UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                               FORM 1O-KSB/A No. 3
                     ANNUAL REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

                             COMMISSION FILE NUMBER
                                     0-25124

                           SPANTEL COMMUNICATIONS INC.
                           (Formerly Receptagen Ltd.)
                              A Florida Corporation
                 (Name of small business issuer in its charter)

                         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 [] NO [X ]


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: $19,932,189 AGGREGATE
MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES AS OF DECEMBER 31, 2004:
$4,531,761.


AS OF DECEMBER 31, 2004, THERE ARE 30,211,740 SHARES OF COMMON STOCK
OUTSTANDING. THE ISSUER HAS NO OTHER CLASSES OF STOCK OUTSTANDING.

<PAGE>


                                TABLE OF CONTENTS

                        2004 ANNUAL REPORT ON FORM 10-KSB





                                     PART I

Item 1. Description of Business

Item 2. Description of Property

Item 3. Legal Proceedings

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

                                    PART II

Item 5. Market for Common Equity and Related Stockholder Matters

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

Item 7. Financial Statements

Item 8. Changes and Disagreements with Accountants on Accounting and Financial
        Disclosures

                                    PART III

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

Item 10. Executive Compensation

Item 11. Security Ownership of Certain Beneficial Owners and Management

Item 12. Certain Relationships and Related Transactions

Item 13. Exhibits, List and Reports on Form 8-K

Item 14 Controls and procedures

CEO CERTIFICATION

CFO CERTIFICATION

 Sec. 906 Certification by Chief Executive Officer

 Sec. 906 Certification by Chief Financial Officer

<PAGE>

                                     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 Name
October 28, 1986                         Eleven Business Acquisitions, Inc.
July 23, 1990                            Ivana Capital Corporation
September 29, 1992                       First Ivana Technologies, Ltd
March 30, 1993                           VitaMed Pharmaceuticals, Ltd
July 12, 1993                            Receptagen, Ltd
October 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, 2002.

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.

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.

<PAGE>

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 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 11,159 Euros/Month (USD$15,180 /Month) expiring
January 2006.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 $1,292 /Month) expiring November 2008.

Our Barcelona Office, located in Barcelona, Spain consists of approximately 70
square meters at a rate of 842 Euros/Month (USD $1,146/Month) expiring April
2007.

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, 2004 there were no legal proceedings
currently threatened or pending against us or our property or subsidiaries.

<PAGE>

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

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     Low
                                                        ------   ------

Fiscal 2004
First Quarter (01/01/04 - 03/31/04)                       0.52    0.17
Second Quarter (04/01/04 - 06/30/04)                      0.49    0.24
Third Quarter (07/01/04 - 09/31/04)                       0.26    0.15
Fourth Quarter (10/01/04 - 12/31/04)                      0.16    0.09
Fiscal 2003
First Quarter (01/01/03 - 03/31/03)                       0.24    0.07
Second Quarter (04/01/03 - 06/30/03)                      0.12    0.03
Third Quarter (07/01/03 - 09/31/03)                       0.34    0.08
Fourth Quarter (10/01/03 - 12/31/03)                      0.50    0.17

     (b) Holders. As of December 31, 2004 there were 1,225 shareholders of
record.

     (c) Dividends. There have been no dividends declared on our outstanding
common stock for the last four (4) fiscal years.

     (d) Recent Sales of Unregistered Stock. We have not executed any sales of
unregistered securities in the last four years.

In September, 2002, 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.

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, 2004, 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.

<PAGE>

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003

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).
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, 2004, increased $3,485,357 or 21.19 %
to $19,932,189, from $16,446,832 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, the
acquisition of portfolios of telephone clients, the sales of prepaid cards and
the increased sales of telecommunications services through the implementation of
marketing campaigns and expansion into related businesses.

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, 2004 increased $2,773,568
or 30.63% to $11,827,248 from $9,053,680 for the year ended December 31, 2003.
This increase was due primarily to the expansion of our business. The gross
margin (sales less communications expense) for the year ended December 31, 2004
increased $711,789 or 9.63% to $8,104,941 from $7,393,152 for the year ended
December 31, 2003. The increase was primarily due to the expansion of our
business offset by an increase in a new business line where the margins are
currently lower.

<PAGE>

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 in 2004 by $2,051,213 to $7,759,683, or 35.93%, from
$5,708,470 for the year ended December 31, 2003. This increase is principally a
result of the following. Marketing and selling expense increased by $1,294,990
because the Company increased certain arrangements with various advertisers and
outside marketers, and increased staff, thus increasing costs and commissions
paid. General and administrative expenses increased by $145,362 primarily as a
result of higher mailing expenses due to a significant increase in customers.
Depreciation and amortization increased $450,474 as a result of the purchase of
portfolios of telephone clients.

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.

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.


NET INCOME

Our net income was $74,689 for the year ended December 31, 2004 versus
$1,289,034 for the year ended December 31, 2003. This decrease was primarily due
to a greater increase in operating expenses than the increase of gross margin.

