UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
  WASHINGTON,
D.C. 20549
  FORM
1O-KSB
  ANNUAL
REPORT UNDER SECTION 13 OR 15(D)
 OF THE
SECURITIES EXCHANGE ACT OF 1934
  FOR THE
FISCAL YEAR ENDED DECEMBER
31, 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. Further there were no significant
inefficiencies in the design or operation of our internal controls, which would
have adversely affected our ability to record, process, summarize or report
financial data. No material weaknesses in internal controls were identified or
reported to our auditors nor was there any fraud that 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
    
    DirectorJose
      Ramon Basterra
    
    48
    
    President,
      Chief Executive Officer and Director
 
 MOHAMED
A. KHASHOGGI. Mr. Khashoggi has been a Director since our inception and
served as President until September 20, 2002. From 1997 until joining us,
Mr. Khashoggi provided consulting services on behalf of Ibadesa S.L., a
business-consulting firm in Madrid, Spain. He holds a Masters degree in
International Studies from the University of Utah.
 
 JOSE
RAMON BASTERRA. Mr. Basterra served as Management Director since our
inception, until succeeding Mr. Khashoggi as President and Chief Executive
Officer. He was a vice-president with Abogados & Economistas in Bilbao,
Spain since 1990 and was a Managing Director of Salumar, S.A. in Marbella, Spain
in 1997 and 1998. He holds a degree from Instituto Internacional de Direccion de
Empresas of the Universidad de Deusto in Bilbao, Basque Country, Spain.
 
 Mr. Khashoggi
receives approximately €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**Compensation**Mohamed
      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:
      April 29, 2005Jose
      Ramon BasterraPresident
      and DirectorBy:
    
    /s/
      MOHAMED A. KHASHOGGI
    
    Date:
      April 29, 2005Mohamed
      A. KhashoggiDirectorBy:
    
    /s/
      CESAR MARTINEZ
    
    Date:
      April 29, 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**
    
    $
    —