UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

     (Mark One)

     [ X ] Annual report under Section 13 or 15(d) of the Securities Exchange
           Act of 1934

     For the fiscal year ended JUNE 30, 2005

     [   ] Transition report under Section 13 or 15(d) of the  Securities
           Exchange Act of 1934

     For the transition period from _________ to _________

     Commission File No. 0-25703

                                GTC TELECOM CORP.
             (Exact Name of Registrant as Specified in Its Charter)

        NEVADA                                                  88-0318246
(State or Other Jurisdiction of                               (IRS Employer
Incorporation or Organization)                            Identification Number)


            3151 AIRWAY AVE., SUITE P-3. COSTA MESA, CALIFORNIA 92626
               (Address of Principal Executive Offices) (Zip Code)

                                 (714) 549-7700
                (Issuer's Telephone Number, Including Area Code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                     (None)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                         Common Stock, par value $0.001
                                (Title of Class)

     Check  whether  the  issuer  (1)  filed all reports required to be filed by
Section  13  or 15(d) of the Exchange Act during the past 12 months (or for such
shorter  period  that the registrant was required to file such reports); and (2)
has  been  subject  to  such  filing  requirements  for  the  past  90  days.

Yes  __X__     No  _____

     Check  if  there is no disclosure of delinquent filers pursuant to Item 405
of  Regulation  S-B  is  not  contained  in this form, and no disclosure will be
contained,  to  the  best  of  registrant's  knowledge,  in  definitive proxy or
information statements 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.     $9,022,850

State  the aggregate market value of voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold,  or  the  average  bid  and  asked  prices  of such common equity, as of a
specified  date  within  the past 60 days.  (See definition of affiliate in rule
12b-2  of  the  Exchange  Act.)  $3,095,746

     State  the  number of shares outstanding of each of the issuer's classes of
common  equity,  as  of  the  latest  practicable  date.  29,625,622

                       DOCUMENTS INCORPORATED BY REFERENCE

     If  the following documents are incorporated by reference, briefly describe
them  and  identify  the  part of the form 10-KSB (e.g., Part I, Part II, etc. )
into  which  the  document  is  incorporated:  (1) any annual report to security
holders;  (2)  any  proxy or information statement; and (3) any prospectus filed
pursuant to rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
The  listed  documents  should  be clearly described for identification purposes
(e.g.,  annual  report  to  security  holders for fiscal year ended December 24,
1990).

None.

     Transitional  Small  Business  Disclosure  Format  (check  one):

Yes  ______  No___X___

                                      -1-
<PAGE>
                                TABLE OF CONTENTS


                                     PART I

Item 1          Description of Business.

Item 2          Description of Property.

Item 3          Legal Proceedings.

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

                                     PART II

Item 5          Market for Common Equity and Related Stockholder Matters.

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

Item 7          Financial Statements.

Item 8          Changes In and Disagreements With Accountants on Accounting and
                Financial Disclosure.

Item 8A         Controls and Procedures.

Item 8B         Other Information

                                    PART III

Item 9          Directors and Executive Officers of the Registrant.

Item 10         Executive Compensation.

Item 11         Security Ownership of Certain Beneficial Owners and Management
                 and Related Stockholder
                 Matters.

Item 12         Certain Relationships and Related Transactions.

Item 13         Exhibits and Reports on Form 8-K.

Item 14         Principal Accountant Fees and Services.


                                      -2-
<PAGE>

                                     PART I

ITEM  1  -  DESCRIPTION  OF  BUSINESS

Overview

     We are a provider of various services including, telecommunication services
such as local and long distance telephone services, Internet related services,
and business process outsourcing ("BPO") services.  We were organized as a
Nevada Corporation on May 17, 1994 and are currently based in Costa Mesa,
California.  Our common stock trades on the NASDAQ's OTC Bulletin Board under
the symbol "GTCC."

     Our services consist of the following:

Telecommunications Related Services

     We are currently licensed in every state (except Alaska) and the District
of Columbia to provide long distance telecommunications services. We primarily
service small and medium sized businesses and residential customers throughout
the United States and have positioned ourselves to be a low-cost provider in the
marketplace. To date, we have operated as a switchless(1), nonfacilities-based
reseller of long distance services. By committing to purchase large usage
volumes from national carriers such as Sprint, pursuant to contract tariffs(2),
we have been able to procure substantial discounts and offer low-cost,
high-quality long distance services to our customers at rates at or below
current standard industry levels.

     We provide long distance telephone service under a variety of plans.  These
include outbound service, inbound toll-free 800 service and calling card
service.  We are also continuing our efforts to expand our service offerings to
provide local telephone service by becoming a Competitive Local Exchange Carrier
("CLEC").  We have recently obtained licenses in several states including
California, Florida, Georgia, Kentucky, New York, New Jersey, North Carolina,
Ohio, and Texas to operate as a CLEC.  We recently began offering service in
Florida, Georgia, Kentucky, North Carolina, and Texas and are in the process of
expanding our local service offerings.  Future plans are to provide local
services in most of the major states throughout the country.  We anticipate that
by providing CLEC services, we will be able to offer our own bundled services
and thereby reverse the recent attrition of our telecommunications customer
base.  Recently, however, the Federal Court of Appeals for the District of
Columbia, overturned rules regulating rates which incumbent local exchange
carriers charge competitive local exchange carriers such as the Company.
Consequently, incumbent local exchange carriers such as SBC, Bellsouth and
Verizon are no longer legally required to offer us certain network elements
which we require to offer local service.  However, we have been able to
negotiate commercial agreements with SBC and Bellsouth for the provisioning of
such service at rates which we believe are acceptable.

 Internet Related Services

     We also operate as an Internet Service Provider, offering dial-up access at
speeds up to 56kps and Digital Subscriber Line (DSL) service.  These services
are available to both consumer and business users.  Our Internet related
services are billed using the same methods as those used for billing our
telecommunication services.  Our Internet related services are provided pursuant
to contracts with third-party providers, who remain competitors with us.  By
contracting with third-party providers to purchase large quantities of usage
volumes, we are able to secure significant discounts, which then allows us to
offer these services to our end-users at rates equal to or less than our
competitors.

Business Process Outsourcing Services

     In 2002 we began exploring various options to reduce our labor and overhead
costs as well as explore new markets.  We determined that by developing a call
center and Information Technology ("IT") development center in India, we could
take advantage of India's highly skilled but vastly lower labor and operating
costs thereby allowing for the reduction of a significant portion of our
operating overhead.  Despite significant start-up costs associated with the
development of our outsourcing subsidiary, we believe that these operations will
result in significant savings for us.  Additionally, our outsourcing operations
were designed to provide additional revenue opportunities for us in the Business
Process Outsourcing Services market (see below).  Our domestic outsourcing
operations are conducted through our majority owned subsidiary, Perfexa
Solutions, Inc., which we call Perfexa-U.S.  Perfexa-U.S.'s subsidiary, Perfexa
Solutions Private Limited, a corporation formed under the laws of the Republic
of India ("Perfexa-India") manages and operates our call center and IT
development center in New Delhi, India.  We will collectively refer to both
Perfexa-U.S. and Perfexa-India as Perfexa in this Annual Report.

______________________________
1) Switchless resellers of long distance services do not utilize any of
their own lines, or switching equipment.
2) Contract tariffs are services and rates based on contracts negotiated with
individual customers, but also available to all customers.

                                      -3-
<PAGE>

     Our Perfexa operations provide inbound, as well as outbound call center
management solutions, IT management solutions and business operations management
solutions.  Perfexa's solution is to capitalize on India's highly educated,
English speaking workforce and utilize the inherent cost and labor availability
advantages within India to dramatically improve the cost and quality of the
customer care experience.  Future plans are to expand into other low cost
countries as business develops.

     Perfexa currently provides customer service for our approximately 93,000
telecommunication and Internet users.  Perfexa's IT group currently develops IT
solutions for our customer care needs and the integration of our customer care
system with those of Perfexa's New Delhi Center.  Perfexa has recently begun
offering its services to third parties and plans to focus on marketing its
outsourced call center services to U.S. based companies.  Perfexa's IT group
will work initially to ensure the integration of Perfexa's systems with those of
Perfexa's clients.  Subsequently, the IT group will develop customized software
solutions for third parties.

Competition

Telecommunication Services

     The local and long distance telecommunications industry is highly
competitive and affected by the introduction of new services by, and the market
activities of, major industry participants, including AT&T Corp., Sprint, local
exchange carriers such as Verizon and SBC Communications, and other national and
regional carriers.  Competition in the telecommunications business is based upon
pricing, customer service, billing services and perceived quality.  We compete
against various national and regional carriers that are composed of both
facilities-based providers (those that carry local and long distance traffic on
their own equipment) and switchless resellers (those that resale long distance
carried by facilities-based providers or lease local telephone lines and
switching equipment from incumbent local carriers) offering essentially the same
services as us.  Several of our competitors are substantially larger and have
greater financial, technical and marketing resources.  We believe that we are
able to compete with these competitors by providing high quality service at the
lowest price possible.

     We believe that the pricing strategies and cost structures of the major
carriers have resulted historically in their charging higher rates to the
residential and small-to-medium sized business customer.  Smaller customers
typically are not able to make the volume commitments necessary to negotiate
reduced rates under individualized contracts.  By committing to large volumes of
traffic, we guarantee traffic to the major long distance carrier while relieving
the major long distance carrier of the administrative burden of qualifying and
servicing large numbers of small-to-medium-sized accounts.  To be successful, we
believe that we must have lower overhead costs and be able to efficiently market
the long distance product, process orders, verify credit and provide customer
service to a large number of accounts.  Although we believe we have human and
technical resources to pursue our strategy and compete effectively in this
competitive environment, our success will depend upon our continued ability to
profitably provide high quality, high value services at prices generally
competitive with, or lower than, those charged by our competitors.  There can be
no assurances that we will be able to compete successfully in these markets.

     Our long distance traffic is currently carried by Sprint Communications,
Inc. which provides our underlying long distance network.  Sprint remains a
competitor of ours for the provisioning of telecommunications services.

     The Telecommunications Act of 1996 is intended to introduce more
competition to U.S. telecommunications markets.  The legislation opens the local
services market by requiring local exchange companies to permit interconnection
to their networks and establishing, among other things, their obligations with
respect to access, resale, number portability, dialing parity, access to
rights-of-way and mutual compensation.  The legislation also codifies local
exchange carriers' equal access and nondiscrimination obligations and preempts
most inconsistent state regulation.  The legislation also contains special
provisions that eliminate restrictions on the Regional Bell Operating Companies
("RBOCs") providing long distance services, which means that we face competition
for providing long distance services from well capitalized, well known companies
that prior to this time could not compete in long distance service.

                                      -4-
<PAGE>

Internet Related Services

     The market for Internet-based online services is relatively new, intensely
competitive and rapidly changing.  Since the advent of commercial services on
the Internet, the number of Internet Service Providers and online services
competing for users' attention and spending has proliferated because of, among
other reasons, the absence of substantial barriers to entry, and we expect that
competition will continue to intensify.  Many of our current and potential
competitors such as Earthlink, Yahoo, AOL, and Microsoft Network have longer
operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources.  These
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements and to devote greater resources to the
development, promotion and sale of their products and services than us.

     We believe that our Internet Related Services are marketed at competitive
rates and provide quality and services comparable to our competitors.

Business Process Outsourcing Services

     IT Outsourcing. Electronic Data Systems Corporation (EDS) is one of the
largest IT outsourcer. Given the strength of the company's competition,
maintaining its sizable market share is not easily accomplished; EDS's most
formidable competitor in terms of revenue generation is IT outsourcing giant IBM
Global Services, which captured 14% of the segment's market share in 2000. Other
competitors include Computer Sciences Corporation, Unisys, Affiliated Computer
Systems (ACS), CGI Group Inc. and Science Applications International Corporation
(SAIC).

     Perfexa's ability to obtain business is dependent upon its ability to offer
better strategic concepts and technical solutions, better value, a quicker
response, or a combination of these factors.  Many of these competitors have a
more substantial amount of resources and therefore have the greater ability to
obtain client contracts where large asset purchases or investments are required.
In order to sustain competitive prices, Perfexa must operate with efficient and
minimal overhead while building a stable client base.  India provides the
infrastructure to leverage low cost IT solutions.

     Call Center Outsourcing.  Convergys is a leading provider of outsourced
services within the billing services and software segment as well as the call
center services segment. The company handles more than one million customer
contacts daily through its 28,000 workstations and manages customer interactions
that range from initial product information requests, account activation and
product sales to service renewal, billing inquiries and complaint resolution.
Additional competitors include Exult, NCO Group, ProBusiness, SITEL Corporation,
Synhrgy, Teletech Holdings, Inc, West Corporation, and Peopleclick.

     Pricing strategies and cost structures of these major players are generally
built on labor rates, technical and operation capabilities, and industry and
process knowledge.  The required competency is optimization of the business
process at hand, and pricing models may be based on cost plus incentives, fixed
fee, or per transaction.  Perfexa's initial revenues will be derived from the
areas of call center and administrative outsourcing services.  Critical
competitive factors include the ability to measure the quality of job
performance and pricing and obtain a solid understanding of clients' specific
job requirements through consultative assessments.

     Value-added services is one of the key advantages that Perfexa expects to
have.  By leveraging a highly educated and cost-effective team in India, this
advantage is expected to reduce customers' business operating costs by 40% to
50% lower than onshore outsourcing providers.  To be successful, Perfexa will
offer a distinct value proposition to the client---significant savings by
converting fixed employee costs to flexible, variable costs while avoiding large
capital expenditures required to implement and maintain call center
technologies.  The challenge that Perfexa may face is whether they will be able
to provide high quality service at a cost savings while at the same time be both
profitable and lower-priced than their competitors.  There can be no assurances
that Perfexa will be able to compete successfully in these markets.

                                      -5-
<PAGE>

Customer Attrition

     We believe that a high level of customer attrition is a characteristic of
the domestic residential long distance, local and Internet related industries.
Attrition is attributable to a variety of factors, including the termination of
customers by us for non-payment and the initiatives of existing and new
competitors as they engage in, among other things, national advertising
campaigns, telemarketing programs and the issuance of cash or other forms of
incentives.  Such attrition could have a material adverse effect upon our future
results of operations and financial conditions.

Dependence on Key Customers

     We are not dependent on any single customer for a significant portion of
our annual sales.  Our customer base changes on a continuous basis, as new
customers are added or old customers removed.

Major Suppliers

     We do not own our own long distance network and currently depend upon
Sprint Communications Company L.P. to provide for the transmission of phone
calls by our customers and to provide the call detail records upon which we base
our customer's billings.  Pursuant to the terms of our agreement with Sprint, as
amended, we are obligated to a monthly minimum of $25,000 through July 26, 2006.
For any period during which we fail to meet our monthly minimum, we would be
liable for 25% of the difference between our actual usage and the stated
minimum.  We may terminate the agreement upon 90 days written notice provided
that we pay a termination fee equal to 50% of the aggregate minimum revenue
requirement for the remaining term of the contract if we terminate for
convenience or by default of us prior to the expiration date which was
approximately $194,000 as of June 30, 2005.  Sprint may terminate the agreement
upon 30 days written notice and then only in the event that we are in material
breach of the agreement.  However, in cases of nonpayment, Sprint may elect to
immediately terminate the Agreement.

     The termination of our contract with Sprint, the loss of telecommunications
services provided by Sprint, or a reduction in the quality of service we receive
from Sprint would materially harm our business. In addition, the accurate and
prompt billing of our customers is dependent upon the timeliness and accuracy of
call detail records provided to us by Sprint. Our business would be harmed if
Sprint's call detail records are inaccurate or are not timely delivered.

     In the event that the services provided by Sprint to us were discontinued,
we believe that we would be able to identify alternate suppliers that would be
able to provide us with sufficient levels of services at terms similar to those
of Sprint.  Although we have the right to switch our current customers to an
alternate underlying carrier, our customers have the right to discontinue their
service with us at any time.  Accordingly, the termination or non-renewal of our
contract tariffs with Sprint or the loss of telecommunications services from
Sprint may adversely effect our business.

     We do not have our own local telephone network.  We currently lease local
telephone lines and switching equipment from incumbent local exchange carriers
such as SBC and Bellsouth.  Previously, these carriers were required by law to
lease us local lines and switching services at regulated rates.  Recently, court
decisions and FCC regulations have eliminated the local carriers' legal
obligation to provide us with switching services at regulated rates.
Consequently, we have entered into multi-year contracts with SBC and Bellsouth
for the continued provisioning of these services to us at negotiated rates.
Although these rates are higher than those previously offered, we believe that
we can continue to economically offer service to our end-users at favorable
rates.  In the event that the services provided by these local exchange carriers
were discontinued, we would be unable, absent significant capital expenditures,
to continue providing local service.  Currently, these services do not comprise
a material portion of our operations.

     We do not have our own Internet Network.  Currently, we provide our
Internet Service Provider Access services pursuant to agreements with third
party companies for the provisioning of our Internet Service Provider Access
service.  We are not obligated to any monthly minimums under these agreements.
Although we believe that our relationship with our third-party providers is
strong and should remain so with continued contract compliance, the termination
of our contract with our underlying provider, the loss of Internet services
provided by this company, or a reduction in the quality of service we receive
from this company could have an adverse effect on our internet operations.  In
the event that an underlying provider was to discontinue its service to us, we
believe, based upon discussions that we have had with other Internet service
providers, that we could negotiate and obtain contracts with Internet service
providers at comparable rates.


                                      -6-
<PAGE>

Regulation

     The provisioning of our communications services is subject to extensive
government regulation.  Federal law regulates interstate and international
telecommunications, while states have jurisdiction over telecommunications that
originate and terminate within the same state.  Changes in existing policies or
regulations in any state or by the FCC could materially adversely affect our
financial condition or results of operations, particularly if those policies
make it more difficult for us to obtain service from Sprint or other long
distance companies at competitive rates, or otherwise increase the cost and
regulatory burdens of marketing and providing service.  There can be no
assurance that the regulatory authorities in one or more states or the FCC will
not take action having an adverse effect on our business or financial condition
or results of operations.

Federal

     We are classified by the FCC as a nondominant carrier.  After the prior
reclassification of AT&T as nondominant, only the local exchange carriers are
classified as dominant carriers among domestic carriers.  The FCC generally does
not exercise direct oversight over charges for service of nondominant carriers,
although it has the statutory power to do so.  Nondominant carriers are required
by statute to offer interstate services under rates, terms, and conditions that
are just, reasonable and not unreasonably discriminatory.  The FCC has the
jurisdiction to act upon complaints filed by third parties, or brought on the
FCC's own motion, against any common carrier, including nondominant carriers,
for failure to comply with its statutory obligations.  Nondominant carriers are
required to publish and make available service agreements listing their rates,
terms and conditions of service.  The FCC also has the authority to impose more
stringent regulatory requirements on us and change our regulatory classification
from nondominant to dominant.  In the current regulatory atmosphere, we believe,
however, that the FCC is unlikely to do so.

     The FCC imposes only minimal reporting requirements on nondominant
resellers, although we are subject to certain reporting, accounting and
record-keeping obligations.

     At present, the FCC exercises its regulatory authority to set rates
primarily with respect to the rates of dominant carriers, and it has
increasingly relaxed its control in this area. Even when AT&T was classified as
a dominant carrier, the FCC most recently employed a "price cap" system, which
essentially exempted most of AT&T's services, including virtually all of its
commercial and 800 services, from traditional rate of return regulation because
the FCC believes that these services were subject to adequate competition.

State

     We are subject to varying levels of regulation in the states in which we
currently provide local or intrastate telecommunications services.  The vast
majority of the states require us to apply for certification to provide local or
intrastate telecommunications services, or at least to register or to be found
exempt from regulation, before commencing such service.  The vast majority of
states also require us to file and maintain detailed tariffs listing our rates
for local and intrastate service.  Many states also impose various reporting
requirements and/or require prior approval for transfers of control of certified
carriers, corporate reorganizations, acquisitions of telecommunications
operations, assignments of carrier assets, including subscriber bases, carrier
stock offerings and incurrence by carriers of significant debt obligations.
Certificates of authority can generally be conditioned, modified, canceled,
terminated or revoked by state regulatory authorities for failure to comply with
state law and the rules, regulations and policies of the state regulatory
authorities.  Fines and other penalties, including the return of all monies
received for intrastate traffic from residents of a state, may be imposed for
such violations.  In certain states, prior regulatory approval may be required
for acquisitions of telecommunications operations.

     As we expand our efforts to provide local and long distance services, we
will have to remain attentive to relevant federal and state regulations.  FCC
rules prohibit switching (also commonly known as "Slamming") of a consumer's
service provider without the consumer's consent and specify how that consent can
be obtained.  Most states have consumer protection laws that further define the
framework within which our marketing activities must be conducted.  We intend to
comply fully with all laws and regulations, and the constraints of federal and
state restrictions could impact the success of direct marketing efforts.


                                      -7-
<PAGE>

     We are not currently subject to any State or Federal regulation with
respect to our Internet related services.  However, there can be no assurances
that we will not be subject to such regulations in the future.  We are not aware
of any pending legislation that would have a material adverse effect on our
operations.

     Our domestic BPO operations are not currently subject to any State or
Federal regulations.  However, our Perfexa-India operations are regulated by the
policies of the Indian government.  Indian law regulates call center activities
requiring the registration of call centers with the Indian Department of
Telecommunications.  Our Perfexa-India subsidiary has obtained all required
permits and licenses to operate its call center.  Pursuant to such licenses,
however, we must notify and obtain permission from the Indian DOT prior to
expansion of our call center.  Additionally, in times of war, the Indian
government may have the power to appropriate Perfexa-India's facilities.

Patents, Trademarks, Licenses

     We have registered service marks for our Perfexa Solutions business.
However, we do not depend upon any other patents or trademarks to conduct our
business.  We are required to hold licenses with the Federal Communication
Commission for the operation of our telecommunication services.  We are also
required to hold licenses in the states in which we provide intrastate long
distance services.  Currently, we are licensed in every state (except Alaska)
and the District of Columbia to provide intrastate services and hold licenses in
nineteen states to provide local service.  Our federal and state
telecommunication licenses are of indefinite length and will remain effective so
long as we comply with all Federal and State regulations.