<PAGE>

ASSETS AND LIABILITIES

As of December 31, 2004, we had total assets of $9,512,083 and total liabilities
of $9,187,029 compared to $10,247,029 and $9,964,483 respectively, as of
December 31, 2003. 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 from a balance provided by operations of
$1,275,295 to a balance provided by operations of $2,061,513 for year ended
December 31, 2004, reflecting the decrease in net income from operations, a
decrease in advances from our bank, a decrease in restricted cash and an
increase in outstanding accounts receivable.

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.

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, 2004, we had a working capital deficiency of $2,474,721
versus a working capital deficit of $5,012,657 as of December 31, 2003. 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. If we are
unsuccessful in improving our working capital position through operations, we
may be required to seek additional capital through the capital markets or from
third parties. Such capital may be unavailable or unavailable on terms
unacceptable to the Company.

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. Additionally we are pursuing the acquisition of similarly
situated telecommunications companies, or their clients, primarily in Spain.
Such 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.

We are working to develop a new business in the denominated intelligent numbers
and we are negotiating with several companies to incorporate new important
resellers.

We have contracted with Uni 2 and BT, among others, to purchase telephone time.
The 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.

<PAGE>

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).

      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, 2002. 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 suppliers offset by a decrease in a new business line where the margins
are currently lower.

<PAGE>

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.

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.

<PAGE>

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

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 $786,218 to $1,275,295 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
$5,012,657 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.

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.

<PAGE>

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 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.

<PAGE>

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 subjects us to exchange rate risk on settlement of the
receivables and payables.

As of December 31, 2004, 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 December 2004, the FASB issued revised SFAS No. 123 (SFAS No. 123R),
Share-Based Payment. This standard eliminates the ability to account for
share-based compensation transactions using the intrinsic value-based method
under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and requires instead that such transactions be accounted for using a
fair-value-based method. SFAS No. 123R is effective for financial statements
issued for the first interim period beginning after June 15, 2005. The adoption
of this accounting pronouncement did not have a material effect on the
consolidated financial statements.

In December 2004, the FASB issued FSP No. 109-1--Application of SFAS No. 109,
Accounting for Income Taxes, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004. The effect of the
adoption of FSP No. 109-1 is not material to the Company's consolidated
financial statements.

In December 2004, the FASB issued FAS 153, Exchanges of Nonmonetary Assets. The
provisions of this Statement is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The provisions of
this Statement should be applied prospectively, and eliminates the exception
from fair value measurement for nonmonetary exchanges of similar productive
assets in paragraph 21(b) of APB Opinion No. 29, Accounting for Nonmonetary
Transactions, and replaces it with an exception for exchanges that do not have
commercial substance. The adoption of this accounting pronouncement is not
expected to have a material effect on the consolidated financial statements.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs - an Amendment
of ARB No. 43, Chapter 4. The standard requires abnormal amounts of idle
facility and related expenses to be recognized as current period charges and
also requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. SFAS
No. 151 is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The adoption of this accounting pronouncement did not have
a material effect on the consolidated financial statements.

<PAGE>

In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on
Issue No. 03-06, Participating Securities and the Two-Class Method Under FAS
128, which requires the use of the two-class method of computing earnings per
share for those enterprises with participating securities or multiple classes of
common stock. The consensus is effective for fiscal periods beginning after
March 31, 2004. The adoption of EITF No. 03-06 did not affect the Company's
consolidated financial statements.

In December 2003, the FASB revised FIN 46, Consolidation of Variable Interest
Entities. FIN 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. FIN 46 also requires disclosures about
variable interest entities that a company is not required to consolidate but in
which it has a significant variable interest. The consolidation requirements of
FIN 46 (as revised) apply immediately to variable interest entities created
after January 31, 2003 and to existing entities in the first fiscal year or
interim period ending after March 15, 2004. Certain of the disclosure
requirements apply to all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. This accounting
pronouncement did not have a material effect on the consolidated financial
statements.

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.

ITEM 7. FINANCIAL STATEMENTS

Financial statements are audited and included herein beginning at page F-1 and
are incorporated herein by reference.

<PAGE>
                          SPANTEL COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                              FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

                                TABLE OF CONTENTS


                                                                     Page

Independent Auditors' Report                                            3

Consolidated Balance Sheets                                             4

Consolidated Statements of Operations                                   5

Consolidated Statements of Comprehensive Income                         6

Consolidated Statements of Changes in Shareholders' Equity              7

Consolidated Statements of Cash Flows                                   8

Notes to Consolidated Financial Statements                           9-18

<PAGE>

                REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM


To the Shareholders of
Spantel Communications, Inc.

We have audited the accompanying consolidated balance sheets of Spantel
Communications, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of operations, comprehensive income, changes in
shareholders' equity, and cash flows for the years 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 audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audits include consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Spantel
Communications, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.


