities leased on a point-to-point, fixed-cost basis and
capacity leased on a per minute basis with volume discounts. The majority of
our communications expense is variable, including local access charges and
transmission capacity leased on a per-minute of use basis. A significant
percentage of our international transmission facilities will continue to be
leased on a variable cost basis. Communications expense for the year ended December 31, 2002 increased
$2,344,332 or 42.2% to $7,893,558, from $5,549,226 for the year ended December
31, 2001. As a result, our margin between communications expense and revenue
increased. This increase was primarily due to the expansion of our business
coupled with the increase in sales of higher margins on minutes in the current
period as a result of negotiations with our major suppliers. MARKETING, SELLING, GENERAL AND ADMINISTRATIVE Our marketing, selling, general and administrative expenses consist primarily
of costs incurred to gain new customers, introduction of products and services,
and providing ongoing customer service. These costs principally comprised of
costs associated with employee compensation, occupancy, insurance, professional
and consulting fees, sales and marketing and bad debt expenses.




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We expect that during periods of significant expansion, selling, general and
administrative expenses will increase materially. Accordingly, our results of
operations will vary depending on the timing and speed of our expansion
strategy and, during a period of rapid expansion, will not necessarily reflect
the performance of our more established markets. These expenses decreased to $4,961,629 or 29.6% from $7,048,783 for the year
ended December 31, 2001. The principal reason for the decrease was a decrease
in marketing and selling expenses ($2,208,267 decrease) as the Company
discontinued certain arrangements with various advertisers and outside
marketers, thus reducing costs and commissions paid. Additionally, consulting
expenses decreased ($344,558) as the Company cancelled several arrangements
with various outside consultants. BANDWIDTH AND RELATED COSTS We have been operating as a switch-less reseller, therefore, not incurring
costs associated with bandwidth. As we grow and evolve into a switched carrier,
bandwidth and related costs will primarily be comprised of leasing expenses
associated with network circuits. We will obtain backbone capacity through
short-term leases. We will bear leasing expenses regardless of whether we lease
directly or indirectly through another entity that may lease communications
lines locally on our behalf. As bandwidth prices drop and capacity becomes
available for purchase or long-term lease, we will use some short-term leases
on major international and regional routes with economical long-term solutions.
We expect to purchase such longer-term capacity where it is economical to do
so. NETWORK OPERATIONS Upon changing to a switched carrier, our network operation expenses will
include costs associated with our network management, operations and support
activities. These costs include in general leasing and outsourcing expenses. Our earnings are subject to wide fluctuations since there are many factors over
which we have little or no control. In particular, the overall volume of usage,
the volatility and general level of long distance prices, are important
variables that may significantly affect our operations. Spantel was granted a B1 license on September 21, 2000, which gives the Company
the right to develop its own proprietary network with access code (1030). As
there is currently an overcapacity in Spain, Spantel made a request to the CMV
(telephone regulatory authority), which was granted, to outsource its network
operations to avoid incurring the substantial costs of establishing a network. As a result of this approval, Spantel reached an agreement with BT Ignite, a
subsidiary of British Telecom, for the development, deployment and management
of a network throughout Spain using the 1030 access code. This is the first of
its kind agreement in Spain for a




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company such as Spantel to use the infrastructure of another carrier to carry
and manage its traffic. The system was developed in 2002 and actual testing with our customer base
began January 1, 2003. NET LOSS FROM CONTINUING OPERATIONS Our net loss decreased to $1,902,664 for the year ended December 31, 2002
versus a net loss of $5,509,671 for the year ended December 31, 2001, or a
decrease of 65.5%. The decrease in net loss is attributable primarily to an
increase in our margins between minutes sold and the cost of the minutes, and
decreases in marketing, selling and general and administrative expenses. ASSETS AND LIABILITIES As of December 31, 2002, we had total assets of $7,545,924 and total
liabilities of $9,760,632, compared to $6,524,665 and $10,455,371,
respectively, as of December 31, 2001. No assurances can be made as to our
ability to meet our cash requirements in connection with any expansion of our
operations or any possible business combinations. CASH FLOW The cash flows for year ended December 31, 2002, reflect the volatile nature of
the telecommunications industry and the reallocation of our assets indicative
of a growing organization. CAPITAL RESOURCES Our capital resources have been provided primarily by capital contributions
from stockholders, stockholders loans and the exchange of outstanding debt
into our common stock.




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UNCERTAINTIES COSTS OF CONDUCTING BUSINESS We will be required to incur substantial costs for purchasing new equipment,
increasing marketing operations and related costs. A substantial portion of
those costs must be paid whether or not any of our telephone and communication
services prove to be commercially successful on a broad scale. The ability to
generate a profit depends, among other factors, on the amount of equipment
acquisition costs incurred, the amount of revenues from the sale of our
services and other products, and our operating costs. COMPETITION The telecommunication business is highly competitive. Companies in the industry
have substantially greater financial, marketing, and technical resources than
us. Further, the entry into this industry does not necessarily require a large
capital expenditure and, accordingly, it can be expected that additional
competitors may enter the industry in the future. It may be particularly
difficult for a relatively small independent company to compete with larger
companies, which have significantly greater resources. There can be no
assurance that we will be able to successfully compete in such an environment. TECHNOLOGICAL CHANGE We expect that many new technologies and products will be introduced in the
telecommunication industry over the next several years. Our success will
depend, among other things, on our ability to develop and maintain a
competitive position technologically. There can be no assurance that we will
have access to subsequently developed technology by other entities.
Technological advances by a competitor may result in our present or future
products becoming noncompetitive or obsolete. We cannot be assured that
competitors will not develop functionally similar or superior services and
products, which event could have an adverse effect on our business. FLUCTUATIONS IN OPERATING RESULTS Our revenues and results of operations may vary significantly in the future.
Our revenues and results of operations are difficult to forecast and could be
adversely affected by many factors, some of which are outside our control,
including, among others, the expected relatively long sales and implementation
cycles for our services and products; the size and timing of individual license
transactions and joint venture arrangements; seasonality of revenues; changes
in our operating expenses; changes in the mix of products and services sold;
timing of introduction or enhancement of our products or competitors; market
acceptance of new products; changes in technology; personnel changes and
difficulties in attracting and retaining qualified sales, marketing, technical
and consulting personnel; changes in customers budgeting cycles; quality
control of products sold; and economic