Cost of Compliance with Environmental Regulations

     We currently have no costs associated with compliance with environmental
regulations.  However, there can be no assurances that we will not incur such
costs in the future.

Number of Employees

     As of June 30, 2005, we employed approximately 25 people on a full time
basis in the United States and our subsidiary employs approximately 200 people
on a full time basis in India.














                                      -8-
<PAGE>
                                  RISK FACTORS

OUR COMPANY IS SUBJECT TO VARIOUS RISKS WHICH MAY MATERIALLY HARM OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.  YOU SHOULD CAREFULLY CONSIDER
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
FILING BEFORE DECIDING TO PURCHASE OUR COMMON STOCK.  THESE ARE NOT THE ONLY
RISKS AND UNCERTAINTIES THAT WE FACE.  IF ANY OF THESE RISKS OR UNCERTAINTIES
ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS COULD BE
MATERIALLY HARMED.  IN THAT CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.

     WE CURRENTLY DO NOT HAVE SUFFICIENT CASH FLOW FROM OPERATIONS TO MEET ALL
OF OUR MONTHLY OPERATING REQUIREMENTS.  Currently, billings from accounts
receivable are sufficient to meet our monthly operating requirements.  However,
the amounts actually collected from our customers is not sufficient to fully pay
all of our monthly operating expenses.   With our recent entry into the local
telephone market, an increasing number of our customers have elected to pay
their monthly bills by check.  Previously, the majority of our long distance
customers elected to pay their bills by credit card.  Payment by credit card
allows us to collect our billings within days of billing our customers.  Payment
by check, however, typically results in collection times in excess of thirty
days.  In addition, payment by credit card allows us to quickly determine
whether a customer is going to pay their bill whereas, with payment by check,
this determination can take in excess of thirty days.  As a result, we have
experienced a significant increase in the amount of bad debt associated with our
local product.

     In an effort to reduce this bad debt and increase collections, we have
recently begun implementing several corrective measures.  These include:
determining a customer's credit rating prior to provisioning service;
strengthening our internal and third-party collection efforts by increasing the
number of our collection employees and reducing the timeframe before collection
efforts are initiated; and reporting delinquent customers to the appropriate
credit bureaus.  We anticipate that these measures will increase our cash flows
from operating activities.  However, if we are unsuccessful in our efforts to
increase our cash collections or increase revenues and customers, we will not
have sufficient cash flows to fund our monthly operations as well as service our
debt obligations.

     WE MAY NOT HAVE SUFFICIENT CASH TO REPAY OUR DEBT OBLIGATIONS.  Recently,
we restructured approximately $7.7 million in accrued liabilities consisting of
notes payable, accrued interest and other outstanding accounts payable, into new
short and long term debt (see below) that resulted in the elimination of
approximately $6.9 million in accrued liabilities.  Consequently, beginning in
September 2005, we will be required to begin making monthly principal and
interest payments on these new obligations.  Unless we are able to increase our
revenues and increase our cash collections, we may not have sufficient cash flow
to fully support daily operations and service our debt obligations and will need
to increase revenues and customers, decrease bad debt, or acquire alternate
financing.

     WE ARE DEPENDENT ON A LIMITED NUMBER OF SUPPLIERS WHICH ARE REQUIRED FOR US
TO PROVIDE OUR SERVICES.  We do not own our own long distance network and
therefore currently depend primarily upon Sprint Communications LP to provide
for the transmission of long distance phone calls by our customers and to
provide the call detail records upon which we base our customer's billings.  We
also rely upon incumbent local exchange carriers such as BellSouth
Communications and SBC Communications to provide the underlying networks for the
provisioning of our local telephone service.  Additionally, our Internet
services are provided pursuant to agreements with various outside companies.
Although we believe that our relations with these companies are strong and
should remain so with continued contract compliance, the termination of our
contracts with these companies, the loss of services provided by them, or a
reduction in the quality of service we receive from them would likely harm our
business.  For additional details, please see Major Suppliers below.

     COMPETITION IN OUR MARKETS IS VERY INTENSE AND WE MAY NOT BE ABLE TO
COMPETE.  The local and long distance telecommunications industry is highly
competitive and affected by the introduction of new services by, and the market
activities of, major industry participants, including AT&T Corp., WorldCom,
Sprint Corporation, SBC, Verizon, and other national and regional local and
interexchange carriers.  Competition in the local and long distance business is
based upon pricing, customer service, billing services and perceived quality.
We compete against various national and regional carriers that are composed of
both facilities-based providers (those that carry traffic on their own
equipment) and switchless resellers (those that resell local and long distance
carried by facilities-based providers) offering essentially the same services as
we do.  Several of our competitors are substantially larger and have greater
financial, technical and marketing resources.  Although we believe that we have
the human and technical resources to pursue our strategy and compete effectively
in this competitive environment, our success will depend upon our continued
ability to profitably provide high quality, high value services at prices
generally competitive with, or lower than, those charged by our competitors.

                                      -9-
<PAGE>

     We expect to encounter continued competition from major domestic and
international communications companies.  In addition, we may be subject to
additional competition due to the enactment of the Telecommunications Act of
1996, the development of new technologies and increased availability of domestic
and international transmission capacity.  A continuing trend toward business
combinations and alliances in the telecommunications industry may create
significant new competitors, which may have financial, personnel and other
resources significantly greater than ours.  Other potential competitors include
cable television companies, wireless telephone companies, electric utilities,
microwave carriers and private networks of large end users.

     The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new product and service offerings and
increasing transmission capacity for services similar to those provided by us.
We cannot predict which of many possible future product and service offerings
will be important to maintain our competitive position or what expenditures will
be required to develop and provide such products and services.

     The market for Internet-based online services is relatively new, intensely
competitive and rapidly changing. Since the advent of commercial services on the
Internet, the number of Internet Service Providers and online services competing
for users' attention and spending has proliferated because of, among other
reasons, the absence of substantial barriers to entry, and we expect that
competition will continue to intensify.  Many of our current and potential
competitors such as Earthlink, Yahoo, AOL, UUNET, and Microsoft Network have
longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources.  These
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements and to devote greater resources to the
development, promotion and sale of their products and services than we are.

     AS OUR CUSTOMERS ARE FREE TO CHANGE THEIR TELECOMMUNICATION PROVIDER, OUR
REVENUES MAY DECREASE AT ANY TIME. The vast majority of our customers are not
obligated to purchase any minimum usage amount and can discontinue service,
without penalty, at any time.  Therefore, we cannot know if our customers will
continue to buy their local or long distance telephone service through us.  A
high level of customer attrition is inherent in the long distance industry, and
our revenues are affected by such attrition.  Attrition is attributable to a
variety of factors, including termination of customers by us for nonpayment and
the initiatives of existing and new competitors as they engage in, among other
things, national advertising campaigns, telemarketing programs and the issuance
of cash or other forms of incentives.

     In the event that a significant portion of our customers decide to purchase
service from another provider, we do not know if we would be able to replace our
customer base from other sources.  Loss of a significant portion of our
customers would result in a corresponding reduction in our revenues.

     WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION THAT MAY BE CHANGED IN
WAYS THAT HURT OUR BUSINESS.  We are subject to regulation by the FCC and by
various state public service and public utility commissions as a nondominant
provider of local and long distance services.  We are required to file tariffs
for interstate and international service with the FCC, which tariffs are
presumed lawful and become effective on one day's notice.  We are also required
to file tariffs or obtain approval for intrastate service provided in most of
the states in which we market local or long distance services.  By engaging in
direct marketing to end users, we will be subject to applicable regulatory
standards for marketing activities and the increased FCC and state attention to
certain marketing practices may become more significant to us.  Additionally,
certain marketing practices, including the methods and means to convert a
customer's telephone service from one carrier to another, have recently been
subject to increased regulatory review at both the federal and state levels.
This increased regulatory review could impede our possible future acquisition of
new business from other resellers.  Our marketing activities mandate compliance
with applicable state and federal regulations.  We are unable to predict the
effect of such increased regulatory review.

     YOU MAY BE UNABLE TO EFFECTIVELY EVALUATE THE BUSINESS OF OUR PERFEXA
SUBSIDIARY BECAUSE PERFEXA'S OUTSOURCED CALL CENTER AND INFORMATION TECHNOLOGY
SERVICE BUSINESS HAS EXISTED FOR ONLY A SHORT PERIOD OF TIME.  Perfexa-U.S. was
originally incorporated on October 3, 2000 as GTC Wireless, Inc. and was
inactive until September 13, 2002 when it changed its name to Perfexa Solutions,
Inc.  Perfexa-U.S. owns 99% of the issued and outstanding capital stock of
Perfexa Solutions Pvt. Ltd., a corporation formed under the laws of the Republic
of India.  Perfexa develops and markets offshore outsourced call center
solutions and information technology services to small and medium size companies
and does not have an established operating history.  Accordingly, you can
evaluate Perfexa's business, and therefore its future prospects, based only its
very limited operating history.  In addition, you must consider Perfexa's
prospects in light of the risks, expenses, and difficulties frequently
encountered in the establishment of a new business in a rapidly evolving market.

                                      -10-
<PAGE>

     PERFEXA WILL BE SUBJECT TO CERTAIN INHERENT RISKS ASSOCIATED WITH THE
REPUBLIC OF INDIA.  Perfexa's operating subsidiary, Perfexa Solutions Pvt. Ltd.,
is incorporated in the Republic of India, and substantially all of Perfexa's
assets and employees are located in India.  Consequently, Perfexa's financial
performance will be affected by political, social and economic developments
affecting India, Government of India policies, including taxation and foreign
investment policies, government currency exchange control, as well as changes in
exchange rates and interest rates.

     Regional conflicts in South Asia could adversely affect the Indian economy,
disrupt Perfexa's operations and cause its business to suffer.  South Asia has
from time to time experienced instances of civil unrest and hostilities among
neighboring countries, including between India and Pakistan.  India's relations
with neighboring Pakistan, each a nuclear power, are tense. In April 1999, India
and Pakistan each conducted long-range missile tests.  Since May 1999, military
confrontations between India and Pakistan have occurred in the disputed
Himalayan region of Kashmir. India's relations with neighboring China are also
tense.  Events of this nature in the future could influence the Indian economy
and have a material adverse effect on Perfexa's business.  The potential for
such hostilities has recently increased as a result of terrorist attacks in the
U.S. and the recent attack on the Indian Parliament has increased tensions
between India and Pakistan.  Events of this nature in the future could influence
the Indian economy and could have a material adverse effect on Perfexa's
operations and on the market for Perfexa's services.

     Political instability or changes in the government in India could delay the
liberalization of the Indian economy and adversely affect economic conditions in
India generally, which could impact Perfexa's financial results and prospects.
Since 1991, successive Indian governments have pursued policies of economic
liberalization, including significantly relaxing restrictions on the private
sector.  Nevertheless, the role of the Indian central and state governments in
the Indian economy as producers, consumers and regulators has remained
significant.  The Government of India has changed several times over the past
decade.  The current Government of India, formed in 2004, has announced policies
and taken initiatives that support the continued economic liberalization
policies that have been pursued by previous governments.  There can be no
assurances that that these liberalization policies will continue in the future.
The rate of economic liberalization could change, and specific laws and policies
affecting technology companies, foreign investment, currency exchange and other
matters affecting investment in its securities could change as well.  A
significant change in India's economic liberalization and deregulation policies
could adversely affect business and economic conditions in India generally and
Perfexa's business in particular.

     PERFEXA'S BUSINESS IS SUBJECT TO FLUCTUATIONS IN FOREIGN CURRENCIES.
Perfexa's business is subject to fluctuations in the value of the Indian Rupee
against the U.S. dollar due to Perfexa's Indian subsidiary.  Operational costs
including labor, equipment, and facilities leases could fluctuate depending on
the value of the Rupee vis-a-vis the U.S. dollar.  With the recent decline in
the value of the dollar in relation to the Rupee, we have experienced a
corresponding increase in our operating costs.  In the future, Perfexa may also
sell its products and services in other currencies which would make the
management of currency fluctuations more difficult.

     OUR STOCK PRICE MAY FLUCTUATE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
INVESTORS. The market price for our common stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control. These
factors include:

-     Quarterly variations in operating results;
-     Changes in financial estimates by securities analysts;
-     Announcements by us or our competitors of new products, significant
       contracts, acquisitions or strategic relationships;
-     Publicity about our company, management, products or our competitors;
-     Additions or departures of key personnel;
-     Any future sales of our common stock or other securities; and
-     Stock market price and volume fluctuations of publicly traded companies.

                                      -11-
<PAGE>

     These and other external factors have caused and may continue to cause the
market price and demand for our common stock to fluctuate substantially, which
may limit or prevent investors from readily selling their shares of common stock
and may otherwise negatively affect the liquidity of our common stock.

     In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of their
securities. If securities class action litigation is brought against us it could
result in substantial costs and a diversion of our management's attention and
resources, which could hurt our business.

     CERTAIN SHARES OF OUR COMMON STOCK ARE RESTRICTED FROM IMMEDIATE RESALE.
THE LAPSE OF THOSE RESTRICTIONS, COUPLED WITH THE SALE OF THE RELATED SHARES IN
THE MARKET, OR THE MARKET'S EXPECTATION OF SUCH SALES, COULD RESULT IN AN
IMMEDIATE AND SUBSTANTIAL DECLINE IN THE MARKET PRICE OF OUR COMMON STOCK. A
substantial number of our shares of common stock are restricted from immediate
resale in the public market. The sale or resale of those shares in the public
market, or the market's expectation of such sales, may result in an immediate
and substantial decline in the market price of our shares. Such a decline will
adversely affect our investors, and make it more difficult for us to raise
additional funds through equity offerings in the future.

     BECAUSE WE ARE SUBJECT TO THE "PENNY STOCK" RULES, THE LEVEL OF TRADING
ACTIVITY IN OUR STOCK MAY BE REDUCED.  Our common stock may be deemed to be
"penny stock" as that term is defined in Rule 3a51-1 promulgated under the
Securities Exchange Act of 1934.  Penny stocks are stock:

-     With  a  price  of  less  than  $5.00  per  share;
-     That  are  not  traded  on  a  "recognized"  national  exchange;
-     Whose  prices  are  not  quoted  on  the Nasdaq automated quotation system
       (Nasdaq listed stock must still have a price of not less than $5.00 per
       share); or
-     In  issuers with net tangible assets less than $2.0 million (if the issuer
       has been in continuous operation for at least three years) or $5.0
       million(if in continuous operation for less than three years), or with
       average revenues of less than $6.0 million for the last three years.

     Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks.  Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor.  These requirements may
reduce the potential market for our common stock by reducing the number of
potential investors.  This may make it more difficult for investors in our
common stock to resell shares to third parties or to otherwise dispose of them.
This could cause our stock price to decline.

     YOU MAY INCUR DILUTION IN THE FUTURE.  We may require additional funds to
support our working capital requirements or for other purposes, and will seek to
raise additional funds through public or private equity financing. Also, we may
acquire other companies or finance strategic alliances by issuing equity.  Any
capital raising transaction may result in additional dilution to our
shareholders.

SPECIAL  NOTE  ABOUT  FORWARD-LOOKING  STATEMENTS

     We have made forward-looking statements in this Annual Report, including
the sections entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," that are based on our
management's beliefs and assumptions and on information currently available to
our management. Forward-looking statements include the information concerning
our possible or assumed future results of operations, business strategies,
financing plans, competitive position, industry environment, potential growth
opportunities, the effects of future regulation and the effects of competition.
Forward-looking statements include all statements that are not historical facts
and can be identified by the use of forward-looking terminology such as the
words "believe," "expect," "anticipate," "intend," "plan," "estimate" or similar
expressions. These statements are only predictions and involve known and unknown
risks and uncertainties, including the risks outlined under "Risk Factors" and
elsewhere in this Annual Report.

                                      -12-
<PAGE>

     Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, events, levels of
activity, performance or achievement. We are not under any duty to update any of
the forward-looking statements after the date of this Annual Report to conform
these statements to actual results, unless required by law.

IN ADDITION TO THE FOREGOING RISKS, BUSINESSES ARE OFTEN SUBJECT TO RISKS THAT
ARE NOT FORESEEN OR FULLY APPRECIATED BY MANAGEMENT.  SHAREHOLDERS SHOULD KEEP
IN MIND THAT OTHER IMPORTANT RISKS COULD ARISE.

Available  Information

     We file annual reports on Form 10-KSB, quarterly reports on Form 10-QSB,
current reports on Form 8-K and proxy and information statements and amendments
to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the
Securities Exchange Act of 1934, as amended.  The public may read and copy these
materials at the SEC's Public Reference Room at 450 Fifth Street, NW,
Washington, D.C. 20549.  The public may obtain information on the operation of
the public reference room by calling the SEC at 1-800-SEC-0330.  The SEC also
maintains a website (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding us and other companies
that file materials with the SEC electronically.  You may also obtain copies of
reports filed with the SEC, free of charge, on our website at
www.gtctelecom.com.  Our headquarters are located at 3151 Airway Ave., Suite
P-3, Costa Mesa, CA 92626.  Our phone number at that address is (714) 549-7700
and our e-mail address is info@gtctelecom.com.

















                                      -13-
<PAGE>
ITEM  2.  DESCRIPTION  OF  PROPERTY

     We lease a total of 5,137 square feet of office space for our headquarters
and domestic customer service operations in Costa Mesa, California at a monthly
rental rate of $9,697 pursuant to a one-year lease agreement ending February 28,
2006.

     Effective October 1, 2002, Perfexa-India began leasing approximately 15,422
square feet of office space in Gurgaon, India, a suburb of New Delhi, at a
monthly rate of Rs. 524,348 (approximately $12,100) per month.  This facility
serves as Perfexa-India's call center, IT development center, and administrative
offices.  The lease is for a term of three years with an option to renew for an
additional three year term with an increase in the rental rate of 20%.
Effective October 1, 2002, Perfexa-India also entered into a maintenance
agreement for their New Delhi facility.  Pursuant to the terms of the agreement,
Perfexa-India is obligated to pay a monthly maintenance fee of Rs. 138,798
(approximately $3,200) per month for the first twelve months.  Thereafter, the
monthly fee will be calculated based on the actual costs of maintenance
(including electricity and water) plus a 20% mark-up.

ITEM  3.  LEGAL  PROCEEDINGS

     We may from time to time be involved in various claims, lawsuits, disputes
with third parties, actions involving allegations of discrimination, or breach
of contract actions incidental to the operation of its business.  We are not
currently involved in any such litigation which we believe could have a
materially adverse effect on our financial condition or results of operations.

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

     On June 15, 2005, we held our annual meeting of stockholders.  Up for
consideration by the stockholders at the meeting were three proposals submitted
by our Board of Directors.

     (1) The first proposal involved the election of the Company's Board of
Directors.  Set forth below is the name of each director elected at the meeting
and the number of votes cast for their election, the number of votes withheld
and the number of votes voted:


                    Number of   Number of        Number of
Name                Votes"For"  Votes"Withheld"  Shares Voted
------------------  ----------  ---------------  ------------

S. Paul Sandhu      20,405,382          146,203    20,554,585
------------------  ----------  ---------------  ------------

Eric A. Clemons     20,418,453          133,132    20,554,585
------------------  ----------  ---------------  ------------

Gerald A. DeCiccio  20,420,453          131,132    20,554,585
------------------  ----------  ---------------  ------------


     (2) The second proposal up for consideration involved the approval and
amendment of GTC's Articles of Incorporation to increase the authorized common
stock of the Company from 50 million shares to 100 million shares.  Set forth
below are the number of votes for, against, abstain and non-votes for this
proposal:



        Number of     Number of       Number of       Number of
        Votes"For"  Votes"Against"  Votes"Abstain"   "Non-Votes"

        20,188,545     352,640         13,400        20,554,585


                                      -14-
<PAGE>

     (3) Proposal Three involved ratifying the appointment of Squar, Milner,
Reehl & Williamson LLP as the independent registered public accountants firm of
the Company for the fiscal year ending June 30, 2005.  Set forth below are the
number of votes for, against, abstain and non-votes for this proposal:


        Number of     Number of       Number of       Number of
        Votes"For"  Votes"Against"  Votes"Abstain"   "Non-Votes"

        20,454,065     71,010          29,510         20,554,585

     As a majority of the shareholders, either in person or by proxy, voted in
favor of the above proposals, the proposals were duly approved and authorized by
the stockholders of the Company.











                                      -15-
<PAGE>

                                     PART II

ITEM  5.  MARKET  FOR  COMMON  EQUITY  AND  RELATED  STOCKHOLDER  MATTERS

MARKET  INFORMATION

     The following table sets forth the high and low bid prices for shares of
our common stock for the periods noted, as reported by the National Daily
Quotation Service and the NASDAQ Bulletin Board.  Quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.

        CALENDAR                                      BID PRICES
          YEAR          PERIOD                     HIGH        LOW
--------------------------------------------------------------------------------
          2002          First Quarter               0.27       0.17
                        Second Quarter              0.30       0.15
                        Third Quarter               0.25       0.15
                        Fourth Quarter              0.22       0.13

          2003          First Quarter               0.23       0.13
                        Second Quarter              0.24       0.14
                        Third Quarter               0.19       0.13
                        Fourth Quarter              0.14       0.09

          2004          First Quarter               0.13       0.07
                        Second Quarter              0.18       0.07
                        Third Quarter               0.08       0.03
                        Fourth Quarter              0.16       0.03

          2005          First Quarter               0.23       0.07
                        Second Quarter              0.20       0.15

     On June 30, 2005, the last sales price per share of our common stock, as
reported by the Nasdaq Over-The-Counter Electronic Bulletin Board, was $0.16.

NUMBER OF SHAREHOLDERS

     The number of beneficial holders of record of our common stock as of the
close of business on June 30, 2005 was approximately 400.  Many of the shares of
our common stock are held in "street name" and consequently reflect numerous
additional beneficial owners.

DIVIDEND  POLICY

     To  date, we have declared no cash dividends on our common stock, and we do
not  expect  to pay cash dividends in the next term.  We intend to retain future
earnings,  if  any,  to  provide  funds  for  operation  of  our  business.