                                                    /s/ STALEY, OKADA & PARTNERS
                                                        CHARTERED ACCOUNTANTS

Vancouver, British Columbia
March 22, 2005


                                       3
<PAGE>

                          SPANTEL COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                                 2004            2003
                                                                             ------------    ------------
                                    ASSETS
<S>                                                                          <C>             <C>
CURRENT ASSETS:
  Cash and cash equivalents (Notes 1 and 4)                                  $    849,068    $    352,918
  Receivables:
    Trade, net of allowances for doubtful accounts (Note 1)                     3,938,307       2,450,422
    Related parties  (Note 5)                                                     117,777             510
    Other                                                                         553,745         234,022
  Deferred subscriber acquisition costs (Note 1)                                  574,074         328,680
  Current portion of notes receivable (Note 8)                                    148,776              --
  Other current assets                                                            121,073         372,811
                                                                             ------------    ------------
        Total current assets                                                    6,302,820       3,739,363
                                                                             ------------    ------------

OTHER ASSETS:
  Property and equipment, net (Note 3)                                            911,187       1,116,039
  Deferred subscriber acquisition costs (Note 1)                                  861,111       1,314,720
  Acquired subscriber lists, net of accumulated
  amortization of $439,687 and $0, respectively                                   907,893         214,563
  Long-term portion of notes receivable (Note 8)                                  188,656              --
  Restricted cash                                                                 103,490       3,653,862
  Deposits                                                                        236,926         208,482
                                                                             ------------    ------------
       Total other assets                                                       3,209,263       6,507,666
                                                                             ------------    ------------

          TOTAL ASSETS                                                       $  9,512,083    $ 10,247,029
                                                                             ============    ============

                     LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable and accrued expenses                                      $  4,128,481    $  4,072,468
  Advances from bank (Note 4)                                                          --       1,278,077
  Due to related parties (Note 5)                                               2,432,978       2,092,888
  Current portion of long-term liabilities (Note 7)                             2,216,082       1,308,587
                                                                             ------------    ------------

          Total current liabilities                                             8,777,541       8,752,020

LONG-TERM LIABILITIES (Note 7)                                                    409,488       1,212,463
                                                                             ------------    ------------

COMMITMENTS AND CONTINGENCIES (Note 7)

SHAREHOLDERS' EQUITY (Note 2):
  Common stock, $.001 par value, 60,000,000 shares authorized,
     30,211,740 and 30,211,740 shares issued and outstanding, respectively         30,212          30,212
  Additional paid-in capital                                                    5,390,588       5,390,588
  Accumulated other comprehensive loss                                           (264,441)       (232,260)
  Deficit                                                                      (4,831,305)     (4,905,994)
                                                                             ------------    ------------
        Total shareholders' equity                                                325,054         282,546
                                                                             ------------    ------------
          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                         $  9,512,083    $ 10,247,029
                                                                             ============    ============
</TABLE>

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


                                       4
<PAGE>

                          SPANTEL COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                       For the Years Ended
                                                           December 31,
                                                        2004            2003
                                                    ------------    ------------

<S>                                                 <C>             <C>
SALES                                               $ 19,932,189    $ 16,446,832
                                                    ------------    ------------

EXPENSES:
  Communications                                      11,827,248       9,053,680
  Marketing and selling                                2,408,622       1,189,664
  Marketing and selling - related parties              1,395,520       1,319,488
  Consulting                                             299,166         197,191
  Consulting - related parties                            15,153          18,076
  Professional fees                                      465,790         431,544
  Professional fees - related parties                     43,129          16,040
  General and administrative                           1,636,437       1,909,852
  General and administrative - related parties           684,074         265,297
  Depreciation and amortization                          811,792         361,318
                                                    ------------    ------------

     Total operating expenses                         19,586,931      14,762,150
                                                    ------------    ------------

          Income from operations                         345,258       1,684,682

OTHER EXPENSE:
  Interest expense                                      (270,569)       (484,841)
                                                    ------------    ------------

          Income before extraordinary item                74,689       1,199,841

Extraordinary gain on debt restructuring (Note 7)             --          89,193
                                                    ------------    ------------

NET INCOME                                          $     74,689    $  1,289,034
                                                    ============    ============

BASIC AND DILUTED INCOME PER COMMON SHARE:
    Income from continuing operations per share     $       0.00    $       0.05
                                                    ============    ============

    Income from extraordinary item                  $       0.00    $       0.00
                                                    ============    ============

    Net income                                      $       0.00    $       0.06
                                                    ============    ============

WEIGHTED AVERAGE SHARES OUTSTANDING                   30,211,740      21,904,516
                                                    ============    ============
</TABLE>

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


                                       5
<PAGE>

                          SPANTEL COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                       For the Years Ended
                                           December 31,
                                        2004           2003
                                     -----------    -----------


NET INCOME                           $    74,689    $ 1,289,034

OTHER COMPREHENSIVE INCOME (LOSS):
  Exchange gains (losses)                (32,181)      (295,319)
                                     -----------    -----------

COMPREHENSIVE INCOME                 $    42,508    $   993,715
                                     ===========    ===========

