UNITED
        STATES
 SECURITIES
        AND EXCHANGE COMMISSION
  WASHINGTON,
        D.C. 20549
  FORM
        1O-KSB/A No. 2
  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.
  
  **TABLE
        OF CONTENTS**
  2004
        ANNUAL REPORT ON FORM 10-KSB
 
 PART
                  IItem 1.
              
              Description
                  of BusinessItem 2.
              
              Description
                  of PropertyItem 3.
              
              Legal
                  ProceedingsItem 4.
              
              Submission
                  of Matters to a Vote of Security HoldersPART
                  IIItem 5.
              
              Market
                  for Common Equity and Related Stockholder MattersItem 6.
              
              Management’s
                  Discussion and Analysis or Plan of OperationItem 7.
              
              Financial
                  StatementsItem 8.
              
              Changes
                  and Disagreements with Accountants on Accounting and Financial
                  DisclosuresPART
                  IIIItem 9.
              
              Directors
                  and Executive Officers, Promoters and Control Persons; Compliance
                  With
                  Section 16(a) of the Exchange ActItem 10.
              
              Executive
                  CompensationItem 11.
              
              Security
                  Ownership of Certain Beneficial Owners and ManagementItem 12.
              
              Certain
                  Relationships and Related TransactionsItem 13.
              
              Exhibits,
                  List and Reports on Form 8-KItem 14
              
              Controls
                  and proceduresCEO
                  CERTIFICATIONCFO
                  CERTIFICATIONSec.
                  906 Certification by Chief Executive OfficerSec.
                  906 Certification by Chief Financial
                  Officer
 
 
 
 PART
        I
 ITEM
        1.
        DESCRIPTION OF BUSINESS
 
 A.
              BUSINESS
                  DEVELOPMENT
 
 We
        were
        incorporated pursuant to the Canada Business Corporations Act on May 17,
        1984
        under the name 133,166 Canada Inc and subsequently changed our name, as follows:
  Effective
                  Date of Name Change
              
              New
                  NameOctober 28,
                  1986
              
              Eleven
                  Business Acquisitions, Inc.July 23,
                  1990
              
              Ivana
                  Capital CorporationSeptember 29,
                  1992
              
              First
                  Ivana Technologies, LtdMarch 30,
                  1993
              
              VitaMed
                  Pharmaceuticals, LtdJuly 12,
                  1993
              
              Receptagen,
                  LtdOctober 30,
                  2001
              
              Spantel
                  Communications, Inc
 
 We
        are a
        reporting issuer and our common shares have been listed on the OTC.BB under
        the
        symbol SPAL. Our shares have been traded on the Over the Counter Bulletin
        Board
        (“OTCBB”) since July 3, 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.
  
  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 significant legal
            proceedings currently threatened or pending against us or our property
            or
            subsidiaries.
 
  ITEM
        4.
        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  During
        the fiscal year covered by this report, no matters were submitted to a vote
        of
        our security holders, through the solicitation of proxies or
        otherwise.
  PART
        II
  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
                  2004First
                  Quarter (01/01/04 - 03/31/04)
              
              
              0.52
              
              
              
              0.17Second
                  Quarter (04/01/04 - 06/30/04)
              
              
              0.49
              
              
              
              0.24Third
                  Quarter (07/01/04 - 09/31/04)
              
              
              0.26
              
              
              
              0.15Fourth
                  Quarter (10/01/04 - 12/31/04)
              
              
              0.16
              
              
              
              0.09Fiscal
                  2003First
                  Quarter (01/01/03 - 03/31/03)
              
              
              0.24
              
              
              
              0.07Second
                  Quarter (04/01/03 - 06/30/03)
              
              
              0.12
              
              
              
              0.03Third
                  Quarter (07/01/03 - 09/31/03)
              
              
              0.34
              
              
              
              0.08Fourth
                  Quarter (10/01/03 - 12/31/03)
              
              
              0.50
              
              
              
              0.17
 
 (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.
 