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conditions generally and in Spain in particular and in specific industry
segments, particularly the communications industry. There can be no assurance that our products will achieve broad market
acceptance or that we will be successful in marketing our services and products
or enhancements thereto. In the event that our current or future competitors
release new products that have more advanced features, offer better
performance, or are more price competitive than our services and products,
demand for our products would decline. A decline in demand for, or market
acceptance of, our services and other products as a result of competition,
technological change, or other factors would have material adverse effects on
our business, financial condition, and results of operations. RAW MATERIALS. The basic raw materials and components for the telecommunication services and
other products being developed by us are readily available. We do not expect to
experience any significant delays in obtaining timely delivery of our
telecommunication equipment and components. SEASONALITY We expect to experience seasonal variations in revenues and operating costs
because sales activity for our services and products may increase in the summer
and winter seasons, which is expected to cause our operations to increase
during such periods. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks, which arise during the normal course of
business from changes in foreign exchange rates and interest rates. A
discussion of the primary market risks associated with our foreign currency
transactions, available-for-sale securities, and long-term debt exposure is
presented below. FOREIGN EXCHANGE RISK We conduct our operations primarily in Spain, and other countries around the
world with a number of different currencies. There is exposure to future
earnings when foreign exchange rates change and certain receivables; payables
and inter-company transactions are denominated in foreign currencies. We
monitor our exposure to foreign currencies through our regular operating
activities and have not historically used derivatives to hedge foreign exchange
risk. Our exposure to exchange rate fluctuations primarily arises from outsourcing
services and assignment agreements, which are denominated in Euros, as well as
operating costs associated with such agreements. The euro-denominated gross
profit offset by other euro-denominated operating costs generally results in a
natural hedge. However, timing of settlement of euro-denominated accounts
receivables and payables




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subjects us to exchange rate risk on settlement of the receivables and
payables. As of December 31, 2003, we were primarily exposed to the following currency:
fluctuation between the U.S. Dollar and the Euro, and the U.S Dollar and the
Canadian Dollar. EURO CONVERSION On January 1, 1999, 11 of the 15 member countries of the European Union
introduced a new currency, the Euro. The conversion rates between the Euro
and the participating nations existing legacy currencies were fixed
irrevocably as of December 31, 1998. Prior to full implementation of the new
currency on January 1, 2002, there was a transition period during which parties
may, at their discretion, use either the legacy currencies or the Euro for
financial transactions. RECENT ACCOUNTING PRONOUNCEMENTS In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. Such standard requires any gain
or loss on extinguishments of debt to be presented as a component of continuing
operations (unless specific criteria are met) whereas SFAS No. 4 required that
such gains and losses be classified as an extraordinary item in determining net
income. Upon adoption of SFAS No. 145, the Company will reclassify any
extraordinary gains and losses on the extinguishments of debt recorded in prior
periods to continuing operations. The adoption of SFAS 145 did not have a
material effect on the Companys financial position or results of operations. In September 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. Such standard requires costs
associated with exit or disposal activities (including restructurings) to be
recognized when the costs are incurred, rather than at a date of commitment to
an exit or disposal plan. SFAS No. 146 nullifies EITF Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). Under SFAS No. 146, a liability related to an exit or
disposal activity is not recognized until such liability has actually been
incurred whereas under EITF Issue No. 94-3 a liability was recognized at the
time of a commitment to an exit or disposal plan. The provisions of this
standard are effective for exit or disposal activities initiated after December
31, 2002. The adoption of SFAS 146 did not have a material effect on the
Companys financial position or results of operations. On December 31, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure. This standard amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. This standard also requires prominent
disclosures in both annual and interim financial statements about the method of




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accounting for stock-based employee compensation and the effect of the method
used on reported results. The adoption of SFAS 148 did not have a material
effect on the Companys financial position or results of operations. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. This
pronouncement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or and asset in some circumstances). Many of
those instruments were previously classified as equity. This Statement is
effective for financial instruments entered into or modified after May 31,
2003. This pronouncement did not have an effect on the Companys financial
statements. APPLICATION OF CRITICAL ACCOUNTING POLICIES Our financial statements and accompanying notes are prepared in accordance with
generally accepted accounting principles in the United States. Preparing
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue, and expenses.
These estimates and assumptions are affected by managements application of
accounting policies. We believe that understanding the basis and nature of the
estimates and assumptions involved with the following aspects of our financial
statements is critical to an understanding of our financials. We consider all highly liquid investments with an original maturity of three
months or less to be cash equivalents. Revenue is recognized at the time services are provided. Transaction amounts denominated in foreign currencies are translated at
exchange rates prevailing at transaction dates. Carrying values of monetary
assets and liabilities are adjusted at each balance sheet date to reflect the
exchange rate at that date. Non-monetary assets and liabilities are translated
at the exchange rate on the original transaction date. Revenue and expenses
are translated at average exchange rates in effect during the period. Gains
and losses from foreign currency translation are included in other
comprehensive income. Our cash and cash equivalents are not insured by any regulatory authority in
Spain. Should the banks cease doing business, these amounts are subject to
loss. We account for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. Under the asset
and liability method of Statement 109, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in
which those temporary differences are expected to be recovered or settled.




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ITEM 7. FINANCIAL STATEMENTS Financial statements are audited and included herein beginning at page F-1 and
are incorporated herein by reference. 
 ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES Effective March 17, 2004, we retained Staley, Okada & Partners of Vancouver,
Canada as our new certifying accountants, replacing Spicer Jeffries & Co. The
decision to change accountants was prompted because Spicer Jeffries & Co.
notified us that its professional liability insurance coverage for public
reporting companies was not renewed by its previous insurance carrier and that
they had been unsuccessful in obtaining new insurance coverage for public
registrants, and accordingly requiring their resignation. There were no
disagreements with Spicer Jeffries & Co. on any matter of accounting principals
or practices, financial statement disclosure, or auditing scope or procedure
during the period of their engagement, which was January 2002 through March,
2004. Neither prior report of Spicer, Jeffries & Co. for the fiscal years ending
December 31, 2002 or December 31, 2001 contained an adverse opinion or a
disclaimer of opinion, or was qualified or modified as to uncertainty, audit
scope or accounting principles. However the report of Spicer, Jeffries & Co.
for these fiscal years included an emphasis related to the uncertainties as to
our ability to continue as a going concern. The decisions to accept Spicer, Jeffries & Co.s resignation and to engage new
auditors was made and approved by the Board of Directors. ITEM 8A. CONTROLS AND PROCEDURES Our President (who is also our Chief Executive Officer) and our Chief Financial
Officer evaluated our disclosure and internal controls as of the end of the
quarter and year ended December 31, 2003. This evaluation determined that the
disclosure controls and procedures in place ensure that material information
relating to the registrant, including consolidated subsidiaries, is made known
to the President and Chief Financial Officer by others within the entities for
the period ended December 31,2003 to ensure disclosure on a timely basis in
conformance with applicable rules and regulations. It should be noted that the design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions, regardless of how remote. Further there
were no significant inefficiencies in the design or operation of our internal
controls, which would have adversely affected our ability to record, process,
summarize or report financial data. No material weaknesses in internal controls
were identified or reported to our auditors nor was there any fraud that