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


                                       6
<PAGE>

                          SPANTEL COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                 Accumulated
                                                                   Additional       Other
                                           Common Stock              Paid-In    Comprehensive
                                       Shares         Amount         Capital        Income          Deficit         Total
                                    ------------   ------------   ------------   ------------    ------------    ------------
<S>                                   <C>          <C>            <C>            <C>             <C>             <C>
BALANCES, December 31, 2002           21,858,746   $     21,859   $  3,895,402   $     63,059    $ (6,195,028)   $ (2,214,708)

     Issuance of common stock for
          assumption of debt           8,352,994          8,353      1,495,186             --              --       1,503,539
     Other comprehensive loss                 --             --             --       (295,319)             --        (295,319)
     Net income                               --             --             --             --       1,289,034       1,289,034
                                    ------------   ------------   ------------   ------------    ------------    ------------

BALANCES, December 31, 2003           30,211,740         30,212      5,390,588       (232,260)     (4,905,994)        282,546

     Other comprehensive income               --             --             --        (32,181)             --         (32,181)
     Net income                               --             --             --             --          74,689          74,689
                                    ------------   ------------   ------------   ------------    ------------    ------------

BALANCES, December 31, 2004           30,211,740   $     30,212   $  5,390,588   $   (264,441)   $ (4,831,305)   $    325,054
                                    ============   ============   ============   ============    ============    ============
</TABLE>

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


                                       7
<PAGE>

                          SPANTEL COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                        For the Years Ended
                                                                            December 31,
                                                                         2004            2003
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income from continuing operations                              $     74,689    $  1,289,034
  Adjustments to reconcile net income to net cash (used in)
   provided by operating activities:
     Depreciation and amortization                                        811,792         361,318
     Extraordinary item                                                        --         (89,193)
     Increase in accounts receivable, net                              (1,487,885)       (431,856)
     (Increase) decrease in other receivables                            (319,723)        481,837
     Decrease (increase) in deferred subscriber acquisition costs         208,215         (92,436)
     Decrease (increase) in other current assets and deposits             223,294        (428,415)
     (Increase) decrease in receivable from related parties              (117,267)        250,444
     Decrease (increase) in restricted cash                             3,550,372      (1,862,021)
     Increase (decrease) in due to related parties                        340,090        (192,257)
     (Decrease) increase in advances from bank                         (1,278,077)         15,468
     Increase in accounts payable and accrued expenses                     56,013       1,973,372
                                                                     ------------    ------------

               Net cash (used in) provided by operating activities      2,061,513       1,275,295

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment, net                                (167,253)       (466,564)
  Purchase of acquired subscriber lists                                (1,133,017)       (214,563)
                                                                     ------------    ------------

               Net cash used in investing activities                   (1,300,270)       (681,127)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments of long-term debt                                              104,520              --
  Issuance of notes receivable, net                                      (337,432)             --
                                                                     ------------    ------------

               Net cash used in financing activities                     (232,912)             --

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                   (32,181)       (295,319)
                                                                     ------------    ------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                      496,150         298,849

CASH AND CASH EQUIVALENTS, beginning of period                            352,918          54,069
                                                                     ------------    ------------

CASH AND CASH EQUIVALENTS, end of period                             $    849,068    $    352,918
                                                                     ============    ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Interest paid                                                      $    254,569    $    468,841
                                                                     ============    ============

  Taxes paid                                                         $         --    $         --
                                                                     ============    ============

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
  Issuance of common stock for assumption of debt                    $         --    $  1,503,539
                                                                     ============    ============

  Accounts payable restructured to long-term debt arrangement        $         --    $    740,753
                                                                     ============    ============
</TABLE>


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


                                       8
<PAGE>

                          SPANTEL COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Organization, Business and Going Concern

The Company was originally incorporated on May 17, 1984 under the name 133166
Canada Inc. and after a series of name changes became Receptagen, Ltd. On July
12, 1993. On October 30, 2001, the Company changed its name to Spantel
Communications, Inc. ("Spantel") and completed its domestication and
incorporation in the State of Florida, transferring the Company's charter from
Canadian Federal jurisdiction. On July 12, 2001, the shareholders approved an
exchange of common stock of the Company for all of the outstanding common stock
of Spantel Communications, Inc. ("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 2). BVI carries on its
business through Spantel 2000 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.

Basis of Consolidation

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. Certain prior year amounts have been reclassified to conform to
the current year presentation.

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, 2004 and
2003, cash and cash equivalents included $891,090 and $3,672,933, respectively,
in money market funds that secure advances from the Company's bank in amounts of
$0 and $1,278,077, respectively (see Note 4).

Accounts Receivable

The Company uses the allowance method in accounting for bad debts. As of
December 31, 2004 and 2003, the Company had recorded allowances for doubtful
accounts of $2,465,742 and $1,896,081, respectively. The Company believes all
remaining 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.

Amortization of Acquired Subscriber Lists

Acquired subscriber lists consist of telephone clients acquired from third
parties. The subscriber lists are amortized over the estimated useful life of
three years using the straight-line method.