 
  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 10%-15%) 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.
  
 
 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.
  
  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 decreased from a balance provided by operations of
        $3,137,316 to a balance used in operations of $496,667 for year ended December
        31, 2004, reflecting the decrease in net income from operations and a decrease
        in advances from our bank 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 $2,371,231 versus
        a
        working capital deficit of $1,358,795 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.
 
 
  **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.
  
 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.
  
  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 $1,616,446 to $3,137,316 for year ended
        December 31, 2003, reflecting the increase in net income from operations.
 
 CAPITAL
        RESOURCES
 
 Our
        capital resources have been provided primarily by capital contributions from
        stockholders, stockholders’ loans and the exchange of outstanding debt into our
        common stock.
 
 WORKING
        CAPITAL AND LIQUIDITY
 
 As
        of
        December 31, 2003, we had a working capital deficit of approximately
        $1,358,795 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.
  
  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.
  
  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 at the beginning of the next fiscal year that begins after
        December
        15, 2005. The adoption of this accounting pronouncement may have a material
        effect on the consolidated financial statements if the Company elects to
        grant
        options.
  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.
 
 
 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.
  
   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.
  
  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
 
 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 €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.
  
 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**Position
              
              **Year**
              
              **Salary
                  (USD)**
              
              **Other**CompensationMohamed
                  A. Khashoggi,
              
              
              2004
              
              
              $
              38,029
              
              
              NoneDirector
                  (1) (3)
              
              
              2003
              
              
              $
              33,091
              
              
              None2002
              
              
              $
              30,336
              
              
              None2001
              
              
              $
              46,829
              
              
              None2000
              
              
              $
              13,855
              
              
              NoneJose
                  Ramon Basterra,
              
              
              2004
              
              
              $
              84,604
              
              
              
              $                 
                  165,692.73Management
                  Director and
              
              
              2003
              
              
              $
              70,248
              
              
              
              $                 
                  139,051.33Director
                  (1) (2) (3)
              
              
              2002
              
              
              $
              73,615
              
              
              None2001
              
              
              $
              26,060
              
              
              None2000
              
              
              $
              12,237
              
              
              NoneCesar
                  Martinez, Financial
              
              
              2004
              
              
              $
              104,980
              
              
              NoneManager
                  (1) (5)
              
              
              2003
              
              
              $
              96,919
              
              
              None2002
              
              
              $
              70,644
              
              
              None2001
              
              
              $
              31,699
              
              
              None2000
              
              
              $
              -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.
  
  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.
 
 **Name
                  and Address**
              
              
              
              
              
              **Number
                  of Shares**
              
              **%
                  of Stock****of
                  Beneficial Owner**
              
              **Title
                  of Class**
              
              **Beneficially
                  Owned**
              
              **Beneficially
                  Owned**Mohamed
                  Khashoggi
                200-A
                  Benabola Puerta Banus,
                29660,
                  Malaga
                Spain
              
              Common
                  Stock
              
              
              3,700,000
              
              
              
              12.2
              %Jose
                  Ramon Basterra
                Avda.Myramar
                Miramar
                  35
              
              Common
                  Stock
              
              
              1,570,900
              
              
              
              5.2
              %Fuengirola
                29640,
                  Malaga
                SpainCesar
                  Martinez,
                Avda.Myramar
                Miramar
                  35
                Fuengirola
                29640,
                  Malaga
                Spain
              
              Common
                  Stock
              
              
              10,000
              
              
              
              *Financiere
                Hispoano-Suiza
                SA(1)
                
                10
                  Rue PierreFation
                Geneva,
                  1206
                Switzerland
              
              Common
                  Stock
              
              
              1,000,000
              
              
              
              3.3
              %All
                  directorsofficers
                  and asa
                  group(5
                  persons)
              
              Common
                  Stock
              
              
              5,790,900
              
              
              
              19.2
              %
 
 *Indicates
        less than 1% ownership.
  (1)
              Financiere
                  Hispoano-Suiza SA is an affiliated company of Credifinance, Ltd.
                  The
                  shares owned by Financiere Hispoana-Suiza SA were issued to Credifinance
                  for investment banking services rendered to Spantel.
 