RECENT  SALES  OF  UNREGISTERED  SECURITIES

     Except for issuances previously reported on the Company's Current Reports
on Form 8-K, there have been no other issuances of the Company's unregistered
securities during the fourth quarter of the fiscal year ended June 30, 2005.

ITEM  6.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OR  PLAN  OF  OPERATION

     The  following  discussion contains certain forward-looking statements that
are  subject  to  business  and economic risks and uncertainties, and our actual
results  could  differ  materially  from  those forward-looking statements.  The
following  discussion  regarding  our  financial  statements  should  be read in
conjunction  with  the  financial  statements  and  notes  thereto.

                                      -16-
<PAGE>

GENERAL OVERVIEW

     Our principal line of business is to provide local and long distance
telephone and value-added services for small and medium-sized businesses and
residential customers throughout the United States.  Our strategy has been to
build a subscriber base without committing capital or management resources to
construct our own network and transmission facilities.  This strategy has
allowed us to add customers without being limited by capacity, geographic
coverage, or configuration of any particular network that we might have
developed.

     We also provide a number of Internet related services such as Internet
access via Dial-Up and Digital Subscriber Line.  Our services are marketed
nationwide, through sales affiliates, affinity groups, independent sales agents
and telemarketing.

     Our revenues consist of revenues from the sale of telecommunications,
Internet, and BPO services. Telecommunication revenues are generated primarily
from monthly recurring charges for local service and when customers make long
distance telephone calls from their business or residential telephones.
Internet related services are typically billed at a flat rate and are billed in
advance.  Revenues are recognized in the period earned.  BPO services revenues
are billed each month based on a client contract that provides for either a
dedicated or per minute rate as the services are rendered.

     Cost of sales consists of telecommunications service costs and the costs of
providing Internet access, and BPO services.  Local telecommunications service
costs are paid by us on a per line basis. Long distance telecommunications
service costs are based on our customers' long distance usage.  We pay our
carriers based on the type of call, time of call, duration of call, the
terminating telephone number, and terms of our contract in effect at the time of
the call.  BPO service cost of sales consists of labor and its related support
costs directly associated with a service contract.  General and administrative
expenses consist of the cost of customer acquisition (including costs paid for
third-party verification), customer service, billing, cost of information
systems and personnel required to support our operations and growth.

     Depending on the extent of our future growth, we may experience significant
strain on our management, personnel, and information systems.  We will need to
implement and improve operational, financial, and management information
systems.  In addition, we are implementing new information systems that will
provide better record keeping, customer service and billing.  However, there can
be no assurance that our management resources or information systems will be
sufficient to manage any future growth in our business, and the failure to do so
could have a material adverse effect on our business, results of operations and
financial condition.

RESULTS OF OPERATIONS OF THE COMPANY

FISCAL YEAR ENDED JUNE 30, 2005 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2004

     REVENUES - Revenues decreased by $1,934,738 or 17.7% to $9,022,850 for the
year ended June 30, 2005 from $10,957,588 for the year ended June 30, 2004.  The
decrease was due primarily to a decrease in telecommunications revenues of
$1,845,088 and a decrease in Internet revenues of $191,315, offset partially by
the increase in BPO revenues of $101,665.  As of June 30, 2005, we had
approximately 89,033 telecommunications customers and 3,330 internet customers,
with usage of long distance services of approximately 106,045,000 minutes for
the year ended June 30, 2004 as compared with approximately 80,397
telecommunications customers and 5,666 internet customers, with usage of long
distance services of approximately 156,772,000 minutes for the year ended June
30, 2004.

     We believe that the reduction in minutes are a result of several recent
competitive pressures including: the increase in the number of low-priced long
distance calling plans currently available, the expansion of bundled local/long
distance services offered by Local Exchange Carriers and/or Competitive Local
Exchange Carriers, and the migration of traditional long distance usage to
cellular long distance and internet usage.  In addition, the difficulties we
recently experienced as a result of our change in underlying providers may have
contributed to this reduction in minutes (see Change In Primary Supplier below).
In an effort to increase revenue, we have stepped up our outbound telemarketing
campaigns.

     We are also continuing our efforts in becoming a Competitive Local Exchange
Carrier ("CLEC").  We have recently obtained licenses in several states
including California, Florida, Georgia, Kentucky, New York, New Jersey, North
Carolina, Ohio, and Texas to operate as a CLEC.  We recently began offering
service in Florida, Georgia, Kentucky, North Carolina, and Texas and are in the
process of expanding our local service offerings.  Future plans are to provide
local services in most of the major states throughout the country.  We
anticipate that by providing CLEC services, we will be able to offer our own
bundled services and thereby reverse the recent attrition of our
telecommunications customer base.

                                      -17-
<PAGE>

     Additionally, we are continuing to focus on developing third party revenue
for our Perfexa subsidiary.  During the year ended June 30, 2004, we began
widespread marketing of our BPO services to third parties and have begun
securing client contracts for these services.  Perfexa generated third-party
revenues of $180,309 and $78,644 for the year ended June 30, 2005 and 2004,
respectively.

     COST OF SALES - Cost of sales decreased by $771,438 or 16.0% to $4,064,939
for the year ended June 30, 2005 from $4,836,377 for the year ended June 30,
2004.  The decrease was primarily due to the decrease in carrier costs
associated with decreased telecommunications service revenues of $771,013,
offset partially by the increase in carrier costs associated with the increase
in our cost of providing telecommunications service of $316,265 (see Change In
Primary Supplier below and to our new local phone services which will have a
higher cost as compared to our long distance products) for the year ended June
30, 2005 (see Change In Primary Supplier below).  In addition, for the year
ended June 30, 2005, the costs associated with Internet services decreased
$377,151 and the costs associated with BPO services increased $60,461.  As a
percentage of revenue, cost of sales increased to 45.1% from 44.1% for the years
ended June 30, 2005 and 2004, respectively, primarily as a result of the
increase in telecommunications cost of sales as a percentage of
telecommunications revenues to 45.6% for the year ended June 30, 2005 from 41.8%
for the year ended June 30, 2004 (see Change In Primary Supplier below), offset
partially by the decrease in internet cost of sales as a percentage of internet
revenues to 30.5% for the year ended June 30, 2005 from 71.6% (due to monthly
minimum purchase requirements with MCI) for the year ended June 30, 2004.  This
results in a gross margin of 54.9% as compared to 55.9% for the years ended June
30, 2005 and 2004, respectively.

     Perfexa incurred third-party cost of sales of $119,700 and $59,239 for the
year ended June 30, 2005 and 2004, respectively.

     OPERATING EXPENSES - Operating expenses decreased by $400,557 or 7.4% to
$5,019,357 for the year ended June 30, 2005 from $5,419,914 for the year ended
June 30, 2004 primarily due to our shift of customer service and information
technology development to our Perfexa subsidiary.

     Operating expenses, individually net of Perfexa related costs, for the year
ended June 30, 2005 were comprised primarily of $923,195 in payroll and related
expenses paid to employees; billing related costs of $658,771; rent of $154,010;
bad debt of $717,233; depreciation expense of $108,983; amortization of
previously issued options to employees valued at $110,249; and $1,430,477 of
other operating expenses, primarily sales commissions, internal telephone usage,
consulting services, costs of third party verification for newly acquired
customers, internet support costs and audit and legal costs.

     Perfexa related operating expenses for the year ended June 30, 2005 were
comprised primarily of $1,373,835 in payroll and related expenses paid to
employees; rent of $251,136; depreciation expense of $194,484; and $(903,016) of
other operating expenses, primarily office maintenance and supplies.

     Operating expenses, individually net of Perfexa related costs, for the year
ended June 30, 2004 were comprised primarily of $1,519,161 in payroll and
related expenses paid to employees; billing related costs of $709,824; rent of
$189,505; penalties and interest in connection with past due payroll taxes of
prior periods of $135,000; bad debt of $159,467; sales commissions of $132,770;
depreciation expense of $125,083; amortization of previously issued options to
employees valued at $110,250; and $7,580 of other operating expenses, primarily
investor relations, internal telephone usage, consulting services, costs of
third party verification for newly acquired customers, internet support costs
and audit and legal costs.

     Perfexa related operating expenses for the year ended June 30, 2004 were
comprised primarily of $1,338,258 in payroll and related expenses paid to
employees; rent of $244,449; depreciation expense of $172,973; and $575,594 of
other operating expenses, office maintenance and supplies.

     INTEREST EXPENSE - Net interest expense decreased by $139,941 to $1,122,756
for the year ended June 30, 2005 from $1,262,697 for the year ended June 30,
2004.  The decrease was primarily due to the interest owed on notes payable,
offset partially by the reduction in interest owed on outstanding balances due
to WorldCom.

                                      -18-
<PAGE>

     GAIN ON EXTINGUISHMENT OF DEBT - Gain on extinguishment of debt was
$6,301,935 due to a one-time credit of $6,934,411 resulting from our settlement
with MCI, offset partially by one-time charges of $632,476 resulting from the
restructuring of a note payable.

     NET INCOME - Net income increased $5,686,390 to $5,134,123, or $0.22 per
share for the year ended June 30, 2005, from a net loss of $552,267, or $(0.03)
loss per share, for the year ended June 30, 2004, respectively, primarily as a
result of a gain on extinguishment of debt (see above).

     ASSETS AND LIABILITIES - Assets increased by $46,663 to $1,631,149 at June
30, 2005 from $1,584,486 at June 30, 2004.  The increase was due to net
increases in accounts receivables of $155,771, and prepaid expenses of $12,905,
net of decreases in deposits of $36,765, property and equipment of $12,174; cash
of $73,072, and other assets of $2.  Liabilities decreased by $6,407,798 to
$1,742,983 at June 30, 2005 from $8,150,781 at June 30, 2004.  The decrease was
due to decreases in notes payable of $4,508,050, and accounts payable and
accrued expenses of $1,909,213, primarily as a result of our settlement with
MCI, and obligations under capital lease of $13,398 primarily due to purchase of
equipment, net of increase in accrued payroll and payroll related liabilities of
$22,863, associated with the decrease in telecommunications service costs,
Internet service provider access fees and customer service operations as a
result of the decrease in customers.

     STOCKHOLDERS' DEFICIT - Stockholders' deficit decreased by $(6,480,067) to
$198,342 at June 30, 2005 from $6,678,409 at June 30, 2004.  The decrease was
attributable to a net profit of $5,134,123 (see above) for the year ended June
30, 2005, amortization of compensation expense related to previously
issued/options to employees in the amount of $110,249, the fair market value of
stock and warrants issued pursuant to notes payable of $1,490,827, and the
issuance of $60,000 of our restricted common stock, net of increases in
cumulative translation adjustment of $292,132, and the cancellation of
previously issued stock of $23,000.

CHANGE IN PRIMARY SUPPLIER

     As previously reported, on July 7, 2004 we initiated a system wide
conversion of our underlying long distance provider from MCI to Sprint (the
"Conversion").  As a result, we initially experienced an approximate 16%
reduction in our call volumes and corresponding revenues.  We believe that we
have resolved all outstanding technical issues relating to this conversion and
continue to market our services in order to re-acquire or add new customers.
There can be no assurances that we will be able to re-acquire or add sufficient
numbers of customers to compensate for the reduction incurred by the Conversion.

     Additionally, the cost of Sprint's services to us are higher than those of
MCI's and will affect our future gross margins.  We are attempting to
renegotiate more favorable pricing terms with Sprint.  Alternatively we are
re-examining the rates we charge our customers.  There can be no assurances that
we will be able to negotiate more favorable rates with Sprint.  Also, an
increase in our rates to end-users may have a detrimental effect in customer
acquisition and retention.

LIQUIDITY AND CAPITAL RESOURCES

     GENERAL - Currently, billings from accounts receivable are sufficient to
meet our monthly operating requirements.  However, the amounts actually
collected from our customers is not sufficient to fully pay all of our monthly
operating expenses (see "Cash Flows from Operating Activities" below).
Recently, we restructured approximately $7.7 million in accrued liabilities
consisting of notes payable, accrued interest and other outstanding accounts
payable, into new short and long term debt (see below) that resulted in the
elimination of approximately $6.9 million in accrued liabilities.  Consequently,
beginning in September 2005, we will be required to begin making monthly
principal and interest payments on these new obligations where we previously did
not.  Although this financing reduced our overall debt, it did not materially
increase our cash flow.  As a result, we may not have sufficient cash flow to
fully support daily operations and service our debt obligations and will need to
increase revenues and customers as detailed above, as well as decrease bad debt,
or acquire alternate financing.

                                      -19-
<PAGE>

     CASH FLOWS FROM OPERATIONS ACTIVITIES - Net cash provided by operating
activities of $54,340 in fiscal year 2005 was primarily due to net income of
$5,134,123; offset partially by changes in operating assets and liabilities,
principally decreases in accounts receivable of $587,803, and prepaid expenses
of $12,905, offset partially by accounts payable and accrued expenses of
$1,174,135, accrued payroll and related taxes of $22,863, and deposits of $917;
amortization of previously issued options vesting to employees in the current
period of $110,249; the fair market value of stock issued in connection with a
note payable of $20,827; depreciation and amortization expense of $303,467; the
increase in bad debt expense related to accounts receivable of $724,514, and the
amortization of debt discount of $76,458, offset partially by the gain on
extinguishment of debt of $6,301,935, and minority interest of $25,606.

     With our recent entry into the local telephone market, an increasing number
of our customers have elected to pay their monthly bills by check.  Previously,
the majority of our long distance customers elected to pay their bills by credit
card.  Payment by credit card allows us to collect our billings within days of
billing our customers.  Payment by check, however, typically results in
collection times in excess of thirty days.  In addition, payment by credit card
allows us to quickly determine whether a customer is going to pay their bill
whereas, with payment by check, this determination can take in excess of thirty
days.  As a result, we have experienced a significant increase in the amount of
bad debt associated with our local product.

     In an effort to reduce this bad debt and increase collections, we have
recently begun implementing several corrective measures.  These include:
determining a customer's credit rating prior to provisioning service;
strengthening our internal and third-party collection efforts by increasing the
number of our collection employees and reducing the timeframe before collection
efforts are initiated; and reporting delinquent customers to the appropriate
credit bureaus.  We anticipate that these measures will increase our cash flows
from operating activities.  However, if we are unsuccessful in our efforts to
increase our cash collections or increase revenues and customers, we will not
have sufficient cash flows to fund our monthly operations as well as service our
debt obligations.

     CASH FLOWS FROM INVESTING ACTIVITIES - Net cash used in investing
activities of $224,732 in fiscal year 2005 funded purchases of property and
equipment.

     CASH FLOWS FROM FINANCING ACTIVITIES - Net cash provided by financing
activities of $96,970 in fiscal year 2005 was primarily due to net borrowings on
notes payable of $945,000, and the proceeds from the sale of stock of $60,000,
offset partially by principal repayments on notes payable of $871,632, principal
repayments under capital lease obligations of $13,398, and the cancellation of
previously issued stock of $23,000.

     OUTSTANDING DEBT OBLIGATIONS AND RECENT DEBT RESTRUCTURINGS - In May and
July 2005, we entered into subscription agreements, as amended, with certain
third party investors for the sale of convertible notes, $2,000,000 principal
amount along with shares of our common stock and warrants, resulting in gross
proceeds of $1.7 million, less offering costs of $141,825.  The notes accrue
simple interest of 12% per annum and may be converted into shares of our common
stock.  Under the terms of the notes, we must begin repayment of principal and
interest beginning in September 2005.

     On June 7, 2005, the Company borrowed $20,000, bearing no interest, from an
employee of the Company for working capital purposes.  The borrowing was repaid
on July 22, 2005.

     In May 2005, we restructured $927,524 in amounts due on a past due note
payable and corresponding accrued interest and penalties into a new long term
note payable, principal amount $1,200,000.  The new note accrues simple interest
in the amount of 12% per annum.  We are obligated to pay accrued interest
monthly, but then only if, after deducting all then current obligations, we at
that time have at least $300,000 in available cash.

     In February 2005, we negotiated the settlement of all amounts due to MCI
WorldCom, our former underlying network provider, totaling approximately
$7,700,000 in exchange for the payment of $769,000.  On May 23, 2005, we paid
the settlement amount and satisfied the terms of the settlement agreement.

     On June 8, 2004, we borrowed $50,000 for working capital purposes from an
unrelated third party.  The note was originally to be repaid plus interest of
$7,500 on September 7, 2004.  On November 18, 2004, we restructured the note.
Under the new terms of the note, we are required to make monthly payments of
$5,000 plus simple interest of 10% until all principal and accrued interest is
repaid.  We are currently in discussions with the noteholder to restructure the
remaining payments.  As of the date of this filing, there remains $17,387
outstanding under the note.

                                      -20-
<PAGE>

     On December 9, 2003, we borrowed $200,000 for working capital purposes from
an unrelated third party.  The note was to be repaid plus interest of $21,333 on
April 8, 2004.  On May 17, 2004, the note, as amended, was extended to July 19,
2004.  On July 1, 2005, we agreed to resolve all outstanding amounts owed under
the note via the payment of $30,000 plus bi-weekly payments of $8,000.  The
outstanding principal and accrued interest, which, at the time of the agreement
totaled $167,000 will accrue simple interest at the rate of 10% per annum until
fully repaid.  As of the date of this report, we have made all payments as
required in the note.

     On October 2, 2002, we borrowed $100,000 for working capital purposes from
an unrelated third party.  All amounts owed, with the exception of $10,000 has
been repaid.  We currently are in the process of renegotiating payment terms.

     We maintain a revolving line of credit of $45,000 to finance the purchase
of computer equipment.  The revolving line of credit provides for us to make
monthly payments of $731, including interest at a rate of approximately 14.74%.
The total outstanding balance on the revolving line of credit was $27,110 and is
included in notes payable in the accompanying consolidated balance sheet at June
30, 2005.  As of the date of this report, we have made all payments as required
in the revolving line of credit.

     EQUITY FINANCING - On December 28, 2004, we sold 1,000,000 shares of our
restricted common stock to an unrelated accredited third-party investor for
$60,000.  In addition, we agreed to issue to the third party, warrants to
purchase up to 250,000 shares of our common stock.  The warrants have an
exercise price of $0.11 per share.  The warrants vest immediately and are
exercisable for two (2) years from the date of issuance and contain piggy-back
registration rights.  No consulting expense was recognized due to the fact the
warrants were issued in connection with equity fund raising activities.

     INTERCOMPANY ACTIVITIES - Since inception, Perfexa-U.S. and its Indian
subsidiary Perfexa-India have relied upon us for funding and for administrative
services required in the development of their business plan.  Perfexa is
obligated to reimburse us for such advances and their share of such expenses.
As of June 30, 2005, we have advanced Perfexa-U.S. $5,259,851 in cash and
equipment, of which $661,504 was for the purchase of equipment and $4,598,347
for operating expenses.  In addition, we have allocated $2,080,503 of shared
administrative expenses to Perfexa-U.S.  Cash and equipment advances accrue
interest of 10% per annum and are due upon demand.  Shared administrative
expenses accrue no interest and are also due upon demand.

     Pursuant to a Master Services Agreement between Perfexa-US and us, Perfexa
provides call center and IT development services to us on a cost plus 5% basis.
As of June 30, 2005, Perfexa-U.S. has billed us $2,733,004 for such services.

     As of June 30, 2005, Perfexa-U.S. owes us $4,445,450, net of $161,900
repaid by Perfexa-U.S. from funds raised and $2,733,004 in amounts billed for
services rendered.

     STOCK PURCHASE AGREEMENT - Pursuant to a common stock purchase agreement
("Agreement") with Bluefire Capital, Inc. ("Bluefire"), we are entitled to issue
and sell common stock to Bluefire in the form of draws for up to an aggregate of
$20,000,000, as defined in the Agreement, from time to time during a three year
period beginning on the date of the filing of an effective registration
statement.  On November 20, 2001, we filed a registration statement under the
Securities Act with the Securities and Exchange Commission ("SEC") for
15,000,000 shares available to be issued to Bluefire under the Agreement should
we choose to draw down on these shares and on January 23, 2002, the registration
statement was declared effective.  Pursuant to the Agreement, we must draw a
minimum of $500,000 by January 23, 2005, or we shall be required to pay
liquidated damages equal to one-half of the amount not drawn-down.

     On December 14, 2004, Bluefire and us agreed to terminate the agreement.
In addition, Bluefire agreed to waive the Liquidated Damages in exchange for a
one time payment by us of $10,000, to be paid by January 17, 2005.  On January
17, 2005, we paid the $10,000 termination fee.

                                      -21-
<PAGE>

CAPITAL EXPENDITURES

     We expect to purchase approximately $200,000 of additional equipment on top
of the purchases already made in connection with the expansion of our business.
In addition, as previously discussed, we expanded our operations into the
Republic of India through our Perfexa subsidiary.  We expect to continue funding
this expansion with an additional $200,000 to Perfexa primarily for leasehold
improvements, equipment (computer and telephone), furniture and fixtures, and
deposits.  Because we presently do not have the capital for such expenditures,
we will have to raise these funds.  (See Financing in this section).

OFF-BALANCE SHEET ARRANGEMENTS

     We do not currently have any off-balance sheet arrangements.

SUBSIDIARIES

     We have formed four subsidiaries, of which only one is active (see below),
that offer different products and services.  They are managed separately because
each business requires different technology and/or marketing strategies.

     The four subsidiaries are: CallingPlanet.com, Inc., ecallingcards.com,
Inc., Curbside Communications, Inc., and Perfexa Solutions, Inc.

     CallingPlanet.com, Inc. was set up to offer international calling using a
PC to phone connection.  It is currently inactive.  ecallingcards.com, Inc.
offers prepaid calling cards purchased over the internet.  It is currently
inactive.  Curbside Communications, Inc., currently inactive, has been set up
for future strategic purposes which are currently in the planning process.
Perfexa Solutions, Inc. offers business process outsourcing services.

GOING CONCERN

     Our independent certified public accountants have stated in their report
included in this Form 10-KSB, that we have incurred operating losses in the last
two years, and have a significant stockholders' deficit.  These conditions raise
substantial doubt about our ability to continue as a going concern.

INFLATION
     We believe that inflation has not had a material effect on our results of
operations.