Net Income Per Share of Common Stock

Basic and diluted net income 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. The note
payable convertible into common shares was not included in calculating diluted
net income per share because the effect was anti-dilutive.


                                       9
<PAGE>

                          SPANTEL COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)

Foreign Currency

The functional currency of the Company's foreign subsidiary is the Euro. The
Company's reporting currency is the United States dollar. 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. Realized foreign currency
translation gains and losses are credited or charged to operations during the
period. Unrealized gains or losses from foreign currency translation are
included in other comprehensive income.

Revenue Recognition

Revenue is recognized at the time the services are provided and when all of the
following criteria have been met: persuasive evidence for an arrangement exists;
service has been provided; the fee is fixed or determinable; and collection is
reasonably assured.

Long-Lived Assets

The Company reviews its long-lived assets for impairment at the end of every
reporting period and 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 the estimated undiscounted net cash flows, which are anticipated to be
generated by the asset.

Advertising Costs

Advertising costs are expensed as incurred and totaled $458,039 for the year
ended December 31, 2004 and $396,919 for the year ended December 31, 2003.

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. A valuation
allowance is provided for significant deferred tax assets when it is more likely
than not that such assets will be recovered.

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

The Company's financial instruments consist of cash and cash equivalents,
receivables, notes receivable, deposits, accounts payable, advances from bank,
due to and from related parties and long-term liabilities. 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
<PAGE>


                          SPANTEL COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)

Recent Accounting Pronouncements

In December 2004, the FASB issued revised SFAS No. 123 (SFAS No. 123R),
Share-Based Payment. This standard eliminates the ability to account for
share-based compensation transactions using the intrinsic value-based method
under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and requires instead that such transactions be accounted for using a
fair-value-based method. SFAS No. 123R is effective for financial statements
issued for the first interim period beginning after June 15, 2005. The adoption
of this accounting pronouncement did not have a material effect on the
consolidated financial statements.

In December 2004, the FASB issued FSP No. 109-1--Application of SFAS No. 109,
Accounting for Income Taxes, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004. The effect of the
adoption of FSP No. 109-1 is not material to the Company's consolidated
financial statements.

In December 2004, the FASB issued FAS 153, Exchanges of Nonmonetary Assets. The
provisions of this Statement is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The provisions of
this Statement should be applied prospectively, and eliminates the exception
from fair value measurement for nonmonetary exchanges of similar productive
assets in paragraph 21(b) of APB Opinion No. 29, Accounting for Nonmonetary
Transactions, and replaces it with an exception for exchanges that do not have
commercial substance. The adoption of this accounting pronouncement is not
expected to have a material effect on the consolidated financial statements.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs - an Amendment
of ARB No. 43, Chapter 4. The standard requires abnormal amounts of idle
facility and related expenses to be recognized as current period charges and
also requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. SFAS
No. 151 is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The adoption of this accounting pronouncement did not have
a material effect on the consolidated financial statements.

In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on
Issue No. 03-06, Participating Securities and the Two-Class Method Under FAS
128, which requires the use of the two-class method of computing earnings per
share for those enterprises with participating securities or multiple classes of
common stock. The consensus is effective for fiscal periods beginning after
March 31, 2004. The adoption of EITF No. 03-06 did not affect the Company's
consolidated financial statements.

In December 2003, the FASB revised FIN 46, Consolidation of Variable Interest
Entities. FIN 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. FIN 46 also requires disclosures about
variable interest entities that a company is not required to consolidate but in
which it has a significant variable interest. The consolidation requirements of
FIN 46 (as revised) apply immediately to variable interest entities created
after January 31, 2003 and to existing entities in the first fiscal year or
interim period ending after March 15, 2004. Certain of the disclosure
requirements apply to all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. This accounting
pronouncement did not have a material effect on the consolidated financial
statements.

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.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, as amended. This statement amends
and clarifies financial accounting and reporting for derivative instruments and
for hedging activities under SFAS No. 133. In general, SFAS No. 149 was
effective for the Company on a prospective basis for contracts entered into or
modified after September 30, 2003, and for hedging relationships designated
after that date. The adoption of SFAS No. 149 had no impact on the Company's
financial position, results of operations, or cash flows.


                                       11
<PAGE>

                          SPANTEL COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 2-  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, 2004, no dividends have been
declared or paid by the Company.

On July 12, 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. Immediately before 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.


NOTE 3-  PROPERTY AND EQUIPMENT

                                                      December 31,
                                                   2004           2003
                                               ------------   ------------
Cost:
    Construction                               $     45,448   $     45,448
    Technical installations and machinery           323,398        297,851
    Other installations, tools and furniture         89,080         79,879
    Data processing equipment                       461,885        399,953
    Software                                        221,962        237,749
    Other assets                                    934,818        848,470
                                               ------------   ------------
      Total cost                               $  2,076,591   $  1,909,350
                                               ------------   ------------

Accumulated depreciation:
    Construction                                     40,731         28,223
    Technical installations and machinery           154,004         98,818
    Other installations, tools and furniture         34,666         23,468
    Data processing equipment                       407,422        330,419
    Software                                        164,328        105,958
    Other assets                                    364,253        206,425
                                               ------------   ------------
      Total accumulated depreciation           $  1,165,404   $    793,311
                                               ------------   ------------

        Net book value                         $    911,187   $  1,116,039
                                               ============   ============

<PAGE>

                          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.
As of December 31, 2004, the Company paid all advances from the bank.