 ITEM
        12.
        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
 Spantel
        S.A. relies on a related entity, ABC Telemarketing S.L. (“ABC”), a Spanish
        company, for telemarketing services to generate new customers as well as
        operating a customer service center for its base of customers. ABC is 50%
        owned
        by the chief executive officer of Spantel 2000 S.A. and charges Spantel 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.
  
  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 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 & Co.
        and the new engagement of Staley, Okada and Partners.
  
 
 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.
  
  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:
                  July 18, 2005Jose
                  Ramon BasterraPresident
                  and DirectorBy:
              
              /s/
                  MOHAMED A. KHASHOGGI
              
              Date:
                      July 18, 2005Mohamed
                  A. KhashoggiDirectorBy:
              
              /s/
                  CESAR MARTINEZ
              
              Date:
                      July 18, 2005Cesar
                  MartinezTreasurer
                  and
                  Chief Financial Officer
 
  
 
 **SPANTEL
        COMMUNICATIONS, INC.**
 **AND
        SUBSIDIARIES**
 **FINANCIAL
        STATEMENTS**
 **DECEMBER
        31, 2004**
 
 **TABLE
        OF CONTENTS**
 
 
 PageIndependent
                  Auditors’ Report
              3Consolidated
                  Balance Sheets
              4Consolidated
                  Statements of Operations
              5Consolidated
                  Statements of Comprehensive Income
              6Consolidated
                  Statements of Changes in Shareholders’ Equity
              7Consolidated
                  Statements of Cash Flows
              8Notes
                  to Consolidated Financial Statements
              9-18
 
  
  **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






**SPANTEL
                  COMMUNICATIONS, INC.****AND
                  SUBSIDIARIES****CONSOLIDATED
                  BALANCE SHEETS****December
                  31,****2004**
              
              **2003****ASSETS****CURRENT
                  ASSETS:**Cash
                  and cash equivalents (Notes 1 and 4)
              
              $
              952,558
              
              $
              4,006,780Receivables:Trade,
                  net of allowances for doubtful accounts (Note 1)
              
              
              3,938,307
              
              
              2,450,422Related
                  parties (Note 5)
              
              
              117,777
              
              
              510Other
              
              
              553,745
              
              
              234,022Deferred
                  subscriber acquisition costs (Note 1)
              
              
              574,074
              
              
              328,680Current
                  portion of notes receivable (Note 8)
              
              
              148,776
              
              
              -Other
                  current assets
              
              
              121,073
              
              
              372,811***Total
                  current assets***
              
              
              6,406,310
              
              
              7,393,225**OTHER
                  ASSETS:**Property
                  and equipment, net (Note 3)
              
              
              911,187
              
              
              1,116,039Deferred
                  subscriber acquisition costs (Note 1)
              
              
              861,111
              
              
              1,314,720Acquired
                  subscriber lists, net of accumulatedamortization
                  of $439,687 and $0, respectively
              
              
              907,893
              
              
              214,563Long-term
                  portion of notes receivable (Note 8)
              
              
              188,656
              
              
              -Deposits
              
              
              236,926
              
              
              208,482***Total
                  other assets***
              
              
              3,105,773
              
              
              2,853,804***TOTAL
                  ASSETS***
              
              $
              9,512,083
              
              $
              10,247,029**LIABILITIES
                  AND SHAREHOLDERS’ EQUITY****CURRENT
                  LIABILITIES:**Accounts
                  payable and accrued expenses
              
              $
              4,128,481
              
              $
              4,072,468Advances
                  from bank (Note 4)
              
              
              -
              
              
              1,278,077Due
                  to related parties (Note 5)
              
              
              2,432,978
              
              
              2,092,888Current
                  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
              