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involved management or other employees who have a significant role in our
internal controls. 
 PART III 
 ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. We have established a two (2) member board of directors. On December 31,
2003, members of the board of directors were as follows: Name
    
    Age
    
    OfficeMohamed A. Khashoggi
    
    39
    
    DirectorJose Ramon Basterra
    
    46
    
    President and Director
 MOHAMED A. KHASHOGGI. Mr. Khashoggi has been a Director since our inception and
served as President until September 20, 2002. From 1997 until joining us, Mr.
Khashoggi provided consulting services on behalf of Ibadesa S.L., a
business-consulting firm in Madrid, Spain. He holds a Masters degree in
International Studies from the University of Utah. JOSE RAMON BASTERRA. Mr. Basterra served as Management Director since our
inception, until succeeding Mr. Khashoggi as President. He was a vice-president
with Abogados & Economistas in Bilbao, Spain since 1990 and was a Managing
Director of Salumar, S.A. in Marbella, Spain in 1997 and 1998. He holds a
degree from Instituto Internacional de Direccion de Empresas of the Universidad
de Deusto in Bilbao, Basque Country, Spain. Mr. Khashoggi receives
approximately 2,400 a month ($2,740 USD/month) for
his contribution to the company as a Director. Mr. Basterras compensation is
inclusive of his position as President and Director. In addition to their
compensation, we reimburse directors for any reasonable expenses pertaining to
attending meetings, including travel, lodging and meals. Our Articles of Incorporation provide that our board of directors shall consist
of not less than one director, each of which shall be elected annually, and
serve for a term of one year. Currently our board of directors consists of Mr.
Khashoggi and Mr. Basterra, who were initially elected in June 1999,
subsequently re-elected in 2001 and 2002, and shall serve until the next annual
meeting of stockholders and until the election and qualification of their
respective successors. Officers are elected annually by our board of directors and, subject to
existing employment agreements, if any, serve at their discretion. There are no material proceedings to which any of our directors, officers or
affiliates, any beneficial owner of more than five percent of our common stock,
or any associate of any such director, officer, affiliate or security holder is
a party adverse to us or any of our subsidiaries or has a material interest
adverse to us or any of our




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subsidiaries. To date, the directors, officers, and beneficial shareholders
have not complied with the requirements of Section 16(a) of the Securities
Exchange Act. 
 ITEM 10. EXECUTIVE COMPENSATION The following table sets forth the aggregate executive cash compensation paid
during the last four years to the following executive officers serving at the
year ended December 31, 2003. Name and Principal
    
    
    
    
    
    
    
    
    
    OtherPosition
    
    Year
    
    Salary (USD)
    
    CompensationMohamed A. Khashoggi,
    
    
    2003
    
    
    $
    33,091.27
    
    
    NoneDirector (1) (3)
    
    
    2002
    
    
    $
    30,335.70
    
    
    None2001
    
    
    $
    46,828.80
    
    
    None2000
    
    
    $
    13,855.10
    
    
    NoneJose Ramon Basterra,
    
    
    2003
    
    
    $
    70,247.73
    
    
    $
    139,051.33Management Director and
    
    
    2002
    
    
    $
    73,614.90
    
    
    NoneDirector (1) (2) (3)
    
    
    2001
    
    
    $
    26,060.20
    
    
    None2000
    
    
    $
    12,237.10
    
    
    NoneCesar Martinez, Financial
    
    
    2003
    
    
    $
    96,919.24
    
    
    NoneManager (1) (5)
    
    
    2002
    
    
    $
    70,644.90
    
    
    None2001
    
    
    $
    31,699.20
    
    
    None2000
    
    
    $
    -0-
    
    
    None
 (1) All Officers and directors are paid in Euros, the local currency. The
average rate of exchange in 2003 was $1.1407/Euro 1.000 and in 2002 was
$0.95/Euro 1.000 (2) Mr. Basterra invoices the Spanish operating company and the U.S. parent for
additional income as defined in his employment agreement. (3) Due to currency fluctuations over the course of the year, Mr. Basterra
received $3,973.06 in extra compensation. This excess will be deducted from
his annual bonus calculated against profit for 2003. (4) Mr. Khashoggi is paid for serving on the board. (5) Mr. Martinez invoices Spantel for all services.




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EMPLOYMENT AGREEMENTS On October 1,2002, Mr. Basterra entered into an employment agreement with us to
serve as our president for a five year term. In consideration for his services,
Mr. Basterra receives an annual base salary of Euros 180,000.00($205,326.00
based on an average exchange rate of $1.1407/Euro 1.0000) and two percent of
the adjusted net profits. In addition, Mr. Basterra is provided with the option
of a company automobile, with a value not exceeding Euros 50,000.00. Mr.
Basterra has not exercised this option as of the date of this filing. OPTION/SAR GRANTS IN LAST FISCAL YEAR There were no options to purchase shares of our common stock and SARs granted
by us to our named executive officers in the fiscal year ended December 31,
2003. INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN The Company does not currently have a stock option plan of any type. OPTION EXERCISES AND HOLDINGS To date, we have not issued any options or SARs to any persons. No options or
SARs were exercised or unexercised during fiscal year 2003. 
 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information as of December 31, 2003 with respect
to the beneficial ownership of the outstanding shares of our common stock by
(1) each person known by us to be the beneficial owner of more than 5% of our
common stock; (2) each of our directors; (3) each Named Executive Officer; and
(4) all directors and executive officers as a group. As of December 31, 2003
there were 30,211,740 shares of our common stock issued and outstanding. Name and Address
    
    
    
    
    
    Number of Shares
    
    % of Stockof Beneficial
    
    
    
    
    
    Beneficially
    
    BeneficiallyOwner
    
    Title of Class
    
    Owned
    
    OwnedMohamed Khashoggi
200-A Benabola
Puerta Banus,
29660, Malaga
Spain
    
    Common Stock
    
    
    3,700,000
    
    
    
    12.2
    %Jose Ramon Basterra
Avda.Myramar
Miramar 35
    
    Common Stock
    
    
    1,570,900
    
    
    
    5.2
    %




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Name and Address
    
    
    
    
    
    Number of Shares
    
    % of Stockof Beneficial
    
    
    
    
    
    Beneficially
    
    BeneficiallyOwner
    
    Title of Class
    
    Owned
    
    OwnedFuengirola
29640, Malaga
SpainCesar Martinez,
Avda.Myramar
Miramar 35
Fuengirola
29640, Malaga
Spain
    