CRITICAL ACCOUNTING POLICIES

     The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires us to make judgments, assumptions and estimates that affect the
amounts reported in our consolidated financial statements and the accompanying
notes.  The amounts of assets and liabilities reported on our balance sheet and
the amounts of revenues and expenses reported for each of our fiscal periods are
affected by estimates and assumptions, which are used for, but not limited to,
the accounting for revenue recognition, accounts receivable, doubtful accounts,
deferred tax asset valuation allowances, and valuation of securities, options,
and warrants issued.  Actual results could differ from these estimates.  The
following critical accounting policies are significantly affected by judgments,
assumptions and estimates used in the preparation of the financial statements:

     USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting periods.  Actual results could differ
from those estimates.  Significant estimates made by us are, among others,
provisions for losses on accounts receivable, realizability of long-lived
assets, estimates for deferred income tax asset valuations, and valuation
estimates for securities, options, and warrants issued.

     REVENUE AND RELATED COST RECOGNITION - We recognize revenue during the
month in which services or products are delivered, as follows:

                                      -22-
<PAGE>

     TELECOMMUNICATIONS RELATED SERVICES

     Our telecommunications service revenues are generated primarily when
     customers make long distance telephone calls from their business or
     residential telephones for long distance service, monthly recurring charges
     for local service, or by using any of our telephone calling cards.

     Telecommunication services cost of sales consists of the cost of long
     distance service provided by Sprint based on usage and on a per line basis
     for local service.

     INTERNET RELATED SERVICES

     Internet service revenues consist of monthly fees charged to subscribers
     for Internet access and are recognized in the period service access is
     provided. Internet service cost of sales consists of the cost of providing
     Internet access.

     BPO SERVICES

     BPO service revenues consist of amounts billed each month based on a client
     contract that provides for either a dedicated or per minute rate as the
     services are rendered. BPO service cost of sales consists of labor and its
     related support costs directly associated with a service contract.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 ("SAB 101"), "Revenue Recognition," which outlines the
basic criteria that must be met to recognize revenue and provide guidance for
presentation of revenue and for disclosure related to revenue recognition
policies in financial statements filed with the Securities and Exchange
Commission.  SAB 101 was later superseded by SAB 104.  We believe our revenue
recognition policies conform to SAB 104.

     STOCK-BASED COMPENSATION - We account for stock-based compensation issued
to employees using the intrinsic value based method as prescribed by Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees."  Under the intrinsic value based method, compensation is the excess,
if any, of the fair value of the stock at the grant date or other measurement
date over the amount an employee must pay to acquire the stock.  Compensation,
if any, is recognized over the applicable service period, which is usually the
vesting period.

     SFAS No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation" if
fully adopted, changes the method of accounting for employee stock-based
compensation plans to the fair value based method.  For stock options and
warrants, fair value is determined using an option pricing model that takes into
account the stock price at the grant date, the exercise price, the expected life
of the option or warrant and the annual rate of quarterly dividends.
Compensation expense, if any, is recognized over the applicable service period,
which is usually the vesting period.

     SFAS No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation -
Transition and Disclosure, an amendment of FASB Statement No. 123," was issued
in December 2002 and is effective for fiscal years ending after December 15,
2002. SFAS 148 provides alternative methods of transition for a voluntary change
to the fair value method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of SFAS 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results.

     The adoption of the accounting methodology of SFAS 123 is optional and we
have elected to continue accounting for stock-based compensation issued to
employees using APB 25; however, pro forma disclosures, as if we adopted the
cost recognition requirements under SFAS 123, are required to be presented.

     In December 2004, the FASB issued SFAS No. 123-R, "Share-Based Payment,"
which requires that the compensation cost relating to share-based payment
transactions (including the cost of all employee stock options) be recognized in
the financial statements.  That cost will be measured based on the estimated
fair value of the equity or liability instruments issued.  SFAS No. 123-R covers
a wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans.  SFAS No.123-R replaces SFAS No. 123, "Accounting
for Stock-Based Compensation," and supersedes Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."  As
originally issued, SFAS No. 123 established as preferable a fair-value-based
method of accounting for share-based payment transactions with employees.
However, that pronouncement permitted entities to continue applying the
intrinsic-value model of APB Opinion 25, provided that the financial statements
disclosed the pro forma net income or loss based on the preferable fair-value
method.

                                      -23-
<PAGE>

     Small Business Issuers are required to apply SFAS No. 123-R in the first
annual reporting period that begins after December 15, 2005.  Thus, our
consolidated financial statements will reflect an expense for (a) all
share-based compensation arrangements granted after July 1, 2006 and for any
such arrangements that are modified, cancelled, or repurchased after that date,
and (b) the portion of previous share-based awards for which the requisite
service has not been rendered as of that date, based on the grant-date estimated
fair value.

     TRANSLATION OF FOREIGN CURRENCIES - We use the U.S. dollar as our
functional and reporting currency while our foreign subsidiary uses the Indian
Rupee as its functional currency.  Assets and liabilities of foreign
subsidiaries are translated into U.S. dollars at year-end exchange rates, and
revenues and expenses are translated at average rates prevailing during the year
or other period presented.  In accordance with SFAS No. 52, "Foreign Currency
Translation", net exchange gains or losses resulting from such translation are
excluded from net loss, but are included in comprehensive loss and accumulated
in a separate component of stockholders' deficit.

ITEM  7.   FINANCIAL  STATEMENTS

     The consolidated financial statements and supplementary financial
information which are required to be filed under this item are presented under
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 10-KSB in
this document, and are incorporated herein by reference.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     There have been no disagreements between Squar, Milner, Reehl & Williamson,
LLP and Management of the type required to be reported under this Item 8 since
the date of their engagement.

ITEM 8A.  CONTROLS AND PROCEDURES

     Under the supervision and the participation of our management, including
our Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the
Exchange Act as of a date (the "Evaluation Date") within 90 days prior to filing
the Company's June 30, 2005 Form 10-KSB.  Based upon on that evaluation, our CEO
and CFO concluded that, as of June 30, 2005, our disclosure controls and
procedures were effective in timely alerting management to the material
information relating to us (or our consolidated subsidiaries) required to be
included in our periodic filings with the SEC.  Based on their most recent
evaluation as of the Evaluation Date, our CEO and the CFO have also concluded
that there are no significant deficiencies in the design or operation of
internal controls over financial reporting, at the reasonable assurance level,
which are reasonably likely to adversely affect our ability to record, process,
summarize and report financial information, and such officers have identified no
material weaknesses in our internal controls over financial reporting.

CHANGES IN CONTROLS AND PROCEDURES

     There were no significant changes made in our internal controls over
financial reporting during the quarter ended June 30, 2005 that have materially
affected or are reasonably likely to materially affect these controls.  Thus, no
corrective actions with regard to significant deficiencies or material
weaknesses were necessary.

                                      -24-
<PAGE>

LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROL

     Our Management, including the CEO, does not expect that our disclosure
controls and procedures or our internal control over financial reporting will
necessarily prevent all fraud and material errors.  An internal control system,
no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met.  Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs.  Because of the inherent limitations on all internal control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the company have been detected.  These
inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, and/or by management override of
the control.  The design of any system of internal control is also 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.  Over time, controls may become inadequate
because of changes in circumstances, and/or the degree of compliance with the
policies and procedures may deteriorate.  Because of the inherent limitations in
a cost effective internal control system, financial reporting misstatements due
to error or fraud may occur and not be detected on a timely basis.

ITEM 8B.  OTHER INFORMATION

     None














                                      -25-
<PAGE>
                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     The following table sets forth the names and ages of our current directors
and executive officers, the principal offices and positions held by each person
and the date such person became a director or executive officer.  Our executive
officers are appointed annually by the Board of Directors.  The directors serve
one-year terms until their successors are elected.  The executive officers serve
terms of one year or until their death, resignation or removal by the Board of
Directors.  There are no family relationships between any of the directors and
executive officers.  In addition, there was no arrangement or understanding
between any executive officer and any other person pursuant to which any person
was selected as an executive officer.

Name               Age     Position(s)
--------------------------------------------------------------------------------

Paul  Sandhu        44     Chief  Executive  Officer and Chairman of the Board

Eric  Clemons       34     Director,  President, Secretary and Treasurer

Gerald A. DeCiccio  47     Director  and  Chief  Financial  Officer

     PAUL SANDHU is currently our Chief Executive Officer and Chairman of our
Board of Directors.  Mr. Sandhu has been with us since our inception.  Mr.
Sandhu has over fourteen (14) years experience with start-up and emerging growth
companies.  Mr. Sandhu was Co-Founder, President and Co-Owner of Maximum
Security ("Maximum"), a Security and surveillance company he started in 1992.
While at Maximum, Mr. Sandhu actively managed a staff of over 200 employees.  In
1997 Mr. Sandhu sold the business to his partner.  Mr. Sandhu graduated from the
University of Punjab in India with a degree in Engineering.

     ERIC CLEMONS is currently our President and a member of our Board of
Directors.  Mr. Clemons has been with us since our inception.  Mr. Clemons has
over twelve (12) years experience with sales and marketing organizations.  Mr.
Clemons most recently was Vice President of Marketing for Intelligent Electronic
Communications managing a staff of 50 employees.

     GERALD DECICCIO joined us in January 1999 as Chief Financial Officer and is
currently a member of our Board of Directors.  Mr. DeCiccio has over twenty
years experience in the financial and accounting field.  Prior to joining us,
Mr. DeCiccio was the Vice President of Finance and Administration for National
Telephone & Communications, Inc., ("NT&C") a $150 million inter-exchange carrier
and provider of communications products and services.  While at NT&C, Mr.
DeCiccio managed NT&C's finance, accounting, human resources and legal
departments.  Between 1995 and 1997, Mr. DeCiccio was the Corporate Controller
for Newport Corporation, a $140 million multi-national manufacturer /
distributor of laser and optics products.  Prior to that, Mr. DeCiccio was the
Director of Audit and Quality Systems for Sunrise Medical, Inc., a $750 million
multi-national manufacturer / distributor of health care products.  From 1980 to
1984, Mr. DeCiccio was a Supervising Senior Accountant for Ernst and Young.  Mr.
DeCiccio received his Bachelor of Science in Accounting from Loma Linda
University, and his Masters of Science in Finance and Systems Technology from
the University of Southern California.  Mr. DeCiccio is a Certified Public
Accountant in the State of California.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

     Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers and persons who own more than ten percent of a registered
class of our equity securities to file with the SEC initial reports of ownership
and reports of changes in ownership of our common stock and other equity
securities.  Officers, directors and greater than ten percent shareholders are
required by SEC regulations to furnish us with copies of all Section 16(a) forms
they file. To our knowledge, based solely on the review of copies of such
reports furnished to us during the year ended June 30, 2005, all Section 16(a)
filing requirements applicable to our officers, directors and greater than ten
percent shareholders were complied.

                                      -26-
<PAGE>

Family Relationships

     There are no family relationships between or among the above directors,
executive officers or persons nominated or charged by us to become directors or
executive officers.

Involvement in Legal Proceedings

     To the best of our knowledge, during the past five years, none of the
following occurred with respect to a present or former director or executive
officer of the Company: (1) any bankruptcy petition filed by or against any
business of which such person was a general partner or executive officer either
at the time of the bankruptcy or within two years prior to that time; (2) any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses); (3) being
subject to any order, judgment or decree, not subsequently reversed, suspended
or vacated, of any court of any competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities; and (4) being found
by a court of competent jurisdiction (in a civil action), the SEC or the
Commodities Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed, suspended
or vacated.

Audit Committee Financial Expert

     On March 3, 2004, due to the resignation of our independent board member
serving as the Committee's independent financial expert, we have temporarily
disbanded the Audit Committee and the full Board of Directors serves in lieu of
such committee.  Currently, Mr. DeCiccio qualifies as a financial expert.  Mr.
DeCiccio also serves as our Chief Financial Officer and is therefore not
considered an independent director.

Code of Ethics

     On January 4, 2004, we adopted a Code of Ethics for our principal executive
officers and senior management.  The Code is designed to deter wrongdoing and
promote honest and ethical conduct; full and fair disclosure in reports and
documents submitted to the SEC; compliance with applicable governmental laws,
rules and regulations; and the prompt internal reporting of violations of the
code to appropriate persons by our senior management.  A copy of our Code of
Ethics is attached to this report as Exhibit 14.  Additionally, a copy is posted
on our website located at www.gtctelecom.com.  Any person may obtain a copy of
our Code of Ethics, without charge, by writing to Legal Department, GTC Telecom,
3151 Airway Ave., Suite P-3, Costa Mesa, CA 92627; Attn Code of Ethics Request.









                                      -27-
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

     The Summary Compensation Table below shows certain compensation information
for  services  rendered  in  all  capacities for the fiscal years ended June 30,
2005,  2004,  and  2003.  Other than as set forth herein, no executive officer's
salary  and  bonus  exceeded  $100,000  in  any  of  the  applicable years.  The
following  information includes the dollar value of base salaries, bonus awards,
the  number  of  stock  options  granted and certain other compensation, if any,
whether  paid  or  deferred.

<TABLE>
<CAPTION>


                                                             SUMMARY COMPENSATION TABLE

                                          ANNUAL  COMPENSATION                          LONG  TERM  COMPENSATION
                                         ----------------------                         AWARDS           PAYOUTS
                                                                                    -------------------------------
                                                                OTHER        RESTRICTED  SECURITIES                 ALL
NAME AND                                                        ANNUAL         STOCK     UNDERLYING    LTIP        OTHER
PRINCIPAL                          SALARY        BONUS       COMPENSATION      AWARDS     OPTIONS     PAYOUTS   COMPESATION
POSITION               YEAR         ($)           ($)            ($)            ($)       SARS (#)      ($)         ($)
---------------------------------------------------------------------------------------------------------------------------
<S>                   <C>       <C>             <C>          <C>               <C>       <C>          <C>       <C>
Paul Sandhu           2005
(CEO)                (6/30)     $  169,400        -0-              -0-          -0-        925,000      -0-         -0-

                      2004
                     (6/30)     $  184,800        -0-            5,000(1)       -0-          -0-        -0-        7,108(2)

                      2003
                     (6/30)        184,800        -0-           40,000(1)       -0-          -0-        -0-         -0-

---------------------------------------------------------------------------------------------------------------------------
Eric Clemons          2005
(President)          (6/30)        160,233        -0-              -0-          -0-        600,000      -0-         -0-

                      2004
                     (6/30)        167,200        -0-              -0-          -0-          -0-        -0-         -0-

                      2003
                     (6/30)        160,233        -0-              -0-          -0-          -0-        -0-         -0-

---------------------------------------------------------------------------------------------------------------------------
Gerald DeCiccio       2005
(CFO)                (6/30)        145,200        -0-              -0-          -0-        400,000      -0-         -0-

                      2004
                     (6/30)        158,400        -0-              -0-          -0-          -0-        -0-         -0-

                      2003
                     (6/30)        158,400        -0-              -0-          -0-          -0-        -0-        6,092(2)

---------------------------------------------------------------------------------------------------------------------------
<FN>

(1)Amounts paid on deferred salary from prior years
(2)Amounts paid for vacation
</TABLE>

                                      -28-
<PAGE>

<TABLE>
<CAPTION>
                                   OPTION/SAR GRANTS IN LAST FISCAL YEAR
                                            (INDIVIDUAL GRANTS)


                  NUMBER OF SECURITIES      PERCENT OF TOTAL
                       UNDERLYING         OPTIONS/SAR'S GRANTED
                 OPTIONS/SAR'S GRANTED   TO EMPLOYEES IN FISCAL    EXERCISE OF BASE PRICE
NAME                      (#)                     YEAR                     ($/SH)           EXPIRATION DATE
                 ----------------------  -----------------------  ------------------------  ---------------
<S>              <C>                     <C>                      <C>                       <C>
Paul Sandhu                    925,000                       40%  $                   0.11        12/21/14
                 ----------------------  -----------------------  ------------------------  ---------------
Eric Clemons                   600,000                       26%  $                   0.10        12/21/14
                 ----------------------  -----------------------  ------------------------  ---------------
Gerald DeCiccio                400,000                       17%  $                   0.10        12/21/14
                 ----------------------  -----------------------  ------------------------  ---------------
</TABLE>

<TABLE>
<CAPTION>


                                   AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                                               AND FY-END OPTION/SAR VALUES


                                                                   NUMBER OF UNEXERCISED        VALUE OF UNEXERCISED IN
                                                                   SECURITIES UNDERLYING        THE-MONEY OPTION/SARS
                   SHARES ACQUIRED ON             VALUE            OPTIONS/SARS AT FY-END (#)        AT FY-END ($)
NAME                  EXERCISE (#)             REALIZED ($)        EXERCISABLE/UNEXERCISABLE   EXERCISABLE/UNEXERCISABLE
                 ----------------------  ------------------------  --------------------------  --------------------------
<S>              <C>                     <C>                       <C>                         <C>

Paul Sandhu                           0                       n/a           693,000 / 837,000          9,250 / 37,000
Eric Clemons                          0                       n/a           572,000 / 573,000          7,200 / 28,800
Gerald DeCiccio                       0                       n/a           391,000 / 394,000          4,800 / 19,200


</TABLE>


EXECUTIVE  OFFICER  EMPLOYMENT  AGREEMENTS

     On December 1, 1998, we entered into an Employment Agreement with S. Paul
Sandhu, our Chief Executive Officer.  The Agreement was approved by our Board of
Directors.  On September 6, 2001, the Compensation Committee of the Board agreed
to revise the Agreement increasing Mr. Sandhu's salary to $184,800.  The
Agreement continues for an indefinite term but may be canceled at any time by
either Mr. Sandhu or us.  However, if we terminate the Agreement without cause,
as defined in the Agreement, we shall be obligated to pay Mr. Sandhu 25% of his
then annual salary as severance.

     On December 1, 1998, we entered into an Employment Agreement with Eric
Clemons, our President.  The Agreement was approved by our Board of Directors.
On September 6, 2001, the Compensation Committee of the Board agreed to revise
the Agreement increasing Mr. Clemon's salary to $167,200.  The Agreement
continues for an indefinite term but may be canceled at any time by either Mr.
Clemons or us.  However, if we terminate the Agreement without cause, as defined
in the Agreement, we shall be obligated to pay Mr. Clemons 25% of his then
annual salary as severance.

     On December 1, 1998, we entered into an Employment Agreement with Gerald
DeCiccio, our Chief Financial Officer.  The Agreement was approved by our Board
of Directors.  On September 6, 2001, the Compensation Committee of the Board
agreed to revise the Agreement increasing Mr. DeCiccio's salary to $158,400.
The Agreement continues for an indefinite term but may be canceled at any time
by either Mr. DeCiccio or us.  However, if we terminate the Agreement without
cause, as defined in the Agreement, we shall be obligated to pay Mr. DeCiccio
25% of his annual salary as severance.

COMPENSATION  OF  DIRECTORS

     Our current directors do not receive compensation for their services as our
directors.

                                      -29-
<PAGE>


ITEM  11.  SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL  OWNERS  AND  MANAGEMENT

     The following table sets forth, as of July 15, 2005, certain information
with respect to the equity securities owned of record or beneficially by:

-     each of our Officers and Directors;
-     each person who owns beneficially more than 5% of each class of our equity
       securities; and
-     all Directors and Executive Officers as a group.

<TABLE>
<CAPTION>

                                                      COMMON STOCK PERCENT OF(1)
TITLE OF CLASS  NAME AND ADDRESS OF BENEFICIALOWNER   OUTSTANDING  OUTSTANDING
--------------------------------------------------------------------------------
<S>            <C>                                     <C>        <C>

                Paul Sandhu(2)
Common Stock    3151 Airway Avenue, Suite P-3
                Costa Mesa, CA 92626.                   4,187,715  13.81%
                --------------------------------------  ---------  ------

                Eric Clemons(3)
Common Stock    3151 Airway Avenue, Suite P-3
                Costa Mesa, CA 92626.                     882,522   2.92%
                --------------------------------------  ---------  ------

                Gerald A. DeCiccio(4)
Common Stock    3151 Airway Avenue, Suite P-3
                Costa Mesa, CA 92626.                     413,500   1.38%
                --------------------------------------  ---------  ------

                Reet Trust(5)
Common Stock    21520 Yorba Linda, Suite 6227
                Yorba Linda, CA 92887                   2,000,000   6.75%
                --------------------------------------  ---------  ------

                Rapaport Family Trust
Common Stock    584 Via Almar
                Palos Verde Peninsula, CA 90275         3,595,000  12.13%
                --------------------------------------  ---------  ------

Common Stock    All Directors and Officers as a Group
                (3 Persons in total)                    5,483,737  18.51%
                --------------------------------------  ---------  ------
<FN>

______________________________________
(1)     Percentage of outstanding shares is based on 29,625,622 shares of common
stock outstanding as of the date of this prospectus plus shares underlying
options exercisable within 60 days for that particular holder.

(2)     Includes 693,000 options to acquire shares of our common stock in
accordance with Mr. Sandhu's director compensation agreement and our employee
benefit plan.  Does not include an aggregate of 837,000 unvested options to
acquire shares of our common stock granted in accordance with our employee
benefit plan.

(3)     Includes 572,000 options to acquire shares of our common stock in
accordance with Mr. Clemons' director compensation agreement and our employee
benefit plan.  Does not include an aggregate of 573,000 unvested options to
acquire shares of our common stock in accordance with our employee benefit plan.

(4)     Includes an aggregate of 391,000 options to acquire shares of our common
stock in accordance with Mr. DeCiccio's employment and director compensation
agreements and our employee benefit plan.  Does not include an aggregate of
394,000 unvested options to acquire shares of our common stock in accordance
with our employee benefit plan.

(5)     The trustee of the Reet Trust is Teg Sandhu, father of S. Paul Sandhu.
However, S. Paul Sandhu disclaims any beneficial ownership to the shares held by
the Reet Trust.

</TABLE>

     We believe that the beneficial owners of securities listed above, based on
information furnished by such owners, have sole investment and voting power with
respect to such shares, subject to community property laws where applicable.
Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities.  Shares of stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for purposes
of computing the percentage of the person holding such options or warrants, but
are not deemed outstanding for purposes of computing the percentage of any other
person.