              
              30,212Additional
                  paid-in capital
              
              
              5,390,588
              
              
              5,390,588Accumulated
                  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




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









**SPANTEL
      COMMUNICATIONS, INC.**


**AND
      SUBSIDIARIES**




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




**For
                  the Years Ended****December
                  31,****2004**
              
              **2003****SALES**
              
              $
              19,932,189
              
              $
              16,446,832**EXPENSES:**Communications
              
              
              11,827,248
              
              
              9,053,680Marketing
                  and selling
              
              
              3,804,142
              
              
              2,509,152Consulting
              
              
              314,319
              
              
              215,267Professional
                  fees
              
              
              508,919
              
              
              447,584General
                  and administrative
              
              
              2,320,511
              
              
              2,175,149Depreciation
                  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
              
              
              1,199,841Extraordinary
                  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**




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









**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.









**SPANTEL
        COMMUNICATIONS, INC.**
 **AND
        SUBSIDIARIES**
  **CONSOLIDATED
        STATEMENTS OF SHAREHOLDERS' EQUITY**




**Accumulated****Additional**
              
              **Other****Common
                  Stock**
              
              **Paid-In**
              
              **Comprehensive****Shares**
              
              **Amount**
              
              **Capital**
              
              **Income**
              
              **Deficit**
              
              **Total****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
              
              
              —
              
              
              —
              
              
              1,503,539Other
                  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
              )
              
              282,546Other
                  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**






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





**** **SPANTEL
        COMMUNICATIONS, INC.**
 **AND
        SUBSIDIARIES**
  **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**


**For
                  the Years Ended****December
                  31,****2004**
              
              **2003****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  income from continuing operations
              
              $
              74,689
              
              $
              1,289,034Adjustments
                  to reconcile net income to net cash (used in) provided by operating
                  activities:Depreciation
                  and amortization
              
              
              811,792
              
              
              361,318Extraordinary
                  item
              
              
              -
              
              
              (89,193
              )Increase
                  in accounts receivable, net
              
              
              (1,487,885
              )
              
              (431,856
              )(Increase)
                  decrease in other receivables
              
              
              (319,723
              )
              
              481,837Decrease
                  (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
              )
              
              250,444Increase
                  (decrease) in due to related parties
              
              
              340,090
              
              
              (192,257
              )(Decrease)
                  increase in advances from bank
              
              
              (1,278,077
              )
              
              15,468Increase
                  in accounts payable and accrued expenses
              
              
              56,013
              
              
              1,973,372***Net
                  cash (used in) provided by operating activities***
              
              
              (1,488,859
              )
              
              3,137,316**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**
              
              
              (3,054,222
              )
              
              2,160,870**CASH
                  AND CASH EQUIVALENTS**,
                  beginning of period
              
              
              4,006,780
              
              
              1,845,910**CASH
                  AND CASH EQUIVALENTS**,
                  end of period
              
              **$**
              **952,558**
              
              **$**
              **4,006,780****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**




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









**SPANTEL
      COMMUNICATIONS, INC.**


**AND
      SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Continued)**




**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.
  
  **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.
  
 **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 at the beginning of the next fiscal year that begins after December
        15,
        2005. The adoption of this accounting pronouncement may have a material effect
        on the consolidated financial statements if the Company elects to grant options.
  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.
  