    Common Stock
    
    
    10,000
    
    
    
    *Financiere
Hispoano-Suiza
SA(1)
10 Rue Pierre
Fation
Geneva, 1206
Switzerland
    
    Common Stock
    
    
    1,000,000
    
    
    
    3.3
    %All directors
officers and as
a group
(5 persons)
    
    Common Stock
    
    
    5,790,900
    
    
    
    19.2
    %
 *Indicates less than 1% ownership. (1) Financiere Hispoano-Suiza SA is an affiliated company of Credifinance, Ltd.
The shares owned by Financiere Hispoana-Suiza SA were issued to Credifinance
for investment banking services rendered to Spantel. 
 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Spantel S.A. relies on a related entity, ABC Telemarketing S.L. (ABC), a
Spanish company, for telemarketing services to generate new customers as well
as operating a customer service center for its base of customers. ABC is 50%
owned by the chief executive officer of Spantel 2000 S.A. and charges Spantel
2001 S.A. for the services provided. Spantel 2001 S.A. incurred $1,602,861 and
$1,902,737 during the years ended December 31, 2003 and 2002, respectively
related to these services from ABC. Spantel has advanced funds to Spansurf, an entity owned 100% by ABC. Spansurf
is an internet provider and provides this service along with repairs and
maintenance of the Companys computer applications. Since inception we have
charged off $616,506 to operations for amounts advanced to Spansurf. The
amounts charged off in 2003 and 2002 were $156,114 and $106,241 respectively. During 2002, 2001 and 2000, we paid $224,537, $631,919 and $47,373,
respectively, to Credifinance Capital Corp. (Credifinance) for investment
banking fees for services rendered in connection with the reverse acquisition
of Spantel (formerly Receptagen, Ltd.). In




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September of 2002, $208,982 was owed Credifinance for amounts advanced for
operating expenses incurred by us during 2001. Of this amount, $200,000 was
paid by Almond, Inc., a non-affiliated company on a convertible note to
Spantel. Credifinance is also related to Interunion Financial Corp., which is
the note holder of two notes payable totaling $602,447. Credifinance is also
related to Financiere Hispano-Suiza SA who is a shareholder of Spantel. Additionally, in November 2002, we entered into an agreement with DDT, Inc.
through which Mr. Basterra is partially paid for his services as President and
Director. This companys sole shareholder is Mr. Basterra. 
 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (A) INDEX TO EXHIBITS 2.1 Share Exchange Agreement dated October 23, 2001 by and between
Receptagen LTD. and Spantel Communications, Inc. BVI and Spantel 2000, S.A. and
Mohamed Khashoggi. (Incorporated by reference to Exhibit 2.1 of Form 10KSB
filed June 10, 2002). 3.1 Certificate and Articles of Incorporation. (Incorporated by reference to
Exhibit 99 of Registrants current report filed on Form 8-K filed February 8,
2002). 3.2 By-laws (Incorporated by reference to Exhibit 3.12 of Form 10 filed
November 14, 1994). 32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To
Section 906 Of The Sarbanes-Oxley Act Of 2002 32.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To
Section 906 Of The Sarbanes-Oxley Act Of 2002 (B)REPORTS ON FORM 8-K There were no reports on Form 8-K filed during 2003. 
 Item 14. Principal Accountant Fees and Services Audit Fees Our board of directors had appointed Spicer, Jeffries & Co. as independent
auditors to audit our financial statements for the current fiscal year, until
they were required to resign effective as of March 16, 2004, at which time we
retained the services of Staley, Okada & Partners. The aggregate fees billed
by Spicer, Jeffries & Co. for professional services rendered for the audit of
the financial statements included in this annual report on Form 10-KSB for the
years ended December 31, 2003 and 2002 were $2,000 and $21,037, respectively. Audit Related Fees




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For the years ended December 31, 2003 and 2002, the aggregate fees billed for
assurance and related services by Spicer, Jeffries & Co. relating to our
quarterly financial statements which are not reported under the caption Audit
Fees above, were $5,375 and $5,700, respectively. All Other Fees For the years ended December 31, 2003 and 2002, the aggregate fees billed by
Spicer, Jeffries & Co. for other non-audit professional services, other than
those services listed above, totaled $4,225 and $3,500, respectively.




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SIGNATURES In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. SPANTEL COMMUNICATIONS, INC.
(Registrant) By:
    
    /s/ JOSE RAMON BASTERRA
    
    Date: April 14, 2004Jose Ramon BasterraPresident and DirectorBy:
    
    /s/ MOHAMED A. KHASHOGGI
    
    Date: April 14, 2004Mohamed A. KhashoggiDirectorBy:
    
    /s/ CESAR MARTINEZ
    
    Date: April 14, 2004Cesar MartinezTreasurerand Chief Financial Officer




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CERTIFICATION I, Jose Ramon Basterra, certify that: 1. I have reviewed this annual report on Form 10-KSB of Spantel
Communications, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; 3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report; 4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date; 5. The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions): a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and 6. The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses. Dated: April 14, 2004
    
    /s/ Jose Ramon BasterraJose Ramon Basterra, President(Chief Executive Officer)




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


Dated: April 14, 2004
    
    /s/ Cesar MartinezCesar Martinez, Treasurer(chief financial officer)




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SPANTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 2003 TABLE OF CONTENTS PageIndependent Auditors Report
    
    
    2-3Consolidated Balance Sheets
    
    
    4Consolidated Statements of Operations
    
    
    5Consolidated Statements of Comprehensive Income (Loss)
    
    
    6Consolidated Statements of Changes in Shareholders Deficit
    
    
    7Consolidated Statements of Cash Flows
    
    
    8Notes to Consolidated Financial Statements
    
    
    9-16




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INDEPENDENT AUDITORS REPORT To the Board of Directors of
Spantel Communications, Inc. We have audited the accompanying consolidated balance sheets of Spantel
Communications, Inc. and Subsidiaries as of December 31, 2003, and the related
consolidated statements of operations, comprehensive income (loss), changes in
shareholders deficit, and cash flows for the year then ended. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Spantel
Communications, Inc. and Subsidiaries as of December 31, 2003, and the results
of their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America. /s/ STALEY, OKADA & PARTNERS
 Vancouver, British Columbia
March 22, 2004




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##### Table of Contents



INDEPENDENT AUDITORS REPORT To the Board of Directors of
Spantel Communications, Inc. We have audited the accompanying consolidated balance sheet of Spantel
Communications, Inc. and Subsidiaries as of December 31, 2002, and the related
consolidated statements of operations, comprehensive income (loss), changes in
shareholders deficit, and cash flows for the year then ended. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Spantel
Communications, Inc. and Subsidiaries as of December 31, 2002, and the results
of their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America. /s/ SPICER, JEFFRIES & CO.
 Denver, Colorado
March 7, 2003