                                      -30-
<PAGE>

<TABLE>
<CAPTION>

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS


                               EQUITY COMPENSATION PLANS AS OF JUNE 30, 2005


<S>                        <C>                          <C>                     <C>
                                     (A)                         (B)                              (C)
                           ---------------------------  ----------------------  --------------------------------------
                                                                                NUMBER OF SECURITIES
                           NUMBER OF SECURITIES         WEIGHTED-AVERAGE        REMAINING AVAILABLE FOR FUTURE
                           TO BE ISSUED UPON EXERCISE   EXERCISE PRICE OF       ISSUANCE UNDER EQUITY COMPENSATION
                           OF OUTSTANDING OPTIONS,      OUTSTANDING OPTIONS,    PLANS (EXCLUDING SECURITIES REFLECTED
                           WARRANTS AND RIGHTS          WARRANTS AND RIGHTS     IN COLUMN (A))
PLAN CATEGORY                        (#)                         ($)                              (#)
-------------------------  ---------------------------  ----------------------  --------------------------------------
Equity compensation plans
approved by security
holders                            4,171,200(1)                $ 0.27                           1,552,000(2)
-------------------------  ---------------------------  ----------------------  --------------------------------------
Equity compensation plans
not approved by security
holders                           13,100,585                   $ 0.21                                   0
-------------------------  ---------------------------  ----------------------  --------------------------------------
Total                             17,271,785                   $ 0.23                           1,552,000

</FN>

(1)  consists  of  723,200  options  issued under the 1999 Stock Option Plan and
3,448,000  options  issued  under  the  2001  Stock  Incentive  Plan
(2)  does  not include any ungranted options under the 1999 Omnibus Stock Option
Plan  as  this  plan  was  terminated.

</TABLE>

1999 STOCK OPTION PLAN

     On September 20, 1999, our Board of Directors ("Board") approved the GTC
Telecom Corp. Omnibus Stock Option Plan (the "1999 Plan"), effective October 1,
1999.  The 1999 Plan was approved and ratified by the shareholders on December
13, 1999 at our 1999 annual shareholder's meeting.  Under the terms of the 1999
Plan, the Board has the sole authority to determine which of the eligible
persons shall receive options, the number of shares which may be issued upon
exercise of an option, and other terms and conditions of the options granted
under the 1999 Plan to the extent they don't conflict with the terms of the 1999
Plan.

     Upon implementation of our 2001 Stock Incentive Plan (as described below),
we closed the 1999 Plan.  As of the date of this report, a total of 723,200
options, previously issued to employees, exercisable at a weighted average of
$0.94 per share remain outstanding.

2001 STOCK INCENTIVE PLAN

     On October 17, 2001, our Board approved the GTC Telecom Corp. 2001 Stock
Incentive Plan (the "SIP Plan"), effective January 1, 2002.  The SIP Plan was
approved and ratified by the shareholders on December 13, 2001 at our 2001
annual shareholder's meeting.  The SIP Plan provides for the grant of various
types of equity-based incentives including stock options, stock appreciation
rights ("SARs"), restricted stock, and cash and stock bonuses, on a current or
deferred basis, collectively "Awards."  We may settle Awards in cash or shares
of the Company's Common Stock ("Shares").

     The maximum number of Shares that may be issued under the SIP Plan is
5,000,000 shares of our Common Stock.  The Internal Revenue Code requires a
fixed limit on the number of Shares that may be covered by options and SARs
granted to any one individual in any one calendar year and a fixed limit on the
number of Shares that may be covered by all Awards granted to any one individual
in any one calendar year.  These limits are each 1,000,000 shares.

     The SIP Plan may be administered by the Board or by a committee appointed
by the Board.  Currently the SIP Plan is administered by the full Board of
Directors.  Subject to the express terms of the SIP Plan, the SIP Plan
administrator will have broad power to administer, construe, and interpret the
SIP Plan.

     Awards may be issued for services rendered or to be rendered.  Shares also
may be issued for any lawful consideration, including cash, other securities or
rights.  The administrator may authorize loans from us to participants (except
to our executive officers) in the amount necessary for participants to pay the
withholding taxes due in connection with the exercise or vesting of Awards.  All
of our directors, officers, consultants, and employees and our subsidiaries are
eligible for Award grants.  Only persons actually selected by the administrator
will be granted Awards.

                                      -31-
<PAGE>

     On December 21, 2004, our Board granted, pursuant to the SIP Plan,
Incentive Stock Options (as defined by the SIP Plan), to purchase an aggregate
of 1,375,000 shares of our common stock at an exercise price of $0.10 per share
(the fair market value of our common stock on the day of grant), to certain of
our employees.  In addition, on December 21, 2004, our Board granted to the
Company's CEO, pursuant to the SIP Plan, options to purchase 925,000 shares of
our common stock at an exercise price equal to 110% of the fair market value on
the date of grant ($0.11 per share). The options vest equally over a period of
five years from the date of grant and are exercisable through December 2013.

NON-PLAN ISSUANCES

     On April 12, 2004, we entered into an agreement with an outside consultant
for investor relations services.  Pursuant to the agreement, we agreed, in
addition to certain cash consideration, to issue to the investor relations
company, warrants to purchase up to 500,000 shares of our common stock.  The
warrants have an exercise price of $0.13 per share.  The warrants are valued at
approximately $65,000 (based on the Black Scholes pricing model) which we
recorded to consulting expense in April 2004.  The warrants vest immediately and
are exercisable for a period of three years from the date of issuance.

BONUS  POOL  PLAN

     On  January 5, 2005, our Board of Directors approved the establishment of a
bonus  pool  plan  (the  "Bonus Plan") to incentivize our executive officers and
employees in an effort to increase our profitability and productivity.  Pursuant
to the Bonus Plan, upon reaching revenue goal milestones as set forth below, our
executives  and  employees would be entitled to share in the corresponding bonus
pool.  Individual  distributions  from the pool, if any, would be recommended by
our  officers,  subject  to  final  approval  by  the  Board  of  Directors.


                    Bonus  Pool  Amount

Quarter                      Revenue Goal   Executives   Non-Executives
---------------------------  -------------  -----------  --------------
1st Quarter ending 3/31/05   $ 2.5  Million $    30,000  $   30,000
2nd Quarter ending 6/30/05   $ 3.15 Million $    45,000  $   45,000
3rd Quarter ending 9/30/05   $ 4.0  Million $    60,000  $   60,000
4th Quarter ending 12/31/05  $ 5.0  Million $    75,000  $   75,000


     As  of the date of this report, no distributions have been made pursuant to
the  Bonus  Pool  Plan.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In February 2004, our Chief Financial Officer exercised options (previously
granted pursuant to his director compensation agreement) to purchase a total of
2,500 shares of our common stock for $25.

     As of June 30, 2005, we have net advances to Eric Clemons, our President,
of $60,306.  The advances accrue interest at 10% (no interest income has been
recorded as of June 30, 2005) and are due on demand.  We have classified the
note receivable as an increase to stockholders' deficit in the accompanying
consolidated balance sheet at June 30, 2005.  There have been no additional
advances since June 2001.

     In February, 2003, Perfexa-U.S. entered into a Master Services Agreement
with us whereby Perfexa-U.S. agreed to provide call center outsourcing and
Information Technology systems development for us.  Pursuant to the terms of the
Agreement, we have agreed to reimburse Perfexa-U.S. for such services on a cost
plus 5% basis.  Work on this agreement commenced May 1, 2003 upon completion of
the Perfexa call center.

     Since inception, Perfexa-U.S. and their Indian subsidiary Perfexa-India has
relied upon us for funding and for administrative services required in the
development of their business plan.  Perfexa is obligated to reimburse us for
such advances and their share of such expenses.  As of June 30, 2005, we have
advanced Perfexa-U.S. $5,259,851 in cash and equipment, of which $661,504 was
for the purchase of equipment and $4,598,347 for operating expenses.  In
addition, we have allocated $2,080,503 of shared administrative expenses to
Perfexa-U.S.  Cash and equipment advances accrue interest of 10% per annum and
are due upon demand.  Shared administrative expenses accrue no interest and are
also due upon demand.  See Part II, Item 6 Management's Discussion and Analysis,
Financing further details.

                                      -32-
<PAGE>

     Pursuant to a Master Services Agreement between Perfexa-US and us, Perfexa
provides call center and IT development services to us on a cost plus 5% basis.
As of June 30, 2005, Perfexa-U.S. has billed us $2,733,004 for such services.

     As of June 30, 2005, Perfexa-U.S. owes GTC $4,445,450 net of $161,900
repaid by Perfexa-U.S. from funds raised and $2,733,004 in amounts billed for
services rendered.

     See Item 11. Executive Compensation for transactions relating to issuances
of options to Officers and Directors from our stock option plans.


                                      -33-
<PAGE>

ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K

INDEX  TO  FINANCIAL  STATEMENTS
Page

Report of Independent Registered Public Accounting Firm          F-1

Consolidated balance sheet at June 30, 2005                      F-2

Consolidated statements of operations and comprehensive
 loss for the years ended June  30, 2005 and 2004                F-3

Consolidated statements of stockholders' deficit for
 the years ended June 30, 2005 and 2004                          F-4

Consolidated statements of cash flows for the years ended
 June 30, 2005 and 2004                                          F-5

Notes to consolidated financial statements                       F-7

All other schedules are omitted as the required information is not present or is
not  present  in  amounts  sufficient  to require submission of the schedule, or
because  the  information  required  is  included in the financial statements or
notes  thereto.

INDEX  TO  EXHIBITS

We  undertake  to  furnish to any shareholder so requesting a copy of any of the
following  exhibits upon payment to us of the reasonable costs incurred by us in
furnishing  any  such  exhibit.

Exhibit No.     Description

3.1*    Amendment to Articles of Incorporation filed with the Nevada
        Secretary  of  State  on  June  21,  2005  increasing  the  authorized
        shares  of  common stock from 50,000,000 to 100,000,000 (incorporated by
        reference to Exhibit 3.1 in the Company's Registration Statement on Form
        SB-2 filed on July 19, 2005).

3.2*    Restated Articles of Incorporation filed with the Nevada Secretary of
        State on January 4, 2001 (incorporated by reference to Exhibit 3.1 in
        the Company's 2000 Proxy Statement filed on November 15, 2000).

3.3*    Restated Bylaws of GTC Telecom Corp. adopted on September 20, 1999
        (incorporated by reference to Exhibit 3.5 in the Company's Annual Report
        on Form 10-KSB for the year ended June 30, 1999 filed on October 13,
        1999).

4.1*    Form of 12% Convertible Promissory Note issued pursuant to Subscription
        Agreement dated May 23, 2005(incorporated by reference to Exhibit 4.1 in
        the Company's Registration Statement on Form SB-2 filed on July 19,
        2005).

4.2*    Form of Class A Warrant -- Exhibit A1 to Subscription Agreement dated
        May 23, 2005 (incorporated by reference to Exhibit 10.1.1 of the
        Company's Form 8-K filed on May 24, 2005).

4.3*    Form of Class B Warrant -- Exhibit A2 to Subscription Agreement dated
        May 23, 2005 (incorporated by reference to Exhibit 10.1.2 of the
        Company's Form 8-K filed on May 24, 2005).

10.1*   Subscription Agreement by and between GTC Telecom Corp. and
        Bumper Fund, LP dated July 11, 2005 (incorporated by reference to
        Exhibit 10.1 of the Company's Form 8-K filed on July 15, 2005).

10.2*   Amendment Agreement by and between GTC Telecom Corp. and Alpha Capital
        Alpha Capital Aktiengesellschaft, DCOFI Master LDC, SCG Capital, LLC,
        Silver Oak Investments, Inc., and Ellis International Ltd. dated June
        28, 2005 (incorporated by reference to Exhibit 10.1 of the Company's
        Form 8-K filed on July 11, 2005).

10.3*   Subscription Agreement by and between GTC Telecom Corp. and Alpha
        Capital Alpha Capital Aktiengesellschaft, DCOFI Master LDC, SCG Capital,
        LLC, Silver Oak Investments, Inc., and Ellis International Ltd. dated
        May 23, 2005 (incorporated by reference to Exhibit 10.1 of the Company's
        Form 8-K filed on May 23, 2005).

10.3.1* Escrow Agreement -- Exhibit B to Subscription Agreement dated May 23,
        2005 (incorporated by reference to Exhibit 10.1.3 of the Company's Form
        8-K filed on May 23, 2005).

10.3.2* Security Agreement by GTC Telecom Corp. -- Exhibit C1 to Subscription
        Agreement dated May 23, 2005 (incorporated by reference to Exhibit
        10.1.4 of the Company's Form 8-K filed on May 23, 2005).

10.3.3* Collateral Agent Agreement -- Exhibit D to Subscription Agreement
        dated May 23, 2005. (incorporated by reference to Exhibit 10.1.5 of the
        Company's Form 8-K filed on May 23, 2005).

10.4*   Lease dated March 1, 2005 by and between the Company and Southern
        California Sunbelt Developers, Inc. for Suite P-3, Costa Mesa, CA 92626
        (incorporated by reference to Exhibit 10.1 of the Company's Form 10-QSB
        filed on May 16, 2005).

10.5*   Lease dated March 1, 2005 by and between the Company and Southern
        California Sunbelt Developers, Inc. for Suite K-103, Costa Mesa, CA
        92626 (incorporated by reference to Exhibit 10.2 of the Company's Form
        10-QSB filed on May 16, 2005).


                                      -34-
<PAGE>

10.6*   Addendum No. 1 to Subscription Agreement dated May 12, 2005 by and
        between the Company and the Rapaport Family Trust (incorporated by
        reference to Exhibit 10.1.5 of the Company's Form 8-K filed on May 23,
        2005).


10.7*   Subscription Agreement dated May 13, 2005 by and between the Company
        and the Rapaport Family Trust (incorporated by reference to Exhibit 10.3
        of the Company's Form 10-QSB filed on May 16, 2005).

10.8*   Wholesale Solutions Switched Services Agreement by and between the
        Company and Sprint Communications Company L.P. dated July 26, 2002
        (incorporated by reference to Exhibit 10.9 of the Company's Form 10-KSB
        filed on September 28, 2004).

10.9*   Employment Agreement by and between GTC Telecom Corp., a Nevada
        corporation and Eric Clemons, dated December 1, 1998 (incorporated by
        reference to Exhibit 10.6 in the Company's Form 10 SB/A filed April 2,
        1999).

10.10*  Employment Agreement by and between GTC Telecom Corp., a Nevada
        corporation and Jerry DeCiccio, dated December 1, 1998 (incorporated by
        reference to Exhibit 10.7 in the Company's Form 10 SB/A filed April 2,
        1999).

10.11*  Employment Agreement by and between GTC Telecom Corp., a Nevada
        corporation and Paul Sandhu, dated December 1, 1998 (incorporated by
        reference to Exhibit 10.8 in the Company's Form 10 SB/A filed April 2,
        1999).

14*     Code of Ethics (incorporated by reference to Exhibit 14 in the Company's
        Annual Report on Form 10-KSB for the year ended June 30, 2004 filed on
        August 8, 2004).

21      Subsidiaries of the Registrant.

23      Consent of Registered Public Accounting Firm

31.1    Rule 13a-14(a) Certification of Chief Executive Officer

31.2    Rule 13a-14(a) Certification of Chief Financial Officer

32.1    Section 1350 Certification of Chief Executive Officer

32.2    Section 1350 Certification of Chief Financial Officer

------------------------------
* Previously filed and incorporated by reference as indicted.


                                      -35-
<PAGE>

ITEM  14.  PRINCIPAL  ACCOUNTANT  FEES  AND  SERVICES

     For the fiscal year ended June 30, 2005, our fees for professional services
rendered  by  our Independent Registered Public Accounting Firm were as follows:

     (a) Audit Fees: Aggregate fees billed for professional services rendered
     for the audit of our fiscal year 2004 annual consolidated financial
     statements and review of the consolidated financial statements in our
     reports on Form 10-QSB: $67,000.

     (b)  Audit  Related  Fees:  $630.

     (c)  Tax  Fees:  $31,328.

     (d) All Other Fees: The aggregate fees billed for all other professional
     services provided to us (other than the services described above under (a),
     (b), and (c)) for the fiscal year ended June 30, 2005: None.

Our Board of Directors serving as our Audit Committee has considered and
determined that the services rendered by the Independent Registered Public
Accounting Firm with respect to the foregoing fees are compatible with
maintaining our independence and all services were pre-approved by the Board.






                                      -36-
<PAGE>

                                   SIGNATURES

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


Dated  September  28,  2005

                                GTC TELECOM CORP.
                                  (Registrant)

By:  /s/  PAUL  SANDHU
          PAUL  SANDHU
Chief Executive Officer and Director

By:  /s/  ERIC  CLEMONS
          ERIC  CLEMONS
President and Director

By:  /s/  GERALD  DECICCIO
          GERALD  DECICCIO
Chief Financial Officer and Director and
Principal Accounting Officer












                                      -37-
<PAGE>

REPORT  OF  INDEPENDENT  REGISTERED  PUBLIC  ACCOUNTING  FIRM

To  the  Board  of  Directors  and  Shareholders  of
GTC  Telecom  Corp.

We have audited the accompanying consolidated balance sheet of GTC Telecom Corp.
(the  "Company")  and  subsidiaries  as  of  June  30,  2005  and  the  related
consolidated statements of operations, comprehensive loss, stockholders' deficit
and cash flows for each of the years in the two-year period ended June 30, 2005.
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.  An audit includes
examining,  on  a test basis, evidence supporting the amounts and disclosures in
the  financial  statements.  An  audit  also  includes  assessing the accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating  the  overall  financial statement presentation.  We believe that our
audits  provide  a  reasonable  basis  for  our  opinion.

In  our  opinion,  the financial statements referred to above present fairly, in
all  material respects, the consolidated financial position of GTC Telecom Corp.
and  subsidiaries  at  June  30,  2005  and  the  consolidated  results of their
operations  and  their  cash  flows for each of the years in the two-year period
ended June 30, 2005, in conformity with accounting principles generally accepted
in  the  United  States  of  America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  As disclosed in Note 1, the Company
has incurred losses in the last several years, has an accumulated deficit of
approximately $10,700,000, and a stockholders' deficit of approximately $200,000
at June 30, 2005.  These factors, among others, raise substantial doubt about
the Company's ability to continue as a going concern.  Management's plans in
regard to these matters are described in Note 1.  The consolidated financial
statements do not include any adjustments that may result from the outcome of
this uncertainty.



/s/ SQUAR, MILNER, REEHL & WILLIAMSON, LLP



Newport  Beach,  California
August  25,  2005


                                      F-1
<PAGE>

<TABLE>
<CAPTION>


                        GTC TELECOM CORP. AND SUBSIDIARIES
                            CONSOLIDATED BALANCE SHEET



                                                                       June 30,
                                                                         2005
<S>                                                                  <C>
ASSETS
  Cash                                                               $        500
  Accounts receivable, net of allowance for doubtful accounts of
   approximately $111,000                                                 847,520
  Deposits                                                                 20,822
  Prepaid expenses                                                         77,804
                                                                     -------------
    Total current assets                                                  946,646

Property and equipment, net                                               608,297
Other assets                                                               76,206
                                                                     -------------

    Total assets                                                     $  1,631,149
                                                                     =============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
  Accounts payable and accrued expenses                              $     88,917
  Accrued payroll and related taxes                                       233,860
  Obligation under capital leases                                          10,381
  Notes payable, net of discounts totaling $894,486                        91,138
  Deferred income                                                           4,560
                                                                     -------------
    Total current liabilities                                             428,856
                                                                     -------------

Long-term liabilities:
  Obligation under capital leases, net of current portion                  21,153
  Notes payable, net of current portion,
   net of discounts totaling $302,290                                   1,292,974
                                                                     -------------

    Total liabilities                                                   1,742,983

Commitments and contingencies

Minority interest in consolidated subsidiary                               86,508

Stockholders' deficit:
  Preferred stock, $0.001 par value; 10,000,000 shares authorized;
    none issued and outstanding                                                --
  Common stock, $0.001 par value; 100,000,000 shares authorized;
    27,802,092 shares issued and outstanding                               27,802
  Additional paid-in-capital                                           10,841,159
  Note receivable officer                                                 (60,306)
  Accumulated deficit                                                 (10,666,729)
  Accumulated other comprehensive income (loss)                          (340,268)
                                                                     -------------
    Total stockholders' deficit                                          (198,342)
                                                                     -------------

    Total liabilities and stockholders' deficit                      $  1,631,149
                                                                     =============

</TABLE>


           See accompanying notes to consolidated financial statements



                                      F-2
<PAGE>
<TABLE>
<CAPTION>

                       GTC TELECOM CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        AND COMPREHENSIVE INCOME/(LOSS)


                                                                           Years Ended June 30,
                                                                        --------------------------
                                                                             2005         2004
                                                                        --------------------------

<S>                                                                     <C>           <C>
Revenues:
  Telecommunications                                                    $ 8,257,994   $10,103,082
  Internet services                                                         584,547       775,862
  BPO services                                                              180,309        78,644
                                                                        ------------  ------------
    Total revenues                                                        9,022,850    10,957,588
                                                                        ------------  ------------

Cost of sales:
  Telecommunications                                                      3,767,061     4,221,809
  Internet services                                                         178,178       555,329
  BPO services                                                              119,700        59,239
                                                                        ------------  ------------
    Total cost of sales                                                   4,064,939     4,836,377
                                                                        ------------  ------------

Gross profit                                                              4,957,911     6,121,211

Operating expenses
  Payroll and related                                                     2,297,030     2,857,419
  Selling, general, and administrative                                    2,722,327     2,562,495
                                                                        ------------  ------------
    Total operating expenses                                              5,019,357     5,419,914
                                                                        ------------  ------------

Operating income (loss)                                                     (61,446)      701,297

Interest expense, net                                                    (1,122,756)   (1,262,697)
Gain on extinguishment of debt                                            6,301,935            --
Loss on sale of equipment                                                        --       (10,392)
                                                                        ------------  ------------

Income (loss) before provision for income taxes and minority interest     5,117,733      (571,792)

Provision for income taxes                                                    9,216        13,753
                                                                        ------------  ------------