NOTE 5-  RELATED PARTY TRANSACTIONS

Balances with related parties at December 31, 2004 and 2003 consisted of the
following:

<TABLE>
<CAPTION>
                                                                 Due from Related Parties       Due to Related Parties
                                                                ---------------------------   ---------------------------
                                                                    2004           2003           2004           2003
                                                                ------------   ------------   ------------   ------------
<S>                                                             <C>            <C>            <C>            <C>
Non-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   $    292,229

Non-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                           --             --        410,249        382,037

Advances from/to related parties                                     117,777            510        139,943        154,876

Due to related companies for telemarketing and other services             --             --      1,590,557      1,263,746
                                                                ------------   ------------   ------------   ------------

     Total                                                      $    117,777   $        510   $  2,432,978   $  2,092,888
                                                                ============   ============   ============   ============
</TABLE>

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 $2,094,746 and $1,602,861 during the
years ended December 31, 2004 and 2003, respectively, related to these services
from ABC. Included in due to related companies for telemarketing and other
services above is $1,590,557 and $1,263,746, due to ABC as of December 31, 2004
and December 31, 2003, 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. Credifinance is also related to the entity that is the note
holder of the two notes payable listed above and in addition, is related to
another entity that is a 3.3% shareholder.

Included in due from related parties above is $87,949 and $0 as of December 31,
2004 and 2003, respectively, due from Spansurf, which is 100% owned by ABC.
Since inception, the Company has charged off $996,435 to operations for amounts
advanced to Spansurf. Also included in the due from related parties above is
$29,828 as of December 31, 2004 due from entities owned by certain shareholders
and directors of the Company. For the years ended December 31, 2004 and 2003,
respectively, $139,943 and $154,876 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 31, 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, 2004
and 2003 are paid to related parties.


                                       12
<PAGE>

                          SPANTEL COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 6-  INCOME TAXES

At December 31, 2004, the Company had an unused U.S. federal net operating loss
carryforward of approximately $574,612 for income tax purposes, which expires in
various years through 2024. 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, 2004, the Company had an unused Spanish net operating loss carryforward of
approximately $6,723,082, of which $378,018 expires in 2015, $4,047,160 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, 2004 and 2003 are as follows:

                                                         2004           2003
                                                     -----------    -----------
Deferred tax liabilities                             $        --    $        --

Deferred tax assets:
       U.S. net operating loss carryforwards         $   201,114    $   107,457
       Spanish net operating loss carryforwards        3,506,376      3,373,920
       Temporary differences                                  --             --
                                                     -----------    -----------
            Total deferred assets                      3,707,490      3,481,377
       Valuation allowance for deferred tax assets    (3,707,490)    (3,481,377)
                                                     -----------    -----------

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

The valuation allowance for deferred tax assets was increased by $226,113 and
$1,054,377 for the years ending December 31, 2004 and 2003, respectively.

                                                     2004            2003
                                                 ------------    ------------
Expected statutory tax rates                            35.00%          35.00%
Expected state tax rate, net                              3.6%            3.6%
                                                 ------------    ------------
Expected combined statutory tax rates                   38.60%          38.60%
Utilization of net operating loss carryforward        -38.60%         -38.60%
Valuation allowance for deferred tax assets                --              --
                                                 ------------    ------------

                                                         0.00%           0.00%
                                                 ============    ============

                                       14
<PAGE>

                          SPANTEL COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 7-  CONVERTIBLE NOTE PAYABLE, COMMITMENTS AND CONTINGENCIES (continued)

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.

As of December 31, 2004, the cash and cash equivalents of the Company in the
amount of $952,558 are on deposit in Spain and are not insured by any regulatory
authority in Spain. Should the related banks cease doing business, these amounts
are subject to loss.


                                       13
<PAGE>

                          SPANTEL COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 7-  CONVERTIBLE NOTE PAYABLE, COMMITMENTS AND CONTINGENCIES

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 ($245,000 USD) and two percent of the adjusted net profits.

During the year ended December 31, 2004, the Company purchased several
portfolios of telephone clients from unrelated entities. The combined final
purchase price was $1,347,593.