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SPANTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS December 31,
    
    December 31,2003
    
    2002ASSETSCURRENT ASSETS:Cash and cash equivalents (Notes 1 and 3)
    
    $
    4 006 780
    
    
    $
    1 845 910Receivables:Trade, net of allowances for doubtful accounts
    
    
    2 450 422
    
    
    
    2 018 566Related parties (Note 5)
    
    
    510
    
    
    
    250 954Other
    
    
    234 022
    
    
    
    715 859Deferred subscriber acquisition costs
    
    
    328 680
    
    
    
    310 193Other current assets
    
    
    372 811
    
    
    
    74 880Total current assets
    
    
    7 393 225
    
    
    
    5 216 362OTHER ASSETS:Property and equipment, net (Note 2)
    
    
    1 330 602
    
    
    
    1 010 793Deferred subscriber acquisition costs
    
    
    1 314 720
    
    
    
    1 240 771Deposits
    
    
    208 482
    
    
    
    77 998Total other assets
    
    
    2 853 804
    
    
    
    2 329 562TOTAL ASSETS
    
    $
    10 247 029
    
    
    $
    7 545 924LIABILITIES AND SHAREHOLDERS DEFICITCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    4 610 888
    
    
    $
    4 509 339Advances from bank (Note 4)
    
    
    1 278 077
    
    
    
    1 262 609Due to related parties (Note 5)
    
    
    2 092 888
    
    
    
    3 788 684Current
portion of long-term liabilities (Note 7)
    
    
    1 041 877
    
    
    
    Total current liabilities
    
    
    9 023 730
    
    
    
    9 560 632LONG-TERM LIABILITIES (Note 7)
    
    
    940 753
    
    
    
    200 000COMMITMENTS AND CONTINGENCIES (Note 7)SHAREHOLDERS EQUITY (DEFICIT) (Note 3):Common stock, $.001 par value, 60,000,000 shares authorized,
30,211,740 and 21,858,746, shares issued and outstanding
    
    
    30 212
    
    
    
    21 859Additional paid-in capital
    
    
    5 390 588
    
    
    
    3 895 402Accumulated other comprehensive (loss) income
    
    
    (232 260
    )
    
    
    63 059Deficit
    
    
    (4 905 994
    )
    
    
    (6 195 028
    )Total shareholders equity (deficit)
    
    
    282 546
    
    
    
    (2 214 708
    )TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
    
    $
    10 247 029
    
    
    $
    7 545 924
 4




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##### Table of Contents



SPANTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS For the Years EndedDecember 31,2003
    
    2002SALES
    
    $
    16 446 832
    
    
    $
    11 496 723EXPENSES:Communications
    
    
    9 053 680
    
    
    
    7 893 558Marketing and selling
    
    
    2 509 152
    
    
    
    3 107 826Consulting
    
    
    215 267
    
    
    
    287 361Professional fees
    
    
    447 584
    
    
    
    468 831General and administrative
    
    
    2 175 149
    
    
    
    847 610Depreciation and amortization
    
    
    361 318
    
    
    
    250 001Total operating expenses
    
    
    14 762 150
    
    
    
    12 855 187Income (loss) from operations
    
    
    1 684 682
    
    
    
    (1 358 464
    )OTHER INCOME (EXPENSE):Interest expense
    
    
    (484 841
    )
    
    
    (544 200
    )Income (loss) before extraordinary item
    
    
    1 199 841
    
    
    
    (1 902 664
    )Extraordinary gain on debt restructuring (Note 7)
    
    
    89 193
    
    
    
    NET INCOME (LOSS)
    
    $
    1 289 034
    
    
    $
    (1 902 664
    )BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE:Income (loss) from continuing operations per share
    
    $
    0.06
    
    
    $
    (0.10
    )Income from extraordinary item
    
    $
    0.00
    
    
    $
    0.00Net income (loss)
    
    $
    0.06
    
    
    $
    (0.10
    )WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    21 904 516
    
    
    
    19 903 585
 5




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##### Table of Contents



SPANTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) For the Years EndedDecember 31,2003
    
    2002NET INCOME (LOSS)
    
    $
    1 289 034
    
    
    $
    (1 902 664
    )OTHER COMPREHENSIVE INCOME (LOSS):Foreign exchange losses
    
    
    (295 319
    )
    
    
    (205 543
    )COMPREHENSIVE INCOME (LOSS)
    
    $
    993 715
    
    
    $
    (2 108 207
    )
 6




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##### Table of Contents



SPANTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIT AccumulatedCommon
    
    Additional
    
    OtherCommon
    
    Stock
    
    Paid-In
    
    ComprehensiveShares
    
    Amount
    
    Capital
    
    Income
    
    DeficitBALANCES, December 31, 2001
    
    
    17 693 636
    
    
    $
    17 694
    
    
    $
    5 226 400
    
    
    $
    268 602
    
    
    $
    (9 443 402
    )Issuance of common stock
    
    
    4 115 110
    
    
    
    4 115
    
    
    
    4 110 995
    
    
    
    
    
    
    
    Issuance of common stock for services
    
    
    50 000
    
    
    
    50
    
    
    
    99 950
    
    
    
    
    
    
    
    Recapitalization (Note 3)
    
    
    
    
    
    
    
    
    
    
    (5 541 943
    )
    
    
    390 905
    
    
    
    5 151 038Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (596 448
    )
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1 902 664
    )BALANCES, December 31, 2002
    
    
    21 858 746
    
    
    
    21 859
    
    
    
    3 895 402
    
    
    
    63 059
    
    
    
    (6 195 028
    )Issuance of common stock for assumption of debt
    
    
    8 352 994
    
    
    
    8 353
    
    
    
    1 495 186
    
    
    
    
    
    
    
    Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (295 319
    )
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1 289 034BALANCES, December 31, 2003
    
    
    30 211 740
    
    
    $
    30 212
    
    
    $
    5 390 588
    
    
    $
    (232 260
    )
    
    $
    (4 905 994
    )
 The accompanying notes are an integral part of these statements. 7




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##### Table of Contents



SPANTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year EndedDecember 31,2003
    
    2002CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss) from continuing operations
    
    $
    1 289 034
    
    
    $
    (1 902 664
    )Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    361 318
    
    
    
    250 001Issuance of common stock for services
    
    
    
    
    
    
    100 000Extraordinary item
    
    
    (89 193
    )
    
    
    (Increase) decrease in accounts receivable, net
    
    
    (431 856
    )
    