Income (loss) before minority interest                                    5,108,517      (585,545)

Minority interest in loss of consolidated subsidiaries                       25,606        33,278
                                                                        ------------  ------------

Net income (loss) available to common shareholders                        5,134,123      (552,267)

Foreign currency translation adjustment                                    (292,132)      (58,146)
                                                                        ------------  ------------

Comprehensive income (loss)                                             $ 4,841,991   $  (610,413)
                                                                        ============  ============

Net income (loss) available to common shareholders per common share:
  Basic                                                                 $      0.22   $     (0.03)
                                                                        ============  ============
  Diluted                                                               $      0.21   $     (0.03)
                                                                        ============  ============

Weighted average common shares outstanding:
  Basic                                                                  23,320,094    21,096,423
                                                                        ============  ============
  Diluted                                                                24,322,594    21,096,423
                                                                        ============  ============

</TABLE>


           See accompanying notes to consolidated financial statements

                                      F-3
<PAGE>
<TABLE>
<CAPTION>

                                               GTC TELECOM CORP. AND SUBSIDIARIES
                                        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                                           FOR THE TWO-YEAR PERIOD ENDED JUNE 30, 2005



                                                                                                       Accumulated
                                                                  Additional   Note                    Other          Total
                                               Common Stock       Paid-in      Receivable Accumulated  Comprehensive  Stockholders'
                                            Shares     Amount     Capital      Officer    Deficit      Income (Loss)  Deficit

<S>                                      <C>          <C>       <C>           <C>        <C>            <C>         <C>
BALANCE AT JUNE 30, 2003                 20,714,122    20,714     8,885,200    (60,306)   (15,248,585)     10,010    (6,392,967)

Estimated fair market value of
 stock and warrants issued in
 connection with notes payable            1,390,000     1,390       148,305         --             --          --       149,695
Estimated fair market value of
 warrants granted to
 consultants for services
 rendered                                        --        --        65,000         --             --          --        65,000
Estimated fair market value of
 vested options granted to
 employees for compensation                      --        --       110,251         --             --          --       110,251
Exercise of stock options by
 officers                                     2,500         3            22         --             --          --            25
Net loss                                         --        --            --         --       (552,267)         --      (552,267)
Cumulative foreign currency
 translation adjustment                          --        --            --         --             --     (58,146)      (58,146)
                                         ---------------------------------------------------------------------------------------

BALANCE AT JUNE 30, 2004                 22,106,622    22,107     9,208,778    (60,306)   (15,800,852)    (48,136)   (6,678,409)
                                         ---------------------------------------------------------------------------------------


Estimated fair market value of
 stock and warrants issued in
 connection with notes payable            4,896,470     4,896     1,485,931         --             --          --     1,490,827

Cancellation of previously issued stock    (201,000)     (201)      (22,799)        --             --          --       (23,000)
Estimated fair market value of
 vested options granted to
 employees for compensation                      --        --       110,249         --             --          --       110,249

Issuance of restricted common stock       1,000,000     1,000        59,000         --             --          --        60,000
Net income                                       --        --            --         --      5,134,123          --     5,134,123
Cumulative foreign currency
 translation adjustment                          --        --            --         --             --    (292,132)     (292,132)
                                         ---------------------------------------------------------------------------------------

BALANCE AT JUNE 30, 2005                 27,802,092   $27,802   $10,841,159   $(60,306)  $(10,666,729)  $(340,268)  $  (198,342)
                                         =======================================================================================
</TABLE>



           See accompanying notes to consolidated financial statements

                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                       GTC TELECOM CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                      Years Ended June 30,
                                                                                  --------------------------
                                                                                       2005          2004
                                                                                  --------------------------
<S>                                                                               <C>           <C>
Cash Flows From Operating Activities:
Net income (loss)                                                                 $ 5,134,123   $  (552,267)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
  Estimated fair market value of options granted
    to employees for compensation                                                     110,249       110,251
  Estimated fair market value of stock
    issued in connection with notes payable                                            20,827       149,695
  Gain on extinguishment of debt                                                   (6,301,935)           --
  Bad debt expense                                                                    724,514       159,467
  Depreciation and amortization                                                       303,467       298,056
  Amortization of debt discount                                                        76,458       199,500
  Minority interest in loss of consolidated subsidiaries                              (25,606)      (33,278)
  Estimated fair market value of options and warrants
    granted to consultants for services rendered                                           --        65,000
  Loss on sale of equipment                                                                --        11,392
  Changes in operating assets and liabilities:
    Accounts receivable and other current assets                                   (1,184,755)      137,314
    Accounts payable and accrued expenses                                           1,174,135       472,439
    Accrued payroll and related taxes                                                  22,863      (188,472)
    Deferred income                                                                        --         1,315
                                                                                  ------------   -----------

Net cash provided by operating activities                                              54,340       830,412
                                                                                  ------------   -----------

Cash Flows From Investing Activities:
Purchases of property and equipment                                                  (224,732)     (171,425)
Proceeds from sale of equipment                                                            --            --
                                                                                  ------------   -----------

Net cash used in investing activities                                                (224,732)     (171,425)
                                                                                  ------------   -----------
Cash Flows From Financing Activities:
Principal repayments on notes payable                                                (871,632)   (1,893,330)
Principal borrowings on notes payable, net of fees of
  $1,196,777 and $202,000, respectively                                               945,000     1,305,341
Proceeds from issuance of stock                                                        60,000            --
Proceeds from issuance of stock of subsidiary, net of
  offering costs of $6,000                                                                 --        69,000
Principal payments under capital lease obligations                                    (13,398)       (8,805)
Cancellation of previously issued stock                                               (23,000)           --
Proceeds from exercise of stock options                                                    --            25
                                                                                  ------------   -----------

Net cash provided by (used in) financing activities                                    96,970      (527,769)

Effect of exchange rate on cash                                                           350       (58,146)

Net increase/(decrease) in cash                                                       (73,072)       73,072

Cash at beginning of year                                                              73,572           500
                                                                                  ------------   -----------
Cash at end of year                                                               $       500   $    73,572
                                                                                  ============   ===========
</TABLE>

                                      F-5
<PAGE>

<TABLE>
<CAPTION>
                       GTC TELECOM CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (CONTINUED)


Supplemental disclosure of cash flow information:

                                                                                    Years Ended June 30,
                                                                                      2005          2004
                                                                                  ------------------------
<S>                                                                                  <C>            <C>
  Cash paid during the year for:
   Interest                                                                       $    11,214    $ 577,986

</TABLE>

During the fiscal year ended June 30, 2005, the Company financed the purchase of
equipment  totaling  $66,561  with  notes  payable.

During the year ended June 30, 2005, the Company converted a $725,000 short term
note  and  accrued  interest  of $202,524 into a long term note with a principal
amount  of  $1,200,000.  In  addition,  the  Company  issued 2,400,000 shares of
restricted  common  stock  pursuant  to  the  conversion  of  the  note payable.

During  the  year  ended  June  30, 2005, the Company issued 2,176,470 shares of
restricted  common  stock  pursuant  to  the  issuance  of a note payable with a
principal  amount  of  $1,088,235.

During  the  year  ended June 30, 2005, the Company converted $67,000 of accrued
interest  into  a  short  term  note.

During the fiscal year ended June 30, 2004, the Company financed the purchase of
equipment totaling $146,404, including $39,538 of capital leases and $107,866 of
notes  payable.

During  the  fiscal  year  ended  June  30, 2004, Perfexa issued 8,152 shares of
restricted  common  stock  pursuant to the conversion of interest payable in the
amount  of  $4,076.

See  accompanying  notes  to  consolidated  financial  statements for additional
non-cash  investing  and  financing  activities.



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






                                      F-6
<PAGE>
                       GTC TELECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
________________________________________________________________________________

NOTE  1  ORGANIZATION  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

GTC  -  GTC  Telecom  Corp.  and  subsidiaries  (the "Company" or "GTC") provide
various  services  including,  telecommunication  services,  which includes long
distance  and  local  telephone,  and  calling  card  services, Internet related
services  including  Internet  service  provider  access,  and  business process
outsourcing  ("BPO")  services.  GTC  Telecom  Corp.  was  organized as a Nevada
Corporation  on  May  17, 1994 and is currently based in Costa Mesa, California.
The  Company  is  quoted on the Over-The-Counter Bulletin Board under the symbol
"GTCC".

The  Company  has  formed  four  wholly owned subsidiaries, of which only one is
active  (see  below),  that  offer  different  products  and services.  They are
managed  separately  because  each business requires different technology and/or
marketing  strategies.

The  four  subsidiaries  are:  CallingPlanet.com, Inc., ecallingcards.com, Inc.,
Curbside  Communications,  Inc.,  and  Perfexa  Solutions,  Inc.

CallingPlanet.com,  Inc. was set up to offer international calling using a PC to
phone connection.  It is currently inactive.  ecallingcards.com, Inc. was set up
to  offer  prepaid  calling  cards purchased over the internet.  It is currently
inactive.  Curbside  Communications,  Inc.,  currently inactive, has been set up
for  future  strategic  purposes  which the Company is currently in the planning
process.

PERFEXA  -  Perfexa  Solutions,  Inc.  ("Perfexa" or "Perfexa-U.S."), a majority
owned  subsidiary  of  the  Company, currently provides customer service for the
Company's  telecommunication  and  Internet  users.  Perfexa's  Information
Technology  ("IT") group currently develops IT solutions for GTC's customer care
needs  and the integration of GTC's customer care system with those of Perfexa's
New  Delhi  Center.  Additionally,  Perfexa offers outsourced call center and IT
development  services  to  third  parties.

GOING  CONCERN  -  The  accompanying consolidated financial statements have been
prepared  assuming  the  Company  will  continue  as  a  going  concern,  which
contemplates,  among other things, the realization of assets and satisfaction of
liabilities in the normal course of business.  At June 30, 2005, the Company has
an  accumulated deficit of $10,666,729, and a stockholders' deficit of $198,342,
and  the  Company  is  in  default  on  several notes payable, (see Note 5).  In
addition,  through  June  30,  2005,  the  Company  historically had losses from
operations  and  a  lack of profitable operational history, among other matters,
that  raise  substantial doubt about its ability to continue as a going concern.
The  Company  hopes  to  continue  to  increase revenues from additional revenue
sources  and/or  increase  profit  margins  through  continued negotiations with
Sprint  (see  Note  10)  and  other  cost  cutting  measures.  In the absence of
significant  increases  in  revenues  and  margins,  the Company intends to fund
operations  through  additional  debt  and  equity  financing arrangements.  The
successful  outcome  of  future activities cannot be determined at this time and
there are no assurances that if achieved, the Company will have sufficient funds
to  execute  its  intended business plan or generate positive operating results.

These  circumstances  raise  substantial  doubt  about  the Company's ability to
continue as a going concern.  The accompanying consolidated financial statements
do  not  include  any  adjustments  that  might  result from the outcome of this
uncertainty.

PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
include  the  accounts  of  GTC  Telecom  Corp.  and  its  subsidiaries,
CallingPlanet.com, Inc., ecallingcards.com, Inc., Curbside Communications, Inc.,
and  Perfexa  Solutions,  Inc.  All  significant  intercompany  balances  and
transactions  have  been  eliminated  in  consolidation.

MINORITY  INTEREST  -  Minority  interest  represents the minority stockholders'
proportionate  share  of the equity of Perfexa Solutions, Inc.  At June 30, 2005
and  2004,  the  Company  owned  approximately  97% of Perfexa Solutions, Inc.'s
common  stock.  The  Company's  controlling  interest  requires  that  Perfexa
Solutions,  Inc.'s  operations  be  included  in  the  consolidated  financial
statements  of  the  Company.  The 3% equity interest of Perfexa Solutions, Inc.
that  is  not  owned  by the Company at June 30, 2005 and 2004, respectively, is
shown  as  minority  interest  in  consolidated  subsidiary  in the accompanying
consolidated  financial  statements.

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  disclosures of contingent assets and
liabilities  at  the  date  of the financial statements, as well as the reported
amounts  of  revenues and expenses during the reporting periods.  Actual results
could  differ  from  those  estimates.  Significant estimates made by management
are,  among  others,  the  provision  for  losses  on  accounts  receivable,
realizability  of  long-lived  assets,  estimates for income tax valuations, and
valuation  of  securities  options,  and  warrants  issued.

                                      F-7
<PAGE>

                       GTC TELECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
________________________________________________________________________________

RISKS  AND UNCERTAINTIES - The Company operates in a highly competitive industry
that  is  subject  to  intense  competition,  government  regulation  and  rapid
technological changes.  The Company has limited operating history and is subject
to  the substantial business risks and uncertainties inherent to such an entity,
including  financial,  operational,  technological,  regulatory  and other risks
including  the  potential risk of business failure.  Additionally, the Company's
operations  in India are subject to various political, economic, and other risks
and  uncertainties  inherent  in  such  country.

CONCENTRATION OF CREDIT RISK - The Company currently maintains substantially all
of  its  cash with one major financial institution.  At times, cash balances may
be in excess of the amounts insured by the Federal Deposit Insurance Corporation
("FDIC").

The  Company  sells  its telephone and network services to individuals and small
businesses  throughout  the  United States and does not require collateral.  The
Company  performs  periodic  credit  evaluations  of its customers.  The Company
maintains  reserves  for  potential  credit  losses  based  upon  the  Company's
historical  experience  related  to  credit losses which management believes are
sufficient.  Although  the  Company  expects  to  collect  amounts  due,  actual
collections  may  differ  from  the  estimated  amounts.

ALLOWANCE  FOR  DOUBTFUL  ACCOUNTS  -  The  Company establishes an allowance for
doubtful  accounts  based  on  a  qualitative  and quantitative review of credit
profiles of customers, contractual terms and conditions, current economic trends
and  historical  payments.  The  Company  assesses  the  allowance  for doubtful
accounts  each  period.  If  the  Company  made  different judgments or utilized
different  estimates  for  any  period,  material  differences in the amount and
timing  of  revenue  recognized  could  result.

DEPENDENT ON KEY CUSTOMERS - The Company is not dependent on any single customer
or groups of affiliated customers for a significant portion of its annual sales.
The Company's customer base changes on a continuous basis as customers are added
or  removed.

MAJOR  SUPPLIERS  -  The  Company does not own its own long distance network and
currently depends primarily upon Sprint to provide for the transmission of phone
calls  by  its  customers  and to provide the call detail records upon which the
Company bases its customer's billings.  See Note 10 for details of the Company's
agreement  with  Sprint.

In  the  event  that  the  services  provided  by  Sprint  to  the  Company were
discontinued,  the  Company believes that it would be able to identify alternate
suppliers  which  would be able to provide it with sufficient levels of services
at  terms  similar  to  those  of Sprint.  Although the Company has the right to
switch  its  current customers to an alternate underlying carrier, the Company's
customers  have  the  right to discontinue their service with the Company at any
time.  Accordingly,  the  termination  or  non-renewal of the Company's contract
tariffs  with  Sprint or the loss of telecommunications services from Sprint may
have  a  material  adverse  effect  on  the  Company's results of operations and
financial  condition.

The  Company  provides its Internet Service Provider Access services pursuant to
an  agreement  with  an  outside  company  for the provisioning of the Company's
Internet  Service  Provider  Access  service.  See  Note  10  for details of the
Company's  agreement  with  its  Internet  service  provider.

PROPERTY AND EQUIPMENT - Property and equipment is stated at cost.  Depreciation
is  computed using the straight-line method over the estimated useful lives of 3
to 5 years.  Leasehold improvements are amortized using the straight-line method
over  the  shorter of the lease term or the estimated useful life of the related
asset.  During  the  years  ended  June  30,  2005  and 2004, total depreciation
expense  was  $303,467  and  $298,056,  respectively.

Betterments,  renewals,  and  extraordinary repairs that extend the lives of the
assets  are  capitalized;  other repairs and maintenance charges are expensed as
incurred.  The  cost  and  related accumulated depreciation applicable to assets
retired  are  removed  from the accounts, and the gain or loss on disposition is
recognized  in  current  operations.

                                      F-8
<PAGE>

                       GTC TELECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
________________________________________________________________________________

LONG-LIVED ASSETS - In July 2001, the Financial Accounting Statements Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 144
("SFAS 144"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."  SFAS 144 addresses financial accounting
and reporting for the impairment of disposal of long-lived assets.  SFAS 144
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that their carrying amounts may not be
recoverable.  If the cost basis of a long-lived asset is greater than the
projected future undiscounted net cash flows from such asset (excluding
interest), an impairment loss is recognized.  Impairment losses are calculated
as the difference between the cost basis of an asset and its estimated fair
value.    As of June 30, 2005, management has determined that no such impairment
exists and therefore, no adjustments have been made to the carrying values of
long-lived assets.  There can be no assurance, however, that market conditions
or demand for the Company's products or services will continue which could
result in impairment of long-lived assets in the future.

SFAS  144  also  requires companies to separately report discontinued operations
and  extends  that reporting requirement to a component of an entity that either
has  been  disposed  of (by sale, abandonment or a distribution to owners) or is
classified as held for sale.  Assets to be disposed of are reported at the lower
of  the  carrying  amount  or  the estimated fair value less costs to sell.  The
Company  adopted SFAS 144 on July 1, 2002.  The provisions of this statement for
assets  held  for  sale  or  other disposal generally are required to be applied
prospectively  after the adoption date to newly initiated commitments to plan to
sell  or  dispose of such assets by management.  As a result, the Company cannot
determine  the  potential  effects  that  adoption  of SFAS 144 will have on the
financial  statements  with respect to future disposal decisions, if any.

REVENUE AND RELATED COST RECOGNITION - The Company recognizes revenue during the
month  in  which  services  or  products  are  delivered,  as  follows:

TELECOMMUNICATIONS  RELATED  SERVICES

The  Company's  telecommunications service revenues are generated when customers
make long distance telephone calls from their business or residential telephones
for  long  distance  service, monthly recurring charges for local service, or by
using  any  of  the  Company's  telephone  calling  cards.

Telecommunication  services  cost of sales consists of the cost of long distance
service  provided  by  Sprint  based  on usage and on a per line basis for local
service.

INTERNET  RELATED  SERVICES

Internet  service  revenues  consist  of monthly fees charged to subscribers for
Internet  access  and  are  recognized in the period service access is provided.
Internet  service  cost  of  sales  consists  of  the cost of providing Internet
access.

BPO  SERVICES

BPO  service  revenues  consist  of  amounts billed each month based on a client
contract that provides for either a dedicated or per minute rate as the services
are  rendered.  BPO  service  cost  of  sales  consists of labor and its related
support  costs  directly  associated  with  a  service  contract.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin  101  ("SAB  101"),  "Revenue  Recognition,"  which  outlines the basic
criteria  that  must  be  met  to  recognize  revenue  and  provide guidance for
presentation  of  revenue  and  for  disclosure  related  to revenue recognition
policies  in  financial  statements  filed  with  the  Securities  and  Exchange
Commission.  SAB 101 was amended and superceded by SAB 104.  Management believes
the  Company's  revenue  recognition  policies  conform  to  SAB  104.

DEFERRED  INCOME  -  Deferred  income represents proceeds from prepaid telephone
calling  cards  which are recorded as deferred income when the cash is received.
The  Company  recognizes  the  revenue  in  the  statement  of operations as the
telephone  service  is  utilized  or  when  the  calling  card  expires.

ADVERTISING  COSTS  -  Advertising  costs are expensed as incurred.  Advertising
expense  was  approximately  $22,000  and  $30,000  for  fiscal  2005  and 2004,
respectively.

                                      F-9
<PAGE>

                       GTC TELECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
________________________________________________________________________________

INCOME  TAXES  - The Company accounts for income taxes under SFAS No. 109 ("SFAS
109"),  "Accounting  for Income Taxes."  Under SFAS 109, deferred tax assets and
liabilities  are  recognized  for  the  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 expected to apply to taxable
income  in  the  years  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 not be
recovered.

STOCK-BASED  COMPENSATION  -  The  Company accounts for stock-based compensation
issued  to  employees  using  the  intrinsic value based method as prescribed by
Accounting  Principles  Board  Opinion  No. 25 ("APB 25"), "Accounting for Stock
Issued  to  Employees."  Under the intrinsic value based method, compensation is
the  excess,  if  any, of the fair value of the stock at the grant date or other
measurement  date  over  the  amount  an employee must pay to acquire the stock.
Compensation, if any, is recognized over the applicable service period, which is
usually  the  vesting  period.

SFAS  No.  123 ("SFAS 123"), "Accounting for Stock-Based Compensation," if fully
adopted,  changes the method of accounting for employee stock-based compensation
plans  to  the  fair  value  based method.  For stock options and warrants, fair
value  is  determined  using an option pricing model that takes into account the
stock  price  at  the  grant  date, the exercise price, the expected life of the
option  or  warrant  and  the  annual rate of quarterly dividends.  Compensation
expense,  if  any,  is  recognized  over the applicable service period, which is
usually  the  vesting  period.

SFAS No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation - Transition
and  Disclosure, an amendment of FASB Statement No. 123," was issued in December
2002  and is effective for fiscal years ending after December 15, 2002. SFAS 148
provides  alternative  methods  of transition for a voluntary change to the fair
value  method  of accounting for stock-based employee compensation. In addition,
this  Statement  amends  the  disclosure  requirements  of  SFAS  123 to require
prominent  disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method  used  on  reported  results.

The  adoption  of  the  accounting  methodology  of SFAS 123 is optional and the
Company  has  elected to continue accounting for stock-based compensation issued
to  employees  using  APB  25; however, pro forma disclosures, as if the Company
adopted  the  cost  recognition  requirements under SFAS 123, are required to be
presented.

In  December  2004, the FASB issued SFAS No. 123-R, "Share-Based Payment," which
requires that the compensation cost relating to share-based payment transactions
(including  the  cost  of  all  employee  stock  options)  be  recognized in the
financial  statements.  That  cost  will be measured based on the estimated fair
value  of  the  equity or liability instruments issued.  SFAS No. 123-R covers a
wide  range  of  share-based  compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans.  SFAS No.123-R replaces SFAS No. 123, "Accounting
for  Stock-Based  Compensation,"  and  supersedes  Accounting  Principles  Board
("APB")  Opinion  No.  25,  "Accounting  for  Stock  Issued  to  Employees."  As
originally  issued,  SFAS  No.  123 established as preferable a fair-value-based
method  of  accounting  for  share-based  payment  transactions  with employees.
However,  that  pronouncement  permitted  entities  to  continue  applying  the
intrinsic-value  model of APB Opinion 25, provided that the financial statements
disclosed  the  pro  forma net income or loss based on the preferable fair-value
method.