  **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
              
              $
              45,448Technical
                  installations and machinery
              
              
              323,398
              
              
              297,851Other
                  installations, tools and furniture
              
              
              89,080
              
              
              79,879Data
                  processing equipment
              
              
              461,885
              
              
              399,953Software
              
              
              221,962
              
              
              237,749Other
                  assets
              
              
              934,818
              
              
              848,470***Total
                  cost***
              
              $
              2,076,591
              
              $
              1,909,350Accumulated
                  depreciation:Construction
              
              
              40,731
              
              
              28,223Technical
                  installations and machinery
              
              
              154,004
              
              
              98,818Other
                  installations, tools and furniture
              
              
              34,666
              
              
              23,468Data
                  processing equipment
              
              
              407,422
              
              
              330,419Software
              
              
              164,328
              
              
              105,958Other
                  assets
              
              
              364,253
              
              
              206,425***Total
                  accumulated depreciation***
              
              $
              1,165,404
              
              $
              793,311***Net
                  book value***
              
              $
              **911,187**
              
              $
              1,116,039







**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:
  Due
                      from Related Parties
                  
                  Due
                      to Related Parties2004
                  
                  2003
                  
                  2004
                  
                  2003Non-interest
                      bearing note payable, due upon paymentby
                      payee to a creditor of the Company in the sameamount,
                      with earlier maturity upon certain eventsstipulated
                      in the note agreement
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  292,229
                  
                  $
                  292,229Non-interest
                      bearing note payable, due upon paymentby
                      payee to a creditor of the Company in the sameamount,
                      with earlier maturity upon certain eventsstipulated
                      in the note agreement
                  
                  
                  —
                  
                  
                  —
                  
                  
                  410,249
                  
                  
                  382,037Advances
                      from/to related parties
                  
                  
                  117,777
                  
                  
                  510
                  
                  
                  139,943
                  
                  
                  154,876Due
                      to related companies for telemarketing and otherservices
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,590,557
                  
                  
                  1,263,746Total
                  
                  **$**
                  **117,777**
                  ****
                  **$**
                  **510**
                  ****
                  **$**
                  **2,432,978**
                  ****
                  **$**
                  **2,092,888**
 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.




**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
              
              2003Deferred
                  tax liabilities
              $
              —
              $
              —Deferred
                  tax assets:U.S.
                  net operating loss carryforwards
              
              201,114
              $
              107,457Spanish
                  net operating loss carryforwards
              
              3,506,376
              
              3,373,920Temporary
                  differences
              
              —
              
              —Total
                  deferred assets
              
              3,707,490
              
              3,481,377Valuation
                  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
              
              2003Expected
                  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
              %




**NOTE
      7-**  **CONVERTIBLE
      NOTE PAYABLE, COMMITMENTS AND CONTINGENCIES**


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.




**SPANTEL
          COMMUNICATIONS, INC.**
 **AND
          SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 (Continued)




**NOTE
        7-**  **CONVERTIBLE
        NOTE PAYABLE, COMMITMENTS AND CONTINGENCIES **(continued)****
 
 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:
  **2004**
                
                **2003**Convertible
                      note, convertible at $.50 per share ofcommon stock, unsecured,
                      bearing interest at 8 percent and due September 30, 2007
                
                $
                200,000
                
                $
                200,000Debt
                      arrangement, unsecured, bearing interest at 8%,due on
                      demand
                
                
                272,080
                
                
                124,960Debt
                      arrangement, unsecured, imputed interest rateat 6%, due in
                      installments until September 2005
                
                
                871,395
                
                
                -Capital
                      lease covering an automobile for four yearsexpiring November 23,
                      2008
                
                
                91,343
                
                
                -Capital
                      lease covering equipment for three yearsexpiring November 30,
                      2006
                
                
                295,794
                
                
                413,460Long-term
                      debt arrangement, unsecured, imputedinterest rate at 2.91%, due
                      October 15, 2005
                
                
                894,958
                
                
                1,782,6302,625,570
                
                
                2,521,050Less:
                    Current portion of long-term debt
                
                
                (2,216,082
                )
                
                (1,308,587
                )Total
                    long-term debt
                
                **$**
                **409,488**
                
                **$**
                **1,212,463**


**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
                
                $
                239,4202006
                
                
                30,4092007
                
                
                20,6032008
                
                
                15,907Total
                    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
                
                $
                177,6492006
                
                
                164,7882007
                
                
                23,3222008
                
                
                21,378387,137Present
                    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:
 
 
 **2004**
                
                **2003**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**
                
                $
                —