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, 2004 and 2003, the long-term borrowings consisted of the
follow:

<TABLE>
<CAPTION>
                                                          2004            2003
                                                      ------------    ------------
<S>                                                   <C>             <C>
Convertible note, convertible at $.50 per  share of
common stock, unsecured, bearing  interest at
8 percent and due September 30, 2007                  $    200,000    $    200,000

Debt arrangement, unsecured, bearing interest at
8%, due on demand                                          272,080         124,960

Debt arrangement, unsecured, imputed  interest rate
at 6%, due in installments until September 2005            871,395              --

Capital lease covering an automobile for four years
expiring November 23, 2008                                  91,343              --

Capital lease covering equipment for three years
expiring November 30, 2006                                 295,794         413,460

Long-term debt arrangement, unsecured, imputed
interest rate at 2.91%, due October 15, 2005               894,958       1,782,630
                                                      ------------    ------------

                                                         2,625,570       2,521,050

Less: Current portion of long-term debt                 (2,216,082)     (1,308,587)
                                                      ------------    ------------

     Total long-term debt                             $    409,488    $  1,212,463
                                                      ============    ============
</TABLE>


                                       15
<PAGE>

                          SPANTEL COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

NOTE 7-  CONVERTIBLE NOTE PAYABLE, COMMITMENTS AND CONTINGENCIES (continued)

The Company has operating leases for office space and equipment from unrelated
third parties under non-cancelable operating leases. As of December 31, 2004,
aggregate minimum future commitments under these leases are as follows:

         Fiscal Year                           Amount
                                           ---------------
            2005                                $ 239,420
            2006                                   30,409
            2007                                   20,603
            2008                                   15,907
                                                   ------

Total minimum lease payments                    $ 306,339
                                                =========

The annual rents under these leases were approximately $197,892. The equipment
leases for the year ended December 31, 2004, were approximately $65,315.

The Company has two capital leases covering equipment and an automobile.
Aggregate annual payments on capital leases at December 31, 2004, are as
follows:

         Fiscal Year                                             Amount
         -----------                                     -----------------------
            2005                                                $ 177,649
            2006                                                  164,788
            2007                                                   23,322
            2008                                                   21,378
                                                                   ------
                                                                  387,137
Present value of future minimum lease payments                  $ 387,137
                                                                =========

The amount of equipment and automobile under capital leases at December 31,
2004, was $438,285. These properties had related accumulated depreciation of
$48,654 for a net book value of $389,631 at December 31, 2004.


NOTE 8 -  NOTES RECEIVABLE

In connection with one of the telephone client purchases discussed above, the
Company loaned one of the third party entities $225,000, bearing interest at the
Euribor rate of 2.4% due in monthly payments of approximately $6,400 per month
until January, 2007 and $187,500, bearing interest at the Euribor rate of 2.4%
and due in monthly payments of approximately $5,300 per month until March, 2007.
As of December 31, 2004 and 2003, the amounts of the notes receivable are as
follows:

<TABLE>
<CAPTION>
                                                          2004            2003
                                                      ------------    ------------
<S>                                                   <C>             <C>
Note receivable bearing interest of 2.4%
  due in monthly installments until January 2007      $    171,912    $         --


Note receivable bearing interest of 2.4%
  due in monthly installments until March 2007             165,520              --
                                                      ------------    ------------


          Total notes receivable                           337,432              --

          Less: current portion of notes receivable       (148,776)             --
                                                      ------------    ------------

          Long-term portion of notes receivable       $    188,656    $         --
                                                      ============    ============
</TABLE>


                                       16
<PAGE>

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 LLP 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 LLP 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 LLP resignation and to engage new
auditors was made and approved by the Board of Directors.

<PAGE>

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, 2004. 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, 2004 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. There were no changes
in internal controls over financial reporting that have materially affected, or
are reasonably likely to materially affect, our internal controls over financial
reporting. No material weaknesses in internal controls were identified or
reported to our auditors nor was there any fraud that 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,
2004, the members of our board of directors were as follows:

           Name         Age                         Office
--------------------    ----   -----------------------------------------------
Mohamed A. Khashoggi     41    Director
Jose Ramon Basterra      48    President, Chief Executive Officer 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 and Chief Executive
Officer. 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 (euro)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, 2002, 2003 and 2004, 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 subsidiaries. To date, the directors, officers, and
beneficial shareholders have not complied with the requirements of Section 16(a)
of the Securities Exchange Act.

<PAGE>

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, 2004.


         Name and Principal                                            Other
              Position                  Year    Salary (USD)       Compensation

Mohamed A. Khashoggi,                   2004    $    38,029            None
Director (1) (3)                        2003    $    33,091            None
                                        2002    $    30,336            None
                                        2001    $    46,829            None
                                        2000    $    13,855            None
Jose Ramon Basterra,                    2004    $    84,604        $ 165,692.73
Management Director and                 2003    $    70,248        $ 139,051.33
Director (1) (2) (3)                    2002    $    73,615            None
                                        2001    $    26,060            None
                                        2000    $    12,237            None
Cesar Martinez, Financial               2004    $   104,980            None
Manager (1) (5)                         2003    $    96,919            None
                                        2002    $    70,644            None
                                        2001    $    31,699            None
                                        2000    $       -0-            None

      (1)   All Officers and directors are paid in Euro's, the local currency.
            The average rate of exchange in 2004 was $1.12445/Euro 1.000 and 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 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.

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($225,010 based on
an average exchange rate of $1.2445/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. Instead of buying the car,
the Company entered into an automobile lease at the end of the year 2004.