Small  Business Issuers are required to apply SFAS No. 123-R in the first annual
reporting  period  that  begins  after  December  15, 2005.  Thus, the Company's
consolidated  financial  statements  will  reflect  an  expense  for  (a)  all
share-based  compensation  arrangements  granted  after July 1, 2006 and for any
such  arrangements that are modified, cancelled, or repurchased after that date,
and  (b)  the  portion  of  previous  share-based awards for which the requisite
service has not been rendered as of that date, based on the grant-date estimated
fair  value.

At  June  30,  2005, the Company has two stock-based employee compensation plans
(see  Note  6).  For  fixed awards with pro-rata vesting, the Company recognizes
compensation  cost  ratably  over  the  vesting  period.  Stock-based  employee
compensation  cost  totaling  $110,249  and  $110,251 is reflected in net income
(loss)  for  the  years  ended  June 30, 2005 and 2004, respectively, as certain
options  granted  under  those  plans had an exercise price less than the market
value  of the underlying common stock on the date of grant.  The following table
illustrates  the  effect on net income and earnings per share if the Company had
applied  the  fair  value  recognition  provisions  of  SFAS  123 to stock-based
employee  compensation.

                                      F-10
<PAGE>

                       GTC TELECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
________________________________________________________________________________
<TABLE>
<CAPTION>

                                                                     Years Ended June 30
                                                                      2005         2004
                                                                   -----------  ----------
<S>                                                                <C>          <C>
Net income (loss)                                                  $5,134,123   $(552,267)
    As reported
    Add: stock-based employee compensation incurred
         Determined under intrinsic value based menthod               110,249     110,251

    Deduct: total stock-based employee compensation expense
         Determined under fair value based method for all awards     (219,200)   (237,507)
                                                                   -----------  ----------

    Pro-forma                                                      $5,025,172   $(679,523)
                                                                   ===========  ==========

Basic and diluted net income (loss) per share:
Basic
    As reported                                                    $     0.22   $   (0.03)
                                                                   ===========  ==========
    Pro-forma                                                      $     0.22   $   (0.03)
                                                                   ===========  ==========
Diluted
    As reported                                                    $     0.21   $   (0.03)
                                                                   ===========  ==========
    Pro-forma                                                      $     0.21   $   (0.03)
                                                                   ===========  ==========
</TABLE>

EARNINGS (LOSS) PER SHARE - Statement of Financial Accounting Standards ("SFAS")
No. 128 ("SFAS 128"), "Earnings Per Share," requires basic earnings per share to
be  computed  by  dividing  income  available  to  common  shareholders  by  the
weighted-average  number  of  common  shares  outstanding  during  the period of
computation.  Diluted  earnings  per share is computed similar to basic earnings
per  share  except  that  the  denominator is increased to include the number of
additional  common  shares  that  would  have  been outstanding if the potential
common  shares had been issued and if the additional common shares were dilutive
(see  Note11).  Pro  forma  per  share data has been computed using the weighted
average  number  of  common shares outstanding during the periods.  For the year
ended  June  30,  2004,  because  the Company had incurred net losses, basic and
diluted  loss per share are the same as additional potential common shares would
be  anti-dilutive  (see  Note  11).

FAIR  VALUES  OF FINANCIAL INSTRUMENTS - SFAS 107, "Disclosures About Fair Value
of  Financial  Instruments," requires disclosure of fair value information about
financial  instruments  when  it  is  practicable  to  estimate that value.  The
carrying  amount  of  the  Company's cash, accounts receivables, trade payables,
accrued  expenses,  and  notes payables approximates their estimated fair values
due to the short-term maturities of those financial instruments.  The fair value
of  long  term  debts  approximates  its  carrying  value because their rates of
interest  approximate  current  market rates.  In the opinion of management, the
fair  value  of  the  note  receivable  from officer cannot be estimated without
incurring  excessive  costs;  for that reason, the Company has not provided such
disclosure.  Other  information about such related-party receivable (such as the
carrying amount, the interest rate, and maturity) is provided elsewhere in these
notes  to  consolidated  financial  statements.

COMPREHENSIVE  INCOME  - SFAS 130, "Reporting Comprehensive Income," establishes
standards  for  reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements.  Total comprehensive loss
represents  the  net change in stockholders' equity during a period from sources
other  than  transactions  with stockholders and as such, includes net earnings.
For  the  Company, the components of other comprehensive loss are the changes in
the  cumulative  foreign  currency  translation  adjustments and are recorded as
components  of  stockholders'  deficit.

SEGMENTS  OF  AN ENTERPRISE AND RELATED INFORMATION - SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," changes the way public
companies  report  information  about segments of their business in their annual
financial statements and requires them to report selected segment information in
their  annual  reports  issued  to  shareholders.  It  also requires entity-wide
disclosures  about  the  products  and services an entity provides, the material
countries  in which it holds assets and reports revenues and its major customers
(see Note 12).

TRANSLATION  OF  FOREIGN CURRENCIES - GTC uses the U.S. dollar as its functional
and  reporting  currency  while the Company's foreign subsidiary uses the Indian
Rupee  as its functional currency.  Assets and liabilities of foreign subsidiary
are  translated  into  U.S. dollars at year-end exchange rates, and revenues and
expenses  are  translated  at  average rates prevailing during the year or other
period  presented.  In  accordance  with  SFAS  No.  52,  "Foreign  Currency
Translation",  net  exchange gains or losses resulting from such translation are
excluded  from  net loss, but are included in comprehensive loss and accumulated
in  a separate component of stockholders' deficit.  For the years ended June 30,
2005  and  2004, the Company recorded a foreign translation loss of $292,132 and
$58,146,  respectively.

                                      F-11
<PAGE>

                       GTC TELECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
________________________________________________________________________________

CASH  AND  CASH  EQUIVALENTS - The Company considers all highly liquid financial
instruments  with  an  original  maturity  of  three  months  or less to be cash
equivalents.  The  Company  had  no  cash  equivalents  at  June  30,  2005.

SIGNIFICANT  RECENT  ACCOUNTING  PRONOUNCEMENTS

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities, an Interpretation of ARB 51." The primary objectives of FIN No. 46 are
to  provide  guidance  on  the  identification  of entities for which control is
achieved  through means other than voting rights (variable interest entities, or
"VIEs")  and  how  to  determine  when  and  which  business  enterprise  should
consolidate  the  VIE. This new model for consolidation applies to an entity for
which  either:  (1)  the  equity  investors  do not have a controlling financial
interest;  or  (2) the equity investment at risk is insufficient to finance that
entity's  activities without receiving additional subordinated financial support
from  other  parties.  In  addition,  FIN  No. 46 requires that both the primary
beneficiary  and all other enterprises with a significant variable interest in a
VIE  make  additional  disclosures.  As  amended in December 2003, the effective
dates  of  FIN  No.  46  for public entities that are small business issuers, as
defined  ("SBIs"), are as follows: (a) For interests in special-purpose entities
("SPEs"):  periods  ended  after  December 15, 2003; and (b) For all other VIEs:
periods ended after December 15, 2004. The December 2003 amendment of FIN No. 46
also  includes  transition  provisions  that  govern how an SBI which previously
adopted  the  pronouncement  (as  it  was  originally  issued)  must account for
consolidated  VIEs.  Management  has concluded that the Company does not have an
interest  in  any  SPEs,  and  is evaluating the other effects of FIN No. 46 (as
amended)  on  its  future  consolidated  financial  statements.

In  November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an amendment
of  ARB  No. 43, Chapter 4," which clarifies the accounting for abnormal amounts
of  idle  facility  expense,  freight,  handling  costs  and wasted material. In
Chapter  4  of  ARB  43,  paragraph  5  previously  stated  that  "  under  some
circumstances,  items  such as idle facility expense, excessive spoilage, double
freight,  and  re-handling  costs  may be so abnormal as to require treatment as
current  period  charges" SFAS No. 151 requires that such items be recognized as
current-period  charges,  regardless  of  whether  they meet the criterion of so
abnormal  (an  undefined term). This pronouncement also requires that allocation
of  fixed  production overhead to the costs of conversion be based on the normal
capacity  of  the production facilities. SFAS No. 151 is effective for inventory
costs  incurred  in  years  beginning  after  June  15,  2005.

In  December  2004, the FASB issued SFAS No. 123-R, "Share-Based Payment," which
requires that the compensation cost relating to share-based payment transactions
(including  the  cost  of  all  employee  stock  options)  be  recognized in the
financial  statements.  That  cost  will be measured based on the estimated fair
value  of  the  equity  or liability instruments issued. SFAS No. 123-R covers a
wide  range  of  share-based  compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee  share purchase plans. SFAS No.123-R replaces SFAS No. 123, "Accounting
for  Stock-Based  Compensation,"  and  supersedes  Accounting  Principles  Board
("APB")  Opinion  No.  25,  "Accounting  for  Stock  Issued  to  Employees."  As
originally  issued,  SFAS  No.  123 established as preferable a fair-value-based
method  of  accounting  for  share-based  payment  transactions  with employees.
However,  that  pronouncement  permitted  entities  to  continue  applying  the
intrinsic-value  model of APB Opinion 25, provided that the financial statements
disclosed  the  pro  forma net income or loss based on the preferable fair-value
method. Small Business Issuers are required to apply SFAS No. 123-R in the first
interim  or  annual  reporting period that begins after December 15, 2005. Thus,
the  Company's consolidated financial statements will reflect an expense for (a)
all  share-based compensation arrangements granted after January 1, 2006 and for
any  such  arrangements  that are modified, cancelled, or repurchased after that
date, and (b) the portion of previous share-based awards for which the requisite
service has not been rendered as of that date, based on the grant-date estimated
fair  value.

Other  recent  accounting  pronouncements  issued  by  the  FASB  (including its
Emerging  Issues  Task  Force),  the  American  Institute  of  Certified  Public
Accountants,  and  the  Securities  and  Exchange  Commission did not or are not
believed  by  Management  to  have a material impact on the Company's present or
future  financial  statements.


                                      F-12
<PAGE>

                       GTC TELECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
________________________________________________________________________________



NOTE  2  PROPERTY  AND  EQUIPMENT

Property and equipment consist of the following at June 30, 2005:

Computer equipment                 $657,266
Furniture and office equipment      204,398
Telephone equipment                 363,156
Leasehold Improvements              249,003
Automobiles                         267,062
                                 -----------
                                  1,740,885
Less accumulated depreciation    (1,132,588)
                                 -----------
                                   $608,297
                                 ===========


NOTE  3  OBLIGATION  UNDER  CAPITAL  LEASES

The  Company  is  a lessee of certain property and equipment under capital lease
obligations  that expire on various dates through August 2008.  The terms of the
capital  lease  obligations  provide  for  monthly  lease  payments ranging from
approximately $200 to $865.  The assets and liabilities under capital leases are
recorded  at the lower of the present value of the minimum lease payments or the
fair  market  value  of  the related asset.  The assets are depreciated over the
shorter  period  of  the  lease  term  or  the  estimate  useful  life.

Future minimum annual commitments under lease arrangements are as follows:

   Years  Ending
     June  30,

       2006                                       $  13,647
       2007                                          11,859
       2008                                          10,380
       2009                                           1,730
                                                  ---------

Total minimum future lease payments                  37,616

Less: Amounts representing interest                  (6,076)
                                                  ---------

Present value of net minimum lease payments       $  31,534
                                                  =========

The  following is an analysis of the leased equipment under capital leases as of
June  30,  2005,  which  is  included  in  property  and  equipment  (Note  2).

                  Computer equipment              $  24,536
                  Telephone equipment                48,180
                                                  ---------
                                                     72,716
                  Less: Accumulated depreciation    (53,192)
                                                  ---------
                                                  $  19,524
                                                  =========

Interest incurred pursuant to the capital lease obligations was $4,694 and
$3,600 for fiscal years 2005 and 2004, respectively.

                                      F-13
<PAGE>

                       GTC TELECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
________________________________________________________________________________

NOTE  4  RELATED  PARTY  TRANSACTIONS

NOTE  RECEIVABLE  OFFICER

As of June 30, 2005, the Company has net advances to an officer of $60,306.  The
advances  were  made  prior to enactment of the Sarbanes-Oxley Act of 2002.  The
advances accrue interest at 10% (no interest income has been recorded as of June
30,  2005)  and  are  due  on  demand.  The  Company  has  reclassified the note
receivable  as  an  increase  to  stockholders'  deficit  in  the  accompanying
consolidated  balance  sheet  at  June  30,  2005.

NOTE  5  NOTES  PAYABLE

In May 2005, the Company entered into subscription agreements, as amended, with
certain third party investors for the sale of convertible notes, $1,088,235
principal amount along with 2,176,470 shares of our common stock (see Note 8)
and 11,970,585 warrants (see Note 7), resulting in gross proceeds of $925,000,
less offering costs of $78,563.  The notes accrue simple interest of 12% per
annum and may be converted into shares of our common stock at $0.135 per share.
Such conversion price was deemed to be a beneficial conversion feature ("BCF"),
as defined in Emerging Issues Task Force ("EITF") Issue No. 98-5. "Accounting
for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios," and EITF No. 00-27, "Application of Issue No.
98-5 to Certain Convertible Instruments."  As such, the proceeds of the notes
were allocated, based on relative fair values, as follows: approximately $95,000
to the common shares issued; approximately $480,000 to the warrants granted; and
approximately $350,000 to the BCF, resulting in a debt discount to such notes of
$925,000.  Under the terms of the notes, the Company must begin repayment of
principal and interest in September 2005 and all unpaid principal and interest
are due on November 23, 2006.  In July 2005, the Company entered into additional
subscription agreements with the same investors for principal of $911,765.  Such
borrowings have terms that are substantially the same as those described above
and included the issuance of 1,823,530 shares of the Company's common stock to
the lenders.

On June 7, 2005, the Company borrowed $20,000, bearing no interest, from an
employee of the Company for working capital purposes.  The borrowing was repaid
on July 22, 2005.

In August 2004, the Company restructured $725,000 in total principle on two past
due  notes  payable  plus  corresponding  interest  into  a  new short term note
payable,  principal  of  $816,395. Such note required principal plus interest of
$73,350 be repaid by November 30, 2004, and the Company issued 250,000 shares of
its  restricted  common  stock  to  the  lender, valued at approximately $17,000
(based on the grant date fair value). In May 2005, the Company restructured such
$816,395 past-due note payable plus corresponding accrued interest and penalties
into  a  new  long term note payable, principal amount $1,200,000. In connection
with  the  new  debt,  the  Company issued 2,400,000 shares of restricted common
stock  to the lender.  The new note accrues simple interest in the amount of 12%
per  annum.  The  Company is obligated to pay accrued interest monthly, but then
only  if, after deducting all then current obligations, the Company at that time
has  at least $300,000 in available cash.  The $1,200,000 debt is convertible at
$0.13  per  share,  which resulted in a BCF of $185,000, which will be amortized
over  the  life  of  the  debt.  In  accordance  with  EITF No. 96-19, "Debtor's
Accounting  for  a  Modification  or Exchange of Debt Instruments," the $816,395
debt  was  considered  extinguished  in  this  restructuring,  and  a  loss  on
extinguishment  of  approximately  $670,000  was  recorded.

In  February  2005,  the Company negotiated the settlement of all amounts due to
MCI  WorldCom,  its  former  underlying network provider, totaling approximately
$7,700,000  in  exchange  for  the  payment  of  $769,000.  On May 23, 2005, the
Company  paid  the  settlement  amount and satisfied the terms of the settlement
agreement.

On  June 8, 2004, the Company borrowed $50,000 for working capital purposes from
an unrelated third party.  The note was originally to be repaid plus interest of
$7,500 on September 7, 2004.  On November 18, 2004, the Company restructured the
note.  Under  the new terms of the note, the Company is required to make monthly
payments  of  $5,000 plus simple interest of 10% until all principal and accrued
interest is repaid.  The Company is currently in discussions with the noteholder
to  restructure  the  remaining  payments.  As  of  June 30, 2005, there remains
$22,124  outstanding  under  the  note.

On  December 9, 2003, the Company borrowed $200,000 for working capital purposes
from  an  unrelated  third  party.  The  note  was to be repaid plus interest of
$21,333  on  April 8, 2004.  On May 17, 2004, the note, as amended, was extended
to  July  19,  2004.  On  July  1,  2005,  the  Company  agreed  to  resolve all
outstanding  amounts  owed  under  the  note  via  the  payment  of $30,000 plus
bi-weekly  payments  of $8,000.  The outstanding principal and accrued interest,
which, at the time of the agreement totaled $167,000 will accrue simple interest
at  the  rate  of  10%  per  annum  until  fully  repaid.

On October 2, 2002, the Company borrowed $100,000 for working capital purposes
from an unrelated third party.  As of June 30, 2005, all amounts owed, with the
exception of $25,000 has been repaid.  The Company currently is in the process
of renegotiating payment terms.

                                      F-14
<PAGE>

                       GTC TELECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
________________________________________________________________________________


The  Company  maintains  a  revolving  line  of credit of $45,000 to finance the
purchase of computer equipment.  The revolving line of credit provides for us to
make  monthly  payments  of  $731, including interest at a rate of approximately
14.74%.  The  total  outstanding  balance  on  the  revolving line of credit was
$27,110  and  is  included  in  notes  payable  in the accompanying consolidated
balance  sheet at June 30, 2005.  As of the date of this report, the Company has
made  all  payments  as  required  in  the  revolving  line  of  credit.

The Company from time to time borrows funds from the Company's Chief Executive
Officer ("CEO") for working capital purposes.  Amounts accrue no interest and
are payable on demand.  On April 15, 2004, the Company borrowed $12,000 from its
CEO.  As of June 30, 2005, the Company has repaid $11,000 of the amount
borrowed.

Future minimum principal payments on notes payable approximate the following for
the  years  ending  June  30:

                               2006           $   985,624
                               2007             1,595,264
                                              -----------
                                              $ 2,580,888

NOTE  6  STOCK  OPTIONS

From  time  to  time,  the  Company  issues  stock  options  pursuant to various
agreements  and  other compensatory arrangements to employees and third parties.

2001  Stock  Incentive  Plan

On  October  17,  2001, the Company's Board approved the GTC Telecom Corp. Stock
Incentive  Plan  (the  "SIP Plan"), effective January 1, 2002.  The SIP Plan was
approved  and ratified by the shareholders on December 13, 2001 at the Company's
2001  annual  shareholder's  meeting.  The  SIP  Plan  provides for the grant of
various  types of equity based incentives, including qualified and non-qualified
stock  options,  stock appreciation rights, restricted stock, bonuses, and other
awards.  A  maximum  of  5,000,000  shares  of the Company's common stock may be
issued  pursuant  to the SIP Plan.  The SIP plan is administered by the Board of
Directors.

On  December  21,  2004,  the Company's Board granted, pursuant to the SIP Plan,
Incentive  Stock  Options (as defined by the SIP Plan), to purchase an aggregate
of  1,375,000 shares of the Company's common stock at an exercise price of $0.10
per  share  (the  fair  market value of the Company's common stock on the day of
grant), to certain employees of the Company.  In addition, on December 21, 2004,
the  Company's  Board  granted  to  the Company's CEO, pursuant to the SIP Plan,
options  to purchase 925,000 shares of the Company's common stock at an exercise
price  equal  to  110%  of the fair market value on the date of grant ($0.11 per
share).  The  options  vest equally over a period of five years from the date of
grant  and  are  exercisable  through  December  2013.

No  employee compensation expense was recognized under APB 25 for options issued
to  employees  under  the  SIP  Plan  during  the  year  ended  June  30,  2005.

1999  Stock  Option  Plan

On  September  20, 1999, the Company's Board approved the GTC Telecom Corp. 1999
Omnibus  Stock  Option  Plan, effective October 1, 1999.  The exercise price for
each option shall be equal to 25% to 100% of the fair market value of the common
stock  on the date of grant, as defined, and shall vest over a five-year period.
Upon  the  approval  and  ratification  of  the SIP Plan, the Company elected to
terminate  the  1999  Omnibus  Stock  Option  Plan.

                                      F-15
<PAGE>

                       GTC TELECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
________________________________________________________________________________

Non-Plan  Issuances

The  Company  recorded compensation expense for the vesting of previously issued
"in the money" options to employees of $110,249 and $110,251 in the fiscal years
ended  June  30,  2005  and  2004,  respectively.

A  following  is  a status of the stock options outstanding at June 30, 2005 and
2004  and  the  changes  during  the  years  then  ended:

<TABLE>
<CAPTION>
                                                   2005                          2004
                                        -------------------------------------------------------------

                                                    Weighted Average                Weighted Average
                                         Options     Exercise Price      Options     Exercise Price
                                        -------------------------------------------------------------
<S>                                     <C>         <C>                <C>          <C>
Outstanding, beginning of year          2,264,000   $            0.62   3,356,900   $            0.80
       Granted                          2,300,000                0.10      86,000                0.12
       Exercised (see Note 8)                  --                  --      (2,500)               0.01
       Expired/Forfeited                 (342,800)               1.30  (1,176,400)               0.57
                                        ----------  -----------------  -----------  -----------------
Outstanding, end of year                4,221,200   $            0.28   2,264,000   $            0.62
                                        ==========  =================  ===========  =================
Exercisable at end of year              1,962,560   $            0.46   1,477,560   $            0.75
                                        ==========  =================  ===========  =================
Wtd avg fair value of options granted               $            0.10               $            0.10
                                                    -----------------               -----------------
</TABLE>

The  following table summarizes information concerning currently outstanding and
exercisable  options  at  June  30,  2005:

<TABLE>
<CAPTION>

                                WEIGHTED      WEIGHTED                WEIGHTED
                NUMBER OF       AVERAGE        AVERAGE    NUMBER OF    AVERAGE
EXERCISE         OPTIONS       REMAINING      EXERCISE     OPTIONS    EXERCISE
PRICE RANGE    OUTSTANDING  CONTRACTUAL LIFE    PRICE    EXERCISABLE    PRICE
-------------  -----------  ----------------  ---------  -----------  ---------
<S>            <C>          <C>               <C>        <C>          <C>

0.01 - $1.00    3,780,200        7.28 years  $    0.18    1,521,560  $    0.25
1.01 - $2.00      432,000        4.28 years  $    1.15      432,000  $    1.15
    2.94            9,000        4.30 years  $    2.94        9,000  $    2.94
               -----------                               -----------
                4,221,200        6.04 years  $    0.28    1,962,560  $    0.46
               ===========                               ===========
</TABLE>


Other  Information:

The fair market value of each option granted in 2005 and 2004 is estimated using
the  Black-Scholes  option  pricing  model  per  SFAS  123.  The  Black-Scholes
option-pricing  model  used  the  following weighted average assumptions for the
years ended June 30, 2005 and 2004, respectively: (i) no dividend yield for each
year,  (ii)  volatility  of  341  percent  and  287 percent, respectively, (iii)
risk-free interest rate of 4.15 percent and 3.00 percent, respectively, and (iv)
expected  life  of  5.0  years  and  5.0  years,  respectively.