    
    267 106Decrease (increase) in other receivables
    
    
    481 837
    
    
    
    (144 513
    )(Increase) decrease in deferred subscriber acquisition costs
    
    
    (92 436
    )
    
    
    45 288Increase in other assets
    
    
    (428 415
    )
    
    
    (28 447
    )Decrease in receivable from related parties
    
    
    250 444
    
    
    
    209(Decrease) increase in due to related parties
    
    
    (192 257
    )
    
    
    1 062 054Increase in advances from bank
    
    
    15 468
    
    
    
    539 038Increase in accounts payable and accrued expenses
    
    
    1 973 372
    
    
    
    1 428 374Net cash provided by operating activities
    
    
    3 137 316
    
    
    
    1 616 446CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (681 127
    )
    
    
    (548 127
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    (295 319
    )
    
    
    (205 543
    )NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    2 160 870
    
    
    
    862 776CASH AND CASH EQUIVALENTS,beginning of period
    
    
    1 845 910
    
    
    
    983 134CASH AND CASH EQUIVALENTS,end of period
    
    $
    4 006 780
    
    
    $
    1 845 910SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest paid
    
    $
    468 841
    
    
    $
    544 200SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTMENT
AND FINANCING ACTIVITIES:Issuance of common stock in repayment of shareholder advances
    
    $
    
    
    
    $
    4 115 110Issuance of note payable for payment of related party advances
    
    $
    
    
    
    $
    200 000Issuance of common stock for assumption of debt
    
    $
    1 503 539
    
    
    $
    Accounts payable restructured to long-term debt arrangement
    
    $
    740 753
    
    
    $
    
 The accompanying notes are an integral part of these financial statements. 8




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##### Table of Contents



SPANTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES Organization, Business and Going Concern In October 2001 Spantel Communications, Inc. (Spantel) completed its
domestication and incorporation in the State of Florida, transferring the
Companys charter from Canadian Federal jurisdiction. The Company was formerly
known as Receptagen, Ltd. Subsequently, the shareholders approved an exchange
of common stock of the Company for all of the outstanding common stock of
Spantel Communications, Inc. BVI (BVI), a company incorporated on September
9, 1999 in the British Virgin Islands. The stock exchange between Spantel and
BVI has been considered a reverse acquisition (see Note 3). BVI carries on its
business through Spantel S.A. (Spantel S.A.), a company incorporated in
Spain. Spantel S.A. is a provider of telephone services to both residential
and commercial customers in Spain. It operates as a reseller of telephone
services whereby it purchases blocks of telephone time from various providers
and resells it to its customers. All of the Companys revenues were generated
in Spain and additionally, all of the Companys assets are located there. The consolidated financial statements include the accounts of Spantel since the
date of the reverse acquisition and the historical accounts of its wholly owned
subsidiaries, BVI and Spantel S.A. (collectively, the Company). All
significant intercompany balances and transactions have been eliminated in
consolidation. Cash Equivalents All highly liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents. At December 31, 2003 and
2002, cash and cash equivalents included $3,672,933 and $1,745,622,
respectively, in money market funds that secure advances from the Companys
bank in the amount of $1,278,077 and $1,262,609, respectively (see Note 3). Accounts Receivable The Company uses the allowance method in accounting for bad debts. As of
December 31, 2003 and 2002 the Company had recorded allowances for doubtful
accounts of $1,896,081 and $1,700,850, respectively. The Company believes all
other receivables are collectible. Deferred Subscriber Acquisition Costs According to the terms of prevailing contracts, the Company established
commercial relations with a series of telemarketing agencies that provided the
Company with marketing and customer targeting services. Commissions ranging
from 5% to 8% are accrued for these services based on consumption generated by
customers gained by these various agencies. These amounts represent certain
amounts due in the future that have been advanced to the various agencies. Property and Equipment The Company provides for depreciation and amortization of these assets using
both straight-line and accelerated methods based on estimated useful lives of,
generally, three to ten years. Foreign Currency The Companys foreign subsidiary uses the local currency as their functional
currency. Accordingly, assets and liabilities of the foreign subsidiary are
translated into United States dollars at end-of-period exchange rates. Revenue
and expenses are translated at average exchange rates in effect during the
period. Gains or losses from foreign currency translation are included in
other comprehensive income. 9




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##### Table of Contents



SPANTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) NOTE
1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(continued) Revenue Recognition Revenue is recognized at the time the services are provided. Long-Lived Assets The Company reviews its long-lived assets for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived
assets, the recoverability test is performed using undiscounted net cash flows
estimated to be generated by the asset. Advertising Costs Advertising costs are expensed as incurred and totaled $396,919 for the year
ended December 31, 2003 and $ 525,822 for the year ended December 31, 2002. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. Under the asset
and liability method of Statement 109, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in
which those temporary differences are expected to be recovered or settled. Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Management believes that the estimates
utilized in the preparation of the consolidated financial statements are
prudent and reasonable. Actual results could differ from these estimates. Fair Value of Financial Instruments Substantially all of the Companys assets and liabilities are carried at fair
value or contracted amounts that approximate fair value. Estimates of fair
value are made at a specific point in time, based on relative market
information and information about the financial instrument, specifically, the
value of the underlying financial instrument. Assets that are recorded at fair
value consist largely of short-term receivables and prepaid expenses, which are
carried at contracted amounts that approximate fair value. Similarly, the
Companys liabilities consist of short term liabilities recorded at contracted
amounts that approximate fair value. 10




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##### Table of Contents



SPANTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) NOTE
1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(continued) Net Loss Per Share of Common Stock Net loss per share of common stock is based on the weighted average number of
shares of common stock outstanding, giving effect to the reverse acquisition
and the reverse stock split as discussed above. Recent Accounting Pronouncements In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. Such standard requires any gain
or loss on extinguishments of debt to be presented as a component of continuing
operations (unless specific criteria are met) whereas SFAS No. 4 required that
such gains and losses be classified as an extraordinary item in determining net
income. Upon adoption of SFAS No. 145, the Company will reclassify any
extraordinary gains and losses on the extinguishments of debt recorded in prior
periods to continuing operations. The adoption of SFAS 145 did not have a
material effect on the Companys financial position or results of operations. In September 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. Such standard requires costs
associated with exit or disposal activities (including restructurings) to be
recognized when the costs are incurred, rather than at a date of commitment to
an exit or disposal plan. SFAS No. 146 nullifies EITF Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). Under SFAS No. 146, a liability related to an exit or
disposal activity is not recognized until such liability has actually been
incurred whereas under EITF Issue No. 94-3 a liability was recognized at the
time of a commitment to an exit or disposal plan. The provisions of this
standard are effective for exit or disposal activities initiated after December
31, 2002. The adoption of SFAS 146 did not have a material effect on the
Companys financial position or results of operations. On December 31, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure. This standard amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. This standard also requires prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The adoption of SFAS 148 did not have a material
effect on the Companys financial position or results of operations. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. This
pronouncement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or and asset in some circumstances). Many of
those instruments were previously classified as equity. This Statement is
effective for financial instruments entered into or modified after May 31,
2003. This pronouncement did not have an effect on the Companys financial
statements. 11