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 years ended December 31, 2004
and 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 years 2004 and 2003.

<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of December 31, 2004 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, 2004 and 2003
there were 30,211,740 shares of our common stock issued and outstanding.

<TABLE>
<CAPTION>
            Name and Address                                    Number of Shares           % of Stock
             of Beneficial                                        Beneficially             Beneficially
                 Owned                Title of Class                  Owner                   Owned
<S>                                   <C>                       <C>                        <C>
Mohamed Khashoggi                              Common Stock             3,700,000                   12.2%
200-A Benabola Puerta Banus,
29660, Malaga
Spain
Jose Ramon Basterra                            Common Stock             1,570,900                    5.2%
Avda.Myramar
Miramar 35
Fuengirola
29640, Malaga
Spain
Cesar Martinez,                                Common Stock                10,000                      *
Avda.Myramar
Miramar 35
Fuengirola
29640, Malaga
Spain
Financiere                                     Common Stock             1,000,000                    3.3%
Hispoano-Suiza
SA(1)

10 Rue Pierre
Fation
Geneva, 1206
Switzerland
All directors                                  Common Stock             5,790,900                   19.2%
officers and as
a group
(5 persons)
</TABLE>

      *     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 2000
S.A. for the services provided. Spantel 2000 S.A. incurred $2,094,746 and
$1,602,861 during the years ended December 31, 2004 and 2003, respectively
related to these services from ABC. On March 5, 2004, Spantel 2000, the
Corporation's wholly owned subsidiary, acquired ABC Telemarketing S.L. ("ABC"),
a Spanish company, located in Malaga (South of Spain) from Jose Ramon Basterra,
the Corporation's President and Chief Executive Officer. The consideration for
the purchase was $3,737.56US. On December 21, 2004, the parties agreed to unwind
this acquisition, however ABC will continue to provide the Corporation with
telemarketing services to generate new customers for Spantel 2000, as well as
operate a customer service center for Spantel 2000's base of customers. ABC
performed similar services for Spantel 2000 during previous fiscal years and was
its principal customer. Approximately 80% of Spantel 2000's current customers
were identified and secured based on the telemarketing activities of ABC.

<PAGE>

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 $996,435 to operations for amounts advanced to Spansurf. The amounts
charged off in 2004 and 2003 were $345,111 and $156,114 , 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 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).

31.1 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).

31.2 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


On March 23, 2004, the Company filed a Form 8-K with respect to the termination
of its relationship with its prior accountants and the appointment of its
current accountants. The Form 8-K/A provided that, effective March 17, 2004,
Spantel Communications, Inc. (the "Company") retained Staley, Okada and Partners
as its new certifying accountants, replacing Spicer, Jeffries & Co.


Spicer, Jeffries & Co. advised the Company on March 16, 2004 that its
professional liability insurance coverage for public reporting companies was not
renewed by its previous insurance carrier, and that it had been unsuccessful in
obtaining new insurance coverage for public registrants.


There were no disagreements with the former accountant on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which, if not resolved to Spicer, Jeffries & Co.'s
satisfaction would have caused it to make reference to the subject matter of the
disagreement in connection with its report through the date of its resignation,
March 17, 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 for these fiscal
years included an emphasis related to the uncertainties as to our ability to
continue as a going concern.


The decision to accept Spicer, Jeffries & Co.'s resignation and engage new
auditors was approved by the Board of Directors.


On March 17, 2004, the Company engaged the firm of Staley, Okada and Partners as
its new certifying accountants to examine the books and records of the Company
for the fiscal year ending December 31, 2003.


On July 23, 2004, the Company filed a Form 8-K/A amending the March 23, 2004
Form 8-K to add certain clarifying information with respect to the termination
of its relationship with Spicer Jeffries LLP and the new engagement of Staley,
Okada and Partners.

<PAGE>

Item 14. Principal Accountant Fees and Services

Audit Fees

For the years ended December 31, 2004 and 2003, the aggregate fees billed by
Staley, Okada & Partners for professional services rendered for the audit of the
financial statements included in this annual report on Form 10-KSB for the years
ended were $24,000 and $20,800, respectively.

Audit Related Fees

For the years ended December 31, 2004 and 2003, the aggregate fees billed for
assurance and related services by Staley Okada & Partners relating to our
quarterly financial statements which are not reported under the caption "Audit
Fees" above, were $5,250and $0, respectively.

All Other Fees

For the years ended December 31, 2004 and 2003, the aggregate fees billed by
Staley Okada & Partners for other non-audit professional services, other than
those services listed above, totaled $0 and $0, respectively.

<PAGE>

                                   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: August 5, 2005
          --------------------------
          Jose Ramon Basterra

          President and Director

By:       /s/ MOHAMED A. KHASHOGGI                 Date: August 5, 2005
          --------------------------
          Mohamed A. Khashoggi
          Director

By:       /s/ CESAR MARTINEZ                       Date: August 5, 2005
          --------------------------
          Cesar Martinez
          Treasurer
          and Chief Financial Officer