                                      F-16
<PAGE>
                       GTC TELECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
________________________________________________________________________________

NOTE  7  WARRANTS

From  time  to  time, the Company issues warrants pursuant to various consulting
agreements.

In  May  2005,  in connection with certain subscription agreements (See Note 5),
the  Company  granted  Class  A  and  Class  B warrants to acquire 6,529,410 and
5,441,175  shares,  respectively,  of  the  Company's common stock.  The Class A
warrants  are  immediately  exercisable,  have a term of four years, and have an
exercise  price  of  $0.22  per  share.  The  Class  B  warrants are immediately
exercisable,  have  a  term of 120 days, and have an exercise price of $0.20 per
share.  Additionally,  the broker involved with such subscription agreements was
granted  warrants  to acquire 65,000 shares of the Company's common stock.  Such
warrants  are  immediately  exercisable,  have a term of five years, and have an
exercise  price  of  $0.20  per  share.

In  July  2005,  pursuant  to  additional  subscription agreements with the same
investors  for $911,765 in note principal under the same terms and conditions of
the original subscription agreements, the Company issued an additional 5,470,590
Class  A  warrants  and  4,558,825  Class  B  warrants.

In  December  2004, the Company issued warrants to purchase up to 250,000 shares
of  the  Company's  restricted  common  stock  in  connection  with  the sale of
1,000,000  shares  of  Company's  restricted  common  stock  (see  Note  8).

In  April 2004, the Company entered into an agreement with an outside consultant
for  investor relations services.  Pursuant to the agreement, the Company agreed
to  pay  $10,000  per month for services and following an initial term of twelve
(12)  months,  the  agreement  shall  automatically terminate.  In addition, the
Company  agreed to issue to the investor relations company, warrants to purchase
up  to  500,000  shares  of  the  Company's  common stock.  The warrants have an
exercise price of $0.13 per share and are valued at approximately $65,000 (based
on  the  Black  Scholes  pricing model) which the Company recorded to consulting
expense in April 2004, since management believes the services were substantially
provided  in the Company's fourth quarter. The warrants vest immediately and are
exercisable  for  a  period  of  three  years  from  the  date  of  issuance.

The following represents a summary of the warrants outstanding at June 30, 2005
and 2004 and changes during the years then ended:

<TABLE>
<CAPTION>

                                                      2005                         2004
                                                    Weighted                     Weighted
                                                     Average                      Average
                                    Warrants     Exercise Price   Warrants    Exercise Price
<S>                                 <C>          <C>              <C>         <C>
                                    -----------  ---------------  ----------  ---------------
Outstanding, beginning of year       1,040,000   $          0.22    640,000   $          0.45
                                    -----------  ---------------  ----------  ---------------
       Granted                      12,285,585              0.21    500,000              0.13
       Exercised                            --                --         --                --
       Expired/Forfeited              (275,000)             0.39   (100,000)             1.02
                                    -----------  ---------------  ----------  ---------------
Outstanding, end of year            13,050,585   $          0.21  1,040,000   $          0.22
                                    ===========  ===============  ==========  ===============
Exercisable at the end of the year  13,050,585   $           021  1,040,000   $          0.22
                                    ===========  ===============  ==========  ===============
</TABLE>

The outstanding and exercisable warrants above have prices ranging between $0.11
and  $0.28`,  with  a  weighted average remaining contractual life of 2.2 years.

The  fair  value of each warrant granted during 2005 and 2004 is estimated using
the  Black-Scholes option-pricing model on the date of grant.  The Black-Scholes
option-pricing  model  used  the  following weighted average assumptions for the
years ended June 30, 2005 and 2004, respectively: (i) no dividend yield for each
year,  (ii)  volatility  of  362  percent  and  306 percent, respectively, (iii)
risk-free  interest rate of 3.73 percent and 1.5 percent, respectively, and (iv)
expected  life  of  2.3  years  and  3.0  years,  respectively.

NOTE  8  COMMON  STOCK  ISSUANCES

On May 12, 2005, the Company issued 2,400,000 shares of the Company's restricted
common stock in connection with the issuance of a convertible note (see Note 5).

In  December  2004, the Company sold 1,000,000 shares of restricted common stock
to  an  unrelated accredited third-party investor for $60,000.  In addition, the
Company  agreed  to issue to the third party, warrants to purchase up to 250,000
shares  of  the  Company's common stock.  The warrants have an exercise price of
$0.11  per share.  The warrants vest immediately and are exercisable for two (2)
years  from the date of issuance and contain piggy-back registration rights.  No
consulting  expense  was  recognized due to the fact the warrants were issued in
connection  with  equity  fund  raising  activities.

During  the years ended June 30, 2005 and 2004, the Company issued 2,496,470 and
1,390,000  shares,  respectively,  of  the  Company's restricted common stock in
connection  with  notes  payable  (see  Note  5).

In  February  2004,  the  Company's  Chief  Financial  Officer exercised options
(previously  granted  pursuant  to his director compensation plan) to purchase a
total  of  2,500  shares  of  the  Company's  common  stock  for  $25.


                                      F-17
<PAGE>
                       GTC TELECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
________________________________________________________________________________

NOTE  9  INCOME  TAXES

The  tax effects of temporary differences that give rise to deferred taxes as of
June  30,  2005  are  as  follows:

Deferred  tax  asset:
      Net  operating  loss  carryforward     $7,220,000
      Allowance  for  doubtful  accounts         44,000
                                             ----------

      Total  gross  deferred  tax  asset      7,264,000

      Less  valuation  allowance             (7,264,000)

      Net  deferred  tax  asset              $       --

There  is no significant provision for income taxes for the years ended June 30,
2005  and  2004  since  the Company fully offset taxable income in 2005 with net
operating  losses  from  prior  years  and  incurred  taxable  losses  in  2004.

The  provision for income taxes for fiscal 2005 and 2004 differs from the amount
computed  by  applying  the  U.S.  Federal income tax rate of 34% to loss before
income  taxes  as  a  result  of  the  following  for  the  year  ending:

                                                                June  30,

                                                              2005       2004

Computed tax benefit at federal statutory rate            $1,740,000  $(190,000)
     State  income  tax  benefit, net of federal effect      307,000    (30,000)
     Change in valuation allowance                        (2,006,000)   173,000
     Other                                                   (31,783)    60,753
                                                          ----------  ---------
                                                          $    9,217  $  13,753

As  of  June  30,  2005, the Company had tax net operating loss carryforwards of
approximately  $18,000,000  and  $6,500,000  for  federal  and  state income tax
reporting  purposes,  respectively,  which  begin  expiring  in  2014  and 2005,
respectively.  Effective  September 11, 2002, pursuant to California revenue and
tax  code  section 24416.3, no net operating loss deduction would be allowed for
any  taxable  year  beginning on or after January 1, 2002, and before January 1,
2004.  For  any  suspended losses, the carryover period would be extended by one
year for losses incurred in tax years beginning on or after January 1, 2002, and
before  January  1,  2003; and by two years for losses incurred in taxable years
beginning  before  January  1,  2002.

In  2005 and 2004, the Company concluded that a full valuation allowance against
its  net deferred tax assets was appropriate. SFAS 109 requires that a valuation
allowance  must  be  established  when  it is more likely than not that all or a
portion  of  deferred  tax  assets  will  not  be  realized.  In  making  such
determination,  a review of all available positive and negative evidence must be
considered,  including scheduled reversal of deferred tax liabilities, projected
future  taxable  income,  tax  planning  strategies,  and  recent  financial
performance. Accounting guidance further states that forming a conclusion that a
valuation  allowance  is not needed is difficult when there is negative evidence
such  as  cumulative losses in recent years. As a result of the Company's recent
cumulative  losses  prior  to  the  gain  on extinguishment of debt, the Company
concluded  that  a full valuation allowance should be recorded in 2005 and 2004.
As  of  June  30,  2005,  the  Company  has  provided  a  valuation allowance of
$7,264,000  to  fully  reduce  the  deferred  tax  assets. The net change in the
valuation allowance for fiscal year 2005 was a decrease of $2,006,000.

On  October 22, 2004, the American Jobs Creation Act of 2004 ("AJCA") was signed
into law. The AJCA provides several incentives for US multinational corporations
and  US manufacturers. Subject to certain limitations, the incentives include an
85%  dividend  received  deduction for certain dividends from controlled foreign
corporations  that  repatriate  accumulated  income  abroad, and a deduction for
domestic  qualified  production  activities  taxable  income.  The  US  Treasury
Department  is  expected  to  issue  additional  guidance  with regards to these
provisions.  In  December  2004,  the  FASB  issued  FSP  109-2, "Accounting and
Disclosure  Guidance  for the Foreign Repatriation Provision within the American
Jobs  Creation Act of 2004." FSP 109-2 states that an enterprise is allowed time
beyond the financial reporting period of enactment to evaluate the effect of the
Act  on  its  plan  for reinvestment or repatriation of foreign earnings for the
purposes  of  applying FASB Statement No. 109.We are in the process of analyzing
whether  to  take  advantage  of this opportunity or the potential impact on our
income  tax  provision,  if  any.

In  the  event  the  Company  were  to  experience  a greater than 50% change in
ownership  as  defined  in  Section  382  of  the  Internal  Revenue  Code,  the
utilization  of the Company's net operating loss carryforwards could be severely
restricted.

NOTE  10  COMMITMENTS  AND  CONTINGENCIES

STOCK  PURCHASE  AGREEMENT  -  Pursuant  to  a  common  stock purchase agreement
("Agreement")  with Bluefire Capital, Inc. ("Bluefire"), the Company is entitled
to  issue  and  sell  common stock to Bluefire in the form of draws for up to an
aggregate  of $20,000,000, as defined in the Agreement, from time to time during
a  three  year  period  beginning  on  the  date  of  the filing of an effective
registration  statement.  On November 20, 2001, the Company filed a registration
statement  under  the Securities Act with the Securities and Exchange Commission
("SEC")  for  15,000,000  shares  available  to  be issued to Bluefire under the
Agreement  should the Company choose to draw down on these shares and on January
23,  2002,  the  registration statement was declared effective.  Pursuant to the
Agreement,  the  Company must draw a minimum of $500,000 by January 23, 2005, or
the Company shall be required to pay liquidated damages equal to one-half of the
amount  not  drawn-down.


                                      F-18
<PAGE>
                       GTC TELECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
________________________________________________________________________________

On  December  14,  2004,  the  Company  and  Bluefire  agreed  to  terminate the
agreement.  In  addition,  Bluefire  agreed  to  waive the Liquidated Damages in
exchange for a one time payment by the Company of $10,000, to be paid by January
17,  2005.  On  January  17, 2005, the Company paid the $10,000 termination fee.

OPERATING  LEASES  -  The  Company leases a total of 5,137 square feet of office
space  for  its  headquarters  and  customer  service  operations in Costa Mesa,
California  at  a  monthly  rental  rate  of $9,697 pursuant to a one-year lease
agreement  ending  February  28,  2006.

Effective  October  1, 2002, Perfexa-U.S.'s Indian subsidiary, Perfexa Solutions
Pvt.  Ltd.  ("Perfexa-India"), began leasing approximately 15,422 square feet of
office  space in Gurgaon, India, a suburb of New Delhi, at a monthly rate of Rs.
524,348  (approximately  $12,100)  per  month.  This  facility  serves  as
Perfexa-India's  call center, IT development center, and administrative offices.
The lease is for a term of three years with an option to renew for an additional
three  year  term with an increase in the rental rate of 20%.  Effective October
1,  2002,  Perfexa-India  also  entered into a maintenance agreement for its New
Delhi  facility.  Pursuant  to  the  terms  of  the  agreement, Perfexa-India is
obligated to pay a monthly maintenance fee of Rs. 138,798 (approximately $3,200)
per  month  for  the  first  twelve months.  Thereafter, the monthly fee will be
calculated  based  on the actual costs of maintenance (including electricity and
water)  plus  a  20%  mark-up.

Future  minimum  annual  commitments under long-term facility lease and supplier
arrangements  (see  below)  approximate  the  following:


                     Facility Leases
   Years Ending      and Other       Telecom
   June 30,          Commitments     Supplier         Total
   ------------      ---------------------------------------
   2006              $ 168,000     $  162,000     $  330,000
   2007                  7,000         50,000         57,000
                     ---------------------------------------
                     $ 175,000     $  212,000     $  387,000
                     =======================================

Rent  expense for the fiscal years ended June 30, 2005 and 2004 was $405,145 and
$433,953,  respectively.

CONTRACTS  AND  AGREEMENTS  -  The  Company  does  not own its own long distance
network and currently depends upon third parties to provide for the transmission
of  phone  calls  by  its  customers and to provide the call detail records upon
which  the  Company  bases  its  customer's  billings.  Previously,  the Company
contracted  with  MCI  WorldCom Network Services, Inc. ("MCI") as its underlying
carrier.  On  July  1, 2004, the Company received notice from MCI that it was in
default  of  the  terms  of  its  Promissory  Note  with  MCI  as  well  as  the
Telecommunications  Services  Agreement  and  Data  Services  Agreement  ("TSA")
between  MCI  and  GTC.  The total outstanding balance due MCI was approximately
$7,739,261  at  May  23,  2005, including $4,925,437 due on the Promissory Note,
$1,186,875  of  accrued  interest on the Promissory Note, and $1,626,949 owed on
the  TSA  which have been included in accounts payable.  As discussed in Note 5,
on March 6, 2005, the Company negotiated a settlement with MCI providing for the
full  satisfaction of all amounts due MCI in exchange for payment of $750,000 on
or before March 31, 2005 (the "Settlement Amount").  Subsequently, MCI agreed to
extend  the  deadline for the payment of the Settlement Amount provided that the
Company  pay  an  additional  $10,0000  and  that  the  Settlement Amount accrue
interest  in  the  amount  of  $187.50 per day until paid.  On May 23, 2005, the
Company  paid MCI $769,000 which represented full satisfaction of the Settlement
Amount  and  accrued  interest.  The  difference of $6,970,261 was recorded as a
gain on the extinguishment of debt in the accompanying consolidated statement of
operations.

On  July 7, 2004, the Company transferred its customer accounts to its alternate
supplier,  Sprint Communications Company L.P. ("Sprint").  Pursuant to the terms
of  its agreement with Sprint, as amended, the Company is obligated to a monthly
minimum  of  $25,000  through  July  26,  2006.  For any period during which the
Company  fails  to meet its monthly minimum, the Company would be liable for 25%
of the difference between the Company's actual usage and the stated minimum. The
Company  may  terminate  the  agreement  upon  ninety  (90)  days written notice
provided  that  the Company pays a termination fee equal to 50% of the aggregate
minimum  revenue  requirement  for  the  remaining  term  of the contract if the
Company  terminates  for  convenience  or by default of the Company prior to the
expiration  date  which  was $162,000 as of June 30, 2005.  Sprint may terminate
the  agreement  upon  thirty (30) days written notice and then only in the event
that  the  Company is in material breach of the agreement.  However, in cases of
nonpayment,  Sprint  may  elect  to  immediately  terminate  the  Agreement.

GTC  does  not  currently have its own Internet Network.  Currently, the Company
provides  its Internet Service Provider Access services pursuant to an agreement
with  a  third  party  company  for  the  provisioning of the Company's Internet
Service  Provider  Access  service.  The Company is not obligated to any monthly
minimums  under  its  agreement  with  its underlying Internet service provider.



                                      F-19
<PAGE>
                       GTC TELECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
________________________________________________________________________________


BONUS  POOL  PLAN

On January 5, 2005, the Board of Directors approved the establishment of a bonus
pool plan (the "Bonus Plan") to incentivize its executive officers and employees
in an effort to increase the Company's profitability and productivity.  Pursuant
to  the  Bonus  Plan,  upon reaching revenue goal milestones as set forth below,
executives  and  employees  of  the  Company  would  be entitled to share in the
corresponding bonus pool.  Individual distributions from the pool, if any, would
be  recommended by the officers of the Company, subject to final approval by the
Board  of  Directors.

     Bonus  Pool  Amount
     Quarter                          Revenue  Goal   Executives  Non-Executives
--------------------------------------------------------------------------------

     1st  Quarter  ending  3/31/05     $2.5 Million   $30,000     $30,000
     2nd  Quarter  ending  6/30/05     $3.15Million   $45,000     $45,000
     3rd  Quarter  ending  9/30/05     $4.0 Million   $60,000     $60,000
     4th  Quarter  ending 12/31/05     $5.0 Million   $75,000     $75,000

As of the date of this report, no bonuses have been accrued or distributions
have been made pursuant to the Bonus Pool Plan.

NOTE  11  EARNINGS  PER  SHARE

The following is a reconciliation of the number of shares used in the
calculation of basic earnings per share and diluted earnings per share for the
years ended June 30, 2005 and 2004:

<TABLE>
<CAPTION>
                                                                     2005         2004
                                                                 ------------------------
<S>                                                              <C>          <C>
Net income (loss)                                                $ 5,134,123  $  (552,267)
                                                                 ===========  ===========

Weighted average number of common shares outstanding              23,320,094   21,096,423
Incremental shares from the assumed exercise of dilutive stock
    options and warrants                                           1,002,500           --
                                                                 -----------  -----------
Dilutive potential common shares                                  24,322,594   21,096,423
                                                                 ===========  ===========

Net loss per share:
Basic                                                            $      0.22  $     (0.03)
                                                                 ===========  ===========
Diluted                                                          $      0.21  $     (0.03)
                                                                 ===========  ===========
</TABLE>

For the year ended June 30, 2004, potentially dilutive incremental shares were
not included in the computation of diluted net loss per share because the
Company had a net loss, which would make their inclusion antidilutive.  Options
and warrants to purchase 14,010,645 and 3,304,000 shares of the Company's common
stock that were outstanding at June 30, 2005 and 2004, respectively, were not
considered potentially dilutive because the exercise price of the options and
warrants was greater than the average market price of the common shares and,
therefore, the effect of their inclusion would be antidilutive.

                                      F-20
<PAGE>
                       GTC TELECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
________________________________________________________________________________

NOTE  12  BUSINESS  SEGMENT  INFORMATION

Segment and geographical information is assigned by region based upon management
responsibility  for  such items.  The following table presents information about
the  Company's operations by geographical area for the years ended June 30, 2005
and  2004.

<TABLE>
<CAPTION>

                                            2005          2004
                                      -----------  ------------
<S>                                   <C>          <C>
Revenues
--------

    Telecommunications and Internet   $8,842,541   $10,878,944
    BPO
       Perfexa-U.S.                      180,309        78,644
       Perfexa-India                          --            --
                                      -----------  ------------
         Total                        $9,022,850   $10,957,588
                                      ===========  ============

Cost of Sales
-------------

    Telecommunications and Internet   $3,945,239   $ 4,777,138
    BPO
       Perfexa-U.S.                      119,700        59,239
       Perfexa-India                          --            --
                                      -----------  ------------
         Total                        $4,064,939   $ 4,836,377
                                      ===========  ============

Operating Income (Loss)
-----------------------

    Telecommunications and Internet   $  794,384   $ 3,013,166
    BPO
       Perfexa-U.S.                     (952,842)   (2,396,369)
       Perfexa-India                      97,012        84,500
                                      -----------  ------------
         Total                        $  (61,446)  $   701,297
                                      ===========  ============

Capital Expenditures
--------------------

    Telecommunications and Internet   $   43,733   $   146,181
    BPO
       Perfexa-U.S.                        1,293         7,864
       Perfexa-India                     217,839       163,784
                                      -----------  ------------
         Total                        $  262,865   $   317,829
                                      ===========  ============
</TABLE>


Identifiable assets are assigned by region based upon management responsibility.
The following table presents information about the Company's identifiable assets
by geographic region:
<TABLE>
<CAPTION>


<S>                                  <C>             <C>
                                     June 30, 2005   June 30, 2004
Assets
------

    Telecommunications and Internet  $      996,406  $    1,002,223
    BPO
       Perfexa-U.S.                          25,416          28,549
       Perfexa-India                        609,327         553,714
                                     --------------  --------------
         Total                       $    1,631,149  $    1,584,486
                                     ==============  ==============
</TABLE>

                                      F-21
<PAGE>

                       GTC TELECOM CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
________________________________________________________________________________


NOTE  13  SUBSEQUENT  EVENTS (UNAUDITED)

In August 2005, the Company's foreign subsidiary, Perfexa Solutions Private
Limited, completed a private offering of 530,000 shares of its common stock to
third-party investors at the price of 2 Rupees per share, resulting in gross
proceeds of $24,400.

In September 2005, the Company's foreign subsidiary, Perfexa Solutions Private
Limited, initiated a private offering of its common stock to third-party
investors at a price of 12 Rupees per share.  As of the date of this report,
250,000 shares have been sold, resulting in gross proceeds of $69,000.

Other unaudited subsequent events are discussed elsewhere in these notes to the
consolidated financial statements.















                                      F-22
<PAGE>