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##### Table of Contents



SPANTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) NOTE 2- PROPERTY AND EQUIPMENT December 31,2003
    
    2002Cost:Construction
    
    $
    45 448
    
    
    $
    44 250Technical installations and machinery
    
    
    297 851
    
    
    
    284 394Other installations, tools and furniture
    
    
    79 879
    
    
    
    65 112Data processing equipment
    
    
    399 953
    
    
    
    362 923Software
    
    
    237 749
    
    
    
    212 623Other assets
    
    
    1 063 033
    
    
    
    473 484Total cost
    
    $
    2 123 913
    
    
    $
    1 442 786Accumulated depreciation:Construction
    
    $
    28 223
    
    
    $
    16 929Technical installations and machinery
    
    
    98 818
    
    
    
    54 849Other installations, tools and furniture
    
    
    23 468
    
    
    
    14 481Data processing equipment
    
    
    330 419
    
    
    
    215 653Software
    
    
    105 958
    
    
    
    52 623Other assets
    
    
    206 425
    
    
    
    77 458Total accumulated depreciation
    
    $
    793 311
    
    
    $
    431 993Net book value
    
    $
    1 330 602
    
    
    $
    1 010 793
 NOTE 3- SHAREHOLDERS EQUITY The authorized capital stock of the Company consists of 60,000,000 shares of
$.001 par value voting common stock. Each share of common stock is entitled to
one vote. The holders of the capital stock are entitled to receive, when and
as declared by the Board of Directors, dividends payable either in cash, in
property or in shares of the capital stock of the Company. Dividends have no
cumulative rights and dividends will not accumulate if the Directors do not
declare such dividends. Through December 31, 2003, no dividends have been
declared or paid by the Company. In October 2001, the shareholders approved an exchange of common stock of the
Company for all of the outstanding common stock of Spantel Communications, Inc.
BVI (BVI), a company incorporated in the British Virgin Islands. The stock
exchange between Spantel and BVI has been considered a reverse acquisition.
The reverse acquisition was accomplished through the issuance of 16,500,000
shares of common stock of the Company. At the date of the reverse acquisition,
the Company had 1,193,636 outstanding shares of common stock. During the year ended December 31, 2002, Spantel completed a recapitalization
and according to Spanish corporate law, was required to reduce its share
capital, and accordingly reclassified a deficit in the amount of $5,151,038 to
paid-in capital. In addition, in September 2002, the Company issued 4,115,110 shares of common
stock for shareholder loans in the amount of $4,115,110. In July 2002, the Company issued 50,000 shares of common stock as compensation
for legal services, valued at $2 per share, or $100,000. This amount has been
included in professional fees in the accompanying statement of operations. On December 30, 2003, the Company issued 8,352,994 shares of common stock for
the assumption of debt payable to a related third party based on the fair
market value of $0.18 per share. At the time of issuance, the balance owed to
the third party was $1,503,539. 12




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##### Table of Contents



SPANTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) NOTE 4- ADVANCES FROM BANK The Companys bank advances funds based on the amount that the Company bills to
its customers each month. These customers then pay the bank directly. In the
event these customers do not pay the bank, the amount receivable from these
customers is charged back against the restricted cash equivalent held by the
bank (see Note 1). The Company is charged a fee by their bank for this
service. NOTE 5 - RELATED PARTY TRANSACTIONS Balances with related parties at December 31, 2003 and 2002 consisted of the following: Due from Related Parties
    
    Due to Related Parties2003
    
    2002
    
    2003
    
    2002Non-interest bearing note
payable, due upon payment by
payee to a creditor of the
Company in the same amount, with
earlier maturity upon certain
events stipulated in the note
agreement
    
    $
    
    
    
    $
    
    
    
    $
    292 229
    
    
    $
    292 229Non-interest bearing note
payable, due upon payment by
payee to a creditor of the
Company in the same amount, with
earlier maturity upon certain
events stipulated in the note
agreement
    
    
    
    
    
    
    
    
    
    
    382037
    
    
    
    310,218Advances from shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1 220 690Advances from/to related parties
    
    
    510
    
    
    
    250 954
    
    
    
    154 876
    
    
    
    158 380Due to related companies for
telemarketing and other services
    
    
    
    
    
    
    
    
    
    
    1 263 746
    
    
    
    1 807 167Total
    
    $
    510
    
    
    $
    250954
    
    
    $
    2 092 888
    
    
    $
    3 788 684
 Spantel S.A. relies on a related entity, ABC Telemarketing S.L. (ABC), a
Spanish company, for telemarketing services to generate new customers as well
as operating a customer service center for its base of customers. ABC is 50%
owned by the chief executive officer of Spantel S.A. and charges Spantel S.A.
for the services provided. Spantel S.A. incurred $1,602,861 and $1,902,737
during the years ended December 31, 2003 and 2002, respectively, related to
these services from ABC. Included in due to related companies for
telemarketing and other services above is $1,263,746 and $1,785,207, due to ABC
as of December 31, 2003 and 2002, respectively. During 2002, Credifinance Capital Corp. (Credifinance) received investment
banking fees of $224,537 for services rendered in connection with the reverse
acquisition of Spantel (formerly Receptagen, Ltd.) and has advanced the Company
operating expenses incurred by Spantel during 2001. During 2002, this amount
was repaid by an unrelated entity, and accordingly, this amount is now owed to
that unrelated entity (see Note 7). Credifinance is also related to the entity
that is the note holder of the two notes payable listed above totaling $674,266
and in addition, is related to another entity that is a 3.3% shareholder. Included in due from related parties above is $0 and $156,114 as of December
31, 2003 and 2002, respectively, due from Spansurf, which is 100% owned by ABC.
Since inception, the Company has charged off $616,506 to operations for
amounts advanced to Spansurf. Also included in the due from related parties
above is $94,840 as of December 31, 2002 due from entities owned by certain
shareholders and directors of the Company. For the years ended December 31,
2003 and 2002, respectively, $154,876 and $121,201 was due to entities owned by
certain shareholders and directors of the Company. On March 27, 2002, the Company entered into an agreement with a shareholder to
borrow up to $1,500,000 bearing interest at market rates and maturing in not
less than one year. On December 30, 2003, the Company issued 8,352,994 shares
of common stock to this shareholder to relinquish the balance owed of
$1,503,539. Approximately 75% of deferred subscriber acquisition costs at December 31, 2003
and 2002 are related parties. 13




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##### Table of Contents



SPANTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) NOTE 6- INCOME TAXES At December 31, 2003, the Company had an unused U.S. federal net operating loss
carryforward of approximately $316,050 for income tax purposes, which expires
in 2021. However, the ability to utilize such losses to offset future taxable
income is subject to various limitations imposed by the rules and regulations
of the Internal Revenue Service. In addition, at December 31, 2003, the
Company had an unused Spanish net operating loss carryforward of approximately
$9,640,000, of which $885,000 expires in 2015, $4,047,000 expires in 2016 and
the remainder in 2017. These net operating loss carryforwards may result in
future income tax benefits of approximately $2,530,000; however, because
realization is uncertain at this time, a valuation reserve in the same amount
has been established. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Companys deferred tax liabilities and assets as
of December 31, 2003 and 2002 are as follows: 2003
    
    2002Deferred tax liabilities
    
    $
    
    
    
    $
    Deferred tax assets:U.S. net operating loss carryforwards
    
    $
    107 457
    
    
    $
    48 200Spanish net operating loss carryforwards
    
    
    3 373 920
    
    
    
    2 378 800Temporary differences
    
    
    
    
    
    
    Total deferred tax assets
    
    
    3 481 377
    
    
    
    2 427 000Valuation allowance for deferred tax assets
    
    
    (3 481 377
    )
    
    
    (2 427 000
    )$
    
    
    
    $
    
 The valuation allowance for deferred tax assets was increased by $1,054,377 for
the years ending December 31, 2003 and 2002. The Companys actual effective tax rate for these years is reconciled to the
expected statutory tax rates as follows: 2003
    
    2002Expected statutory tax (benefit) rates
    
    
    35.00
    %
    
    
    (35.00
    )%Expected state tax (benefit) rate, net
    
    
    3.60
    %
    
    
    (3.60
    )%Expected combined statutory tax rate
    
    
    38.60
    %
    
    
    (38.60
    )%Utilization of net operating loss carryforward
    
    
    (38.60
    )%
    
    
    Valuation allowance for deferred tax assets
    
    
    
    
    
    
    38.60
    %Effective income tax rate
    
    
    0.00
    %
    
    
    0.00
    %
 14




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##### Table of Contents



SPANTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) NOTE 7- CONVERTIBLE NOTE PAYABLE, COMMITMENTS AND CONTINGENCIES In September 2002, the Company issued a convertible note payable to an
unrelated company, in payment of advances in the amount of $200,000 owed to a
related entity. The $200,000 note payable bears interest at 8%, is due
September 30, 2007 and is convertible into shares of common stock at the market
rate at the time of conversion, but no less than $0.50 per share. The Company successfully renegotiated the terms of its trade payable with a
vendor on April 28, 2003. As an inducement to encourage the Company to
purchase from the vendor in the future, the vendor agreed to a long-term debt
arrangement extending the maturity until October 15, 2005. In conjunction with
two installment payments of 396,228 EUR and 413,166 EUR on July 1, 2003 and
October 1, 2003, respectively, the Company will pay 30 equal payments of 66,666
EUR starting May 15, 2003. The Company computed an imputed interest rate of
2.91%, 50 basis points over EURIBOR, to determine the discounted cash flows of
the debt arrangement at April 28, 2003. The difference between the carrying
value of the trade payable and the discounted cash flows of $89,193 was
recorded as an extraordinary item on a debt restructuring. As of December 31, 2003 and 2002, the long-term borrowings consisted of the
follow: 2003
    
    2002Convertible note, convertible at $.50 per
share of common stock, unsecured, bearing
interest at 8 percent and due September 30, 2007
    
    $
    200 000
    
    
    $
    200 000Long-term debt arrangement, unsecured, imputed
interest rate at 2.91%, due October 15, 2005
    
    
    1 782  630
    
    
    
    Less:
Current portion of long-term liabilities
    
    
    (1 041 877
    )
    
    
    Total long-term debt
    
    $
    940 753
    
    
    $
    200 000
 The Company leases office space from unrelated third parties under
non-cancelable operating leases. As of December 31, 2003, aggregate minimum
future commitments under these leases are as follows: Fiscal Year
    
    Amount2004
    
    $
    159,6982005
    
    
    25,2262006
    
    
    13,0012007
    
    
    13,0012008
    
    
    11,917Total minimum lease payments
    
    $
    222,843
 The Company leased office space under month-to-month agreements with a related
party until November 2003. The annual rents under these leases were
approximately $165,382. The Company purchases all of its telephone services from two suppliers based on
corresponding supply contracts signed by the parties. These contracts are
renewable annually. The Company believes that the contracts subscribed with
these telephone operators will be tacitly renewed on related expiration dates
given that all terms of the contracts have been met and that, if they were not
to renew their contracts, the Company would be able to continue rendering its
services to its customers via alternative operators in the communications
industry. 15




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##### Table of Contents



SPANTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued) NOTE 7- CONVERTIBLE NOTE PAYABLE, COMMITMENTS AND CONTINGENCIES (continued) The Companys cash and cash equivalents are not insured by any regulatory
authority in Spain. Should the bank cease doing business, these amounts are
subject to loss. On October 1, 2002, the president entered into an employment agreement with
Spantel Communications, Inc. to serve as president for a five year term. In
consideration for his services, the president receives an annual base salary of
Euros 180,000 ($205,315 USD) and two percent of the adjusted net profits. In
addition, the president is provided with the option of a company automobile,
with a value not exceeding Euros 50,000 ($57,032 USD). As of December 31,
2003, the president has not exercised this option. In December, 2003, the Company entered into an agreement with a third party
entity to purchase its telephone customers. It
is estimated that the total purchase price will approximate $476,000 of which
the Company has already paid $214,000. An additional 80% of the remaining
amount will be paid in August, 2004 with the final payment due in February,
2005. In addition, during January, 2004, Spantel also loaned the third party
entity $225,000 carrying interest at the Euribor rate of 2.4% and due in
monthly payments until January, 2007 and $187,500 carrying interest at the
Euribor rate of 2.4% and due in monthly payments until June, 2007. NOTE 8- SUBSEQUENT EVENTS In January, 2004, the Company entered into an agreement with a third party to
purchase a portfolio of telephone clients. The purchase price is approximately
$523,000 and can be adjusted if certain average revenues in the future are
different. An initial payment of $363,000 was made with the remaining payment
being due in July, 2004. 16